Mike Dingman: Teachers should go back to school on SB21

February 25, 2014 

The teachers have it all wrong.

On Saturday they all rallied at the library, testifying in favor of repealing the new tax structure. The problem is that they probably don't really understand how the new oil production tax works and they almost certainly have never read Senate Bill 21.

Oil taxes have been an issue in Alaska since we have been drilling oil. In the early days, the oil was flowing over a million and a half barrels a day and even peaked at 2 million barrels. The state was getting rich and the oil companies were getting even richer. Everybody was happy. The state was building "Project 80's" buildings improving the quality of life in Anchorage, houses were being built as quickly as ever and the economy was booming all over the state.

With changing production numbers, however, came the changing of oil taxes. Between 1977-1989 we had "ELF" (Economic Limit Factor). ELF was a complicated formula that taxed oil production based on how much oil the field was producing and how long the field had been operational. The problems with ELF were that the tax rate declined as production did as well as drilling more wells.

From 1989-2006, they changed the formula; however, ELF II created many of the same problems as ELF.

In 2006 Frank Murkwoski, at the end of his tenure as governor, led the charge for a new tax structure and after working with the industry, PPT (Petroleum Profits Tax) was born. Its death ultimately came due to the Veco corruption scandal coming to light.

The new year brought a new governor and a new oil tax structure. In 2007 Sarah Palin created a populist movement for "Alaska's Clear and Equitable Share" (ACES) which remained our tax structure until SB 21 passed last year.

The new oil tax structure has been attacked as a "2 Billion Dollar Giveaway," most notably by Democratic Sens. Bill Wielechowski and Hollis French and by Rep. Les Gara.

That sentence makes for a good bumper sticker, but the problem is that it's just not that simple.

We don't control the price of oil, but we do have the ability to control our business and regulatory climate and to set policy that makes us an attractive place to do business. Again, we need more oil when revenues from it provide the state with 90 percent of its unrestricted spending money.

Oil tax structures and the formulas by which taxes are calculated are complex -- they cannot be summed up on a bumper sticker.

For instance, one thing that is not being articulated is that while ACES had a base tax rate of 25 percent, the new oil tax structure raises that base rate to 35 percent.

What does that mean?

It means that when oil prices are lower -- more specifically $105 dollars a barrel and less -- the state brings in more money than under ACES.

That's right. Under this tax system, with a lower price of oil per barrel, the state comes out ahead.

That doesn't really matter though, because oil prices are at an all-time high, right?

Actually, no.

While oil prices are fluid and change every day, the average price has been hovering right around the $105 a barrel mark for quite a while; as recently as January 13, Alaska oil was selling at $101 a barrel.

Teachers are up in arms because the Anchorage School District is planning on cutting over 200 positions, including over 150 teachers, due to budget cuts this year.

Now you would think that in a system as large as the Anchorage School District, which spends over $17,000 per student, one could find more places to find efficiencies and other positions to cut that are not as crucial as teachers. However, that's another issue for another day.

The fact is that the teachers are out there lobbying for the repeal of a law that is actually bringing in more money to the state than the one that they are advocating for. Maybe they should trade in their current signs for some "Vote no on 1" signs.

Before Election Day, teachers should take the time to educate themselves on the new oil tax regime and they might come to the conclusion that they are better off voting no on Proposition 1 rather than the way the union bosses would prefer they vote.

So why were teachers rallying in front of the Loussac Library holding signs that say "Kids not oil," and touting the repeal of the new oil tax even though in current conditions the state is set to bring in more money under the new structure?

It looks better on a bumper sticker.

Mike Dingman is a fifth-generation Alaska born and raised in Anchorage. He is a former UAA student body president and has worked, studied and volunteered in Alaska politics since the late '90s. Email, michaeldingman@gmail.com.

 

Anchorage Daily News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service