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Alaska Needs Wise Oil Tax Policy Built on Compromise

Scott Hawkins

Scott Hawkins

PHOTO: ASCI LLC

For the second time in two years, oil taxes have prompted a special session of the Alaska Legislature. Or, to put it another way, State Senate leaders outsmarted themselves and were unable to get to the negotiating table with their counterparts in the House during regular session.

Here is what happened. In March of last year, the House passed an oil tax reform bill to roll back some of the most damaging aspects of the ACES tax increase of 2007. That bill, HB110, has since been languishing in the Senate, bottled up in committee. In two sessions it has not been given a floor vote or even amended in committee more to the Senate’s liking. Usually, amendments are how compromises get started.

Not this time. Senate leaders spent two legislative years, untold hours of hearings and big bucks on consultants coming up with a different bill that, in the end, could not draw enough votes in their own 16-of-20 super majority to pass. One reason for the failure was that their bill, SB192, was too clever by half. It had been given a ridiculously long, two-page title that prevented much compromise under the rules of the legislature. My way or the highway, in other words.

When that failed, Senate leaders who had been lecturing anyone who would listen on the virtues of going slow and being cautious, pulled an obscure bill out of legislative oblivion, grafted certain sections of SB192 onto it in a single committee meeting, rammed it through the Senate a few hours later, then sent it back over to the House for action with only a day left. To their credit, House leaders were not stampeded. Hence, the special session.

All the trickery aside, what matters most is what happens next. There is still an opportunity to get this right.

The bill that the Senate rushed over to the House has constructive relief for new oilfields, a step in the right direction. However, it is far too narrow. It leaves Alaska with a Chilkoot Charlie’s tax policy – “we gouge the other oil field and pass the savings on to you.” The private sector is generally not fooled by such trickery. Today’s new oil will become tomorrow’s old oil, in annual peril of being “reclassified” by politicians hungry for more pork to hand out.

A good compromise bill will have two simple elements to it. First, it will alleviate the extreme progressivity that causes Alaska government “take” to become confiscatory as oil prices climb. This is important. Oilfield economists know that prices go up and down over time. They assume that high profitability during periods of high prices offset losses when prices are low. Any taxing region that takes away the upside for industry will find itself underperforming, as Alaska has.

Second, a good bill should not try to skim off the vast majority of profits from existing fields. At today’s oil prices or higher, the incremental government “take” on existing oilfields is between 70 and 90 percent. That is too greedy. It reduces the incentive to invest in existing fields, which is where most easily recoverable oil lies. The old Chilkoot Charlie’s joke is just that, a joke. It is not wise tax policy.

In order to address this issue successfully, our State Senators must do what successful policy makers have always done: don’t be greedy, set aside the trickery and negotiate in good faith. The next generation of Alaskans is counting on it.

Scott Hawkins is president of Advanced Supply Chain International, an oilfield services firm headquartered in Anchorage that employs over 200 Alaskans. He serves on the board of the Alaska Council on Economic Education and is chairman ProsperityAlaska.org.

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