Talerico: Freshman term humbling

Healy Republican says first two years in office required some ‘heavy lifting,’ including conference committee emergence of HB 247

STEVE QUINN

For Petroleum News

House Resources Co-Chair David Talerico is closing out his freshman term on an intense note, serving as chair for the conference committee that hashed out differences on HB 247, Gov. Walker’s oil tax credit bill.

Talerico’s work may not be done yet, depending on what Walker brings forth in the coming special session. There was also the June 29 AKLNG quarterly update.

The Healy Republican spoke to Petroleum News about his tenure shortly after the House and Senate gaveled out, before Gov. Walker called the Legislature back into session and outside Petroleum News deadline to get thoughts on the AKLNG quarterly update.

Petroleum News: First, let’s start by looking at your two years as co-chair. Freshman lawmaker comes in and is voted to be co-chair of resources. What your thoughts on those two years?

Talerico: You know what there’s been some heavy lifting these two years. What always comes to mind is HB 247 and oil tax credits, which was not only a heavy lift - a lot of consideration went into it - a lot of study. What an educational process this has been. I thought I knew a little something about oil taxes and credits before I got here and I did study up a little bit.

I certainly know a lot more know about what we have in place. I know more about the history and where we are headed in the future.

I consider myself to be really fortunate to be put in that position to be able to deal with it. It’s probably a very historical session, and getting more historical as we go. Historical or hysterical however you want to look at it. I felt honestly privileged to be able to participate in this part of it. Right now I would say the general consensus, at least from my perspective, is I’m not sure everyone understands the magnitude of the change that we made.

I get a lot of emails from people saying that tax credit bill is flawed and we really didn’t really eliminate anything. Quite honestly the transitional period over the next two years and what was done in Cook Inlet is incredibly substantial: Getting rid of well lease expenditures, qualified capital expenditures. Just really carving all of that down to where we don’t have that big liability in 2018 and beyond is pretty substantial.

The hardest part is when I explain it to people. They talk about we are giving away $775 million in credits. Actually those are credits that have been certified and acquired. So that’s something we’ve got on our books. Whether we pay for it right now or later, those are credits people had already earned at this point. What we have done is we are taking a transitional step over two years and eliminating a bulk of that credit program.

That’s a big, big step, I think. There has been a lot of discussion on the North Slope and the net operating loss. And of course the net operating losses are really tied to the producers. It’s not unusual to have a net operating loss system where taxes are tied to people who produce. I think that’s something that will come up in the future. Where we go on it, I don’t know.

One of the changes we did make on the North Slope that we did put in place on SB 21 was the gross value reduction. It didn’t have an end date - when does a new well turn into a legacy well? When does that new oil end? That actually does have a timeline on it now, something else we did in HB 247.

It seems like everybody didn’t get what they wanted but that’s the legislative processes, where we got. You want the whole pizza and we got half or three-quarters. I know people seem to be pretty distraught that they don’t think we went far enough. It actually did make what I think is a significant change that we are advancing forward on. We took a giant bite out of Cook Inlet.

Petroleum News: Were you surprised that you were made chair of the conference committee, realizing that it was a House bill so it was going to come from your chamber?

Talerico: I was a little surprised, yeah I was. But I took it seriously. I’m not a person who has tremendous amount of legislative experience at the state level. I’m glad I had the previous municipal experience that I had. Probably a difference with me is I’m not real shy in front of a crowd. I don’t have much problem in having my voice heard, but I was sitting there with seasoned veterans. I was the only freshman legislator on the committee. We had good people from the House, Rep. (Geran) Tarr and Rep. (Kurt) Olson. The Senate had Sen. (Peter) Micciche, Sen. (Cathy) Giessel and Sen. (John) Coghill. When people came in the room, I try to read people’s faces. I didn’t feel awkward, but I didn’t know if anyone else wondered, why is Talerico chairing this meeting? He’s got the least amount of experience of anyone up there at least at the state level. The other five were great people to work with. The one thing I wanted to make sure of from the chair’s position is that everyone had the opportunity to be heard and that it was thorough and I think we did do that.

Petroleum News: Do you foresee these issues coming up again in the next two-year session?

Talerico: I would assume it’s going to be brought up. A lot of it, of course, is going to depend on our fiscal situation. So much hinges - everything really for 30 years - on the price of a barrel of oil. Some of the promising news I’ve seen was to at least stop the decline of the flow of oil that came down the pipeline last year. We had a day where we were really close to 600,000 barrels (574,000 on Jan. 11). Future legislators have to look for a way to further diversify our revenue stream. Is it more resource development outside of oil and gas? That probably helps. Do we keep our fingers crossed with tourism, although tourism is looking pretty strong? What does our future hold? What are we going to do to generate more revenue? The more diverse stream we have of being able to generate revenue, obviously that provides stability to your economics. There is a lot people need to start considering now. For quite a few years, oil will be the driver. I have a pretty upbeat positive look on where we are headed because of the production numbers that I’ve seen and what’s going on in the North Slope, plus a few things that happened in Cook Inlet. One of those things was the royalty oil contract in Cook Inlet with Tesoro (HB 373). I think that’s a positive thing for the state, but as we look forward with our fiscal situation and how we fix this budget, there seems to be a lot of focus on these large $100 million grabs and fixes.

I hope we can continue to look at those smaller things as well. We still are going to have to look at the efficiencies of our government and try to make the necessary cuts. There will be more prioritization of departments and programs and how we can do that to make it run better. Efficiencies generally mean money savings. You know a lot of people come up to me said we need to do something rapidly. We’ve got to fix it.

Petroleum News: When you were running for office in the summer of 2014, oil was still at $100 a barrel, then hit $80 by the time you got elected. So you weren’t even discussing this with your constituents. So what does it tell you that when you’re running for office, it stands at one number then by the time you get sworn in it was about half of that?

Talerico: It’s a very volatile market. It’s something we all need to consider. It hasn’t just been oil as well. Some of the other things that we produce are riding a rollercoaster, too. Gold rides somewhat of a rollercoaster - silver and zinc, too. Every one of those commodities has fluctuation. That is something we’ll look at in the future. How do we flat line a little bit with our budget. We can’t follow every peak and valley, saying wow we are in an incredibly wealthy state then we are burning through our savings. We are in a global market so we don’t have as much control over this as we would like.

It’s important for us to maintain good business relationships and keep oil flowing for sure. At the same time, we hear from a lot of constituents and the best part of hearing from constituents is we do get a lot of good ideas from people and it does give them a place to voice their frustrations. I think in the future I hope we continue to look at how do we diversity this economy.

It’s more than operating state government. The more opportunities that we have that means our job market is more rich for those who are out here looking to work and raise their families and things like that. A strong job market keeps home values where they need to be, keeps money in the state flowing. People can borrow money and do reasonable things. When it falters - boy I think I saw oil fall to $27 a barrel once this year. I think I’m probably like every legislator in that I go to www.oilprice.com every morning to see where that price is.

One of the things I think we’ve done that I don’t think we should overlook and I think is really promising. Stopping the decline and even having an increase - that means 12.5 percent of the oil that went down that pipeline belongs to the state of Alaska. A little bit of climb in oil prices and a climb in production is good news for us when it comes to actual dollars. When we start talking about credits, we always seem to forget about royalty oil.

Petroleum News: Some people don’t think that’s a valid argument in the context of oil taxes. Others believe it’s germane in the argument of government take. Where do you see it?

Talerico: If we get 500,000 barrels of oil a day and we get 12.5 percent that means we get 50,000 to 55,000 barrels of oil. If the price of oil is nearly $50 a barrel, I think that’s significant for the state. That’s much better than when we were doing 400,000 barrels and getting 12.5 percent of that and oil was selling at $30 a barrel. That’s simple math - dollars and cents. I think that tweaks the spring forecast from the Department of Revenue. Even their production numbers weren’t as high as the most recent production numbers we’ve seen. We’ll get the fall forecast to get the adjustment. I wish I could say things are going to stay the way they are and we are going to keep that volume and keep watching prices climb. I can’t say that. If they do, that’s a positive for us. Best statement is that’s money in the bank. That’s reasonably simple math.

Petroleum News: OK, let’s say in January, you’re back here for another term and oil is approaching $100, what do you do as a legislator, whether you’re back as co-chair of Resources or in another position, what do you do to remind people of what it was like when you started in office?

Talerico: That’s something I think is going to take a particular amount of discipline from the Legislature. If that climbs back up there, there is the savings we depleted that we should restore. This might be a really valuable lesson for us. We still need to look for those efficiencies in government. We still need to right size our government for the number of people who live in Alaska. There might be something to that in some areas. I don’t think we step back and relax and say, “Wow, we are OK.” I think we need to keep everything under a microscope, hopefully the lesson we learned from this dip will help us re-establish ourselves, rework ourselves to where we are: a little leaner and a little meaner.

I’m still thankful to legislators who came here before me and put money away. But our budgets had grown substantially. I’m looking at stuff that was done in 2007. We had fees for people who had certificates and licenses to do business in the state of Alaska. Back then I think we decided to subsidize that. It used to cost $200; we cut it to $50. We had money. What do you tell constituents at the time? The state is bringing in all sorts of money, but you’re still charging me all of these fees. There was a lot of pressure to bring that down. We might have learned that lesson. Before we make that move, we might want to look further out into the future.

You know one of the things that I dealt with over the last couple of years, which wasn’t very popular when I first put it out there, and that’s HB 137, the hunting and fishing fees. Quite honestly we hadn’t done anything with resident fees for nearly a quarter of a century. We hadn’t done non-resident fees for over 17 years. In the meantime we are watching the federal government collect excise taxes from firearms and ammunition.

Regardless of whether you think it’s the current administration that created the rush on guns and ammo a few times, but this Pitman Robertson account is growing like mad. All of our matching funds are based on license fees and tag fees and we haven’t raised them in a quarter of a century. We are missing out on a three-to-one matching fund on Pitman Robertson funds; Dingall Johnson funds I don’t think pay out three-to-one. That’s for the fishing fees. But what it does is eliminates a fair portion of our undesignated general funds paying for our fish and game services, and frees it up to be used somewhere else.

So those are the kinds of things I’m talking about when I say looking elsewhere (away from the oil industry). It’s not a $100 million hit, but it’s millions of dollars that can be transferred back over to the general fund.

As we make these adjustments, I’m hoping we start to see some things level out a little bit. Somebody told me you’re taking money from other states where they buy guns and ammo. We buy a lot of guns and ammo up there. You know I think a fair portion of those funds we are going to get back are funds we contributed to. I’m hoping as we go, we can find more of those things.

I realize oil is going to be in the driver’s seat as far as revenues go. We’ve put all of our eggs in one basket for a while. It’s not out of the question that we need to diversify and we need more industries. I think what some of the younger people are looking at, they are thinking Alaska has produced a lot of raw products. But what do we do to build an entire industry?

Petroleum News: Nobody knows what next year’s legislative makeup will look like and even from there the caucus make up. With that in mind, would you like another term as co-chair of Resources?

Talerico: Now that I’ve had one behind me, I think I wouldn’t mind doing that. That would certainly be up to people who cast a vote. I’ve gained all this perspective on oil and gas, plus all of our other resources. I think I would be interested in that if I’m successful.

One of the things I think is very interesting is I’m looking at some of the retirements coming up. You’ve got Sen. (Johnny) Ellis with his institutional knowledge; we can’t replace that with a new person. Then there’s Sen. (Charlie) Huggins and Sen. (Lesil) McGuire.

On the House side, the very unfortunate passing of Rep. Gruenberg, who although we were on different sides on the aisle, when I was a staffer I got to work with him a little bit. We were on the same floor. I’ve got a picture I keep on my phone of Rep. Gruenberg and I talking about HB 137. He’s a great wordsmith so we won’t have that in our halls.

Rep. (Kurt) Olson is leaving. Rep. (Mike) Hawker is leaving: So we are losing the Labor and Commerce chair (Olson) and the LB&A chair (Hawker); both on Resources, by the way. Nobody crunches numbers as fast or better than Rep. Hawker.

Those who return and are serving now will have to step up their game. I think a lot about that. The hardest part for me to return, all of those people, regardless of their affiliation, we’ll miss those folks. We really will.

One of the things that’s promising is there are a lot of good people in this building who work pretty hard and I think we’ll be able to fill some of those shoes, but it’s going to require an extra effort. There will be a different makeup of the Resources Committee no matter what. So if it happens, it will be a little odd for a guy in his second term; I’m going to look around the room and see I’m one of the senior people in this room. It’s going to be felt all over.