In support of oil tax referendum, Bill Walker makes perfect case against it

Rick Rogers
OPINION: I admire Bill Walker’s passion, but I think he’s made the wrong policy call about Alaska’s oil tax structure. Voting no on Ballot Measure 1 is a vote for Alaska’s future.

In reading Bill Walker’s recent column on why he would be voting yes in the August primary election referendum to repeal oil tax reform, it was hard to understand how he could come to that conclusion if he stepped back and critically examined his very own statements about the ACES tax structure.

While I admire his passion in arguing to return to the old, failed Alaska’s Clear and Equitable Share oil tax, I could not help thinking he, in reality, made the case to keep oil tax reform intact and vote no.

He argues in the column, just as supporters of oil tax reform do, that oil production on the North Slope is on the decline. There simply can be no doubt about that. At its peak in January 1988, the trans-Alaska oil pipeline moved 2.1 million barrels of oil a day on average from the North Slope to Valdez. This year, that average has dropped to about 540,000 barrels.

Then, he says -- also as supporters of oil tax reform do -- that “ACES does need adjustment.” Adjustment? That is an understatement. The tax, which made Alaska uncompetitive among oil provinces, contributed to a marginal tax rate of more than 90 percent at higher oil prices; then took too little when prices were low.

Walker agrees, saying ACES “progressivity rate is too high and investment credits are not adequately focused on yielding large oil production increases.” 

That is the same thing oil tax reform proponents have been saying for a long time: ACES did not work; that it was too complicated; too punitive; and was not designed to spur oil production at a time when doing that very thing was absolutely crucial to the state. Prominent Democrats including state Sen. Hollis French and Bill Wielechowski, already have conceded publicly that ACES had flaws that needed to be fixed.

The investment credits Bill Walker writes about? The ones not “adequately focused”? That well-intended but misdirected provision in ACES gave oil companies billions of dollars in capital credits -- building roads, runways, infrastructure -- without producing a single additional new drop of oil. It needed fixing.

The sad truth is, ACES was a flop and never accomplished what it was supposed to do. In fact, if state officials in 2007 -- when ACES took effect -- had been correct in their predictions, there would have been 770,000 barrels of oil a day produced on the North Slope last year. The sad reality is that there were, on average, only about 520,000 barrels per day. ACES did not yield new production as it was supposed to.

The simple fact -- and Bill Walker gets it -- is that ACES did not work as planned. It did not deliver promised production and its tax rates were punitive. While oil production was soaring around the nation, in Alaska it was dropping, pushing the state back to fourth place among oil-producing states.

That lagging production cost Alaska hundreds of millions of dollars in revenues.

A fair question is this: If oil production is dropping, which Walker agrees is happening, and ACES did not work, which Walker agrees was the case, why would he or anybody else want to return to its provisions and saddle the state of Alaska with a tax that does not work and would cost the state billions?

Proponents of Senate Bill 21, the oil tax reform that took effect in January -- and seems to be working nicely to spur North Slope production -- are not arguing it is perfect. They are not saying it must be etched in stone forever. They are saying it is vast improvement over ACES and it is.

If the reform needs improvement or tweaking two or three years from now, the Legislature can have at it, and make the necessary changes. If that does not do the trick, it can do it again, until it gets it right. That is what legislatures do.

But returning to ACES -- especially when we all, Walker included, agree it was not working simply makes no sense at all. I admire Bill Walker’s passion, one of his personal strengths, but I think he’s made the wrong policy call about Alaska’s oil tax structure. Voting no on Ballot Measure 1 is a vote to increase oil production and revenues for the long run, and protect Alaska’s future.

Rick Rogers is the executive director of the Resources Development Council of Alaska, a statewide business association consisting of individuals, localities, groups and companies concerned with Alaska’s oil and gas, mining, forest products, tourism and fisheries industries.

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