OPINION: Democrats misleading public yet again on oil tax policy
Based on their latest effort to mislead the public about oil tax policy, Democrats should be cheering the fact that North Slope production will miss its forecast by about 20,000 barrels per day in the 2019 fiscal year.
After all, according to former one-term Fairbanks state Sen. Joe Paskvan, the state is “paying” a credit of $8 per barrel for each one produced on the North Slope under Senate Bill 21, the production tax reform passed in 2013 that took effect and was upheld by voter referendum in 2014.
According to their current talking point, the state should now “save” $42.6 million in credits thanks to 14,600 fewer taxable barrels flowing through the Trans-Alaska Pipeline System each day.
The only problem with that is the most recent Spring Revenue Forecast released March 15 now projects that the miss on production for the fiscal year will actually reduce total unrestricted petroleum revenue by $75.6 million and require a larger draw on state savings to balance the budget.
Math, how does it work?
The reason for this disparity is because the state doesn’t actually “pay” the credit Paskvan is claiming. It is a reduction in tax liability, which is a vital distinction the Democrats are counting on the public not making.
No legislative session would be complete without Democrats trying to jack up oil taxes, and this one is no different with Sen. Bill Wielechowski, D-Anchorage, banging his Twitter drum in an effort to raise rates on the oil industry by $1.2 billion per year by repealing the per-barrel credit and raising the production severance tax to one of the highest in the world at 35 percent of net income.
Wielechowski’s bill will go nowhere in the Republican-controlled Senate and wouldn’t survive a veto by Gov. Michael J. Dunleavy even if it were to make it to his desk, but this latest campaign is yet another example of how Democrats appear to be fundamentally incapable of speaking honestly about how SB 21 works and the unquestionable success it has been in stemming the decline of Alaska oil production.
Wielechowski loves pointing to the production forecast as proof that SB 21 hasn’t worked based on five and 10 years from now.
Because he is so fond of forecasts to the point he quotes them as if they came down from a mountain on stone tablets, let’s rewind to the 2013 production forecast that was completed in the final year of his preferred policy known as ACES that was repealed under SB 21.
The 2013 forecast for production in the current 2019 fiscal year was for just 429,100 barrels per day. Even with this year’s miss relative to forecast, production should still be about 511,000 barrels per day, or nearly 82,000 better than the 2013 forecast.
In fact, when you add up the North Slope’s actual production since SB 21 took effect, the cumulative production greater than the 2013 forecast is almost 90 million more barrels of oil.
Even more remarkable than that is to consider the price environment during the 2014-19 period when prices crashed from more than $100 per barrel in the summer of 2014 to a low of $26 per barrel in January 2016. (The price forecast in 2013 was for $121 oil in the current fiscal year.)
The net effect of the majors maintaining production, and even growing it in two straight years from 2015 to 2016, is that while production tax revenue (a function of price) declined by 93 percent from 2014 to 2016, royalty income declined by only 50 percent in comparison.
And we cannot forget that under Wielechowski’s beloved ACES, the state would have collected exactly $0 in production taxes at all prices less than $63 per barrel. Under SB 21, the state always collects a production tax thanks to the gross tax minimum.
Wielechowski and Paskvan also continue to lie about former Gov. Sean Parnell by claiming he “promised” that 1 million barrels of oil could flow through TAPS in 10 years if SB 21 passed.
Even still, by 2024 the state should be seeing production from Pikka, Willow and Mooses Tooth that could collectively add more than 300,000 barrels per day. In fact, ConocoPhillips has continued to invest more than $1 billion per year in capital projects in Alaska and its fellow owners at Prudhoe Bay are spending millions this year on seismic work to identify more pools of oil.
While Wielechowski loves harping on distant forecasts and statements from seven years ago, he hates being brought face-to-face with his own touting of ACES in 2013 in which he exalted over its credit system that under his own talking points had the state covering more than 65 percent of dry holes and citing the benefits of major producers reducing their tax liability by buying those cashable credits from small explorers.
When he was a member of the Senate majority in 2012 he voted for a budget that appropriated nearly a $1 billion in cashable credits — that were actually “paid” in the truest sense of the word — compared to just more than half of that amount in Permanent Fund dividends. ACES also contained provisions for 20 percent credits for capital expenditures that did nothing to increase production, which dropped by an average of 5 percent per year despite sky high prices while it was in place.
SB 21 replaced that 20 percent credit with a credit that is only earned when a barrel of oil is produced. Based on production since 2014 — the thing that matters most when evaluating the policy — it worked.
That leaves lying about it the only option the Democrats have, which just goes to show how little respect they have for the media who cover them and the people of Alaska in general.
Andrew Jensen can be reached at [email protected].