Steve Haycox: Alaskans' vote on oil taxes will be an act of trust

Steve Haycox

There will be a fierce campaign waged over the next 11 months over the ballot initiative to undo the Legislature's rollback of ACES, the Palin-era revision of Alaska's oil tax structure. Oil industry apologists and the Parnell administration will argue that people who signed the initiative petitions and those who support ACES (Alaska's Clear and Equitable Share of oil profitability) are naïve, and fail to understand that with production from current fields on the North Slope declining precipitously, Alaska must do all it can to provide tax incentives for new, perhaps even continued production. Supporters of ACES will argue that industry spokespersons are unable to make any commitment that reduced taxes will generate new production, that North Slope employment is at an all time high under ACES, and that the supply of known oil will be greater than the industry's pessimistic projections.

Oil taxes are complicated, far too complicated for the average voter to grasp fully. The relationship between tariffs and wellhead and world price per barrel, and rents, royalty payments and rebates keeps the most sophisticated oil economists at their spreadsheets long past the ordinary voter's bedtime. We must rely on what little we can learn, and who we trust is telling us the truest version of the bottom line. There's nothing new in this; it's been that way since Titusville, and while there are some aspects unique to Alaska, complex economics are replete across the oil patch.

As it happens, next month will see the 40th anniversary of the initial tax structure put in place for North Slope production. It occurred at a special legislative session called by Gov. Bill Egan in October 1973. Out of that session, which followed by weeks Congress' passage of the Trans-Alaska Pipeline Authorization Act, came several taxes on North Slope operations. A right-of-way leasing act provided for 30-year leases of state land; a state pipeline commission was established to monitor pipeline operation. A third act authorized pipeline owners to purchase tracts of land along the pipeline route without competitive bidding. Also, the Legislature imposed a wellhead severance tax (a tax on every barrel of oil removed from the deposit) of about 15 percent. A special corporate income tax applied only to oil companies. The state claimed a 12.5 percent royalty, i.e., ownership of one-eighth the oil pumped, which it sells back to the oil companies. Though there have been significant alterations, this basic structure has generated upwards of 80 percent of general fund revenue, money in the state treasury, over the 40 years of its life.

Generally forgotten today is how controversial this package was in 1973. The Legislature already had passed a tax package the year before, one that some analysts have argued would have generated more revenue for the state, and would have given the state much more control over production and pipeline operations. Then-state Sen. Chancy Croft, working with oil industry tax specialists, had proposed and secured passage of a stronger right-of-way leasing act, a more powerful pipeline commission, a minimum-tax act and a local-hire leasing act. While initially the Egan administration had seemed enthusiastic about this 1972 package, negotiations with oil industry executives over the next year led to the weaker package, which the administration laid before the special session in 1973. Those negotiations had raised the specter of lawsuits the state might lose, which would have created serious financial liability in a state that at the time had very little money. Some viewed the 1973 package as a sellout to the industry; others thought the more modest enactments were simply prudent.

There are other salient aspects to Alaska's oil tax history. But in the end, how one views oil taxes has much to do with whom one trusts. The oil industry has every reason to try to keep taxes low, and employs every political and media tactic to influence what Alaskans think and how legislators vote, usually playing on Alaskans' anxiety about job security. In sifting what is said about the referendum over the next 11 months, voters would do well to study, as they have time, who profits from lower oil taxes, and who seems more trustworthy in representing reality.

Steve Haycox is professor emeritus of history at the University of Alaska Anchorage.

Steve Haycox