REGARDING SPECIAL SESSION

Ray Metcalfe
Anchorage, AK
June 18, 2004

Until we get our fair share from oil, NO, NO, NO and again No. If we voters let the Governor raid the fund, the pressure for the Legislature to do the right thing with oil will be gone. Another 25 years will go by and another $60 billion, which should have gone into our Permanent Fund, will be out the window.

Over and over you’ve heard oil companies say “A deal is a deal,” to defend the fat hog they’ve cut in Alaska. If “A deal is a deal,” then let’s go back to the deal we had on oil before the oil companies used our money to buy our Legislature.

Years ago, oil companies used our money to lobby through a tax break known as “ELF” or “Economic Limit Factor.” ELF is a mathematical formula that provides an endlessly increasing tax cut for most of Alaska’s oil fields. Over the years, ELF’s cuts have grown to the point that most North Slope fields no longer pay any severance tax at all.

There’s a reason why most Alaskan leaders resist reversing the effects of ELF. I call it “the trickle-down theory.”

Hypothetically speaking, “the trickle-down theory” works kind of like this: A North Slope oil producer, maybe one like BP for example, hands out a “gravy contract” without competitive bid. The “gravy contact” delivers a $50 million payday but requires only $10 million worth of work.

Delivered with a wink and a smile, the gravy contract gets handed to maybe someone like Veco for example. (Not necessarily Veco, keep in mind were only talking hypothetically here.) The service company then pockets a big chunk of change and subcontracts most of the work. Like the service company, the subs also get several times what their work is really worth.

Then, about this time of year (campaign season, special sessions, things like that) the oil producers take an inventory of which legislators are either ignorant of oil taxes and/or willing to sell-out their fellow Alaskans. They then pass that list on to the oil service company. The service company arranges a big fund-raiser, at maybe someplace like the Petroleum Club and sends invitations to all the executives of the subcontractors who were on last year’s “gravy train.” Executives wanting to see their company on next year’s “gravy train” know attending the fund-raiser, with a pocket full of checks is required. Hence, the trickle-down theory — or “the Veco drip‚” as I sometimes call it.

A tiny fraction of Alaska’s oil wealth trickles or drips down to the campaign accounts of those lawmakers who, in exchange for a little bit of power, are willing to pass laws enabling oil companies to use our money, to strip us of our resources and hand the big bucks to foreigners.

It doesn’t end there, it gets worse. Oil money paid to politicians was once limited to $1,000 campaign contributions, but no more. Last year, Veco paid state Senator Ben Stevens $47,000 for “consulting fees.” Now ask yourself, what possible interests of yours can a state senator serve when a company — with a financial stake that depends on stripping Alaska of its resources without proper payment — pays our senator more than we do?

State senator Scott Ogan recently brought a similarly inappropriate relationship into focus when he bargained away the land-ownership rights of his constituents in favor of methane gas developers, who paid him to support their interests. Abstaining from representing two clients with conflicting interests is fundamental to the ethical standards of every licensed profession. Legislators who fail to comprehend and abide by such standards are, in my opinion, unfit to serve in our Legislature.

Many books have been written about the carpetbaggers who robbed Montana of is copper wealth and Kentucky of its coal wealth. In both cases, outside interests used ill-gotten gains to fund campaigns for those local politicians willing to bilk their fellow residents in exchange for their day in the political sun. Someday there will be a similar book about Alaska’s oil.

Kuwait and Saudi Arabia each spend about $4 per barrel paying for the services they get from oil companies, like BP. When oil is fetching $40 a barrel, these countries take home about $36 a barrel. In Alaska, when oil is going for $40 a barrel, we Alaskans keep less than $12.

There’s nothing unique about Kuwait and Saudi. The majority of the world’s oil, “including Alaska’s,” is drilled, produced, pumped and delivered to refiners at a cost of between $4 and $6 per barrel.

Almost every government in the world keeps the difference between the world-market price of oil and the cost of paying the oil company that does the drilling, pumping and delivering. We Alaskans gives it away.

When compared to other major oil-producing countries, Alaska’s oil taxes are clearly among the lowest in the world. If Alaska retained anywhere near the same portion of profits that most oil producing governments retain, dividends would go up and deficits would vanish.

If we do so sufficiently before the oil runs out, Alaska’s Permanent Fund could still grow to the approximate $60 billion or so it would take to sustain dividends and government services without taxes, for generations to come. If we don’t, we will eventually raid the fund, spend it down, and loose it all.

To see a spreadsheet detailing the effects of ELF and a chart comparing oil taxes worldwide, visit www.republicanmoderates.com and click on the banner inviting you to help “repeal ELF.” From there you can also find charts detailing what ELF costs Alaska and a chart that shows how Alaska’s oil taxes compare to the rest of the world.

For more information go to www.RecallMurkowski.com and click on “Squandering of Alaska’s resources,”