Crony Capitalism is the Norm In Juneau

North Dakota, 2014

The debate in Juneau over oil tax credits has captured the attention of most Alaskans by now. Alaska is paying out over $700 million more in oil tax credits than we get in production taxes. This arrangement where we pay more in tax credits than we get in production taxes is projected to last until 2025. But below the surface lies a much deeper debate over the fundamental nature of capitalism in our society.

Capitalism is generally defined as an economic system where private individuals control the means of production for their own profit. A danger of capitalism has always been when corporations get too cozy with government — and thereby are allowed to appropriate taxpayer funds in the form of tax credits and deductions or incentives from the public treasury for their own profit. Hence the rise of the term “crony capitalism” — where a business’ success is based on its close relationship with government, and its ability to garner taxpayer subsidies, tax credits, etc.

These government handouts gradually stifle the free market by making it virtually impossible for those without government subsidies to compete against those who do. Ironically, some of the most politically ardent defenders of the “free market” are the same people who are first in line at the government trough for subsidies, tax credits and other government handouts.

What makes Alaska so at risk for crony capitalism is the fact that we actually have a socialist Constitution when it comes to natural resources. Alaska is the only state in the nation where the state owns in common virtually all the rights to the oil and gas resources in the ground (subsurface rights). In North Dakota, you find oil on your land – you own it. And those farmers and ranchers negotiate a pretty good deal for themselves, with royalties often of 25 percent or more, plus lease costs for their land at thousands of dollars per acre. The oil industry long ago figured out that if they control the government, they could negotiate much sweeter deals for themselves. Hence, most oil leases in Alaska pay about half the royalty rate a similar lease would run in North Dakota or Texas and often only a few dollars per acre. In fact, if Alaska got a similar amount of royalties as the ranchers and farmers of North Dakota got, we’d easily have over $1 billion in new revenue per year.

In the old days, when the oil industry had Bill Allen from Veco to quietly organize huge fundraisers for candidates willing to give Big Oil whatever they wanted, Allen would hang out in Juneau’s Baranof Hotel during session and wrangle those legislators into passing sweetheart deals for the oil industry. The FBI broke this up in 2007. The trials were a remarkable parade of what seemed to be obvious wrongdoing that seemed to surprise some of the legislators being prosecuted. Allen wasn’t just handing out money for votes, he served as a personal pharmacist to former Rep. Pete Kott. I digress.

The oil industry didn’t give up though, and now they do their business right out in the open. They spent huge when redistricting happened in 2012. They re-elected Sean Parnell, a former ConocoPhillips lobbyist. He wrote Senate Bill 21, the oil tax bill we have now. That bill was heard by three committees in the state Senate. The first was the TAPS throughput committee, chaired by Sen. Peter Micciche, a manager at ConocoPhillips. The third committee was the Finance Committee, chaired by Sen. Kevin Meyer, a ConocoPhillips employee. SB 21 passed by one vote, 11-9. A 10-10 vote would have defeated it.

Crony capitalism? You decide.

The oil industry today doesn’t even attempt to cloak the crony capitalism going on in Alaska any more. With the majority cutting benefits for vulnerable seniors, foster kids and education, while hemorrhaging hundreds of millions in oil tax credit payments, last week, the president of the Alaska Oil and Gas Association, Kara Moriarty, testified the House proposal to phase out a state law that actually writes checks to the oil industry was a “flagrant money grab.” Yes. It is flagrantly grabbing money for our senior citizens now receiving $8 a month.

A few weeks ago Rebecca Logan, general manager of the Alaska Support Industry Alliance, testified against cutting oil tax credits, and chastised lawmakers that they should have cut more from the state budget. She told a Senate committee “You guys didn’t do your job.” Apparently the job being to cut the poor, sick and disabled and take Alaskans’ PFDs – so we can keep paying oil tax credits. To borrow a phrase from George W. Bush, they are doing a heck of a job.

The unholy marriage of our government to Big Oil is now complete. Cheers.  Crony Capitalism? Seems like the cronies own the Capitol.

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