Republicans own Alaska’s deficit

Image courtesy Shelby

One of the major Republican talking points is that they are the fiscally conservative party, the one that insists on people taking responsibility for their own actions. So why aren’t they stepping up and accepting responsibility for Alaska’s deficit?

The thing is, they had majorities in both houses of the Alaska Legislature from 1995 – 2016; from 2003 – 2014, they also had the governorship. Now, I’m just a little gal from out in the country, so maybe I’ve missed it, but I don’t recall getting a Republican apology for running the budget into the red.

Heck, I don’t seem to remember them even acknowledging their role in it, much less coming up with any new ideas for fixing it!

It all comes down to choices
Anyway, this was all brought to mind by an April 28 Facebook post by Sen. Bill Wielechowski highlighting the reason that Republicans own the State deficit. It’s long, but it’s worth your time:

This is a little long, but I think really important to people interested in our fiscal situation. People wonder how the state gets into the financial messes it gets into. Here is a future disaster developing right now.

While we are currently drowning in oil subsidies, earning about $89 million in production taxes this year while owing $1.3 billion in oil tax credits, the GOP Senate Majority just quietly inserted a provision to actually increase oil subsidies by tens of billions. Here’s what they did:

Under current law, oil companies who are developing fields in Alaska can get a tax credit of up to 35% of their costs per year, payable by the State. Wouldn’t you love to get a check from the State for 35% of the costs of developing your business? For example, one project currently being proposed is expected to cost $1 billion per year for ten years, which means the State owes them a check for $350 million per year for ten years, or $3.5 billion total. We haven’t been paying those checks recently because we can’t afford them. (In Texas and North Dakota, for example, the oil companies get ZERO help from the state and pay a much higher tax rate).

The Senate Resources Committee a few days ago agreed to eliminate this cashable credit, and has loudly been proclaiming they got rid of cashable credits. BUT, they replaced it with a system that allows the oil companies to now write off ALL their expenses once they start producing oil WITH 10% COMPOUND INTEREST. 

What that means is that in 10 years when this oil field goes into production, the oil company can write off its entire $10 billion in development costs PLUS interest that has accrued, which by then would then be another $10 billion. So instead of the oil company getting $3.5 billion in credits (which we are not even paying), they get $20 billion in tax deductions. There are countries in the world that have financial arrangements like this, but those countries then set tax rates of anywhere from 78% in Norway to 99% in Iraq to recoup these massive subsidies. Our total tax and royalty rate for these fields, however, will be around 16-20%. And with the deductions they are allowed, the company will pay very little production taxes – ever.

So this $3.5 liability has now exploded to over $20 billion. And this is for just one project. What does this mean for you? In a few years, when there is even less oil money coming in, they will be back for the rest of your PFD and an even bigger income tax. [Emphasis mine – Mary]

Republican apologists will probably claim that the poor oil companies are in a low-price environment, and they need our help.

Are they saying that Exxon, BP, and Conoco are failing and nearly bankrupt? If that’s the case, then we need to ask whether it’d be cheaper to just take the money we’ve been using for oil and gas subsidies and give it directly to Alaskans. Why would we want people to rely on employment at weak, uncompetitive companies that can’t survive on their own?

Tough love for oil companies, too
On the other hand, maybe the problem might be that oil and gas companies face a glut on the world market because there’s a lot of product available, driving prices down?

Perhaps those companies need to take some responsibility for their own production and marketing decisions, rather than asking Alaska to prop them up with subsidies.

If “make better choices” is a good enough response for people desperate for quality, affordable health care, it should be good enough for a multi-billion dollar industry.

Alaska’s Republicans had 20+ years of running the state to come up with a reasonable, sustainable budget. They chose to do otherwise.

So, the next time you hear a Republican Senator saying that they are the only thing between Alaska and an income tax, remind them that they are the reason Alaska needs one.

– Mary

Opinions in this article are those of the author and do not represent official positions of, the Tongass Democrats, or anyone other than the author. 

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