Public seeks link between oil taxes and state services

The debate is over changing oil taxes, but much of the public seemingly wants to know how it will affect many of the services provided by state government .

Lt. Gov. Kevin Meyer moderated two-hour teleconferenced public hearings Sept. 21 and 22 examining Ballot Measure 1, the initiative to substantially raise taxes on the largest North Slope fields, in which leaders of sponsor group Vote Yes for Alaska’s Fair Share and the business-centric opposition group OneAlaska Vote No on 1 fielded questions from the public about the potential pros and cons of the tax change.

Callers from Southeast Alaska largely indicated in the first hearing they will be voting for the initiative and asked about how it could help restore budget cuts to things like the state ferry system, the University of Alaska and the Permanent Fund dividend.

The hearings, required for any proposed law change, were intended to spur an “education and informative discussion” Meyer said, and the open question-and-answer forum quickly turned into a lively, if somewhat repetitive, debate.

Chair of the Fair Share campaign and longtime Alaska oil and gas attorney Robin Brena stressed that a collapse in oil production tax revenue is the root of the state’s ever-worsening fiscal problems.

The ballot measure sponsors estimate the tax change, which would raise both the gross floor and net profits tax rates on the large, mature North Slope fields of Prudhoe Bay, Alpine and Kuparuk, would generate about $1.1 billion per year in additional revenue over the long-term.

The Fair Share campaign insists the current tax system, commonly referred to by its legislative name Senate Bill 21, cost the state more than $3 billion per year since it became law in 2014 and as a result Alaska receives about half of the overall oil revenue that other states collect.

The drop in oil tax revenue has pushed lawmakers to start applying more than half of the money traditionally used for Permanent Fund dividends to pay for other services, which are still being cut as the state’s deficit continues to grow, according to Brena. He argued legislators heavily influenced by the oil industry have repeatedly blocked attempts to change the law in the Legislature.

“There’s nothing you can do that’s better for Alaska than vote for Ballot Measure 1,” Brena said Sept. 21.

“Our (oil) taxes are less than 10 percent of what they were before Senate Bill 21.”

While the drop in the state’s oil production tax revenue is undeniable — overall petroleum revenue went from $4.7 billion in fiscal year 2014 to $1.3 billion in 2016 — opponents note the steep drop in oil revenue directly coincides with a major fall in oil prices.

Oil went from averaging nearly $100 per barrel for several years to bottoming out at less than $30 per barrel in early 2016 as markets adjusted to the influx of Lower 48 shale production, ConocoPhillips Alaska Vice President Scott Jepsen said.

Jepsen and former state Division of Oil and Gas director Chantal Walsh emphasized that at current oil prices in the $40 per barrel range the initiative would raise just $250 million, which doesn’t come close to closing the projected $2 billion budget deficit but will deter companies from investing in more oil production in years to come.

“If we keep production up, we keep royalties up; that’s also tied to your PFD,” Walsh said, noting that oil royalty deposits largely form the principal of the Permanent Fund.

Brena said the issue ultimately boils down to whether or not the state will call the industries’ bluff: the potential to curtail investment on the North Slope, which would increase the rate of production decline and hurt the state’s finances even worse over the long-term.

Fair Share advocates believe Alaska will remain a viable oil basin with the additional taxes and if the initiative is not a viable solution, Brena suggested its opponents haven’t offered a better one.

“Their solution is that we should tax ourselves to pay for the subsidies we’re paying Texas oil companies,” he said.

Petroleum geologist and former Department of Natural Resources commissioner Mark Myers said the state’s poor fiscal outlook does far more to damage the economy than raising oil taxes would and the primary factors that determine companies’ decisions are “good rocks, technology and oil price.”

Jepsen argued Ballot Measure 1 would “take the profitability out of doing business in Alaska.”

“If this ballot measure passes, I can tell you we will not follow through with the plans we had a year ago,” he said.

Other ConocoPhillips Alaska representatives have said the company will not finalize its winter drilling plans until after the Nov. 3 election.

The company is scheduled to complete its final winter of work developing its mid-sized Greater Mooses Tooth-2 oil project and has applied for permits to develop its large Willow prospect, which the company estimates could produce up to 160,000 barrels per day and cost $6 billion to fully develop.

Additional public hearings were scheduled for Sept. 23-24.

Elwood Brehmer can be reached at [email protected].

Updated: 
09/23/2020 - 8:58am