The report by UAA's Institute of Social and Economic Research (download PDF here) says the dollars coming to the state treasury as a result of high oil prices have masked the long decline in Alaska oil production and given the state a reprieve to find a solution. The report found reason for optimism: Alaska still has great potential in petroleum resources and, if high oil prices hold, the state could collect many billions more in oil revenues "before the conventional reserves on state lands are used up."
"But any number of roadblocks could derail a smooth transition. We all have a natural tendency to avoid decisions that require sacrifice in the near term to achieve a longer term goal," concluded ISER economist Scott Goldsmith, who wrote the report. "Obvious challenges to planning for the future include not focusing on the problem, not believing it's urgent, not understanding the issues, and not trusting government to act in the interests of the average Alaskan."
This comes as the rhetoric among politicians over oil taxes is ratcheting up. Gov. Sean Parnell seems to take every opportunity to push his plan to slash state taxes on oil companies, saying it will make the state more competitive for investment.
Parnell even made an indirect reference to it when he announced the size of this year's Permanent Fund dividend checks last week.
"Alaskans could face diminishing dividends based upon the current dividend calculation because, in part, poor performance of the stock market and then additionally over time because of declining oil production. There would be fewer and less royalties going into the permanent fund unless we turn that around," Parnell said in last week's announcement.
Anchorage Democratic Rep. Les Gara said the governor was using the dividend for "fearmongering" and telling an outright lie. The size of the annual dividend checks is based on a five-year average of the fund's investment earnings. At least 25 percent of the royalties that Alaska receives for its oil is added into the fund, money that is then invested. So a decline in the amount of royalties would slow the rate at which the fund grows but would not cut the dividend.
Parnell spokeswoman Sharon Leighow said in response that the governor was speaking collectively about the issues of poor stock market performance and reduced royalties when he was talking about the potential of lower dividends, and that it is always going to be better for dividends to have more royalties and a larger overall Alaska Permanent Fund.
CALLED A GIVEAWAY
Opponents of Parnell's tax cut plan call it a corporate giveaway that would just make the problem worse. The forecast is that Parnell's plan could result in more than $8 billion in less production tax revenue to the state over the next five years. That would bring the state to the financial cliff far quicker, Gara said, without revenue needed for schools, roads and savings. Besides, oil production declined when Alaska had vastly lower taxes than it does now, he said.
Gara argued the state could be doing more to encourage a natural gas pipeline to the Lower 48, through providing more loan guarantees or becoming a part owner of the pipeline to lower its tariff and make the project more economic. Oil production will also go up if companies are out exploring the North Slope for natural gas, he said.
"I think that's the thing that Scott Goldsmith's report misses out on, that the state has lost its focus on the gas line," Gara said.
Goldsmith's ISER report says that "uncertainty in world gas markets means gas development isn't likely to happen as soon as many Alaskans hope." Goldsmith also wrote that Alaska can't expect federal spending in the state to grow as it did in the past, given the federal government's budget problems.
The state government does have big savings. Money poured into reserves with help from the higher oil tax that the Legislature put in place in 2007. The Alaska Permanent Fund has also grown, at least up until the current stock market downturn.
"The size of these accounts is impressive, but even so their earnings aren't yet big enough to pay for much of state expenses, particularly since half the earnings of the largest account, the Permanent Fund, is dedicated to paying Permanent Fund dividends," Goldsmith wrote. "But if we continue adding to those savings, they can eventually replace a substantial share of oil revenues from state lands."
Oil production provides almost 90 percent of the state government's general fund revenue. The amount of money going to the state is up because of the oil price but the flow of oil through the trans-Alaska pipeline has been going down since 1988.
A lot of potential is remaining for oil production on federal lands, both onshore and offshore, but their development is out of the state's hands and they don't result in as much revenue to the state government. Giant low-cost fields on state lands (the largest being Prudhoe Bay) are in serious decline, Goldsmith wrote, a fact masked by high oil prices and high North Slope employment.
"Alaskans need to consider how to structure a tax policy that will not only bring in revenues in the short run, but encourage continued production at levels that keep the oil pipeline economically viable and future revenues flowing," he wrote.
SKEPTICAL SENATE
At this point it seems unlikely that Parnell's big oil tax cut will make it through a state Senate skeptical of how much the oil companies would actually reinvest their tax savings in Alaska. But Republican Senate President Gary Stevens said he is interested to see if there might be "compromise between what the governor might be thinking and what we're thinking" in the Senate.
The Alaska House of Representatives passed Parnell's oil tax cut on a 22 to 16 vote, mostly on party lines with Republicans for and Democrats against.
Anchorage Democratic Sen. Hollis French argues that the oil tax is working fine, with Alaska seeing exploration and development drilling.
But he is suggesting the state could help by providing capital and potentially investing state dollars to help develop promising new oil fields.
Parnell maintains Alaska's tax system takes too much money from the oil companies when oil prices are high. Then-Gov. Sarah Palin championed the tax when she was governor and Parnell defended it as her lieutenant governor. But he said he has since been convinced that it's too high. Rolling back the oil tax has become his signature issue as Alaska governor.
"I've been speaking individually with legislators about how we can move this bill through the legislative session this year," Parnell said last week, speaking to an oil industry crowd in Anchorage. "I told one of them, I have no pride of authorship in the bill; if the personalities of the Legislature won't allow a bill from the governor to pass because of partisan differences or somebody else wants to run for governor, I don't care. I said, pass a bill that makes us more competitive."
Reach Sean Cockerham at scockerham@adn.com or 257-4344. Daily News reporter Kyle Hopkins contributed to this story.
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