Sightline Daily » Economy & Jobs

What Closing Big Oil’s Tax Loophole Could Do For Kids

Eric de Place — Wed, 08 May 2013 21:11:38 +0000

In Washington, oil refineries have long benefited from an accidental tax loophole so bizarre that the state’s bi-partisan tax review committee can identify no public policy purpose for it.

With the Supreme Court demanding more money for basic education, both Governor Inslee and the House have moved to close the loophole. Both aim to redirect the $40.8 million from oil companies to classrooms, but some in the Senate are defending the refiners.

So as a way to make clear what closing the loophole would do for public education, here’s a simple graphic explanation:

All figures used in this post come directly from Governor Inslee’s proposed budget, particularly the tax exemption fact sheet and the education funding supplement.

Graphic design by Devin Porter at GoodMeasures.biz.

Notes and sources. By necessity, the labels in the chart are more concise than the language typically used to described these funding categories. The detail-oriented can find fuller explanation below, all of it drawn directly from the governor’s budget:

Support for new teachers - Fund the Beginning Educator Support Team (BEST) approach for all teachers in their first three years on the job. About 2,000 first-year teachers are hired in Washington each year, and as the state emerges from the recession, our schools will be hiring more. Research shows students of well-supported first-year teachers demonstrate achievement gains equivalent to the students of fourth-year veterans. BEST supports new teachers by including additional paid time for weekly meetings with mentors and more opportunities for peer observation and feedback on teaching. Mentor teachers will receive compensation for taking on this important leadership role. ($37.5 million)
Dropout prevention – Prevent students in grades six through nine from dropping out. Though districts are able to identify students in these grades who are at risk of dropping out, they need more resources to support them and keep them engaged. School districts will receive additional learning assistance funding based on 15 percent of students in grades six through nine. This money can be used for academic liaisons, tutoring or small-group instruction. Supports will help students who are behind academically to catch up, including those who need additional instructional assistance due to suspensions or expulsions. Again, districts will tailor these research-proven support strategies so they offer the most effective ones to meet their students’ needs. ($25.3 million)
3rd grade literacy – Ensure third-grade literacy. Districts will receive a larger allocation for the Learning Assistance Program, which offers extra instructional help to struggling students, based on the prior year’s count of students who did not meet state standard for third grade literacy. Districts will implement literacy activities that work best in their own communities. ($12.5 million)
STEM enrollment pool - Create a competitive enrollment pool for the public four-year universities. This will help industry fill positions with qualified employees, especially those in STEM fields. Winning proposals must demonstrate innovation and cost efficiency. Such new investment allows us to grow the workforce that our economy needs. ($11.0 million)
STEM Innovation Alliance - In the past 10 years, science, technology, engineering and math (STEM) jobs have grown three times faster than non-STEM jobs. Skills learned through STEM education are essential in a wide range of employment fields. Governor Inslee’s proposal creates the STEM Education Innovation Alliance to implement a bold, results-driven approach to align the work of state agencies and resources with a comprehensive preschool-through-graduate school strategy to improve the quality of STEM education. The Alliance’s membership of business, labor, nonprofit and education organization partnerships is dedicated to help accomplish the state’s education goals. The proposal also calls for building a talent pipeline from high school to college, and then career, by expanding industry-developed high school skills programs and allowing credits earned in high school to transfer to college. ($10.9 million)
Clean Energy Institute at UW – Create a Clean Energy Institute at the University of Washington to focus on next-generation energy storage and solar energy. Additional staff, advanced computing support and, most importantly, a clear mission will make the institute a global model in this emerging sector. ($12.0 million)
Biofuels Center at WSU – Invest in Washington State University’s Center for Bioproducts and Biofuels in the Tri-Cities to leverage new federal and private grants and scale up its promising efforts. Ramping up research funding will help keep the region at the forefront of alternative and biofuels research. ($5.2 million)
Preschool for poor kids – Expand preschool opportunities. The state’s Early Childhood Education and Assistance Program (ECEAP) supplements the federal Head Start program in providing preschool for low-income 3- and 4-year-old children. Research is clear that for many children, access to high-quality early learning programs improves kindergarten readiness, success in school, graduation rates and outcomes in adult life. Together, however, Head Start and ECEAP serve just two-thirds of the state’s eligible preschool population. The proposal gives access to 3,035 more eligible children and includes quality improvements such as more class time for preschoolers, educator professional development and site visits. ($35.0 million)

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

Recipe: Cooking the Books on Carbon Taxes

Yoram Bauman — Wed, 03 Apr 2013 18:24:51 +0000

Editor’s note: This extra-rich recipe was originally shared on Yoram’s own blog at The Stand-Up Economist. Check it out!

The National Association of Manufacturers just released a scathing report on carbon taxes (the full report was produced—unfortunately—with the assistance of my friends at NERA), but in reality all their analysis shows is that paying down the federal debt is the poison pill of economic policy: as long as the economy is struggling to recover, connecting debt payments to any policy will make that policy look terrible.

In other words, it’s a recipe for cooking the books on carbon taxes:

Pre-heat the oven with debt-crisis rhetoric. The interest rate for federal borrowing is incredibly low, but don’t let that stop you from arguing that “[debt reduction] is appealing because this could reduce the interest rate for Federal borrowing.”
Mix carbon taxes with debt reduction and tax cuts. Make sure to front-load the debt reduction: “Until 2023, all of the net carbon tax revenues would be used to lower the Federal debt.” Worried that this goes against what just about any economist would recommend at a time when “families [are] struggling to get by as the national unemployment rate hovers just under 8 percent” [emphasis in original]? Simply add a caveat: “We [at NERA] make no suggestion that this particular combination is desirable, politically likely, or that it will produce the best overall policy outcomes.”
Cook until burned. “A carbon tax would have a net negative effect on consumption, investment and jobs.”
Top with bittersweet glaze. “Factoring in lost revenue from reduced economic activity, the net revenue from a carbon tax available for deficit/debt reduction and lower tax rates is relatively small.” As an added bonus—call-back!—a weakened economy will presumably raise the interest rate for federal borrowing, so what comes out of the oven will be perfectly circular.

Yum, yum… Boy, that’s rich!

P.S. For the record, the NAM report makes a big deal about how “the price of natural gas would increase by more than 40%,” but almost half of this increase comes only in the very short run and relies on modeling assumptions about the short-term supply curves for natural gas being inelastic. (Translation: Fuel-switching from coal to natural gas drives up the price of the latter because producers have a hard time producing more.) Judge for yourself whether this makes sense by looking at how natural gas consumption has skyrocketed over the past few years at the same time that natural gas prices have been taking a nosedive. See the EIA graphs copied below.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

The Real Story of Puget Sound’s Disappearing Herring

Lisa Stiffler — Fri, 29 Mar 2013 15:00:20 +0000

Editor’s note: A revised version of this article is available as a pdf.

Pacific herring, SteveWyshy, Flickr.

Puget Sound’s Pacific herring are a small fish with a whale-sized slate of problems.

Many of the local herring stocks are in decline and despite some localized efforts to save them, their numbers haven’t bounced back. Scientists have identified numerous culprits that have likely contributed to the waning populations, including disease, pollution, increasing numbers of predators, climate change, shoreline development, and fishing.

But from this line up of offenders, no one has been able to pinpoint the villain that bears the greatest blame for the herring’s troubles.

It hasn’t been for a lack of trying.

The Washington Department of Fish and Wildlife keep the closest watch over Puget Sound’s approximately 20 Pacific herring stocks, with particular attention to the fish that spawn at Cherry Point north of Bellingham. The Cherry Point herring were once the largest stock in Puget Sound, but the population has been in a near freefall for decades. The number of spawning fish plummeted 92 percent from 1973 to 2012, according to data from the WDFW’s Kurt Stick.

Not all of the herring are in such dire straits. In its 2008 assessment, the most recent available, WDFW concluded that 47 percent of the region’s herring stocks were “healthy” or “moderately healthy,” based on their abundance.

However, that only tells part of the story. Wayne Landis, director of the Institute of Environmental Toxicology at Western Washington University and herring population expert, drilled into WDFW data that included information about the age of the fish. Age matters because older fish have more and healthier offspring.

In a paper published in 2010, Landis concluded that in the ‘70s, local herring sometimes lived 8 or 9 years, but that over time the stocks have been getting younger until now most live only to age 2 or 3. And this trend toward younger fish was seen in populations not just at Cherry Point, but around Puget Sound.

But because Cherry Point was such an important stock historically and one that dropped so far, the fish there have garnered special attention.

Cherry Point Aquatic Reserve, Washington State Department of Natural Resources, Flickr.

While the state still allows some herring fishing in Puget Sound, Cherry Point fish and eggs were put off limits for a period in the 1980s, and then permanently in 1996. In 2000, the state Department of Natural Resources created the Cherry Point Aquatic Reserve to “protect the significant environmental resource” of the area –– including the herring. Four years later, conservationists tried unsuccessfully to get Endangered Species Act protections for the beleaguered population. (The petition was denied in large part because federal scientists argued that other herring stocks could repopulate the Cherry Point area should the fish there vanish, though other researchers are skeptical.)

A Sea of Hurt

A closer look at the herring shows that they suffer from a variety of physical afflictions.

Puget Sound herring are infected with viral diseases and a parasite called Ichthyophonus hoferi, which creates heart and liver lesions, possibly impeding their swimming. Research on the parasite in 2002 by University of Washington, WDFW, and U.S. Geological Survey scientists found that in some stocks, more than half the fish carried the parasite and older fish had higher infection rates.

Herring eggs, GregTheBusker, Flickr.

A 2005 study by many of the same researchers took a closer look specifically at the Cherry Point fish. They found the stock suffered from an unusually high frequency of skeletal abnormalities and the fish were smaller and weighed less.

Many folks concerned about the herring suspected that pollution could be the trigger for the ailments and stock decline. The region is home to industrial activities including an aluminum smelter and petroleum refineries that are now operated by ConocoPhillips (also called Phillips 66) and BP. Plus, Puget Sound is continually hit with a deluge of pollution that’s carried into the sea with stormwater runoff.

Research on the mutating and deadly effects of petroleum toxics on herring eggs is well documented from the Exxon Valdez spill to a more recent accident in San Francisco Bay. Fred Felleman, a tireless advocate for the herring who holds a UW master’s degree in fisheries biology, points to a rarely discussed 1972 oil spill in the Cherry Point area as another potentially significant blow to the fish.

So the researchers investigating the mutant Cherry Point herring incubated their eggs in water from elsewhere in the Sound, and took eggs from other stocks and raised them in Cherry Point water. They found that the Cherry Point fish were abnormal regardless of where the water came from.

Around the same time, other scientists delved into the amount of pollution in the adult herring, still searching for answers to the herrings’ woes.

Jim West at WDFW and Sandy O’Neill and Gina Ylitalo at the Northwest Fisheries Science Center have taken a pollution pulse for countless species swimming in the Sound. They tested for persistent organic pollutants in herring caught in three spots in Puget Sound and those from three areas in the Strait of Georgia, including Cherry Point. The chemicals accumulate in organisms and can be passed from mothers to offspring.

The Puget Sound herring were deemed to be “significantly contaminated with PCBs, and to a lesser degree DDTs…” according to the research published in 2008; the Cherry Point fish were polluted too, but at lower levels.

No one had yet found the smoking gun to explain what some were now calling the Cherry Point Pacific Herring Syndrome.

Home, Inhospitable Home

Puget Sound sea lions, starmist1, Flickr.

But of course it’s not enough to look only at the physical condition of the fish. Scientists also have tried to unravel what’s happening with herring predators and habitat.

The tally of what doesn’t eat Pacific herring is possibly shorter than the list of what does. Marine ducks, seabirds, and crabs eat their eggs. Jellyfish and other squishy creatures slurp the larval herring. Chinook salmon, sea lions, seals, and still more birds gobble the adult fish.

Climate change and the Pacific Decadal Oscillation, or PDO, can warm water temperatures and potentially increase the herrings’ predators, scientists predict. Much of the Cherry Point stock’s plummet coincided with a so-called warm phase in the PDO. However, the fish haven’t rebounded during recent colder cycles.

Herring have specific environmental needs, namely shoreline areas that provide eelgrass where they deposit their sticky, tapioca-pearl eggs. The newly hatched fish also linger near these beaches after hatching. Researchers are concerned about the effects of shoreline development and activity, which can disrupt natural processes that replenish sandy beaches; destroy eelgrass beds; alter predator-prey interactions; and generally disturb fish behavior.

Human encroachment already has put the squeeze on herring. Based on spawning surveys, scientists know that in 1981, Cherry Point herring spawned along more than 60 kilometers of shoreline. By 2004, the fish utilized less than 22 km of the nearshore.

The shift is worrisome, whether it’s the result of the fish population getting smaller or because of human activity in the area. A 2006 report from the National Marine Fisheries Service concluded that the shrinking spawning area “increases risks” from man-made insults such as “oil spills and contaminant releases near Cherry Point.”

Cherry Point’s Future

The tidal wave of troubles confronting Puget Sound herring region-wide, and the Cherry Point stock in particular, are facing closer scrutiny once again. That’s because Pacific International Terminals, a subsidiary of SSA Marine, is proposing to build a deep-water shipping hub in Cherry Point to transfer coal from trains to large vessels.

The Gateway Pacific Terminal would allow for ships this size or larger to dock, JAXPORT, Flickr.

Project proponents say that their planned wharf and trestle would include numerous features to protect the environment, such as metal grating for the decking to limit the amount of shading that can kill eelgrass; a design that will prevent disturbance of the bluff and shoreline; and covered conveyors to prevent coal dust from blowing into the water.

Additionally, government agencies are working on an Environmental Impact Statement to assess what effect the proposed Gateway Pacific Terminal could have on human health and the marine ecosystem. The project could be modified to better protect the environment if that is deemed necessary. And terminal supporters say they currently plan to conduct field research on the Cherry Point herring in partnership with state agencies. This research is a requirement of a 1999 settlement agreement between Pacific International Terminals, state agencies, and the non-profit Washington Environmental Council.

Shoreline train tracks, jaskdfjasudfoasdfjalsk, Flickr.

Some local herring experts remain concerned about risks associated with more shoreline development, increased train and ship traffic, the potential for oil spills, and the threat of invasive species tagging along with the shipping vessels. They ask whether Pacific International Terminals’ project can really be protective enough for the herring.

“They have to guarantee that they do not alter the spawning habitat,” said WWU’s Landis. “Have they done that? I’m not sure how you do that.”

Editor’s note: If you want to hear more from the researchers themselves, I wrote a news story about the mysterious disappearance of the herring for Crosscut.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

The Reality of Coal Jobs, Canadian Edition

Eric de Place — Thu, 28 Mar 2013 17:01:53 +0000

While reading up on Enbridge’s proposed Northern Gateway Pipeline, I came across a table so compelling that I had to share the results. As I’ve pointed out before, coal sector investments are a lousy way to create jobs. It’s true in the US, and particularly in the West.

Not surprisingly, it’s true in Canada too. The redoubtable Marc Lee at the Canadian Centre for Policy Alternatives demonstrated as much with a nifty input-output analysis that allowed him to calculate the employment impacts of investments across a range of economic sectors. Just as we’ve seen in the US, coal is about the worst you can do.

Marc’s numbers clearly show that from an employment standpoint, coal is a very poorly leveraged place to encourage additional investment. In fact, this is a feature of fossil fuel sector investments more generally: on a dollar-for-dollar basis they produce very few jobs.

Notes: I monkeyed around with Marc’s table a bit to produce this chart, which I think tells a clearer story than rows of numbers, but I left the underlying data completely intact. Data geeks, however, will want to read Marc’s technical notes on page 18 of the full report.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

No Sick Leave = More Germs at Sea-Tac?

Jennifer Langston — Tue, 19 Mar 2013 23:28:56 +0000

mahalie, flickr

Yoseph Diallo’s dad is the one who encouraged him to look for work at Sea-Tac airport, based on stories his family had heard over the years about stable, good-paying jobs with decent benefits.

So the 19-year-old was happy to get a job last year as a “ramper,” handling and driving baggage from planes to other parts of the airport. But the reality turned out to be quite different than the reputation from years gone by.

A new report by Puget Sound Sage shows that ground service workers at Sea-Tac airport—the majority of whom are people of color, immigrants, and refugees—make substantially less than their counterparts at other West Coast airports, do not have paid sick leave and have filed numerous complaints with the state about poor training and unsafe working conditions.

The group includes cabin cleaners who disinfect tray tables and look for suspicious cargo left behind, wheelchair assistants who shuttle elderly travelers, skycaps and baggage handlers, and other ramp workers who perform functions such as guarding equipment, refueling planes and removing ice. On average, their minimum compensation at Sea-Tac is nearly $4 to $6 less than airport workers doing comparable jobs in Los Angeles, Oakland, San Jose and San Francisco.

These low-wage workers at Sea-Tac are overwhelmingly people of color, according to surveys that have shown the airport’s contractor workforce is only 36 percent white (compared with 64 percent for all of King County and 43 percent for all airport jobs). And the airport has become an employment magnet for newly arrived immigrants and refugees. As many as half of job applications come from transplants from Asia, Africa, Latin America and Eastern Europe.

On principle, everyone—especially people who have had to flee their home countries and may have little frame of reference for how things are supposed to work here—deserves fair working conditions. But this isn’t just about airport workers. It’s about anyone who boards a plane and the policies that shape whether the employees charged with protecting their health and safety are given the tools to do so.

It’s not just the germy kid sitting behind you

caribb, flickr

For people who are making barely above minimum wage, missing a day of work can mean the difference between making rent that month or not. The lack of paid sick time is a powerful incentive to go to work even when you’re ill, as Diallo has done. Those infected workers then touch the same baggage handles that people will grab straight off the conveyor belt. They can spread germs on tables that the next planeload of people will eat from. They may assist elderly people and others whose immune systems may be compromised.

Diallo, who works the overnight shift at Sea-Tac and attends Highline Community College, says it’s not just about losing the income when he’s sick. When he misses a shift, he says, a point is deducted from his attendance record. If he hits 16 points, Diallo says he’s been told he’ll be fired.

It’s just so hard. It’s really hard. I want to stay home and rest up and try to make sure I don’t get anyone else sick, and I end up having to go to work because I’m afraid to stand up to my managers and tell them my situation. They seem to just not want to listen.

Diallo doesn’t work for the Port of Seattle (which operates Sea-Tac) or Alaska Airlines, whose bags he handles. He works for one of the many contractors that have become increasingly important to Sea-Tac’s operation as the airport and airlines have sought to cut labor costs. For instance, when Alaska Airlines outsourced its ramp operations to Menzies Aviation in 2005, the average wage for those workers fell by more than $5 an hour, according to Puget Sound Sage.

In November of last year, more than 50 workers who perform ground-based services for a variety of contractors filed complaints with the Washington Department of Labor and Industries. They include allegations of exposure to toxic chemicals, denial of bathroom breaks or access to water, exposure to faulty fueling equipment, and lack of training. Here’s a quote from one complaint filed by a wheelchair attendant:

If a passenger was to [relieve him or herself] in my chair, I would just take it to the restroom and clean it with napkins and soap and then continue to use my chair, management has never told me what to do with that chair. I have no gloves or spray to use so I would clean it with my hands in the restroom.

How Sea-Tac stacks up

So are these shortcuts inevitable as airlines are dreaming up new fees and cutting costs wherever possible? The report makes a persuasive case that the answer is no, especially when you compare Sea-Tac to other West Coast airports that provide living wages, health insurance incentives, worker retention programs, paid time off, and training standards for comparable workers.

(Click on graphic to embiggen)

For example, the city of Los Angeles several years ago became concerned about sick leave policies that could contribute to germ “superspreading” at its airport and the public cost of airport workers with no health insurance. So in 2009, it extended its living wage ordinance to airport workers that requires:

12 paid days off and 10 unpaid days off annually
A minimum wage of $15.37, with a credit of $4.67 towards the total if the employer provides health benefits
Worker retention in the event the airport or airlines replace one contracting firm with another for the same function

Similarly, the city of San Francisco more than a decade ago passed standards that established a minimum living wage for airport ground service workers, access to health insurance and training designed to attract and retain a quality workforce. An analysis three years later showed that employee turnover fell by 60%, employees reported working harder and faster, and employers saw a decrease in grievances and absenteeism.

In Oakland, it was the voters themselves who overwhelmingly (by 78%) approved a ballot measure to create a living wage and other labor standards for airport and seaport businesses.

So, there appear to be multiple ways to take the lead on setting workforce standards for airport employees. And workers like Diallo are optimistic that conditions there can improve, if people want them to. As he puts it:

I love working at the airport. There are so many interesting people. It’s international, and you never know who you might meet there. But I feel like we’re not being respected at the job that we do. If we take the time and actually try to stand up to these guys and tell them how we feel and what is needed to be done in order to make every airport job a good job, I think we can make that happen.

Update: Sightline contacted the Port of Seattle, which owns Sea-Tac, and Alaska Airlines, the airport’s dominent carrier, for responses to Puget Sound Sage’s report. The port declined to comment at this time. Alaska Airlines spokeswoman Bobbie Egan provided this statement late in the day and emphasized that the company employs nearly 13,000 people who earn almost $1 billion a year in wages and benefits, with nearly half of those people working in the Seattle area:

Alaska Airlines partners with vendors that focus on safety and provide quality services at competitive pricing for entry-level jobs. Our focus is to offer our customers safe, reliable and affordable air travel while continuing to grow our business and create more jobs within Alaska Airlines and at our partner vendors. Although we do not dictate the wages our contractors pay their employees, we do understand the importance of having a strong local economy that provides plentiful, good-paying jobs. The most effective way Alaska Airlines can contribute to this goal is to make decisions that ensure our company thrives and continues to provide careers and financial security for thousands of employees and their families.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

The Accidental Tax Loophole

Eric de Place — Fri, 01 Mar 2013 19:03:13 +0000

Fidalgo Island Oil Refinery near Anacortes, WA by 24hourmoon, cc

The funeral bells are tolling for Tim Eyman’s oil industry-funded and unconstitutional drive to have a small minority of legislators set tax policy. So what better time to take a quick look at one of the strangest tax loopholes on the books in Washington: the “Extracted Fuel Exemption.”

In a nutshell, the “Extracted Fuel Exemption” is an accidental tax loophole that hands oil refineries $63 million each biennium, which works out to about seven percent of the state’s current $900 million budget shortfall. (For a primer on how the loophole works and what it refers to, see here.)

It’s more than passing strange that the loophole mainly benefits refineries because it was created in 1949 before the state actually had any oil refineries—and it was never intended to benefit them. The exemption was, in fact, probably intended for the state’s timber industry, which used wood scraps for fuel at sawmills. But it was so poorly worded that the state’s five oil refineries now claim 98 percent of the benefit. Only one other state, Alabama, has a similar tax exemption on the books and even it is more narrowly tailored for petroleum products.

Even the state’s bipartisan tax review committee is baffled by the loophole. They concluded, in part, “Because the public policy objective is unclear, it is difficult to determine whether the preference is achieving any intended objective.”

With the state trying to reduce both budget shortfalls and carbon emissions, a $63 million handout to the oil industry doesn’t make sense. Former Governor Gregoire proposed closing the loophole in her outgoing budget. Now it’s up to Governor Inslee and the newly unfettered legislator to tighten up a pointless tax loophole and put the money to good use.

More resources on the extracted fuel exemption here:

Sightline’s full-length analysis
The Joint Legislative Audit and Review Committee (JLARC) assessment
The Department of Revenue summary
The RCW

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

Ambre Energy: Caveat Investor

Clark Williams-Derry — Wed, 13 Feb 2013 18:44:48 +0000

As domestic demand for coal has tumbled, the coal industry has grown increasingly desperate to shore up falling revenues by exporting coal to Asia. And that’s why there have been so many controversial proposals to develop coal export terminals in the Pacific Northwest: the industry thinks that the Northwest offers the cheapest route to move coal from Montana and Wyoming to China, Korea, and Taiwan.

One company, the Australian-based Ambre Energy, Ltd., has put itself in the center of the coal export brouhaha by launching plans to build two major coal export terminal projects on the Columbia River. The larger of the proposed terminal projects, at a brownfield site in Longview, WA, would handle up to 44 million tons of coal per year. The smaller project, proposed to ship coal by rail to Oregon’s Port of Morrow and then barge it downstream to ocean-going vessels at Port Westward, would handle up to 8 million tons of coal annually. Both projects face major permitting, regulatory, and financing hurdles before they can get off the ground, let alone turn a profit.

Ambre has racked up minimal revenues and massive expenses.

But while some of the other players in the coal export game are relatively well known, there’s surprisingly little reliable information in circulation in the Northwest about Ambre Energy. The company’s history, its track record, and its finances remain something of a mystery to the businesses and communities that would be affected by their coal export proposals, and to decision-makers who are deciding how to navigate the controversy. Because there’s so little information about the company out there, many people in the Northwest assume that Ambre is a major international coal company with a significant track record in the global energy industry.

But we just completed an in-depth review of Ambre’s finances, and found a story of a company with no track record of success, deeply troubled finances, minuscule overseas assets, and just over one years’ worth of experience in the US coal industry.

The chart to the right is pretty self-explanatory: the company has racked up massive expenses over the last seven fiscal years, with minimal revenues.

In short, Ambre’s finances paint a picture of a high-risk startup, rather than a stable and reliable business. The company has been losing money on risky energy investments in the US and Australia since 2005. And it didn’t even start producing coal commercially anywhere in the world until late 2011, when it bought an under-performing mining business from a US company angling to get out of the coal industry. Ambre has never come anywhere close to earning a profit, and instead has racked up massive losses for its investors—including $65 million in 2012 alone.

Here are some of the other findings of our Ambre has racked up minimal revenues and massive expenses.">review of Ambre’s track record and finances:

Minuscule revenues. Ambre has collected only $6.6 million in worldwide revenues over the past 7 years.

Massive losses. Ambre has accumulated $124 million in losses (or “negative retained earnings”) on its balance sheets.
High borrowing costs. The company has taken out multi-million dollar loans with annual interest rates of at least 10 percent, and a “balloon” loan charging 12 percent—strikingly high rates when even high-risk “junk” bonds earn yields of 6 percent.

Huge liabilities. The company is on the hook for hundreds of millions of dollars for mine reclamation and site cleanup, for retiree medical and pension benefits for recently acquired companies, and for purchasing a coal mine as a part of a recent legal settlement.
Troubled assets. Ambre may see little value from some of its assets, including a $65 million cash holding dedicated for mine reclamation, and $19 million in shale oil development costs.
Massive capital needs: Ambre needs to raise about $1 billion to bring its coal export plans to fruition.
Failed Australian venture. The firm recently admitted that it lost $10.9 million on a failed coal project in Australia.
Regulatory uncertainty: Ambre faces massive regulatory and permitting uncertainties, including lengthy state and federal environmental reviews, mine reclamation requirements, and new questions about its plans to sell coal among subsidiaries at low prices to reduce federal royalty payments.

Read the whole thing, here! And while you’re at it, consider reading what some other people have had to say about Ambre Energy.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

The Ugliest Tax Table in America

Eric de Place — Thu, 31 Jan 2013 19:35:32 +0000

Not only in terms of graphic design, but in terms of the actual contents:

If you’d like to spend some time being appalled by a state tax code that manages to substantially worsen an already serious problem with income inequality… well, then feast your eyes on this new report from the Institute on Taxation and Economic Policy.

Washington retains its leadership status as having the most regressive tax structure in the entire United States. In fact, no other state really comes close.

By way of comparison, Oregon’s tax system ranks as one of the least regressive states. Here’s what the same analysis looks like south of the Columbia River.

H/t to Goldy. Also check out the Washington Budget & Policy Center’s take on the findings.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

Hog-Wild Loophole

Ian Siadak — Thu, 10 Jan 2013 18:30:49 +0000

Over the past six decades, Washington has given away hundreds of millions of dollars in tax revenue through a loophole that no one, in 63 years, has been able to properly justify or explain. The main beneficiaries of the loophole are some of the most profitable, and least responsible, companies in the world. And what’s more, the loophole was never intended to be used by these companies at all.

Anacortes Oil Refinery, photo by Ryan Healy

Say hello to the Extracted Fuel Exemption.

This loophole will cost the state at least $63 million over the next two years, at the same time we are facing a $1 billion dollar shortfall. So it was a credit to outgoing Governor Gregoire that her proposed 2013-15 budget closed this wasteful exemption, though it was almost entirely overlooked in news accounts.

The Extracted Fuel Exemption is a loophole in the state’s use tax, which you may never have heard of, so here’s a quick backgrounder. The use tax applies to things that are purchased for use in Washington, but that are not subject to sales tax. For example, if you buy a vehicle in Oregon, where the state does not assess a sales tax, you pay Washington’s use tax when you register your car back home in the Evergreen State. The use tax is also applied to substances used in manufacturing processes in cases when sales tax has not been levied on those substances.

In the case of “extracted fuel,” the exemption allows firms to avoid paying use tax on fuel that they produce and use internally. In the heyday of Washington’s timber industry, it was common for sawmills to use the wood scraps created by milling lumber—called “hog-fuel” in the industry—to produce energy to run the plant. It’s a classic form of energy efficiency: sawmills could re-use waste by burning their hog fuel to power the plant.

According to the “2011 Tax Preference Performance Reviews” by the Joint Legislative Audit and Review Committee (JLARC), in 1948, the state supreme court ruled in favor of a tax exemption for hog-fuel. Then, in 1949, the legislature changed the tax code for use taxes, and to avoid over-ruling the decision from the year before, the legislature created the extracted fuel exemption that we have today. The JLARC report mentions that, “It is not clear why the legislature carved out a specific preference for fuel produced and used by the extractor/manufacturer that produced it.”

So the extracted fuel exemption was designed for hog-fuel, but the original intent was lost long ago. In 1949 there were no oil refineries in Washington. Yet since 1954, five refineries have set up shop in the state and have gone, um, hog-wild with the exemption. According to the JLARC study, these five refineries now receive 98 percent of the benefit from the extracted fuel exemption. How? Oil refineries produce fuel, but they use a lot of fuel in the process. According to the US Department of Energy, up to 60 percent of the energy that oil refineries use is actually by-products of fuel that they created on site. The language of Washington’s exemption—applying to fuels used to manufacture the same type of product—is loose enough to allow oil refineries to get a tax exemption on the oil by-products they use in the process of creating refined petroleum products.

Washington’s extracted fuel exemption is an anomaly in the US. Of 45 states that have use taxes, 29 of which also have oil refineries, only one state other than Washington (Alabama) has a similar exemption, and it is more narrowly defined for petroleum products.

In Washington, the tax exemption seems to have been meant for the sawmills that use hog-fuel, but the too-broad language allowed the oil industry to exploit it into a lucrative, if accidental, loophole.

In Governor Gregoire’s recently proposed budget for 2013-2015 she proposes closing the extracted fuel loophole. The savings—her budget estimates $63 million in state revenue over two years—is enough to cover 7 percent of the $900 million budget shortfall. Yet it’s incoming Governor Inslee and the new legislature who will ultimately decide on whether the exemption stays or goes. Inslee has indicated he will go his own way on legislative priorities, but he should listen to Gregoire on this issue; it would be hard to see keeping the loophole as anything but a purposeful kickback to oil refineries in the state.

Giving away millions to the state’s oil industry every year is hard to understand. At a time when the state is facing serious budget shortfalls and is trying to cut emissions, subsidizing oil refineries simply doesn’t add up.

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.

Would-be Coal Exporters Scheme To Avoid Paying Worker Benefits

Eric de Place — Wed, 09 Jan 2013 17:00:59 +0000

This is appalling. Amid all the “jobs, jobs” cheers from Northwest coal export proponents, two of the biggest players in the debate have embarked on a scheme to weasel out of paying retirement and health benefits to their workers.

In a nutshell, Peabody Energy and Arch Coal spun off companies that became Patriot Coal, saddled them with as much of their worker-benefit and environmental liability as they could get away with, and then watched as Patriot went bust. Now, the United Mine Workers union is calling them out in court.

Here’s the nickel version of events via the Charleston Gazette:

UMW officials say Patriot was essentially a “company created to fail,” to give Peabody Energy and Arch Coal a way to shed obligations to fund union pensions and health-care benefits in the nation’s eastern coalfields, while profiting from their giant, non-union surface mines out west.

Five years ago, Peabody formed Patriot as a spin-off company where Peabody tucked union mines in West Virginia and the Midwest, along with pension and health-care obligations for union retirees. Patriot later bought another company, Magnum Coal, which had been similarly spin-off by Arch Coal when it got rid of most of its Appalachian operations and their related pension and health-care liabilities.

“When Peabody Energy and Arch Coal spun off their union operations into companies that eventually became Patriot Coal Company, they also spun off more than $1.3 billion in promised health care obligations to coal miners who put their lives and health at risk every single day working for Peabody and Arch,” the union said in a petition circulated at this week’s meetings.

The magazine In These Times has a must-read account of events pointing out that:

Oddly, for a 5-year-old company, Patriot wound up with nearly three times as many retirees as active employees, more than 90 percent of whom never worked for the company. Overburdened by its debts, in July of 2012 Patriot declared bankruptcy.

In bankruptcy court, Patriot is seeking to be released from its pension and retirement obligations to some 10,000 UMWA retirees, covering more than 20,000 beneficiaries which total more than $1.3 billion.

The investor community is also taking note of the scam. The website Seeking Alpha has an aptly-titled article, “Patriot Coal: The Vulture Has Landed” acknowledging the same features:

The primary legacy liabilities that are of concern at this point include postretirement benefit plans, workers comp, selenium water treatment obligations, end-of-mine closure costs, reclamation obligations, underfunded pension and obligations to an industry fund.

In short, the now-bankrupt Patriot is asking the courts to lift the very obligations to workers and legally mandated environmental cleanups that it cleverly took off the books from Peabody and Arch.

Keep in mind that Peabody would be the main beneficiary of the coal terminal proposed for Cherry Point, while Arch has a 38 percent stake in the facility planned in Longview.

It’s one thing to make rosy promises about new coal-handling jobs and another to examine the facts about the industry. The truth is that Powder River Basin coal mining is 90 percent non-union; coal infrastructure investments create very few jobs; and the major coal industry backers of these proposals do not treat their workers honorably.

As Seeking Alpha sagely notes:

There is a lot to be learned from the Patriot Coal experience. Investors should continue to be diligent in their analysis and not believe this situation is an anomaly for the coal industry.

That’s a lesson Northwest port communities should take to heart.

Update: Fairness at Patriot, an organization sponsored by United Mine Workers of America, has produced a couple of damning TV spots now running in St Louis, “We’re People” and “The Best Years.”

Sightline Institute researches the best practices in public policy for a sustainable Pacific Northwest. Read more at daily.sightline.org.