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Alaskanomics's Blog: SB21: Sense and Nonsense

Scott Goldsmith presented his interpretation of a recent ISER report on the More Alaska Production Act (SB21) to a packed house this morning at the Resource Development Council’s (RDC) Breakfast meeting. Goldsmith outlined his presentation by covering four main points from his research.

  • The so-called $2 billion “giveaway” this year under SB21 does not exist.
  • Without enhanced production, future tax revenues could be higher under SB21 than ACES if recent price and cost trends continue.
  • Under reasonable future market conditions, a modest increase in investment and oil production would create more state revenues under SB21 than ACES.
  • New money into the oil patch creates long lasting jobs and increased consumer purchasing power.

Critics of SB21 have stated that the new tax structure is a $2.1 billion giveaway to the oil companies. Goldsmith illustrated that the revenue loss was mainly due to the $1.29 billion reduction in production tax revenue. The shift to the new tax structure accounted for only 4 percent of the lost revenue. The $90 million difference from ACES to SB21 is nowhere close to the $2.1 billion difference in the expected oil revenue for fiscal year 2014.

Giveaway Chart

The tax liability under SB21 is sensitive to both oil prices and lease costs. This will allow for higher tax revenue even without enhanced production.  The price of oil has stabilized over the past couple of years and Goldsmith noted that analysts do not see much upward movement from the current price.

Even a small investment in new oil production will create more state revenue under SB21 than it did under ACES. New investment will not only generate new revenue, it will create additional employment. This includes direct jobs in the oil industry and indirect jobs that help individuals and families throughout the state.

The opportunity for increased production is here in Alaska. There are opportunities to develop marginal fields under SB21 and if the size of the revenue pie is increased, the state and its citizens win.

To watch Scott Goldsmith’s presentation, visit http://www.akrdc.org/membership/events/breakfast/1314/050114.html

The full report will be available at http://www.iser.uaa.alaska.edu/

 

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