The Senate Heros vs. Captain Zero – Get Ready to Rumble!

The internet is a beautiful thing. How else could a political junkie snuggle into the couch in jammie pants with a cup of coffee, and commiserate with other like-minded souls for an event that rivals all this baseball stuff that everyone else seems to be talking about. I speak to you of…. (dramatic pause) the Alaska State Senate Resources Committee Meeting to discuss the governor’s newest oil tax plan.

Before you roll your eyes, and click to anything but this, hear me out. Especially if you’re an Alaskan, this is one of the best reality TV shows around. It’s got a fabulous cast of characters, an intricate plot, subterfuge, high drama, and bash-your-head-on-the-desk, mind-numbing transparent skullduggery. Pretty enticing, right? What’s not to love.

Because I won’t expect you to sit through two hours of it, I’ll try to catch you up on the most interesting parts. If you don’t watch these things habitually, it might be advised to start slowly. The whole experience is kind of like hockey – long periods of time where nothing seems to be happening, and then – WHAM! And by “WHAM!” I mean either a fight breaks out on the ice, or somebody scores. And in this hockey game, the Senate Heroes scored right and left, and the Captain Zeros (the governor’s minions) did not.

As a matter of fact, they should have one of those rules in place, like they do on some kids’ teams where when one side is up by more than 20 points, and the other team hasn’t scored, they just call the game so that the down side doesn’t cry on the ice and embarrass themselves, and run home never wanting to participate in team sports again. But we don’t have that rule – despite how much one side wishes we did.

Here’s our lineup for the Senate Heroes:

#1) Joe Paskvan – Captain of the team. From Fairbanks, holder of the gavel, strong, solid, unflappable. He’s “dependable guy.” He asks good questions, calls it like he sees it, and doesn’t mind throwing in an occasional, very professional sounding zinger. He’s Dad.

#2) Lesil McGuire – Frustrated, fed up, sound bite woman with an “I’m smacking you upside the head for your own good” twist. She’s heading off to get married and this “not so special” session will mean a delay before enjoying her honeymoon – think of it as a little wedding gift from Sean Parnell. I don’t think that was on her gift registry,

#3) Hollis French – The warmest, fuzziest ass-kicker on the planet. Leaves opponents saying, “Hey… did I just have my ass kicked? I think I did. Rewind the tape!” He knows his stuff, but always adds a human touch, even in the oiliest most number-laden debate.

#4) Bill Wielechowski – If he were a doctor, he’d be one of those laser eye surgery guys. He sees through the smoke screen, crafts the right question, and dispatches his foe with one stroke of blinding red light. He’s the one that makes the political geeks watching online spontaneously clap in their living rooms. He may look like the boy next door, but he’s the boy next door that makes the bullies mess themselves. There’s a reason they call him “The Best Bill in Juneau.”

#5) Bert Stedman – He dresses like a combination of Wyatt Earp and “the guy in the office with the crazy tie,” but don’t let his whimsical self-expression through wardrobe fool you. In the matter of oil taxes, he is a stone monolith. A humorless stone monolith. He takes no crap, and there’s a lot of crap. When he’s not handing uninformed people their asses, and you listen very carefully, you can hear his teeth grind. We vote him “most likely to throw the governor up against the lockers after the game.”

And we had two players on the bench this time who watched and listened, but didn’t participate – #6) Senate President Gary Stevens who looked like the wise old bear, surveying the situation; and #7) Tom Wagoner who looked more like a walrus than a bear during his brief stint on camera before the meeting began.

Playing for the Captain Zeros:

The team is small, and ill-prepared. Not a winning combination. As the Senate heroes turn circles around them, sending up clouds of ice particles from their razor-sharp blades, these guys kind of huddle in the red circle, hoping that utter defeat won’t be too painful.

#0) Captain Zero Himself – Sean Parnell. Past, present and future oil company shill with his sights set on either D.C., or back to his old stomping grounds at ConocoPhillips. He’s not actually at the game. He’s sitting in his office, or at home on the couch. You can see that little muscle at the hinge of his jaw twitching. His little fists are all balled up, and if he paid attention he’d realize that he could actually hear his pulse in his ears.

#1) Bryan Butcher – aka the Commissioner of the Department of Revenue, aka the sacrificial goat. Yes, he signed up for this job, but has now been shoved out into the game with no helmet, no pads, and no pants. He’s red. He’s sweaty. And he’s playing center, both wings, defense, and goalie.

#2) Bruce Tangeman – Deputy Commissioner of Revenue. Called in to pinch hit at random moments. As little time as he spends participating, he still reveals his attitude toward the other team with impatient and snippy non-verbal cues. He definitely plays defense, defensively.

#3) The oil companies – They may be watching too. Or they may be too busy sipping martinis on the Cote d’Azure, enjoying an apres-ski in St. Moritz, whacking brush on the ranch for fun, or just rolling around naked in piles of cash. It’s OK. They’re not worried. They know they’re being represented.

Let the games begin

We open our scene as the camera pans around the room – Senators sitting around a table, a couple reporters scribbling on pads, a handful of spectators, and a man in the front row of chairs. He clutches his laptop to his chest, drumming his fingers rapidly on it’s surface. His legs are crossed guy-style with the side of his shin resting on his knee. His ankle twitches. His foot bounces. Eventually, he gets up and sits in the hot seat. It’s Bryan Butcher.

After Paskvan calls the meeting to order, Butcher begins, “I believe we left off on slide 3…” Yes, the entire last meeting got them all to “slide 3” and that was including slide 1 which had only the name and date of the meeting.

This meeting took off where yesterday’s ended, which means that Bryan Butcher was on the receiving end of a whole lot of tough questions that he was unable to answer. Now mind you, the governor’s first tax plan HB110 passed the house easily because most of those that voted for it didn’t understand it, and if they did, they didn’t care. And if they did understand it, and did care, they didn’t have the political will to go against their own party (Republicans), or despite voting against it, were unable to slow down the moving freight train (Democrats).

Fortunately for Alaskans, we have a group of Senators from both parties who are a little more thoughtful than House Republicans. They’ve become quite the experts on oil taxes in their own right, and aren’t so easily cowed. They not only laughed HB110 out the door as the no-strings-attached massive giveaway of needed revenue that it was, but they came up with their own plan. They worked long and hard, for weeks and weeks, crafting and honing what became SB192. Taa-daa!

And the governor was annoyed. It was not nearly enough of a giveaway, and so he came back with SB3001, which he calls a “hybrid bill” – cobbled together from a bunch of other stuff. Add a little smoke, a couple mirrors, and voila – a bill which ended up giving away the same amount of money, just in a different way. See how he did that there?

Then he summoned his people, handed them the hybrid, and said “go forth upon the ice, and conquer!”

It didn’t take long before the Senate had some questions. They had LOTS of questions, in fact. It became clear very quickly that Butcher and crew really didn’t have answers, and were much better at tap dancing than they were at selling the idea of SB3001, what it meant, why we needed it, and how it would help Alaskans. Senators, whom the governor held over for a special session to deal with this, began to get irritated. And the fun began…

Thursday’s meeting was a rout. The Captain Zeros were sent home kind of gimpy, with a big fat steak on their eye. Friday’s festivities promised to be more of the same, and they didn’t disappoint.

Wonk and Translation

I won’t lie to you. A whole lot of wonkiness ensues. But it’s the kind of wonk you put in a sock, and use as a clobbering device. Here’s a good example right out of the chute from Senator Stedman. If it becomes too much, there’s a nifty short translation at the end.

Stedman:
I’m just curious about extending the 40% well head expenditure credit to the North Slope. Where’s the analysis that backs up the need for that, Mr. Chairman? Because we spent a lot of time on this in another committee, and the conclusion was that there is no need to move credits north. But the concern the state had is that we have too many credits – so it’s 180 degrees out from where we’ve seen the need for work to be done, so I’d like to see some backup on why there’s a need for that.

Butcher came back with an explanation that this piece was from the governor’s plan in 2010 that got incorporated into the completely rejected HB110, and that “it was a result of companies saying that the economics, including a 40% well lease credit would change the economics to a degree that they would be able to get more oil out of existing wells.” He assured Stedman that “as more companies come up” they should be able to shed more insight, and show “how it will change the needle, and what you can expect as a result of that.”

Stedman:
Well, that gets to the discussion that we need to have here as far as the risk exposure that the state has, driving our production tax under water when we have these huge credits swinging in against the treasury – and the recommendations we’ve had, at least from one of our consultants that extending credits north of 20% gets a little dicey from the viewpoint of the sovereign, because we are allowing too much reimbursement from the state on capital costs. So if we’re just going to make the industry happy, we could just make that 50%. They would like 50 more than 40, and 60 more than 50. The State of Alaska, in my opinion, needs to start looking at its risk exposure, and we’re not in the direct oil business. We’re a sovereign. So, I’d like to see some backup information on this, and calculations derived with the rates of return on the cap ex expenditures that are expected to warrant this.

Butcher:
We’ll be happy to do that. This isn’t about making the companies happy, this is about incentivizing more development and more production. But we’ll follow up with you on that.

Here’s the translation:
Stedman – What is this crap? I spent a lot of time sitting in committee meetings proving we don’t need this. Justify yourself.

Butcher:
Um. Well. Er. It came from something the governor wanted that got put into a bill you hate. And the oil companies said they wanted it, and some time in the future they may be able to tell you why.

Stedman:
Well gee, why don’t we just give them the farm. I bet it would make them happy! So, yeah. Like I was saying – justify this please.

Butcher:
Nuh-uh, we are not just trying to make the oil companies happy. But I can’t answer your question, so I’ll go find some answers and bring ‘em to ya.

Much of the meeting was like this – demands for intelligible answers, requests for more information, insistence on justification for demands. Request, rinse, repeat.

Keep it simple, Stupid

After Stedman got finished “Butchering” the administration, it was Bill Wielechowski’s turn to take a shot.

Wielechowski:
One of the criticisms we’ve heard from many in this debate, including the administration is that the tax structure is too complex, and by adding this new provision, … is that making the system more complex or less complex?

Butcher:
I would say that it’s making it slightly more complex…

Wielechowski shoots, he scores! And the really amusing part was that at least two more times in the meeting, Butcher did exactly what Wielechowski said – he whined about complexity. Gotta love it.

Hygeine Point for Bert Stedman!

I should mention that Bert Stedman should get another point for sneezing into his elbow (at 7:59), recognized by health professionals as the best way to avoid the spread of germs, proving that not all Republicans are a nightmare in this regard. (link)

Money for Nothing

Paskvan took a moment to remind the Senate that there were people listening to the meeting online (there are others like me!) and to explain that what this all means is that for every dollar that the oil companies invest, they’d be getting 40 cents on the dollar in a credit form.. Right now it’s 20 cents. So the question is, Paskvan went on, why are we not getting an equity ownership if we’re paying 40%? He asked Butcher for an explanation.

And…. Butcher calls out reinforcements! He asks his Deputy Commissioner Bruce Tangeman to field the question, and starts hydrating furiously.

Tangeman says he agrees with Stedman that we do have a “generous suite of tax credits on the books right now.” But from the companies they talked to, this would have an immediate benefit in terms of short-term production. They hope. And no explanation was given as per Paskvan’s request.

Stedman asks another probing question. Butcher “will get back to you on that.”

Stedman asks where they got the 40% number, and that he assumed it was analysis driven. “Are you now telling me that it’s not?” Butcher says that’s not what he’s saying but it was all done before his time.

Stedman asks for the paperwork to back up the analysis and he’d like it today. Butcher says “hopefully” he’ll be able to do that.

Train wreck!

Lesil McGuire is up next with some words of advice. “My advice is that the department continue to work on this – but in earnest. My concern about what we’re doing right now is that it’s unfair to the public, it’ s unfair to the producers, and it’s unfair to the legislature because we’ve been called into special session with sort of a half-baked bill. And I mean that in sincerity.” She reiterated how much time the senate had spent trying to fix the failed HB110. “It’s frustrating,” she said to Butcher, “because you’re in a position where you’re trying to sell a bill, and you don’t understand the ins and the outs of it.”

“This isn’t the way to do it,” she went on after saying she in philosophically in line with the governor, but is frustrated that basic questions can’t be answered. “We all know it’s going to end in a train wreck, and it’s just a question of who gets to be blamed for it. And I think that’s silly.”

The beatings will continue until morale improves… or not

The morale on the administration’s side went down hill fast, and both Butcher, and Tangeman who was called in periodically to let Butcher rest, spent a lot of angst-ridden energy trying to convince the Senators that yes, they did know what they were doing. Of course there were answers – they just didn’t have them. Of course they did their homework. Of course they were thinking independently. Stop being mean!

I could picture them going to the men’s room during the break and Al Franken style, looking in the mirror saying, “I’m good enough, I’m smart enough, and doggone it, people like me.”

But before he could escape the room, he got redder and blotchier and more uncomfortable. His mannerisms were agitated, and he started doing that thing where you ask yourself a question and then you answer it. “Do I know where we’ll be in the future? No, I do not!”

Bill Wielechowski started asking those darn questions again about if the 40% credit they’d been discussing was “stackable” and able to be combined with other credits. What would the total amount of credits be if they extended the credit to 40%? “I can get back to you with that.” If the state picks up 80% of exploration cost, and 65% or maybe more of development costs, and we’re lowering their taxes – at what point do we say we want a share? When does the state, as a sovereign say, we pick up the vast majority of the exploration costs, the vast majority of the exploration costs, at what point do we take a stake in this?”

Good question.

As the meeting progressed, there were more questions and fewer answers. At one point when Bryan Butcher said he’d get a “master auditor” on the line to answer the question about stackability, Stedman scored again. “I’d rather have the department think through their answer, and respond back to us in writing with a table format, because it seems when they strive to give us answers, things only get worse.”

ZZZZZZZZZ!!

 

Yes, or no? YES or NO?

Stedman asks a direct yes or no question about capital expenditures. Tangeman refers him to page something-or-other which is the same as in last fall’s revenue source book.

Stedman: It doesn’t answer the question. I suppose we can stop the committee and I can look it up. But it would be easier to just answer the question – are these all the capital expenditures reflected in the production tax – yes or no?

Tangeman: Yes.

Stedman: OK. That’s what we want to know.

Paskvan: Do you need any follow-up on that?

Stedman: No. I’m just trying to get straight answers. Yes or no sometimes works pretty well in here.

Paskvan: We’re having a little difficulty sometimes with that.

No more reduction without more production

Next up, Hollis French who points out to those of us at home, after verifying his numbers, that what the administration is asking is for Alaskans to give up $167,000 an hour, every hour to the oil companies for…”something.” That would be the difference between our current system and SB3100. And nobody knows exactly what we’re getting. We hope we get more investment, but we have no idea. He also pointed out that with what we’re being asked to give up, every four days we could build another high school. In four days we could pay for state-wide pre-Kindergarten, which he said he thought, in twelve years, would create a bunch of people smart enough to fix the decline curve. He also pointed out that it could pay for 73 new oil wells. So why not have some kind of benchmark or requirement before we start handing over pallets of cash?

The camera zooms in on a button on French’s lapel pin that says “No more reduction without more production.”

“We have a philosophical difference on this,” says Butcher who launches off into singing the praises of simplicity (despite his earlier advocacy for complexity when it served his purposes) and how adding a “string” would scare off new investment. He ended his argument with a deft shot to his own foot – “It’s not just a one-way street.”

***************Break***************

Believe it or not, all of that and more happened just in the first hour. Paskvan gaveled the meeting back in noting the break had gone longer than expected, in part because people had been drinking a lot of water. I immediately thought of Butcher who’d been refilling his tiny Styrofoam cup repeatedly.

Fear of commitment

As soon as they’d gotten through the slide show, Bill Wielechowski was first up with a request. “I’d like a list of all the commitments you have received for new development if we pass this bill – new fields, new projects, new developments.

“Companies are hesitant to make any dollar promises that aren’t run through their board rooms and don’t take into account the particular period of time they may occur… the price of oil, the situation with their company in other areas… (he goes on)… but we’ll get you what we have,” said Butcher.

“Do you have commitments?”

The short answer was no.

As the clock wound down, Stedman made a suggestion: the DNR and the Dept. of Revenue should get together and figure all this out, rather than “lob the ball over to industry.” He then noted that we can’t really afford to check back in ten years to see if this tax bill was a good idea.

“This bill is touted by you – by the administration – as solving the short-term problem that we have, as you sit there telling this committee that you have no idea where a single new project would occur if we pass this tax break.” Wielechowski was relentless.

“We’re not saying we’re going to solve it. It will improve it,” said Butcher. “Do I have a specific name of a spot and a dollar amount … no I don’t.”

“So, just to be clear, when the administration says this will put more oil in the pipeline in the short time, you can’t point to a single project or development to support that assertation.”

Butcher thinks that if the oil companies have an opportunity to testify, they will agree that it will result in some kind of non-specific improvement in our situation. Probably.

Flaming pants! 

Butcher also gave an impassioned speech about how Alaska has the highest oil rate on the continent. That’s the problem, he says. The other problem is that it’s not true.

Mexico 94%
Louisiana 85%
US GOM 79%
Texas 76% (flat tax)
Alaska 76% (profits tax)

[h/t Kelly Walters]

 

Hat trick!

And we’re going to end the game with this hat trick from Bill Wielechowski. It sums up the situation we are in, and reminds us who the good guys are.

“I have great discomfort at the administration setting policy that will result in the loss of potentially billions of dollars based on what industry says. I mean, industry will always ask for more tax breaks. They will always ask for more tax breaks. That’s their job.

We should go out and hire experts – the best in the world – to advise us. We shouldn’t be basing policy on what the industry says, because the industry will always say they want less taxes. They will always say that. We shouldn’t set our destiny – the future of our state based on what industry says. It should be a calm analysis based on what experts say, based on their analysis of what we should be doing as a state – what represents and provides the maximum benefit for the people of Alaska.

We’ve plowed this field for 30 years. We had a tax structure called the ELF where we had zero percent tax rate on all new fields, on all satellite fields. By 2006 we had a zero percent oil production rate on 15 out of 19 fields. We had oil hitting record prices from the years 2000-2006. We had Kuparak at a 1% tax rate in 2006.

We had an 8% decline in Kuparak. We had BP saying that the role of Alaska in their business portfolio is to be a cash cow – to take money from Alaska so they can invest it elsewhere in the world. So this philosophy of low taxes – what it got us was a decline of 2 million barrels a day in 1980 or so, to 750,000 barrels a day; a decrease in jobs, a decrease in investment, and a decrease in production. Those are facts.

So, this philosophy that you lower taxes and it’s going to lead to some explosion in investment? We had thirty years of that policy. It cost Alaska hundreds of billions of dollars. I don’t want to go back to that policy – to that failed policy. That’s a mistake.”

BZZZZZZZZZZ!

And so the final buzzer sounds, and it’s remarkably like Joe Paskvan’s gavel. The battle for the future of Alaska’s economy continues. Stevens says he looks forward to “substantive answers” next week.

Time for the other side to get to work.

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