For almost four decades, Alaska’s business community — including those of us at Northrim Bank — have relied on economist Scott Goldsmith for his expertise and analysis of the health of the state’s economy.
Scott is now professor emeritus at the University of Alaska Institute of Social and Economic Research (ISER), where he’s worked for the past 39 years, concentrating on the particular fiscal problems of an economy dependent upon the petroleum industry. Much of his work has appeared in the Fiscal Policy Paper series published by ISER since 1992.
We at Northrim consider the work Scott and ISER do so important we have donated more than $1 million over the last 15 years to help fund it. But that doesn’t mean we get to direct it — or even have a voice in the findings. That’s up to Scott and the other ISER economists.
Sometimes the news Scott delivers is not so good — like the years of work he’s done on the approaching fiscal cliff. But his latest research is great news for everyone who lives in Alaska.
In an analysis called “Sense and Nonsense,” Scott compares the new oil tax reform enacted by SB 21 to ACES, the old tax. Under ACES, Alaska lost more than 200,000 barrels of oil production/day. But a measure to repeal SB 21, and return to ACES, is on the August 19 primary ballot.
Scott comes to four major conclusions in his analysis:
• There is no $2 billion “giveaway.”
“About 4 percent of the $2.1 billion drop in the fall oil revenue forecast for 2014 is due to the new tax. Most of the decline can be traced to lower price and production assumptions — as well as higher cost assumptions — in the forecast, and the effects of those changes on the tax rate. The rest of the decline is a one-time drop, with oil producers claiming credits expiring with the old tax,” he writes.
• Alaska should collect more revenue under oil tax reform.
“Future revenues are very sensitive to oil prices and costs of production and are difficult to forecast. If current trends continue — if costs continue to rise faster than oil prices — the new tax could produce more revenue. But if conditions revert to those of past years, when production costs were lower, relative to oil prices, the old tax could produce more revenue. Among the factors contributing to rising production costs in recent years have been inflation in the price of inputs, maintenance of aging facilities, and development of marginal fields.”
• More investment means more revenues
“The tax change, combined with a modest increase in new production, would produce higher revenues under a reasonable range of assumptions about oil prices and production costs. New investment would drive up tax deductible costs in the short run — reducing production taxes — but that loss would be more than offset in later years by additional production tax and royalty revenues from new production, even at a lower average tax rate.”
• Investing new money into the oil patch creates long-lasting jobs and increased consumer purchasing power.
“Investments that draw new outside money into the oil patch could create long-lasting jobs and increase consumer purchasing power. For example, $4 billion in new spending in the oil patch could add an average of 5,000 public and private sector jobs per year over 20 years, with more than $300 million of additional wages and salaries annually,” he wrote.
Scott’s analysis is posted on the ISER website and I encourage all Alaskans to read it.
Ballot Measure 1 is one of the most important issues this state has faced in decades. We can’t control world oil prices, but we are in charge of our tax policy. As both Democrats and Republicans acknowledged, ACES took too much of the profit at high oil prices and left Alaska too exposed at lower oil prices.
Oil tax reform made Alaska more competitive, which has already led to more investment and new production that will help stem the current decline.
That‘s why a vote “No” is the right vote on August 19.
• Marc Langland is chairman, president and chief executive officer of Northrim BanCorp Inc., and is chairman and chief executive of its wholly owned subsidiary, Northrim Bank. Alaska Pacific Bank officially merged into Northrim on April 1.