By SCOTT HAWKINS
As lawmakers return irritably to Juneau next week, a fascinating dynamic has emerged: Gov. Bill Walker and Senate Republicans, who have vast differences in their policy leanings, found some common ground on the most pressing issues facing the state this year.
House leadership – normally aligned with the Governor on most issues – now finds itself the odd man out.
How did this happen?
Quite simply, it is a case of grown-ups in the Governor’s Office and the Senate knowing how and when to negotiate – and find common ground – while House leaders seem to utterly lack those skills. Indeed, our current House leadership appears composed of perhaps the worst negotiators in modern Alaska history.
WALKER SAVES HOUSE LEADERSHIP FROM ITSELF
The regular legislative session and the first special session adjourned with no action on the operating budget, mainly because the House tried to link all fiscal issues together and come away with a grand bargain on budgets, personal income taxes, oil tax hikes and Permanent Fund restructuring that favored their position on everything.
It was all or nothing. Predictably, the result was nothing.
With state government facing a July 1 shutdown in the absence of a budget, Gov. Walker stepped in to save his allies in the House from themselves – i.e., he called a second special session, but this time he limited the call to the operating budget only. This deprived House leaders of their ability to link a hodge-podge of fiscal issues together into one big, unwieldy hairball.
It worked. House budget negotiators had very little choice but to sit down and hammer out an operating budget in just a few short days. Gov. Walker signed it before July 1. Voila, shutdown averted.
With an operating budget now in place, Gov. Walker amended the special session agenda to add House Bill 111, the House’s oil tax bill. That, and only that, for now. The Senate version of the bill has been narrowed to deal only with eliminating cash payments to small oil companies, a subject on which all three bodies – Senate, House and Administration – more or less agree.
Since everyone agrees, why not just get that done? Simple, right? Well, except that the House really, really wants to re-broaden the bill to jack up base taxes on an oil industry that is already struggling with low prices.
The governor agrees in principle with the House position, but the Senate is not having it. To his credit, Walker has gotten the memo that oil tax hikes are not in the cards this year.
In keeping with standard negotiating principles, Walker and the Senate sat down and identified those high-priority HB 111 elements they can agree on, then they compromised on some key details.
This required the Senate to back down on things like “ring-fencing,” a restriction that Walker wants on how tax deductions can be applied to individual oilfields.
By the way, eliminating the cash incentives is not something pro-growth Republicans are all that keen on doing. After all, the incentives have been wildly successful, more so than even their most ardent supporters expected.
However, with the state running a massive deficit, funding them straight out of the general fund is no longer feasible. There are other ways to fund them, and we should, but that sort of creativity is in short supply just now. So eliminating them is the only thing the three bodies can agree upon.
However, in spite of their enthusiasm for eliminating the cash payments, the House has not yet come to the table. Unless they come to their senses, they appear ready to sink the whole bill unless they get their way on jacking up tax rates.
Here’s the rub: Failure to end the program means cash payment liabilities continue to accumulate on the order of $300-400 million per year. This adds substantially to an already huge, unfunded liability of over $700 million.
Bear in mind, these cash payment liabilities are very real legal obligations incurred under state law, not funny money. Failure to make good on them would sink the state’s credit rating even further, while branding Alaska as a political banana republic and putting development of several newly discovered oilfields at grave risk. They cannot be ignored indefinitely.
INCOMPETENT NEGOTIATING OR CYNICAL MOVE?
That House leadership would even contemplate letting the cash payments program remain in place for another year or two seems counter to their usual, revenue-hungry ways.
Each and every member of the House majority caucus would far rather spend that quarter billion on their friends in government than invest it in the efforts of small, independent oil producers.
Here is where negotiating incompetence gives way to cynical manipulation. Many Juneau observers are increasingly convinced that the House majority actually wants the credits to remain in place in order to stoke public outrage against the oil industry, leading to a ballot initiative — to not only end the credits but jack up taxes, too.
Oh, and they think that gambit would also bring more anti-industry types to the polls in 2018, helping House leaders maintain or increase their majority.
Yes, you read that right. House leaders seem willing to squander nearly a half billion dollars that our cash-strapped State cannot afford in order to launch a destructive ballot initiative they believe would help the Democrats, politically.
That would explain the bizarre spectacle we are seeing now: Republicans attempting to end incentives for small oil companies, while Democrats take steps to keep them in place against the interests of their core constituents.
And yet, here is where tragedy could give way to farce. As you might recall, Democrats have tried this before. In 2014, their public employee union backers gathered enough signatures to force a vote on the 2013 oil tax reform bill, Senate Bill 21.
That gambit backfired spectacularly when voters ratified SB 21 by a fairly good margin. Private sector voters came to the polls in droves, which ended up electing solid Republican majorities in both the House and Senate.
VOTERS USUALLY GET IT RIGHT
A spectacular backfire is just as likely to happen again. Voters generally make good decisions once an issue gets fully aired out and this one would certainly get a fulsome public hearing.
Voters may very well decide that they don’t wish to accelerate the current economic downturn, depress their real estate values even further, and squander the best chance in decades for a sustained increase in oil production, state revenue and high paying jobs.
In fact, I would bet on it.
In that Keystone Cops scenario, the political left in Alaska would be dealt yet another setback in a long string of setbacks to their various anti-business ballot initiatives over the years that have targeted both the mining and oil and gas industries. They would also find themselves saddled with another year or two of accumulated cash payment liabilities, plus a very real chance of losing their newly cobbled majority. What a plan!
It is a strategy akin to someone pointing a loaded gun at their big toe and saying, “give me what I want or I will shoot!”
Here is a better idea for House leaders: Accept the major items on which everyone agrees – ending cash payments to small oil companies, passing a lean capital budget, and enacting Senate Bill 26 to stabilize Permanent Fund earnings in line with the way other large foundations are managed.
That would let House members return home with some real accomplishments and avoid endless, irritable special sessions this summer and fall.
The alternative available to the House is to let cash payment liabilities accumulate irresponsibly, let the battered construction industry sink further this summer for lack of a capital budget, back the State into a very tight financial corner, and drive public approval of the Legislature even lower than it already is.
Scott Hawkins is board chairman of AlaskaWins.org, previously known as ProsperityAlaska. He is president and CEO of Advanced Supply Chain International. An economist, Hawkins was the founding president of the Anchorage Economic Development Corp.