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As audience sips beer, oil tax debate centered on trust unfolds at Bear Tooth

Alex DeMarban

It might be a stretch to say the debate Tuesday night at the Bear Tooth Theatrepub made oil taxes sexy, but at least the popular Anchorage venue attracted a sell-out crowd and prompted a back-and-forth that was, well, more fluid than some of the past debates on the topic.

The event combined two of Alaska’s favorite liquids, oil and beer, joked moderator Steve Johnson, debate coach for the University of Alaska Anchorage.

Then the questions flew.  

On Tuesday, Alaskans will decide whether to reinstate the former oil production tax law, Alaska’s Clear and Equitable Share, or keep its 2014 replacement, the More Alaska Production Act or Senate Bill 21.

The topic at the trendy pub and grill centered on trust.

To argue against the repeal, the debate teamed Doug Smith, president of Little Red Services, which provides well-enhancement work on the North Slope, with Mark Hamilton, former president of the University of Alaska.  

They faced off against repeal supporters state Sen. Bill Wielechowski and former Anchorage Sen. Chancy Croft.  

Everyone onstage was drinking – nothing more than water.  

Smith and Hamilton attacked Wielechowski, a frequent debater and a key target of the Vote No crowd. They tried to discredit the charts and graphs he always hands out at debates that put ACES in the best light while slamming MAPA.

Instead, voters should look at the work of experts hired by the Legislature, such as Janak Mayer of PFC Energy, who said in March of this year that Senate Bill 21 will likely generate slightly higher revenues than ACES in 2015, they pointed out.

Wielechowski said his figures all come from the Parnell administration or the oil industry, so any mistakes are theirs.

Hamilton pressed Wielechowski to explain how Senate Bill 21 can now make more money than ACES. Wielechowski answered that there can be fluctuations under either law, though Hamilton wasn’t satisfied with that answer.

In contrast to recent, rosy predictions about MAPA, Wielechowski said in spring 2013 that the Parnell administration had told the Legislature before MAPA passed that it would cost the state $4.6 billion over five years if it replaced ACES.   

Wielechowski said it must be just a coincidence that Democrats opposed to MAPA had predicted the law would cost the state $2 billion, and the state ended up with a $2 billion deficit in the fiscal year that ended June 30.

Hamilton replied that the idea of a revenue "giveaway" had been “so debunked” by veteran economist Scott Goldsmith. Changing the outcome in state tax revenue since spring 2013, in part, was the lower-than-expected price of oil, Hamilton said.

Wielechowski reminded the audience that the Department of Revenue said that if MAPA had been in effect for six years instead of ACES, the state would have been $8.5 billion poorer.

Wielechowski said another factor had changed “conveniently.” Production costs ramped up shortly after Senate Bill 21 was passed, by 50 percent, he said, reducing what could be taxed since producers deduct capital and operating costs before they pay taxes.     

Former state Sen. Croft presented the issue of trust, too. Why didn’t any of the BP, ConocoPhillips or ExxonMobil executives ever appear onstage at any of the numerous debates held on the oil tax, he wondered.

Why is it left to people like the debaters onstage to speculate and essentially “paw through the entrails of birds” to figure out what the oil companies will do in response to Senate Bill 21?

That's because those executives say things that don’t help the argument for MAPA, Croft said. Such as a BP official saying last year the company can’t stop the North Slope’s long-term production decline, or a once-confidential BP memo in 2003 that said that Alaska’s role in the company’s global portfolio is providing revenue to fuel growth elsewhere.  

Hamilton spoke next, saying he now understood where Wielechowski gets his charts: “Pawing through the entrails of birds.”

Hamilton said ACES was a failed policy born in turmoil in 2007 – after the FBI had launched a corruption investigation that led to jail for some lawmakers and executives with oil field services company Veco. Lawmakers, scrambling to show they weren’t friends of the oil industry, carelessly and sharply ratcheted up the taxes on oil producers. It led to reduced production and therefore less royalty oil for the state, which in turn led to a drop in the money that could go into the state’s Permanent Fund savings account.

“You gonna trust that law? I don’t,” said Hamilton.

Wielechowski said the oil industry had in the past abused the public’s trust, including by being found guilty of illegally increasing the pipeline tariff in order to show higher tax-deductible expenses to reduce its production taxes.

“We trusted them for 30 years” that they’d put more oil in the pipeline. But production has fallen almost every year for the last quarter-century.

“We have to stop acting like an owned state, and start acting like an owner state,” he said.

Smith, with Little Red Services, said Alaskans need to give the new law two years. If not, they should ramp up the production taxes.

“If you don’t invest, prepare for ACES squared,” he said he has told Trond-Erik Johansen, president of ConocoPhillips Alaska.       

Smith provided a fresh perspective for veteran debate watchers.  

He said jobs increased under ACES, but they’re rising even faster now that investments are up, including at Little Red Services. He said the state has traditionally had difficulty – no surprise – predicting the price of oil and production levels, but that this fall in its production forecast, the administration will have its first chance to work in new projects encouraged by Senate Bill 21.  

During the debate, Smith did not disclose that he stands to soon benefit from Senate Bill 21 -- to the tune of about $10,000 for him personally for a tax credit that will be worth about $100,000 for owners of Little Red Services. The credit stems from a $1 million income tax payment and manufacturing work brought to Alaska from Canada, he said.

The credit is for a little-discussed provision in Senate Bill 21 that provides a tax credit for products manufactured in state for use in the oil fields.

It’s a good provision that’s helping create jobs in Alaska, Smith said.

He said after the debate he didn’t share that information with the audience because the discussion isn’t about him.  “I want people to look at the facts,” he said.

At the close of the event, about 300 people voted in a completely unofficial text-message poll -- the texts could have been sent from any phones from who knows where -- with about 56 percent saying Alaskans should vote to keep Senate Bill 21. Thirty-five percent favored repealing the law.

The event was sponsored by the UAA debate team and Alaska Dispatch News.