An economic analysis paid for by an organization whose leadership supports Alaska's new oil production tax cut -- and conducted by an economist with the Institute of Social and Economic Research -- reported that the tax cut has not led to a "$2 billion giveaway," a finding that strikes at the heart of a grassroots effort to repeal the tax cut.
In fact, the old tax law that bit harder on oil producers' profits as oil prices rose would bring the state only about $88 million more this current fiscal year than the new tax cut known as Senate Bill 21 would have brought in if either had been in effect the full fiscal year, said Scott Goldsmith, economics professor emeritus at the University of Alaska Anchorage and former director of the think tank, now partly retired.
That's a stark difference from the advantage the old tax law would have had in previous years, when it would have brought in more than $1 billion a year more than the new law, he said.
A key leader of the effort to repeal the tax cut says Goldsmith's "rosy" comparison is based on "make-believe" scenarios and understates the amount of money Alaskans stand to lose.
In his analysis, Goldsmith said that what has changed, and what puts the two tax laws on a more similar footing, are factors used to calculate the state's oil production tax revenue. Those variables -- the cost of producing oil, the price of oil and the amount of production -- will continue to change.
So predicting the future revenue of either tax law is sort of like throwing a dart at a board, an analogy used by Goldsmith to show that, depending on the circumstances, either system could bring in more state revenue than its counterpart.
Goldsmith's analysis offered a critical look at Senate Bill 21, the tax cut that took effect in January, and the law it replaced, Alaska's Clear and Equitable share, or ACES.
Following a referendum effort that put the question on the ballot -- as Ballot Measure 1 -- voters will be asked to consider repealing the new tax law during the state's primary election on Aug. 19.
Both sides agree the decision will be critical to the state's future. Supporters of ACES credit that tax law with pumping $17 billion into state savings accounts that were close to empty before it went into effect more than six years ago. Without it, Alaska stands to lose billions of dollars in the coming years, they argue.
Supporters of the new tax cut say it's critical to promoting a healthy oil industry that increases oil production, the feedstock that, through royalties and production taxes, provides the state with more than 80 percent of its unrestricted revenue. Supporters have also linked the cut to better chances for a long-sought natural gas line megaproject.
Vic Fischer, chair of the ballot measure group that wants to repeal the tax cut -- Vote Yes! Repeal the Giveaway -- said the new law gives companies a bonus for producing oil they would have produced anyway. "That's a pure giveaway," he said. Goldsmith's "rosy" comparison comes in contrast to the "dismal" future predicted by Gov. Sean Parnell's administration that shows oil production dropping from 521,000 barrels a day to 315,000 barrels a day.
"That's a scary reality that can't be dismissed by scenario making," said Fischer, a former state senator and delegate to the Alaska Constitutional Convention. "What Alaska needs is a tax structure that increases exploration for new sources of oil, not just provide incentives to pump the oil they are contractually obligated to produce."
The launch of Goldsmith's study during a breakfast meeting at the Dena'ina Civic and Convention Center Thursday morning was organized by the Resource Development Council, which is led by an executive committee that includes some oil company executives and which supports the tax rollback.
That support is through in-kind donations -- mostly to help get out the message -- of groups Vote No on 1 and Keep Alaska Competitive that are fighting the repeal effort, said Rick Rogers, executive director of RDC. The contributions are fully disclosed through the Alaska Public Offices Commission, he said.
Nobody with the RDC had seen Goldsmith's analysis before he presented it on Thursday morning, Len Horst, a senior vice president for the council and an executive for Northrim Bank, told the audience before Goldsmith was introduced.
Northrim Bank funded the study as part of a $100,000 donation to ISER, according to Goldsmith, who said he didn't know how much of that donation went to the analysis.
Over the last 15 years, Northrim has donated more than $1 million to the think tank to explore economic issues affecting Alaska, said Marc Langland, who sat eating eggs beside Goldsmith. Langland is chief executive of Northrim and co-chair of Keep Alaska Competitive.
How can the public have faith that the study is a fair one, given that it's funded and promoted by people with a bias toward the tax cut?
"I guess you'll have to decide that because we don't have any input into that," Langland said, referring to the analysis. "(Goldsmith is) the one that does that. All we do is a make a donation and make sure economic issues are brought forward to Alaskans."
Later, Goldsmith said he got his information for his analysis primarily from public documents and the state Department of Revenue, as well as his knowledge of the industry. Top officials in the Revenue Department, who work for Gov. Sean Parnell -- who introduced the tax cut into the Legislature -- have publicly defended the tax cut.
"The best way is for you to read it for yourself," with a critical eye and make your own judgment, said Goldsmith, after he was asked how the public can determine if his analysis is impartial.
A video of Goldsmith's presentation was posted on the Resource Development Council's website shortly after the event. Thursday afternoon, ISER posted Goldsmith's full 42-page report on its website. It was not available Thursday morning.
As for his analysis, Goldsmith discussed projections that opponents of the tax cut have seized on to help explain the "$2 billion giveaway."
Before Senate Bill 21 passed, state Revenue forecasters had said Alaska could expect $7.2 billion in revenue. After Senate Bill 21 passed, Revenue forecasters said the state would actually get $5.1 billion in tax revenue and royalty, a difference of $2.1 billion.
The conclusion might seem obvious: that the new tax law is responsible for the huge drop. "It's sort of like every morning my rooster crows and a little bit later the sun comes up, so it's obvious the rooster makes the sun come up," Goldsmith said.
It's not so simple, according to Goldsmith. In fact, the difference between the two laws this fiscal year amounts to only about 4 percent of the total drop in tax revenue. The most significant reason was the rising cost of producing oil, he said.
The per-barrel cost has risen for a variety of reasons, including that investment is up but less oil is being produced. Also, infrastructure is aging. And there's a greater percent of water that comes out of the ground with the oil and producers must pay to put that water back into reservoirs to force out smaller and smaller amounts of oil.
"Maybe you should start thinking of the North Slope as giant water well, with oil as a byproduct," he said.
As Alaska's fields have aged, including the giant Prudhoe Bay that began supplying much of the nation's oil in 1976, the average daily amount of oil produced from each well has dropped from 3,500 barrels per day to just 253 barrels a day, he said.
"Getting more out of a sponge gets harder the longer you squeeze," Goldmith said.
Past efforts by Alaska Dispatch to determine more specifically what's causing the rising costs -- which have jumped dramatically in the state's oil patch in recent years -- have been rebuffed by state officials who cite laws calling for confidentiality.
At any rate, if prices rise sharply or if production costs fall, the old tax law could have an edge. In fact, a historical comparison by Goldsmith showed that ACES brought in $1 billion more each year in 2011, 2012, and 2013.
Without any new production, the per-barrel costs will rise. In that case, future tax revenues could be greater under Senate Bill 21, also known as the More Alaska Production Act. In another key point, Goldsmith said that under reasonable future market conditions, a modest increase in investment and oil could create more state revenues under Senate Bill 21, or MAPA, than under ACES.
That raises a fundamental question: Why would the oil companies support a law that could potentially bring them less revenue, not more?
Goldsmith said he spoke to several people about that, and everyone had a slightly different answer. They included:
• Simplicity. Taxes increased under the old law as prices rose. As a result the tax rate paid by the companies fluctuated dramatically, on a monthly basis. That made it difficult for oil companies to predict future revenues.
• Incentive. The old tax law took more profit from producers as prices rose. That eliminated a key opportunity for new developments: A potential spike in future profits if prices rose.
• Better profits on new oil. The new law provides the lowest tax rate for new oil, including oil from newly developed fields.
If there is new production, it will boost the state's royalty revenues -- income from the state's 8 percent share of the oil produced that is collected in addition to the oil production tax. The effort also creates high-paying jobs and leads to more employment throughout the private and public sector, he said.
After Goldsmith's presentation, the Resource Development Council held a press conference, giving the media a chance to ask him more questions. The conference went longer than usual, and Goldsmith was hustled off to his next appointment by Kati Capozzi, projects coordinator for the council.
Capozzi told him the appointment was with Porcaro Communications, a marketing firm that has received millions of dollars from Vote No on 1 to buy radio and TV ads defending the tax cut.