Repeal of oil tax law would not kill gas line

Dermot Cole

FAIRBANKS -- The oil industry and its supporters warned that the Alaska tax plan would threaten the viability of a gas pipeline.

“The proposed action brings into question whether it would be possible for the state to ensure the predictability and durability necessary for such a huge project as the Alaska gas pipeline,” ExxonMobil declared.

A BP representative chimed in, “A gas pipeline project can only happen if the oil business is healthy.”

The action that triggered those remarks was not the referendum on the ballot next month to repeal the tax cut, but the decision nine years ago by then-Gov. Frank Murkowski to change field designations on the North Slope because some areas were paying next to nothing in taxes because of the “economic limit factor.”

I mention this as one example of many in the record to show that the default setting for the oil industry in Alaska is to label any tax increase plan as a poison pill for the gas pipeline.

The oil companies deviated a bit in 2006 when they agreed on an oil tax rate with Murkowski, prompting a sizable number of Alaskans to argue that since they agreed to it, the number must be too low. The companies won't make that mistake again.

So with the August primary a month away, the line about a “healthy” oil business being a prerequisite for a natural gas pipeline echoes across the land once more. The clear message in recent weeks by the industry and its supporters is that rejection of SB 21 will once again kill the gas pipeline.

But count that claim as false.

At its heart, the referendum is not just about the new law or the old law or the measures that the Legislature didn't approve, but about the process used by the governor and Legislature to create the new law. If voters keep SB 21, the Legislature will meet in five months. If voters reject SB 21, the Legislature will meet in five months.

The political process or reincarnation will continue. It's a convenient but unfair claim to say that supporters of repeal are dooming the gas line, harming the economy, destroying Alaska and depriving the next generation of jobs. 

The governor and the legislators who backed SB 21 regard that period in their lives as a settled policy that does not need to be reviewed. They would rather go on to other things and forget about oil taxes. No improvements are necessary. In this, they are following the long-established pattern in Alaska that led us to where we are now.

Rip Van Winkle treatment

One of the greatest weaknesses in our system — a flaw that goes back decades — is that we failed in Alaska, both in state government and at the University of Alaska, to develop the institutional expertise and background needed to respond to, deal with and understand three of the largest companies in the world. Or how to open the door for new entries that would expand the level of competition.

In exchange for taxes that provided enough money for state government to function without a statewide income tax or sales tax, the Alaska political and business community opted to remain passive most of the time, with few exceptions. And we end up with a review of oil tax policy in which the most complex issue facing the state is resolved with questions unanswered.

We have given oil taxation and state fiscal matters the Rip Van Winkle treatment, waking up every so often to discover that we live in a state dominated by the oil industry. Over the past decade, we’ve had three or four sleepless periods, which included a fair share of warnings about the impending demise of the gas pipeline dream if the oil tax wasn't just right.

Despite this enduring lack of knowledge and the desire of legislators to forget about oil taxes, it wouldn’t hurt to ask our government to create a better oil tax law than the old one or the new one. That's what I think the vote is about.

There is no need to stop the reform movement, as long as it is backed by analysis that reveals the pros and cons, instead of one without the other.

To those who argue that the political will wouldn’t exist to change anything if repeal succeeds and that it would take two years or longer to get anything done, I’d say that legislators should be held to a higher standard.

Regardless of what happens with the August vote, the gas pipeline will remain a major question mark, awaiting future negotiations and possible concessions. 

With long-term contracts and hundreds of billions of dollars at stake, the world market and the cost of construction are probably the biggest gas pipeline threats, with the future of state tax policy on oil and gas also on the list of major challenges.

Among other things, we don’t know if the companies will decide in a few years that they’d love to make this gas line work, but oil taxes are just too high. That approach worked with SB 21, so it would make sense for the companies to try it again. The oil companies are patient, while the politicians and public are impatient.

Voting to repeal the SB 21 oil tax cut would not kill the gas pipeline. It would stand as a directive to the governor and the Legislature to create a better tax policy for Alaska.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.