The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (7.6.2026)
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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 6, 2026.
This week, our top 3 issues are these: 1) we discuss a recent example of where the K-12 industry’s expectations have become unreasonable (2:00), 2) we explain why Rep. Schwanke is right about a lot of things, but is very wrong when it comes to the proposed S-corp provision (17:51), and 3) we explain why Larry Persily (and others) must not be listening to themselves when they talk about tax fairness (36:29).
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.
What The Weekly Top Three Is
SPEAKER_01This is Brad Keith Lee, 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 6th, 2026. 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 a.m. I join Michael weekly in the first hour of Tuesday's show from 6.10 to 7 a.m. for a discussion between the two of us about our three issues. We post the podcast for 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, medium.com. You can find past episodes of the weekly top three also at the same location. 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 explain a recent example of where the K-12 industry's expectations have become unreasonable. Second, we explain why Representative Schwanke is right about a lot of things, but is very wrong when it comes to the proposed escort provision. And third, we discuss why Larry Persley and others must not be listening to themselves when they talk about tax fairness. And now let's join Michael.
SPEAKER_00All right. Well,
K-12 Funding Waterfall And Timing
SPEAKER_00let's uh let's dive into it here, Brad. Uh you're a little you're a little cryptic this morning in number one. Um you just say the expectations are out of control. That could cover a lot of stuff. So hit me with it. The expectations are out of control for number one.
SPEAKER_01So there was an article in the landmine, or in the not in the landmine, in the ADN. And the second I saw the headline, I knew I wasn't going to like this article. And it didn't, it didn't fail. I mean, it didn't, it didn't disappoint. I I didn't like the article at all. The headline is Dunleavy administration declines to estimate one-time education funding ahead of school year start. And so the fiscal year just closed. It closed on June 30th. Uh, one of the provisions in this year's budget, in the FY26 supplemental budget, was providing for what happens if we end up with with money over the baseline and over the over the assumed uh uh uh oil price. And and it divided the money into different pots uh depending upon what the final revenue uh count was. And I I do a chart on Saturdays that uh that tries to capture this uh if you've got it handy there and can throw it up. Uh yeah, that's it. So this is the what they call the what what the legislators call the budget water waterfall for FY26. And the baseline um for the budget for FY26, the revised budget or the supplemental after you do the supplemental budget, baseline was essentially $2.74 billion in traditional revenues. Uh and the total uh uh revenue over the year was $5.84 billion, composed of traditional revenues, the portion of the POMV statutorily designated for government, plus the portion of the of the PO POMV uh that was for design statutory designated for PFDs that was cut uh and diverted to uh to government. So the baseline revenues were $5.84 billion total. The baseline uh traditional revenues was $2.74 billion. Traditional revenues are made up mostly of oil revenues. And so the question was, you know, what happens if we end up with more than 2.74 billion? They they wanted to spend it all. We've discussed this on a previous show. They budgeted for it all. Um, and so where where does it go? And they divided the the surplus into five categories. The first category was 127.3 million dollars uh of the surplus over 2.74 goes to the energy relief payment, uh distributed in the same fashion as PFDs. The next above that was $115 million goes to K-12. The next above that was $15 million that went to the bulk fuel uh uh revolving loan fund. And any above that went to the uh SBR, to the statutory budget reserve. So the question was you know, it they they provided all of these categories, and you would fill one and then water what once you had that filled, you would waterfall to the next. Um and the UGF came first, K through 12 came second, the revolve, the bulk fuel revolving loan fund came third, and the SBR uh came fourth. What came fourth? What immediately, immediately after the fiscal year ends, after on June 1st or July 1st, immediately after the fiscal year ends, K through 12 started started asking, how much for us? How much do we get? How much overfall overflow was there? And and and what do we get out of this? Um, and started, you know, sending uh messages to the administration and started sending messages off to the press uh to try to generate a bunch of public activity around how much they got. And and their justification for that was look, we've got a we've got to set our final budget for the coming school year. Uh, we want to know how much we've got because we've got teachers dependent on that, we've got other things dependent on that, and we want to know how much we get. Well, it doesn't work that way. The the the revenues don't immediately become known the day the fiscal year ends. Right. We don't we don't get those reach June revenues until sometime in July. There's all sorts of adjustments that go on uh with revenues uh through the year, uh, there's all sorts of adjustments that go on in the last month. It it is fully September, October before you really have even a good feel, and then it can still change before you really have a good feel of of how much your revenues are. So it doesn't, it just doesn't work like that. And if K through 12, if if if if the school administrators were depending on it working like that, then then the problem's with them. The problem's not with the Dunleby administration.
SPEAKER_00Right. This is this is an administrative problem, which we've talked about a lot on this program, how this is an administrative problem where that's just you know, piss poor management on your part does not constitute an emergency on my part. I I went over this article yesterday with the listeners um because I just found it uh ironic that this that the that the school board and everybody else was whining, you're not giving us what we need. You didn't look, the legislature set the deadline. The legislature themselves said August 31st, because they know it's gonna take a few weeks to get all the revenues together and figure out where you're at. But they're immediately bleeding to the public that, oh, we just can't do our school year is going to be trash because they won't give us the extra money now. It's just more of the same at this point.
SPEAKER_01It is, and and the headline, I mean, this is this is another case where you can point to the ADN and said what, you know, and and say, look, you guys are causing a problem where you shouldn't. I mean, Dunley administration declines to estimate. Well, they can't. And and and and part of the reason here is we're close. I mean, we're this is this is my effort to to look at the waterfall. This isn't this isn't entirely accurate. This is using some estimates from a DOR projection of what each additional dollar in oil revenue means in terms in each additional dollar in terms of a barrel of oil means in terms of of oil revenue. Uh, but you know, those are those are estimates and those are projections, and they may or may not be precise. But if you if you look at those, and uh and it's also predicated on final production numbers because oil is is oil revenue or oil price times production, right? So it also depends on final production numbers, and you don't know final production numbers uh for a while after the end of the year. So this is this assumes uh these numbers assume the using the DOR's estimates of what each additional dollar in oil uh might mean, oil price might mean in terms of revenues, and it assumes uh production figures. But it looks like uh everything, everything at the time they were doing this, at the time the legislature was doing this, they were saying, oh, well, what if what if oil stays above a hundred, a hundred or above for the remainder of the year? And so this is how they built the waterfall categories based upon what if we had that much revenue that we were going to have to deal with. Oil didn't stay above 100 for the rest of the fiscal year, it dived off toward the end uh after uh Trump announced the station of hostilities and the Strait of Home Hormuz started opening up again. Um, and so oil dived off. And so, and so this is this is an estimate of of of what it what it may be, should be sort of close to what it will be, but but what it may be. And it shows that we ended up the year at about an oil price, an average oil price over the course of the year of about $80, $7, $79.91, I think was the number that if you do the athletic arithmetic arithmetic arithmetic, there we go, arithmetic um uh average, um, you you end up at around eighty dollars. And at eighty dollars, when you use the the Department of Revenue charts, that shows you have about 2.9 billion uh in traditional revenues. And looking at the waterfall, that's enough to pay the to pay the the one-time energy uh relief, but it's not enough to pay all of the uh to pay all of the K through 12, and it doesn't reach the buck's bulk uh fuel revolving loan funds. So you you you you've you've got a situation in which you're gonna have maybe part of the funds uh for K through 12, the 115 million dollars for K through 12, but you're not gonna have you're not gonna have all of them. So you need to be precise about this because if you don't have the money, you shouldn't be giving it out. And so you need to be precise about what your revenues are. And uh and and to expect, you know, for the K through 12 to expect that on July 1 was just just out of control.
SPEAKER_00I mean, just just outrageous. And you mentioned the headline, uh, you know, the headline. And again, this all goes back to setting the stage in what we were talking about before. Dunleavy administration declines to estimate one-time education funding, again, because they can't, but it's the framing, right? This is all about oh, the schools are under attack again, right? That's the innuendo here is that he just refuses. He's recalcitrant, he won't do it because he doesn't, he hates children or whatever the thing is. It's just more of the same attack, attack, attack that we've seen over education funding over the last two years.
SPEAKER_01Yeah, and some of that, some of that is sort of understandable, uh, but this isn't. I mean, this is this is just a situation in which in which the K through 12's expectations, K through 12 industry's K expectations are just way, way out of control. I again to go back to uh sort of a key point here. If if they were if the K-12 was budgeting depending upon this number being available on July 1st, they're the problem, not the Dunleavy administration. They don't understand, they're the problem because they don't understand how things work. They don't understand how the state gets revenues, they don't understand what the the various factors the state has to take into account. I mean, even that number, even the number you have by August 31st isn't final, because you've got you've got producers claiming taxes that are subject to audit. I mean, you've got all sorts of things that are or claiming tax deductions that are subject to audit. You got all sorts of things that are still uh uh still out there unfinal. And when you've got a number this close to the boundary, when you've got a number that, you know, it it is somewhere in the range, it's not out of it's not hugely out of the range on one side, it's not hugely under the range on the other side, in the range, you've got to be precise about what that number is because if you don't have the money, you don't have the money.
SPEAKER_00Right. I just looked at this again. Uh, and when I read this through this article, I mean, everything about this article just seemed to come out like, oh, we just don't know what to do because you know, we can't do this, and you should have given it to us, and we need it now. And it just again, it just feels like unreasonable. And it feels again more and more like theater, right? Like they're they're trying to gin up the public support with the help of the ADN. They're trying to gin up the public support for this by saying, put the pressure on the administration and tell them to do what they need to do and blah, blah, blah. And again, there was, of course, that obligatory, the obligatory paragraph in the middle that said, under the Dunleevy administration, we have fallen behind and and haven't uh and haven't kept up with inflation and yada yada yada. Um it yeah, the problem is heightened this year as schools across the state look to mitigate the impacts of budget cuts they made earlier in the year. Educators say stagnant state funding has not kept up with inflation during Dunleevy's tenure. I mean, it's the it's the same old trope over and over and over again. $1.3 billion spent on education, plus uh the extra stuff that they're getting, including the utility payments and everything else. And now this extra $15 million. It just seems it's never, it's never ending, Brad. It just seems like it's never ending.
SPEAKER_01It it is never ending. And it and it and and I think I think your your reference to theater that it looks like theater is uh is is a correct is a correct reference. I mean it's just it's an excuse, right? Uh they they got this additional money, conditional. No one should spend conditional money, but they got this additional money, conditional on certain certain things happening. Uh and you know, the day that the that uh that the fiscal year closes, but certainly the numbers don't close. The numbers related to the fiscal year don't close. The day the fiscal year ends, uh all of a sudden they want they want they want you know to the conditions resolved and they want to know what the number is. That's just not the way it works. And for them to play like it was it's the way it worked, it works, uh, is was just an excuse to sort of, as you say, kick in the tropes, right? I mean, just uh uh just just act like you know this is yet another uh effort by the Dunley administration to uh to keep them down. It's not, it's honest. I mean, any any administration wouldn't be able, any administration wouldn't be able to uh to answer that question or respond to that question. And then they say that then there was something in there about a phone call wasn't returned.
SPEAKER_00Yeah, it's July 4th weekend. Right, right. It was a Monday. This this article came out on a Monday of a July 4th weekend when Friday was the holiday and the first was a Wednesday. You had one day and you didn't return my phone call. What's going on? You didn't return my phone call. You're trying to hide it. Yeah, I want my money and I want it now. It reminds me of that kid in Better Off Dead, the movie Better Off Dead chasing John Kusack throughout the whole movie. I want my two dollars. I want my two dollars. I mean, that's what you know. Uh that it just that's what it feels like. The whole thing is just they're running around chasing you around. Where's my money? Shut up and give me my money. That's uh that's a continuous problem.
SPEAKER_01Yeah, and it sort of exposes, I mean, exposes the case of 12 industries being, you know, theater. Uh a lot of it on the funding side of it, but a lot of it, I mean, just looking for things to pick on to get uh to get a headline in the ADN, to get an article in the ADN that mentions the things that that you mentioned were buried in the middle of the article. Uh just you know, just any excuse to to try to to try to gin something up. So yeah, I uh I I it I just it again for for them to think that this is how it worked, it's the the problem's with them, it's not with the administration.
SPEAKER_00Yeah, no, and again, um at some point I just wonder, yeah, I don't uh at some point I wonder, are they just going to uh how many Alaskans are finally just gonna be like enough is enough? I mean, you know, come on. We you know, we've done we've done all we can do, and and when do they become tired of it? I don't know. I don't know if they do. I don't know if they're paying close enough attention to to really become tired of it. Brad Keithley, Alaskans for Sustainable Budgets, the weekly top three continues.
AKLNG Taxes And Net Present Value
SPEAKER_00We're on to number two of the weekly top three. Uh this one is uh Rebecca Schwonke is right about a lot, but when she's wrong, she's very wrong. All right, Brad. Okay. He throws down the gauntlet. What exactly are we talking about?
SPEAKER_01So Representative Schwonke uh wrote a Facebook post uh sort of trying to deal with the the current legislative situation of the LNG bill being hung up in the conference committee while the while the conference committee works on the subchapter S Text. Uh and she wrote a uh a piece that in in large part was tried was a response to Kathy Geisel, uh, who she doesn't name, uh, but uh a geese a comment that Geisel made by uh uh a short while ago uh that was basically look, you know, there's no rush on this. We can wait till the next governor, we can wait till the next legislature. We ought to be waiting, we ought to be looking at this with cool, you know, uh through a cool lens, through a well-educated lens, and there's really no rush to be doing this. So a lot of a lot of Representative Schwanke's response was to Giesel. And it goes through, it says the impact of inflation on Alaska construction, 16.9% increase, 39.6% increase. This is the actual impact of waiting to build infrastructure in today's fiscal environment. Look at ADOT STIP amendment six below for proof, and it goes through uh uh an ADOT uh Alaska Department of Transportation uh change that uh is reflecting delay in a certain construction project and the costs of inflation on that. Um and then she goes into a litany of things. Wait for the next governor, costs and rates rise. Wait for the next legislature, costs and rates rise, interest rates, costs. Uh wait for another developer, costs and rates rise. Anyone telling you otherwise is pulling the wool over your eyes. Anyone telling you Alaska LNG can be built under existing oil infrastructure, property taxes, pulling the wool over your eyes anyway, and telling you um, anyone telling you Alaska doesn't need new natural gas or royalty revenue is pulling the wool over your eyes, urban and rural Alaskans will benefit from Alaska LNG. Anyone telling you otherwise is pulling the wool over your eyes. There in this whole litany that she's going through about you know costs rising, interest rates, she then has one passage in here. And she's right about all of that. I mean, time is money, uh, and um and you know, waiting for something else to happen, uh, waiting for a next governor, next legislature, all of that does uh likely increase costs due to inflation. But in the midst of all this, she has this one. Anyone telling you AKLNG investment will come if we add the nation's highest pass-through entity tax, is absolutely pulling the wool over your eyes. Well, I'm afraid somebody pulled the wool over Rebecca's eyes uh and uh in fashioning that one. Let's go back to a chart. I want to make my point. Let's go back to a chart uh that we used uh last week, which was published by the Department of Revenue and shows the expectation of revenues flowing from the subchapter S fix um uh uh over the over the course of uh over a number of years, the from the period roughly starting in 2028, which is when the revenues start running to 2062 over roughly uh what 34-year period. And it shows the in the the revenues that are likely to come from the subchapter S fix over that period. There's three different levels in there in different colors. There's blue, which is additional revenues expected to come from oil producers if they're subjected to the subchapter S uh provision, largely focused on Hillcourt, but there's some others in there. And then there's an orange. Tranche. And the orange tranche is the likely revenues from applying the subchapter S uh provision to uh the subchapter S tax to gas producers, oil, the oil producers now switching to their gas hats, uh, producing gas into the pipeline. And it's showing the the corporate profits, uh, the share of corporate profits that would come to the state under that. And then the third tranche is gray. And the gray is the corporate taxes that would, the sub chapter S taxes that would come to the state or the past through entity taxes that would come through to the state from applying that provision to the AKLNG project. The thing to focus on is timing. Uh, when you're looking at a project uh or you're looking at making a major investment, what you look, what you're looking for is net present value. Uh what the what the net present value is of the expected returns over time uh from a project. And nearer term revenues and and correspondingly nearer term costs have a much bigger impact on the economics of a project than those that are out in time, 10, 15, 20, 25, 30, that kick in at that point. Those revenues don't count for much, and neither do the the costs count for much. The the the legislature had been told that by their Wood McKenzie uh advisor or their Wood McKenzie Wood McKenzie advisor uh along the way. Um and and it's true. I mean, when you do net present values, uh uh depending upon your discount rate, when you do net present values, uh revenues and costs further out in time uh don't make much of a difference. The uh the revenues, the the the when you look at the gray line, the gray lines really don't kick in, the gray, the taxes from the LNG project really don't kick in until you get to 2046 and 2048, and then they kick in at higher rates. But 2046 is 15 years, more than 15 years, after the project starts, after the project starts deliveries. So the net present value effect from those taxes is is is not very significant when you do the when you do the project economics. And particularly for something like Alaska LNG, which is a huge volume project, if it goes to phase two, it's a huge volume project. So the impact per mcf or per b MMBTU of those additional taxes is is very, very small. We're talking pennies uh uh per mcf or pennies per uh per uh mmbtu. So so when when when representative schwonkey talks about the the fact that anyone telling you that uh Alaska investment uh will come if we add the nation's highest passenger entity tax is absolutely pulling the wool. That's just wrong. I mean, we we are pass we would be passing a tax, but the near-term impact of that tax tax is largely on oil producers. And then if the gas line starts, if it goes into phase two, uh then on the gas producers. Because of because of depreciation, tax depreciate depreciation that the project would have the benefit of, uh, because of the net operating losses that they would incur in the early years that they would be able to take against uh against their taxes again because of depreciation largely. Uh because of all of that, the the tax itself doesn't kick in for a large number of years uh out into the future. Why, why are we debating it now then? I mean, some people would say, well, if it's 15 years out, why the heck are we debating it now? Why don't we wait, why don't we wait until later? For two reasons. One, I think Senator Steadman said this, and and he's right about this. You want the project to know what the rules of the game are before before you start the game. And and you know, Hillcorp has has spent all the last 10 years, whenever they purchased BP, they spent the last period of time complaining about, oh, you're trying when we talk about the S-corp provision, oh, you're trying to change the rules of game the game on us by applying the corporate tax to us after we've already bought the, after we've already bought the property. That doesn't measure up because they bought the property that BP had been paying taxes on and they did their economics uh based upon continuing to pay the taxes because they didn't think Alaska would be so foolish as not to not to apply the taxes to them. But the the the the reason we're having the debate now is one to set the rules of the game for the project before the project starts, so everybody knows what the ground rules are. And so when they do their economics and they do the net present values and they do the other uh calculations that projects do, they will know that that that that that's going to apply to them when they get when we get to that point. The second is to pick up oil, I mean, and to pick up the to fix the S-corp loophole that we've created uh for oil and to make sure it doesn't go along to gas production uh when we gas when we get to gas production. So that's why we're debating it now. But the impact on the project and the impact on net present value isn't until way out for the prop for the for the Alaska LNG, for the pipeline and the LNG prop process, isn't until way out in the future. And that impact is not significant enough to move the uh to move the the needle uh on the project. So when Rebecca, when Representative Schwanke says anyone telling you AKLNG investment will come if we add the nation's highest pass-through entity tax is absolutely pulling over the wool over your eyes. No. You're you're someone claiming that they won't come uh because of the subchapter S fix is the one pulling the attempting to pull the wool over everybody's eyes. Not the uh not the reverse.
SPEAKER_00It's um I mean it's interesting because again, you and I disagree on this as far as the timing. I'm not opposed to changing the S-corp tax. I I think it's something we should be discussing. I think we should dive, I think there should be a deep dive into it and explain why, you know, fours and pros and cons and everything else. My main bone of contention is the fact that they're trying to leverage it against a must-pass project bill instead of going through the normal process, public commentary, doing all the, you know, the normal things that would happen on a bill, especially a bill of this magnitude. Um, and and I would think that it would have a chilling, just from the outside looking in, it would have a form of a chilling effect on potential investors if they're if if they if if uh if this was there, if this extra tax was there. But you've pointed out, obviously, there's other places that have similar types of taxes with different kinds of gimme's and different things, Louisiana, Texas, et cetera. But again, the fact that they're kind of bypassing the whole normal process is really what kind of gives me heartburn on this.
SPEAKER_01Well, we've been we've been discussing the I I don't know where some of these people have been, to tell you the honest truth. We've been discussing the subchapter S Fix ever since Hillcorp built or bought DP. Uh and it's not like we haven't studied it, it's like it's not like we don't know what it does. It's not like it's not like it's anything new and novel and and unique. Um, and so it's not I this is not a you know suddenly came out of the out of the dark uh uh debate. This is a debate that's been ongoing. It surfaces here uh for two reasons. One, again, because as Senator Sedman says, you want people to know the rules of the game before they make an investment. We don't want to get five or ten years out uh and and start addressing whether this applies to the LNG project, because then they'll go, oh, we made our investment based upon you know the assumption that these wouldn't apply. And now all of a sudden you're gonna apply them to us. That's unfair. You're changing the rules in the middle of the game. We have investors, we have, you know, you you you you've now you've now switched on us, bait and switch on us. And so I I think it's absolutely uh appropriate to raise this issue now before they go down the road of the project, so we don't face that debate and face that problem uh later on. The second reason now's the right time to do it is because we're on the we be is because we've already got this issue on oil. We're on the cusp of having the issue with gas producers because we're the gas uh uh producers on the North Slope are going to be producing gas into this project. And the question is whether, you know, what are the rules going to be again, uh the rules of the game gonna be from the corporate income tax side on the gas producers. And so, yeah, and the gas producers aren't that far away. If you look back at the chart, it's when the it's when the it's when the orange hits. So it is it it is it is absolutely appropriate to raise this issue now. One, because because we're giving them the rules of the game before the project gets underway, and two, because we we've got part of the issue now on the oil side. We know it's coming on the gas side, gas production side, and we need to get those rules resolved before we get to that point.
SPEAKER_00Terry says, comment from her the tax debate is a separate issue. The session is about building the gas line. Uh, your argument, of course, is they need to know what they're looking at in the future. And now is the perfect time, in your opinion, to talk about it.
SPEAKER_01Yeah, that's absolutely that's absolutely incorrect. The part of the project, part of building the project is knowing what the tax rules are. It's integral to the project. Anybody who does project finance will tell you understanding the tax rules is integral to the project. Um, and so, and so now is absolutely the right time to raise the tax issue that would be applicable to the project.
SPEAKER_00Uh, Ron asked the question: will there be unintended consequences to small business if the S-Corp tax passes? Because there's been a lot of talk about businesses that heretofore have never been subject to this, in fact, really had nothing to do with oil and gas to begin with, but may now Rob Myers brought up a couple businesses in Fairbanks that may be tasked with helping to build the gas line, et cetera, et cetera. Will there be unintended consequences for other small business?
SPEAKER_01I don't think so. I mean, we we have we have long since had a corporate tax system that separates the treatment of oil and gas corporations from the treatment of other corporations. And the Supreme Court upheld it in a 1984 decision and said, yeah, you can tax oil and gas companies differently than you tax than you tax other companies. And there's a bunch of reasons for it. And they even brought up, I mean, the those challenging it even brought up the equal protection argument that I've heard some people mention. And the court said, no, this isn't an equal protection problem. Um, and so, and so we've long since had that division uh on the on the C Corp uh tax side. I don't think it's a big step at all to have that division on the S-corp tax side and say, look, we're gonna apply these rules, just like we apply separate rules to oil and gas corporations on the C Corp side, we're gonna apply separate rules to to uh oil and gas corporations on the on the S-corp side. And at the margins, there may be, I don't, I don't know what Rob was talking about, but at the margins, maybe there's some company that will deem to be an oil and gas company uh that otherwise wouldn't be. Uh, but we can fix that by just you know better defining what what oil and gas corporations are if there's if there's that sort of marginal uh marginal uh blip uh going on. But to use that as an excuse for solving what's been a significant S-corp uh uh problem, an S-corp loophole through which you know companies that are engaged in the oil and gas business just because they happen to be organized as S-corps, uh to use those marginal concerns as an excuse to avoid applying the S-Corp to the same type of oil and gas companies that the C Corp special C Corp provisions have applied to. I I think that's just, you know, that's that's that's that's swatting a you're trying to take out an elephant by using a fly and saying, oh, look at the fly, look at the fly, um, and and missing the big picture of the elephant.
SPEAKER_00Right. Um and and interestingly, also the one thing that we all seem to forget is whatever the taxes are, uh, whether it's S Corp, C Corp, or everything else, the tax is merely just going to be passed on to the final consumer anyway. So we're gonna we're paying for it one way or the other, right?
SPEAKER_01Well, you do you want to pay for you wanna pay for it through PFD cuts, even deeper PFD cuts? I mean, we don't have surpluses in this state. We have a what's the number? $1.9 billion deficit. Right. Um, and and we don't have surpluses in the state. So we're paying taxes one way or the other. Alaskans are paying taxes one way or the other. The question is whether we we focus it on just Alaskans and focus it on mostly on middle and lower income Alaskans by using PFD cuts, or whether we spread the burden broadly and pass the and and have a have a much broader tax that passes a portion of it to non-residents and a portion of it uh to residents. In the case of the of the S Corp fix, as it applies to Alaska LNG, if phase two goes forward, 90% of it would go, would would essentially end up being applied to the export volumes. Assuming we have we have uh uh a proportionate uh application of the of the rates. Uh 90% of them would be applied to the export volume. So yeah, okay, yeah, yeah. Taxes, taxes hurt, taxes are bad. But we're in a position in this state in which it's a question of relativity. Do you want to pay this tax or that tax? Because with a $1.9 billion deficit, we're going to be paying a tax. And that's that's the that's the hard truth.
SPEAKER_00That's the hard truth that nobody wants to talk about is that we're already paying a tax, and now you get to choose. The option here is to pick your poison. And this has been one of the criticisms of uh you and I covering this thing for the last 10 years is the fact that there is a tax and it's coming. It's actually here, but there's more coming. Uh, you know, the it's here through the form of PFD taking, uh, but it could be even worse uh moving on down the road. And again, 690, $690 million um uh in in PFD payouts when it should be triple that essentially when it's all said and done. Okay, Brad Keithley, Alaskan's four sustainable budgets. The
Tax Fairness And PFD Cuts
SPEAKER_00weekly top three continues on to number three. Persilli, Larry Persilli, and others must not listen to what they're saying. I mean, I I've argued that for years that Persilli just sometimes like, did you did you realize what you just said? Uh, you know, um, he's uh he's well known for hating the PFD and and obvious so many great things. Uh Brad, what do you mean by this?
SPEAKER_01So he wrote an opinion piece that appears in the ADNs and period appearing in other publications. Uh the title of it is A Little Less Tax Break, A Little More Tax Fairness. And basically, it's focused on the subchapter S issue because what isn't these days? Um, and and basically it's an argument that look, taxing subchapter S corporations, the same way we tax subchapter C corporations, is tax fairness. Uh, and and and having tax fairness uh is a good thing. It's a it's a thing that spreads the burden more broadly, it reduces the impact of the burden on if you spread it broadly, uh uh it reduces the impact on any one segment. Uh and tax fairness is a really good thing, and we ought to be striving for it. And that's why that's one of the reasons that we ought to adopt uh the S-Corp, uh the S-Corp uh uh provision that that closes the loophole. Um and here's sort of the key paragraph in that regard. It says it seems reasonable that all companies, whether privately held or publicly owned, whether oil and gas producers or not, should pay a tax on their profit so the state can provide the services the companies and their employees need and use. And it sort of sort of talks about the ultimate broadness. I don't agree with, but it sort of talks about the ultimate broadness of uh of broadening a tax and getting every with the goal being to get everybody to contribute. I sat there and I read this article and sat through there and I read this article, and I and I remember a joke out of two and a half, the old TV show Two and a Half Men or Friends or Seinfeld that repeated through through a lot of comedies. It was, you know, somebody would sit there, like Seinfeld would sit there and look at George and say, Do you actually hear what you're saying? When when George was uh making some sort of argument that he doesn't live up to. And that I'm sitting there going, Does Larry hear what he's saying? Look, yes, everybody ought to pay a little bit. We ought to have broad-based taxes. We ought to have taxes that apply to non-residents as like a sales tax. We ought to have uh taxes that apply to non-residents, like the other 49 states plus the District of Columbia do. We ought to have taxes that apply to non-residents as well as residents. Non-residents use a portion of the service, they ought to pay a portion of the of the of the costs of government. We ought to do that on the corporate side. Larry's right, we ought to do that on the corporate side. We also should do that on the personal side. And we're not doing that. I mean, that's where that's where Larry's not listening to himself. Through PFD cuts, we're focusing taxes just on Alaskans. Non-residents pay nothing. Uh uh, you know, people who come into the state who use the services of the state uh uh don't get a PFD, don't they contribute nothing uh to the to the cost of state governments all being taken out of the hide of Alaskans uh by using PFD cuts. Um and and the other characteristic of PFD cuts is it hits middle and lower income Alaska families hardest. It is the what what Matt Berman, ICER professor Matt Berman has said is the most regressive tax ever proposed, ever proposed, not only in Alaska, but but internationally, most regressive tax ever proposed. Uh and it hits middle and lower income Alaska families hardest. They would pay middle and lower income Alaska families would pay less as a share of their um uh income uh by using a sales tax or by using an income tax, any other, a flat tax, any other approach that that that has been studied and looked at out there, middle and lower income, and I'm talking about upper middle income Alaska Alaska families too. Middle and lower income Alaska families would pay less as a share of their income uh by by having another tax approach than PFD cuts. Top 20 the top the top 1% escape by paying 0.9%, 0.9% as a share of their income uh in tax through using PFD cuts. The lowest uh the the lowest income bracket pays something like 30% of their income uh uh through uh by using PFD cuts. Middle uh income Alaska families pay something like 8% uh of their income uh as of as a share of income uh by using PFD cuts. So personally's right. Everybody ought to pay, everybody uh pay a little bit, everybody ought to pay the same, nobody should be special, nobody should get exemptions, nobody should be should be, you know, somehow avoid taxes. It's true of the C Corp, S-Corp situation. It's also true of the personal taxes uh that we're paying, uh, that we're paying through PFD cuts. We ought to be using a tax approach that is consistent with what Larry's argument is about about corporate taxes. We ought to be using a tax approach that is broad-based, where everybody is contributing relatively the shape the same share of income. Everybody is contributing uh toward uh toward the cost of government. He's just not listening to himself.
SPEAKER_00Well, because uh again, he's making the argument here for equity, right? Equity amongst all corps. Uh it would make sure the same argument of equity amongst all players in the state, be they in-state, out of state, high income, low income. But you're you're arguing basically for the equity factor across the board on this.
SPEAKER_01Yeah, and this goes this goes back to uh uh to the you know, Adam Smith, the wealth of nations. Adam Smith had a had a whole section on how you construct taxes in the wealth of nations. The father of modern capitalism had a had a whole section on uh on how you construct taxes to promote the wealth of nations, to promote capitalism. And his his there were four guiding principles. Number one of the principles was to use a proportionate tax where everybody contributes the same share of income uh toward the cost of toward the cost of government. No one's treated as special, no exemptions are made, no, no one gets off scot-free at the expense of somebody else, not the not the poorest among us, uh, not the middle income, not the wealthiest among us. Everybody pays the same proportionate share of income taxes. So this isn't sort of like the S-corp issue. It isn't new. Uh, it goes back to Adam Smith.
SPEAKER_00So where do we end up here uh in the end, Brad? We're coming down to the last uh two and a half, three minutes here. Watching all this happen, watching the discussion in the legislature. I mean, everybody wants to know. We're all sitting around with bated breath, waiting to see, is this gas line going to go through? Is there going to, is it gonna, is the S-Corp change gonna submarine it? Is there gonna is it gonna come through in the end? Everybody's gonna go, okay, fine, we'll do it. I mean, what what do you think is gonna happen based on past performance, et cetera, et cetera? What do you think is gonna happen uh with this special session over the next 10 days um uh before the vote? You know, where are we at?
SPEAKER_01I I think it's the will of the of both. Out bar parties of the legislature, maybe Kathy Geisel's an exception. But I think it's the will of both of both houses to get a gas line. I th to pass legislation that enables a gas line. And I think it's the will of both parties to do that. The question is, what are the terms of it? And one of the terms, necessarily so, is what are the taxation rules? I mean, when somebody says, oh, it's you can't discuss taxes, that's how this session started. We all remember that it was Alaska LNG that it was Glenn Farn who came in and said, we want relief from property taxes. It was all about taxes. Um and so the question is, what are the tax rules uh that are going to apply to this project? And I and I and and and the conference committee is working through that. I hope that they include the S Corp provision. I hope we're finally able to put the S-Corp issue behind us. I hope that 10 years from now we're not debating uh applying the S Corp provision finally to Alaska LNG. And Alaska going LNG is going, oh, wait, wait, wait, you can't do that in the middle of the project. You should have done that at the beginning of the project. I hope we get that issue resolved just in the same way that they want the property tax issue resolved uh before they go into this project. So I hope we get the property tax issue resolved. I hope we get the S Corp uh provision resolved. And it's it's sitting there waiting to be done. Uh the S-corp provision, you know, unlike the people who want to blow it up into something big, it's not a big deal to the to the project. It doesn't affect because of the delay, it doesn't affect the the project finances or the project dynamics significantly. I it and it solves a lot of problems and it gets the S-Corp issue out of the way and done before this project goes. So everybody knows the rules of the game when they get into it. I hope the S-Corp provision is there. And if some people don't want to vote for the bill because it's got the S-Corp provision in it, or if Governor Dunleavy vetoes it because it's got the S Corp provision in it, then that's their decision not to go forward with the project. It's not the decision of the people, including the S-corp, because they're setting the rules of the game in advance. It's the it's the problem of the people who oppose it that uh that would uh that would kill the project.
SPEAKER_00I mean, we we saw this before. We we saw this when there was the tax credit thing, uh, and they immediately came back out and said, Oh, but you promised and it was a thing, and you know, this is what we were planning on. And uh things change. We always know that things change. Um, so if it uh if it gets involved, if the S-corp thing goes through, I mean it's not gonna hurt my feelings. I just don't want it to be a stumbling block for the for the running of the gas line.
SPEAKER_01Well, it if it's a stumbling block, it's a stumbling block by cre created by those who don't want an equitable tax situation.
SPEAKER_00I just don't want it to be a stumbling block. That's that's my whole point here is that I don't want it to be uh a stumbling block. And Frank asked the question will passing a new S-Corp tax kill the line? You're obviously a no. You don't think it will. You think they'll be they'll just be like, okay, we thought we'd get it, but we didn't, so we'll deal with it, right? I mean, that's kind of they didn't want it, but it's not a deal killer, in your opinion.
SPEAKER_01No, it it is. I mean, again, uh I don't know if Rebecca consulted uh a project finance expert or uh or an investment banker before she made that comment, but again, it's so remote in time it doesn't have a an effect on the present value of the project. It doesn't have an effect on the on the on the project economics. And again, because of the volume involved, it's pennies on it's pennies on the dollar in terms of the impact it would have, even once it, even once it kicks in. Um it's just, I mean, it's not gonna, it should not kill the line. From the perspective of uh financial analysts, from the perspective of investment bankers, from the perspective of project finance people, it should not kill the line. If it kills the line, it if it if people keep claiming it's kill killing the line, what they're doing is they're really we're they're really making a different argument. It's basically we don't want to pay taxes. You guys, you continue, you guys continue to pay taxes through PFD cuts. We don't want to be the ones, we don't want to be contributing to the cost of government. You guys, you guys continue to bear the full share. It's a debate, it's not a debate about whether the project works or not, it's a debate about who pays the cost of government. And I think I think the S Corp is a good way of spreading the burden of the cost of government over a over a far bigger share uh than uh than focusing it entirely on Alaska families like we're doing now.
SPEAKER_00Okay, Brad, uh wrapping things up here, final thoughts for this week. I mean, I I keep waiting for something new to come out of the legislature.
Will The S-Corp Fix Kill LNG
SPEAKER_00I'm not seeing any. Although I did say Charlie say something early on about the uh the substitute line, uh the substitute uh draft, uh, which uh is sidebar from completely what we've been talking about, but I thought it was interesting. He said, I read the current draft of HB 381 yesterday and was surprised to see the language about adjusting the BSA for declining enrollment on the bill. What about the one subject rule, right? I mean, they're kind of Christmas. This is again part of my argument, is that they're also Christmas treeing this thing up of it's a must-pass bill, so they can put anything they want in it, supposedly ignoring the one subject rule. But you know, this is this is part and parcel of that problem, right?
SPEAKER_01Yeah, well, yeah, the the just the explanation for that is it's affecting property taxes, property taxes affect affect the local contribution requirement for uh for local governments, and so they're dealing with the the fact that they're dealing with the the issues that come out of effect of changing the property tax. So it, I mean, there's a lot of you talk about unintended consequences or knock-on consequences, there's a lot going on on the property tax side that's sort of going on going on underneath the radar, uh uh as as as they try to work out the kinks of all the property tax implications. The escort tax has gotten a lot of the headlines, but a lot of what's going on under the radar uh is uh is on the property tax side. But again, you know, people who say, oh, taxes are a different issue, we shouldn't address it this. That's where this thing started. It started on taxes, it started on property taxes, and just getting a uh the full range of taxes involved in it, addressing all the taxes is a much better approach than addressing it piecemeal and getting stuck with the argument 10 years from now that oh, you guys didn't raise this.
SPEAKER_00Yeah, well, so so to summate, uh to sum up here, you expect that they will pass something, but no guarantees as to whether or not the governor will veto it or not, but you expect them to pass something to start a gas line. You expect them to be able to pass something out to make it look.
SPEAKER_01Yep, and and I frankly expect that the escort provision will be in there because it's a fair, appropriate uh provision that is being done in connection with the project to give the project, the project builders notice about what's gonna what the tax rules of the game are gonna be. Uh, and I expect the escort provision to be in there. I will be hugely disappointed and will think that we've just you know gone off the deep end again if we don't have the escort provision in there because it because it's a timely thing to do, an important thing to do, a fair thing to do, an equitable thing to do, and uh, and it should be in there. And then if the governor wants to veto it on that, then that's on him. He I I don't think in that in that situation, the legislature didn't stop it. They'd included it, they included an appropriate provision. The governor is the one that stopped it. And and in the legislature, if it's voted against, if if legislators vote against it because of the S Cat escort provision, that's not on the escort provision, that's on them for trying to protect Hillcorp or whoever the heck they're trying to protect at the expense of Alaska.
SPEAKER_00Well, thank you, my friend. As always, it's great to talk with you, and um and we look forward to uh seeing you next week as we get closer. Again, 10 day nine days now before they're supposed to vote on this thing. I guess we'll see where we sit next week.
SPEAKER_01Yeah, we'll probably be talking about it again. Um hopefully one last time, but we'll probably be talking about it again.
SPEAKER_00We'll see. We'll see what happens. All right, Brad Keithly, Alaskans for Sustainable Budgets. Thank you, my friend. Good to talk with you. We will catch you next week. Michael, as always, thanks for having me.
Where To Follow And Closing
SPEAKER_01Well, 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 for the next edition of the weekly top three.
