After 16 months of pushing his tax incentive bill for the oil companies, Governor Sean Parnell finally blinked. The state Senate forced him to modify his original proposal just enough to call it a compromise. He hasn’t budged on tax reductions for legacy field production. Nor does his new proposal provide any assurances that the oil companies will reinvest their tax savings in Alaska. But even if the Governor and the Senate can overcome these differences, it won’t end the oil tax debate.
First of all, I believe Senate President Gary Stevens deserves a lot of credit for leading the resistance to House Bill 110. Whether one thought it was a giveaway to big oil or a means to get more crude into the Trans Alaska Pipeline, the Senate is supposed to be a check valve for all ideas coming out of the Governor’s office. They did their job by deliberating long and hard before offering a compromise for the Governor to consider.
Parnell isn’t satisfied with the Senate’s efforts though. He believes their bill will fail to spur more oil production in the existing North Slope fields. Former state representative Andrew Halcro agrees. He called the Senate’s proposal “a cynical attempt at election year hocus-pocus” that puts the state’s economy at risk and makes us more dependent on government spending.
Of course there are opponents to making any changes to the ACES tax regime that’s been in place for five years. Sen. Bill Wielechowski, D-Anchorage, believes it already has significant incentives to promote new exploration, the costs of which can be used to reduce the tax rates on production from existing fields.
The oil companies opposed ACES right from the start. They complained it constituted the third tax increase in three years. However, one of those occurred because Governor Frank Murkowski implemented a regulation already on the books. In other words, the companies weren’t paying the state what they legally owed.
In a way, that’s been their standard mode of operation throughout the history of the North Slope oil fields. From the time the pipeline opened until 1992, the companies understated the market value of the oil, overstated the transportation costs and thus artificially lowered the value used to compute the royalties due to the state.
After that dispute was settled, a decade long battle ensued over the tariff that the pipeline owners (including BP, ConocoPhillips and Exxon Mobil) charged themselves for shipping oil from Prudhoe Bay to Valdez. That cost was mainly contested by Anadarko and Tesoro, both independently owned Alaska businesses who aren’t part of the pipeline consortium. They believed they were being overcharged for using the pipeline. But the inflated tariffs also reduced the taxes and royalties that the big three paid to the state.
The point here isn’t necessarily what constitutes fair taxation for oil extracted off our lands. It’s a matter of how far the oil companies can and will go to maximize profits. Like all huge corporations, they can spend millions on lobbying efforts to change the tax laws. They’re armed with enough attorneys to drag out any court challenges. And in this case, as Halcro writes, they can hold the state hostage by waiting “as long as they want, even pumping as little as 200,000 barrels per day” until they get a tax reform bill that satisfies them.
“In this world nothing can be said to be certain, except death and taxes” wrote Benjamin Franklin a few centuries ago. Death doesn’t apply to corporations though, and it seems the some of the biggest ones believe they should be immune from taxation too. For instance, in 2010 General Electric earned profits comparable to Conoco Philips, yet they paid no corporate income tax. Besides their lawyers and lobbyists, they employ almost 1,000 tax accountants who, according to the New York Times, spend half their time searching for loopholes to exploit.
So even if Parnell prevails, it’s fair to say the oil companies will never be satisfied. Sooner or later they’ll back in Juneau lobbing for even lower taxes. In the meantime, we can expect them to rely on litigation and creative accounting techniques to lower their tax burden. And the oil tax debate will outlive us all.
• Moniak is a resident of Juneau.