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Two views: Time for oil tax cut

Posted: April 12, 2013 - 12:04am

This editorial first appeared in the Fairbanks Daily News-Miner:

As the Legislature rolls toward reformation of Alaska’s oil tax system, opponents are laying down spike strips left and right. Most of these obstacles have failed to deflate the momentum behind Senate Bill 21, the Legislature’s most recent effort to lower oil taxes, and for good reasons. Consider some of the arguments and responses:

• ”Alaska’s current taxes already are competitive in the world.” There are some in Alaska who continue to make this claim, but the expert consulting firms hired by the administration and the Legislature under both pro- and anti-reform camps during the past few years have been clear — Alaska’s tax system is not competitive in the world.

• “There’s no guarantee that oil companies will produce more oil in Alaska if we cut their taxes.” True enough.

However, let’s turn this around. Can the opponents of the tax reform bill guarantee that Alaska will be better off if we continue down the present path?

No, they can’t, nor should they be asked to. No one should be held to such a standard to “win” the debate. Companies today can’t guarantee what they’ll do in decades to come. Neither can the state Legislature. The situation requires that we judge policies that will likely have a wide range of possible results; demanding a solution with an ironclad outcome will result in no action.

A vast amount of wealth is at stake. The tax cut will put Alaska’s budget into deficit — the precise amount can’t be known, but it’s certain to be many hundreds of millions of dollars. Yet that will happen anyway in a few years if nothing changes. We must start working today to prevent that outcome.

• ”North Slope oil work is growing under the current tax regime.” Yes, employment and other expenditures are up, but nothing like they are in other oil-producing regions of the United States, where high oil prices and new technology have created a phenomenal boom.

And North Slope production continues to decline rapidly while elsewhere it is growing.

It’s comforting that parts of the oil industry are busy, but oil jobs alone don’t do much for the state government’s long-term financial problems.

• ”Why not at least put a conditional sunset clause in the tax breaks so they remain in law only if oil production matches the present level on a certain future date?” The North Slope’s three large companies all likely would have to boost production to meet any such target. If one or two did not invest or if any ran into permitting delays, lawsuits or other obstacles, production could fall short of the peg. The uncertainty inherent in such a sunset clause would kill the investment by individual companies that it hopes to encourage.

• ”The Senate’s passage of SB21 was corrupted by ‘yes’ votes from two Republican senators employed by ConocoPhillips.” The company, whose tax bill would decline dramatically if the legislation passes, employs Sens. Kevin Meyer of Anchorage and Peter Micciche of Soldotna. The senators asked to be excused, but their colleagues wouldn’t let them off the hook. This system is not a corrupted process; it’s necessary to prevent legislators from avoiding controversial votes.

We all knew such votes were coming this session. Oil taxation was the campaign issue in November, and yet the voters in Anchorage and the Kenai Peninsula elected these senators. If the voters had not elected Meyer and Micciche, they probably would have elected people with similar views. It’s too convenient to demand now that senators representing tens of thousands of Alaskans be barred from, in fact, representing their constituents.

In addition, a legislative ethics review concluded that Micciche’s interest in the issue was no different than any other industry worker. This is the case with almost every Alaskan, because the oil industry and state government fuel so much of the economy.

• “North Slope oil production declined steadily even during periods of low taxation, and lowering taxes won’t change that decline.” In fact, production would have declined much more sharply if it weren’t for massive investments during years of lower taxation that extended the life of North Slope fields. Those investments weren’t enough to reverse the decline, but they helped stem it.

Now, the major companies are flush with cash to invest, and they could be putting it into the North Slope; however, because better opportunities exist elsewhere, their efforts in Alaska have been relatively modest.

Pedro Van Meurs, a consultant last year for the Senate bipartisan majority that opposed full-scale oil tax reform, explained it simply enough: “The three major oil companies are in a ‘harvesting mode,’ which means their main objective is drawing cash out of Alaska to invest elsewhere.

The reasons for this are: No large and attractive projects available in Alaska under current fiscal terms for major oil companies (and) attractive opportunities outside Alaska.”

We can change that by using our tax policy as a tool. Let’s make it work for us rather than against us.

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