Hands off the fund until oil companies pay up

Spectrum, by Ray Metcalfe

Until we get our fair share from oil -- no, no and again no. If we voters let the governor raid the fund, the pressure for the legislature to do the right thing with oil will be gone. Another 25 years will pass and another $60 billion, which should have gone into our Alaska Permanent Fund, will be out the window.

Over and over oil companies say "A deal is a deal," to defend the fat hog they've cut in Alaska. If "A deal is a deal," then let's go back to the deal we had on oil before the oil companies used our money to buy our legislature.

Years ago, oil companies lobbied through a tax break known as "ELF" or "Economic Limit Factor." ELF is a mathematical formula that provides endlessly increasing tax cuts for most of Alaska's oil fields. Over the years, ELF cuts have grown to the point that most North Slope fields no longer pay any severance tax at all.

There's a reason why most Alaskan leaders resist reversing the effects of ELF. I call it "the trickle-down theory."

Hypothetically speaking, "the trickle-down theory" works kind of like this: A North Slope oil producer hands out a "gravy contract" without competitive bid. The "gravy contact" pays $50 million but requires only $10 million worth of work.

Delivered with a wink and a smile, the gravy contract gets handed to an oil-service company. The service company then pockets a big chunk and subs most of the work. Like the service company, the subs also get several times what their work is really worth.

Then, about this time of year (campaign season, special sessions on tax issues) the oil producers take an inventory of which legislators are either ignorant of oil taxes and/or willing to sell out their fellow Alaskans.

They then pass that list on to the oil-service company. The service company arranges a big fund-raiser, at maybe someplace like the Petroleum Club, sending invitations to all the executives of the subcontractors who were on last year's "gravy train." Executives wanting to see their company on next year's "gravy train" know attending the fund-raiser with a pocket full of checks is required. Hence, the trickle-down theory -- or "the Veco dripâ" as I sometimes call it.

Many books have been written about the carpetbaggers who robbed Montana of its 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 is drilled, pumped and delivered to refiners at a cost of between $4 and $6 per barrel, including Alaska's. Kuwait and Saudi each spend about $4 per barrel for the services they get from oil companies. When oil is fetching $40 a barrel, they take home about $36 a barrel. When Alaska's oil sells for $40 a barrel, we keep less than $12.

If Alaska retained anywhere near the percent of profits that most oil- producing governments retain, dividends would go up and deficits would vanish.

If we do so sufficiently before the oil runs out, Alaska's permanent fund could still grow to the approximate $60 billion required to sustain dividends and government services without taxes, for generations to come. If we don't, we will eventually raid the fund, spend it down, and lose it all.

To see a spreadsheet detailing the effects of ELF and a chart comparing oil taxes worldwide, visit www.republicanmoderates.com and click on the banner inviting you to help repeal ELF. From there you can also find charts detailing what ELF costs Alaska and a chart that shows how Alaska's oil taxes compare to the rest of the world.

For more information go to www.RecallMurkowski.com and click on "Squandering of Alaska's resources".

Ray Metcalfe is chairman of the Republican Moderate Party.