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It's time to get our economy producing!

by Eric Bushnell

It's time to get our economy producing!  This was the message at the CER Chamber of Commerce meeting today.  "Make Alaska Competitive" Coalition was the main speaker and the forum was sponsored by BP.

The message was that Alaska had increased taxes by so much in 2007 that Alaska was no longer a place to develop.  Based on the information they provided it appears that they're correct.  One excerpt from their handout reads as follows:

  • We a NOT competitive compared to other areas
    • When oil prices are $100 a barrel, the total marginal government take in Alaska is 82 percent.  In Alberta, it's 55 percent.  In the Gulf of Mexico it's 43 percent.  Alaska is simply not competitive under ACES. (source: Roger Marks)

I have a really hard time with these numbers, but no one gives all the information, so I have included a copy of the tax rate:

The formula for the total tax rate, including the base rate and progressivity is:

0.25 + ((Net per barrel value - $30) X .004)

ACES also contains a 20% tax credit for capital costs, with potential greater credits for exploration depending on location. For example, let's assume the following:

  • 100 barrels sold on the US West Coast
  • ANS West Coast price of $50
  • Transportation cost (pipeline and marine shipping) of $5
  • Upstream (exploration, development, production) costs of $20: $10 capital and $10 operating
  • No royalties (for simplification)

The net value of the oil would be:

100 X ($50 — $5 — $20) = $2,500

The per barrel net value would be:

 $2,500 / 100 = $25/bbl

Since this is less than $30/bbl there is no progressivity and only the base tax rate would apply. Thus the tax before credits would be:

.25 X $2,500 = $625

The capital credits would be:

.20 X $10 = $200

The tax net of credits would be:

$625 - $200 = $425

Now let's say the price of oil goes up to $70.

The net value of the oil would be:

100 X ($70 — $5 — $20) = $4,500

The per barrel net value would be:

$4,500 / 100 = $45/bbl

Since this is more than $30/bbl there would be a progressivity surcharge. The surcharge would be:

($45 — $30) X .004 = .06

Thus 6% would be added to the base tax rate of 25% for a total tax rate of 31%. Thus the tax .31 X $4,500 = $1,395

The capital credits would be: 

.20 X $10 = $200

The tax net of credits would be:

$1,395 - $200 = $1,195

Now if you can understand all this I am very proud of you.  What I do understand is that as the price of a barrel of oil goes up, so does the tax rate.  Only it is not prorated like our income taxes.  Alaska gave the oil companies a great rate and even a free pass for many years and oil production has dwindled.  Now prices are finely high enough that they can really make money.

Alaska needs a fair share of this wealth, but what is fair.  Talk to your politicians about what you think is fair.  I am no going to say how to fix this, but I do think it is broken.  Don't misunderstand me though. I think that Alaska should get more then we did before, but maybe not all of it.

 

Anchorage Economic Development Corporation Annual forecast luncheon

by Eric Bushnell

Can you look into a crystal ball and see the future?

Well, I cannot so today I attended the Anchorage Economic Development Corporation Annual forecast luncheon.  The ADEC is a group of business and business owners that work to drive the economy of Anchorage forward.  The investor luncheon is a great forum to see what the new year may bring.

This years event was the largest luncheon crowd ever in Anchorage Alaska; with over 1400 attendees.  There were several speakers, Governor Parnell, Mayor Sullivan, and keynote speaker Stephen Dubner, the co-author of 'Superfreakeconomics"

 

I visited Facebook prior to the luncheon and a good friend left me this comment:

"the ADEC Economic Forecast is going to be largely dependant on the pending legislative review of ACES (Alaska's Clear and Equitable Share, Alaska's state oil tax legislation). ACES is reducing new oil development projects on state owned leases. Yes, it drives up State Revenue, but it comes at the expense of new investment and jobs which ... See More largely drives real estate prices and demand for local goods and services. I'd be interested to know what assumptions ADEC uses regarding ACES future (it will probably be NO CHANGE since no one knows if we will be successful in lowering these tax rates). The good news is that oil development on Federal leases (Liberty etc.) are NOT affected by ACES as these are taxed on the lower MMS rates (Mineral Management Services). "

Governor Parnell did address this point and one of the hot topics in Juneau this year will be tax relief for companies that invest in Alaska.  Gov. Parnell also spoke about placing excess funds in an account for infrastructure maintenance in the coming years.  It appears we have good leadership for the time being.

Mayor Sullivan spoke to the issue of the city budget, and he likened it to the city being on a diet.  Less spending and minimal new bond packages for the short term will bring about some property tax relief.  The City is going to be hard pressed to provide the services everyone wants without raising taxes.  The City of Anchorage will be looking for federal money to match its investment in improving the Port of Anchorage; which will provide new jobs and growth.

The Keynote speaker, Stehen Dubner, was fantastic.  I will be reading his book 'Superfreakenomoics" tonight.  He mixed current economics with humor in a way that makes one really think.  Many of the national policies currently under review have great economic implications.  He covered global warming, monkeys, and prostitution; in that order but in a very funny way.  Mr. Dubner really got one thinking about possibilities, but as he explained we are creatures of habit, can we change?

It was a great lunch and the forecast is for job losses, approximately 1200.  Many of these are related to tourism; there will be a reduction by 10% in the number of cruise ships coming to Alaska.  Now this forecast does not include Military growth, or the self employed.  These areas are growing and will offset the losses.  The ADEC does expect to see moderate growth in the second half of 2010.  take a look at the documents I provided from the ADEC and feel free to comment below.

 

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Contact Information

Lee Realty, LLC
Lee Realty, LLC.
5050 Dunbar Drive #F
Wasilla AK 99654
Office: 907-376-0119
Fax: (907) 376-4039

 

 

 

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