Murkowski announces oil tax hike

Action would affect approximately 10 percent of oil produced in the state

Posted: Thursday, January 13, 2005

Gov. Frank Murkowski used his State of the State address Wednesday to announce his intention to raise taxes on nearly 10 percent of the oil produced in Alaska.

The administrative action will combine seven smaller North Slope oil fields for taxation purposes under Alaska's oil production taxation regime known as the Economic Limit Factor, or ELF. It is unclear how much money the change would raise for the state or exactly how the plan would be implemented.

The action will combine the Borealis, Midnight Sun, Orion, Polaris, Point McIntyre and Aurora fields with the Prudhoe Bay Initial Participating Areas. The affected areas contribute about 85,000 of the roughly 930,000 barrels produced daily in the state.

The six satellite fields escape taxes under ELF because of the law's provision to lower the rate on declining fields and small discoveries. But Murkowski said they are administratively entwined and effectively operate as one field with Prudhoe Bay.

His proposal will not affect about 14 other fields also subjected to the production taxation.

Democratic lawmakers have called for an overhaul of the entire ELF law for the last few years, arguing that the tax, last updated in 1989, allows most new fields to avoid paying the state. Murkowski's action extends taxation into the six fields, but does not overhaul the law.

"Whether the ELF should be changed remains in your hands, following legislative hearings," Murkowski told legislators.

Murkowski's tax change takes effect at the beginning of February.

Murkowski said job creation and construction of a gas pipeline and other resource development projects are his top priorities.

"But we must also remain vigilant to ensure that the wealth generated by Alaska's oil and gas production is shared equitably by the producers and Alaskans in accordance with law," he said.

The governor said the gas line would create about 8,500 new jobs and advised lawmakers that the state should invest directly in the project. He also encouraged the Legislature to evaluate the benefits of purchasing a portion of the existing trans-Alaska oil pipeline.

Murkowski promoted aspects of his proposed budget released in December, including a plan to use earnings from a portion of the Alaska Permanent Fund to pay bonds for construction and maintenance projects for schools, roads and other public buildings.

Murkowski said he knows that the projected $653 million windfall from high oil prices is only temporary.

"As you examine our fiscal year 2006 budget and our plan to spend the fiscal year 2005 windfall, you will see that we are not on a spending spree," he said, adding that about half of the projected windfall will be saved to help balance next year's budget.

Murkowski advised the Legislature not to wait to pass a long-range fiscal plan because oil prices are high. In last year's State of the State speech, he established a conference of 44 Alaskans to make recommendations about whether to use earnings from the permanent fund to pay for state government services.

Throughout the session he pushed lawmakers to restructure the permanent fund to allow the state to use about $650 million annually from the fund's earnings.

This year he took a different approach to a long-range fiscal solution.

"Ladies and gentlemen, I urge you to either pass the fiscal plan that I presented last year or a variation of it or come up with one of your own," he said. "It only makes sense to address it in good economic times."

• Timothy Inklebarger can be reached at

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