In a rare floor speech for a Senate president in what is normally a taciturn body, Sen. Gary Stevens railed for nearly 30 minutes against the governor's proposed oil tax cut. Here is the transcript and audio recording of Sen. Stevens' speech.
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Thank you Mr. Majority Leader.
The hard thing about being president is to have to listen to the debate and not be able to participate. I appreciate this opportunity.
In the remaining days of this legislative year, I wanted to speak to the most contentious and difficult issue we have faced -- that of the governor's bill to reduce taxes on the oil industry. There has not been a more momentous matter for us to deal with in the 11 years I have been in the Legislature. It is of enormous and long lasting importance.
I'm concerned about the fear in my communities. Fear that the pipeline is about to be dismantled. People are scared -- scared to the point of demanding we pass the governor's bill before TAPS ceases to exist because they all know that some 90 percent of our revenues are based on oil taxes.
We need to be careful about using an issue like this to frighten people. Let's step back and think about this matter of throughput of TAPS.
You know, when someone tells you if you don't do this right now -- the world is coming to an end -- that makes you suspicious. Remember Chicken Little crying, "The sky is falling"? I used to read that to my children as I am sure you did. Act now, without thought or consideration, there is no time to look at the data, at the facts. You are out of time.
I'd ask that we dial it down a notch, to think things through, to consider expert advice. Where is Alaska really in terms of oil taxes as compared to other states and nations? Let's take a deep breath and think about it. That's where the Senate is right now.
We respect the governor and appreciate his good intentions and the attention he is paying to the oil industry. But many of us respectfully disagree with giving away up to $2 billion in oil taxes without knowing what we will get in return.
As for the other body, they barely passed the governor's bill. Out of 40 members, if two members had changed their vote, it would not have passed. The way the supporters of the governor's bill were speaking, I was expecting a near-unanimous vote. But nothing like that occurred. It only passed by two votes. So clearly there was serious concern by many.
We need to do our homework on such an important piece of legislation. And I don't believe that has happened so far. Deliberations have not been complete -- critical questions have not been discussed, not even asked about.
With all due respect, I don't believe the administration did a particularly good job of introducing the bill. At least in the hearings I attended, a solid case was not made. Many questions went unanswered. It was truly, "trust us" and was presented, as I said earlier, with a hope and a wing and a prayer.
The governor has said this is a "do-nothing Senate." I can't agree with that, again respectfully, because despite how this may sound, unfortunately, there is no other way to give this talk without referring to the governor, the governor's administration, and the governor's bill.
And I like this governor. I'm glad he is the governor and I'm glad he introduced this bill so we could discuss it. But the Senate has accomplished a lot -- putting up to $2 billion in savings, writing the capital and operating budgets, considering legislation -- not including the many accomplishments we have made in education, sending two bills to the other body funding K-12, both SB 84 and SB 97, and giving the other body the opportunity of deciding which they prefer -- plus the success of the Higher Education Task Force.
What we have not done, and what I believe the governor is referring to, is to pass his oil tax bill.
We may be called do nothings, but our interpretation is to do nothing to harm Alaskans. And his bill could cause considerable harm to many Alaskans. I know that is not the governor's goal. I know he believes he is doing the right thing, but there could be unintended consequence of rushing to a decision.
We have many questions that need to be answered, especially in the area of throughput in TAPS, and maybe least of all in what the response of Big Oil has been. We have read the speech given in Anchorage by Conoco's chief executive saying that if we passed the governor's tax relief bill and gave them $2 billion that it is likely they would invest more.
I have the greatest respect for Jim Mulva and appreciate that he is the only oil executive to step forward of late and speak his mind. That's all well and good, but why have they not come and talked to us? Testified to the Resources Committees? Made real commitments?
And where are the other two of the Big Three -- BP and Exxon? Are we to walk away from $2 billion because one company is likely to take some action? Where are the others? Why are they not testifying here in the capitol to the Legislature? Why are they not putting themselves before us on the record so we can get our questions answered, so we can find out the facts? They are nowhere to be seen this session.
It has been suggested by many that we need a comprehensive cost-benefit analysis; not a rush job. An issue of such magnitude cries for serious and thoughtful consideration. We have to know the answer on whether we need to give Big Oil another tax cut. Remember, we have already given them up to $2 billion in tax credits which were not used for new exploratory wells, but for maintenance.
We need to understand the short and long term cost of this change as well as we can. Then we must determine what the proposed benefits will be and the chance those benefits will occur. Then you calculate the difference.
The result may be more jobs for Alaskans, or more oil in the pipeline, or the possibility that the state may never recover the difference in the tax it gave up due to the legislation.
Even if there is a negative impact and we don't recover the cost of the change in tax the state could still decide the change is a reasonable course of action.
We could decide that jobs or more oil in the pipeline is worth more than a savings account or capital budget items, or maintaining funding for education, Medicaid, or police protection.
Fuel and energy -- that would be an acceptable cost-benefit analysis.
But what is not acceptable is not counting the costs, saying the costs are not real. The costs are real. They can be determined. What are not real at this point are the proposed benefits from this tax change.
They simply cannot be calculated because the oil companies that would benefit from these tax changes have failed come forward. They say they will decide whether to explore and develop only if we pass the governor's oil tax bill. And they will decide sometime in the future whether to explore and develop or not. It might be worth it, but the Legislature's job is to count the costs and fully understand the risk before we make such an important decision.
We have to do the research, get the information needed, and do our due diligence. Take our fiduciary responsibilities seriously. Alaskans deserve this from their elected officials -- that we not rush to a decision.
It is never inappropriate to return to the Constitution, a document we have all sworn to uphold. Of course, anything you read from it is open to interpretation. That's why we have a State Supreme Court, to figure out what the Constitution means. But in the area of natural resources, it seems pretty clear to me. It says we will utilize, develop and conserve the natural resources of our state for the maximum benefit of its people.
That is not hard to understand. It does not say for the maximum benefit of Big Oil. It does not say for the maximum benefit of our state's banking institutions. It does not say for the maximum benefit of the
Chamber of Commerce. It says for the maximum benefit of the people, our constituents, all of them, young and old, voters and non voters, Republicans and Democrats.
That is who the Constitution was written for, that is who the Constitution protects.
So, the governor's bill passed the other body with two votes to spare and is now safely in the possession of the Senate. I referred it to three committees, which is something I try not to do this close to the end of session. But I had a letter from the chairman of the Labor and Commerce Committee requesting the bill be sent to his committee as well -- a completely legitimate request since the chair has concerns about labor issues in the bill.
Then it goes to Resources and on to Finance -- all reasonable and understandable with no games being played, I assure you.
Labor and Commerce needs to be concerned with the conflicting job claims made by the bill's supporters and detractors. We hear conflicting stories about more people being hired than ever before to work in the oil field, but we also hear that local, Alaskan companies are seeing low employment. Where is the truth? Who is right? The chair of Labor and Commerce had a hearing on Friday and may move it out if he gets the answers to these important questions.
But there are big questions yet to be answered about labor issues. There are a lot of jobs in Alaska in the oil and gas field. We are near the all-time high in employment. In 2010 we had 12,800 jobs in oil and gas as reported by the Department of Labor. This is only 100 down from the all time high. It's 20 percent higher than the average of the last 10 years.
But unfortunately, the oil industry is not hiring Alaskans as they should: 47.9 percent of new hires now are being filled by Outsiders. What is wrong with this picture? Why are these companies not hiring Alaskans? We need some answers.
My charge to our Labor and Commerce Committee is: Do your job. Send the bill forward to the Resource Committee when you are satisfied with the answers you are getting.
The governor's bill has a long ways to go in the time we have left. The real problem, in my estimation, is that we have not been presented adequate information and answers from the administration, from the Department of Labor. There appears to be a lot of skepticism about whether the tax reductions will really trigger new oil production into the pipeline.
I think we all agree that we would like to see more oil in the pipeline, but the governor's bill, as it now reads, gives up to $2 billion in tax relief to oil companies without firm guarantees to Alaskans that they will look for more oil or that they will hire more Alaskans.
To move ahead on the audit issue, despite the fact that the administration has not requested it, over $30 million is now in draft budget to pay for needed hardware and software. We are way behind. We have not completed an audit of a single year since the ACES tax returns began. Nothing has been audited since ACES started in 2007. This is another indication that it may be too early to make changes to our current tax system. Let's get it done. Let's hire the best and catch up
Many have argued that the pipeline, TAPS, will be shut down if we don't change the tax. The governor has clearly said this and many others have implied the same thing. Concerned and frightened Alaskans have emailed me. They have asked us to pass the governor's bill before the pipeline is torn up and implied that it could happen immediately.
Superior Court Judge Sharon Gleason, just recently named to the federal bench in Alaska, she adjudicated a very important case about the value of the pipeline; five-week trial, 171-page decision, I encourage everyone who cares about Alaska to read it.
The big question was how long the pipeline will last? Lots of expert testimony. Blockbuster: The judge determined that the life of TAPS is at least to 2047.
That is 36 years from now. I have not heard the administration talk about this finding. Gleason's decision was released on Oct 26, 2010, only some five months ago. It was BP, Exxon, Conoco, Alyeska Pipeline Service, Fairbanks, Valdez, et al. v. State of Alaska.
Fairbanks and Valdez believed the TAPS 2006 assessed value should be $12 billion for tax purposes. The owners -- that's BP, Exxon, Conoco and others -- believed the TAPS assessed value should be $850 million. Just so you won't have to wait to the end, the judge decided its value was $10 billion and would cost $18.7 (billion) to replace it today.
The first tanker left Valdez in 1977. At that time proven reserves were 9.6 billion barrels. As of Jan. 1, 2006, over 15 billion barrels transported through TAPS and more than 7 billion barrels of proven reserves left.
So in 2006, 15 billion barrels shipped with 7 billion barrels of proven reserves compared to only 9.6 billion barrels of proven reserves in 1977.
Judge Gleason determined that TAPS physical life met or exceeded 100 years with proven reserves at least 7 billion barrels.
There was far greater economic value in 2006 than the value of the proven reserves when TAPS began in 1977 because the oil was worth so much more in 1977 at $50 barrel. Of course today, it could be valued at up to $110 a barrel or higher. TAPS physical life considered virtually unlimited. With surveillance, maintenance, repair, and replacement programs, the owners -- again BP, Exxon, Conoco and others -- gave evidence TAPS could function down to 200,000 barrels per day with the installation of heaters. Maybe even down to 150,000 according to Dr. Modisette, but questionable.
Today, DNR is predicting over 600,000 barrels a day will be shipped through TAPS. So the court found that TAPS can operate at least down to 200,000. The physical life of TAPS is virtually unlimited if properly maintained. The court decided there were sufficient proven reserves for TAPS to continue to operate until at least 2047. Alyeska in its 2001 federal right of way renewal application said that oil fields servicing TAPS have long, predictable production tails on the charts. So, the life of TAPS is at least 2047. The fact that TAPS could be in operation at least until 2047 was independently confirmed by BP in a report to the (Securities Exchange Commission) and used by Royalty Trust in its 2006 SEC filing.
BP Alaska projects continued economic production from Prudhoe Bay at declining rate until 2065; another and later date, economic until 2065. Evidence persuasively demonstrated that TAPS was profitable and would be reproduced if it did not presently exist. Value of the reserves in 2006 increased at least five-fold since 1977, when oil was selling at $10 barrel. Value of remaining proven reserves on the North Slope approximate $350 billion; or, at today's prices, if you conservatively say $100 per barrel, the proven reserves could be valued $700 billion.
Only means of transporting product to market is TAPS. Clearly, the court said TAPS would be replaced to realize the value of those proven reserves if necessary. If there was not a TAPS today, someone would spend $18.7 billion to access $700 billion in proven reserves.
Value of TAPS $10 billion. Cost $20 billion to replace today. Proven reserves at $50 is $350 billion, at $100 would be $700 billion. If we did not have TAPS it would be worth building a new one. Someone would spend $20 billion to get at the proven reserves of $700 billion and that is not considering the other opportunities such as shale oil, heavy oil, and Outer Continental Shelf Oil -- to say nothing of ANWR.
We recognize there are problems with TAPS -- with throughput now producing 600,000 barrels a day. But according to the judge it would still operate at 200,000 barrels a day. The governor wants us to up that to 1 million barrels a day. That's another discussion we need to have. What is the right amount of throughput? What is best for Alaska? What is best for the U.S. -- with the President encouraging domestic production instead of imported oil?
Maybe Congress should rethink ANWR. Of course, we are talking about an enormous amount of money. Two billion a year in tax relief to the industry is gigantic.
Giving that amount of money away would use up our savings in five years or so -- and then what? How would we pay for the services the public wants like education, Medicaid, police protection, fuel and energy costs?
We may be called a "do-nothing Senate"; I don't believe that to be the case. We want to find the right answer, but we will not be bullied into making a $2 billion mistake. We need answers, data, and information. We need the cooperation of the administration, of the commissioners and of their departments.
Telling the Senate to rush to a decision without the facts is not working and will not work.
Helping us to find the right answer will work.
Why is all this important? Because citizens are being told TAPS may close down, our oil pipeline may be removed. The governor said, as reported at his March 24 press conference: "At some point, Alyeska will have to shut down the trans-Alaska pipeline system."
Do we really want to frighten the public at this point? Threaten them with the closure of TAPS? Where is the truth between what Judge Gleason has said -- that the life of TAPS is virtually unlimited -- and the governor's statement that "at some point" they will have to shut it down?
If nothing else, this issue alone needs serious consideration.
I have heard some people suggest that we change oil taxes now and then come back in a year or so if it is not working and change it again. That's really a bad idea, I think. What kind of stability does that give to industry if we change our tax structure from year to year? And it is never easy to change oil taxes. It takes an enormous effort from a lot of people.
No – let's get it right, whatever the answer is, and stick with any new tax structure for a long time to come.
There are certainly things we can work on once we have the information we need. I personally like the idea of reducing progressivity at the high end, but I would like to see how that works out in detail. And the idea of bracketing makes sense to me as well. There are things in the governor's bill that I think many senators can eventually support.
But not now, not without the information we need. Remember: The world does not come to an end if we do not act now and pass the governor's oil tax bill. The sky is not going to fall. Let's take the time we need to get this right. These are difficult times with big decisions ahead of us. Let's be careful, wise, and judicious in making decisions that will affect Alaskans for decades to come.
As you know, I'm a retired history professor, so I hope you don't mind my ending with a little history lesson. I've been slowly reading and enjoying Ron Charrow's new book, "Washington, A Life". He was a great president, but I think, an even greater general.
Throughout the Revolutionary War, both the British and American armies held enemy prisoners of war. The British regularly executed their POWs but Washington was loath to act in kind. He was pushed from all sides to execute a British officer. Eventually a young captain, named Asgill, was chosen by lot. Washington kept putting it off and refused to be rushed to judgment. Finally he received a personal letter from our allies, King Louis and Marie Antoinette of France, asking the general to release the British officer for humanitarian reasons. Washington relented and sent Asgill to the British admiral, still in New York.
Washington dealt with this issue the way he dealt with many controversies during his presidency, by letting things simmer instead of bringing them to a premature boil. He said he liked to allow things to percolate.
That's what I think we need to do here, in this instance, of the governor's oil tax bill: Let matters percolate, let them simmer and not come to a premature boil. We need a lot more information to do our jobs properly. We need the reports from Wood-McKenzie and Van Miers. Unfortunately, we will not receive them until after session. They will show us where Alaska really sits in oil taxes as compared to other states and nations.
To make this important decision without that information would be unconscionable on our part.
Let us do our job. Do a real cost-benefit analysis of this oil tax. We can find out the costs relatively easily. What we have to know are the benefits.
Not just a hope, a wing and a prayer. Not just a comment from an oil executive in Anchorage that if you give us $2 billion, we are likely to invest more.
We need to pay attention to our Constitution and celebrate the fact that our natural resources must benefit all Alaskans.
We need to look at labor issues and find out why employment in oil and gas is so high, but yet 47 percent of new hires are not Alaskans.
We need to understand if TAPS is really about to be dismantled or if Judge Gleason is right and the life of TAPS is virtually unlimited. And to remind ourselves that if we did not have a pipeline today, a new one would be built for under $20 billion in order to access $700 billion in proven reserves.
Can we do all of this while still respecting the industry, the governor, his administration, commissioners and the other body? Yes.
And finally, I am loath to accept the charge that the Senate is doing nothing. But I will accept the charge that we will do nothing to harm Alaskans.
Thank you Mr. Majority Leader for allowing me to speak. I have taken up more time than I intended. This is the first time in the past three years I have felt the need to step down and speak from the floor. It will likely be the last. I know the members will be glad to see me go back up there, sit down, and be quiet. I hope I have not abused the privilege. If so, I apologize.
Thank you.
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