State must diversify economy or be bound to fossil fuel prices

  • By Fairbanks Daily News-Miner
  • Monday, July 14, 2014 10:28pm
  • Opinion

During the past few months you’ve read a great deal about Ballot Measure 1 on these pages, and for the next month leading up to the primary election Aug. 19, you’ll continue to. The measure, which would repeal Gov. Sean Parnell’s recently-passed oil tax reforms, is hailed by supporters as a return to a fairer tax scheme. Opponents say that repealing the oil tax reforms would cripple the state’s economy and undo progress made in stemming the decline of oil production on the North Slope. The two sides disagree on nearly every major tenet of the measure’s effects.

They disagree about whether Gov. Parnell’s reforms constitute a “giveaway” to oil producers. They disagree about whether new development on the North Slope was planned before the passage of Senate Bill 21 or came in response to the bill. They disagree about whether shaking up the state’s oil tax structure again so soon after the passage of a new regime will make companies skittish about investing in the state. But there’s one thing both sides agree on: oil tax revenues are the lifeblood of Alaska’s economy. And that’s why when state leaders propose altering the mechanisms that bring in those revenues, the fight is so bitter, widespread and loud. Even small tweaks to the oil tax formula can have outsized effects on budgets for state-funded services like education, transportation and public safety.

Our state’s economic ship floats or sinks depending on the level of that oil and gas money — it comprises 92 percent of the state’s unrestricted revenues, and a third of the state’s jobs. Given that fact, it’s easy to understand the hue and cry when law changes are proposed that would affect that cash cow.

Before the discovery of oil on the North Slope, Alaska wasn’t nearly so rich a state. Even with a state income tax (which Gov. Jay Hammond ditched in 1980 after the oil ship had come in), state revenues were far lower than modern levels, as were state services and population. The billions of dollars in oil wealth that came to the state after crude began flowing down the pipeline gave the state freedom to lower the tax burden on its citizens and greatly expand infrastructure and services. But as is often the case in states where one industry dominates the economy, the things you own can start to own you. We now depend on that revenue at least as much as — and likely a great deal more than — the producers need the oil that remains on the North Slope to maintain their profits. It’s not a comfortable position for the state.

Whether or not Ballot Measure 1 passes in August, it’s a stipulated fact that the Prudhoe Bay oil patch — which provides the bulk of state oil and gas revenues — is a mature field. While Gov. Parnell’s oil tax reforms may provide a meaningful incentive for producers to develop more oil there, the end of the field’s useful life will come within the lifespan of many Alaskans alive today. Given the state’s revenue picture before the oil started flowing, that’s an existential threat to our state’s economy as it exists today, and a clear sign that we can’t depend on oil forever. Even a full-diameter natural gas line — the great white elephant that state leaders have chased since the trans-Alaska oil pipeline was under construction — wouldn’t provide the same kind of revenue that oil does.

That means Alaska has to work as hard as possible to develop and sustainably maintain the renewable resources that currently contribute to the state’s bottom line, such as fish and timber. And it needs to develop industries and sectors of the economy that can begin to shift the balance of state revenues away from their current domination by oil and gas. And in the meantime, we need to make choices that will give the state as much time as possible to make that transition, because it’s not likely to be simple to find a solution or easy to adopt it.

 

— Fairbanks Daily News-Miner,

July 13

 

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