(SitNews - Ketchikan, Alaska) - Alaska spends more than it takes in. To that extent must investors worry about when -- and not if -- the next tax proposal will creep over the horizon toward THEM.

In a Fairbanks News Miner Op-Ed mayors (i.e. whose own retirements are at risk with underfunded pension liabilities) urge lawmakers to support the Governor's proposal to reduce the $12 billion unfunded pension liability by $3 billion.

To do that, lawmakers will have to remove $3 billion from state savings accounts at a time when their deficit spending level requires use of depleting savings.

Oil production from Prudhoe Bay is declining, upon which 90% of state spending is based. Oil revenue could continue its dramatic, annual production decline putting more reliance on savings accounts to balance an unsustainable state budget.

Paying off the entire pension liability is impossible since Alaska doesn't have $12 billion in total savings available.

Gas pipeline investors have to be wondering, "If I commit to a portion of a $40 - 60 billion gas pipeline/LNG export project and the state continues running out of money, how safe is my investment from predatory tax policy?"

Alaska has a track record of taxing for more than it needs to operate and, to add insult to injury, taxing the oil industry retroactively. It has built the highest cost per capita bureaucracy in the nation. Now, in the face of rising costs and diminished revenues it is urging oil companies to invest in a mega gas pipeline project so that revenue from that project a decade from now can fund the state's spending appetite.

Meanwhile, dozens of pending LNG export projects in the the US and Canada are all romancing the same Asian energy consumers. Experienced observers know that profit margins will likely be thinner than they hope for. Asian utility managers are not stupid. They will want the lowest possible "ship or pay" cost for LNG energy in return for their own "take or pay", long-term financial commitments. (Some good, Lower 48 researchers are excited about Alaska's prospects, but may not be fully aware of investor concerns or competitive pressures from other export projects that we have covered in these pages.)

The LNG project that offers the lowest, competitive price to an Asian utility in return for a 20-year, firm contract, cannot afford to risk company solvency on "assurances" that Alaska will not create new energy taxes out of thin air and even apply them retroactively--thus altering project metrics and risk. The risk that the contracted delivery price of LNG to an Asian market could be lower than the cost of delivering the LNG -- under a "ship or pay" arrangement, may be an unacceptable risk to a responsible investor.

So the final question that any gas pipeline investor might be asking now is, "Can Alaska assure my company that today's gas pipeline investment is safe from future tax increases when unfunded pension liabilities, run-away budgets and diminishing oil production pose a dreadful danger in spite of any politician's soothing assurances and best intentions?"

As our friend, utility manager Joe Griffith has often said, "Hope is not a strategy." We all hope for conditions that will enable sustainable budgets and projects to supply both the jobs and the financial resources of the future. But hope alone will not achieve that goal.

What then is an answer to this Gordian knot of intertwining politics and energy policy? Cut public spending to be consistent with income. Cut welfare/entitlement spending to be consistent with median welfare spending of all other states. Business taxes should not exceed median of business taxes in other states. Institute new taxes only on new investment, not on prior investment. Never tax retroactively. Cut tax and regulatory burdens to essential and responsible needs. Avoid state investment into private sector projects--which always involves politicians risking "Other Peoples' Money". Of course, there are as many suggestions as there are people with opinions.

So is some combination of these and other responsible remedies too difficult?

If workable solutions are "too difficult" they will not be undertaken and undisciplined, unsustainable economic policies will ultimately result in involuntary compliance with economic realities.

Parents warn children that this is called, "learning the hard way".

Related Opinion:

Juneau Empire Op-Ed by ong-time Alaskan utility and natural resource expert, Bill Corbus

Dave Harbour is the founder of the public service website Northern Gas Pipelines. Visit his website at http://www.northerngaspipelines.com

Northern Gas Pipelines may be the oldest Alaska blog.
Northern Gas Pipelines was born in 2001. In 2003, Harbour joined the Regulatory Commission of Alaska for the five-year remaining term of a departing commissioner. In 2008 he created this new webpage.

Email Dave Harbour at harbour@gci.net

Published by SitNews with written premission from Dave Harbor.

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