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February, 2013 (pdf) - Resource Development Council

February, 2013 (pdf) - Resource Development Council

February, 2013 (pdf) - Resource Development

RESOURCEreviewakrdc.orgA periodic publication of the Resource Development Council for Alaska, Inc.February 2013State spending, falling productionputs Alaska’s economy at riskWhile Washington managed to avoidthe fiscal cliff last month, Alaska appears tobe edging closer to its own precipice in thenot-too-distant future.The non-partisan Legislative FinanceDivision has warned lawmakers thatcontinuing State spending at the historicrate of growth, or maintaining spending atcurrent levels in an era of steadily decliningoil production, could put Alaska’s economyat risk. (See side-bar on page 5).Prominent Alaskan economist ScottGoldsmith also set off alarm bells when hewarned Alaska faces a mounting fiscal gap,which could result in an economic crash.With current tax rates on North Slopeoil producers capturing most of the profitsotherwise earned by oil companies in ahigh price environment, there has been amassive re-allocation of investment dollarsfrom Alaska to other more inviting oil andgas jurisdictions. The flight of capital hasresulted, in part, in a decline in North Slopeoil production of 6-8 percent annually.This is bad news since oil productionaccounts for more than 90 percent of Alaska’sunrestricted General Fund revenues.With oil production in steep decline,throughput in the Trans-Alaska PipelineSystem (TAPS) has fallen sharply. TheIn this issueAlaska economy at risk 1, 4-5Oil production tax reform 1, 6-7From the President 3Critical minerals conference 7Bristol Bay assessment 8Polar bear critical habitat 9A challenge to members 10Alaska Digest 11Millions barrels per dayAlaska North Slope ProductionFY 2000-2012 and Forecasted FY 2013-20221.21.00.80.60.40.20.0historyforecastNew oilCurrently producing2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022Source: Department of Revenue – Dec. 2012pipeline is now operating at one-quarter thevolume it once carried.However, the State has continued torun budget surpluses as high oil prices havemasked the decline. But the trend of increasedspending with decreasing production is notsustainable, economists warn.The Alaska Department of Revenueis forecasting oil production to fall by anaverage of 5.5 percent annually. Higherforecasted oil prices are expected to offset alarge portion of the lost revenues associatedwith the production decline, but statespending on agency operations have beenincreasing an average of 6.5 percent a year.Governor Sean Parnell recently releasedhis budget for the next fiscal year, and it isnearly $1.1 billion less than the current year’sGeneral Fund spending. In its proposal, theadministration holds the State’s share of theoperating budget to less than one percentgrowth at $6.49 billion. The new budgetleaves approximately $500 million in surplusrevenue for FY14.While the governor’s proposed generalfund spending is less than the current year’sbudget, it is still not sustainable, accordingto Goldsmith, an economist with the nonpartisanInstitute of Social and EconomicResearch (ISER) at the University of AlaskaAnchorage.(Continued to page 4)This edition sponsored by: CH2M HILL & Dowland BachNew oilAlaskans supportoil tax reformAlaskans came out in force at the firstpublic hearing of Governor Sean Parnell’sbill to reform the production tax on NorthSlope oil.Representatives from organized labor,mining, timber, and other sectors urgedlegislators to make changes to the oil taxstructure this session in order to attractnew investment and increase North Slopeproduction.John Sturgeon, President of KoncorForest Products, pointed out that thetimber industry was once Alaska’s secondlargest but it has nearly vanished – largelybecause of adverse public policies. Heurged lawmakers to make sure that doesn’thappen to the oil industry.Aves Thompson, Executive Directorof the Alaska Trucking Association, toldlegislators that while he was not a taxexpert, “I know something needs to befixed.”More production is the key to astronger economy, said Jeanine St. John,Vice President of Lynden Logistics. “Thedecline in North Slope production is trulyattributed to our tax regime.”If Alaska would offer more competitivetax rates, it would see increased activity andproduction on the North Slope, similarto what North Dakota has experienced,said Scott Thorson, President of NetworkBusiness Systems. He recently expandedhis Anchorage-based technology servicesfirm to North Dakota. “We’re nervousabout Alaska’s economy, watchingproduction decline.”Cruz Construction also expandedto North Dakota after its operationsexperienced a sudden downdraft in NorthSlope business. Dave Cruz, the company’spresident, expressed frustration with(Continued to page 6)

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