Alaska's oil industry tax issues debated at UAA

ACES: Two sides argue effects, possible change.

Anchorage Daily NewsNovember 14, 2011 

One of the Legislature's most vocal critics of Gov. Sean Parnell's efforts to roll back oil taxes debated the issue Monday with one of the governor's top aides.

The University of Alaska Anchorage student union -- the student government -- hosted the two-hour campus event, which drew a crowd of about 50. Among those who showed up were students on class assignment, retirees, political types, and at least one labor union leader. Former University of Alaska President Mark Hamilton, a spokesman for the Make Alaska Competitive Coalition, which has supported easing the current tax regime, watched from the back of the room.

Gara contended the state would be doing itself wrong if it rolls back taxes without guarantees of new exploration that would ultimately generate more oil. He called the governor's proposal a $1.8 billion giveaway, quoting one estimate of how much revenue would eventually be lost in a single year without new production.

The Parnell administration hasn't demonstrated there's a problem, Gara said. Since the current tax was put in place in 2007 under the Palin administration, Conoco Phillips has reported $7.5 billion in profits, Gara said. BP has reaped $8 billion, he said, extrapolating from corporate annual reports and news stories though BP itself doesn't isolate profits for Alaska. Exxon Mobil, the other big North Slope producer, doesn't report its profits by state.

On the other side was Bruce Tangeman, deputy commissioner of the state Department of Revenue, who argued that with declining oil production, the state must lower taxes to spark investment. He called the existing system a "punitive" tax.

If lower taxes don't drive new investment and production, the state will revisit the issue, and the oil companies know it, Tangeman said.

Both debaters agreed that oil production in Alaska is in decline, and that something needs to reverse that. Much of the state budget comes from oil revenue.

Parnell publicly supported the current tax structure, called Alaska's Clear and Equitable Share, or ACES, until his campaign for governor in 2010.

ACES includes generous tax credits for investment. But it also charges producers progressively higher tax rates as oil prices rise.

That's the problem, Tangeman told the crowd.

A small oil company may take advantage of the tax credits to drill exploration wells but would have to sell its interests or partner with one of the majors to bring any new find to production, Tangeman said.

But with oil prices high, the big oil companies have many places they can invest and are likely to pick those with lower taxes, such as North Dakota, now in the middle of an oil boom, Tangeman said.

Under the current system, the state taxes oil profits. The first $30 of profit is taxed at 25 percent. After that, the tax rate gradually rises, so that the state shares in high oil prices.

Parnell wants to lower that tax surcharge. His proposal, House Bill 110, has passed the House but didn't get traction in the state Senate last session.

Gara is pushing his own measure, House Bill 231, which offers tax credits for companies that increase drilling, build processing centers and explore for oil in places not yet being tapped.

"We're not just giving you a blank check," Gara said.

Among the areas of disagreement:

• Jobs. Gara says that oil and gas jobs are up this year in Alaska, with an average of 13,700 jobs compared with 12,800 last year, evidence that ACES hasn't smothered the industry. But Tangeman said employment is flat. The 2011 figure cited by Gara is as of September, he said. It's not yet known what the average for the year will be, and the number of jobs was stagnant between 2008 and 2010.

• Impact on production. The big oil companies have not committed to investing more in Alaska even with lower tax rates, Gara said, quoting testimony from legislative hearings. But as Tangeman noted, Conoco Phillips CEO Jim Mulva in April committed to moving on big projects if taxes are lowered.

• Tax giveaway. Tangeman says the opposition is stretching the facts with talk of a $2 billion tax giveaway. If Parnell's bill passed, the lost revenue to the state would range from $200 million to $400 million the first year, gradually rising after that. But by the sixth year, the state's own figures show a loss in revenue of at least $1.8 billion and as high as $2 billion, Gara said.

UAA student Alejandra Buitrago organized and moderated the debate as the legislative affairs chairwoman of the student union. She said Gara emailed the university proposing the idea and her first reaction was not to cater to him. Then she figured that it would be good for the community to hear both sides.

Some came already sure of which side they were on.

Retired teacher Rod McCoy said the issue is whether government serves people or corporations.

"It is silly to give away $2 billion a year and not expect any kind of quality return or not have it written into law," McCoy said beforehand.

Buitrago said she listened with an open mind and in the end thought Tangeman made the better argument. He stood his ground and she liked his point that the governor could take the easy road and let the current tax structure be, but instead is doing the hard work of trying to revamp it, because that would be better for Alaska.

A straw poll after the debate found that most sided with Gara. Of those who raised their hands, supporters of Gara's position outnumbered those backing Tangeman 3 or 4 to 1.


Reach Lisa Demer at ldemer@adn.com or 257-4390.

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