Two Democratic state senators who led the opposition to Gov. Sean Parnell's oil tax cuts challenged him Tuesday to prove the cuts will produce more oil by giving the industry five years to beat current production. If they fail to meet that target, the new tax would be rescinded, as proposed in legislation unveiled by the two lawmakers.
At a news conference in Anchorage, Sens. Hollis French and Bill Wielechowski, both of Anchorage, asked Parnell to call the Legislature into special session for the "show me" bill they are having drafted.
The bill would challenge industry to prove that the tax cuts are working as advertised -- that they are encouraging industry to invest enough on the North Slope to halt the slow decline that began in 1988 when production hit 2 million barrels a day. If production doesn't increase from current levels -- 515,000 barrels per day in 2013 -- the bill would restore the prior tax regime, Alaska's Clear and Equitable Share, or ACES, and make it retroactive to 2014.
Were the Democrats' bill to pass a special session -- an extremely unlikely scenario, given how central the tax cut has been to Parnell administration policy -- the senators said they would withdraw their support for the referendum in August that would repeal the tax law, Senate Bill 21.
Parnell's spokeswoman, Sharon Leighow, said Senate Bill 21 is working.
"After seven years of ACES, Alaska saw a continued decline in production," she said in an email statement. "Considering the billions of dollars in new investment, we are confident SB 21 will result in more production."
The new tax law has also resulted in more North Slope jobs and business activity, she said.
But Wielechowski and French said that the effect of the tax law will be to provide more profits to industry, not more oil in the pipeline. The production decline had been underway long before ACES, and is predicted by the state Revenue Department to continue long into the future, they said. Rather than turn around the decline, Senate Bill 21 has cost the state billions of dollars in taxes, they said.
Wielechowski said the oil industry has demonstrated time and again over the years that it shouldn't be trusted. Their bill would take faith out of the equation by making success or failure of Senate Bill 21 a matter of accounting.
If production was turned around, they said, they would concede that the tax change was good public policy. But if Parnell doesn't support their call for a special session to pass their bill before the August referendum, it would "indicate to all of Alaska just how empty the promise of SB 21 is," they wrote in a letter to Parnell.
A spokesman for one of the groups opposing the referendum, Willis Lyford of Vote No On One, described the Wielechowski-French challenge as a "campaign ploy" and not a serious policy proposal.
"There are already strong signs that tax reform is working," Lyford said in a prepared statement sent to reporters. "Announcements of new activity on the North Slope have made headlines since the law was passed."
And House Speaker Mike Chenault, R-Nikiski, a strong supporter of the tax cut, described the challenge as "blatant electioneering."
"The press conference was election-year political theater and sour grapes for having been in a minority that wanted to keep a tax system that was driving investment, and production, out of Alaska," Chenault said in a prepared statement.
Using a red 55-gallon drum as a prop and standing beside a large graph showing the billions of dollars the state would have lost had Senate Bill 21 been in force over the previous seven years rather than just taking effect in 2013, French and Wielechowski described the tax cuts as a "giveaway."
"It will not produce more oil, it will not provide more revenue to the state of Alaska," Wielechowski said. "Gov. Parnell set a goal of 1 million barrels a day to be produced down the pipeline within 10 years, yet his own revenue forecasts now show that we can expect a 45 percent decline in production over the next 10 years -- down to 312,000 barrels a day."
For decades, oil taxes and royalties from the state-owned North Slope fields have provided most of the revenue for the Alaska's general fund and allowed the state to eliminate the income tax and create the Permanent Fund Dividend.
"The question is, how do we ensure that we're following our constitutional obligation to make sure that we're getting the maximum benefit for our resource?" asked Wielechowski. "Let's put it in the statute. We have an offer for the governor -- sign a bill that guarantees that Senate Bill 21 will produce one additional barrel of oil by 2019 over what was produced in 2013, and will produce one additional dollar of revenue over what ACES would have produced, and we will drop our support for the repeal."
Reach Richard Mauer at rmauer@adn.com or (907) 257-4345.
By RICHARD MAUER