GUEST COMMENTARY: Who do you trust?
The discovery and production of oil on the North Slope has been of tremendous benefit to Alaska for many reasons. One major reason is the oil on the North Slope belongs to all Alaskans because the State of Alaska owns the land and, therefore, the oil and gas beneath it. It is OUR oil. This includes Prudhoe Bay, Kuparuk, and Alpine, and other oil fields.
Oil producers pay money to the state because we are both the owner of the oil and we are a sovereign state of the union.
Some basic terms:
Owners: Like the fictional Ewing family on the TV show “Dallas” that leases oil production rights on their land, the real State of Alaska leases our lands for exploration and production of oil resources. Our state leases specify royalty rates and other contractual provisions owed to the landowner.
Sovereign: As a sovereign state government, Alaska has the right to levy taxes on corporations conducting business within its boundaries.
Once royalties and taxes are paid, they are state monies to be spent in accordance with the constitution and state law. They are not gifts from generous corporations.
When determining tax rates on state owned oil resources, the state must balance a system that generates a fair return for the state, while encouraging industry investment in exploration and production because Alaska gets paid on barrels of oil actually produced.
SB 21 repeal: The effort to Vote Yes to repeal Senate Bill 21 is based on a judgment that Alaska’s elected officials have done a bad job of ensuring that Alaskans receive a fair return for our oil.
When the Legislature adopted SB 21 in April 2013, they lowered taxes for the major oil companies that have leased our lands on the North Slope.
It is called a “Giveaway” because the companies do not have to do anything to receive the money.
• No requirement for the companies to invest more money in Alaska.
• No requirement to produce more oil in Alaska.
• No requirement to hire more Alaskans.
For this reason it is a bad deal for Alaskans.
It should be repealed so we can replace it with a better law that links tax cuts with verifiable production.
Alaska’s previous tax system — Alaska’s Clear and Equitable Share, or ACES — was adopted in 2007 after one-tenth of the Alaska legislature was convicted of bribery over oil taxes. The system had a progressive tax structure, so the state would share in the volatility of oil prices. When oil prices fell, taxes were lowered. When oil prices rose, taxes increased. The system was supported by Republicans, Democrats and independents.
High oil prices created significant income to the state, as well as high profits to the industry. While ACES was in place:
• North Slope jobs hit all-time highs.
• Oil field investment grew by 70 percent.
• Oil company profits soared. For example, ConocoPhillips made $14 billion in profits, or $28 per barrel profit in Alaska, which is almost three times higher than in the Lower 48.
The Scott Goldsmith comparison of SB 21 and ACES is based on a hypothetical case for what might occur in the future. An Alaska Department of Revenue analysis using real oil prices and production costs that actually occurred during the years ACES was in effect shows that if SB 21 had been the law, the state would have lost $8.5 billion dollars of revenue.
ACES produced income to the state that allowed the legislature to fund education, public safety and to increase construction projects on roads statewide.
Multi-national oil companies are not in Alaska to provide jobs for Alaskans, nor to support schools or build roads. They are not here for benevolent reasons. Their purpose and, indeed, their statutory requirement is to maximize profits for their shareholders. Under SB 21, they got a very good deal.
Alaskans, however, got a lousy deal. The nominal tax rate of 35 percent drops into a 10 to 15 percent effective tax range as SB 21 takes full effect. The state share falls precipitously, while producers’ profits skyrocket. Truly a Giveaway!
Just think for a moment — why are Exxon and the other oil giants spending MILLIONS to convince Alaskans to vote against the repeal? Do you really think they would do this if their taxes were the same under both laws?
Don’t be fooled! SB 21 is in THEIR best interest, but it is not in OURS.
Stand Up for Alaska — VOTE YES Aug. 19.
Over 50,000 Alaska residents signed a petition to give you the opportunity to vote whether or not to repeal this law. Who do you trust?
Vic Fischer is Director Emeritus of the Institute of Social and Economic Research of the University of Alaska. He was a delegate to the 1955 Alaska Constitutional Convention and is a former state senator.