The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (7.21.2025)
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 July 21, 2025.
This week, our top 3 issues are these: 1) we discuss the significant state revenue downside of Conoco’s — and others’ — new exploration programs (2:07), 2) we explain, contrary to the hope of some, why the gas pipeline is not a “fix” to Alaska’s broken financial foundation (17:37), and 3) we discuss how the OBBA may make state level K-12 funding issues even more complicated (37:57).
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.
Hi, this is Brad Keithley, managing Director of Alaskans for Sustainable Budgets. Welcome to the weekly top three the top three things on our mind here at Alaskans for Sustainable Budgets for the week of July 21st 2025. The weekly top three is a regular segment on the Michael Duke Show. The show broadcasts on both Facebook Live and YouTube Live as well as via streaming audio from the show's website. Weekdays from 6 to 8 am.
Speaker 1:I join Michael weekly in the first hour of Tuesday's show from 610 to 7 am for a discussion between the two of us about our three issues. We post the podcast of our discussion following the show on the Alaskans for Sustainable Budgets Facebook, youtube, soundcloud, spotify and Substack pages, also on the Alaskans for Sustainable Budgets website, as well as the projects page on national blog site mediumcom. You can find past episodes of the weekly top three also at the same locations. Keep in mind that, in addition to these podcasts during the week, you can also follow and participate in the discussion with us of these and other issues affecting Alaska's fiscal and economic condition by following us on the Alaskans for Sustainable Budgets Facebook page and through our posts on Twitter. This week, our top three issues are these First, we discuss the significant state revenue downside of Conoco's and others' new exploration programs. Second, we explain why the gas pipeline is not a fix to Alaska's broken fiscal foundation. And third, we discuss how the one big beautiful bill may make state-level K-12 funding issues even more complicated. And now let's join Michael.
Speaker 2:So, Brad, let's start off with the weekly topics. This week We've been hearing a lot about Drill, Baby Drill. We've been hearing a lot about the president and his executive orders opening up the state and how it's all going to work. Saved, it's all going to be great. Don't worry about it. And yet maybe not as great as we thought it was. There's a downside to drill, baby drill. Give it to us.
Speaker 1:Well, michael, this segment is triggered by a good article by Alex DeMarvin in the ADN, the headline of which ConocoPhillips says it plans significant oil exploration this winter in National Petroleum Reserve Alaska. And that follows a Bloomberg article to the same effect and really details some plans that Conoco has filed for or is in the process of filing for with the Trump administration to do some significant exploration work in MPRA on leases that it already owns but was not permitted by the Biden administration to develop, to go after, to explore on, but that it holds and is proposing to the Trump administration that it follow through and do some exploration on those leases. And one assumes, given all of the statements that the Trump administration has made, that approvals will be forthcoming and Conoco will be out there doing some exploration, drilling. And the usual reaction, including for me initially, to these things is yay, more exploration, more development, more oil, all good things.
Speaker 1:But there is a downside to this and this segment is really for any legislators who are listening to it now or listen to it later on the podcast, or their staff who listen to it now or listen to it later on the podcast. There's a, there's a bite that comes out of this. It's going to come to bite you, the legislators, in coming coming sessions. Let's go to. Let's go to this chart that we've used before, michael. If you have it, have it handy, michael.
Speaker 2:I I let me pull it up. I'm sorry I was you, you, you keep talking and I'll I'll do my job. That's one of the things.
Speaker 1:Let's go to this chart that we've used before. Uh with respect to uh, with respect to the impact on oil taxes. Oil revenues rally rather uh from, uh, from development, drilling, and there's there's several things that go on. Yes, out in the future, when oil's produced, ultimately they do produce the drilling and the additional oil does produce additional revenues. But in the meantime and the meantime lasts for a long time in the meantime there's a significant hit. This is a chart we've used before. It shows, on top, the projections of production volumes over the next decade according state lands, and then on the bottom, the dash lines are the revenues projected from oil production over the next decade, also from the spring revenue forecast. The dash red line are royalties, that is, royalty revenues from state lands. The dash blue line is production taxes and production taxes have historically been a significant segment of revenues. But you can see over the next decade, according to the spring revenue forecast, that production taxes are on a significant decline that continues until 2032. And then, even when they jump back up, they don't jump back up to the levels that we had. They jump up to less than 50% of the levels that we had in 2024. And the levels in 2024, if you went back 10 years, those levels in 2024 are even higher, yet over the last decade. So there's three things that are driving the reduction in production taxes which are significantly hitting the revenue side of the budget. One is the per barrel credits that everybody talks about and complains about. But the per barrel credits really only kick in when you have production and they're not that significant. They trigger off of what your tax obligation is, so they're not that significant if your tax obligation is down. There's two things that are driving the tax obligation down before the per barrel credits come in. One is gross value reduction. So the way that SB21 set up the tax structure, it incentivized new oil, oil from areas that hadn't been producing before, from areas that hadn't been producing before. Incentivize new oils by reducing the value, the tax value applicable to those vines. In a sense, it gives new oil a credit and subjects it to a lower tax take than old oil. So as you see, new oil replacing old oil, the tax is going down. Tax revenue is going down because the per barrel revenue from that new oil is lower than the per barrel revenue from the old oil and that's due to the gross value reduction, the GVR. The third thing, and this is the thing that I want to emphasize with respect to this new drilling that Conoco is announcing or the new drilling that anybody announces. The third thing is costs In the calculation, we have a net profits tax in the state of Alaska, so in the calculation of the revenue subject to tax or your income subject to tax, you get to deduct, the producers get to deduct expenses, both operating expenses and capital expenses.
Speaker 1:Unlike in the normal world, the normal tax world, where capital expenditures are amortized over a period of time, are amortized over a period of time three years, four years, five years, whatever. Under the oil tax code, capital expenditures are completely deductible in the year in which they occur. So you get 100% tax credit for capital expenditures. So when you see, when you and this chart, the reduction in the dashed blue line over time, what you're seeing is the impact of the capital expenditures, significantly an impact of the capital expenditures that are being spent to develop the additional oil that you see coming on toward the end of the 10-year period. The more capital that's spent, the bigger the deduction, the lower the revenue that the state gets out of oil. And so when we start talking about oh great, there's going to be new expenditures. That's good for a lot of purposes, but what it's going to do to this chart is drive the production tax revenue even lower. End of the period it will continue to drive the production tax revenues lower because the producers are able to deduct that expense, cap that capital expense on an annual basis.
Speaker 1:Even if so, one question out here is PICA. What's PICA doing this? Pica isn't doing anything to this chart until it starts up because oil search is not paying. They're Santos now is not paying any oil taxes. It doesn't have any significant production. I don't think it has any production, but it doesn't have any significant production through the first part of the period. It's drilling up the PICA field.
Speaker 1:Once PICA starts, then what Oil Search is able to do, or Santos is able to do, is to take all that accumulated capital expenditures that they've made, all those accumulated expenses that they've incurred, and start using them as credits against future production or as deductions against future productions.
Speaker 1:So even once the field starts up, we won't get significant production tax revenues because they will have these accumulated deductions that they're able to use to offset revenues oil revenues into a significant period in the future.
Speaker 1:So the downside of this and what state legislators and those who are concerned about budget issues need to focus on or need to understand is when you see an announcement about increased expiration, increased spending, increased development good in the long-term, once we finally get out of the period where they're spending a lot. Good in the long term, but in the short term and by short term this really I mean we really mean 10 years In the short term, it makes our state budget issue even worse by continuing to push down on, continuing to push down on on production tax take by the state. So keep in mind when you see these headlines great drill, baby drill, isn't that wonderful and all that sort of stuff but also keep in mind that that the boomerang on this is in the foreseeable future, we're going to continue to have low production tax revenues, which is a major component of oil revenues, is going to continue to have producers out there, particularly current producers like Conoco producers out there drilling and spending money on new projects.
Speaker 2:So the too-long-don't-read-on-this-whole-thing, including the chart, is what we have is we have more production coming but lesser revenue, and that is driven specifically by the way that the taxes are currently structured, because they can not only is it net profit, but they can amortize it immediately instead of taking it out and depreciating it over a period of time. And that is the major concern here is that if we had a different tax structure, we could be having a larger take as the owners in the short and the long term. Is that right?
Speaker 1:Yes, what we've designed is a tax structure that pushes Alaska's take at least from oil taxes, pushes Alaska's take out into the future. It allows essentially the producers to recover their costs up front out of out of deductions from production taxes and pushes Alaska's take out into the future. And when you have a period where we have prolonged, intense drilling, like we're going through now that, and you're accumulating a lot, of, a lot of costs, when we have a period like that, we're pushing Alaska's take way out into the future. So nice for legislators, maybe in the 2040s and 2050s. Not so good for legislators in the 2030s and early 2040s.
Speaker 2:There's a question here. It says Frank is asking how many barrels of oil is a chart based on?
Speaker 1:I'll be right back so, assuming I'm still on, the barrels are in the blue line. The total barrels, frank, are in the blue line at the top and they reach 663,000 barrels a day by 2034. There's a because we get state royalty on state barrels but we don't get federal. We don't get royalty on federal barrels. The charts divided into total volumes and then state volumes and the state volumes that's projected by 2034 is 522,000 barrels a day.
Speaker 2:Rick said, the volume is down to 353,000. I didn't think they were going to run that low, but, as you're showing, as you just said, that number is going to go up.
Speaker 1:Oh, the daily volume is down because we're in turnaround on the slope. In the summer they do turnaround, they do maintenance. That was called turnaround. They do maintenance on the slope, maintenance on wells, maintenance on facilities, annual maintenance on facilities and so the summer volumes are down but the winter volumes have been up. We were at 460, 470. I think this past winter and they're projected to total average volumes are projected to continue to go up, are projected to continue to go up. The wax volume is, if you run, a sustained 300 plus or minus I think that was the projection at one point a sustained number through that. But blips like we're going through currently with the turnaround doesn't really result in wax buildup.
Speaker 2:Chris says the problem in part in his mind is the price of oil for the state, but that has more to do again with the taxation and the way the taxes are structured than anything else. Am I right?
Speaker 1:Yeah, I've got another column that adjusts for price and does a calculation based on percent of gross revenue. How much of the take is how much the state take is on percent of gross revenue and in the 2020s or in the 20-teens rather, we looked a lot like. We did look a lot like before ACES. We had really gone back to a tax structure that took as a percent of gross revenues, took about the same share as we did before before ACEs.
Speaker 1:Now we've gone into a tax structure in the 2020s, with all of this construct, with all of the expensing going on, we've gone into a tax structure that's significantly lower, not only the NACES, but lower than where we were before ACES. We have as a percent of revenue. We have a percent of gross revenues. We have a decline going on as a result, largely what's going on with production taxes. So you can calculate, you can make it neutral as to whatever the price is by using percent of gross revenues. What the state's take is as a percent of gross revenues and when you do it that way, it's also showing the same thing as this chart that we're having a dive in state revenues.
Speaker 2:We're continuing now. Brad Keithley, alaskans for Sustainable Budgets in the weekly top three. We're moving on to number two, as life continues to be interesting for us here. To be interesting for us here. Brad says, yes, the economy is broken and no, aklng won't fix it. This is based on a headline from a Seth Church opinion piece in the ADN. Now I've known Seth for a long time and he's very optimistic. Most of the time Alaska's financial foundation is broken. He says the gas pipeline might fix it. And you're like, yes, it is broken and no, it won't. You are such a downer, brad, what the heck Give us the thing here.
Speaker 1:Exactly, I'm such a whatever the heck it is you said, are you such a downer dude? So Seth's article is broken into two parts. Seth's op-ed is broken into two parts. Seth's op-ed is broken into two parts and the first half of it is a recitation of all the problems with Alaska's fiscal foundation, financial foundation, and by that he means the budget's revenue foundation, the revenue foundation underlying the state budget, and he does a good job of really laying out all of the problems with where we are. He doesn't include the segment we just, or the issue from the segment we just discussed, which is that increased drilling comes back to bite the state budget in the near term. He doesn't even include that one but does a pretty good recitation. And then he flips over about halfway through and talks about the solution, that one of the that the solution to that might be the gas pipeline. And you know it takes a lot of optimism to think that the gas pipeline is going to be a significant contributor to Alaska's revenue side.
Speaker 1:When you look at the economics of the gas pipeline anymore it's all predicated on a gas price, of the price for gas into the pipeline of a dollar, a dollar in MCF. This is against world prices of you know, currently Henry Hub's around $4 and other prices and other locations are different, but none of them are down to a dollar. And it assumes the economics, the marginal economics of the gas pipeline, the best economics they put out there. That makes it sort of look halfway economic If you can fill the pipeline all the way up, is based on a gas price of a dollar and there's just not much revenue in a dollar. There's a lot of MCFs but there's a lot. There's not a much revenue, uh, in a dollar to be shared between the producers and the state and the localities Because, remember, the production on the slope is also subject to local property taxes and production and the pipeline be subject to property taxes. There's just not a whole lot of revenue in there in that dollar to share. And so when you talk about the gas pipeline being a big revenue producer, it's just not going to be a big revenue producer.
Speaker 1:Some of the economics at various points show a big revenue, a higher revenue number from the state investing in the pipeline and show revenue in terms of return on that investment, that is, the tariffs that are charged coming back to the pipe, the revenue coming to the pipeline and then, as an owner of the state, getting a share of that, a share of the profits from the pipeline. But when you look at that on the basis of opportunity cost which is, what could Alaska get from investing that money in other ways other than in the pipeline when you look at it on the basis of an opportunity cost, that investment investing in the pipeline actually costs the state money, because the state could get more money, could get a higher return on investment if it invested the money elsewhere, through the permanent fund or otherwise. So actually actually one of the great claims about, about a revenue driver that the pipelines made in the past is is is is misleading because it claims revenue and in fact it's an opera. It's not. There's an opportunity cost to the state from participating in it.
Speaker 1:The big impact from the pipeline that most people talk about when they talk about its economic justification is from the jobs. The jobs not only in the construction of the pipeline, but also the jobs in the operation of the pipeline once the pipeline's underway, but also the jobs in the operation of the pipeline once the pipeline's underway. But under the current tax structure in Alaska, jobs don't produce revenue to the state. We have no way of reclaiming a portion of the revenue that's spent on jobs. We have no way of reclaiming that to the state. We don't have an income tax, we don't have a sales tax, so there's no revenue to the state from all those jobs. Yes, it creates economic health in the private sector, but it doesn't create economic health to the pipeline.
Speaker 1:State revenue benefit to the pipeline is property taxes. Some people say, oh well, the state will at least get property, a portion of the value of the pipeline in terms of property taxes, just like it does off of taps. What the of AGDC? And look at what they've proposed. They propose a special tax on the on the gas pipeline. To make it economic, to make the sales price economic, they proposed a special tax on the pipeline. That's just a fraction of the property tax that we get on the on the on the oil pipeline, so that's not a big revenue producer for the state either. In short, I mean Seth's got it right in terms of yes, the state faces a financial difficulty, but the gas pipeline is just not going to be a solution. That's not going to be where we're ultimately going to generate revenues to the state as much as.
Speaker 2:I admire this. The whole problem is that the whole premise is based on the fact that the pipeline is going to get built. Now again, we could go back to the wood mckenzie report, which was had some of the rosiest outlook on it and with a uh and with a correct me if I'm wrong, but I believe it was with an 80 subsidy they were still delivering gas at like $3 over market value with an 80% subsidy. So I mean the fact that you know I want gas. Don't misquote me here. I want Alaska gas to get to Alaskans and the rest of the world as bad as anybody else. But there's this thing called the economics of it, the fiscal reality of what is it going to cost. And if you have to put an 80% subsidy to deliver gas at 15% to 20% over what market value is, who's going to buy? That's the big problem. And you had to pay an 80% subsidy, that's the problem.
Speaker 1:Yeah, I mean the gas pipeline does solve some issues. It would bring Alaska gas down to South Central. It would bring Alaska gas to Fairbanks although Fairbanks is otherwise getting Alaska gas because of the LNG contract with Hillcorp but it would have delivery. But anybody who thinks this is going to be a moneymaker for the state really needs to look at the fundamental economics. It really needs to understand what's driving those fundamental economics. There are rationalizations, justifications, explanations for the pipeline that go on and on and on, but do not do it.
Speaker 1:Do not think that it's going to produce big revenues for the state. At one time there was an expectation that it would produce revenues. I remember when Scott Goldsmith used to do his sustainable budgets back in the early 20-teens, a significant portion of the out years of the future revenue was coming from the state. Revenue was coming from the pipeline. But I think that assumed a gas cost, a gas price at the whalehead of somewhere in the neighborhood of $12. And now we're down to $1. And at $1, that just doesn't produce a whole lot of revenue. So we have to be realistic about this. I appreciate Seth. I appreciate the op-ed. I appreciate Seth, I appreciate, I appreciate the op ed. I appreciate, you know, the effort to try to, the effort of salesmanship, but don't predicate it on state revenues. Don't predicate your pitch on on the benefit to state revenues.
Speaker 2:I want to sidebar for just a minute on this, because I've had these conversations over the last five or six weeks with various Alaskans just out in the wild right talking to people, and there's been a lot of chatter about the Alaska gas line, the AKLNG, and the president and his actions and what it's going to mean.
Speaker 2:And the problem is is that I think it's doing more harm than good because it's putting this idea in people's minds that oh, this is right around the corner, it's going to be there, we're going to be saved. And then when I start asking questions about things like, well, but did you know that the economics is this and did you know that you know the Wood Mackenzie report and the problem? And they're like, oh no, we had no idea. So it's almost it's a dangerous thing to pump everybody up like this is going to be the thing that's going to save us and it's right around the corner. And you know, glenn Farn is in there and all. But the thing is is that what you've got to get companies to invest in it, and they're not going to invest unless they make money. And that's the problem is that there is no money to be had in the construction and operation, maybe in the hiring, and there's an, you know an economic boon there.
Speaker 1:But other than that, you're not going to get people to pony up the money up front. Yeah, I mean, every day there's an announcement, or every week there's an announcement of a new contract or a new project for American, for US LNG, but it's all based on the Gulf Coast production, it's all based on Gulf Coast LNG plants. And now it seems like there are a number of announcements with respect to Canadian LNG, but it's Canadian LNG, so it's not. Alaska is not in the conversation. I mean we talk about Korea or Japan. Well, korea's political environment is all screwed up. Japan's political environment, with the recent election they had over there, is all screwed up. And no one is in a position, either one of those countries political position, either one of those countries, to make a long-term commitment that doesn't look economic, which AKLNG does not, from an investment standpoint or from a purchase standpoint, because you've got to have a price that's economic and AKLNG comes in at a price that is at the very margin, very far end, of what's out there and available in the world today from existing LNG projects. So there's an opportunity cost, another opportunity cost. So there's an opportunity cost, another opportunity cost. There's an opportunity cost that we're incurring by all of this buildup about AKLNG.
Speaker 1:People are focusing on that, like Seth. People are focusing on that instead of the real problems and the real solutions that we have to undertake. I mean, we're sort of getting ourselves into this space where we say, oh, everything's going to be solved, we don't have to worry about it, we don't have to worry about our problems because everything's going to be solved. Well, we do, because this isn't a solution and we need to be focusing on the real world problems that we have. Like we talked about in the first segment, which is additional oil expenditures, are going to come back to bite us in terms of decreased production taxes.
Speaker 1:We need to be talking about that stuff and we're not because we're deluding ourselves, seth being an example. We're diluting ourselves in the meantime by saying, oh, aklng is going to solve all those problems. It's not, and we and you know so. You really have to for those of us who live inside a spreadsheet. You really have to. You really have to bear down and look at what is really causing the problem and what the real world solutions are to the problem, as opposed to spending time talking about stuff like this solutions are to the problem, as opposed to spending time talking about stuff like this.
Speaker 2:One of my suppositions is that this is all kind of a deadly game of kick the can. They don't want to look at the ultimate problem, which is the size and scope and the cost of government and the fact that they're not willing to address the issue that we're spending too much, and that they're not willing to look at other alternative revenues, even if they don't want to cut, but there's no other discussion of any other revenues. This is kind of that deadly game of kick the can they're just doing. It's another way to basically obfuscate and say you know, look at this hand over here, look at this hand over here, look, and then that'll collapse. And then people will be like what happened, because nobody's taking that deeper dive.
Speaker 1:Yeah, I think that. Yeah, I think that's a great point, Michael, and a point, frankly, that I ought to be working into some of the stuff I write that we are. Not only are we not doing ourselves a positive service by focusing on A, K, L and G, because it's going to go nowhere, we're doing ourselves a negative service because we're taking our eyes off of the real problems we face and off of the real solutions that we have to pursue to solve those real problems.
Speaker 2:Okay, we're on our way to number three of the weekly top three, brad Keithley Alaskans for Sustainable Budgets. Why you got to be such a downer, brad? It's just why you got to be such a downer, brad, it's just you know. But that's the thing that we just keep getting fed bread and circuses. That's what I hate.
Speaker 2:That's what I hate about this whole discussion of AKLNG is that it's just kind of a distraction from the major problem, which is we are spending too much in this state. That's the. You know as much as we'd like it if we had it freed up too much in this state. That's the you know as much as we'd like it. If we had it freed up, had that money freed up, we wouldn't be so stressed about AKLNG and other things. So, Brad, not to be not so that they could say that we're just again such downers and negative Nellies or whatever that they want to say out there. But I mean, so what's the solution to the gas pipeline? I mean, if you were emperor for a day, let's give some solutions right, instead of just bitching about things, let's give some solutions. So what would be the solution if you were king for a day, emperor of the world, and you could make this happen? What is it going to take to get a gas line here, or how would you fix this problem?
Speaker 1:Well, basically, the fix of the gas pipeline is the greater fool theory. Can you find somebody with a bunch of money that's willing to pay for the cost of the pipeline? Invest in the pipeline and essentially subsidize it by accepting below market returns in its operation. And, in fact, not only subsidize it by accepting below market returns, but subsidize it also by purchasing, committing to purchase a huge amount of volumes from the pipeline in order to keep the volumes flowing. Keep the whatever revenues there are flowing. In order to keep the volumes flowing, keep the whatever revenues there are flowing, even if world prices for other opportunities are lower. Nevertheless commit to purchasing volumes from the pipeline. And that's I hate to say this, but it's the truth. I mean, basically, the entire Trump approach has been the greater fool theory. I mean, basically the entire Trump approach has been the greater fool theory. Are Taiwan, japan, korea, thailand? Are they all willing to be the greater fool by investing in this thing and making purchase commitments of this thing, sort of regardless of how it stacks up in the world market? And interestingly enough, he hasn't found the greater fool. We haven't found the greater fool out there willing to do it Glen Farn, I mean people say, oh well, glen Farn's on board. That must mean something.
Speaker 1:What Glen Farn's doing is investing very little sort of on a bet, and the bet they get 75% of the equity for a very small investment 75%. And the bet is that we find the greater fool and and they're able to turn this thing into into a real thing. But if it, if the bet turns out not to not to be, not to come true, they haven't invested that much money in it. They've invested some time, some resources, some money in in it in terms of, in terms of going to FID and that sort of stuff, but they haven't invested that much. And it's just sort of a bet that maybe this thing will pay off.
Speaker 1:And that's what you find in the private equity world. You find people who have enough money that they sort of bet on these marginal projects. If one of them hits, great, I make even more money. If it doesn't pay off, it's a tax write-off and that's really what's going on here. So if I was the king of the world, I guess I would try to find the greater fool and, you know, convince them this thing is a good thing and they ought to invest in it, the thing that that Steve, the Senator Sullivan has been talking about. You know the U S government, so it's a it's a national defense issue. We need to have gas for these, these military installations in Alaska, and so it's really a national defense issue, and so we ought to get the, the department of defense, the Pentagon, to invest in it. It's another form of the greater fool theory. I mean yes.
Speaker 2:Except we're the greater fool because we're the taxpayers paying for. It is what you're saying.
Speaker 1:Yeah, but that's what it is. I mean, I've seen this in the business world throughout my entire career and sometimes you find the greater fool and they invest in it and so all of a sudden you know your bet paid off. But that's what we're dealing with here. You know, some suggest that we wait on I think Harold suggests this on occasion that we look at setting up an LNG plant on the North Slope and that we tanker it out, that we have ice-breaking tankers, much like what Russia has done with a couple of its projects. I've talked about that several times, but there's I mean, we don't get gas for Alaskans that way and there's issues up there.
Speaker 1:I mean, I was part of a couple of project teams during my career that looked at that or looked. I was on the legal side of it, but there were people who were looking at that prospect and there are issues about. You know, do you have a channel to get the tankers out? How long do you have to build the jetty out to get to deep enough water to fill the tankers up? What do you do about ice? All sorts of issues about that that add to costs and make the economics of that alternative challenged in a different way but nonetheless challenged. Maybe find a greater fool that will go for that.
Speaker 1:But that's I mean, that's the problem. This is an economically challenged project. In a world where there weren't LNG alternatives, where there weren't gas alternatives, it'd be a great project. 70s and 80s it was a great project to get gas to the lower 48 because we thought the world, the lower 48 in the world, was running out of gas, and so Alaska was a source of gas, and so we built this big pipeline from Alaska down to the lower 48. And all of a sudden the lower 48 would be saved. Well, that worked in a world in which we didn't have gas.
Speaker 2:Brad, keithley, alaskans, forced Standard Budgets, the weekly top three. I'm a glutton for punishment. What more could you say? Uh, brad, we know that the k-12 debate is not over. I mean, even though the governor's veto is a single year veto and they're going to start getting that 700 bucks a kid next year, um, they're only getting 500 this year, but next year they're getting 700. But we know it's not. We know that's not the end. They've already said that. They've already come out and said the quiet part out loud that you know. Oh, it's got to be 1800, right, I mean, you know it's coming, but now it's getting even more complicated because there's more involved in this. This whole thing is going to get more complex.
Speaker 1:Give it to us to some degree, the one big beautiful bill is is similar to what, uh, what Nancy Pelosi once described One of one of the congressional acts uh, uh, when she was, when she was speaker which is, you have to pass it to to know what's in it, and and there and there are a lot of layers as it's turning out to the one in 800 pages. You would expect that, I guess, but there's a lot of layers to the one big beautiful act. You would expect that, I guess, but there's a lot of layers to the One Big Beautiful Act that are sort of coming to light, one of them that I really hadn't focused on because I was focused on the top line of what it added to the deficit, but one of them as you start peeling off the layers and you start understanding what's inside the Big Beautiful Act. The big beautiful act is a provision, uh, with respect to federal taxes. Uh, that uh is, uh, that gives, uh, that creates an incentive for uh people to uh, uh give money to what are called. What are these things called? Sg something, sgos okay, sgo, whatever. An sgo is. Um, to give money to these S-G something, s-g-o's Okay, s-g-o, whatever an S-G-O is. To give money to these organizations that would then support private schools or support additional expenditures for public schools.
Speaker 1:To support additional expenditures for public schools, what the bill does, what the beautiful bill does, is create a tax credit, not a tax deduction, but a tax credit for contributions of up to $1,700,. I think it is to these SGOs that will then that are like charitable organizations that will collect the money and then give scholarships to either support private schools, give scholarships to students that will then that are going to private schools, or scholarships that then students can use for scholarship granting organization. That's what it is SGO that will then give these scholarships that then can support a number of activities. The tax credit it sort of turns the federal tax, your federal tax payment, into a pick, click and give, because if you owe, say, $10,000 in federal taxes, you can contribute 1,700 of that, get a one-for-one credit. You can contribute 1,700 of that 10,000 that you owe for federal income taxes to an SGO and get a one-for-one credit. So you no longer owe 10,000 to the federal government. You owe 8,300 because you've used 1,700 of it to contribute to the SGO Right.
Speaker 1:I think that's going to have a huge impact on the K-12 debate and a huge impact on funding issues. Because all of a sudden, you're going to have these SGOs, these non-governmental entities, these private entities that are going to end up with a lot of money that are coming via these tax credits. And why not? Because if the choice is either paying $1,700 to the federal government in terms of taxes or paying $1,700 to support education through an SGO, I mean you're going to pay the $1,700 to the SGO through an SGO, I mean you're going to pay the $1,700 to the SGO and all of a sudden, you're going to end up with these organizations, these private organizations, scholarship-granting organizations that are going to have tremendous power and significant resources in terms of what's going on with spending for education. And so I think that's just going to layer in another level of complexity in the K-12 debate. I mean, I can see in a subsequent legislative session somebody saying well, we need to increase appropriations to K-12 because they need more money. Well, the response to that by some in those subsequent legislatures is going to be no, just have them go to the SGO and have them sell themselves to the SGO, and if they can't get the money out of the SGO, that's their problem, because the money's sitting out there in the SGO, and they ought to. You know, if they have a good program, they ought to be able to sell that to the SGO and they ought to be able to get funding out of the SGO for it. They don't need more money from the state and I think that you know that really potentially increases the complexity.
Speaker 1:I did a calculation, I did a quick calculation. This is wrong for a number of reasons. It's on the high end for a number of reasons. But if every household, every taxpaying household in Alaska, contributed $1,700 to pick, click and give essentially with their federal taxes to an SGO, $1,700 to the SGO instead of paying it to the federal government, you could raise half a billion dollars. You could raise $500 million. That way in Alaska Won't happen. You'll never get to that number because not everybody will participate, all sorts of things will get in the way. But even at half that, even at $250 million, that's still a significant amount of money that then those in the legislature can say well, if you've got a good project, take it to the SGO and don't come calling on us.
Speaker 1:So I think this bill and I think this provision is going to complicate the K-12 debates even in any given state, according to the bill, is up to the governor. That is, it's an opt-in or opt-out or opt-in, sort of like Obama, sort of like the Medicaid expansion deal was. That is, that the state could opt-in to Medicaid expansion, but it didn't have to. But if it didn't, it didn't get the additional federal dollars. The ability to use this at a state level is going to be an opt-in procedure, up to the governor. Now, dunleavy certainly is going to opt in. I can't imagine why you wouldn't. But throughout the US there's going to be this really odd debate about whether the governors ought to opt in to the NGO.
Speaker 2:Well, the red and the red state governors will more than likely immediately jump on board. But the blue state governors are going to have a hard time because the education industry, the unions and everything else are going to be fighting back against this, because they don't want the competition. They don't want to have to compete for those dollars, they just want them to be plonked in their account and shut up and sit down and give us the money. And so it's going to create some interesting situations. But, like you said, if I'm a taxpayer and I've got a tax bill and this essentially costs me nothing because I'm going to owe it one way or the other, hell yes, I'll write a check to an SGO versus writing it to Uncle Sugar for that kind of stuff, because that makes sense. I mean, why wouldn't you at that point? And so it's going to create a whole new ball of wax.
Speaker 1:You're essentially I mean viewed one way. You're essentially delegating the appropriation of education dollars now to these new entities, sgos. I mean SGOs may become the most powerful thing ever in some states, yeah, because you're essentially going to delegate. I mean, if the legislature says don't come to us, go to the SGO if you want additional funding. The SGO is now a private entity, is now going to become tremendously powerful in terms of how it doles out these dollars.
Speaker 2:Yeah, sgos, that's. The law enacted earlier this month would soon allow taxpayers to redirect a portion of their tax bill to nonprofit scholarship-granting organizations, or SGOs. The taxpayer could write a check up to $1,700 to an SGO but get that full amount back via a reduction of the same amount of their income taxes instead of a regular tax deduction for the donation. It's a donation that ultimately doesn't cost the donor anything and yeah, so why wouldn't you at that point do that? Donna Ardwin's in the chat room. She said Florida and several other states have had those tax credits for decades at the state level. I'm assuming it was great, yeah, at the state level. And she said Alaska could run its own program with corporate income taxes if it wanted to.
Speaker 1:You know, talk about revenue issues, I mean talk about budget issues. But this is I mean, if you did it at Alaska state level with corporate income taxes, you'd just be chewing up the tax base, you'd just be'd just be narrowing and narrowing and narrowing the tax base down further. So let's not go down that road. But at the federal level, I mean, it opens a door. If you think about this, michael, and I talked to one of my friends up in DC about this and his concern was not only the SGOs, not only this provision, he said.
Speaker 1:But you know, the next time somebody has an idea about, well, we need to privately fund this or that or the other thing, let's just do another pick, click and give, or another SGO with respect to that thing, and pretty soon you're chewing up the federal tax base by doling it out to all these private organizations. Then, essentially, you're subcontracting to run various aspects of federal programs Because they're federally funded in the sense that they're reducing, allowing you to take a portion of your income tax that otherwise would go to the federal government. They're allowing you to take that and put it over in this private entity, and so these entities are going to be essentially federally funded, but they're not going to be subject to federal rules or federal constraints.
Speaker 2:Well, it injects another level of politicization into the process, I think, in some regards, because the SGOs will then be, you know, and they could be. I was just thinking, man, maybe I should start. The SGOs will then be, you know, and they could be. I'm like I was just thinking, man, maybe I should start an SGO and just start, you know, applying for this, and then put those money I mean, you know, because then I could point the money at the institutions that I believe will do the best job and so it will inject a level of politicization that may not have been or is not there right now and again, but it does decentralize the power from the state, which I'm in favor of. I'm in favor of decentralizing the power from the state because their whole focus has been to kowtow to the educational industry at this point, and so we need something that maybe this breaks it out, makes it more complicated, but maybe it breaks it out and gives us a little bit there.
Speaker 1:It makes it hugely more complicated. And, yes, you ought to start an SGO, but you've got to convince people to give money to your SGO, as opposed to the SGO that the guy three blocks down the street started, as opposed to the guy three more blocks down the street started. So it's going to be sort of the Wild West for a while as people figure out how to establish the SGOs, how to market them in a way that attracts money to them. You're going to spend a bunch of money on advertising. A bunch of the money you're going to get is going to be on advertising. It's going to spend a bunch of money on advertising. A bunch of the money you're going to get is going to be on advertising.
Speaker 1:It's going to be a mess, but from a state legislator standpoint which is sort of the position I tried to put myself in as I was reading this it's a great out. I mean, you want more money from me, I don't have it, but go to the SGO. It. But go to the SGO. Go convince the SGOs that you are entitled to the money and they'll give you the money, or they'll give scholarships to the students that go to your institution is basically what it is and go from there. It's just going to add another level of complexity to the whole K-12 debate and I would be a little surprised, I guess, to see it show up in the session that's coming up, that's starting the week after or whenever it is, but it's not too early for it to start showing up in that session.
Speaker 2:Brad Keithley. Less than two minutes here. Final thoughts for today.
Speaker 1:Brad Keithley. Less than two minutes here. Final thoughts for today. Final thoughts is we've got budgetary issues that just keep getting worse and worse and worse. Yes, we're getting people to explore on the North Slope. Yes, we're getting new investment on the North Slope, but it's not going to translate into revenue in the near term and in fact, it's going to translate into into revenue in the near term and in fact it's going to translate into reduced revenue in the near term. And the Alaska gas pipeline isn't going to solve it. So let's not go down that road too long, not divert our attention too long on that. Sgos might be part of the solution and they're going to be worth more discussion and more thought as we go forward.
Speaker 2:Kevin just said final thoughts. Do we encourage the greater fool or scare them away? That's the question there. I don't know, man. I mean I would love to see Alaskan gas. I just think that would be fantastic, but it's just not going to happen. Until somebody out there is making money, uh, making it happen. Nobody's going to do it as a charity, uh, which is unfortunate. Uh, I mean in in some ways, but in the other ways definitely good. All right, brad Keithley. Thank you, my friend, appreciate you coming on board. Michael's always. Thanks for having me Appreciate you being on the show today.
Speaker 1:Well, that's a wrap for another week's edition of the Weekly Top Three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week on the Weekly Top Three. Thank you.
