No More Business as Usual
A New Business Plan for Alaska's Oil
Alaska’s business model is broken. Enacted in 2013, SB 21 has proven to be a failure by every metric imaginable. The five-year goals set forth are no nearer after seven. It’s time for an honest appraisal of where we are so we can find a better path moving forward.
Any business plan starts with a simple assessment of what product (or service) is being sold. For Alaska that answer is easy: natural resources (and petroleum in particular). Luckily we have a vast inventory to work with. Unfortunately, we have adopted a promotional pricing structure that is giving away our resources with no return to the shareholders: the Alaskan people.
Here’s a quick overview of our business plan under SB 21. Under Governor Parnell, Alaska noticed a decline in the amount of oil that was being produced. The government searched for a plan that could not only forestall this decline in production and revenue but even reverse the trend with increased output. Senate Bill 21 was proposed and enacted.
Essentially SB 21 made Alaska into a bulk discount superstore for our petroleum resources. The plan was to lower the price and reduce the margin on our inventory in order to spur a massive increase in sales. To that end, we offered an $8 credit that could be reduced from every barrel of oil before a dime was paid to the state. Next we lowered our minimum tax threshold to 4% - an incredible 60% discount to North Dakota’s rate. But the state wasn’t done.
Alaska went a step further and decided to offer free gift cards to oil companies to come shop in our store. Yes, we promised billions in cash to try to buy more customers. In fact, the state even made a cartoon moose, standing on its hind legs holding cash and printed out flyers saying, “We don’t just talk big, we follow through big – with cash!” These flyers were hand out by state employees at oil and gas trade shows. No, that’s not hyperbole. That’s a fact.
The result was that Alaska paid over $4 billion in the oil cash credit program alone. It’s incredibly hard to comprehend the magnitude of that number. Since we never handle anything in such quantities we are at a cognitive disadvantage. Plus, millions, billions, trillions – they all seem to belong in the same category: huge numbers that rhyme. But consider this for perspective: One million seconds is a little more than 11 days. One billion seconds? Almost 32 years. That means that if we paid this cash subsidy at the rate of a dollar per second, it would take more than 140 years to pay it off. It’s also enough money to pay every man, woman and child in Alaska more than $6000 each.
But surely we’ve received some return on this investment. One would imagine that such an enormous expenditure of cash and resources must have some reward. Can our “bulk discount sales” business plan really be a total failure? Unfortunately there is no good news/bad news – only bad and worse news.
Oil production continues to fall. State revenues too. Oil jobs have declined – and more cuts are coming. Sadly, we never came close to the one million barrels per day promised by Gov. Parnell. Meanwhile the amount paid out in state subsidies has eclipsed oil tax revenue for several years. Our royalty structure provides no relief. Even that is clearance sale pricing – 32% discount to North Dakota and New Mexico levels, and a whopping 50% discount to that of Texas.
So where do we go from here? Is the Fair Share ballot initiative our only option? I have my reservations. For one, it leaves in place SB 21, which has been an unmitigated disaster. And while the Fair Share Act would bring in more state revenue, it may not solve some of the longer-term problems of the current business plan we have suffered under. (That said, the choice belongs to the people this election, and if passed, I believe we can work with it to forge a better plan going forward.)
I propose a total rewrite of our resource business plan. The new strategy needs to be simplified with fewer state subsidies, and a higher rate of return to the people of Alaska. We must not forget our mandate in Article 8, Section 2 to develop our resources for “the maximum benefit” of the people.
I advocate an "Oil Tithe." We must build a new model that establishes the minimum tax rate of 10% (of market value). This would put us on parity with other states., while leaving a significant discount on royalties. I’m willing to consider other proposals, but I think this is a good start.
No longer can we allow legislators to make deals on public lands with public resources that they would never accept on their own private property. It’s time for all us as Alaskans to mind our own business. Alaska’s resource development is our business and we can no longer allow it to be mismanaged. It’s time to reaffirm our constitutional principles, and start working for the maximum benefit of the Alaskan people.
Poetry, Taxes and The Golden Mean
Mining and Cannabis: Comparing Industries Green and Gold
There’s a glimmer of good news for Alaska amidst these troubled times. Mining is on the upswing. With low energy prices and precious metal markets on the rise, mining developments will be expanding. Just north of us in Livengood, International Tower Hill Mines is scheduled to ramp up with estimated resources north of 11 million ounces of gold. Alaska’s gold mining industry produces over $1 billion per year, and our total production of precious metals and minerals is almost three times that amount. This will continue to increase as more developments come online.
Here’s the bad news: Alaskans are getting nothing for our ownership share of these resources. The severance tax on precious metals is zero percent. Therefore, when an ounce of gold leaves our state, the Alaskan people get nothing for the loss of that resource. This is made more troubling by the fact that all of Alaska’s major mines - including the new one in Livengood - are owned by foreign corporations. Our gold goes out of state and out of country. And still our mining tax structure remains materially unchanged since 1955. Over 50 million ounces of gold have already been produced from Alaskan soil. That is amazing abundance - and that is just the gold. Unfortunately it also means that we are now 50 million ounces of gold poorer, since those resources no longer belong to the people of Alaska. And the people get no share of that treasure? I believe this is unconstitutional.
Current policy violates Article 8 of our constitution that mandates the resources of this state be utilized for the “maximum benefit” of the people.
But this doesn’t mean that slapping any random tax on our resources is a good idea. In fact taxes can be too onerous, and therefore must be used judiciously so as not to crush industry. Let’s look at a more modern excise tax as an example of arbitrary and harmful tax policy.
An ounce of cannabis has a state tax of $50 per ounce. Think about that for a second. An ounce of green is taxed at $50, and an ounce of gold at $0. Somehow, I don’t think that is what Robert Frost meant when he penned, “Nature’s first green is gold.” Why is this a harmful tax policy? Because it is arbitrary. There is no basis in the market value of the underlying commodity. That means that as the market value of cannabis declines, the tax becomes an increasing destructive burden on the industry. And there is no reprieve. Bear in mind that the cannabis industry is completely locally owned and operated. Consider further, that while our constitution mandates Alaska’s natural resources as belonging to the people for their maximum benefit, it does not do so for cultivated plants.
So how do we address these issues for industries both green and gold? Aristotle proposed a golden mean. He suggested that a virtuous middle way was beset on either side by extremes of vice - deficiency on one side and excess on the other. Courage for example, would be the middle path between cowardice/deficiency on the one side, juxtaposed by recklessness/excess on the other.
I propose that we must find the golden mean between a crushing tax on some industries and zero tax on others. We cannot continue on our current path of vice. Let’s find a middle way to both build our industries and benefit the Alaskan people. To that end, I have these specific proposals. On cannabis let's lop off a zero. I suggest a tax plan of “5+15.” Let’s make $5 per ounce the fixed cost and let's levy an additional 15% based on market value (local taxes would remain in place). This would alleviate the burden as market prices fall, but increase state revenue as markets rise.
For the precious metals that belong to the people let us introduce a 1% severance tax (based on percent of market value) that goes directly to the permanent fund. This will help to compensate the people of Alaska for the loss of resources as more and more are produced and carted out of our state. I trust no one would object to the people getting one hundredth of a share for their resources. But just to be cautious that we aren’t too burdensome, let’s give an exemption to all the small miners who produce less than $1 million of precious metals per year. We must continue to offer utmost support to small, local industry. And though these ideas may fall short of Aristotle’s virtuous path, I believe they hew more closely to the golden mean for industries both green and gold.
Pioneering New Horizons Beyond the Last Frontier of Literacy
Reading is one of the skills most critical to early childhood education (and beyond), yet Alaska is falling way behind in testing scores. Reading must be a priority in early education. We have a duty established in our constitution in Article 7, Section 1 to provide education "open to all children" of Alaska. I think our current efforts are failing in this regard. But how can we change the trajectory we are on? I think it must begin before our children get to school (where some children find themselves already well behind the curve). It has become too easy to blame teachers for test results when we aren't making enough efforts to improve the reading environment in the home. All the studies I have read suggest that reading aloud to children is one of the biggest factors in boosting reading scores and other measures of academic performance. This is an issue that we must begin addressing outside the walls of the classroom.
My siblings and I were very fortunate to have parents who read stories to us every night. Snuggling up for nighttime reading is a memory I will always cherish. Because of my background, that family reading time is sacred to me and I have made every effort to carry on that tradition with my girls every night. But not all families have that luxury. What can we do for families with parents that work evenings? What about folks who work remote jobs at great distance from their families for weeks at a time? What about single parents, and the burden they bear? How can we highlight the importance of reading and provide for less privileged children so that all the kids of Alaska can reap the benefits?
I'd like to implement a reading program that the entire legislature participates in (or, all those who choose to). I'd like to partner with some local radio stations (and also have it available online through a podcast platform) to have 30 minutes of reading every night for all the children of Alaska. We can select from a variety of children’s classics. Imagine if every senator and representative collaborated in reading stories to Alaskan kids every night. Imagine legislators from across the aisle collaborating on different voices and characters from The Chronicles of Narnia, The Singing Tree, and other marvelous works of children’s literature. If every legislator committed to this, each member would only need to do it for one week or so every year. If we can get such a program going, it would be not only a powerful symbol of the importance of reading, but it would allow for a shared experience between the children of Alaska - a shared story. It may be unconventional. But I think it’s worth a try. This is an idea I'd love to help implement – beyond partisan divides – for the benefit of all Alaskans.
Abolish the "Binding Caucus"
Eliminate Rules Antithetical to Constitutional Principles
I believe that for better or worse power belongs to the people. This is the central principle delineated in Article 1, Section 2 of our state constitution that states, “All political power is inherent in the people. All government originates with the people, is founded upon their will only, and is instituted solely for the good of the people as a whole.” We must not pretend that our representative democracy is a panacea or a source of perfect wisdom. Instead, it is an individual and collective struggle towards a more perfect union.
One unsung issue at odds with the principle of representative governance is the “Binding Caucus” or “Binding Rule.” This little known rule is used in the Alaskan legislature to “bind” (obligate) individual members of the majority to vote in support of every ruling of the chair, every ruling of the presiding officer, and the budget as proposed. This obligation is required before knowing what the rulings are or what the budget contains. Any dissent is punishable by cuts to your staff, loss of committee positions, loss of chairmanships, and other punitive measures. This binding rule requires legislators to ignore the voices of their constituents and pledge absolute loyalty to party gatekeepers above all else.
Our legislature’s use of the so-called “Binding Caucus” is a wanton violation of Article One principles and expressly divests power from the people. Instead, power is consolidated in a handful of party bigwigs where dissent is squelched in the name of “unity.” Senator John Coghill has not only gone along with this rule, he has helped enforce it. He even took a staff member that was cut from one of his colleagues to pad his own office. This is despicable. But because it benefits him, Senator Coghill continues to defend this ridiculous rule. Whatever happened to representative government? Whatever happened to our elected representatives voting the will of the people? We must change this rule.
Power belongs to the people, not to Senator John Coghill and the other Republican bigwigs. The Binding Caucus is a bad idea, and violates our founding principles. If elected I will vehemently oppose the binding caucus, and seek to have it abolished.
Rage Against the Dying of the Light
Uniting in Support of Suicide Awareness and Prevention
We've all heard the statistics. Worldwide, someone dies from suicide every 40 seconds. In our country, suicide rates have increased more than 30% in the past two decades. For young folks aged 10 to 24, suicide is the second leading cause of death. In Alaska we have the highest rate of suicide per capita of any state in the country - nearly double the national average. These are the facts. But I refuse to accept that this is our future.
Today, at the end of National Suicide Prevention Week, in the midst of Suicide Prevention Awareness Month, I'd like to honor two amazing ladies who I have been privileged to love. One is my niece - a flower girl at my wedding when she was four - who died at 15. The other is my mom - one of the strongest women I know - who is a suicide survivor.
No one is ever ready when tragedy hits. There are so many things you don't know. So much pain - so much numbness.
Unless you've seen it, you might not know that first responders don't clean up the aftermath of suicide. Unless you've gone through it, you might not know what to tell your children. Unless you've known the abject darkness and hopelessness of losing those you love, you may not know that light can shine even in that terrible hour - hope can be reborn.
My family, like many in Alaska, has been deeply affected by suicide. And in honor of two special people, one still with us and one that we lost, I'd like to offer a proposal. I'd like for us to build a Network of Hope throughout Alaska. I'd like for us to form a coalition of the living - survivors and those who have survived loss. I'd like to join with folks who no longer accept the stigma and silence, those who have stories to be told, those who have support to offer.
In every city and town and village we can bring together families who have lost loved ones and survivors who have made it through. I'd like to see each locality form it's own Hub of Hope that would join the growing network around the state. This coalition would gather people with shared experiences and heartaches - people who refuse to accept the inevitability of suicide and hopelessness. Some families in each Hub of Hope might sponsor local phone lines for individuals in distress (like Careline Alaska). Some might volunteer to be on a team to make meals for the days following family tragedies. Others could organize childcare for the kids that are left in the wake of this difficulty. As for me, I'd volunteer on the cleanup crew. I would be privileged to join with those who have done that work and who want to lend a hand to others when that dark hour approaches. I'd be honored to stand beside my fellow Alaskans in these moments.
I believe we can use the platform of our state government to increase public awareness and perhaps jumpstart an idea like this through a a senate resolution and personal involvement from legislators. But this wouldn't be publicly funded. I'd like this to be organized on the local level through volunteerism, civic organizations, and local business support. Ideally each Hub of Hope would maintain local autonomy to decide how best to allocate their own resources. If they want to pursue grant funding, that would be a local decision. But as hubs communicate together within the network (online, social media, etc.), then there can be collaboration when certain areas are hit hard and resources are stretched thin.
The National Alliance on Mental Illness emphasizes that the power of lived experience and the sharing of personal stories is critical to overcoming the stigma of mental illness, suicide, and feelings of isolation. My mom has come through great difficulty and darkness with an unshakable commitment to hope. She has a story to tell. We all have a story to tell. Coming together we can share those stories and offer support. Together we can face the difficult facts and forge a different future. Together we can form a coalition of the living to confront the darkness and build a Network of Hope.
Yes on 1: The Worst Option Except for All the Others
There are many things about Ballot Measure 1 that I don't like. I don't like an up or down vote on complex tax policy. I would prefer - and I believe the constitution requires - a legislative solution. I don't like the fact that it leaves SB21 in place. I believe SB21 is a failed business plan. I don't even like the name "Fair Share." As an owner of Alaska's resource wealth (and we are all owners), I want an "Ownership Share."
But then I look at the budget deficit we are facing next year: over 2 billion dollars. Just to put that in perspective, if we paid that deficit at the rate of a dollar per second it would take us 70 years to fill it. We also owe $800 million still in cashable tax credits to the oil industry. The Supreme Court recently ruled that those can't be paid through bonding. So where does the money come from?
Cuts alone can't cover the crisis we are facing. But for those who advocate cuts alone, please consider that we could cut EVERY state worker and not fix our budget deficit. Conversely for those who advocate an income tax, please consider that a 30% rate (based on the federal rate) wouldn't cover the deficit. So, what is our path forward?
Obviously, we need to eliminate government waste. We need to budget wisely, and incentivize performance rather than continuing to incentivize elevated spending levels on underperforming programs. But where does the revenue come from? Do we keep cutting from the people? Do we continue to cut the people's share and take the PFD? I say no. I say we have the courage to fight for an ownership share of our resources.
Article VIII, Section 2, obligates the legislature to provide for the utilization, development and conservation of all the natural resources of Alaska for "the maximum benefit" of the people. I do not believe a 4% net rate meets that constitutional duty. The $8/barrel tax credit is a further mockery of our founding document. For all those who claim to favor a free market, this is not a free market - this is corporate socialism. We are cutting from the people and paying generous subsidies to multinational corporations who do not need it.
What about giving away our precious metals? 0% in severance tax is not a "maximum benefit." Consider commercial fishing. Can anyone seriously contend that we are getting an ownership share for all of our natural resources as the constitution requires?
Alaska needs a new business plan. I think we need a better long term solution. I think that needs to be developed in the legislature. But what do we do if the legislature has abdicated its constitutional duty? Article I, Section 2 states that all political power is inherent in the people. We the people must send a message that we are sick and tired of our ownership share being cut, while our resources are sold without reward.
Ballot Measure 1 is far from perfect. To paraphrase Churchill, it is the worst alternative except for all the others. There is no other option to start generating revenue for this next legislative session. Major work is needed, but a legislative solution is a year or two off at the earliest. And I believe a vote YES on 1 is ultimately the only way that WE THE PEOPLE can send a message that the legislators need to take their constitutional duties seriously.
The resources belong to we the people. Unless we advocate as owners, unless we fight for our share, no one else will do it for us. I still have this crazy idea that we are a government of, by and for the PEOPLE.
I stand with all real Alaskans who still believe in the constitution. I stand with the people of Alaska who believe in an ownership share for our resources. I'd be grateful for your vote this November 3rd. And I hope you will join me in voting Yes on 1.