June 25, 2025 • 52 mins
Welcome to The Weekly Top 3 - our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets - for the week of June 23, 2025.
This week, our top 3 issues are these: 1) we discuss what's driving oil prices and where they appear to be headed now in the wake of the Israel/Iran ceasefire (2:15); 2) we explain how, like the #akleg before them, the US Senate is now resorting to accounting tracks to create fiscal space for continued deficit spending without raising revenues (17:32); and 3) we expplain why, if we don't fix Alaska oil taxes first, "drill baby drill" will only serve to increase our state budget shortfalls (37:39).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:08):
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of June 23rd 2025.
The weekly top three is aregular segment on the Michael
(00:28):
Dukes Show.
The show broadcasts on bothFacebook Live and YouTube Live
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
(00:53):
the Alaskans for SustainableBudgets Facebook, youtube,
soundcloud, spotify and Substackpages.
Also on the Alaskans forSustainable Budgets website, as
well as the projects page onnational blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
(01:13):
same locations.
Keep in mind that, in additionto these podcasts during the
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
(01:34):
This week, our top three issuesare these First, we discuss
what's driving oil prices andwhere they appear to be headed
now in the wake of theIsrael-Iran ceasefire.
Second, we explain how, likethe Alaska legislature before
them, the US Senate is nowresorting to accounting tricks
(01:54):
to create additional fiscalspace for continued spending
without raising revenues.
And third, we explain why, ifwe don't fix Alaska oil taxes
first, drill, baby drill willonly serve to increase our state
budget problems.
And now let's join Michael.
Speaker 2 (02:15):
All right, brad.
Well, let's let's get into the,let's get in today's weekly top
three.
We're going to start off, ofcourse, with the big headlines.
You know the Iran, theIran-Israel fight.
You know there was a ceasefireyesterday and then late last
night they didn't break it, butthey bent it significantly.
(02:37):
And now who knows what's goingto happen, but the effects of
this on Alaska oil is going tobe kind of profound.
Give us the highs and the lowshere.
Speaker 1 (02:49):
Well, this is sort of a follow-up to last week's
discussion about what controlsoil prices supply and demand.
If we need a rehash, it'ssupply and demand, Right, and to
sort of take that through theweek a bit, I was just before
the show opened.
I was checking what the oilprices were.
(03:09):
Right now, you know I can saysomething during this segment
and be contradicted during thesegment itself.
So keep a broader, broaderperspective in mind.
But last week we were talkingabout the fact look, yes, there
is a war.
Yes, there is.
They are firing bombs at eachother, but it's all about supply
and demand.
Look at whether anything isactually happening to supply and
(03:33):
look whether anything isactually happening to demand
significant demand in trying togauge where oil prices are going
.
And the discussion last weekwas look, you know they're
throwing bombs at each other.
There's a risk premium buildingin, but they haven't thrown
bombs yet at supply sources,Iran supply sources and they
(03:55):
haven't thrown bombs yet atmajor areas that would affect
significant demand.
There's a risk that they will,and so there's a risk premium of
a percent built into the priceto take into account that risk.
But they haven't.
If they did, if the Israelishad bomb supply, or did bomb
supply, or if the Iranians didshut down the Gulf of or the
(04:19):
Strait of Hormuz, which has beentalked about from time to time,
which would affect all Gulfsupplies, Persian Gulf supplies,
which is about 25% of worldsupplies.
If those things happen, thenoil prices would take off
through the roof because supplywould be impacted significantly.
But they hadn't at that point.
And I kept saying look at supplyand demand.
(04:41):
Well, what's happened duringthe week?
At one point, this segment wascalled so we bombed Iran with
nukes, or not with nukes?
We bombed their nuclearfacilities, but prices didn't
move.
In fact, at one point over theweekend, prices started coming
down.
Even though we bombed theIranian nuclear facilities or
(05:05):
the nuclear enrichmentfacilities, prices started
coming down.
And then, when Iran, Iran'sresponse was to throw some
missiles toward Qatar that wereintercepted along the way,
prices really started taking off.
And what it was was the market'sassessment was that supply was
(05:28):
not being impacted.
The Iranians did not doanything in the, in the Persian
Gulf, Israel did not do anythingto Iran's production facilities
, supply wasn't impacted.
And so the market?
Yes, there's a, there's a wargoing on, but to the market it's
all about, but to the market.
It's all about supply,particularly in this region.
It's all about supply and do wesee anything affecting supply?
(05:51):
And the market kept saying no,we don't, no, we don't, no, we
don't, no, we don't.
So I was checking prices beforewe went on this morning and the
Brent price for December, whichis sort of the gauge of what our
FY26 price looks like, theBrent price for December is now
$65,000, $67,000.
So we're in the $65,000,$66,000 range, Back to where we
(06:17):
were basically before we gotinto, before Israel started
throwing bombs over in Iran.
We're back to the level we wereBecause the market sees this
war over there and sees all theshooting going on.
The market's not seeinganything going on on the supply.
(06:38):
Last night we were down.
Well, last night we were downat 65.
Were down.
Well, last night we were downat 65.
And so we're a tick back upfrom that, as I think the market
tries to figure out what'sgoing on with the ceasefire Do
we have one or do we not?
But again the market is sayinglook, supply is not being
impacted and so price is goingto soften.
(07:00):
So all those people, includingto some degree me, because I
thought, well, this may get us alittle bit through FY26.
All those people who said youknow, the risk premium that's
being built into price is goingto save Alaska.
There was an Andy Holloman postthat said, yeah, see, price is
going back up.
We didn't need to do all theseschool vetoes, school spending
(07:23):
vetoes, All these people whowere saying, oh, we're going to
be saved again.
You know prices are going to goback up, and all this stuff
about being concerned about lowprices.
All that's gone already in thespan of one week.
Now next week, you know, ifthere are violations to the
ceasefire, if they do go back toshooting, if Iran does start
(07:46):
threatening to close the Straitof Hormuz again, if Israel does
target some of Iran's productionfacilities, we may be somewhere
back up in the price range.
But right now the market'ssaying, nope, yeah, there's a
war, yeah, good for that.
But right now the market'ssaying, nope, yeah, there's a
war, yeah, good for that, butit's not affecting supplier
(08:07):
demand, so we're not going tofactor that in a big way into
price.
Speaker 2 (08:14):
And of course we have that love-hate relationship
with the oil prices.
I mean, we as citizens hate itwhen oil prices rise, but the
state loves it, and vice versa.
We, you know, we can reallyshine when we have a lower oil
price because you know we payless for heating oil and for
gasoline et cetera.
(08:35):
But the state then struggles.
And, like you said, I thinkpeople were really, you know,
macabrely kind of hopeful that aIran and Israel extended war
would help bolster that price.
But the needle really hasn'tmoved that much.
Speaker 1 (08:54):
One of the professions I never want to be
is a crude oil day trader,because with the markets open 23
hours, they take a break.
With the markets open 23 hours,they take a break.
For Alaska the break's betweenfour and that the markets are
(09:16):
open and it's just a horriblelife, particularly during a time
like this, because on the flickof a switch, prices can go up
dramatically and positions thatyou thought you'd settled in for
good value, those positions,can be destroyed and if prices
are up, you think you settled inon a good set of values.
(09:37):
You go to sleep, you wake upand they're all gone.
And so crude oil day tradersjust really have a horrible life
.
They make money, but they havea horrible life.
Alaska, basically, is a crudeoil day trader.
I mean, we live, as wediscussed last week and as we
discussed before, on the show,because we set our budgets at a
(10:00):
price projection, not even thecurrent price.
We set it at a price projection, Because we set our budgets at
a price projection going forward.
We're a crude oil day trader.
We're we're constantly checkingto see where the price is
compared to where we set thebudget at, and it's, and it's I
mean it's we've adopted all ofthe characteristics of of of my
(10:23):
friends that are crude oil daytraders, which is they have
shakes and they don't sleep well.
Speaker 2 (10:29):
Yeah, I picked the wrong day to stop sniffing glue,
kind of thing.
Yeah, no, look, I got that.
I got that.
Well, and again, tomorrowthings could change.
I mean, ceasefires announced,they immediately start lobbing
bombs at each other.
And tomorrow, you know,somebody could strike one of the
production facilities for oil,or the pipeline, or the, or the
Iranians could just stopexporting for a bit, or you know
(10:51):
, there's a, there's a handfulof things that could happen,
that tomorrow the oil pricecould be back up to 75.
We don't know.
That's what makes it so toughin Alaska to you know, that's
what makes it so tough to seewhere we're going.
Speaker 1 (11:04):
Alaska to you know, that's what makes it so tough to
see where we're going andthat's we've talked about this
on the show several times,michael we set our budget in a
way so that we guarantee we areat the tip of the tail on the
OPEC and on the oil market dog,that we're just flapping around
all over the place because we'retrying to follow the forward
(11:26):
price.
We've set our budget on wherethat forward price is.
If, like we do with the POMV,draw and like we do with the PFD
, if we set it at an average ofa historical price run five-year
price run in the case of POMVand PFD, maybe 10 years in the
case of oil but if we set itbased on a historical average,
(11:48):
we wouldn't go flipping aroundlike this.
We wouldn't take on thecharacteristics of a crude oil
day trader.
We would have a price.
We would know if it was up fromthat.
If the price ended up being upfrom that, we'd have some to put
into the CBR or into astabilization reserve or
whatever we wanted to call it.
We know if the price was downfrom that, okay, we'd have to
draw from the CBR or from thestabilization reserve.
(12:12):
But we don't do that we do thisto ourselves and we do this to
ourselves because maybe price isup and maybe we can budget a
lot better this coming year.
We can give away a lot of moneywe don't have, but we think
we're going to have becauseprice is up and we're doing this
to ourselves.
We shouldn't.
(12:33):
We had an opportunity a coupleof years to get off that roller
coaster.
It turned out that the price wewere using for budgeting
purpose was very close to thehistorical price and if we would
have said, okay, we're going toflip over and start using the
historical price, we wouldn'thave noticed much difference
(12:53):
from the previous year, becausethe previous year was very close
to the historical price.
But oh no, prices went back up.
So let's budget, let's spendmore, because prices are back up
and we think we're going to getall this additional money in.
It leads to situations whereyou're sitting there with the
price the oil price, market,futures market just sitting
(13:15):
there in your face and you'retrying to figure out what's
going on.
Speaker 2 (13:18):
Something that Harold and I agree on.
My God, the clock must havestopped.
How about zero-based budgets?
Only spend what you need tomeet your constitutional
mandates?
Yeah, that's the ultimate goal,right?
The problem is, we're nevergoing to get there.
Are you kidding me?
Government is way too easy withwhat did we spend last year Now
?
What do we need to add to it?
Speaker 1 (13:37):
That's government's, I mean, that's what they've been
doing Well and one other thingon top of that, which is, how
much revenue are we going to get?
How much revenue are we goingto get from from oil, additional
revenue from oil, so I can goout and satisfy my my
constituents and tell them I'mcatching up with past
underinvestment?
That's, that's always thecatchphrase that that makes me,
(13:58):
makes my head.
Head for my hands.
Speaker 2 (14:14):
I'm catching up.
Well, we'll see.
We'll see what happens here.
I'm catching up, but how big aswing do you think it could be
if the you know, let's just sayhypothetically, one of the major
export facilities there, or theHormuz Straits, gets closed
down?
I mean, what are we talking?
A $5 swing?
A $10 swing?
What?
Speaker 1 (14:36):
do you think?
Well, it depends.
It depends on the degree, itdepends on whether people think
it was an accident or permanentor on purpose, and it depends on
how long they expect it going.
So if Iran did something thatjust to take an extreme case if
(14:58):
Iran sunk a bunch of tankers inthe Strait of Hormuz in a way
that made navigation extremelydifficult, so we're talking
about a semi-permanent, semi, afairly long-term condition until
they can get those tankers outof there.
Plus, you know Iran wouldn't dothat.
I mean, iran's on its deathbedat that point because it's
killing itself by choking offits exit point for oil.
(15:23):
But if something like thathappened, we're easily talking
100, 125 in terms of oil.
So it depends on the degree.
If, on the other hand, israellaunches a, has a weapon, go
stray, and happens to hit an oilsupply depot, a tank in a tank
(15:44):
farm in one of Iran's exportfacilities, people go oops, it's
starting to spread to theexport uh facilities, um, and,
and you know you would see aprice spike the day traders
would go crazy, you know, tryingto figure out where that price
was going to go, you'd see a,you'd see a price spike.
But if Israel then said, oh,accident.
We're not intending to extendthe war to the export facilities
(16:09):
.
Our bad, forget it.
We're not going to be doingthat anymore.
Then you'd see prices come backdown fairly quickly.
So it really depends onseverity, extent of time and
what exactly has been hit.
Speaker 2 (16:22):
So basically, what we're all saying is it's a
guessing game.
I mean, that's the thing andthat's like you said you
wouldn't want to be a day traderfor crude, because you just
never know.
I mean, one stray missile canchange the whole outlook in a
few minutes and then change itback 12, 15 hours later.
It's definitely an iffyproposition.
Speaker 1 (16:42):
Some of the big crude trading shops I've come to
learn have a bunch of militaryexperts on staff to figure out
exactly that sort of thing.
Military and crude logisticsexperts to figure out exactly
that sort of thing.
Are they targeting exportfacilities?
Are they significant?
Are they important militarymoves against those export
(17:03):
facilities?
And so you know they'reconstantly trying to figure that
out and price it in.
But it's, you know, for thecommon day trader it's just,
it's like worse than Vegas.
Speaker 2 (17:14):
And here we are trying to live on this and
trying to decide what ourbudget's going to be next year
and instead of, you know,getting some steadiness in there
and getting a rolling averageof what we're doing, we're
constantly playing, we'reconstantly behind the power
curve on this, which is justinsane.
All right, brad Keithley.
Alaskans for SustainableBudgets continues with us.
(17:36):
We're on the weekly top three.
On to number two of the weeklytop three this week, which is
the US Senate is following theAlaska legislature in its
accounting tactics.
I mean, I don't know if this is, it might be one or the other,
I don't know if it's chicken andegg money and follow.
This is just seems like this isa constant thing.
(17:58):
But, brad, you're talking aboutthe new bill which uses a whole
new accounting method to showyou how much money it's saving
or not spending or et cetera, etcetera.
Give me the rundown on this?
Speaker 1 (18:11):
So the worst thing that's ever happened in Alaska
fiscal approach, alaska fiscalaccounting, was in 2017, when
LB&A they didn't even change thestatute.
When not LB&A when LedgeFinance, david Thiel did this
accounting trick where he movedthe permanent fund dividend from
(18:35):
designated general funds whereit belongs, because designated
general funds are fundsdesignated by statute for a
specific purpose.
There's nothing more that morefits that definition than
permanent fund dividends.
But anyway, thiel moved thepermanent fund dividend from
designated general funds tounrestricted general funds, and
(18:58):
unrestricted general funds arenot restricted to a purpose.
They're there for spending onwhatever you want to spend it on
.
So you suddenly move multiplebillion dollars out of
designated general funds over tounrestricted general funds.
And then the second step ofthat that we saw in the next
budget cycle was to calculatethe deficit without regard to
(19:23):
the obligation for permanentfund dividends, because you had
moved the dividends fromdesignated general funds to
unrestricted general funds.
And so, all of a sudden, youhad these additional revenues
that showed showing up on thebooks for book purposes, all
these additional revenues inunrestricted general funds, and
so the deficits you were showingwere much smaller.
(19:46):
Unrestricted general funds wentfrom here if I can do this
right went from way down herebefore the redesignation to way
up here, because all of a suddenyou move all these permanent
fund dividends.
It was an accounting trick andso the legislature started
talking about deficits that werein or surpluses they even could
(20:07):
talk about surpluses that weretaking into account.
Moving all of the permanentfund dividend over to
unrestricted general funds.
That move, that single move,freed up $2 billion.
Whatever the permanent funddividend otherwise would have
been freed up $2 billion.
Additional revenue oradditional fiscal space is how
(20:31):
the people in DC talk about it.
Additional fiscal space interms of what they could spend,
because they had all theseadditional revenues and the
deficit went down very small.
If we still accounted for thepermanent fund dividends as
designated general funds, thedeficits that we'd be talking
about would be huge a billionand a half instead of 500
(20:54):
million or 400 million or 300million, whatever.
Whatever Senate finance talksabout, we'd be talking about
these huge deficits and the andthe pressure to reduce spending
would be great because, becausewe weren't counting the, the
PFDs, as government revenue, wewould have a lot more downward
pressure on spending as a resultof putting those revenues back
(21:18):
where they belong.
Taking PFDs back where theybelong.
We'd have a lot more downwardpressure on spending.
But what they did, by bringingthe PFDs over into unrestricted
general funds, is create a lotmore fiscal space because they
increased the revenues.
There was no legislation, therewas no executive order.
There was nothing other than achange in which column David
(21:42):
Thiel and Ledge Finance putpermanent fund dividends.
That's a big source of theproblems we've had since.
Speaker 2 (21:51):
And the function was essentially it made the PFD now
compete with every othergovernment program, service or
agency, instead of just being asimple pass-through.
Now it had to fight foreverything, and that's how we
lost the PFD.
Speaker 1 (22:04):
Yeah, and some people will say well, that's what the
Supreme Court said in theWilkowski ruling, that it was
supposed to compete with allthis stuff.
Well, stuff in designatedgeneral funds do compete,
because we have no dedicatedfunds in this state and so we
have designated funds.
But designated funds can bedrawn out at any time to meet
(22:25):
any sort of spending obligation.
We saw a little bit of that inthis last session.
We saw a little bit of that inthis last session.
The Wilikowski case didn't sayyou had to stop treating them as
designated funds.
The Wilikowski case didn't voidthe PFD statute.
It merely said the PFD funds,like any other designated fund
(22:45):
has to compete with, can bepulled out, can be appropriated
by the legislature if thelegislature chooses to do so.
But from an accountingperspective it was not required
by the court, not required bythe decision.
It was pulling the PFDs fromdesignated general funds, dgf,
over to UGF.
(23:05):
That had the big impact oncreating fiscal space.
And so since then Alaska hasbudgeted what's called the
current policy budget.
The current policy budget is tosay well, we know that there's
that PFD statute over there, butwe budget based upon current
policy, which the Senate says is25-75, says is 25-75, 25 PFDs
(23:38):
75% to government and so we willassume current policy when we
look at the budget andformulated the budget and
preserve this fiscal space, thisincreased fiscal space that we
created in 2017, current policyversus current law.
Well, the Congress has always,since the early 1970s, when the
Congressional Budget Office hasalways budgeted according to
(24:03):
current law, they've alwayslooked at the impact of changes
in the budget or any budgetingcycle.
They've looked at current lawand they've said, okay, current
law says this, and so we'regoing to look at our deficits or
we're going to look at it at ifwe're doing a reconciliation
package or whatever we're doing.
We're going to look at thedeficit being created against
(24:25):
current law and the taxes theTrump taxes that were passed in
2017 are greatly impacted.
That because the Trump taxestaxes that were passed in 2017,
trump tax changes that werepassed in 2017 were temporary.
They were set for nine years.
Let's see what is this the endof the year is 25, so eight
(24:46):
years.
They were set for eight yearsor maybe nine years, and then
they expire and then they comeoff, and so all of the
calculations that have been donefrom a budget perspective since
that time have been done withthe expectation that Trump taxes
come off in 2019.
If you want to renew them, youcan, but you've got to recognize
(25:07):
it's going to increase deficitsgoing forward because current
is calculated, or the currentdeficits being calculated, based
on current law.
Well, lo and behold, in themiddle of all of this
reconciliation fight that'sgoing on in the Senate, senate
Republicans all of a sudden havedecided that they're going to
account for the Trump taxes andthey're going to account for the
(25:27):
budget using the Trump taxes ascurrent policy.
They're going to count it on acurrent policy basis, as opposed
to current law, and the effectis to create this huge amount of
additional fiscal space whenyou look going forward in the
budget, because, all of a sudden, you don't have to take into
account the re-up or the renewalof the Trump tax credits at the
(25:49):
end of 2025.
You don't have to account forthem as being additional deficit
creating under current law.
All of a sudden you can say,yeah, they've always been there,
we've treated them as currentpolicy and so the deficits in
the Senate Republicans'calculations all of a sudden
fall because they've created allthis additional fiscal space by
(26:12):
all of a sudden changing off acurrent law approach which we'd
had since the 1970s, changingoff a current law approach to a
current policy approach.
We've seen what it's done inAlaska.
It's increased spendingdramatically, frankly, because
the legislature has told itselfand the executive branch has
(26:34):
told itself ooh, we got all thisadditional fiscal space because
we don't have to account forPFDs as designated general funds
.
We can account for them asunrestricted general funds.
We're going to see the samething at Congress.
What they're doing is, throughthis accounting trick, they're
all of a sudden going to tellthemselves hey, we have all this
additional fiscal space.
We thought we were going tocreate billions in additional
(26:59):
deficits 4 trillion inadditional deficits over the
10-year period that we'relooking at in doing the budget.
Well, that all of a sudden camedown to 400 billion or
something, because we createdthis additional fiscal space by
beginning to look at things on acurrent policy basis as opposed
to a current law basis.
The problem with the currentpolicy basis is you can, it's
(27:20):
whatever you want to say.
It is.
The Congress doesn't have to doanything.
Just like the Alaskalegislature didn't have to do
anything when we shifted offtreating PFDs as DGF over to UGF
.
Just like the legislaturedidn't have to do anything.
The executive branch didn'thave to do anything, it was
David Thiel's spreadsheet, thechange in David Thiel's
(27:41):
spreadsheet, where it is allthey did to create that impact.
That impact, well, congress issaying, well, current policies,
currently the Trump tax credits,and so we're not going to
account the additional deficitswe create by by by renewing
those they're going to.
They're going to be doing thesame thing and then the next day
(28:02):
they're going to say, well,current policies, this as
opposed to that, as opposed tocurrent law.
We don't care what current lawsays, it's what current policy
is, and current policy is whatwe say it is at any given point
in time.
We're just, we are creating thesame sort of problem.
This accounting trick at thefederal level is going to create
the same sort of problem,additional problem, as if we
don't have enough problems onthe deficit side.
Additional problems at thefederal level, as changing the
(28:25):
PFD did, changing the PFD fromDGF to UGF did, has done in
Alaska.
Speaker 2 (28:31):
And this is not an insignificant amount.
I mean, it's the differencebetween $440 billion and almost
$4 trillion, right, I mean, thisis not a little tiny bit, this
is a lot.
And again it'll give them thatmuch more headroom to then say,
oh well, we can spend even moreAgain.
That's the problem.
I mean, I've come to theconclusion, brad, that the
(28:52):
people in Congress just don'tgive two craps about what's
going to happen to the economyin the long run.
As long as they can getwhatever program and money's out
that they can right now,they're just not going to slow
down.
They're not going to slow downat this point.
Speaker 1 (29:04):
And Thune, majority leader Thune is already spending
that additional fiscal spacethey create through this policy
switch.
He's already spending in termsof okay, well, I can give you
some extension on the renewables, right on the renewable credits
, or I can give you this, or Ican give you that, or I can keep
these farm programs, or I cankeep SNAP, or I can keep
Medicaid.
I mean, he's already createdadditional money, just like the
(29:27):
legislature did in 2017 withDavid Thiel's switch, of which
column he put it in on hisspreadsheet.
They're already giving awaythis additional fiscal space and
, believe me, when you spendmore money, the deficit's going
to be bigger.
Extending the Trump tax creditsisn't going to bring more money
in.
It isn't going to reduce thebudget deficits we got, it's
(29:51):
going to keep revenues fairlydepressed and we're going to
continue to run these hugedeficits.
But it creates more fiscalspace paper fiscal space and
Thune's already spending it,just like the legislature did
after 2017 in Alaska.
It's horrible.
These accounting tricks arejust horrible.
Speaker 2 (30:12):
Brad Keithley, alaska's for sustainable.
But we just, we can't learn.
We just, you know, we're likemonkeys who keep putting their
hands on the hot stove.
I mean, over and over and overagain, it just, oh, it's hot, oh
, it's hot.
I don't understand why thishurts, oh, it's hot.
I mean we just can't stop doingit.
It is, uh, it's, it's madnessfor sure.
You just can't stop doing it.
(30:33):
It is, uh, it's, it's madnessfor sure.
You just can't win, brad.
I mean we just, you know, theyjust, they get cheap, keep
changing the goalpost, right, Imean they just keep changing the
goalpost.
Oh, we're not, we're, we'reover, we're this much in debt?
No, no, we're not, really not.
It'll be this much and we cankeep spending up to that point.
I mean it's just, it's, it'sjust total fantasy at this point
that you know we could continueto do what we're doing and it's
(30:55):
all going to be okay, yeah,rather than.
Speaker 1 (30:58):
I mean.
What it leads to is this Ratherthan creating additional fiscal
space or maintaining yourfiscal space by reducing
spending or increasing revenues,which otherwise you'd have to
do, or increasing revenues,which otherwise you'd have to do
, rather than doing it theold-fashioned way, you know, we
earned the fiscal space bytaking the hard maneuvers.
(31:21):
They just go in with a sharppencil or, in David's case,
David Thiel's case, just a click, a mouse click to move that
column, to move that categoryfrom this column to that column,
and all of a sudden, ratherthan doing the hard work of
keeping spending under controlor increasing revenues to offset
(31:43):
the increased spending thatpeople want to do, rather than
doing the hard work of that,through one magical mouse click
you're able to create all thisadditional fiscal space, as you
said, at the national level.
They've created $3.6 billion ofadditional fiscal space,
(32:05):
additional spending.
Trillion.
Trillion is trillion.
We're dealing at the nationallevel.
We deal with billions in Alaska.
Trillions at the federal level.
3.8 trillion of additionalfiscal space.
That Thune is now busily tryingto get the bill through by
giving it away.
And it's madness, michael.
I mean we're not creatingadditional value.
(32:27):
We're not creating additionalfiscal space by actually
reducing spending, just like wedidn't in Alaska.
We're not creating additionalfiscal space by actually
reducing spending, just like wedidn't in Alaska.
We're not creating additionalfiscal space by reducing
spending or increasing revenuesthe old-fashioned way.
We're doing it, by accountingtricks that don't change reality
, which was we're spending a lotmore.
We're committed to spending alot more going forward than we
(32:51):
have the revenue to cover.
We're creating huge futuredeficits.
But those in control of thesharp pencil or those in control
of the mouse think they'rebeing smart, think they're doing
good things by making theseaccounting changes and and the
country suffers for it.
(33:11):
The state alaska has sufferedfor it's just, it's, um, it's
it's, it's a downward, downwardslope that we get ourselves on
brian brian just kind of sums itup for me.
Speaker 2 (33:23):
He says feeling like we're living in a lewis carroll
world.
When I use a word humpty dumpty, said in a rather scornful tone
, it means just that, what Ichoose it to mean, whether
neither more nor less.
The question is said, alice,whether you can make words mean
so many different things.
The question is said HumptyDumpty, which is to be master?
That's all, that's right.
(33:44):
Who's in charge of this?
I mean, it's a thing, oh man,brad, it is.
Speaker 1 (33:55):
It's a mad, mad, mad mad world, that's for sure that.
Well, that that's a great quote.
It's a great we do live in anorwellian world here yeah,
absolutely.
Speaker 2 (34:02):
Who controls the word ?
Who controls the definitions ofthe word I get?
So we've been watching this forso long, we've been talking
about these for so long.
Um, I mean, I guess we can'tstop talking about them.
But it's just, you know, I saidsomething the other day on
Firearms Friday, because there'ssome good stuff in the big
beautiful bill that's been addedfor firearms rights and I'm
(34:22):
like, at this point, just voteit in.
I mean you know what, just voteit in, voted into it.
At least we get that stuff,because these guys aren't going
to stop.
They're not going to stop untilwe hit the brick wall or the
oscillating fan.
I mean one of the two is goingto happen, right, and when the
yogurt hits it it's going to bea mess.
But I mean, until then, I justdon't know.
(34:45):
I don't know how these guys cancontinue to sleep at night.
That's what kills me.
Continue to sleep at night,that's, that's what.
That's what, that's what killsme.
Speaker 1 (34:56):
You're sort of another version of day trader,
right?
I mean it's, it's, oh, I'lljust change the rules, or I'll
just change.
I'll just change how we accountfor things.
Speaker 2 (35:00):
Yeah, it's going to be.
Uh, it's going to beinteresting to watch.
Let's continue on.
Brad Keithley, alaskans forsustainable budgets the weekly
top three, number three, numberthree.
It's the weekly top threeNumber three Alaska's oil.
You know, we've got new oilfields that are supposedly going
to come online and all theseother things, but there's this
(35:21):
pesky thing out there called theoil tax code and, brad, you
said it needs an overhaul.
Give me your thoughts here.
Speaker 1 (35:31):
Yeah, we've talked about this on the show
previously.
My thoughts on that SB21 hasbecome broken in the new age
that we're in of huge amounts ofdrilling going on by existing
players on the North Slope,which is resulting in a
significant reduction in taxes,oil taxes.
A reduction, significantreduction in taxes, oil taxes
(35:51):
Over the next decade.
I mean this number can't berepeated often enough to get
people awake.
Over the next decade,production is projected to rise
by 40% through the new fieldscoming on board, and that's a
great thing for Alaska, but oilrevenues revenues to the state
(36:14):
from that production areprojected to decline by 20%.
So what you've got going on isoil production going up,
revenues from that oil goingdown 60-point spread.
Speaker 2 (36:31):
60-point spread Going up 40% revenues, down 20%.
Speaker 1 (36:35):
Regardless of price.
I mean that is a number thatsort of exists regardless of
price.
It changes at the margins.
The revenue number changes atthe margins on price, but it's
not price driven.
What's going on is the way SB21was built, and no, it's not the
per barrel oil tax credits thateverybody complains about.
(36:56):
The way SB21 was built was thata couple of things go on when
you have new oil development,significant new oil development.
One is you're able to expensethe capital expenditures you're
making for developing new fieldsagainst current taxes.
There's no amortization.
You spend a dollar, a capitaldollar, today that dollar is a
(37:18):
credit or is a deduction fromoil taxes today and it's
company-wide.
So when Conoco spends dollarsdeveloping Willow which they
need to do, but when they spenddollars developing Willow
capital dollars developingWillow it's being deducted from
oil taxes that otherwise are duefrom them today.
(37:41):
And because Willow is along-term development, the
capital deduction is going onyear after year after year after
year.
Then the second thing that wasin SB21 is, once you get
production from that newdevelopment, there's a mechanism
called the gross valuereduction, and what the gross
(38:03):
value reduction does is reducethe amount of taxes, effectively
reduce the amount of taxes onnew oil.
So if you're producing fromPrudhoe, the oil tax rate is one
thing is X.
If you're producing tax from orproducing from a new field,
like Willow will be, or like anyof the new fields that have
(38:24):
been, some new fields that havebeen developed in the last few
years, instead of what you'repaying in Prudhoe, instead of
the tax rate you're paying inWillow X, you're paying a lower
tax rate.
Why?
And so even though you'readding an additional barrel,
you're not adding an additionalbarrel that pays the same amount
of tax as the old, as the oldoil barrels pay, is paying a
(38:46):
lower rate.
So as production goes up, theaverage tax goes down because of
the GBR.
The combination of those twothings, even before you get to
the per barrel credits, thecombinations of the allowance of
deducting capital expendituresin the years in which they occur
, in the years in which theyoccur, and the GBR for the new
(39:09):
oil you develop, have result inproduction taxes going down over
time, even as production rises.
That's what SB21 did and we'refinding in the current decade.
It's a problem because SB21 wassold on.
As volumes go up, then Alaskanswill share in the benefit of
(39:32):
those volumes going up.
Yes, we have to give up on thefront end by changing the tax
code to reduce taxes and createall these credits, but when
production goes up, we'll share.
Well, that turns out.
That's not what's happening withthe way SB21 works in the
current environment.
When I see people going aroundsaying, drill baby drill, trump
(39:52):
opens new lands, or Trump'sgoing to permit new drilling, or
we've got new fields out there,we need to go in and we need to
develop them.
Drill baby drill.
I'm all for that.
But we need to change the taxcode.
We need to bring the tax codeup to date.
We need to modernize SB 21.
We need to revise SB 21 to toto achieve the promise that it,
(40:17):
that that was projected at thetime it was passed, which was
when all these volumes, allthese production volumes, come
on board, that Alaskans receivetheir share of it.
What's going to happen in theabsence of that is, if we have
all this additional drilling,we're going to have all these
additional credits created bythe capital expenditures, we're
(40:38):
going to have all theseadditional GVR volumes and
revenues from production aregoing to continue to go down.
Speaker 2 (40:45):
And the worst part is that more development, more
exploration in the current modelwould drive our revenues down
even more, because they're justtaking it off the legacy fields.
They're just taking more offthe legacy fields and when they
put more in the pipeline it's alower percentage anyway.
So it's again a self-lickingice cream cone of where it's
just getting worse and worse andworse.
(41:05):
And we've done this toourselves over and over and over
again in this state.
You know, whether it was ELF orACEs or SB21, you know the
pendulum swings one way or theother.
Oh, the state's getting too much.
Oh, the oil companies aregetting too much.
Oh, the state's getting toomuch, oh, the oil.
You know we've got to have someequity and we got there's way
too many bells and whistles inmost of these plans instead of
(41:26):
just saying you know, why don'twe just have a wellhead tax?
Why don't we just have a?
You know, I mean, why don't youjust have one tax instead of
all these different indicatorsand escalators and all these
other kinds of things just makeit flat.
I mean, just why do we have tojump through all these hoops?
Speaker 1 (41:40):
Well, we're trying to incentivize certain activities
and the capital deductibilitywas intended to incentivize
spending, intended toincentivize spending on on on
new developments.
And so if you're going to spendon new developments, we're
going to give you a deduction,an immediate flow, through
deduction on your, on your, onyour current taxes.
And it was intended to toincentivize that.
(42:03):
And the GVR was intended to,was intended to incentivize
going out and developing newfields that otherwise weren't
getting developed.
And the GVR was intended toincentivize going out and
developing new fields thatotherwise weren't getting
developed.
And you can go through allthese pieces and you can explain
what they were trying toincentivize.
But the net result of it, in thecurrent environment where we
have these high developmentexpenditures going on, the net
result in this currentenvironment is productions going
(42:26):
up while production revenuesare going down.
So when Republicans or anybodyelse says I mean what we're
doing, you know we have a badenough projection for the next
10 years with the 40% increasein production but the 20%
decline in revenues.
We have a bad enough projectionIf we have additional
(42:49):
development, if we start in onadditional fields and have
additional capital expenditures,particularly by existing
incumbent producers up there, ifwe have additional developments
, what we're going to have is aneven lower tax revenue over the
next 10 years.
It's going to keep knocking itdown and knocking it down and
(43:09):
knocking it down as we goforward.
So, before we get into thisdrill, baby drill, we want all
of this additional production tocome on, lord.
We want additional leasing.
We want companies out there.
We want to push them out there.
We want to encourage everythingwe can.
Before we go down that road, wereally need to fix the way the
(43:30):
oil tax system works in thisenvironment first, because if we
don't, all we're doing isdriving near-term tax revenues
deeper and deeper and deeper andincreasing the amount of
deficits that we've got in thisstate more and more.
Speaker 2 (43:45):
and more and increasing the amount of
deficits that we've got in thisstate more and more and more.
Down to less than two about twominutes here, brad.
So how much wiggle room isthere on there?
You and I have talked about anumber.
I mean, is there 400 millionleft on the table?
500 million?
Speaker 1 (44:01):
Is that kind of where we're at.
We could be making that up.
We could change those thingsand make that money up.
It's probably 500 million,Michael, through SB 21 reform
needed SB21 reforms, plus the100 million from the Hillcourt
blue poll.
So we're probably talking about500 to 600 million dollars.
Now remember, if we, if we, ifwe calculate the budget on a
current law basis, we've gotlike a one point five billion
dollar deficit.
So this these don't think thisis the be all and and end-all,
(44:25):
that this solves all theproblems, but it is an
additional $500 to $600 millionand it would reduce the deficits
we're running significantly ifwe took that step.
Speaker 2 (44:38):
And, of course, there's no will to take that
step.
It seems like, I mean, a lot ofDemocrats are looking for a
billion dollars and theRepublicans don't want to move
an inch, and yet, at the sametime, we're the ones in the
middle getting squeezed.
All the Alaskan people, who arethe owners of the resource, are
getting squeezed on this and Imean I just don't know.
I don't know how to move thisneedle at this point.
Speaker 1 (44:59):
Well, I mean Republicans.
Republicans who go out and saydrill baby drill are doing the
state a disservice unless theyfix oil taxes first.
So actually, you know, thoseRepublican legislators who are
running around saying drill babydrill are a problem.
They are part of the problem,not part of the solution if they
(45:22):
don't go in and fix oil taxesfirst.
And I'm going to keep talkingabout them that way.
Speaker 2 (45:29):
I mean how anybody can look at a chart to see, oh,
oil production going up 40%, oh,our revenue is declining 20%.
I mean, any time you look atthose charts and they cross like
that somebody's got to go.
What?
I mean, why aren't we askingthose questions?
You know why isn't it?
I mean you know why are weasking those questions?
You know why isn't it?
I mean, you know, at any timeyou talk about any new oil taxes
(45:49):
, the Republicans are like well,no, no, we can't, because we'll
stymie development.
Well, what good does it do todevelop if we're losing money in
the long run on a finiteresource?
Right, at some point you got togo.
Well, maybe we should just siton the oil then, and when it's
really needed then we'll dosomething.
I mean, you know, at some pointyou can't just keep losing
(46:11):
money and say we're doing good.
I think Brian's comment waswe'll make it up on volume next
year, right?
I mean, isn't that the answer?
Speaker 1 (46:20):
Yeah, it is, I don't think I mean.
Sb21 started with a very clearprinciple let's get additional
production, because Alaskawasn't getting its share of
investment.
If you looked on a global basis, alaska ACES had put Alaska in
a hole in terms of gettingadditional investment.
So let's revise the code to getadditional investment and we'll
(46:45):
get increased production.
Additional investment will leadto increased production.
We'll get increased productionand Alaskans will share in that
in terms of increased revenues,because obviously, as production
goes up, revenues will go up.
Right, people still say that.
And so you, you, you start withthat simple premise in SB21,
and then you start putting inbells and whistles because this
(47:07):
company wanted that or thatcompany wanted this, and it all
seemed to work because it wasgoing to incentivize production.
And, of course, at the back end, if you incentivize production
and increase production, you'llhave increased revenues.
Well, we've come to find out itsort of worked through the 20
teams.
When you look at it, itincentivized additional
(47:28):
investment, but it wasn't somuch that it plowed down, uh,
production or production ploweddown revenues.
It was it sort of, you know,worked the way it was supposed
to.
But when you get into the 2020s, you have these big
expenditures going on byConocoPhillips, in particular,
willow, but also PICA, which isall all the oil search is doing.
(47:49):
Santos is doing is creatingfuture tax credits so when they
start producing they won't haveto pay much because they've had
all these capital expendituresthat that that they that they
gotten to carry over as creditsagainst future against, as
credits against future taxes.
(48:10):
You all of a sudden you realize,whoops, it didn't work the way
it was supposed to, which is asproduction increases, but our
revenues are going to increaseand so, and so you really need
to sit back and go.
Whoops, you know it didn't workthe way we wanted, so we need
to go in and revise it to makesure it does work the way.
We want that Alaskans get ashare of the revenues that are
(48:32):
being produced by thisadditional production that
they've paid for by changing thetax code to create these
incentives.
That's a simple concept.
Production goes up.
Alaskans ought to share.
Not working that way, you oughtto go back and make it work.
Speaker 2 (48:49):
They keep wanting to set this perfect.
We want to set this perfectthing in stone and then leave it
, never, realizing that, withthe vagaries of the market or
changes or things like that, itneeds to constantly be adjusted.
That's the thing.
It's like they want to set itand forget it and then never go
back and touch it again.
And that's what they did withElf.
(49:10):
That's what they did with Aces.
Speaker 1 (49:12):
That's what they do with SB.
It's the same thing, yeah, andthe set it and forget.
It seems to work in somebody'sfavor.
Aces, it worked in favor of thestate and against the oil
companies and ultimately againstthe state because of decreased
production, production, ofdecreased investment.
And so you go in with SB 21 andyou reset it and you want to
set it and forget it.
But you know it.
Ultimately it works out thatit's running in favor of the
(49:34):
company.
So of course the companiesdon't want to change it.
No, money, money handover.
Speaker 2 (49:41):
They'll spend millions to try and convince you
that it's that.
Don't mess with it or they'llleave.
They'll pick up their toys andleave, which, uh, okay, go for
it.
I mean, how much have you spenton and all this stuff, you guys
it's?
I think it's a false.
I think it's a false threat, uh, in that regard.
But again, four or 500 million,$600 million potentially left
(50:01):
on the table.
As Alaskans, as a resourceowner, that makes me mad.
I mean we shouldn't be leavingthat on the table and we'd have
a lot less problem.
Now, the problem is, of course,that if we had five or six
hundred million dollars more,the legislature would just spend
the hell out of it anyway.
But I mean, until we getsomething else fixed in there,
we're still losing the money atthis point.
Speaker 1 (50:21):
Well, it would at least some of it, and I think a
lot of it would drop to the PFD.
It would, it would, it wouldpossibly it would pop out in
terms of reduced PFD cuts andand so would go, would go to the
benefit of of Alaskan families,and I think I think that's a
good thing.
And so the flip side of that is, you're taking money out of
(50:44):
Alaskan families, legislators,you're taking money out of the
pockets of Alaskan families inorder to make oil companies
richer.
And I'm not trying to gouge theoil companies.
I'm just trying to get the damnthing to work so that, when
production increases, alaskansbenefit along with it the simple
concept we started with back in2013 and 2014,.
(51:06):
I'm just trying to get the damnthing to work the way it was
supposed to.
I'm not trying to gouge them.
Speaker 2 (51:11):
No, I mean, I just think everything should be
equitable and fair.
As owners, we should get ourfair share.
As producers, they should gettheir fair share.
That's how it should work.
That's why I think this idea ofsetting it and forgetting it is
ridiculous.
You need to constantly be ableto go in there and tweak it and
adjust it so that everybody getstheir equitable share.
You know, so to speak, on that.
(51:33):
All right, brad Well, capeBreton awaits my friend.
I hope you have a lovely time.
I hope you enjoy yourself andwe look forward to talking with
you again next week.
Speaker 1 (51:47):
Next week I'll have a Cape Breton background behind
me.
I'll be looking out the picturewindow of my cabin there.
Speaker 2 (51:53):
I can't wait to see it All right.
Thanks, Brad, Appreciate youcoming on board and joining us.
Thank you so much.
Thanks for having me.
Speaker 1 (51:59):
Michael.
Well, that's a wrap for anotherweek's edition of the Weekly
Top Three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(52:22):
for Sustainable Budgets.
We look forward to you joiningus again next week on the Weekly
Top Three.
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of June 23rd 2025.
The weekly top three is aregular segment on the Michael
(00:28):
Dukes Show.
The show broadcasts on bothFacebook Live and YouTube Live
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
(00:53):
the Alaskans for SustainableBudgets Facebook, youtube,
soundcloud, spotify and Substackpages.
Also on the Alaskans forSustainable Budgets website, as
well as the projects page onnational blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
(01:13):
same locations.
Keep in mind that, in additionto these podcasts during the
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
(01:34):
This week, our top three issuesare these First, we discuss
what's driving oil prices andwhere they appear to be headed
now in the wake of theIsrael-Iran ceasefire.
Second, we explain how, likethe Alaska legislature before
them, the US Senate is nowresorting to accounting tricks
(01:54):
to create additional fiscalspace for continued spending
without raising revenues.
And third, we explain why, ifwe don't fix Alaska oil taxes
first, drill, baby drill willonly serve to increase our state
budget problems.
And now let's join Michael.
Speaker 2 (02:15):
All right, brad.
Well, let's let's get into the,let's get in today's weekly top
three.
We're going to start off, ofcourse, with the big headlines.
You know the Iran, theIran-Israel fight.
You know there was a ceasefireyesterday and then late last
night they didn't break it, butthey bent it significantly.
(02:37):
And now who knows what's goingto happen, but the effects of
this on Alaska oil is going tobe kind of profound.
Give us the highs and the lowshere.
Speaker 1 (02:49):
Well, this is sort of a follow-up to last week's
discussion about what controlsoil prices supply and demand.
If we need a rehash, it'ssupply and demand, Right, and to
sort of take that through theweek a bit, I was just before
the show opened.
I was checking what the oilprices were.
(03:09):
Right now, you know I can saysomething during this segment
and be contradicted during thesegment itself.
So keep a broader, broaderperspective in mind.
But last week we were talkingabout the fact look, yes, there
is a war.
Yes, there is.
They are firing bombs at eachother, but it's all about supply
and demand.
Look at whether anything isactually happening to supply and
(03:33):
look whether anything isactually happening to demand
significant demand in trying togauge where oil prices are going
.
And the discussion last weekwas look, you know they're
throwing bombs at each other.
There's a risk premium buildingin, but they haven't thrown
bombs yet at supply sources,Iran supply sources and they
(03:55):
haven't thrown bombs yet atmajor areas that would affect
significant demand.
There's a risk that they will,and so there's a risk premium of
a percent built into the priceto take into account that risk.
But they haven't.
If they did, if the Israelishad bomb supply, or did bomb
supply, or if the Iranians didshut down the Gulf of or the
(04:19):
Strait of Hormuz, which has beentalked about from time to time,
which would affect all Gulfsupplies, Persian Gulf supplies,
which is about 25% of worldsupplies.
If those things happen, thenoil prices would take off
through the roof because supplywould be impacted significantly.
But they hadn't at that point.
And I kept saying look at supplyand demand.
(04:41):
Well, what's happened duringthe week?
At one point, this segment wascalled so we bombed Iran with
nukes, or not with nukes?
We bombed their nuclearfacilities, but prices didn't
move.
In fact, at one point over theweekend, prices started coming
down.
Even though we bombed theIranian nuclear facilities or
(05:05):
the nuclear enrichmentfacilities, prices started
coming down.
And then, when Iran, Iran'sresponse was to throw some
missiles toward Qatar that wereintercepted along the way,
prices really started taking off.
And what it was was the market'sassessment was that supply was
(05:28):
not being impacted.
The Iranians did not doanything in the, in the Persian
Gulf, Israel did not do anythingto Iran's production facilities
, supply wasn't impacted.
And so the market?
Yes, there's a, there's a wargoing on, but to the market it's
all about, but to the market.
It's all about supply,particularly in this region.
It's all about supply and do wesee anything affecting supply?
(05:51):
And the market kept saying no,we don't, no, we don't, no, we
don't, no, we don't.
So I was checking prices beforewe went on this morning and the
Brent price for December, whichis sort of the gauge of what our
FY26 price looks like, theBrent price for December is now
$65,000, $67,000.
So we're in the $65,000,$66,000 range, Back to where we
(06:17):
were basically before we gotinto, before Israel started
throwing bombs over in Iran.
We're back to the level we wereBecause the market sees this
war over there and sees all theshooting going on.
The market's not seeinganything going on on the supply.
(06:38):
Last night we were down.
Well, last night we were downat 65.
Were down.
Well, last night we were downat 65.
And so we're a tick back upfrom that, as I think the market
tries to figure out what'sgoing on with the ceasefire Do
we have one or do we not?
But again the market is sayinglook, supply is not being
impacted and so price is goingto soften.
(07:00):
So all those people, includingto some degree me, because I
thought, well, this may get us alittle bit through FY26.
All those people who said youknow, the risk premium that's
being built into price is goingto save Alaska.
There was an Andy Holloman postthat said, yeah, see, price is
going back up.
We didn't need to do all theseschool vetoes, school spending
(07:23):
vetoes, All these people whowere saying, oh, we're going to
be saved again.
You know prices are going to goback up, and all this stuff
about being concerned about lowprices.
All that's gone already in thespan of one week.
Now next week, you know, ifthere are violations to the
ceasefire, if they do go back toshooting, if Iran does start
(07:46):
threatening to close the Straitof Hormuz again, if Israel does
target some of Iran's productionfacilities, we may be somewhere
back up in the price range.
But right now the market'ssaying, nope, yeah, there's a
war, yeah, good for that.
But right now the market'ssaying, nope, yeah, there's a
war, yeah, good for that, butit's not affecting supplier
(08:07):
demand, so we're not going tofactor that in a big way into
price.
Speaker 2 (08:14):
And of course we have that love-hate relationship
with the oil prices.
I mean, we as citizens hate itwhen oil prices rise, but the
state loves it, and vice versa.
We, you know, we can reallyshine when we have a lower oil
price because you know we payless for heating oil and for
gasoline et cetera.
(08:35):
But the state then struggles.
And, like you said, I thinkpeople were really, you know,
macabrely kind of hopeful that aIran and Israel extended war
would help bolster that price.
But the needle really hasn'tmoved that much.
Speaker 1 (08:54):
One of the professions I never want to be
is a crude oil day trader,because with the markets open 23
hours, they take a break.
With the markets open 23 hours,they take a break.
For Alaska the break's betweenfour and that the markets are
(09:16):
open and it's just a horriblelife, particularly during a time
like this, because on the flickof a switch, prices can go up
dramatically and positions thatyou thought you'd settled in for
good value, those positions,can be destroyed and if prices
are up, you think you settled inon a good set of values.
(09:37):
You go to sleep, you wake upand they're all gone.
And so crude oil day tradersjust really have a horrible life
.
They make money, but they havea horrible life.
Alaska, basically, is a crudeoil day trader.
I mean, we live, as wediscussed last week and as we
discussed before, on the show,because we set our budgets at a
(10:00):
price projection, not even thecurrent price.
We set it at a price projection, Because we set our budgets at
a price projection going forward.
We're a crude oil day trader.
We're we're constantly checkingto see where the price is
compared to where we set thebudget at, and it's, and it's I
mean it's we've adopted all ofthe characteristics of of of my
(10:23):
friends that are crude oil daytraders, which is they have
shakes and they don't sleep well.
Speaker 2 (10:29):
Yeah, I picked the wrong day to stop sniffing glue,
kind of thing.
Yeah, no, look, I got that.
I got that.
Well, and again, tomorrowthings could change.
I mean, ceasefires announced,they immediately start lobbing
bombs at each other.
And tomorrow, you know,somebody could strike one of the
production facilities for oil,or the pipeline, or the, or the
Iranians could just stopexporting for a bit, or you know
(10:51):
, there's a, there's a handfulof things that could happen,
that tomorrow the oil pricecould be back up to 75.
We don't know.
That's what makes it so toughin Alaska to you know, that's
what makes it so tough to seewhere we're going.
Speaker 1 (11:04):
Alaska to you know, that's what makes it so tough to
see where we're going andthat's we've talked about this
on the show several times,michael we set our budget in a
way so that we guarantee we areat the tip of the tail on the
OPEC and on the oil market dog,that we're just flapping around
all over the place because we'retrying to follow the forward
(11:26):
price.
We've set our budget on wherethat forward price is.
If, like we do with the POMV,draw and like we do with the PFD
, if we set it at an average ofa historical price run five-year
price run in the case of POMVand PFD, maybe 10 years in the
case of oil but if we set itbased on a historical average,
(11:48):
we wouldn't go flipping aroundlike this.
We wouldn't take on thecharacteristics of a crude oil
day trader.
We would have a price.
We would know if it was up fromthat.
If the price ended up being upfrom that, we'd have some to put
into the CBR or into astabilization reserve or
whatever we wanted to call it.
We know if the price was downfrom that, okay, we'd have to
draw from the CBR or from thestabilization reserve.
(12:12):
But we don't do that we do thisto ourselves and we do this to
ourselves because maybe price isup and maybe we can budget a
lot better this coming year.
We can give away a lot of moneywe don't have, but we think
we're going to have becauseprice is up and we're doing this
to ourselves.
We shouldn't.
(12:33):
We had an opportunity a coupleof years to get off that roller
coaster.
It turned out that the price wewere using for budgeting
purpose was very close to thehistorical price and if we would
have said, okay, we're going toflip over and start using the
historical price, we wouldn'thave noticed much difference
(12:53):
from the previous year, becausethe previous year was very close
to the historical price.
But oh no, prices went back up.
So let's budget, let's spendmore, because prices are back up
and we think we're going to getall this additional money in.
It leads to situations whereyou're sitting there with the
price the oil price, market,futures market just sitting
(13:15):
there in your face and you'retrying to figure out what's
going on.
Speaker 2 (13:18):
Something that Harold and I agree on.
My God, the clock must havestopped.
How about zero-based budgets?
Only spend what you need tomeet your constitutional
mandates?
Yeah, that's the ultimate goal,right?
The problem is, we're nevergoing to get there.
Are you kidding me?
Government is way too easy withwhat did we spend last year Now
?
What do we need to add to it?
Speaker 1 (13:37):
That's government's, I mean, that's what they've been
doing Well and one other thingon top of that, which is, how
much revenue are we going to get?
How much revenue are we goingto get from from oil, additional
revenue from oil, so I can goout and satisfy my my
constituents and tell them I'mcatching up with past
underinvestment?
That's, that's always thecatchphrase that that makes me,
(13:58):
makes my head.
Head for my hands.
Speaker 2 (14:14):
I'm catching up.
Well, we'll see.
We'll see what happens here.
I'm catching up, but how big aswing do you think it could be
if the you know, let's just sayhypothetically, one of the major
export facilities there, or theHormuz Straits, gets closed
down?
I mean, what are we talking?
A $5 swing?
A $10 swing?
What?
Speaker 1 (14:36):
do you think?
Well, it depends.
It depends on the degree, itdepends on whether people think
it was an accident or permanentor on purpose, and it depends on
how long they expect it going.
So if Iran did something thatjust to take an extreme case if
(14:58):
Iran sunk a bunch of tankers inthe Strait of Hormuz in a way
that made navigation extremelydifficult, so we're talking
about a semi-permanent, semi, afairly long-term condition until
they can get those tankers outof there.
Plus, you know Iran wouldn't dothat.
I mean, iran's on its deathbedat that point because it's
killing itself by choking offits exit point for oil.
(15:23):
But if something like thathappened, we're easily talking
100, 125 in terms of oil.
So it depends on the degree.
If, on the other hand, israellaunches a, has a weapon, go
stray, and happens to hit an oilsupply depot, a tank in a tank
(15:44):
farm in one of Iran's exportfacilities, people go oops, it's
starting to spread to theexport uh facilities, um, and,
and you know you would see aprice spike the day traders
would go crazy, you know, tryingto figure out where that price
was going to go, you'd see a,you'd see a price spike.
But if Israel then said, oh,accident.
We're not intending to extendthe war to the export facilities
(16:09):
.
Our bad, forget it.
We're not going to be doingthat anymore.
Then you'd see prices come backdown fairly quickly.
So it really depends onseverity, extent of time and
what exactly has been hit.
Speaker 2 (16:22):
So basically, what we're all saying is it's a
guessing game.
I mean, that's the thing andthat's like you said you
wouldn't want to be a day traderfor crude, because you just
never know.
I mean, one stray missile canchange the whole outlook in a
few minutes and then change itback 12, 15 hours later.
It's definitely an iffyproposition.
Speaker 1 (16:42):
Some of the big crude trading shops I've come to
learn have a bunch of militaryexperts on staff to figure out
exactly that sort of thing.
Military and crude logisticsexperts to figure out exactly
that sort of thing.
Are they targeting exportfacilities?
Are they significant?
Are they important militarymoves against those export
(17:03):
facilities?
And so you know they'reconstantly trying to figure that
out and price it in.
But it's, you know, for thecommon day trader it's just,
it's like worse than Vegas.
Speaker 2 (17:14):
And here we are trying to live on this and
trying to decide what ourbudget's going to be next year
and instead of, you know,getting some steadiness in there
and getting a rolling averageof what we're doing, we're
constantly playing, we'reconstantly behind the power
curve on this, which is justinsane.
All right, brad Keithley.
Alaskans for SustainableBudgets continues with us.
(17:36):
We're on the weekly top three.
On to number two of the weeklytop three this week, which is
the US Senate is following theAlaska legislature in its
accounting tactics.
I mean, I don't know if this is, it might be one or the other,
I don't know if it's chicken andegg money and follow.
This is just seems like this isa constant thing.
(17:58):
But, brad, you're talking aboutthe new bill which uses a whole
new accounting method to showyou how much money it's saving
or not spending or et cetera, etcetera.
Give me the rundown on this?
Speaker 1 (18:11):
So the worst thing that's ever happened in Alaska
fiscal approach, alaska fiscalaccounting, was in 2017, when
LB&A they didn't even change thestatute.
When not LB&A when LedgeFinance, david Thiel did this
accounting trick where he movedthe permanent fund dividend from
(18:35):
designated general funds whereit belongs, because designated
general funds are fundsdesignated by statute for a
specific purpose.
There's nothing more that morefits that definition than
permanent fund dividends.
But anyway, thiel moved thepermanent fund dividend from
designated general funds tounrestricted general funds, and
(18:58):
unrestricted general funds arenot restricted to a purpose.
They're there for spending onwhatever you want to spend it on
.
So you suddenly move multiplebillion dollars out of
designated general funds over tounrestricted general funds.
And then the second step ofthat that we saw in the next
budget cycle was to calculatethe deficit without regard to
(19:23):
the obligation for permanentfund dividends, because you had
moved the dividends fromdesignated general funds to
unrestricted general funds.
And so, all of a sudden, youhad these additional revenues
that showed showing up on thebooks for book purposes, all
these additional revenues inunrestricted general funds, and
so the deficits you were showingwere much smaller.
(19:46):
Unrestricted general funds wentfrom here if I can do this
right went from way down herebefore the redesignation to way
up here, because all of a suddenyou move all these permanent
fund dividends.
It was an accounting trick andso the legislature started
talking about deficits that werein or surpluses they even could
(20:07):
talk about surpluses that weretaking into account.
Moving all of the permanentfund dividend over to
unrestricted general funds.
That move, that single move,freed up $2 billion.
Whatever the permanent funddividend otherwise would have
been freed up $2 billion.
Additional revenue oradditional fiscal space is how
(20:31):
the people in DC talk about it.
Additional fiscal space interms of what they could spend,
because they had all theseadditional revenues and the
deficit went down very small.
If we still accounted for thepermanent fund dividends as
designated general funds, thedeficits that we'd be talking
about would be huge a billionand a half instead of 500
(20:54):
million or 400 million or 300million, whatever.
Whatever Senate finance talksabout, we'd be talking about
these huge deficits and the andthe pressure to reduce spending
would be great because, becausewe weren't counting the, the
PFDs, as government revenue, wewould have a lot more downward
pressure on spending as a resultof putting those revenues back
(21:18):
where they belong.
Taking PFDs back where theybelong.
We'd have a lot more downwardpressure on spending.
But what they did, by bringingthe PFDs over into unrestricted
general funds, is create a lotmore fiscal space because they
increased the revenues.
There was no legislation, therewas no executive order.
There was nothing other than achange in which column David
(21:42):
Thiel and Ledge Finance putpermanent fund dividends.
That's a big source of theproblems we've had since.
Speaker 2 (21:51):
And the function was essentially it made the PFD now
compete with every othergovernment program, service or
agency, instead of just being asimple pass-through.
Now it had to fight foreverything, and that's how we
lost the PFD.
Speaker 1 (22:04):
Yeah, and some people will say well, that's what the
Supreme Court said in theWilkowski ruling, that it was
supposed to compete with allthis stuff.
Well, stuff in designatedgeneral funds do compete,
because we have no dedicatedfunds in this state and so we
have designated funds.
But designated funds can bedrawn out at any time to meet
(22:25):
any sort of spending obligation.
We saw a little bit of that inthis last session.
We saw a little bit of that inthis last session.
The Wilikowski case didn't sayyou had to stop treating them as
designated funds.
The Wilikowski case didn't voidthe PFD statute.
It merely said the PFD funds,like any other designated fund
(22:45):
has to compete with, can bepulled out, can be appropriated
by the legislature if thelegislature chooses to do so.
But from an accountingperspective it was not required
by the court, not required bythe decision.
It was pulling the PFDs fromdesignated general funds, dgf,
over to UGF.
(23:05):
That had the big impact oncreating fiscal space.
And so since then Alaska hasbudgeted what's called the
current policy budget.
The current policy budget is tosay well, we know that there's
that PFD statute over there, butwe budget based upon current
policy, which the Senate says is25-75, says is 25-75, 25 PFDs
(23:38):
75% to government and so we willassume current policy when we
look at the budget andformulated the budget and
preserve this fiscal space, thisincreased fiscal space that we
created in 2017, current policyversus current law.
Well, the Congress has always,since the early 1970s, when the
Congressional Budget Office hasalways budgeted according to
(24:03):
current law, they've alwayslooked at the impact of changes
in the budget or any budgetingcycle.
They've looked at current lawand they've said, okay, current
law says this, and so we'regoing to look at our deficits or
we're going to look at it at ifwe're doing a reconciliation
package or whatever we're doing.
We're going to look at thedeficit being created against
(24:25):
current law and the taxes theTrump taxes that were passed in
2017 are greatly impacted.
That because the Trump taxestaxes that were passed in 2017,
trump tax changes that werepassed in 2017 were temporary.
They were set for nine years.
Let's see what is this the endof the year is 25, so eight
(24:46):
years.
They were set for eight yearsor maybe nine years, and then
they expire and then they comeoff, and so all of the
calculations that have been donefrom a budget perspective since
that time have been done withthe expectation that Trump taxes
come off in 2019.
If you want to renew them, youcan, but you've got to recognize
(25:07):
it's going to increase deficitsgoing forward because current
is calculated, or the currentdeficits being calculated, based
on current law.
Well, lo and behold, in themiddle of all of this
reconciliation fight that'sgoing on in the Senate, senate
Republicans all of a sudden havedecided that they're going to
account for the Trump taxes andthey're going to account for the
(25:27):
budget using the Trump taxes ascurrent policy.
They're going to count it on acurrent policy basis, as opposed
to current law, and the effectis to create this huge amount of
additional fiscal space whenyou look going forward in the
budget, because, all of a sudden, you don't have to take into
account the re-up or the renewalof the Trump tax credits at the
(25:49):
end of 2025.
You don't have to account forthem as being additional deficit
creating under current law.
All of a sudden you can say,yeah, they've always been there,
we've treated them as currentpolicy and so the deficits in
the Senate Republicans'calculations all of a sudden
fall because they've created allthis additional fiscal space by
(26:12):
all of a sudden changing off acurrent law approach which we'd
had since the 1970s, changingoff a current law approach to a
current policy approach.
We've seen what it's done inAlaska.
It's increased spendingdramatically, frankly, because
the legislature has told itselfand the executive branch has
(26:34):
told itself ooh, we got all thisadditional fiscal space because
we don't have to account forPFDs as designated general funds
.
We can account for them asunrestricted general funds.
We're going to see the samething at Congress.
What they're doing is, throughthis accounting trick, they're
all of a sudden going to tellthemselves hey, we have all this
additional fiscal space.
We thought we were going tocreate billions in additional
(26:59):
deficits 4 trillion inadditional deficits over the
10-year period that we'relooking at in doing the budget.
Well, that all of a sudden camedown to 400 billion or
something, because we createdthis additional fiscal space by
beginning to look at things on acurrent policy basis as opposed
to a current law basis.
The problem with the currentpolicy basis is you can, it's
(27:20):
whatever you want to say.
It is.
The Congress doesn't have to doanything.
Just like the Alaskalegislature didn't have to do
anything when we shifted offtreating PFDs as DGF over to UGF
.
Just like the legislaturedidn't have to do anything.
The executive branch didn'thave to do anything, it was
David Thiel's spreadsheet, thechange in David Thiel's
(27:41):
spreadsheet, where it is allthey did to create that impact.
That impact, well, congress issaying, well, current policies,
currently the Trump tax credits,and so we're not going to
account the additional deficitswe create by by by renewing
those they're going to.
They're going to be doing thesame thing and then the next day
(28:02):
they're going to say, well,current policies, this as
opposed to that, as opposed tocurrent law.
We don't care what current lawsays, it's what current policy
is, and current policy is whatwe say it is at any given point
in time.
We're just, we are creating thesame sort of problem.
This accounting trick at thefederal level is going to create
the same sort of problem,additional problem, as if we
don't have enough problems onthe deficit side.
Additional problems at thefederal level, as changing the
(28:25):
PFD did, changing the PFD fromDGF to UGF did, has done in
Alaska.
Speaker 2 (28:31):
And this is not an insignificant amount.
I mean, it's the differencebetween $440 billion and almost
$4 trillion, right, I mean, thisis not a little tiny bit, this
is a lot.
And again it'll give them thatmuch more headroom to then say,
oh well, we can spend even moreAgain.
That's the problem.
I mean, I've come to theconclusion, brad, that the
(28:52):
people in Congress just don'tgive two craps about what's
going to happen to the economyin the long run.
As long as they can getwhatever program and money's out
that they can right now,they're just not going to slow
down.
They're not going to slow downat this point.
Speaker 1 (29:04):
And Thune, majority leader Thune is already spending
that additional fiscal spacethey create through this policy
switch.
He's already spending in termsof okay, well, I can give you
some extension on the renewables, right on the renewable credits
, or I can give you this, or Ican give you that, or I can keep
these farm programs, or I cankeep SNAP, or I can keep
Medicaid.
I mean, he's already createdadditional money, just like the
(29:27):
legislature did in 2017 withDavid Thiel's switch, of which
column he put it in on hisspreadsheet.
They're already giving awaythis additional fiscal space and
, believe me, when you spendmore money, the deficit's going
to be bigger.
Extending the Trump tax creditsisn't going to bring more money
in.
It isn't going to reduce thebudget deficits we got, it's
(29:51):
going to keep revenues fairlydepressed and we're going to
continue to run these hugedeficits.
But it creates more fiscalspace paper fiscal space and
Thune's already spending it,just like the legislature did
after 2017 in Alaska.
It's horrible.
These accounting tricks arejust horrible.
Speaker 2 (30:12):
Brad Keithley, alaska's for sustainable.
But we just, we can't learn.
We just, you know, we're likemonkeys who keep putting their
hands on the hot stove.
I mean, over and over and overagain, it just, oh, it's hot, oh
, it's hot.
I don't understand why thishurts, oh, it's hot.
I mean we just can't stop doingit.
It is, uh, it's, it's madnessfor sure.
You just can't stop doing it.
(30:33):
It is, uh, it's, it's madnessfor sure.
You just can't win, brad.
I mean we just, you know, theyjust, they get cheap, keep
changing the goalpost, right, Imean they just keep changing the
goalpost.
Oh, we're not, we're, we'reover, we're this much in debt?
No, no, we're not, really not.
It'll be this much and we cankeep spending up to that point.
I mean it's just, it's, it'sjust total fantasy at this point
that you know we could continueto do what we're doing and it's
(30:55):
all going to be okay, yeah,rather than.
Speaker 1 (30:58):
I mean.
What it leads to is this Ratherthan creating additional fiscal
space or maintaining yourfiscal space by reducing
spending or increasing revenues,which otherwise you'd have to
do, or increasing revenues,which otherwise you'd have to do
, rather than doing it theold-fashioned way, you know, we
earned the fiscal space bytaking the hard maneuvers.
(31:21):
They just go in with a sharppencil or, in David's case,
David Thiel's case, just a click, a mouse click to move that
column, to move that categoryfrom this column to that column,
and all of a sudden, ratherthan doing the hard work of
keeping spending under controlor increasing revenues to offset
(31:43):
the increased spending thatpeople want to do, rather than
doing the hard work of that,through one magical mouse click
you're able to create all thisadditional fiscal space, as you
said, at the national level.
They've created $3.6 billion ofadditional fiscal space,
(32:05):
additional spending.
Trillion.
Trillion is trillion.
We're dealing at the nationallevel.
We deal with billions in Alaska.
Trillions at the federal level.
3.8 trillion of additionalfiscal space.
That Thune is now busily tryingto get the bill through by
giving it away.
And it's madness, michael.
I mean we're not creatingadditional value.
(32:27):
We're not creating additionalfiscal space by actually
reducing spending, just like wedidn't in Alaska.
We're not creating additionalfiscal space by actually
reducing spending, just like wedidn't in Alaska.
We're not creating additionalfiscal space by reducing
spending or increasing revenuesthe old-fashioned way.
We're doing it, by accountingtricks that don't change reality
, which was we're spending a lotmore.
We're committed to spending alot more going forward than we
(32:51):
have the revenue to cover.
We're creating huge futuredeficits.
But those in control of thesharp pencil or those in control
of the mouse think they'rebeing smart, think they're doing
good things by making theseaccounting changes and and the
country suffers for it.
(33:11):
The state alaska has sufferedfor it's just, it's, um, it's
it's, it's a downward, downwardslope that we get ourselves on
brian brian just kind of sums itup for me.
Speaker 2 (33:23):
He says feeling like we're living in a lewis carroll
world.
When I use a word humpty dumpty, said in a rather scornful tone
, it means just that, what Ichoose it to mean, whether
neither more nor less.
The question is said, alice,whether you can make words mean
so many different things.
The question is said HumptyDumpty, which is to be master?
That's all, that's right.
(33:44):
Who's in charge of this?
I mean, it's a thing, oh man,brad, it is.
Speaker 1 (33:55):
It's a mad, mad, mad mad world, that's for sure that.
Well, that that's a great quote.
It's a great we do live in anorwellian world here yeah,
absolutely.
Speaker 2 (34:02):
Who controls the word ?
Who controls the definitions ofthe word I get?
So we've been watching this forso long, we've been talking
about these for so long.
Um, I mean, I guess we can'tstop talking about them.
But it's just, you know, I saidsomething the other day on
Firearms Friday, because there'ssome good stuff in the big
beautiful bill that's been addedfor firearms rights and I'm
(34:22):
like, at this point, just voteit in.
I mean you know what, just voteit in, voted into it.
At least we get that stuff,because these guys aren't going
to stop.
They're not going to stop untilwe hit the brick wall or the
oscillating fan.
I mean one of the two is goingto happen, right, and when the
yogurt hits it it's going to bea mess.
But I mean, until then, I justdon't know.
(34:45):
I don't know how these guys cancontinue to sleep at night.
That's what kills me.
Continue to sleep at night,that's, that's what.
That's what, that's what killsme.
Speaker 1 (34:56):
You're sort of another version of day trader,
right?
I mean it's, it's, oh, I'lljust change the rules, or I'll
just change.
I'll just change how we accountfor things.
Speaker 2 (35:00):
Yeah, it's going to be.
Uh, it's going to beinteresting to watch.
Let's continue on.
Brad Keithley, alaskans forsustainable budgets the weekly
top three, number three, numberthree.
It's the weekly top threeNumber three Alaska's oil.
You know, we've got new oilfields that are supposedly going
to come online and all theseother things, but there's this
(35:21):
pesky thing out there called theoil tax code and, brad, you
said it needs an overhaul.
Give me your thoughts here.
Speaker 1 (35:31):
Yeah, we've talked about this on the show
previously.
My thoughts on that SB21 hasbecome broken in the new age
that we're in of huge amounts ofdrilling going on by existing
players on the North Slope,which is resulting in a
significant reduction in taxes,oil taxes.
A reduction, significantreduction in taxes, oil taxes
(35:51):
Over the next decade.
I mean this number can't berepeated often enough to get
people awake.
Over the next decade,production is projected to rise
by 40% through the new fieldscoming on board, and that's a
great thing for Alaska, but oilrevenues revenues to the state
(36:14):
from that production areprojected to decline by 20%.
So what you've got going on isoil production going up,
revenues from that oil goingdown 60-point spread.
Speaker 2 (36:31):
60-point spread Going up 40% revenues, down 20%.
Speaker 1 (36:35):
Regardless of price.
I mean that is a number thatsort of exists regardless of
price.
It changes at the margins.
The revenue number changes atthe margins on price, but it's
not price driven.
What's going on is the way SB21was built, and no, it's not the
per barrel oil tax credits thateverybody complains about.
(36:56):
The way SB21 was built was thata couple of things go on when
you have new oil development,significant new oil development.
One is you're able to expensethe capital expenditures you're
making for developing new fieldsagainst current taxes.
There's no amortization.
You spend a dollar, a capitaldollar, today that dollar is a
(37:18):
credit or is a deduction fromoil taxes today and it's
company-wide.
So when Conoco spends dollarsdeveloping Willow which they
need to do, but when they spenddollars developing Willow
capital dollars developingWillow it's being deducted from
oil taxes that otherwise are duefrom them today.
(37:41):
And because Willow is along-term development, the
capital deduction is going onyear after year after year after
year.
Then the second thing that wasin SB21 is, once you get
production from that newdevelopment, there's a mechanism
called the gross valuereduction, and what the gross
(38:03):
value reduction does is reducethe amount of taxes, effectively
reduce the amount of taxes onnew oil.
So if you're producing fromPrudhoe, the oil tax rate is one
thing is X.
If you're producing tax from orproducing from a new field,
like Willow will be, or like anyof the new fields that have
(38:24):
been, some new fields that havebeen developed in the last few
years, instead of what you'repaying in Prudhoe, instead of
the tax rate you're paying inWillow X, you're paying a lower
tax rate.
Why?
And so even though you'readding an additional barrel,
you're not adding an additionalbarrel that pays the same amount
of tax as the old, as the oldoil barrels pay, is paying a
(38:46):
lower rate.
So as production goes up, theaverage tax goes down because of
the GBR.
The combination of those twothings, even before you get to
the per barrel credits, thecombinations of the allowance of
deducting capital expendituresin the years in which they occur
, in the years in which theyoccur, and the GBR for the new
(39:09):
oil you develop, have result inproduction taxes going down over
time, even as production rises.
That's what SB21 did and we'refinding in the current decade.
It's a problem because SB21 wassold on.
As volumes go up, then Alaskanswill share in the benefit of
(39:32):
those volumes going up.
Yes, we have to give up on thefront end by changing the tax
code to reduce taxes and createall these credits, but when
production goes up, we'll share.
Well, that turns out.
That's not what's happening withthe way SB21 works in the
current environment.
When I see people going aroundsaying, drill baby drill, trump
(39:52):
opens new lands, or Trump'sgoing to permit new drilling, or
we've got new fields out there,we need to go in and we need to
develop them.
Drill baby drill.
I'm all for that.
But we need to change the taxcode.
We need to bring the tax codeup to date.
We need to modernize SB 21.
We need to revise SB 21 to toto achieve the promise that it,
(40:17):
that that was projected at thetime it was passed, which was
when all these volumes, allthese production volumes, come
on board, that Alaskans receivetheir share of it.
What's going to happen in theabsence of that is, if we have
all this additional drilling,we're going to have all these
additional credits created bythe capital expenditures, we're
(40:38):
going to have all theseadditional GVR volumes and
revenues from production aregoing to continue to go down.
Speaker 2 (40:45):
And the worst part is that more development, more
exploration in the current modelwould drive our revenues down
even more, because they're justtaking it off the legacy fields.
They're just taking more offthe legacy fields and when they
put more in the pipeline it's alower percentage anyway.
So it's again a self-lickingice cream cone of where it's
just getting worse and worse andworse.
(41:05):
And we've done this toourselves over and over and over
again in this state.
You know, whether it was ELF orACEs or SB21, you know the
pendulum swings one way or theother.
Oh, the state's getting too much.
Oh, the oil companies aregetting too much.
Oh, the state's getting toomuch, oh, the oil.
You know we've got to have someequity and we got there's way
too many bells and whistles inmost of these plans instead of
(41:26):
just saying you know, why don'twe just have a wellhead tax?
Why don't we just have a?
You know, I mean, why don't youjust have one tax instead of
all these different indicatorsand escalators and all these
other kinds of things just makeit flat.
I mean, just why do we have tojump through all these hoops?
Speaker 1 (41:40):
Well, we're trying to incentivize certain activities
and the capital deductibilitywas intended to incentivize
spending, intended toincentivize spending on on on
new developments.
And so if you're going to spendon new developments, we're
going to give you a deduction,an immediate flow, through
deduction on your, on your, onyour current taxes.
And it was intended to toincentivize that.
(42:03):
And the GVR was intended to,was intended to incentivize
going out and developing newfields that otherwise weren't
getting developed.
And the GVR was intended toincentivize going out and
developing new fields thatotherwise weren't getting
developed.
And you can go through allthese pieces and you can explain
what they were trying toincentivize.
But the net result of it, in thecurrent environment where we
have these high developmentexpenditures going on, the net
result in this currentenvironment is productions going
(42:26):
up while production revenuesare going down.
So when Republicans or anybodyelse says I mean what we're
doing, you know we have a badenough projection for the next
10 years with the 40% increasein production but the 20%
decline in revenues.
We have a bad enough projectionIf we have additional
(42:49):
development, if we start in onadditional fields and have
additional capital expenditures,particularly by existing
incumbent producers up there, ifwe have additional developments
, what we're going to have is aneven lower tax revenue over the
next 10 years.
It's going to keep knocking itdown and knocking it down and
(43:09):
knocking it down as we goforward.
So, before we get into thisdrill, baby drill, we want all
of this additional production tocome on, lord.
We want additional leasing.
We want companies out there.
We want to push them out there.
We want to encourage everythingwe can.
Before we go down that road, wereally need to fix the way the
(43:30):
oil tax system works in thisenvironment first, because if we
don't, all we're doing isdriving near-term tax revenues
deeper and deeper and deeper andincreasing the amount of
deficits that we've got in thisstate more and more.
Speaker 2 (43:45):
and more and increasing the amount of
deficits that we've got in thisstate more and more and more.
Down to less than two about twominutes here, brad.
So how much wiggle room isthere on there?
You and I have talked about anumber.
I mean, is there 400 millionleft on the table?
500 million?
Speaker 1 (44:01):
Is that kind of where we're at.
We could be making that up.
We could change those thingsand make that money up.
It's probably 500 million,Michael, through SB 21 reform
needed SB21 reforms, plus the100 million from the Hillcourt
blue poll.
So we're probably talking about500 to 600 million dollars.
Now remember, if we, if we, ifwe calculate the budget on a
current law basis, we've gotlike a one point five billion
dollar deficit.
So this these don't think thisis the be all and and end-all,
(44:25):
that this solves all theproblems, but it is an
additional $500 to $600 millionand it would reduce the deficits
we're running significantly ifwe took that step.
Speaker 2 (44:38):
And, of course, there's no will to take that
step.
It seems like, I mean, a lot ofDemocrats are looking for a
billion dollars and theRepublicans don't want to move
an inch, and yet, at the sametime, we're the ones in the
middle getting squeezed.
All the Alaskan people, who arethe owners of the resource, are
getting squeezed on this and Imean I just don't know.
I don't know how to move thisneedle at this point.
Speaker 1 (44:59):
Well, I mean Republicans.
Republicans who go out and saydrill baby drill are doing the
state a disservice unless theyfix oil taxes first.
So actually, you know, thoseRepublican legislators who are
running around saying drill babydrill are a problem.
They are part of the problem,not part of the solution if they
(45:22):
don't go in and fix oil taxesfirst.
And I'm going to keep talkingabout them that way.
Speaker 2 (45:29):
I mean how anybody can look at a chart to see, oh,
oil production going up 40%, oh,our revenue is declining 20%.
I mean, any time you look atthose charts and they cross like
that somebody's got to go.
What?
I mean, why aren't we askingthose questions?
You know why isn't it?
I mean you know why are weasking those questions?
You know why isn't it?
I mean, you know, at any timeyou talk about any new oil taxes
(45:49):
, the Republicans are like well,no, no, we can't, because we'll
stymie development.
Well, what good does it do todevelop if we're losing money in
the long run on a finiteresource?
Right, at some point you got togo.
Well, maybe we should just siton the oil then, and when it's
really needed then we'll dosomething.
I mean, you know, at some pointyou can't just keep losing
(46:11):
money and say we're doing good.
I think Brian's comment waswe'll make it up on volume next
year, right?
I mean, isn't that the answer?
Speaker 1 (46:20):
Yeah, it is, I don't think I mean.
Sb21 started with a very clearprinciple let's get additional
production, because Alaskawasn't getting its share of
investment.
If you looked on a global basis, alaska ACES had put Alaska in
a hole in terms of gettingadditional investment.
So let's revise the code to getadditional investment and we'll
(46:45):
get increased production.
Additional investment will leadto increased production.
We'll get increased productionand Alaskans will share in that
in terms of increased revenues,because obviously, as production
goes up, revenues will go up.
Right, people still say that.
And so you, you, you start withthat simple premise in SB21,
and then you start putting inbells and whistles because this
(47:07):
company wanted that or thatcompany wanted this, and it all
seemed to work because it wasgoing to incentivize production.
And, of course, at the back end, if you incentivize production
and increase production, you'llhave increased revenues.
Well, we've come to find out itsort of worked through the 20
teams.
When you look at it, itincentivized additional
(47:28):
investment, but it wasn't somuch that it plowed down, uh,
production or production ploweddown revenues.
It was it sort of, you know,worked the way it was supposed
to.
But when you get into the 2020s, you have these big
expenditures going on byConocoPhillips, in particular,
willow, but also PICA, which isall all the oil search is doing.
(47:49):
Santos is doing is creatingfuture tax credits so when they
start producing they won't haveto pay much because they've had
all these capital expendituresthat that that they that they
gotten to carry over as creditsagainst future against, as
credits against future taxes.
(48:10):
You all of a sudden you realize,whoops, it didn't work the way
it was supposed to, which is asproduction increases, but our
revenues are going to increaseand so, and so you really need
to sit back and go.
Whoops, you know it didn't workthe way we wanted, so we need
to go in and revise it to makesure it does work the way.
We want that Alaskans get ashare of the revenues that are
(48:32):
being produced by thisadditional production that
they've paid for by changing thetax code to create these
incentives.
That's a simple concept.
Production goes up.
Alaskans ought to share.
Not working that way, you oughtto go back and make it work.
Speaker 2 (48:49):
They keep wanting to set this perfect.
We want to set this perfectthing in stone and then leave it
, never, realizing that, withthe vagaries of the market or
changes or things like that, itneeds to constantly be adjusted.
That's the thing.
It's like they want to set itand forget it and then never go
back and touch it again.
And that's what they did withElf.
(49:10):
That's what they did with Aces.
Speaker 1 (49:12):
That's what they do with SB.
It's the same thing, yeah, andthe set it and forget.
It seems to work in somebody'sfavor.
Aces, it worked in favor of thestate and against the oil
companies and ultimately againstthe state because of decreased
production, production, ofdecreased investment.
And so you go in with SB 21 andyou reset it and you want to
set it and forget it.
But you know it.
Ultimately it works out thatit's running in favor of the
(49:34):
company.
So of course the companiesdon't want to change it.
No, money, money handover.
Speaker 2 (49:41):
They'll spend millions to try and convince you
that it's that.
Don't mess with it or they'llleave.
They'll pick up their toys andleave, which, uh, okay, go for
it.
I mean, how much have you spenton and all this stuff, you guys
it's?
I think it's a false.
I think it's a false threat, uh, in that regard.
But again, four or 500 million,$600 million potentially left
(50:01):
on the table.
As Alaskans, as a resourceowner, that makes me mad.
I mean we shouldn't be leavingthat on the table and we'd have
a lot less problem.
Now, the problem is, of course,that if we had five or six
hundred million dollars more,the legislature would just spend
the hell out of it anyway.
But I mean, until we getsomething else fixed in there,
we're still losing the money atthis point.
Speaker 1 (50:21):
Well, it would at least some of it, and I think a
lot of it would drop to the PFD.
It would, it would, it wouldpossibly it would pop out in
terms of reduced PFD cuts andand so would go, would go to the
benefit of of Alaskan families,and I think I think that's a
good thing.
And so the flip side of that is, you're taking money out of
(50:44):
Alaskan families, legislators,you're taking money out of the
pockets of Alaskan families inorder to make oil companies
richer.
And I'm not trying to gouge theoil companies.
I'm just trying to get the damnthing to work so that, when
production increases, alaskansbenefit along with it the simple
concept we started with back in2013 and 2014,.
(51:06):
I'm just trying to get the damnthing to work the way it was
supposed to.
I'm not trying to gouge them.
Speaker 2 (51:11):
No, I mean, I just think everything should be
equitable and fair.
As owners, we should get ourfair share.
As producers, they should gettheir fair share.
That's how it should work.
That's why I think this idea ofsetting it and forgetting it is
ridiculous.
You need to constantly be ableto go in there and tweak it and
adjust it so that everybody getstheir equitable share.
You know, so to speak, on that.
(51:33):
All right, brad Well, capeBreton awaits my friend.
I hope you have a lovely time.
I hope you enjoy yourself andwe look forward to talking with
you again next week.
Speaker 1 (51:47):
Next week I'll have a Cape Breton background behind
me.
I'll be looking out the picturewindow of my cabin there.
Speaker 2 (51:53):
I can't wait to see it All right.
Thanks, Brad, Appreciate youcoming on board and joining us.
Thank you so much.
Thanks for having me.
Speaker 1 (51:59):
Michael.
Well, that's a wrap for anotherweek's edition of the Weekly
Top Three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(52:22):
for Sustainable Budgets.
We look forward to you joiningus again next week on the Weekly
Top Three.
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