First, See Our Alaska Petroleum Tax Commentary From Yesterday

Opinion: Two Tax Events Today Underscore Need for Legislative Action THIS YEAR!

By
Dave Harbour
Yesterday’s tax discussions kicked off with a 7:30 a.m. presentation at the Resource Development Council for Alaska (RDC) meeting by Steve Hites (NGP Photo), owner of the Skagway Streetcar Company.  Hites could easily qualify for the national speakers’ circuit with his humorous and sardonic touches on history, current events and public policy.  (See speech text and video here.)
 
Hites recited the history of the Alaska cruise ship industry, posing a case for how the entire, modern cruise industry found its origin with Alaska’s early cruise pioneers like Stan McDonald, Chuck West of Westours and Fairbanks’ riverboat pioneer, Jim Binkley. He established how the dynamic and precedent-setting, Alaska cruise ship industry served as the foundation for the world’s modern cruise industry. (Author’s note: in the early 1970s I had the pleasure of managing the State’s tourism and economic development advertising programs at the direction of Connel Murray; at the same time, I volunteered to provide the marketing program for the Alaska Visitors Association and came to know and respect many of these famed pioneers. They would not be pleased to see how Alaska’s government has responded to their dedicated and historical work.)
 
There was a time, Hites recalled, when competing, foreign cruise destinations studied the Alaska model and made offers to cruise lines to make themselves more competitive.   Now, he said, Alaska is among the most uncompetitive of cruise ship
 
destinations. “This summer there will be a 17% drop in cruise visitors to Alaska”, he said.  “We have lost three big ships from the three largest cruise lines, representing the loss of 140,000 passengers in 2010.”
 
“The largest number of independent travelers to Alaska first came here on a cruise ship,” he said, underlining the importance of cruise ship investors to Alaska’s overall economy. With recent cruise ship industry promotional budgets allocating as much a $75 million/year to Alaska, he said that lower 48 images of Alaska have shifted from icebergs and igloos to fishing, sightseeing and sports.
 
Hites linked the passage of a 2006 Cruise Ship Voters Initiative with unattainable environmental standards, unnecessary regulatory burdens and a high, punitive head tax that was costing Alaska the world class cruise ship advertising program, tens of millions in lost payroll, the loss of thousands of tourism jobs, not counting indirect losses. See additional links here. 
There is no reason for the Legislature and Governor to not repeal the initiative this year, or at least the most onerous aspects of it. I take that back, sadly acknowledging that many Legislators know repeal is the right action while they place populism and reelection above a desire to do the right thing. 
 
In the Q&A session I asked Hites what he thought of Legislators who used “the shortage of time” to justify taking no action on onerous cruise ship and oil industry tax and regulatory issues. Hites observed that they should do what was right for Alaska if it took working nights and weekends. “We have to hang together,” he said, “or we’ll all hang separately.”
 
The noon ‘Town Meeting With Dan Fagan (NGP Photo with panelist, Carol Comeau) began with entertaining video clips, ‘man in the street’ interviews illustrating how little citizens know about current affairs and their government.  (Paraphrased Question to lady, “Do you think the country’s becoming more socialist?  Paraphrased Answer, “No, I don’t think people know HOW to socialize anymore.”)  
 
Fagan roamed the audience in an entertaining “town meeting” style, first challenging panelists with reactions to state taxing and spending policies…then probing the audience for questions. 
 
Talk show host, Mike Porcaro (NGP Photo-r), spoke of the obsession politicians have for creating studies. “We have created the field of Xerox Engineering,” he said. “We could create buildings with all the plans that have been completed here.”
 
Former KTUU news anchor, John Tracy (NGP Photo-l), is now one of Alaska’s leading advertising executives. He observed that, “The pipeline is 1/3 full and Alaska has no plan,” going on to urge state leaders to begin thinking and planning for the future. “I want to speak in favor of planning,” he said. “Companies plan. Our goal should be to assure that we are a part of the plans of investors! We need to determine whether or not we wish to play a role in the company investment plans.” Anchorage School Superintendent Carol Comeau (NGP Photo) agreed: “We need to create a long range fiscal plan.”
 
“The main problem,” cruise ship executive and former state legislator, Ralph Samuels, said, “is that Legislators think in election cycles…. We need more private sector investment.” 
 
Lieutenant Governor Craig Campbell (NGP Photo-r) seemed to be walking a fine line between defending the Administration’s policies and proclaiming his own, independent platform as the August primary election approaches. In response to Fagan’s repeated probing about whether the state’s production tax law should be modified to reduce the tax, Campbell said that government should tax only to fund necessary government expenses and not for the sake of taxing. While not specifying changes to be made, he observed that, “The State of Alaska taxes too much. Our government is too big,” he said. “We need to stop growing. We need to privatize more government operations.” Porcaro added that, “The way you make anything smaller is to give it less. This is the cure. Do we have the political leaders in place with the ability to do the job?”
 
“We’re in a situation,” said Becky Hultberg (NGP Photo-l, with father, Rick Baldwin), wherein 85% of our state budget and 1/3 of our jobs come from one place. We want our politicians to come together and resolve these challenges together.” She agreed that the state’s oil and gas production tax was too high when the exploration activity begins slowing down.
 
Lobbyist Jim Lottsfeldt (NGP Photo-r) highlighted the difficulty in recruiting competent citizens to elective office. “We just keep electing career politicians,” he said. “We need to look beyond the political community for our leaders.” Samuels added that, “We need more employers who will support candidates.”
 
From the audience, former Cordova Mayor Margy Johnson (NGP Photo) noted that, “Before the oil industry, we in Alaska were cold and dark and wet.” Steve Hites, the morning speaker, added that while the cruise ship tax will, “…collect $50 million in taxes, Southeast Alaska will have $93 million worth of business losses.
 
Alaska Support Industry Alliance Executive Director, Paul Laird (NGP Photo, with former legislator Norm Rokeberg) announced initiation of a ‘Faces of ACES’ information/advertising program and criticized legislators opposed to tax moderation by demonizing the businesses.
 
One audience member said the oil industry ought to commit to invest any tax savings in Alaska. Your author responded that such an attitude was the problem in Juneau. Legislators are too concerned with what companies make and are not concerned enough about creating a sustainable and competitive investment climate. 
 
In review, we conclude here that in this election year, there is insufficient, committed leadership in Alaska to make the investment climate more inviting. As a result, the state—over 85% dependent on oil income—will continue to experience a decline of income as its government budget increases. This trend toward calamity will not be felt by today’s generation of elected officials and they will successfully ‘kick the can’ down the trail for the next generation to confront.  
 
Conclusion: The Legislature should amend a current bill or introduce a new one which 1) at the least, eliminated the oil production tax progressivity feature and lowered the net tax rate from 25%, and 2) repealed the cruise ship tax and burdensome environmental requirements or, at the least, reduced the head tax from $50 to $5 and eliminated all other burdens established by the cruise ship voters initiative. –dh                *   KTUU Coverage by Rhonda McBride. *Related: Alaska Dispatch by Rena Delbridge.  Unless changes are made to Alaska’s natural gas tax by May 1, the state could lose out on lots of revenue during the first 10 years of a large diameter natural gas pipeline’s life — and could lose crude oil revenue as well.   *    ADN by Elizabeth Bluemink.  Conoco’s Alaska profits looked more impressive last year because low natural gas prices in the Lower 48 and overseas pulled down profits in those places, said Brian Wenzel, Conoco Phillips’ Alaska vice president for finance.   *   KTUU by Ted Land.  The debate over Alaska’s oil taxes continues in the state capital.