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OIL MAKES LAWMAKERS SLIMY
Ray Metcalfe
Your cover on the May 6-12 edition of the Press, which depicted an elf laboring to stop oil dollars from leaking out the pipeline into Alaska’s economy, was quite clever, and your ensuing feature article‚ “Crude Awakening,” explaining there really is an ELF, was most informative. For those who didn’t catch the article, ELF is the nickname of a little known oil-tax break called the Economic Limit Factor. To Alaska’s oil, ELF is like President Bush’s tax cuts for the rich, only on steroids. ELF is designed to give bigger and bigger tax cuts to the oil companies every year. Before ELF became law, oil companies paid a flat, 15 percent severance tax. Now they pay only a percentage of that original tax.
ELF is a mathematical formula that was lobbied through the Alaska Legislature years ago, which has provided endlessly increasing tax cuts 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.
Your May 6 article said, “Most Alaska leaders hesitate to meddle with raising taxes on oil companies,” and there are reasons for that. I call it the trickle-down theory. Hypothetically speaking, it works kind of like this: A North Slope oil producer, maybe one like BP for example, hands out a $100 million contract to an oil service company, like maybe Veco for example. Without competitive bid, the $100 million contract is handed out with a wink and a smile. But in reality, the contract only has about $10 million dollars worth of work attached to it. The service company then pockets $50 million and subcontracts most of the $10 million of work, giving each of about 10 or so subcontractors a million dollars worth of work with a $5 million dollar paycheck attached to it. Then, around about this time of year (campaign season, special sessions, that sort of thing, you know?), the oil producer takes an inventory of which legislators are either ignorant about how oil taxes work or who have no problem selling out their fellow Alaskans. Oil executives of these subcontractors then supply enough money to get these legislators re-elected. The service company that pocketed the $50 million arranges for a big fund-raiser, maybe someplace like the Petroleum Club, sending invitations to all the subcontractors who were in on last year’s “gravy train.” The invitations include a strong suggestion that those companies wanting to be in on next year’s “gravy train” should send all of their executives to the fund-raiser, with their pockets full of checks made out to the campaign accounts of those committed to continuing ELF’s endlessly increasing tax breaks. Hence, the trickle-down theory — or “the Veco drip‚” as I sometimes call it.
A tiny fraction of Alaska’s oil wealth drips into the campaign accounts of these lawmakers who, in exchange for a little bit of power, are willing to pass laws enabling oil companies to use our money, strip us of our resources and hand the big bucks to foreigners. 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 striping Alaska of its resources without proper payment — pays the senator more than the state pays him to serve Alaska?
State senator Scott Ogan recently brought a similarly inappropriate relationship into focus when he bargained away land-ownership rights of his constituents in favor of methane gas developers, who were paying him to support their interests. Abstaining from representing two clients with conflicting interests is fundamental to the ethical standards of nearly 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 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.
The majority of the world’s oil, including Alaska’s, is produced and delivered to refiners at a cost of between $4 and $6 per barrel. That includes paying the oil company for drilling, pumping and delivering the oil to refineries. In almost every oil province but Alaska, the country that owns the oil keeps the difference between world-market oil price and the cost of paying the oil company that does the drilling, pumping and delivery. 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.
When Alaska’s oil tax policies are compared to those of 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 other major producers around the world take home, Alaska’s budget deficit would vanish and dividends could easily triple.
To see a spreadsheet detailing the effects of ELF and a chart comparing oil taxes worldwide, country by country, visit www.republicanmoderates.com. Click on the banner inviting you to review the charts and become a co-sponsor of my petition to repeal ELF.
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