"We view the gas pipeline as our best chance for economic development," said Bob Poe, executive director of the Anchorage Economic Development Corp., in a June 9 press conference held in Anchorage with the Resource Development Council and the Alaska State Chamber of Commerce.

"Failure to pass the (Petroleum Production Tax) is extremely costly to the state, because the current production tax, with its (Economic Limit Factor) formula, is still in place," Poe said. A provision in the state's current oil tax, called the Economic Limit Factor, or ELF, has resulted in many oil fields paying little or no tax.

The Legislature adjourned its special session June 8 without acting on a rewrite of the state's oil tax, called the Petroleum Production Tax (PPT), or several bills related to the gas pipeline. Senate and House versions of the proposed tax have placed the tax percentage higher than that set by the governor in a bill he submitted to the Legislature. Each one-point hike in the tax percentage has the effect of costing the oil producers millions more in taxes each year.

Gov. Frank Murkowski said he will call lawmakers back to Juneau for another special session but has not yet set a date.

John Shively, president of the Resource Development Council, said legislators have a difficult time with oil and gas taxes, but this one is even more complex because the state has also been asked to lock its rate in for 30 years under a contract covering fiscal terms for the project between the state and the three major North Slope oil producers, BP, ConocoPhillips and Exxon Mobil.

Shively said RDC's review of the issue has raised three points:

"One, it seems strange to be raising taxes with the PPT when there is a revenue surplus. Two, the decision is being made in a vacuum - there is no overall fiscal plan. No one can tell us how this fits in with the state's overall financial plan, and there ought to be at least some discussion of it," Shively said. "Three, higher taxes don't encourage investment. The Legislature must be careful in its development of this tax. If the wrong decision is made, the consequences will last for years."

RDC is a statewide association of resource development industries, local governments and labor unions.

Eric Britten, president of the Alaska State Chamber of Commerce, said legislators are too fixed on how much money they can get out of the new tax and not on how a balanced tax fits into the overall scheme of getting a gas pipeline built.

Poe agreed. "When you're locked up together in Juneau for five or six months, you start to think this is all about revenues to the state," he said.

The new PPT and the gas pipeline are intended to go together as a package. The producers have asked, as a part of the gas contract, for oil taxes to be frozen for 30 years and 45 years for gas. The governor responded with a request that the industry agree to a revamp of the existing state production tax and its obsolete "economic limit factor" incentive formula.

That led to the agreement on the PPT, which is a tax of 20 percent on net production revenues with a 20 percent investment tax credit. The industry can afford to pay the higher tax because if the gas pipeline is built, gas production will share the costs of oil production, enhancing the economics of both.

Shively said, however, that if the Legislature passes the PPT with a high tax rate but the gas contract is not passed, the resulting effect of slowing new oil development will have a lasting effect on the state's economy.

Britten said that there were special interest groups at work in Juneau during the special session pushing to skew the legislators' efforts at getting a compromise.

In the heat of the session, legislators were also digging in their heels, he said. Now that they are home for a breather, their constituents need to tell them to keep their eyes on the bigger picture, he said.

Poe said the importance of the gas pipeline and a balanced PPT shouldn't be underestimated. The petroleum industry accounts for 12 percent of jobs statewide, but 20 percent of the total payroll, because the industry jobs are high paying. "That's significant," he said.