It seems that no matter what the issue, the Governor's solution is to roll back oil taxes. Tuesday he strongly implied just that in announcing the Permanent Fund Dividend. He warned - very inaccurately - that "Alaskans can face diminishing dividends based upon the current dividend calculation because, in part, poor performance of the stock market, and then additionally over time because of declining oil production there will be fewer and less royalties going into the Permanent Fund unless we turn that around.”
That's a 10 on the Pinocchio Meter. That's fear-mongering. That's wrong.
Leaving aside the poor policy his tax rollback would implement, and the damage it would do to the economy, his statement is inaccurate. If you want information on the oil debate, here is a PowerPoint and video of my presentation last week to the East Anchorage Rotary Club and my last op-ed on oil tax policy. Today, I'd like to address the Governor’s irresponsible statements threatening a smaller Dividend, because he's just flat wrong in his effort to scare you into supporting his oil bill.
Here's how the Dividend is calculated. The Permanent Fund grows every time a barrel of oil is sold. Roughly 25% of the royalties we get when we sell oil gets put into the Permanent Fund- which hit $40 billion this year before the last stock market dive. As more barrels go in, even in the case we'd like to avoid - of declining production, the Permanent Fund Grows.
So, even with declining oil revenue, the Fund will get bigger. The Governor came upon a hot sound bite - too hot to touch because it’s, um, not accurate. The truth is less sound bite-y, and undermines the Governor’s threat.
Your dividend is calculated based on the size of the Permanent Fund (which grows as each barrel of oil is produced), and the last five year income average the Fund creates. In good stock market years, the Permanent Fund Dividend is bigger. In bad stock market times - which we've had scattered over the past 13 years - the Dividend is smaller. But with any oil going through the pipeline, the Permanent Fund grows, and the chances for a bigger dividend - depending on the stock market - increase. On average, assuming there is a steady stock market (like that's ever going to happen) the dividend will grow even in the worst case scenario of declining oil production. So, the Governor's statement that declining production will shrink the Dividend was fear-mongering of the worst kind. Based on a very inaccurate garbling of how your dividend is calculated.
If anything, with the Governor's oil tax giveaway, this state will burn through its savings, and folks will start clamoring to spend the Permanent Fund. If anyone jeopardizes your dividend, it's the Governor and his plan to roll back oil taxes, with no requirement of additional exploration or investment. I'll refer you to the links above for an in depth analysis of his plan, and better options that won't burn through this state's savings. But briefly, here's the problem with what he wants to do.
Remember when we reduced the production tax to near zero under the old ELF system in 2006? The 2003-2006 period, with rising oil prices, saw annual oil production declines of roughly 8% a year through the pipeline. And 30% fewer jobs. And 40% less capital investment. And profits taken out of the state by the oil industry. Furthermore, without the Governor's plan, we are likely to see vastly growing exploration this winter according to a recent Petroleum News article - possibly the highest level since 1969. Oh, and Exxon and BP said in committee, in response to my questions, that even if the Governor's plan passes they won't do what he said was the basis for his bill - new exploration in new areas. Conoco gave me a "we can't commit" answer. Wow. Give away billions and hope the oil companies do what they didn't do the last time we lowered their taxes.
So - his bill will likely cost us about $1.8 billion a year ($8 billion over 5 years) in revenue we need for schools, roads, and savings; not increase exploration; and is built on three premises we now know are false. He said jobs were down. They're up. He said the bill would lead to more exploration in new units. The Big Three have said not to count on that. And now he says the dividend will fall if his plan doesn't pass. That's not only inaccurate; it's fear mongering-ly inaccurate.
Let’s have a debate. But every time someone throws a misstatement at you, I'll try to clear up the record. Debate on the merits is tough. It's unfortunately too easy, with a dwindling press, for politicians and interest groups to get away with, um, how do I say this politely - inaccurate statements. Level 10 Pinocchio Meter inaccuracies.
Please call or email if you have any questions.