Palin 'governed from the center,' went after big oil

ANCHORAGE -- Weeks after taking office as Alaska's governor in December 2006, Sarah Palin vetoed a bill that sought to ban benefits for the same-sex partners of state workers. It was unconstitutional, she said.

This year, she rebuffed religious conservatives who wanted her to add two abortion restriction measures to a special legislative session on oil and gas policy, even though she supported the bills. Former aide Larry Persily said she didn't want to risk offending Democrats, whose votes she needed on energy legislation.

Since Republican presidential candidate John McCain picked Palin as his running mate, much attention has been focused on her deeply conservative social views — including her opposition to abortion even in cases of rape and incest and her attendance at a church that promotes the "transformation" of homosexuals through prayer.

But in her 21 months as governor, Palin has taken few steps to advance culturally conservative causes. Instead, after she knocked off an incumbent amid an influence-peddling scandal linked to the oil industry, Palin pursued a populist agenda that toughened ethics rules and raised taxes on oil and gas companies.

And she did so while relying on Democratic votes in the Legislature.

"She has governed from the center," says Rebecca Braun, author of Alaska Budget Report, a non-partisan political newsletter. "She has in some small ways supported her religious views — for example, proposing money to continue the office of faith-based and community initiatives — but she has actually been conspicuously absent on social issues. She came in with a big oil and gas agenda, which really required Democratic allies to get through."

John Bitney, who was Palin's issues adviser during the 2006 campaign and later worked as her legislative liaison before she fired him, says, "She's a very devout Christian. That's a part of her core. But we never put those issues forward in the campaign. She takes the positions she takes because that's who she is, but when she came into office, that wasn't her agenda."

A focus on energy

Palin's agenda has been dominated by an energy policy that, in part, bears more resemblance to the one put forward by Democratic presidential nominee Barack Obama and other Democrats than the one backed by McCain and the GOP.

Obama supports a so-called windfall tax on oil profits; McCain opposes it. McCain also opposed repealing billions of dollars in oil tax breaks as a way of paying for renewable energy subsidies.

"If that plan sounds familiar, it's because that was President Carter's big idea, too," McCain said of Obama's windfall tax proposal in June in San Antonio.

Six months earlier in Alaska, Palin had signed a bill that increased state taxes on oil profits. The measure imposed a graduated scale, so the state's share would go up even more when oil prices rise.

Palin dubbed her plan "Alaska's Clear and Equitable Share." Oil company profits are taxed at a 25% base rate, up from the previous 22.5%. The tax rate rises 0.2% for each dollar the price of oil exceeds $52 per barrel.

The state's coffers are brimming, and Palin and the Legislature this month are sending $1,200 checks to every Alaskan, on top of $2,069 each will receive as part of the annual slice of state oil and gas revenue. Palin also suspended the state's gasoline tax for a year. Oil and gas royalties make up 85% of state revenue in Alaska, which has no income or sales tax.

Oil executives said the law amounted to a $6 billion tax increase this year and criticized it on the same grounds that McCain and Republicans have opposed efforts by congressional Democrats to repeal federal tax breaks for oil producers. They said it would cost jobs and reduce investment in exploration.

"The tax increase that Gov. Palin has signed into law reduces the attractiveness of future oil developments in Alaska," Kimberly Brasington, a spokeswoman for ExxonMobil, said after the bill passed in December. "We are re-evaluating investment plans."

Tim Bradner, an energy industry specialist for the Alaska Economic Report, says two oil projects worth about $1 billion have been canceled because they became uneconomical under the Palin tax increase.

It was a remarkable development in a state where the oil industry has long wielded outsized influence in politics.

'Surprising turn of events'

Palin got tough with major oil producers in other ways, too. She moved to revoke ExxonMobil's license to develop oil and natural gas at Point Thomson on the North Slope, arguing the company had sat for too long on the site without developing the reserves. ExxonMobil says it will begin drilling this winter, but the state says the plans are inadequate.

In August, Palin signed a bill to give a half-billion-dollar state subsidy to a Canadian company to build a $30 billion natural gas pipeline after major oil producers boycotted the bidding.

"Here you are in Alaska, a state that grew rich on oil and gas, in a state where Republicans generally protected the industry," says Persily, who worked for Palin in Washington. "Now you have Palin who comes in, says, 'Tax 'em,' and the Legislature says, 'We'll see your tax, and we'll double it,' and everyone went home happy other than the oil industry. It's a very surprising turn of events."

Eric Croft, a former Democratic state representative from Anchorage, says, "On oil and gas, her positions are much closer to that of the national Democratic Party than of the national Republican Party."

Douglas Holtz-Eakin, McCain's policy director, sees a distinction.

"The key difference between what the governor did and what Sen. Obama is proposing is, the governor did not impose a windfall profits tax," Holtz-Eakin said during a lunch with reporters last week. "It's a permanent change. It's not an opportunistic grab for 'windfall profits,' and I think that's a fundamental difference in the approach. She was trying to set the state up for both good and bad times in the oil industry, and that's very sensible."

Palin has been unavailable to the news media for interviews other than ABC News. Her spokeswoman, Maria Comella, said in an e-mail: "Just like John McCain, Gov. Palin understood the need to eliminate corruption, raise ethical standards, and serve the people with a comprehensive approach to fixing the tax code and supporting an appropriate royalties system."

In August, before she was McCain's running mate, Palin issued a statement praising parts of Obama's energy plan, especially his proposal "to offer $1,000 rebates to those struggling with the high cost of energy." She questioned Obama's proposed windfall profits tax without explaining how it would differ from her new tax.

Even so, she differs sharply from Obama and McCain on the politically sensitive issue of opening areas of Alaska's Arctic National Wildlife Refuge (ANWR) to oil drilling. She supports it; the presidential candidates do not.

In an interview with CNBC's Larry Kudlow this summer, Palin said McCain is "wrong on ANWR, but we're still working on that."

'Who are these people?'

Palin's oil populism isn't just one aspect of her record: It's central to her identity as a politician. And it was instrumental in her rise to power.

After serving as mayor of small town Wasilla from 1996 to 2002, she ran for lieutenant governor that fall. She came in second, but her out-of-nowhere performance made an impression across Alaska, says Republican state Sen. Lyda Green.

Gov. Frank Murkowski, a Republican, appointed her to a $118,000-a-year job on an important oil and gas commission. Several months later, she filed an ethics complaint against a fellow commissioner — the state chairman of the Republican Party — alleging he was doing political business on state time. He resigned and later paid a $12,000 fine.

Palin complained that Murkowski hadn't taken the complaint seriously. She quit and began planning to challenge him in the 2006 primary. Among Palin's lines of attacks: He was too close to the oil industry.

The unpopular Murkowski also was being challenged in the GOP primary by state Sen. John Binkley of Fairbanks. Because few initially thought Palin had a chance, Alaska lobbyist Ashley Reed recalls, party activists asked Reed to approach her to see whether she would step aside and run as Binkley's lieutenant governor.

Palin refused. She handily beat Murkowski and Binkley with 51% of the vote; Murkowski finished third with 19%.

That evening, at the traditional election night gathering place in downtown Anchorage where candidates go to do television interviews, Reed recalls marveling at the crowd of enthusiastic supporters who surrounded Palin. In a small state where most politicos know one another, he says, "I watched in amazement, because what I saw was people I never saw before. I just stood there and was like, 'Who are these people?' "

Running against big oil

Nine days after the primary, the FBI raided the offices of six Alaska legislators, and documents made clear the investigation was oil-related.

The burgeoning scandal, which included revelations of favors done for politicians by oil services company VECO, set the stage for Palin's general election campaign. She promised to overhaul ethics laws and re-examine the state's relationships with the oil industry.

It wasn't just the VECO scandal: Alaskans were fed up with high gas prices and with Exxon's court fight to avoid paying punitive damages in connection with the Exxon Valdez oil tanker spill, Green says.

"It became kind of the thing to do to, quote, hate the industry," she says. "That became part of her campaign: We're not gonna let these people tell us what to do anymore. The raids really emboldened her to run against the party, run against the industry."

Palin told the Associated Press in October 2006, "I've been blessed with the right timing."

It was a three-way race against a seasoned former governor, Democrat Tony Knowles, and a former legislator, Andrew Halcro. There were 23 debates, says Bitney, who helped Palin prepare. She wasn't particularly conversant with public policy, he recalls, but she "learned enough about issues to know where not to go."

She didn't shy away from her conservative stands on social issues. But at one debate, she said she favored teaching students about contraception, including condoms.

Palin won with 48% of the vote. In her State of the State address in January, she promised to shelve the pipeline deal her predecessor had cut behind closed doors and reopen the bidding. In July, as the scandal mushroomed, she signed a bill requiring disclosure of lobbyist gifts to legislators.

On Dec. 19, she signed the oil tax increase. Six days before, in the U.S. Senate, an energy bill that would have repealed billions in tax breaks for oil companies failed by one vote. Obama voted yea; McCain skipped the vote.

Financial news service Bloomberg opined that when it comes to extracting more revenue from oil companies, Palin, "is succeeding where Venezuela President Hugo Chávez, a former paratrooper and military coup leader, so far has failed."

Anchorage lawyer Allison Mendel, who sued the state on behalf of partners seeking same-sex health benefits, says she doesn't think Palin's restraint on social issues in Alaska would necessarily translate in Washington.

Mendel says Palin hasn't pushed cultural conservatism because it wasn't politically expedient, not because she didn't want to. "Almost all the time she has been governor has been totally taken up with ethics and oil," Mendel says.

Indeed, there once was a governor from a conservative state who was known for his ability to work with Democrats. His campaign theme was "compassionate conservatism," and his name was George W. Bush.

Many observers, including both candidates running for president this year, say Washington is more divided and rancorous than ever.