Palin’s rise began in 2002, when, term-limited as mayor of Wasilla, she ran for lieutenant governor. Little known and heavily outspent, she beat expectations, losing only narrowly and showing an exceptional ability to win fervent support. Afterward, she campaigned for Frank Murkowski, the four-term Alaska senator come home to run for governor. Palin traveled the state speaking about Murkowski, and making herself better known. When he won, she was short-listed to serve the remainder of his Senate term, and even interviewed for the job. But it went to his daughter Lisa instead. (Palin acidly recounts the patronizing interview with the new governor in her memoir, Going Rogue.) Palin got the low-profile chairmanship of the Alaska Oil and Gas Conservation Commission, a regulatory body charged with ensuring that these resources are developed in the public interest.
By the time she arrived, the notion that Alaska’s oil-and-gas policy operated in the public interest was getting hard to maintain. The industry controlled the state, and especially the Republican Party. Other than a modest adjustment to oil taxes that squeezed through in 1989 after the Exxon Valdez oil spill, the hammerlock held. Alaskans were coming to regard this situation with suspicion and anxiety. The problem wasn’t just that the state was starved of revenue from its most valuable resource. It was also the failure to develop another resource to which the oil companies held title: Alaska’s bountiful supply of natural gas. It’s always been understood that North Slope oil would one day run dry. Someday, perhaps as soon as 2019, there won’t be enough oil left to push through the trans-Alaska pipeline—a catastrophe, unless the state somehow replaces the revenue. For this reason, building a gas pipeline has long been a political priority, and one the oil companies have balked at.
From her spot on the oil-and-gas commission, Palin touched off a storm over these anxieties. One glaring example of the unhealthy commingling of oil interests and Republican politics was her fellow commissioner and Murkowski appointee, Randy Ruedrich, who was also chairman of the state Republican Party. Less than a year into the job, Ruedrich got crosswise with Palin for conducting party business from his office (and, it was later revealed, giving information to a company that the commission oversaw). When he ignored her admonitions to stop, she complained to Murkowski’s staff, but still nothing happened. So Palin laid out her concerns in a letter to the governor and the story leaked to the media. In the ensuing uproar, Palin became a hero and Murkowski was left no choice but to fire Ruedrich from the commission.
Palin got strong support from an unlikely quarter: Democrats. “She had the appearance of someone who was willing to go in a different direction,” Hollis French, a Democratic state senator, told me. “We subsequently learned that she’ll throw anyone under a bus, but that wasn’t apparent at the time. It looked like real moral courage.”
Even so, Palin’s actions were presumed to have ruined her prospects. Murkowski and Ruedrich still ran the party. Breaking with them made her no longer viable as an ordinary Republican or a recipient of oil-company largesse. To continue her rise, she needed to find another path. Palin alone imagined that she could. In this and other ways, she displayed all the traits that would become famous: the intense personalization of politics, the hyper-aggressive score-settling—and the dramatic public gesture, which came next.
Palin was clearly the victor (Ruedrich paid the largest civil fine in state history), but she quit the commission anyway. In Going Rogue, she says only that as a commissioner, she was subject to a gag order that Murkowski refused to lift. But quitting didn’t void the gag order. What it did was thrust her back into the spotlight and reinforce her public image. It also gave her a rationale to challenge Murkowski.
All of this turned out to be shrewd politics, because Murkowski’s governorship proceeded to fall apart, thanks to his brazen sense of entitlement. After failing to persuade the Homeland Security Department to buy him a personal jet (to help “defend, deter or defeat opposition forces”), he ignored the legislature’s objections and bought one with state funds. But it was his handling of matters vital to the state’s future that finally threw open the door for Palin.
Murkowski made up his mind to strike a deal with the major oil producers to finally build a gas pipeline from the North Slope. He cut out the legislature and insisted on negotiating through his own team of experts, out of public sight. This rankled all sorts of people because, beyond his arrogance, Murkowski had distinct views about oil and gas that many others didn’t share.
Alaska’s parties align differently from parties elsewhere—they’re further to the right and principally concerned with resource extraction. The major philosophical divide, especially on oil and gas, is between those who view the state as beholden to the oil companies for its livelihood, and will grant them almost anything to ensure that livelihood, and those who view its position as being like the owner of a public corporation for whom the oil companies’ interests are separate from and subordinate to those of its citizen-shareholders. “Oil and gas cuts a swath right through ordinary partisan politics,” Patrick Galvin, Palin’s revenue commissioner, told me.
Murkowski’s willingness to cater to the oil producers, and his secrecy, caused tensions in his administration that burst into view when he announced his deal, in October 2005. It was a breathtaking giveaway that ceded control of the pipeline to the oil companies and retained only a small stake for Alaskans; established a 30-year regime of low taxes impossible to revoke; indemnified companies against any damages from accidents; and exempted everything from open-records laws. In exchange, the state got an increase in the oil-production tax. (Palin later released a private memo in which Murkowski’s top economic adviser complains that he has “gone completely overboard” and is treating “Alaska as a banana republic in order to secure the gas line.”) The deal conceded so much that Murkowski’s natural-resources commissioner, Tom Irwin, publicly questioned its legality—and was summarily fired. Six of Irwin’s aides quit in protest, and the “Magnificent Seven” became a cause célèbre. In the end, the legislature rejected the gas-line deal. But, in a twist, it agreed to the oil tax—which had been intended as an inducement to pass the rest of the package.
Palin came out hard on the other side of the philosophical divide from Murkowski—and made it personal. She announced she would challenge him for governor. She assailed the “secret gas line deal” and the “multinational oil companies that make mind-boggling profits off resources owned by all Alaskans.” She put an “all-Alaska” pipeline at the center of her campaign. And she declared her intention to hire Tom Irwin to negotiate the deal. “She’s what I call ‘alley-cat smart,’” Tony Knowles, the former Democratic governor, told me. “It’s not about ideology. She knows how to pick her way down the political route that she feels will be the most beneficial to what she wants to do.”
Murkowski’s tax was discredited almost immediately. Just after he signed the new Petroleum Profits Tax, the FBI raided the offices of six legislators, in what became the biggest corruption scandal in state history. During the legislative session, the FBI had hidden a video camera at the Baranof Hotel, in Juneau, in a suite that belonged to Bill Allen, a major power broker and the chief executive of Veco Corporation, an oil-services firm. The tapes showed him discussing bribes with important politicians, and revealed the existence of a group of Republican legislators who called themselves the “Corrupt Bastards Club” and took bribes from Allen and others. (Several were later sent to prison.)
In the Republican primary, Palin crushed Murkowski, delivering one of the worst defeats ever suffered by an incumbent governor anywhere. She went on to have little trouble dispatching Knowles, an oil-friendly Democrat. “A lot of people on the East Coast, when they think of Sarah Palin now,” Cliff Groh, a former state tax lobbyist, told me, “some five-letter words come to mind: Scary. Crazy. Angry. Maybe some others. But the five-letter word that people in Alaska associated with her name was clean.”
Palin has gained a reputation for being erratic, undisciplined, not up to the job. But that wasn’t how she looked as governor. She began by confronting the two biggest issues in Alaska—the gas pipeline and the oil tax—and drove the policy process on both of them.
After taking office in December 2006, she kept her word and hired Tom Irwin, and other members of the Magnificent Seven. They devised a plan to attract someone other than the oil companies to build the pipeline, and they bid out the license to move ahead with it—to the deep displeasure of the oil producers, who vowed not to participate. Palin came under serious political pressure. Although she doesn’t mention it in Going Rogue, the Associated Press discovered that Vice President Dick Cheney called her at least twice that month. According to her aides, Cheney urged her to make concessions, but she didn’t.
That spring, the Alaska Gasline Inducement Act sailed to passage, helped along by criminal indictments in the Veco scandal, which were handed down just as the bill came up. Still, Palin was the deciding factor. A new pipeline plan had seemed unlikely when she took over, but she kept the legislature focused on the task.
She kept herself focused, too: though priding herself on her well-advertised social conservatism, she was prepared to set it aside when necessary. Rather than pick big fights about social issues, she declined to take up two abortion-restriction measures that she favored, and vetoed a bill banning benefits for same-sex partners of state workers.
Next came the oil tax. The corruption scandal had tainted Murkowski’s new law. The FBI tapes of Bill Allen revealed that it was central to the bribery. “It became clear,” Hollis French told me, “that filthy, filthy things had happened to influence that tax.” Most Alaskans were disgusted and open to revisiting, and possibly increasing, the tax. But Palin’s preferred mode of operating—charging righteously forth to attack her enemies—would make a new agreement harder, not easier, to reach. An explicit charge that the Petroleum Profits Tax was corrupt would imply, by extension, that the (unindicted) legislators who had passed it were corrupt, too—and she needed their votes.
Again Palin kept her worst impulses in check. And when she was drawn into the fight, she proved nimble and resourceful. Two things finally prompted her to move ahead: when tax season rolled around, the PPT yielded much less revenue than anticipated; and Democrats needled her incessantly about how much of a reformer she truly was. Then as now twitchingly alert to any slight, Palin loathed the implication.
In September, she released her proposal and, so no one missed the point, christened it Alaska’s Clear and Equitable Share (ACES). Stronger than Murkowski’s PPT, it met a mostly hostile reception from her party. “I will stand in your way like the little man in Tiananmen Square to keep you from hurting the economy,” one Republican House member declared. Democrats, eager to capitalize on public anger, introduced several tougher alternatives that were particularly aggressive—that is, confiscatory—when oil prices rose. Palin focused on capturing more revenue when prices were low.
At first, her team tried to win the Republicans over. But it became clear this wasn’t going to happen. So Palin did something that would be hard to imagine from her today: she pivoted to the Democrats. “We sat down with her and said, ‘If you want to get something passed, it’ll have to be much stronger,’” Les Gara, a liberal House member, told me. “And to give her credit, she did what she needed to get a bill passed.”
In the end, Palin essentially grafted the Democrats’ proposal onto her own. What she signed into law went well beyond her original proposal: ACES imposes a higher base tax rate than its predecessor on oil profits. But the really significant part has been that the tax rate rises much sooner and more steeply as oil prices climb—the part Democrats pushed for. The tax is assessed monthly, rather than annually, to better capture price spikes, of which there have been many. ACES also makes it harder for companies to claim tax credits for cleaning up spills caused by their own negligence, as some had done under the old regime.
Four years later, Palin’s gas line hasn’t gotten going, but it’s not really her fault. Plunging natural-gas prices have made the project uneconomical. Her oil tax is a different story: though designed to capture more revenue under most scenarios, ACES has raised a lot more money than almost anyone imagined. That’s largely because of high oil prices. But it also shows that the law is working. ConocoPhillips, BP, and ExxonMobil have reported record profits—so it’s fitting that, in a sense, Alaska has, too. It’s no exaggeration to say that ACES has made the state one of the fiscally strongest in the union. Flush with cash, Alaska produced large capital budgets that blunted the effects of the recession. Moody’s just upped the state’s bond rating to AAA for the first time. While other states reel under staggering deficits, budget cuts, and protests, Alaska has built up a $12 billion surplus, most of it attributable to Palin’s tax. Galvin estimates that it has raised $8 billion more than Murkowski’s tax would have. But given the corruption that plagued the PPT, a better benchmark might be the tax it supplanted—the one put on the books after the Exxon Valdez spill. By that measure, Palin’s major achievement has probably meant the difference between a $12 billion surplus and a deficit.