Les Gara: SB 21 contains troubling provision

  • By Rep. Les Gara
  • Tuesday, May 20, 2014 4:09pm
  • Opinion

There are a number of little mentioned, troubling facts about Alaska’s 2013 oil tax rollback — Senate Bill 21. For one, proponents inserted a special interest provision that continually reduces Alaska’s revenue share for our oil, indefinitely into the future. The London and Houston executives, who’ve blitzed you with $8 million in ads and PR, have smartly kept this quiet.

This “disappearing revenue” provision continually lowers the tax rate on oil companies from SB 21’s reduced 27% effective rate on profits today, to roughly half that in future years. Oil companies will get the gift of among the lowest tax rates in the world, at your expense.

I want you to be informed when you vote on repealing this law in August. SB 21 is a pathway to underfunded schools, lost needed energy solutions, and continued $1 billion-plus deficits.

Thanks to respected leaders across the political spectrum — including former First Lady Bella Hammond, Constitutional Delegate Vic Fischer, Democratic and Independent Gubernatorial candidates Byron Mallott and Bill Walker, Democratic and Republican legislators, former Mayors Jim Whittaker (R-Fairbanks) and Jack Roderick (D-Anchorage) and others — for speaking up.

Repealing SB 21 will tell legislators to write a law that provides a fair share for our oil, and effective oil production incentives. Allowing corporations to take the billions they’ll get from a reduced Alaska share, to spend on their foreign oil operations, isn’t a fair partnership. Reasonable tax breaks should be earned by investing in Alaska.

The Disappearing Tax Rate: SB 21 includes an ill-conceived handout that makes fatter profits for oil corporations, but little sense for you. It was falsely billed as an incentive for “new oil”. The trouble is it pretended to “incentivize” oil that was already being produced.

This provision hands out a roughly 40% reduction on SB 21’s already low oil tax. Forty percent off 27% is roughly 16%. That’s a banana republic rate.

This 40% cut to Alaska’s revenue share applies to most new oil that will ever be produced in Alaska, and to fields where production had been announced years before SB 21.

It applies to Point Thomson, where Exxon illegally withheld production for 30 years. In 2007 Alaska finally filed legal proceedings to force Exxon to honor lease requirements to develop this field. SB 21 gives Exxon a 40% reward for illegal behavior, on oil it was already required to produce.

This false “incentive” applies to Oooguruk and Nikaitchuq, which began production before SB 21. That oil also wasn’t “incentivized” by this 40% handout.

It applies to fields companies long ago announced would be produced under ACES (the law SB 21 replaced). These include Conoco’s NPR-A CD-5 unit, Mustang, the southwest corner of Kuparuk, and other fields corporation-hired TV actors falsely claim are a miraculous result of SB 21.

Smart policy means NOT giving away billions for production that was already going to happen.

This 40% revenue reduction (which varies slightly with oil prices and costs), shaved from an already reduced state share, applies to new pools of oil in high-profit fields, like Prudhoe Bay, and to all future fields. SB 21’s current, low 27% rate will keep falling. As old fields are replaced with new ones, all fields will eventually get this 40% reduced rate.

Disappearing Production: Alaska’s “Revenue Sourcebook” forecasts North Slope production will decline under SB 21 by over 40% in the next decade, from over 500,000 barrels/day today to roughly 300,000 barrels/day. The actors on those corporation-funded ads shamelessly call a 40% decline “more production”.

State forecasts also show less oil under SB 21 than under ACES. The state has forecasted more North Slope oil by 2022 under ACES (Spring, 2013 ACES report) than under SB 21 (April, 2014 SB 21 report).

To spur local investment, we should require companies to invest IN ALASKA to earn reasonable tax breaks. Letting them spend Alaska tax breaks Outside is one reason for this decline.

And Scott Goldsmith’s report? It concedes SB21 would have reduced Alaska revenue by over $1 billion/yr. if it were in place at 2012 and 2013’s higher oil prices. SB 21 should be replaced by a law letting Alaskans share fairly when high prices create staggering corporate profits.

Rep. Les Gara (D-Anchorage) can be reached at rep.les.gara@akleg.gov.

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