Compass: Alaska schools gain by oil tax reform of Senate Bill 21

By NATASHA VON IMHOFFebruary 19, 2014 

Over the last two months, the state of Alaska has made more money under the new oil tax structure, Senate Bill 21 (SB21), than it would have under the previous oil tax structure called ACES. Why? Because oil prices are falling, and oil production has reached such a low point where prices would have to reach record highs in order to generate any significant revenue for our state.

Unfortunately, high oil prices appear to be a thing of the past. With shale oil technology exploding in the Lower 48, more oil is being produced in the United States than ever before; plenty of supply keeps prices lower.

So, people are asking, if the state is making more money right now from SB 21, then why are things like education being cut so much?

Here's the truth: We would be cutting education funding even more if ACES was still on the books, because the ACES tax structure provided little incentive for companies to produce oil. In 2012, school districts across the state began making budget cuts due to flat funding. A year later in 2013, school districts again reduced their budgets due to a decrease in state revenue. This was while the ACES tax structure was still in place.

In 2013, lawmakers received information from state and national economists that if our oil tax policy did not change, then cuts to education and other public sectors would grow larger in the foreseeable future.

In an effort to offset the loss in revenue due to continued decline in the amount of oil moving through the pipeline, our lawmakers passed SB 21. The new tax was activated two months ago, on January 1, 2014, and just in the nick of time. SB21 strategically gave up higher taxes at higher prices, to allow for a steadier stream of revenue, and more revenue, at lower prices.

That $2 billion giveaway? A complete fallacy at today's oil prices. The reality is that under ACES, the state was giving money away like candy in the form of lost revenues, disincentives to actually producing oil, and Alaska jobs. In just the last two months, SB21 finally stopped the bleeding. The turning point is about $105 per barrel, where ACES provides more revenue to the state than SB21. We haven't seen oil above $105 for well over a year, and while it was nice to have very high oil prices by historic standards, it may not be prudent to bank on them (as we've learned).

So, the question remains, how does oil production and oil price relate to education funding in Alaska? Oil revenue taxes provide over 90 percent of the revenue to the state, and the state provides anywhere between 65 to 100 percent of the education funding to school districts. Without oil revenue, the state doesn't have much money to give to education, or any other sector for that matter.

Already, since last spring when SB 21 passed, there has been a significant increase in oil production-related activity. This has created an opportunity for the governor and Legislature to give serious consideration towards funding education for the next three years. The 2014 Education Omnibus bill gives the first increase in the Base Student Allocation (commonly known as "BSA", the primary vehicle for state education funding) we've seen in several years.

Oil tax reform is doing what it's supposed to do, mainly spurring investment activity by the oil companies to increase oil production in our state, and generating more public revenues than ACES would have at these new lower oil prices. With more oil running through the pipeline, there is more oil to tax, and therefore more money to spend, especially on public education. And what comes around, goes around, because an educated community is a healthy and productive community. Vote No on 1, so we can invest more in K-12 and build the promise of a good education for success in college, careers and in life.

Natasha Von Imhof, vice president of the Anchorage School Board, and a financial analyst with Latash Investments.

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