Oil tax cut proponents (Gov. Sean Parnell, his commissioners and many legislators) fed the full-throated rush to cut with catchy slogans: 1 million barrels per day; the cut will more than pay for itself; we can stop the decline. The slogans have slammed into the real world and SB 21 proponents now look to be less than fully clothed.
The SB 21 whimper now seems to emphasize that at low prices SB 21 and ACES are close. But, SB 21's whimper covers up the destructive effect SB 21 has upon Alaska: SB 21 takes away Alaska's ability to fully participate in the windfall profits at high oil prices.
The ACES bargain with Big Oil was based upon two fundamental concepts: 1) ACES allowed generous deductions of operational expenses and capital expenditures (i.e., tax only oil profit -- not the gross), and 2) ACES provided a low tax rate at low oil prices and provided higher rates at high oil prices. Under ACES, Alaska subsidized risk at low prices but was rewarded with a greater share of windfall profits.
SB 21 distorts the ACES bargain by taking away Alaska's opportunity for a higher rate at high oil prices. SB 21 is the distorted coin flip wherein the result for the oil industry is heads -- oil wins; tails -- Alaska loses.
Like the magician (or street hustler), SB 21 supporters accomplish the trick by diverting your attention away from the real action -- significant losses at high oil prices. SB 21 may bring in a few more dollars at low prices but the intent is to get you to ignore the billions lost at higher prices.
In essence, ACES incorporates a balance where Alaska provides a significant subsidy at lower oil prices and receives a significant reward at higher oil prices. In contrast, SB 21 grants a significant subsidy at low prices but Alaska doesn't get the increasing rates at high prices. SB 21 corrupts capitalism in that government subsidizes the oil industry's risk (by allowing generous deductions of operating and capital costs and providing a lower rate) and transfers all the upside reward to oil (no higher rate for Alaska at higher prices).
There is no dispute that at about $100 a barrel, from just the Prudhoe Bay and Kuparuk fields, SB 21 would have cost Alaska $1.7 billion in lost revenue in fiscal year 2012 (March 2013 Department of Revenue analysis).
If SB 21 losses were analyzed at $140 or $150, the losses per year to Alaska are in multiples of billions of dollars. When Big Oil reaps windfall profits under SB 21, Alaska gets less and keeps subsidizing Big Oil.
If you want Alaska to share in windfall profits with higher rates, keep the ACES bargain by rejecting SB 21. If you see the SB 21 magicians' sleight-of-hand tricks, ignore the low-end analysis and ask them to show you real world analysis at $140 or $150 pricing. Ask the SB 21 supporters to explain the $20 billion in deficits currently forecast for Alaska under SB 21 and ask them to explain the FY 2012 $1.7 billion loss from Prudhoe Bay and Kuparuk alone, had SB 21 been in effect.
If declining production for years and no 1 million-barrels-a-day throughput trouble you, than a prudent consideration is to keep ACES and reject SB 21. If the truth is likely that "We can't stop the decline" as stated by Big Oil in November 2013, then it is also likely that SB 21 is based upon the politicians' fast-talking sleight of hand. (It makes sense -- if manipulation of public opinion is a goal -- that BP runs feel-good TV commercials to misdirect you from their "We can't stop the decline!" statement.)
Magicians' tricks are for fun; Alaska's oil tax policy is for real. The risks of SB 21 are becoming more apparent. The politicians' sleight of hand on their fast sell of SB 21 is shameful; they appear to be shills for Big Oil, not representatives of the people of Alaska.
Alaskans fortunately have the opportunity to demand more by rejecting SB 21 this August. Please reject SB 21.
Joe Paskvan was born and raised in Alaska and lives in Fairbanks. He served in the Alaska State Senate, including as chair of the Senate Labor and Commerce Committee and co-chair of Senate Resources Committee.
BY JOE PASKVAN