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OP-ED: Alaska should not look to a sector that’s drowning in red ink to solve its fiscal gap

Risks to Alaska of discouraging investment through increased taxes are extreme


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It was just 18 months ago that Alaskans voted for more oil production when they soundly rejected Ballot Measure 1, which sought to repeal SB 21, the More Alaska Production Act.

 

That vote has paid big dividends to Alaska, with forecasts projecting an additional 50,000 barrels of new oil per day through the trans-Alaska pipeline by 2020, and stabilizing the flow rate this year for the first time in many years.

 

In 2015, some 185.6 million barrels flowed through the pipeline, a mere 1 percent decline from 2014, and a sharp reversal of historic decline rates of 7 percent or more. North Slope production averaged 508,446 barrels per day, just 1 percent less than the year before.

 

These are encouraging numbers, especially for an industry that has suffered record losses due to plummeting oil prices. North Slope oil now sells for less than it costs to produce, leading to huge losses and negative cash flows. In spite of these losses, the industry continues to invest heavily in Alaska. We must be very careful not to punish this investment behavior by raising taxes during these difficult times. The risks to Alaska of discouraging investment through increased taxes are extreme.

 

The oil and gas industry still supports one-third of the entire state economy and has provided 88 percent of all state revenues since statehood.

 

Even in these times of mounting losses, Alaska will collect 67 percent of its revenues from the oil industry through property taxes, income taxes, production taxes and royalties. And it’s important to remember that the State is collecting more under SB 21 than it would under ACES.

 

We are already witnessing the negative impacts of $30/barrel oil – a price that, when adjusted for inflation, is the lowest since the crash of the 1980s. While Alaska is still attracting investment today, most oil provinces are not. We are very fortunate to be living and working in Alaska than in oil locations elsewhere.

 

Despite these sobering times, the industry has upheld the commitment it made when the Legislature passed – and the Governor signed – SB 21, the More Alaska Production Act. It pledged to increase investment, and it did, to the tune of $5 billion.

 

Legislation recently introduced dramatically changes the tax system established by SB 21 by raising the minimum tax by at least 25 percent for some fields and imposing a new tax for others. It also repeals and alters tax credits, many of which provide an investment in Alaska’s future and encourage exactly the type of private spending that keeps our Alaska economy strong.

 

This legislation was introduced despite the fact that it will do little to solve our fiscal crisis but will greatly harm an industry that’s already on its knees.

 

The legislation ignores the fact that the voters spoke loud and clear, as did Governor Walker, who said, “I do not intend to offer changes to SB 21”.

 

This legislation would mark the sixth major tax change in 11 years. Attracting investment requires a fair and stable tax structure. Tax credit policy should not be a whipsaw for filling the budget deficit; it should be a thoughtful approach to a stable and growing economy. As Caelus warned last year, “Every time there is a cough in Alaska about changing the oil tax structure, that cold goes all the way to Manhattan.” Caelus, a Texas-based independent, is one of the North Slope’s most active explorers.

 

We all know that taxes on our resource industries are politically easier than taxes on our residents. But our resource industries are the last place we should look for tax revenue today, as they are swimming in an ocean of red ink and unable to continue investment if we raise taxes while they are losing money.

 

Our state is facing a massive fiscal crisis unseen in more than 30 years. We applaud the Governor and legislators who are willing to put Alaska’s long- term economic future ahead of short-term politics. There is nothing more important for our state than to solve our budget deficit and build a sustainable economic future for our state, but we can't do it on the backs of an ailing industry that already pays most of Alaska's bills.

 

Fortunately, we have the financial resources to not only survive – but prosper. What we need now is the courage to responsibly continue to drive down the cost of state government and utilize the Permanent Fund as intended - to fund state services. We may eventually need to pay taxes ourselves; however, the last place we should look for new revenue is to unfairly tax the very industries that drive our economic future. ‎If we push them away, our economic future will be hopeless.

 

This is a time for Alaskans to support responsible fiscal policy.

 

Marc Langland and Jim Jansen are co-chairs of KEEP Alaska Competitive, a coalition of businesses and individuals who support a fair and competitive resource tax policy to increase investment, production and jobs to secure Alaska’s economic future.

 

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