AD Header Dropdowns

AD Main Menu

Alaska's new oil tax law is a pathway to poverty

Les Gara
OPINION: The streets have been slippery, so maybe that's why Wednesday's "re-do" of the state's oil tax revenue numbers is so slick. To make it look like its new law isn't costing the state so much, the administration released a brand new analysis its paid consultants didn't even think of. Aaron Jansen illustration

Flip flop. Too much spin makes one nauseous. If you ask the public, in politics it either makes you nauseous, or not care. What's the saying? You can fool some of the people some of the time, but ... well, someone help me with how that one goes -- folksy sayings aren't my strength.

On Wednesday state officials exceeded their quota of spin on the Governor's 2013 oil tax rollback, whether you agree with that law or not. Here's the game that's being played. Blindfolds off for this one. And minds open.

First, remember those rosy claims that slashing oil taxes would get us more oil production? Back then we said it wasn’t that simple, which is why we proposed a smarter oil tax reform than a simple trickle-down tax slash. Well, the administration is now saying in its most recent publication that by 2022 the new law will actually produce less oil than they said the law they replaced would have produced in last spring’s oil production forecast. Breathe for a moment. Last spring they said ACES, the law they replaced, would produce 350,100 barrels a day by 2022. This week they said the new law they have touted, and that they forced through the legislature last year, will actually produce less oil in 2022 than ACES would have.

Second, it's in the Governor's interest to show his rollback doesn't shed too much of Alaska's share for our oil revenue, which we use for education, roads, public safety and, until we hit massive budget deficit mode this year, savings. Wednesday he announced that we're going from surpluses that let us build $17 billion in savings, to a $2 billion drop in oil revenue.

April oil tax change: From 'ACES' to 'SB21'

No company would ever give away more money than it gets back, and the state should not do that either. That's why I and others proposed that companies receive reasonable investment credits and breaks if they invested in bringing our billions of barrels of heavy oil online, or expanded production and production-related investment IN ALASKA, not outside of Alaska. See here. We do need to reverse the oil production decline in Alaska. But we also said giving Exxon, BP and Conoco $500 million to $2 billion per year in Oil Production Tax rollbacks, under a provision that DOESN'T REQUIRE ANY OF those tax breaks to be invested IN ALASKA, and lets companies take state tax rollbacks and spend them in foreign countries at company discretion, will never result in new state projects and revenue that equals that massive giveaway of state revenue.

And while I won't address it here, I have written how some, to preserve a very lucrative corporate giveaway, have claimed projects that were already underway under our former law, ACES, are somehow attributable to the change in the law -- of course to make you feel good about the new law. A newsletter outlining some of those false assertions is linked here because, well, facts matter.

The state's new spin

The Governor's bill that passed last year, at $120 per barrel prices, likely cuts Alaska's share for our oil by roughly $2 billion a year, and roughly $1 billion per year at $110 per barrel prices. See Anchorage Daily News article here. Maybe that's why the Governor has pushed public education budgets that have cut teachers, career counselors, and other staff across the state the past 3 years, and is likely to continue that again this year. See here.

On Wednesday the Governor's staff came up with brand new numbers saying they and their consultants, all last session, simply made billions of dollars in "mistakes" in pitching their massive oil revenue rollback. Now his staff contends Alaska's revenue loss is even less than the numbers his paid consultants told us last legislative session.

I'm not buying it yet. Not after 3 months of testimony when those consultants told us they were telling the truth. Not on Wednesday when the state contended those paid consultants, who underestimated the loss the new law would cause, were "wronger" than many of us already knew. Abracadabra. Wednesday state officials claimed the oil revenue loss to Alaskans under the new law is even less than the consultants paid to promote Senate Bill 21 told us from January through May.

Here's my best shot at giving you information, but not information overload.

Last year the administration overstated the state's production decline, which we all want to reverse. Even though Conoco said it would be likely 3 percent a year starting in 2017 even if oil taxes weren't changed, the Governor's consultants ignored that, and said the old law, ACES, would lead to continued 5- to 8-percent production declines by and after 2017. Why? Because if they exaggerated the production declines under ACES, then revenue under ACES would appear artificially low. By reducing the projected revenue under ACES they could argue the loss caused by their oil tax rollback was smaller and more palatable for Alaskans.

So even though using Conoco's projections of 3 percent production decline under ACES showed a revenue loss to Alaska of $1 to $2 billion a year, depending on whether oil is at $110 per barrel or $120 per barrel, the administration claimed the loss would be less than half that (using the exaggerated production decline numbers starting in 2017).

I guess that wasn't enough spin for them. Now the administration claims their consultants' already-doctored numbers were wrong, and they have brand new numbers showing that the loss in revenue caused by the new law is even smaller than their paid consultants testified to us for 3 months.

Let's review the history. Through this April they admitted that the new law, at roughly $110 per barrel would produce a tax rate, after deductions, or roughly 10-20 percent on profits, depending on whether the oil was in fields developed by 2011 or after, or fields developed before then. The former law, ACES, produces an effective rate on company profits, after deductions, of roughly 35 percent at those prices.

The administration and consultants' fiscal analysis given to legislators this session said this. In the tax year starting this coming July, at $100 per barrel the new law would produce $275 million less in state revenue than the former law. At $120 per barrel, they said the loss in revenue would be $800 million. See here. At $110 per barrel, close to today's price, that would be about a $500 million loss, according to their estimates.

As I stated before, between $110-$120 per barrel, a fairer analysis is that the loss to Alaskans at these prices -- assuming Conoco knows how to estimate its and its partners' (Exxon and BP share the major North Slope fields with Conoco) projected production decline curve -- the loss is more likely between $1 billion and $2 billion at those prices. See here.

The streets have been slippery, so maybe that's why Wednesday's "re-do" of the state's numbers is so slick. Wednesday, to make it look like the new law, which is subject to a voter override campaign, isn't costing the state so much, the state released a brand new analysis their paid consultants didn't even think of. This is new stuff.

State officials now claim that in the fiscal year starting this coming July, their tax rollback will, at a projected price of $105 per barrel, produce even more tax revenue than ACES, the law they replaced. Flip flop. Yup, they are now claiming they passed a tax increase to, uh, incentivize production. At a price of $110 per barrel, they say the state is only losing about $100 million per year in oil revenue. These are the same people who told us for 3 months, sitting next to their paid consultants, that at $110 a barrel, the state was losing $500 million, and under a fairer analysis they didn't want to provide, likely roughly $1 billion in annual revenue.

So by their own numbers they have cut the revenue loss to the state by 80 percent. By fairer numbers, they have cut it by 90 percent. By community standards, it's 100 percent -- in spin, that is. They attribute the change in analysis to company costs, which they say are higher than they thought, but which they say they are estimating based on confidential internal conversations.

We'll watch the "logic" unfold, I guess. The new law is a pathway to poverty.

I want this law reversed so we can pass sane oil reform. Reform that grants reasonable tax breaks to companies that invest in new Alaska production and production-related infrastructure. And that helps develop the billions of barrels of heavy oil sitting in big North Slope fields. I’d like sane reform that fixes a problem in the old law of fair tax rates companies once conceded, but that they only complained became too high at very high prices (until the Governor offered them an even more lucrative set of rollbacks, when their requests changed).

Giving away the farm is one way to make companies happy, publicly. Sane oil reform is a way to partner with industry, and let them frown publicly while smiling inside their boardrooms at a law that works for all of us.

Rep. Les Gara is an Anchorage Democrat. He represents Downtown, Fairview, Government Hill, Eastridge and parts of Airport Heights in the Alaska House of Representatives. The preceding commentary first appeared in his e-newsletter to constituents.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.