Outside editorial: High oil prices may affect political issues

Posted: Tuesday, August 03, 2004

This editorial appeared recently in the Fairbanks Daily News-Miner

Setting a high mark for the price of a barrel of oil seems almost run-of-the-mill lately. It happened again Friday, with the price of a barrel of North Slope crude fetching $42.50. That's seven business days of Alaska oil going for $40 or more - a first.

Sure, adjusting for inflation knocks the economic impact down some. But there's little doubt about the political impact in the races for seats in the state House and Senate this year. The price of oil has jumped 33 percent from the monthly average of June 2002 to the average of June 2004, when the state's oil sold for an average of $36.73. From there, oil has risen further, nearly 16 percent.

That's a lot of numbers, but the point here is that the sustained high prices - and many analysts expect them to remain elevated - will almost surely reduce the role of the state's fiscal problems as a campaign issue this fall. Some people now talk of the state actually running a surplus.

The long-term problem remains, however, in that prices will fall eventually. And the state, because of rising costs and a heavy reliance on oil as a revenue source, will probably run a substantial deficit. Now is the time, therefore, to continue the work toward a solution. But it may be difficult to find voters wanting to ask about the options and to find candidates wanting to talk about them. There's a fair chance the public will take a myopic view and see only a larger permanent fund check as the principal benefit of high oil prices.

Other oil news, however, may raise the status of what so far has been a low-lying fiscal option: changing the state's oil tax system.

Several news accounts this week have reported the profits of the world's major oil companies: ConocoPhillips, one of Alaska's top producers, reported a second-quarter profit of $2.08 billion, an increase of about 75 percent over the same period last year. ExxonMobil, another producer doing business in Alaska, reported record earnings of nearly $5.8 billion for the second quarter, up 39 percent from last year.

That news won't be lost on some legislators and others in the public.

Don't be surprised, then, to hear more attention being paid to those who have been advocating changing the oil tax structure. With prices and profits soaring, the question will be asked louder and louder: Is Alaska getting all it can for its oil while maintaining the delicate balance between taxation and incentive?

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