When our legislators flock to Juneau like ravens to a McDonald's bag in a parking lot, they will have a lot on their minds. Money. Power. The budget. How can I hose the other guy and get away with it? How can I be more important? How do I sign up for the Love Boat? All of the nagging issues normal lawmakers chafe about.
Too bad. They should be concentrating on only one thing as the 27th Legislature gets under way: Fixing the abomination known as Alaska's Clear and Equitable Share, or Sarah's Revenge, foisted off on us in 2007 by former Demi-Gov. Sarah Palin and her merry band of oil industry haters. The poorly crafted oil tax is neither clear, nor equitable. It was designed to be, and is, draconian punishment for sins real and imagined -- and is an unfortunate example of government taking care of government.
Since ACES took effect -- stripping at least $1 billion too much from the industry annually -- investment in new oil on the North Slope has dropped like the temperature at Brett Favre's house, exploration is kaput! and oil production is in the tank. That means fewer jobs, less money circulating throughout Alaska and a wheezing economy.
Meanwhile, for the state, it's a party. Coffers are choked with cash, spenders are ecstatic, there are surpluses, wads of dough in the Constitutional Budget Reserve, and capital budgets -- where dollars equal votes -- well, they just keep getting fatter. What in the world, proponents of fleecing the oil industry ask wide-eyed, possibly could be wrong with this picture?
A lot, it turns out. The industry says ACES, among the highest oil taxes in the world in terms of the marginal tax rate, discourages development. It is easy to see why.
ACES reminds me of a New Yorker cartoon. Picture a tax bill that says, "How much did you make? Send it in." Its base tax rate is 25 percent on the oil's net value -- after development, operating and transportation costs are stripped. Then, as taxable value climbs above $30 a barrel -- $40 in the 2006 production tax -- it jumps to a rate of 0.4 percent -- it had been 0.25 before 2007 -- for every per-barrel dollar of net value. ACES' marginal tax rate peaks at a bruising 93 percent. At $80 a barrel, it is about 77 percent, perhaps the highest rate in the world.
The problem? ACES contains no incremental income brackets. If you pay the base 25 percent tax on $29 a barrel oil and the price increases to $31 a barrel, the law's built-in progressivity requires you pay the increased tax on the entire amount, not just the $2 increase. If the price drops, the tax can go no lower than 25 percent, but the state's marginal take -- royalty, production and income taxes -- hovers at about 62 percent.
With that, who in their right mind could be excited about doing business with Alaska?
ACES supporters -- Democrats and big-government shills -- claim the industry is, indeed, investing on the North Slope; that I'm fibbing. Yes, certain investment has been up, but to cover corrosion repairs, cleanup and maintenance on aging tap lines on the Slope. That will dry up. The spending has added no new oil production; no trans-Alaska oil pipeline throughput; no new pipe in new holes. Not one drop. Not one foot of pipe.
The lack of new oil brings its own woes. Throughput in the aging trans-Alaska oil pipeline -- already operating at about one-third capacity -- continues to dry up. In January 2010, the North Slope produced 662,143 barrels of oil. Tuesday, it was 631,361. People who know about such things say in four years or so the line could be at 500,000 barrels daily, its minimum operating level. That could trigger new maintenance and flow problems.
What to do? Lawmakers have their own ideas, and it is unclear what Gov. Sean Parnell will want to do.
With any luck, the Legislature will fix ACES and that will get the industry up and running in Alaska. It worked in Alberta, where the Canadian province reversed a sharp decline in industry activity by decreasing its royalty. Modifying ACES would work here.
But if lawmakers do nothing about ACES -- and it will be hard to give up the money -- we probably should all learn enough raven to say, "Hey, gimme that bag."
Paul Jenkins is editor of anchoragedailyplanet.com.
PAUL JENKINS
COMMENT