GUEST COMMENTARY: Repeal of SB 21 would reinstate a failed oil tax policy


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I am against Ballot Measure 1, which is designed to nullify Senate Bill 21 and reinstate the failed tax policy called ACES on North Slope oil production. SB 21, the current tax law, is a reasonable and fair tax that has encouraged development of more oil production, and will put more oil in the pipeline. My opposition is grounded in my belief that the ACES tax was onerous and would, if reinstated, act to severely limit the state’s long-term income from oil production.

At one time, Alaska was the largest oil-producing state in the nation. We have now dropped to fourth place, behind North Dakota, Texas and California. Oklahoma may pass us soon.

It is the tax revenue from oil that funds 90 percent of the state’s general fund and 60 percent the state’s capital budget. While mining, fishing and tourism employ thousands of people, these industries do not generate the tax revenue needed to fund state operations, which include public safety and education, along with social expenses that range from Medicaid to addressing problems such as homelessness and drug and alcohol abuse.

Oil taxes also help defray unfunded pension costs, and the development and maintenance of needed state infrastructure, such as airports, harbors, roads and our university system.

During ACES, which was a highly progressive tax, oil production declined at a significant rate. Even with very high tax rates, the continued lower production would eventually create a financial disaster for the state. I believe that ACES would hasten the day when Alaska returned to individual income taxes and other draconian measures to fund state government.

Drilling for, and producing oil is very expensive in Alaska, requiring a significant capital investment for every well drilled. While oil development in Alaska languished under ACES, oil development was booming outside of Alaska. We need to be competitive with our oil-producing neighbors. SB 21 is a significant step toward becoming more competitive and meeting our goal of putting more oil in the pipeline.

The belief that the repeal of ACES is a giveaway is wrong. The current tax structure actually gives Alaskans higher tax revenues when oil is selling for under $105 per barrel. The existing tax structure encourages oil company investment in increased oil production, which is the goal of the Keep Alaska Competitive-Vote No on 1 group, because increased production will result in more state revenue over the long term by getting more oil into the pipeline for shipment to market.

I know of no oil company that has left Alaska due to the ACES tax, but little investment for new production was being pursued during the eight years ACES was the law. In the last 12 months, however, in anticipation of the repeal of ACES, investment in Alaska oil production has soared to by billions of dollars.

The goal of the Keep Alaska Competitive-Vote No on 1 group is to re-incentivize oil production, not discourage it the way ACES did. We gave ACES an eight-year run, and I believe we should give SB 21 time to fully realize what can be accomplished without destroying the oil industry in Alaska. I therefore believe that voting no on Ballot Measure 1 is good for the people, the economy, and the state of Alaska.

Walter J. Hickel Jr. is the chairman and CEO of Hickel Investment Company and Hotel Captain Cook.

 

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