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Goldsmith Confirms: Alaskans Better Off Under Senate Bill 21

ISERs Scott Goldsmith shares impressive data with the Resource Development Council

ANCHORAGE- New investment being seen on the North Slope brings new jobs, family-supporting wages and a bright economy for Alaska families and businesses. The tax structure under Senate Bill 21 creates new reasons for companies to invest in developing more oil on the North Slope. Heavy and viscous oil is in large quantities but is costly to develop-SB 21 makes this oil development possible. SB 21 creates more consumer purchasing power and business growth to meet consumer demands.

In the first presentation of a study comparing Senate Bill 21 to Alaska’s Clear and Equitable Share Act (ACES) at the Resource Development Council, UAA’s Institute of Social and Economic Research (ISER) Economist Scott Goldsmith revealed very encouraging research results. The bottom line: SB 21 is having a positive effect since its passage in 2013.

According to Goldsmith, the “fictitious $2.1 billion giveaway” does not exist. 96-percent of the state’s revenue change is due to decreased production and lower price of oil; only 4-percent of our recent revenue forecast decrease was due to the shift from ACES to SB 21 provisions. And, Senator Giessel points out that this is just a forecast. “The actual production numbers will not be final until after July 1, when the State fiscal year ends. We already know that production has increased in just the last few months,” said Senator Giessel.

“Both ACES and SB 21 are net profit based, giving tax credits to producers, and in that regard they are the same. However, many differences were cited in the presentation that clearly point to the provisions of SB 21 being notably advantageous for Alaska” said Senator Giessel.

Article VIII of the Constitution mandates there be a maximum benefit for Alaskans, but Goldsmith points out that this is not just in public dollars, but in development that fosters a healthy private sector, job creation and an overall vibrant economy. Goldsmith demonstrated that more revenues will be realized under SB 21 with only modest investment by the North Slope producers. Goldsmith noted important differences in SB 21 from ACES: there is a new oil credit under SB 21, and lower tax rates. SB 21 set the base tax at 35-percent and also gives credits on production of oil. SB 21 tax structure will result in increased revenue for the State when oil prices are low.

But there are hurdles for new oil production. Goldsmith’s study revealed that capital costs increases have been over 200-percent. There is so much water coming out of wells now that they basically are water wells with oil as the byproduct. Previously there had been 2:1 ratio of water to oil. Now it is 4:1, which increases the cost to produce the oil. And then there are the labor costs which have tripled since 1980 when oil first made its way down the pipeline.

The biggest difference between SB 21 and ACES is the drop in revenue under ACES during development due to generous tax credits that were not linked to oil production, Goldsmith pointed out. He noted that new money in the oil patch is represents more private sector money in the economy outside of state spending dollars. But more importantly, the job forecast and payroll dollars under SB 21 versus ACES is higher.

“Under most of the conditions reviewed in his study, the shift from ACES to SB 21 with its new investments brings new revenue. But even more significant is the number of jobs created. More invested money is more jobs! If oil prices remain the same or even if they rise, SB 21 still creates more revenue than ACES. There is $4 billion in new investment coming under SB 21 and Dr. Goldsmith's study demonstrated a clear increase in State royalties,” said Senator Giessel.

Tax incentives do make a difference. SB 21 gives those tax reductions on produced oil. Goldsmith pointed to Cook Inlet as evidence of lower taxes stimulating production. Cook Inlet is seeing a dramatic uptick in production and a flurry of economic activity.

"The increased investment by companies on the North Slope is a critical part of an in-state gas pipeline," Senator Giessel said. "Dan Fauske, Alaska Gasline Development Corporation Executive Director, points out that the staff and equipment on the North Slope, working to produce oil, will be the support for natural gas development for Alaska. SB 21 is the foundation for a gas pipeline."

“This encouraging report will be available later today on ISER’s website and I encourage everyone to take the time to review it. This data is sound and from a reputable source; it’s good news for Alaska’s economy and for a vibrant future” said Senator Giessel.

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