Thursday, May 25, 2006

Lawyer Speak: An expert witness

Hollis French and Les Gara are at "it" again.

Straying too far from the expert recommendations we've received will come at a cost to future generations. It will dampen our hope for real improvement in our schools, better college and job training opportunities, better access to health care, and better law enforcement to protect our citizens from crime.

Here are some details that might give you better insight into the debate in Juneau.

The advisers the Legislature hired demonstrated that Alaskans could maximize long-term revenue and development if we finally started taxing near the world average. The Senate bill raises 10 percent to 15 percent less revenue than if we taxed at the world average.

The Legislature's lead adviser, internationally recognized oil tax expert Daniel Johnston, recommended we adopt a modest 25 percent oil tax rate. And the governor's own tax adviser also supported a 25 percent rate. But after meeting with oil company executives, the governor introduced his bill at a 20 percent tax rate, costing the state $500 million a year at $60 a-barrel oil.

On Monday, the Senate passed a 22.5 percent tax rate. At today's oil prices, Alaskans lose roughly $100 million for every percent decrease in this tax. Compared with the recommended 25 percent rate, the Senate's 22.5 percent proposal costs Alaskans $250 million per year at today's oil prices.

The other crucial element of the bill is known as "progressivity." This ensures the tax rate will rise as oil prices rise. The state should share fairly in the windfall profits oil companies enjoy at high prices.

Mr. Johnston recommends that the tax rate rise by roughly one-third of a percent for every dollar the price of oil increases above $40 per barrel. The House reached a compromise number of one-quarter of a percent above $50 per barrel. The Senate chose the weakest approach yet -- a one-tenth of a percent increase that doesn't apply until oil reaches roughly $50 per barrel.

What does that choice mean in terms of dollars? At $60 per barrel, this costs us more than $500 million per year when compared with what the Legislature's lead consultant recommended. It costs the state roughly $150 million per year compared with the House compromise.

The Legislature has seen better moments. In March, the Senate Resources Committee adopted a proposal that came close to what Mr. Johnston recommended -- a 25 percent tax, with a rate that increased one- fifth of a percent for every dollar the price of oil rose above $40 per barrel. That left the state just short of reaching the world average tax rate. That bill was a fair compromise and would have provided the state with $700 million more, at $60 per barrel, than the bill passed by the Senate.

Mr. Johnston's words will be challenged over and over again as they have been here.

It took French and Gara eight paragraphs to tell the folks of Alaska something that is misleading and their "expert witness" can be discredited in less than one, maybe two paragraphs.

First, the B.P execs said that a twenty five percent tax would cause production to decrease. And the Murkowski administration took their word on it. And they did so with a valid concern.

It was Johnston who disputed the claim by arguing the U.K. increased their take by 10 percent without affecting investment.

BULL. An excerpt, from a story published by the BBC.

The UK produced an average of 2.72 million barrels a day (mbpd) in 1999, hitting a high of 3.1 mbpd in August.

But by June 2005 this had fallen to 1.7 mbpd, a drop of 34%.

A 34% decrease in production. And it continues to fall.

So the question is, who is the expert and what do French and Gara want for the State of Alaska?

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