Alaska Progress Report

Rural energy costs up to five times higher than Anchorage

From a recently completed Commonwealth North study, Energy for a Sustainable Alaska: The Rural Conundrum: "Recent studies have demonstrated that the poorest households in rural Alaska spent up to 47% of their income on energy in 2008, more than five times their Anchorage neighbor. Given the meteoric rise in the cost of oil since then, estimates of the burden today are significantly higher.

"The Commonwealth North Rural and Alterative Energy Study Group received presentations from regional organizations on energy plans in various stages of developments. Virtually all the plans included some version of renewable energy - generally still in the early concept design stage - and interconnection of communities to that generation source. All the plans appeared to be very high cost, upward of $500 million per region, and none would dramatically lower the cost of energy without massive government subsidies.

"The Renewable Energy Fund, established in 2008, is authorized to underwrite $250-300 million of energy projects, but with projects for small communities coming in at $4-5 million each, it is likely that per-community renewable solutions will cost $2 billion statewide, and will at best keep electricity prices stable into the future. Heat and transportation fuel substitutions will greatly increase this number."

Alaska has highest health costs per employee

From an October 6, 2011 press release by PlanSponsor.com: "According to a recent survey by United Benefit Advisors (UBA), Alaska has the highest average annual cost (AAC) per employee for employer-sponsored health plan coverage, at $11,926.

"The survey, titled UBA 2011 Health Plan Survey lists the most expensive and most affordable states for employer-sponsored health plan coverage. After Alaska, the top five highest AAC per employee states included New York, at $11,308 AAC; Massachusetts, $11,004; Connecticut, $11,000; and New Jersey, $10,642.

"Mississippi has the lowest ACC out of the five least expensive states at $6,282. The lowest five states also included Arkansas, $6,741; Kentucky, $6,801; Idaho, $7,029; and Arizona, $7,119."

Alaska ranks very low for oil and gas development

The Fraser Institute released its annual Global Petroleum Survey, which ranks 136 "jurisdictions" or places across the globe according to their "investment barriers," defined as, "high tax rates, costly regulatory schemes, and security threats." Alaska apparently is in the toilet:

"Alaska also remained in the third quintile but dropped in the global rankings from 68th position (of 133) to 83rd position (of 136) due to poorer scores on a number of issues including fiscal terms, environmental regulation, the cost of regulatory compliance, uncertainty around the interpretation of regulations, uncertainties about protected areas, and native land claims."

What's worrisome is that eight of the top ten slots went to other US states, topped by Mississippi.

New report says "relax the tax" on oil

From Commonwealth North: "Commonwealth North proudly announces our newest study 'Alaska's Oil Investment Tax Structure: Establishing A Competitive Alaska.' The Board of Directors and members engaged in a seventeen week targeted study that evaluated the primary public policy concerns associated with Alaska's oil tax structure. It was determined that the current oil production tax adversely affects investment in oil production on the North Slope and progressivity should be modified. Commonwealth North is hopeful that this report will be used as a source document for anyone who wishes to understand the issues and terminology surrounding oil taxes."

There are eight findings leading to three recommendations: reduce or cap the progressivity tax, incentivize new exploration through tax credits, and revise ACES this year even if it takes a special session. For those who need a reminder, oil revenues provide 80 to 90 percent of the state budget in any given year, the pipeline is running about half full and production is declining about 6 percent a year.

Alaska has lowest tax burdens

The conservative Tax Foundation has released its latest Facts & Figures Handbook that "...compares the 50 states on 31 different measures of taxing and spending, including individual and corporate income tax rates, business tax climates, excise taxes, tax burdens and state spending." Alaska generally ranks at or near the bottom in terms of tax burdens. For example, we're ranked 49th for per capita state and local tax burden in FY08, with $2,871 owed per person compared to a national average of $4,283. As a percentage of state income we're ranked 50th, with a burden of 6.4% compared to a national average of 9.7%.

In general Alaska has rankings in the Foundation's book at the top or at the bottom because of (1) our lack of a state income tax, Alaska being one of seven states that do not levy one, and (2) our combination of a small population with big oil revenues, which results in things like Alaska being ranked #1 for state revenues per capita at $23,168 per person, versus a national average of $4,995.

The Tax Foundation is not known for being particularly careful with their figures. Every year they release a report called "Tax Freedom Day" that purports to identify that date on which Americans have earned enough to pay their tax bill.Fortunately, for a variety of reasons, 80% of taxpayers pay a smaller share of income in taxes than what the Foundation says is the average.

Alaska at bottom of (useless) list for business climate

Alaska is ranked dead last in a new CNBC list, America's Top States for Business '09. The utility of the list is questionable at best, given that Alaska has had over twenty straight years of job growth and is doing pretty well, at least at the moment, relative to the rest of the nation. Maybe it makes sense for Fortune 500 firms. A handful of simple indicators like per capita income, unemployment rate, and business creation/dissolution would be far more useful. For what it's worth, which is not much, here's their blurb:

"We scored all 50 states—using publicly available data—on 40 different measures of competitiveness. States received points based on their rankings in each metric. Then, we separated those metrics into the ten broad categories, with input from business groups including the National Association of Manufacturers. We weighted the categories based on how frequently each is cited in state economic development marketing materials. Here are the ten categories ranked in our study: Cost of Doing Business, Workforce, Quality of Life, Economy, Transportation, Technology & Innovation, Education, Business Friendliness, Access to Capital, Cost of Living."

Business Tax Deduction Impacts State Budget

Alaska is one of 19 states that allow businesses that lose money to change their tax returns from profitable prior years and receive a retroactive refund. From the Center on Budget and Policy Priorities: "...the net operating loss (NOL) 'carryback' deduction... allows businesses to file amended income tax returns for past years in which they were profitable, use current year business losses to offset those profits, and receive refunds of taxes paid in past years.  During recessions, when tax payments by businesses tend to fall in any case, refunding business taxes paid in prior years can make revenue shortfalls even larger. 

"These 19 states could avoid some loss of personal and/or corporate income tax revenue during the current fiscal crisis — and future recessions — if they act now to disallow NOL carrybacks... Three states... repealed their NOL carryback deductions during the years of tight state finances that followed the 2001 recession. The... NOL carryback deduction is reasonable from the standpoint of tax policy... Allowing businesses to average profitable years and loss years recognizes both that start-up businesses often incur losses for several years before they become profitable and that many businesses experience temporary losses in the course of an economic downturn. 

"This income-averaging policy can be substantially achieved, however, by permitting 'loss carryforwards' — allowing businesses to deduct any losses they suffer against future profits.  The tax savings provided by carrybacks and carryforwards is essentially the same, with the principal difference being a matter of timing... Loss carrybacks conflict with state balanced budget requirements, which force states to balance current year budgets even when the economy is weak, revenues are flagging, and service needs are rising.

"Quick action is especially important for Alaska, Delaware, Michigan, Missouri, New York, Ohio, and Oklahoma.  These seven states tie the amount of NOL carrybacks they grant to corporations and/or individuals to the federal income tax carryback rules.  As part of the federal economic recovery package, Congress is considering lengthening the NOL carryback period from two years to five years.  This would significantly increase the amount of tax revenue these seven states would have to refund if they fail to repeal their carryback provisions."