The unrest in the Middle East is coming in waves. The tidal wave it has created at the pump is taking a big bite out of consumers wallets. We hear about our nation's untapped oil reserves but with the "no new wells" policy there is no hope it can be explored.
In Alaska, the Governor, Sean Parnell is in his own battle with the legislature. But not for budget cuts. He's proposing tax incentives for oil companies to entice them to hang a shingle up in his state.
"North to the future" is the state's slogan and Parnell takes it to heart. He's trying to persuade both Republicans and Democrats that offering tax incentives to "big oil" is not a bad thing.
In fact, its a way of attracting companies up north and generating future jobs. I spoke with Governor Parnell on his proposal as well as his outlooks on the challenges facing the states and the nation's energy security.
LL: Your legislature is in the process of examining your proposal to adjust state oil tax rates. Can you explain to me why and how this will spur job investment and creation?
SP: My belief in the way oil companies make their investment decisions is on a global basis. Alaska at these higher oil prices is not competitive on a global basis in terms of their investment dollars, so my goal is to make Alaska competitive so that's the basis for the requested tax change. We'll create thousands of jobs if this passes.
There are three elements to this tax proposal that will do that. One, is a proposal to reduce the tax rate for areas that have not been explored or developed. The second part, is a tax credit for technically challenged fields- heavier oil which is more costly to get out. The third piece is addressing our steep rate of progressivity so at higher oil prices the state takes more and it doesn't lower oil prices. Its a particularly steep curve at the higher oil prices so if you think about it, the first two elements that I mentioned- drilling, exploring in new fields and developing new fields, companies will only get that tax break if they invest there.
Secondly on the technically challenged fields, these are new wells, new production in existing legacy fields like Prudhoe Bay and again in order to get the tax credit they have to invest there. The start day for these tax benefits for this bill is 2012.
The third element, where we are capping the rate of progressivity is the element that's more open for debate on if it will create new jobs.
Some Democrats and Republicans in our state legislature say why should we give up money when there is no promise lower taxes will equal more jobs and my view is, the more you tax something, the fewer jobs you will have. So that's why I'm pursuing the progressivity changes as well just to make us more competitive and to create more jobs.
My view is a long term view of Alaska's economy and energy production. Some legislatures are only looking short-term. We want to create a stampede of development here so we can create the tens of thousands of jobs Alaskans and other Americans need.
LL: Its interesting you see how some legislators are being "short- term" thinkers.
Right now, you're seeing the tug of war between long-term and short term cuts as it pertains to state budgets and the protests against some of the measures some of these Governors are proposing. What do you think of this?
SP: I served eight years total in the Alaska State legislature- four in the Senate and four in the House. While I was in the State Senate I was in the leadership position as the co-chair of our finance committee that is our chief appropriations committee.
Oil was at nine dollars a barrel. We had a deficit which was approximately 40 percent of our state budget and we too were in deep cutting mode. And in those times you just have to tighten the belt.
LL: Alaska has collective bargaining. How did you handle the talks then and should other states follow Alaska's path to compromise?
SP: We do have collective bargaining in our state. When Alaska had those deficits we took steps with our public employees. We changed our retirement system to make it less generous. We are still paying off our unfunded liability from when we had a defined benefit program rather than a defined contribution program which we now have. We took steps along the way to reduce those costs.
Although I have to tell you our unfunded liability from those days is one of the significant elephants in the room when it comes to our fiscal health for the next twenty or thirty years.
Governor Walker is taking a courageous stand in his state doing what he thinks is best. Here, we made similar tough decisions in similarly tough times. I don't begrudge any governor for standing up in that way.
LL: Lets' talk about the medicaid- several Governors were recently down in DC testifying on the financial burden health care reform will have on their states when it comes to Medicaid.
Will this program expansion have a negative impact on your budget?
SP: Outside of health care reform, Congress will be reducing federal contributions to the states' Medicaid budgets so the states are staring at that while still maintaining the level of eligible people that's required by the federal government. So now the Federal Government will not be funding the mandate under the existing program.
In Alaska, Medicaid is our most significant increase under the formulas and when the federal funding goes away, we add three times that average annual increase to our budget every year. If our increase is 50 million and if that funding goes away that 50 million has another 123 million that Alaska would be required to pay.
Now Alaska is a small state. Can you imagine a state the size of California? Picture its annual increase and have them fund three times on top of that- its a recipe for disaster for the states.
And if you throw health care reform bill on top of it with the Medicaid implications there and bringing in more people into the system and have the states pay a larger share, its going to bankrupt or cause severe financial distress to quite a number of our states.
LL: What would you like to see the Government do?
SP: Give the option to opt out of the traditional Medicaid system and give us the flexibility of a block grant and for those states who want to stay in a traditional Medicaid system and make use of whatever waivers they can make use of, they can do that as well.
There is a group of Governors both on the Democrat and Republican side working on that as we speak.
LL: Let's turn back to energy. Given the skyrocketing price of gasoline and the Mid East unrest, do you think America has forgotten lessons of the past like the gas rationing of the 1970's? Could this happen again?
SP: Absolutely! There is no reason why we should be 63 percent dependent on foreign oil. There is no reason why we should be sitting watching gasoline prices going up at the pump because of what is happening over in Libya when we have the reserves in our states that we can produce.
We have forgotten what it looks like in our country to be dependent on unstable foreign nations and I think we need a change.
LL: Should the federal government re-examine its "no new wells" policy?
SP: Absolutely. It's not just Alaska, its everywhere in the U.S.—Wyoming, Oklahoma, the Gulf. It takes years to get a permit. And the energy can come online a lot quicker than many think.
In the Gulf for example in the federal lands there is oil that can come into production in the next six to twelve months.
In Alaska, we're taking on federal lands where production could come online between one to five years. That's a reasonable time frame to reduce our dependence.
Two years ago we were in this same situation. Back then gasoline shot up four to five dollars a gallon in the urban centers. In my state in the villages, it shoots up seven to eight dollars a gallon. We should have learn our lessons from the OPEC embargo of the seventies and if not we should have learned at $140 oil two years ago and we haven't.
Questions? Comments? Email us atNetNet@cnbc.com
Follow on Twitter @ twitter.com/loriannlarocco
Follow NetNet on Twitter @ twitter.com/CNBCnetnet
Facebook us @ www.facebook.com/NetNetCNBC
A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."