Alaska: Show Us The Money!
Russell Sadler
Drilling in Alaska’s Arctic National Wildlife Refuge has little to do with reducing America’s dependence on foreign oil since much of any increase in production will be exported to Japan and China. ANWR has everything to do with Alaska’s local politics. It’s all about the money -- not oil company money, but Alaska tax revenues.
Here’s the story behind Sen. Ted Steven’s frantic, high-handed effort to drill in ANWR.
After 46 years of statehood, the Alaskan economy still cannot support itself without hefty federal subsidies to finance public infrastructure that makes private investment attractive. More seriously for Alaska’s political class, the taxes generated by 671,000 souls rattling around a state twice the size of Texas did not provide enough money to pay for the services Alaskans want in this most expensive of states.
Alaskans finally found their revenue stream when oil was discovered in Prudhoe Bay on the isolated North Slope in 1968. It became America’s largest oil field -- over 5,000 acres and 3898 exploratory wells.
It meant wealth for oil companies. It meant cheaper petroleum prices up and down the West Coast. More importantly, it finally meant wealth for Alaskans who have long felt they were treated like a colony by business interests in Portland and Seattle.
The discovery of oil forced the Alaskan government to come to terms with the native Alaskan land claims they had ignored since statehood. Oil companies wanted clear title to oil rights before they invested in production. That meant Alaskan natives got money. The oil companies’ eagerness to exploit the North Slope and get the oil to market created pressure that led to the creation of national parks and wildlife refuges of unprecedented size for the nation and generous oil royalties for Alaskans.
The royalties were so large, Alaska’s political class was forced to share them with Alaska residents in unique ways. Half the oil royalties go into the state’s treasury to finance state government. The other half of Alaska’s oil royalties are invested in a constitutionally protected “Permanent Fund,” professionally managed in stock market investments. Every Alaskan receives an annual “dividend” from the earnings of the Permanent Fund. Some 671,000 Alaskans share millions in oil royalty earnings and pay modest state taxes.
The whole scheme seemed too good to last, it was. During the go-go years of the 1990s, the stock market produced so much in earnings that Alaskans were sharing an annual dividend of just under $2,000 for every man, woman and child in the state.
The stock market’s lackluster performance over the last five years has reduced Alaskans’ Permanent Fund dividend to around $800 this year. Alaskans are not amused.
Alaska’s oil royalties are calculated on the number of barrels of crude oil that pass through the Alaska Pipeline. As oil production on the North Slope stabilized, the royalties did too. But the cost of maintaining government in Alaska keeps rising -- Alaska, like other remote locations with extreme climates, is an expensive place to live.
Any Alaskan politicians first priority is to keep oil moving through that pipeline in order to keep royalties flowing into the state treasury and the Permanent Fund.
In 1998, Alaska Sen. Ted Stevens successfully used the Republican-controlled Congress to blackmail President Bill Clinton into repealing the ban on exporting Alaska oil in exchange for unrelated legislation Clinton wanted.
Repeal created a spike in oil moving through the Alaska Pipeline, boosting the state’s royalties for a short time. About 20 percent of the oil from Alaska is now exported to Japan, Korea and China. But this boost was soon offset by the oil companies that shut down refineries on the West Coast as the industry “consolidated” in a frenzy of buyouts and mergers.
Now oil passing through the Alaska Pipeline has stabilized again -- along with Alaska’s royalties.
The relentless effort to open ANWR is part of Stevens’ strategy for boosting Alaska’s oil royalties. In the larger national oil consumption picture, the estimated reserves under ANWR are small. The oil will help meet American -- and Asian -- consumption for less than a year. But every barrel means more royalties flowing through Alaska's treasury and the Permanent Fund.
But what’s good for Alaska is not necessarily good for the rest of the country. Stevens is helping maintain our de facto energy policy -- Drain America First. It would be smarter in the long run to emphasize more efficient energy consumption and stretch our country’s limited remaining domestic oil reserves as a hedge against a political disruption of our foreign oil supplies. But energy efficiency doesn’t put any new royalties in Alaska’s treasury, so Sen. Stevens has no incentive to pursue it.
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Dec 25, '05
Thank you for that. When in doubt cherchez la buck.
Dec 25, '05
i've a few comments on your mostly good article. first off, exporting the oil to asia has stopped. also, the most recent versions of stevens's anwr bill prohibited export. you're right in that it's about local politics, but it's also that stevens is owned by the oil companies. exxon still has not paid the measly $4 million fine for the valdez spill, their posted profits were close to 300 million this year. as long as they donate money to 'uncle ted', he'll do what he can for them. you say that we still cannot support ourselves. the state is more than 'twice the size of texas', it's 1/5 the size of the US, and while the rest of the states were having their land handed to rail companies and other developers during the rush west, alaska, entering the scene much later, was neglected. we do not have basic infrastructure in most areas outside the 4 main cities. no running water and honeybuckets would just not be allowed in the lower 48. also, as the arctic and subarctic regions are being hardest hit by climate change, we're constantly having to move villages and rebuild roads and bridges as our land melts away beneath our feet. you need our resources but there aren't enough of us to support this resource colony with tax money if there was a state income tax. most of the federal money goes to roads (to make military access for defense) and the free public schools which are a national policy. we have very few roads but they do need to be maintained for your benefit. i'd be willing to bet there's many more miles of road in oregon, a tiny state compared w/ alaska. and with people there whining if we need a new one how can we develop and take our place as a modern state? i would bet more federal money goes each year to israel than to getting alaska the basic infrastructure you had in place there 100 years ago.
and our cost of living is higher, with fuel oil over $5 a gallon in some villages and gas $6. because the rivers have been so low, due to climate change, many villages could not get fuel delivered this year. 11 million acres burned around my town in 15 months. that's larger than many states and expensive to deal with. we had storms that took more land than katrina did, flooding towns and houses and it never hit the press.
our pfds were low because of enron. if you want to find a scandal that's a good place to look when following the money. so ya, there's a lot going on that costs money which we don't have. yet you want our oil, fish, trees and minerals. i'm not in favor of drilling anwr, i agree it was a totally sleazy thing to do. we need to look for alternatives instead. but i feel that if you understood the issues here you would be more understanding about the points raised in the rest of your article.
Dec 25, '05
More seriously for Alaska’s political class, the taxes generated by 671,000 souls rattling around a state twice the size of Texas did not provide enough money to pay for the services Alaskans want in this most expensive of states.
Taxes? What taxes? None of the 671,000 souls rattling around the state actually pay ANY state taxes because there are no State taxes in Alaska at the individual level. No state-wide sales tax. No state-wide income tax. No state tax period. Of course there are plenty of business taxes. The state budget is mostly funded by oil royalties. Fishermen pay a tax on all commercial landings. And there are various other business taxes. But no individual state taxes. So keep that fact in mind when you hear Alaskans whining about lack of infrastructure.
Back before the oil boom Alaska had a state income tax just like Oregon and many other states. And Alaska sent progressive Democrats to Congress. But the legislature repealed the state income tax when the boom hit and has never managed to find a broad-based revenue source since then. In lieu of actually raising revenue the legislature mostly spends its sessions looking for ways to cut school funding and state services even further to the bone.
Of course some of the points made by CW are valid. Alaska never got the chance to really rape and subdivide its natural resources in the same way that most other state did. That said, one cannot get past the point that Alaska had deliberately created the underdeveloped state that it is through failure to invest in its own infrastructure. One only has to compare Alaska to Norway to see what could be done with similar resources if the will was there to actually invest in public infrastructure. Norway has basically the same resources as Alaska yet is 100-times more developed when it comes to basic infrastrucure like highways, schools, and ports. But of course Norwegians pay a lot of taxes. Can't have that can we?
Dec 26, '05
Point of clarification on my previous post.
There is a sales tax in some cities in Alaska. During the years I lived in Juneau the city sales tax hovered around 5% depending upon what local bonds were being paid off at the time. I remember there is also a sales tax in Kodiak and a few other cities. But these are municipal sales taxes not state sales taxes. In fact, in the past when the legislature has floated the idea of a state-wide sales tax the cities with municipal sales taxes have squawked the loudest in protest because a state sales tax would undermine public willingness to tolerate an additional local sales tax.
Dec 26, '05
The relentless effort to open ANWR is part of Stevens’ strategy for boosting Alaska’s oil royalties. In the larger national oil consumption picture, the estimated reserves under ANWR are small. The oil will help meet American -- and Asian -- consumption for less than a year. But every barrel means more royalties flowing through Alaska's treasury and the Permanent Fund.
Another small point of clarification.
The Alaska Permanent Fund is actually an investment fund created in the 70s as a place to deposit surplus oil revenues. the Permanent Fund managers invest the money in stocks, bonds, real estate etc. just like any other pension fund or mutual fund. It is the dividends from these investments that are paid to all state residents according to a fairly complicated formula. Consequently it's mostly the stock market that determines the size of the annual dividend not oil prices.
Since the establishment of the Permanent Fund the state has added additional surplus oil revenues from time to time but hasn't done so in quite a few years as there really haven't been surplus oil revenues in many years. The state government absorbs them all. The growth of the Permanent Fund is due entirely to the investment savvy of the fund managers and not new oil revenues.
As for opening ANWR. No one really thinks that opening ANWR will add additional royalties to the permanent fund. What they do think is the following:
Opening ANWR will create a massive economic boom in the construction and exploration industries with thousands of jobs and hundreds of millions of dollars flowing through the state, especially those parts of the state poised to benefit such as Anchorage and Fairbanks.
Royalties from ANWR will supplement the state budget and forestall the need to impose new state taxes to pay for schools and highways and other trappings of civilization.
In short, it's about jobs and taxes not the permanent fund.
Dec 26, '05
Oops, yet one more correction. After I posted the above comment I had a nagging feeling it was not entirely correct. So I read up on the Alaska Dept. of Revenue home page and found that.
-25% of current oil royalties go to the permanent fund principal and 0.5% go to a special school fund. Not the 50% cited by Sadler or the 0% I incorectly stated in the previous comment. The rest of the royalties go to general state revenues. Note, royalties are only one form of oil revenue. The state also collects oil revenues from other vehicles such as a production tax, corporate income tax on oil companies, and property tax on oil properties. So 25% of royalties actually represents a much smaller percent of total oil revenue collected by the state.
-From time to time the state legislature makes ADDITIONAL deposits of surplus revenue into the permanent fund principal account. But hasnt done so since the 1980s. I was thinking about this 2nd category of fund deposit when I made my comment.
Sorry for the confusion and incorrection information.
10:41 a.m.
Dec 26, '05
This is good clean fun for progressives.
The largest state in the union, full of rugged individualists with a definite libertarian tint to their politics; is also the most glaring example of the modern Rural Welfare State.
The central mission for one of the most wacko right wing extremist senators is to ensure the perpetuation of massive giveaways to his hardy band of self reliant pioneer types.
Dec 26, '05
Pat- Ted Stevens is far from being "wacko", and anyways isn't that a personal attack which is barred by BlueOregon. Hmmm, just a theme I notice when checking out this site.
Also - Ted Stevens, if found elected in another state, would likely be considered a progressive repbulican. He's pro-choice, he's pro stem-cell and research, he's pro-pork, and he's very willing to cross party lines. He's the type of Senator the Club for Growth would target.
As for the rural-welfare state and Alaska's ability to support itself. The premium resource lands in the state were locked up by ANILCA by Jimmy Carter as a total double cross after he lost his reelection. One of the reasons Alaska is so pro-Republican (not to be confused with conservative because they are a differnt breed of R up there) is because of the way the democratic party double crossed their democrats from the state. Most of the "Progressives" of old Alaska have clearly migrated to the Republican side including many of the active labor/union people.
For decades since statehood a cross section of Alaskans blind to party affiliation collected a suggested list of resource lands ot grant the state in order to guarantee a self-sufficient Alaska. These requested lands were locked up within ANWR (a huge chunk of land over 1/4th the size of Oregon). The reason Sen Stevens appeals so hard for these lands is he knows once he's gone it'll be twenty years easy before there is an Alaskan powerful enough to push this issue through again. He has been fighting for ANWR development since the late 1970's and its his life's work as a Senator.
He is not wacko but very clear in were he stands and why. As for the ANWR debate itself - the green-left isn't exactly honest in their portayal of the facts.
Oh and to CW and his conspiracy of Ted Stevens being bought by Exxon. Alaska has one of the most progressive campaign finance laws in the nation (it looks alot like the current initiative floating around Oregon). Maximum $500 per person with a total bar on corporate donations. If corporations want to donate to candidates they need to give their money directly to employees who are then limited to a $500 donation which they are taxed on as income. Also, Exxon doesn't really operate in the state either as its oil leases had all been transfered over to British Petroleum in the late 90's. Currently ConnocoPhillips and BP are the two players in Alaska oil development with Williams Energy and Tesoro Alaska having petroleum refiners in the state. So if your going to weave a believable consipiracy theory go with one of those companies.
Kent- You are correct that the Permanent Fund payments are derived directly from investment interest after the fund corrects for inflation and organizational costs and reasonable levels of reinvestment. The Permanent Fund does add oil revenues to its base though (though its not paid out until it comes back in excess interest). Any additional revenue not used in the state's budget is usually rolled back into the Permanent Fund. I doubt he's still in office but a great Republican named Rick Halford use to force a vote on the subject annually (he's also the same guy who questioned the democratic Governor's decision to allow a single company, BP, to operate on the North Slope and got the Clinton Admin and FTC involved requiring two to develop the North Slope).
Merry Christmas DarePDX
Dec 26, '05
One of the reasons Alaska is so pro-Republican (not to be confused with conservative because they are a differnt breed of R up there) is because of the way the democratic party double crossed their democrats from the state. Most of the "Progressives" of old Alaska have clearly migrated to the Republican side including many of the active labor/union people.
OK, I gotta call bullshit here. I lived and worked in Dutch Harbor and Kodiak from 89-92 and lived in Juneau from 1995-2004 and was active in Democratic politics during all that time. Stevens is part of the old guard, that is certainly true. But he's hardly they typical Alaska Republican. The Republican Party of Alaska is about as far from Centrist/Progressive as it is possible to get. This is the party that threatened primary challenges for Sen. Lisa Murkowski because she was too "liberal" on abortion. The Republican party in Alaska is basically the same collection of fundamentalists, anti-tax crusaders, gun nuts, and business interests that it is here in Texas and elsewhere. The current Lieutenant Governor, Loren Leman is typical of this bunch. He spent most of his time in the legislature trying to attach anti-abortion measures to every piece of legislation he could find.
old-time Alaska progressives migrated to the Republican party? Ridiculous. Tell that to Fran Ulmer, Tony Knowles, Mark Begich, Kim Elton, Eric Croft, Ethan Berkowitz, Mary Kapsner, Bruce Botelho, and others who have been fighting the good fight in Alaska all these years.
Dec 26, '05
kent say, But no individual state taxes. So keep that fact in mind when you hear Alaskans whining about lack of infrastructure. 650,000
got any idea how much tax revenue 650,000 people can generate? we're not the richest state in the union.
And Alaska sent progressive Democrats to Congress. that all changed when hale boggs and begich disappeared in a plane crash. like with other western states, there was a lot of concern in DC as to whether the new states (AK & HI, CA, OR, WA, etc.,) would be R or D; both sides seek to keep a balance in DC.
Alaska never got the chance to really rape and subdivide its natural resources in the same way that most other state[s] did. the other states we part of huge giveaways. the fed gave millions of acres to railroads, and other companies all thru the push west. here, people weren't allowed to marry, claim land or do many of the other things you all took for granted in the lower 48. the massive land gifts and giveaways were pretty much over before we gained statehood. no wonder we're off to a slow start.
and your comparison w/ norway is interesting. norwegians maintain their whole country thru taxes, in the US, states compete for finite federal resources.
and to s.e.e., ted and ben stevens are about as slimy as they get. i don't know if you've been watching the fish news, but ben is up to his ears in it. ted just divested himself of properties and things because he knows it looks bad, but check out his son-in-law's recent deal.
Dec 26, '05
This has been a very interesting exchange between people who seem to know a lot about Alaska--at least a lot more than me, as I have no desire to go somewhere that cold.
Have any of you read Jared Diamond's latest book, "Collapse"? It looks at how certain civilizations failed because they miscalculated the sustainability of their ecosystems.
Could it be that though the population of Alaska is small, there really are too many people living there for the environment to sustain them? And that's why all this federal aid and oil revenue is necessary, though the oil, of course, will not last that long?
Dec 26, '05
Gil:
I've read Diamond's books and just finished Collapse. Alaska is frankly far more sustainable than pretty much any other of the 48 states. At least from my point of view.
The fact that Federal dollars flow north doesn't really mean anything in terms of long-term sustainability. In fact, Federal dollars don't flow north to quite the extent that statistics suggest. That is because so many employees in the fishing, petroleum, shipping, mining, and tourism industries work in Alaska while maintaining their residency in other states. I know huge numbers of people in the fishing industry who are residents of Seattle but have worked their entire adult life in Alaska. They file their 1040s with a Seattle address so it appears as if the money is being earned in Seattle but it is really generated in Alaska.
If you account for all the non-residents working in Alaska and taking their paychecks outside, the balance of payments between what Alaska generates in Federal revenue vs what it spends in Federal revenue is not quite so tilted.
That said, Alaska's least sustainable element is probably food production. It's simply too far north for reasonable grain and livestock production. But could certainly feed its population with seafood. Diamond discusses this issue in detail with respect to Greenland. So if we were to revert to some medieval type of society without widespread trade then Alaska would have difficulty feeding its population. But then so would most east coast states as well.
Alaskans live an unsustainable lifestyle but no more so than the residents of any other state. But the lack of population pressure means that the state would probably come out ahead of most others in some post-industrial crisis world. Because most of the communities are small enough to maintain themselves with a virtually subsistance lifestyle. That sort of thing would be inconceivable in Los Angeles or Houston or any other big city in the lower 48.
Where the state is perhaps most vulnerable is in the area of climate change. The Arctic is going to be most devastated by global warming. And that's already happening.
Dec 27, '05
"old-time Alaska progressives migrated to the Republican party? Ridiculous. Tell that to Fran Ulmer, Tony Knowles [transplant and extremely soft on the party], Mark Begich [son of old guard/extremely conservative], Kim Elton [yes old guard], Eric Croft [son of old guard - as liberal as they get in Alaska], Ethan Berkowitz [transplant about 15 years ago - as liberal as they get in Alaska], Mary Kapsner [really young], Bruce Botelho, and others who have been fighting the good fight in Alaska all these years."
Kent, your not the only person who lived in Alaska and was politically involved. And if by "good fight" you mean fighting for the development of ANWR, opening of new mines, and fighting new taxes - Yes they are fighting the good fight in stark contrast to what its considered in Portland, Oregon. And many of the labor leaders in Alaska are Republican now over the national party as well. In 2000 the Alaska delegation got up and walked out of the convention under the leadership of one of the Labor Leaders who left the D-party that year.
Of the list you mention most of them aren't old enough to be "old guard" or those who were active in Alaska's inception as a state under the flag of the Democratic party and migrated to the Republican fold. (Mary Capsner got elected a few years ago and she was under 30 - shes a nice person and a quite a bit conservative by Portland standards). Of the list only a few would probably hold the course within the Portland democratic party. Many would be despised for their fiscal conservative leanings. There was real concern that Tony Knowles was going to leave the Demo party as far back as 2000 (the expectation was he would change his party affiliation prior to running for US Senate over ANWR).
There are a slough of Republicans currently serving in the state Legislature that originally were elected as Democrats and left the party to join the Republican majority because of the perception of the national party and the fact that Alaska's state interests are a pawn in the national parties platform.
As for different breed- The Republicans in Alaska are different than any where else I've ever been. In the same election the state (with an equal percentage of the electorate) out lawed same sex marriage and legalized marijuana. That wouldn't happen in Oregon or even Texas. You still have an active presence of the Religous active members of the party - but they are not the majority of the electorate and don't stop many conservative Democrats form winning statewide office (usually they help via tearing the R-party apart).
They also have a tighter connection with wilderness areas which creates a mix-feeling type of environmentalism (I know I'm about to be laughed out off BO for this but from what I've seen its true). As long as you don't impact recreational hunting or fishing without bringing a reason why, most Alaskans are conservtionally minded (as long as the message is not brought by the League of Conservation Voters or the SIerra Club). Where it breaks down is when the left leaning organizations attempt to lock people out of using wilderness areas (which is the goal of the Sierra Club and LCV in Alaska).
DarePDX
Dec 27, '05
maybe pat ryan and the others who suggest alaska is a welfare state don't know their u.s. / alaska history. both the 'department of' and the 'district of' alaska were run by the navy during the period up to and after the 'homestead act' via which the fed. govt. was giving away land down south. while other states were given 'parcel 16' and 'parcel 32' land grants to provide for the development of schools and other infrastructure, alaskans weren't allowed to own land, marry, or stake claims. many of the federal land grants made to alaska still haven't been turned over to the state all these many decades later. and, even after the mining acts of '66 and '72 the rs2477 rules didn't apply here. when lower 48 land was being sold at $1.25 to encourage settlement and farms, or given away to soldiers and vets, and granted for canals and roads, alaska was still not even a territory. southerners blocking western development and territorial status for washington and other territories, hoped to prevent more 'free states', yet didn't have enough pull to stop the fed from giving 223 million acres of land and land scrip to the railroads to sell at profit. under that alternating square plan, some historians estimate 7-10% of the US land was given to the rail companies, along their 'proposed' routes which were later sold at more than double their worth. when alaskans tried to build their own railroad, the workers were shot by outside interests at keystone canyon near valdez.
as the contiguous states reaped the profits of the sales of their land grants, setting up funds for schools and other necessities, alaska still waits for her locked up land to be returned. during the early 1900s most western states tried to drop out of the franchise systems that monopolized their transportations, communications and utilities. alaska was still plagued by 'the guggs' and the fed was ruling in their favor. as lower 48 western municipalities struggled to gain independence against corrupt eastern corporations and trusts, rural westerners found themselves increasingly dependent upon the centers of political power as their states compete for finite federal benefits. this non-cooperation among the states is in sharp contrast to the inter-dependence most urban dwellers recognize as reality. city dwellers are all in it together, pooling their wealth for the benefit of themselves and all other residents. nationwide though, poor core-periphery relations continue to plague the western territories just as they did the roman and other empires. at 1/5 the size of the US, alaska is still the big backward red headed step child result of federal colonialist and imperialist interests, and the fed is refusing to pay child support so she can grow up like the rest of the states.
Dec 27, '05
"southerners blocking western development and territorial status for washington and other territories" should read "and statehood for washington.."
Dec 27, '05
Mention should also be made that many in Alaska are publicly critical of the major pork projects shipped to the state by Ted Stevens. Freeways and bridges are commonly fought because the far flung communities want to avoid the high cost of maintenance. Alaskan's don't usually "whine" for infrastructure and aspire for complete independence in their politic.
Also - The original land grant sought at statehood is locked up in ANWR. This is part of what makes it such a hotbutton issue for Ted Stevens and Don Young. Back when Wally Hickle (who got fired by Nixon for speaking his mind) was Secretary of the Interior they compiled a list of prime resource lands. Jimmy Carter wrapped the majority of these lands up in ANWR which is protected.
DarePDX
<h2>PS - Would anyone be interested in an expatriate Alaskan political blog (there seem to be alot of us down here in the blue state of Oregon).</h2>