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In The Know is a daily synopsis of Oklahoma policy-related news and blogs. Inclusion of a story does not necessarily mean endorsement by the Oklahoma Policy Institute. E-mail your suggestions for In The Know items to gperry@okpolicy.org. You can sign up here to receive In The Know by e-mail.
Today you should know that Chesapeake Energy is replacing Aubrey McClendon as board chair. He will remain as CEO. Reuters reports that McClendon has been running a $200 million hedge fund on the side that traded in the same commodities Chesapeake produces. Media Matters argues that The Oklahoman’s coverage of fracking has been slanted to favor the energy industry.
More local officials in Sequoyah County are expressing concerns about the negative effects of tax cuts. The Oklahoman warns that triggers would be a one-way ticket to lower taxes no matter what happens to the economy. The OK Policy Blog previously warned against putting the tax system on auto-pilot with triggers. A NewsOK letter to the editor writes that tax cuts would harm Oklahoma’s business environment.
In negotiations with the union, American Airlines is scaling back the number of layoffs and outsourcing of Tulsa jobs. Governor Fallin signed a resolution disapproving pay raises for judges. The OK Policy Blog discusses how programs designed to help the poor should reward those who save. Urban Tulsa Weekly discusses the continuing racial divide in Tulsa coming to light in efforts to rename a street after Dr. Martin Luther King, Jr.
The Number of the Day is Oklahoma’s unemployment rate, 8th lowest in the U.S. in March 2012. In today’s Policy Note, The Atlantic discusses the beginnings of an idea that could dramatically change how the Federal Reserve participates in the economy.
In The News
Chesapeake replacing McClendon as board chair
Aubrey K. McClendon built Chesapeake Energy into the nation’s second-largest producer of natural gas through a combination of debt, foresight, luck and sheer bravado. After two weeks of mounting shareholder criticism about Mr. McClendon’s unusual compensation plan, Chesapeake announced on Tuesday that it would replace him as chairman and prematurely end an arrangement that granted him the right to buy a 2.5 percent stake in every well the company drilled. Hours later, the company reported disappointing first-quarter earnings and said it would further scale back its gas drilling plans amid a continued glut that Chesapeake’s own aggressive expansion helped create. Mr. McClendon will remain chief executive of Chesapeake, which is based in Oklahoma City, but the board said it would seek to appoint a nonexecutive chairman with no ties to the company, a separation of power urged by many shareholders.
Read more from The New York Times.
Inside Chesapeake, CEO ran $200 million hedge fund
As chairman and CEO of Chesapeake Energy Corp, Aubrey McClendon has been a powerhouse in the vast U.S. natural gas market, directing the company’s multibillion dollar energy-trading operation and setting output targets for America’s second-largest producer. Behind the scenes, a Reuters investigation has found, McClendon also ran a lucrative business on the side: a $200 million hedge fund that traded in the same commodities Chesapeake produces. On Tuesday, two weeks after Reuters reported that McClendon has taken up to $1.1 billion in loans against his stakes in Chesapeake oil and gas wells, the company stripped McClendon of the chairmanship and reiterated that it’s reviewing details of the loans. A statement quoted McClendon, who will stay on as CEO, saying that the move will enable him to focus his “full time and attention on execution of the company’s strategy.” But for at least four years, from 2004 to 2008, McClendon’s attention extended well beyond his job at Chesapeake. During that time, said a veteran trader who helped run McClendon’s private hedge fund, the Chesapeake executive engaged in “near daily” communications and “exhaustive” calls to help direct the fund’s trading.
Media Matters: How Oklahoma’s largest newspaper distorts the facts about fracking
The Oklahoman’s straight news coverage of the controversial natural gas extraction process of hydraulic fracturing (“fracking”) has been slanted in favor of the process under the ownership of energy tycoon Philip Anschutz, who acquired the paper in September 2011. The paper’s opinion page has been one-sided — devoid of voices warning readers about the potential health risks and environmental dangers of loosely regulated fracking activities. Anschutz’s Empire Includes Oil And Gas Drilling. According to a company brochure, The Anschutz Corporation controls both the Anschutz Exploration Corporation, which has “participated in significant discoveries and development of oil and gas worldwide,” and the Oklahoma Publishing Company, which includes The Oklahoman.
Sallisaw school board applauds ‘no’ on tax cut plan
Governor Fallin publicly acknowledged that a steep reduction in taxes would not happen this year, during an interview with The Associated Press. The local school board was concerned about losing more funding from the sate, Sallisaw Superintendent Scott Farmer said. “It’s a win for common education,” Farmer said. “We had concerns about the tax cut. We applaud legislators for taking a step back.” Sallisaw school district receives funds from a state formula, based on weighted average daily membership (ADM). Sallisaw’s 3,446 ADM was the same the past two years, receiving $400 less per student this year. “We can’t continue to absorb these cuts,” Farmer said. “I think the legislator’s actions proves they had concerns about this bill.” State tax revenue also funds the county’s senior nutrition programs, roads and county offices. “We barely receive funding from the state to fix our roads,” District 3 County Commissioner Jim Rogers, said. “My biggest concern was how the state planned to replace the revenue.”
Read more from the Sequoyah County Times.
Straight shooting needed in Oklahoma tax cut trigger talks
Triggers come to mind when considering the open carry law, but triggers are just as relevant to the debate over tax cuts. An immediate income tax cut and measures to trigger them in the future? Those are moving targets as the Legislature enters its final month. The two-way trigger for gross production taxes isn’t the case with income tax triggers. If economic growth triggers an incremental rate reduction, the rate won’t automatically rise when the growth ends. If it did, it would be a tax increase. And raising taxes in Oklahoma is difficult under the state constitution — requiring voter approval or a legislative supermajority. Politically, triggers have the advantage of conferring a benefit (lower taxes) but deferring the time frame. Whatever wrangling took place over the open carry law could be magnified in the tax cut debate precisely because income tax triggers are a one-way ticket to lower taxes no matter what happens to the economy. Triggers should thus be weighed carefully. What works for gross production taxes may not be the best approach for income taxes.
Previously: The terrible thing about triggers from the OK Policy Blog
To attract business, make Oklahoma a better place
I’m all for paying less income tax, but at what cost? This reform would greatly diminish our state’s revenue. There’s no arguing that point. Supporters say we would make up the revenue loss in businesses that would move to the state because of our “better business climate.” But who would want to move here when our schools are failing and underfunded? Or when our public health suffers? Or when our infrastructure is deteriorating? All of which would surely happen (most of which is happening) before any business would move to the state.
American Airlines ‘final’ contract offer would cut fewer jobs
Members of the Transport Workers Union at bankrupt American Airlines are reviewing terms of the company’s “final best” contract offer, which proposes 7.5 percent in wage increases over six years and fewer layoffs than originally stipulated, union officials said Tuesday. More than 24,000 members of the TWU will vote to accept or reject the contract offer within two weeks, TWU executives said. The total job losses under American’s offer – originally proposed to be 13,000 in February – is unclear, TWU officials said. The company’s February proposal included layoffs of 2,100 of the 5,600 mechanics employed at the Tulsa M&E base and layoffs of 8,500 mechanics companywide. “That has been reduced significantly,” said Rick Mullings, spokesman for TWU Local 514 in Tulsa. “I could tell you a number, but it would never be close because there are so many conditions attached.”
Read more from The Tulsa World.
Governor signs resolution disapproving pay raises for judges, elected officials
Judges, state elected officials and district attorneys will have to wait at least two years to get pay raises. Gov. Mary Fallin signed a measure Tuesday that rejects a proposed 6 percent pay raise for judges and statewide elected officials. The raises would have cost the state an additional $3 million a year when fully implemented. Legislative leaders told lawmakers that the timing was not right to approve raises when the state, while making a slow recovery from the recession, still faces a standstill budget for the fiscal year that begins July 1. Lawmakers overwhelmingly approved House Joint Resolution 1093, which rejects a recommendation made in September by the Board of Judicial Compensation to increase pay for judges. The pay for statewide elected officials and district attorneys is tied to judicial pay. The last pay raise for judges was four years ago. It will be 2013 before the board can consider a pay raise for judges again and 2014 before any proposed raise could take effect.
A rock and a hard place: ‘Asset tests’ and Oklahoma’s poor
Programs designed to help the poor should reward those who save. Asset tests do the exact opposite; they discourage families from saving because recipients risk losing benefits if they begin to accumulate assets – including donations they might receive from relatives, their faith group, or some other charity. People cannot escape poverty unless they begin to build-up savings to prepare for long-term financial security and protect themselves against unforeseen events – like medical bills, car repairs, or temporary unemployment. Nearly half of Oklahoma households (48.2 percent) and a majority of the state’s minority households (65.5 percent) do not have enough money in the bank to subsist at the poverty level for three months if they lost their income.
Read more from the OK Policy Blog.
Struggle continues in renaming Cincinnati to honor MLK
An in-depth Sunday story came across the Reuters newswire on April 22, a developing story on Tulsa’s racism struggles. “This city, where a history of racial tension was inflamed by the Good Friday shootings of five black people, plans to name a street in honor of civil rights pioneer Dr. Martin Luther King but only the section that passes through a predominantly black part of a city,” wrote Lindsay Morris for Reuters. In 2002, District 1 City Councilor Jack Henderson (not yet a councilor at the time) started a push to name 11 miles of Cincinnati Ave. after King. This stretch of Cincinnati starts in mostly black north Tulsa and heads over the railroad tracks into a mostly white downtown. “Critics, including downtown businesses and churches, complained that the street name change would be confusing to long-time businesses in the downtown area, and the council shelved the idea,” Morris continued. Last year, Henderson brought the King street-naming proposal back to council chambers. But this time he shaved about a mile and a half off the 11-mile plan, which would leave the street named after King on one side of the tracks while it remains Cincinnati on the whiter downtown end. Because having a street with two names is much easier for residents to figure out than by keeping it uniform, right?
Read more from Urban Tulsa Weekly.
Quote of the Day
An executive’s first responsibility is to shareholders and the betterment of their investment. Personal trading in the commodity around which the CEO’s business is based would be a clear no. We would never have tolerated that, ever.
-Carl Holland, who ran the trading-compliance department at Texaco, on revelations that Chesapeake CEO Aubrey McClendon was operating a $200 million hedge fund that traded natural gas futures on the side
Number of the Day
5.4 percent
Oklahoma’s unemployment rate, 8th lowest in the U.S. in March 2012, compared to 8.2 percent nationally.
Source: Bureau of Labor Statistics
See previous Numbers of the Day here.
Policy Note
A rebellion at the Federal Reserve?
Chicago Federal Reserve president Charles Evans doesn’t look the part of a heretic. But in the cozy, conservative club that is central banking, he certainly qualifies. While most of his colleagues at the Fed have recently taken an even more hawkish turn, Evans remains a champion of additional monetary stimulus. And on Tuesday he took an even bigger step: He became the first sitting Fed member to endorse nominal GDP (NGDP) level targeting. Sounds wonky? It is. But here’s why Evans’ suggestion is also extremely bold. The Fed famously has a dual mandate: It’s supposed to promote the maximum level of employment consistent with its two-percent inflation target. In reality, this dual mandate often looks more like a single inflation mandate. NGDP level targeting would do away with this problem by rolling the mandates together. And right now, that would mean a much more aggressive Federal Reserve.
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