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Empire Editorial: A vote on trust

Posted: August 17, 2014 - 12:10am

The letters came in snowdrifts that blanketed the desks in the office of Gov. Steve Cowper, more than a thousand all together. There was the one from a man in Kansas who enclosed scraps of his Exxon credit card, cut in thin strips. There was the one from Maine declaiming oil company development. There was the one from Tennessee, a short note from a mother: “My son Kelly is a sixteen-year-old who is a victim of Down’s Syndrome. Kelly takes a great interest in the world around him, animals especially.

“He saw the oil spill on the news and when the enclosed picture appeared in our Greenville Sun (of an oil-soaked animal), he brought me the enclosed money ($2), an envelope and stamp.

“So, here it is! Hopefully, someone will receive it. I know it made Kelly feel good to send it.”

When we go to the polls on Tuesday, we will be voting yes to repeal SB 21, and you should, too.

Over the past few months, the Empire’s editorial board has hosted plenty of friendly people eager to explain why SB 21 is better than ACES, the oil tax program implemented by former Gov. Sarah Palin. They’ve been convincing — so much so that we agree with them: ACES isn’t the right oil tax for Alaska.

They haven’t, however, convinced us that SB 21 is the complete solution.

SB 21 seems promising on the surface — it’s a flat tax, which is attractive to industry. It’s a higher tax rate, which is attractive to ordinary Alaskans.

So far, so good, but we fear the breakers that can’t be seen from the surface.

SB 21 offers oil companies tax credits to encourage production. These are part of the reason why SB 21 is also known as the More Alaska Production Act.

Unfortunately, under certain circumstances, those tax credits could result in oil fields being taxed at a 0 percent rate — even a negative tax rate.

That is unacceptable.

By voting “Yes” on Tuesday, you will tell the Alaska Legislature to try again.

The oil companies have spent millions of dollars to convince Alaskans that their view is the right one. They’ve provided superb statistics, studies and charts to make their case.

They’re asking us to trust them, trust that their statistics are right, trust that oil companies won’t use tax credits to manipulate the system, trust that hidden breakers won’t tear the hull of the ship of state.

The problem is that we’ve heard this before. We’ve been asked to trust the oil companies since 1968, when the State No. 1 Well at Prudhoe Bay changed Alaska’s history.

“From the day the first petroleum geologist set foot in the territory, the oil industry had a single motto: ‘Trust me.’

Worried about damage caused to the environment by oil development in Cook Inlet and on the North Slope? 'Trust me' was the answer.

Worried about the integrity of the trans-Alaska pipeline in the event of an earthquake? 'Trust me' was the answer.

Worried about a tanker spill at Valdez? 'Trust me' was again the answer.

From this point on, Alaskans are not going to take what the oil companies tell them solely at face value. We want performance, not promises. We want clean operations, not apologies after everything goes wrong.”

This newspaper wrote those words on April 5, 1989, about a week after the state’s second-worst natural disaster was caused by an excess of trust. We see no reason to view things differently now. If time has softened our emotions and rounded the edges of our memory, it cannot erase our logic: Big Oil has given Alaskans many reasons for distrust and few for trust.

On Sept. 2, 1977, the state of Alaska filed suit against 18 oil companies, alleging that they were over-reporting their production costs in order to lower their tax payments to the state. At the time, as now, the companies can deduct production costs when it comes time to pay their tax bill — just as you receive deductions on your federal income tax statement.

For 15 years, the companies battled the state’s claims. In the end, the state spent $100 million, put together a team of 20 lawyers (plus outside assistants) and earned the state $600 million in back payments — the state had claimed more than $900 million in missing payments.

Sen. Gary Stevens, R-Kodiak, likes to use a quote attributed to Alaska Supreme Court justice Walter Carpeneti, who said the state’s position could only be attributed to “inexcusable trustfulness.”

To this day, the bulk of the case remains in sealed file folders in Anchorage, closed to outside inspection.

We shouldn’t forget Bill Allen, either. Less than a decade ago, Allen orchestrated one of the biggest bribery scandals in state history. In court, we learned how he used “gifts” to manipulate the votes of Alaska Legislators, many of whom were willing to sell their integrity for trinkets.

You might say these illegal acts were the actions of a misguided few and don’t represent an entire industry. We submit the words of Exxon chairman L.G. Rawl in an open letter published in the April 4, 1989 Juneau Empire: “We believe that Exxon has moved swiftly and competently to minimize the effect this oil will have on the environment, fish and other wildlife. … We also will meet our obligations to all those who have suffered damage from the spill.”

Through two decades of legal battles, Exxon successfully fought to reduce the amount of penalties it owed to Alaska fishermen. This was legal, but this is not how you build trust.

Other Alaska oil companies have spent years and millions of dollars fighting local municipalities over the value of the trans-Alaska oil pipeline — a measure used to assess property taxes. This was legal, but this is not how you build trust.

Trust is not the product of a marketing campaign or the side effect of a corporate gift. You cannot manufacture it in a factory or ship it in a pipeline. It is result of years and decades of hard work and dedication. You build it when you keep your promises. You build it when you follow through on deals. You build it when you don’t seek advantage at the expense of your partner.

Backers of SB 21 have said Big Oil will desert Alaska if you vote for repeal. They say that billions of dollars in investment will evaporate if you vote “Yes” on Tuesday.

We’ve seen this before, too. When Alaska raised oil taxes following the Exxon Valdez oil spill, investment did disappear — but by 1993 all the canceled projects had returned, as journalist Amanda Coyne pointed out in 2012.

Voting “Yes” will have consequences. Some oil projects will be canceled in the short term. In the long term, Alaska will be better off by voting “Yes.” The Alaska Legislature will be charged with creating a new oil tax system that treats the state with the same care as industry.

This is not a call to divorce Alaska from Big Oil: It is a call to try again. Unfortunately, Ballot Measure 1 is written as an all or nothing proposition. We wish we could take parts of both, but that isn’t an option on Tuesday. It will be up to the legislature to do that.

It’s likely impossible to require Big Oil to guarantee a certain level of production in exchange for tax credits, but we believe the Alaska Legislature must find some middle ground that provides surety for both Alaskans and the industry that drives this state.

SB 21 may be a good deal for Alaskans, but until Alaskans have some reason to trust Big Oil, they need surety. By voting “Yes” on Tuesday, you will not be saying you like ACES. You will not be saying you hate SB 21. You will be saying you want to trust, but can’t — yet.

• Empire editorials are written by the Juneau Empire’s editorial board. Members include Publisher Rustan Burton, rustan.burton@juneauempire.com; Director of Audience Abby Lowell, abby.lowell@juneauempire.com; Managing Editor Charles L. Westmoreland, charles.westmoreland@juneauempire.com; and Asst. Editor James Brooks, james.k.brooks@juneauempire.com.

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Tom Rutecki
1364
Points
Tom Rutecki 08/17/14 - 08:12 am
9
2
Vote Yes It's All Greed and Baloney Marinated in Oil

A few core points may be kept in mind to help you vote yes on Tuesday. Decline started in 1989, and taxes had nothing to do with decline then or now. Political statements unconnected with reality in 1999 made the false promise: "No decline after ‘99." The last 15 years have proven the political promises were false in 1999; they are also false now. If SB 21 had applied in FY2012 to two fields -- Prudhoe Bay and Kuparuk, Alaska would have lost $1.7 billion from just those two fields. SB21’s tax structure drops Alaska at least $1.4 billion below North Dakota’s revenue for the same amount of oil projected in FY2015. In FY2014, which ended June 2014, Alaska’s deficit was approximately $2 billion for one year.

Art Petersen
3235
Points
Art Petersen 08/18/14 - 09:31 am
7
3
Lack of trust, tax figures, and Sarah Palin

Trust: The editorial raises consciousness to that. The record of big oil in Alaska does not inspire trust, and that's what SB21 is predicated on, trust that for billions more in tax reduction, the oil industry will increase production. Trust is surely of great concern.

Taxes on oil are also a concern. But let's take a look at that. Some say the oil industry needs greater profit in Alaska for all the expense required to bring oil to market. Here are the statistics for ConocoPhillips in 2013. In the lower 48, the profit margin per barrel of oil was $8.37. Internationally the margin was $24.40 per barrel. And in 2013 in Alaska, the profit margin per barrel of oil was $31.15. (Source: ConocoPhillips Security & Exchange Commission filings) This is after all costs of production, which are not taxed. Compared to production everywhere else, the profit margin for oil in Alaska is already the highest in the world.

Then there's Sarah Palin. On many of her positions, Alaskans have come to take a different side, but on one in 2007, Alaskans and a majority of the Alaska Legislature agreed. Now in 2014, her position is the same. On August 1 of this year Sarah Palin posted this:

"I hope my fellow Alaskans will join me in voting YES on Proposition 1, because our energy resources must be developed responsibly, aggressively, and ethically. Voting YES means you're saying YES to sound development and more jobs! This is all about ensuring ethics in government; abiding by our state’s Constitution; protecting lands, water and workforce; and creating greater opportunity to “drill, baby, drill.”

- Sarah Palin"

Alaska should look to trust big oil (but verify). Taxes on oil in Alaska already allow the highest profit margin on oil anywhere in the world--except when oil prices are high. ACES can be adjusted to equalize that inequity. And Sarah Palin's pointing to Alaska's Constitution is a good reminder: Alaska's resources belong to its citizens and need to be maximized to their benefit. Voting Yes on Ballot Measure 1 tells the Alaska Legislature these things and that it needs to accomplish an equitable adjustment to ACES.

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