Let’s flashback to August 2014, when television screens were getting barraged by oil companies lobbying for Senate Bill 21, the oil tax regime proposed by former Gov. Sean Parnell. Do you remember all the messages about how passing SB 21 would create hundreds of more jobs on the North Slope? Those were messages fueled by oil at $100 a barrel. Now, oil is in the $40-$50 range and instead of seeing more jobs, there are news of layoffs. This is happening at a time when Alaska is expected to pay $700 million in oil tax credits this year, while only taking in $300 million in production tax payments.
According to an April 3 report in the Alaska Dispatch News, ConocoPhillips will be laying off around 25 workers “in addition to recent reports of reduction to ASRC Energy Services contractors working an ConocoPhillips’s Kuparuk field, as well job losses tied to Hilcorp’s acquisition of BP’s Alaska assets in November.”
When asked about the likelihood for more reductions if oil prices remain low, Natalie Lowman, communications director for ConocoPhillips, responded, “It is unknown if there will be further staff reductions, but we are in a volatile market and workforce reductions could continue to affect all areas of our company.”
There is nothing inherently wrong with large multinational companies making corporate adjustments in light of a “volatile market.” What is wrong is when the Alaska Legislature refuses to revisit our oil tax structure even though we are experiencing pain from that same volatile market. If Big Oil can adjust and step away from their promises in light of low oil prices, why can’t we do the same? If low oil prices make it a new day for Big Oil in regard to their promises of rising employment, why is it not a new day for a state slated to pay out $400 million more than what it received in production taxes? (None of which was known prior to the vote on SB 21).
The answer given by those ardent supporters of SB 21 is that Alaska needs to be viewed as a tax stable regime. If that were the case, we would not have overhauled our tax structure via SB 21 and instead would have kept the old tax regime; making modest adjustments on the high and low end as suggested by Sen. Bert Stedman, R-Sitka. If we can overhaul taxes to be extra generous to highly profitable companies, we certainly should be able to tweak taxes to protect some of our nest egg. If tax regime stability didn’t matter in the giveaway, why should it be a deal breaker now? On face value, this does not make sense. Add in the $3.6 billion budget gap and this year’s harsh cuts to education, and the refusal to revisit oil taxes becomes downright irresponsible.
At least there were five state senators, including Sen. Dennis Egan, D-Juneau, who saw the connection between oil tax credits and the state’s ability to fund education at a basic level by voting for a budget amendment offered by Sen. Bill Wielechowski, D-Anchorage. His amendment would have restored $47.5 million in education cuts by offsetting the cost with a short delay in oil tax credit payments. The amendment failed 15 to 5.
Since the Legislature has not shown any willingness to build a path toward a long-term fiscal plan that includes revenues, big budget items like education are getting the brunt of a $3.6 billion gap that is insurmountable to bridge by cuts alone. Pupil–teacher ratios will continue to rise across the state, school activities funds will become non-existent, and all because the Alaska Legislature won’t delay tax credits to highly-profitable companies. Some legislators would prefer to have you pay an income tax, then consider a reasonable plan to reduce or delay tax credit programs for the most profitable oil fields in the world.
Despite a precipitous drop in the price of oil, Alaska operations for these large multinational companies remain extremely robust. An analysis by the nonpartisan Legislative Research Services Division found that despite decreased production in 2014, Alaska remained ConocoPhillips’ most profitable jurisdiction in the world with net income of $30.56 per barrel of oil equivalent in 2014. This compares with a loss of $0.11 in the Lower 48 in 2014, and a total global profit average of $12.06 PBOE. In essence, the bottom line for Big Oil in Alaska is still rosy. Judging by recent stories on the worst case scenario cuts that school districts are facing, I cannot say the same for basic education in Alaska.
If Big Oil can get away with reducing the Alaska workforce and receiving $400 million in tax credits because of a volatile market, why can’t the state follow suite and do right by education and tweak tax credits for the same reason. If it’s good for a fat, healthy goose, why isn’t it good for a lean gander?
• Kate Troll is a member of the City and Borough of Juneau Assembly. The views expressed are her own.