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Legislators hear defense of ACES as Judiciary Committee meets in Capitol

With budget talks stalled, Senate committee delves into state’s oil tax system By PAT FORGEY

Posted: April 30, 2011 - 11:10pm

A legislative committee Friday looked at the state’s oil tax law, called, Alaska’s Clear and Equitable Share act, or ACES.

The Senate Judiciary Committee watched a PowerPoint presentation asking the question: “ACES: Is it Working?” hosted by Sen. Bill Wielechowski, D-Anchorage.

The answer, at least to Wielechowski, was quite clearly “Yes.”

The committee meeting was one of the few things happening in the Capitol Friday, although a few legislators participated in a House Finance Committee meeting in Anchorage by teleconference.

First, he said, the state has begun to comply with the Alaska Constitution’s requirement that the state’s resources be used for the “maximum benefit” of its people.

The new revenue brought in by ACES has given Alaska the largest savings account in the nation, he said, and contrary to skeptics at the time, the state didn’t squander it.

ACES has brought the state more than $15 billion in additional revenue since its 2007 adoption,” he said.

“In reality, we actually saved virtually all of it,” he said.

Wielechowski also challenged the arguments made by Gov. Parnell and legislative opponents of ACES linking the tax increase to the decline in oil production and Trans-Alaska Pipeline flows.

The decline Alaska has seen is normal as oil fields age, and isn’t caused by ACES, he said.

“If you look at oil fields around the world you will see similar decline rates,” he said.

Before Alaska began raising oil taxes in 2006, it has for many years used a tax system called “Economic Limit Factor “ that reduced tax rates as fields aged and became marginal.

When ELF was ended, at least 14 of 19 oil fields paid no production taxes, he said.

“Under ELF, with most fields paying 0 percent in production taxes, jobs declined, investment declined and production declined,” Wielechowski said.

He called it a “20-plus year experiment” to see if zero taxes encouraged investment and jobs, and concluded that they didn’t.

The companies that held leases produced known oil from Prudhoe Bay, the nation’s largest oil field, but did little to try to find new oil for many years, he said.

“The companies were essentially in harvest mode,” he said, using industry terminology for the final stage in a field’s life.

He said under ACES generous tax credits provisions, new explorers have been attracted to Alaska and are actively seeking out new oil. That includes major companies that haven’t been here before, and aggressive new start-ups.

Using data provided by the Parnell administration, Wielechowski said investment in Alaska, rather than being discouraged by ACES, is giving the state the prospect of new production.

“Capital expenditures have increased consistently, to all-time highs,” under ACES, he said.

The only presenter the Judiciary Committee heard from Friday was Wielechowski. His testimony appeared to be a rebuttal of the House of Representatives analysis of ACES which led that body to approve a dramatic reduction in its rates. The Senate did not act on that bill.

Sen. Hollis French, chair of the Judiciary Committee, said the committee welcomed responses from the public to the presentation.

“It’s important for Alaskans to at least hear this side of the story,” he said.

The committee hearing was billed as “informational” and House Bill 110, the changes to the oil tax, is not before the Judiciary Committee.

Among the legislators watching the presentation were members of the Juneau delegation, with Sen. Dennis Egan, D-Juneau, and Rep. Beth Kerttula, D-Juneau, both there in person along with a top aide to Rep. Cathy Munoz, R-Juneau.

House Bill 110 is currently in Egan’s Senate Labor and Commerce Committee, but can’t be acted on because it is not part of the special session called by Parnell.

• Contact reporter Pat Forgey at 586-4816 or Patrick.forgey@juneauempire.com.

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