Senate Votes to Give Big Oil Billions

Here’s your highlight reel from the Senate oil tax debate. Late Wednesday night the Alaska State Senate voted 11-9 to give billions from the state treasury to the oil industry. A 10-10 vote would have killed the bill. Amendments and debate took all day, and went well into the night.

The bottom line is that the senate voted to give away the farm, in exchange for nothing. No increased promise of production, exploration, or jobs. It might incentivize them to do something though. Magically. If we’re lucky. That’s the argument of the 11 Senators who voted for this historically bad piece of legislation. The price tag to Alaskans will be about $1.5 billion a year which otherwise would have been used for education, roads and bridges, public safet, and saving for a rainy day. It will also start draining the coffers as soon as it goes into effect, ultimately jeopardizing Alaska’s bond rating, and using up the savings account we’ve managed to build under the current system.

The vote will go down in history as one of the worst for Alaska, and the citizens of Alaska (the majority of whom were opposed to the giveaway) should remember the following names. Those who voted no stood up for you, and the state. Those who voted yes can stop pretending they have any interests that trump their own, and the oil industry’s.

Yes votes: Click Bishop (R), John Coghill (R), Mike Dunleavy (R), Fred Dyson (R), Anna Fairclough, Cathy Giessel (R), Charlie Huggins (R), Pete Kelly (R), Lesil McGuire (R), Kevin Meyer (R), Peter Micciche (R).

No votes: Dennis Egan (D), Johnny Ellis (D), Hollis French (D), Berta Gardner (D), Lyman Hoffman (D), Donny Olson (D), Bert Stedman (R), Gary Stevens (R), Bill Wielechowski (D).

The critical swing vote for this disaster was Senator Click Bishop (R) of Fairbanks who campaigned on promises of opposing the Big Oil giveaway, and then turned his back on the promises and his constituents, selling out his vote for the inclusion of an amendment which was “weak tea” to say the least. Bishop’s office was inundated with hundreds of phone calls begging the Senator to vote against the bill in the immediate days leading up to the vote. The pleas of his constituents fell on deaf ears.

Senator Click Bishop. (aka Senator Pick, Click, Giveaway)

It should also be noted that two yes votes came from members of the body whose full-time jobs are working for ConocoPhillips. Senator Kevin Meyer (R-Anchorage) and Senator Peter Micciche (R-Kenai) did not recuse themselves, and voted for a bill that will put billions in free money into the pockets of the people who sign their paychecks. Not YOU, silly. The people who sign their BIG paychecks.

The bill as written will funnel about $1.5 billion a year away from savings, education, road projects, and other state services.

Democrats tried, unsuccessfully, to add a string of amendments to strengthen the bill, all of which were voted down by the Republican majority.

Amendment 1 – The only amendment of the 13 presented that passed, and the one that bought Click Bishop’s vote, was offered by Peter Micciche. The Associated Press explains:

Prior fiscal analyses had indicated that if the tax rate were raised to and kept at 35 percent that could result in the state holding onto about $550 million more through 2019 than if the tax rate were stepped down, based on the last revenue forecast for prices and production. Overall, the state would still stand to lose billions of dollars under the bill through 2019, including an immediate hit next year, based on the forecast.

Parnell has said the state will be able to use savings to absorb the near-term hit, with the expectation that production will increase as a result of the tax break. The state has about $16 billion between two of its reserve funds.

Saving a tiny fraction of what we’ll lose?  Sen. Bishop’s skills as a negotiator leave much to be desired.

The amendment was voted in by a vote of 11-9, with all Democrats and Republicans Stevens and Stedman opposing it.

Amendment 2 dealt with the critical element of progressivity (increasing tax rates so additional windfalls benefit Alaskans as oil profits rise). Right now, the lack of it means a price tag of $1.5 billion a year to Alaskans. The amendment would ensure that oil companies would make money, but that Alaskans would share in windfall profits. Hollis French put forth the amendment.

Anna Fairclough pouted that progressivity was driving away investment. Bill Wielechowski said he couldn’t let that statement go unchallenged, and called Fairclough “flat wrong” according to the Governor’s own numbers. “That is factually incorrect,” he said. “If we’re going to have a debate today, let’s have a debate on the facts.” He then explained that from 2007 to 2013, just on capital expenditures (being spent to develop new oil) under the current taxation program (ACES) there was a 206% INCREASE. We’re at record levels, and have never had more investment on the North Slope than we do now.

Amendment 2 was voted down 16-4, with only minority Dems Ellis, French, Gardner, and Wielechowski voting for it. Democrats Egan, Hoffman, and Olson who are caucusing with the Republicans this session voted no.

Amendment 3 attempted to establish progressively, as in Amendment 2, but only for the big “legacy” fields of Prudhoe, Kuparik and Alpine. The amendment was presented by Hollis French. This would allow a more lenient structure for newer companies. Anna Fairclough said this wasn’t simple, or fair to the oil companies.

The amendment was voted down 15-5, with minority Dems and majority Democrat Lyman Hoffman voting for it.

Amendment 4 was a compromise amendment to attempt to capture SOME of the windfall profits.  It would have added a modest .2% to the production tax rate beginning when oil reached at about $100/barrel. This was introduced only when the value of oil was through the roof and only presented because the previous amendments went down in flames.

Johnny Ellis rose in support of this amendment. He acknowledged Lesil McGuire who said we need a tax system that is “durable.”  “I’ll tell you what’s not ‘durable’,” he said. “A system that puts Alaska immediately into deficit. When roads, schools, public safety and savings are cut – when public services are cut for Alaskans, and then energy prices go through the roof, and the government doesn’t have the money to respond, that’s when the durability of the system will come to an end. Because there will be a day of reckoning when Alaskans wake up and realize that they didn’t get a reasonable share of our common property resources.”

The amendment was voted down 15-5 with minority Dems plus majority Dem Lyman Hoffman voting in favor.

Amendment 5 was put forth by Gary Stevens (R-Kodiak) and would sunset the bill on January 1, 2017 and would revert back to the current ACES tax structure unless action was taken by the legislature. This would allow three years to see if SB21 was working.

The sunset amendment was voted down.

It continued on like this with reasonable people proposing reasonable amendments, and the majority voting them down.

Amendment 11 dealt with lease terms, and the huge number of leased fields which sit idle, our resources held hostage by the oil companies who refuse to develop them. Senator Wielechowski proposed examining our lease terms, and requiring that a company who is bidding on a lease (which are as cheap as $20 per acre!) should submit at least a preliminary plan for development of that lease which would be reviewed by the revenue commissioner. Common sense, right?

Not to Anna Fairclough who is oh-so put out that these darn amendments are getting in the way of her giveaway. There are so many, and she’s so confused. Ohhhh, the huffing and sighing. The rolling of the eyes! You see, there was this unnamed report card they got from a group she didn’t cite, that came from “the nation” and it totally said that Alaska isn’t competetive. And we are NOT open for business, according to “some polls.”

This tax is “punitive,” she explained. We’re telling an industry what they can and cannot do! We’re barbarians! And we’re supposed to tell them that before they lease from us they need to have a plan? They might have to investigate minerals, and use maps! Who do we think we ARE?

And by the way, we live in the United. States. of America. Dammit. So can we just pass this already? Enough with the facts and figures for God’s sake.

Bill Wielechowski was having none of it, and called Fairclough out on the carpet for saying Alaska isn’t “open for business,” and for her patronizing insinuation that him holding oil companies accountable is somehow un-American, or un-Alaskan. “I’m not going to stand here and get lectured,” he said.

“I am not going to stand here on the floor of this body and let someone say that by trying to protect the interests of the State of Alaska, I’m somehow anti-American, or I’m anti-Alaskan. That’s offensive. I don’t appreciate that. I don’t appreciate it, because we are an owner state, and as an owner state, we should start acting like it. Being an owner state doesn’t mean giving away billions of dollars with no strings attached, and getting nothing in return. That’s the antithesis of an owner state… so I’m not going to stand here and get lectured on being anti-Alaskan by trying to stand up for Alaska.”

The amendment was voted down 16-4.

THE FLOOR DEBATE:

The majority of debate in support of SB21 came from Senators Lesil McGuire, Cathy Giessel, and Anna Fairclough who fought like hell for the richest corporations on the planet, to make sure they got the maximum benefit possible from our resources. It was quite a sight. Facts discouraged, rhetoric intense, and the agenda frustratingly transparent.

Anna Fairclough took the floor again dripping condescension and saying she sure “hoped” that everyone was looking for a fair taxing system that was simple, that will increase production, that is durable and equitable to all players. She said SB21 “levels the playing field,” and that we will “quit choosing winners and losers like past taxes have done.” And hooray, it gets rid of progressivity which, she said, at least 50 whole people had testified about from “all acrosst” the state.

“The clock is ticking,” she declared. That’s not the clock, Senator. That’s the fiscal time bomb you just handed Alaskans.

Senator French spoke next. He was willing to work through the summer, he said, to get this bill right. “We are touching the life-blood of the state, and it’s worth some extra work, and taking some extra time if we have to, otherwise your work looks like a rush job.”

“This is a bad bill that should be voted down. It’s a giveaway, it’s a crapshoot, and it’s a far far cry from our best work, and what we are capable of doing. For those of you who will vote for this you will not be able to say in the future that the industry promised to do more. There are no promises that come with this bill. None whatsoever.”

He talked about the history of the “owner state” and why it is that Alaska owns its own resources, so that we can pull our own weight without relying on too much support from the federal government. So we could stand on our own two feet. As it stands now, we’re OK. Take a couple billion a year out of the budget and the picture changes.

He also read from a BP report from 2004, when the last big fight over oil taxes was going strong.

The “Restricted” report from BP said, “Alaska’s role in BP’s portfolio is to provide a stable production base and cash flow to fuel growth elsewhere in the business.”

At that time, the official policy of BP, while they’re telling us not to tamper with taxes is to take the money they’re making here and invest it somewhere else. That’s what they’re saying in secret, but in public they’re saying something else.

Claire Fitzpatrick, the head of finance for BP told French in 2012 that back when the industry was complaining taxes were too high, that Alaska “was probably more competitive than you needed to be.” Yes, we were undertaxing while the oil shills in the government, and the industry were screaming for lower taxes. 

He also showed exactly how ACES has given us our current $16 billion savings, and how much worse off we’d be without it. “How does SB21 help us save more? Everybody in this room knows the answer. It doesn’t. The crapshoot bill does not help us save more.”

And next up was Senator Cathy Giessel (R-Anchorage). Despite being the CHAIR of the Senate Resources committee, she said that she doesn’t have anything lengthy to say. She doesn’t have “exhibits” because she’s “not a lawyer.” But she does have one thing that makes her super special. She was born in the Territory of Alaska, and has a unique life experience.

That’s it.

I’m sorry I ever doubted her oil and gas credentials.

She went on to say that she’s seen the state’s economy grow because of oil, and she’s interested in growing the private sector economy. Facts? Figures? Not so much. But we shouldn’t be surprised, because until this session, two short months ago, Ms. Giessel, a nurse with no experience in resource development, didn’t even hold a seat on the Resources Committee. Being a sock puppet is the only credentials necessary for that job this session.

Sen. Gary Stevens (R-Kodiak), a former history professor, gave a great speech reaffirming his statesmanship and reminding us of our past. He asked Alaskans to recall the courage of our past leaders like Gov. Jay Hammond and Gov. Wally Hickel who were willing to work with the industry, but had a commitment to the Constitution. They never forgot to remind us that we are an owner state, and are constitutionally obligated to develop our resources for the maximum benefit of the people. He called SB21 a “historic gamble” and that it would take only a few years to decimate the $16 billion we currently have in savings. “[Oil production] has declined under high taxes, and it has declined when we’ve practically given the stuff away,” he noted.

“If we don’t want to go back to the bad old days, vigilance is the price we pay to make sure bad things don’t happen again.” There is no rush to get the bill done, said Stevens. This body has decided ot place enormous trust in an industry that has often proven to be untrustworthy.

Bert Stedman (R-Sitka) was next, explaining in tremendous detail for almost half an hour why SB21 will not do what we need it to do. Unlike the supporters of the giveaway, he backed up his opinions, and crunched the numbers hard. “We’re going to lose our AAA bond rating and our cost of borrowing is going to go up. We will be in trouble fast,” he warned.

Bill Wielechowski spoke next, in what will surely go down as a historic moment, and historic speech. He systematically addressed every argument being spouted by the other side, and knocked them down one by one.

He talked about how the low tax philosophy failed us on the North Slope, and how it failed us in Cook Inlet and in the Lower 48. He reviewed how much new exploration, and how many new companies have come to Alaska under the ACES system. He quoted, and used numbers from the Governor himself. He called Cathy Giessel’s assertion that jobs were going to North Dakota, and Texas “false,” and showed that every year since ACES passed we have had record employment. He also pointed out that 125,000 jobs have been created because of the construction budget provided by ACES. He talked about people in 2006 being afraid of income tax, sales tax, and raiding the permanent fund. Now, because of ACES we have the largest savings of any state in the nation. With SB21, the savings will vanish, and Alaska will hit a fiscal cliff that will affect education, public safety, and jobs. We’ll likely be back to talking about what we’ll raid, or tax to make it up.

He talked about the current profitability of the oil companies. Alaska provides oil companies with $12 per barrel higher profit than in the Lower 48. Every year since ACES, oil company profits in Alaska have been higher here than the country average, and the international average.

“There are companies on the North Slope who are holding our resources hostage for tax breaks,” he said, despite their obligation to produce when a reasonable profit can be made.

He backed up everything he said with the administration’s own numbers, and demonstrated an encyclopedic knowledge of the issues, the history, and the economics of oil taxation.

Here are some highlights not to miss.

“How do we possibly justify passing this bill. How do we possibly go back to our constituents and say yeah, we represented you the best that we can with those facts? I can’t do it.”

It was 40 minutes of Mr. Smith goes to Washington. After he was finished, he sat for a long time, probably knowing that this legislature didn’t care about the facts, or the history and would vote this giveaway through regardless.

Photo by Matt Buxton of the Fairbanks Daily News Miner, who live tweeted the event @FSNMPolitics

Others spoke up too.

If oil predictions are true,”I pity the person who is the 11th vote and deprives Alaskans” from a windfall, said Democrat Berta Gardner. “This bill is a colossal failure.”

Lyman Hoffman (D) said that this vote was likely the most important vote of his political career. “I have to stand here today and justify my vote to my grandchildren. The stakes are too high to go in without some assurances.”

Donny Olson (D) recalled the FBI investigation of 2006 in which 10% of the legislature was indicted on charges related to bribery and selling votes involving oil field service company VECO acting as an intermediary between the legislature and the oil companies. He talked about his own legal expenses, and the fact that he almost went to jail. “Think about that when you push that button,” he warned his fellow legislators.

When all was said and done, the bill came to a vote, and the greatest giveaway in Alaska history was voted through 11-9. Every one who voted for the bill was a Republican. Two Republicans with integrity voted no. A reconsideration notice was served, so the bill could possibly face another vote before moving on.

For now, the next step is moving the bill along to the House Resources Committee, and then the House Finance committee.

The governor yesterday said at a Chamber of Commerce meeting in Juneau that when the House gets the bill, they should “use the knobs and dials that are there” in the current bill, but to refrain from adding amendments that would make things more “complicated.”

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