Sunday, January 22, 2012

Let's talk about AK oil, part 1

It is January,so we are all thinking of paying taxes. Fortunate for us, we don't pay state taxes. We do pay real estate taxes, though. But, in some communities like Anchorage or outside the city limits of Kodiak, we don't pay sales taxes. And here is why:

The state taxes the oil companies on the oil they withdraw form the state. So the government can operate the state with that money.
Other states use their oil production money to also fund some of their expenses (like New Mexico) or to fund education (like The Univ of Texas; Texas A&M originally got their $ money form state income related to farming and ranching).

Alaska, so far, has enough income to fund their expenses and to actually share some of that with the residents. The yearly distribution comes in September/October and is called the Permanent Fund Dividend.

The amount of distribution is based on the amount that is present in the Permanent Fund form prior years of oil taxes and the investment returns in the fund. The distribution depends on the average in the fund for the prior 5 years.

Back in 1983, they gave out $ 386 per person. We have gotten as much as $ 2,069 per person in the state in 2008. So if you are married and have 3 kids, you get a $ 10,000 check. After the 2007 stock market drop the value in the fund dropped, so we are down to $ 1,170 per person this year. Still, pretty good, don't you think?

What do we do with that money?

Merchants want you to spend it, so they have large PFD sales. Car dealers start advertising let you drive away in July in a new vehicle as early as July if you promise to use the upcoming PFD as a down payment on a new car.

Some use it for their yearly vacation. Yes, Hawaii is very popular in the winter!

And some put it all away for their children's college education (what self control those people have!)

Others, like us, consider it an "assistance" in paying the high heating bills in Alaska. Yes, we get the oil out of the ground. But then it goes to the lower 48 for processing and we get it back form you at above $ 4 per gallon (more than what you pay down below). Go figure!

Anyway...don't get too jealous of us. Remember; our official "cost of living" is 1.26to 1.32 times the average of the lower 48. And to tell you the truth.....we think it is much much higher.

More about that in the future.

But, in any case, if you are homeless or out of work: don't think of moving up here merely for that check. It won't be nearly enough to keep you warm (or alive) in the winter.

We'll talk more about the future of oil in AK in part 2.

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