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My Turn: Secret agreement should play no role in tax issue

Posted: Monday, May 01, 2006

Having served as chairman of the governor's Task Force to Expedite Construction of the Gas Line (the first one - appointed by Gov. Hammond in 1975), I would be the last person to ignore the difficulties involved in getting three of the world's largest corporations to do something they are reluctant to do. If they say it doesn't make economic sense, the temptation is enormous to make it more attractive - to subsidize their effort through financing mechanisms or low tax rates in the hope that if you do enough, at some point they will react favorably and commit to a project which up until now has not been attractive to them.

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The Legislature is being asked by Gov. Murkowski to adopt a tax on oil that is lower than that recommended by nearly every professional consultant, including his own. Part of the justification for this low rate is to encourage construction of the gas line, through a contract that apparently will lock in a low tax rate for the life of the project and make the project better economically for the companies. Passing for a moment such issues as how this or any Legislature or governor can constitutionally contract away the taxing power of the state, this whole debate is becoming ludicrous because the governor won't let anyone, including the Legislature, see just what kind of gas pipeline contract he has negotiated in our name.

Suppose the proposed gas contract is a terrible deal, involving major financial and environmental concessions by the state. I'm sure if it's really a bad contract, the Legislature will eventually not accept it, but the issue right now is whether the possibility of a gas line contract they haven't seen and that may in the end be completely unacceptable should have any effect on legislative deliberations on an oil tax. The answer, to me at least, seems obvious.

I cannot conceive that if there were a real, present commitment to build a gas line, we would have not seen it long ago. My guess is that in spite of the governor's sincere efforts, the agreement he reached has enough holes relating to permits, environmental studies, federal legislation, taxation and what have you, to allow the companies to build the line if and when they want - which is exactly what they could have done without the agreement. Now, though, if the Legislature passes a tax that is not just what the companies want (which it probably won't be) and they don't want to build the line anyway, they get to walk away, the governor gets to say "I told you so," and the whole failure gets dumped on the Legislature.

Of course, there's always the possibility that if prices continue to rise, the companies will build the line. That decision will have nothing to do with the tax rate adopted by the Legislature which will be passed on to worldwide consumers and have a minuscule impact on oil prices, the gas line or anything else except what Alaska receives for the oil we own. If the companies build the line, they will do so because the price of gas means they stand to make a ton of money, just as they have on the oil line. We are way behind the rest of the world in demanding our due. Alaska is and will remain a bargain whatever tax rate is ultimately adopted by the Legislature.

The Legislature is struggling with the oil tax rate because it is a very difficult issue. But one thing in the midst of this debate should be clear - an unknown, secret agreement between three oil companies and the governor should play no role in the way this all comes out. It sounds to me that the Legislature itself believes that, and I hope for the sake of all of us that they keep their eyes on the prize.

• Avrum Gross is a Juneau resident and the Alaska attorney general under Gov. Jay Hammond from 1974 to 1980.



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