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My Turn: A wealth of good data says it's time for tax reform

Posted: April 13, 2011 - 8:16pm

In a My Turn published in Tuesday’s Empire, Rep. Les Gara recited one-sided, stale arguments against House Bill 110. Readers deserve a better explanation of what’s at stake for Alaska.

Oil producing regions across the world are booming. But only one new exploration well is being drilled in Alaska this year, and the existing wells are in maintenance mode. The throughput of the Trans Alaska Pipeline dropped by 7 percent in 2010, and 2011 doesn’t look much better. Why?

A reasonable person may correlate the current tax structure and a drop in oil exploration development, but the cause-and-effect isn’t just speculative: Oil company executives have plainly and repeatedly stated they are not interested in investing in Alaska, because it’s not smart to explore and develop our technically challenging fields during this perfect storm of high taxes and the high price of oil.

Gara would like to force oil companies doing business in Alaska to invest only in Alaska, as a condition of any tax incentive. That is an unprecedented demand in a free market world, and would likely be unconstitutional.

Instead, with the prospect of HB 110 passing this session, Alaskans have heard some very promising statements from the oil industry: Jim Mulva, the Chairman and CEO of ConocoPhillips, flew to Alaska expressly to report that his company would invest up to $5 billion if we get our tax structure fixed. He listed several specific projects he’d pursue in Alaska that would reverse the decline in the pipeline.

This week, Sen. Bill Wielechowski dismissed Mr. Mulva’s intent to increase investment, saying it would fall short of the gap created by adjusting taxes downward. But the senator has not disclosed the full picture, because BP, ExxonMobil and other companies will see new exploration possibilities for Alaska under a more investment-friendly tax regime. The senator’s analysis cherry-picked the facts, choosing not to include the investment in areas not currently being explored. You see, the governor has not just proposed tax adjustments, but also has proposed increasing production to one million barrels a day.

Ken Thompson, whose main job is to attract new investors and capital to Alaska for a lease holding company, recently testified that our tax rates had driven off some of his company’s most promising potential partners to places like North Dakota and the North Sea. Pioneer Natural Resources dropped a known oil field at Anchor Point because it can make a better play on its prospects in Texas and North Dakota.

We have vast resources, yet we are not attracting the capital investment necessary to explore and develop those resources. Without the investment, the oil will not be produced. HB 110 will encourage oil companies to invest in our state. The legislation has three parts. The first two parts provide tax incentives only if investment is made. The rewards come to companies that explore and develop older, non-producing fields, and give tax reductions for new fields, where no production has ever occurred. These two tax incentives are widely supported across Alaska, because new investment means job growth, and production will provide oil royalties to the people of Alaska.

The third part of HB 110 is where Alaskans have had a robust debate. This portion of the tax reform flattens the slope of taxation once oil reaches certain price points. It doesn’t remove the tax; it simply doesn’t step on the tax accelerator pedal, as ACES currently does during times of higher oil prices.

What about our state budget? We’re in good shape. The Department of Revenue has run an economic model that shows, with tax reform, Alaska’s budget will have a $10 billion reserve account at the end of the 2020 fiscal year. That includes a 7 percent annual budget increase.

House Bill 110 has the support of leading Alaskans who have studied and analyzed Alaska’s oil tax regime, and who agree that today’s tax windfalls are creating tomorrow’s empty pipeline. Those who have stepped forward to support tax reform include former governors, the heads of the leading companies from every sector of our state, bank presidents, Native leaders and our senior United States senator from Alaska.

It’s time for the State Senate to listen to what Alaska’s business and civic leaders are saying, and pass HB 110.

• Bryan Butcher is the Commissioner of the Alaska Department of Revenue.

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