Alaska's oil production tax should not be subject to a popular vote. But here we are, about to vote on immensely complex legislation that means billions to the state of Alaska and a group of private companies that the state's existence has come to depend – unfairly for both parties -- almost entirely upon.
Here we are, voting on “Alaska's future” through a haze of campaign spending so thick that people in Fairbanks might think there's an inversion.
Our legislators have passed the buck to us. And no matter what, we'll get it wrong. We don't have enough information to vote with our heads, so we'll vote with our hearts. And our hearts are full of fear because of so many pronouncements of doom.
We have created oil taxes motivated by emotion before, and it resulted in legislation that people divided on the current system agree was flawed. For a variety of political reasons, we voters are being forced to mop up this failure of policymakers to reach a grudging but durable consensus. And no matter whether the referendum fails, officials in Juneau would do well to take note that a great number of people took action against their legislation. The political process that created SB 21 resulted in failed consensus and forced us to make this horrible choice for a host of connected reasons:
Alaskans are being forced to vote on fiscal policy because a redistricting effort removed key legislative opponents of SB 21's spiritual predecessor, HB 110, and a bipartisan majority transformed into a partisan supermajority.
Forced to vote because the majority and this administration treated the legislative process as a sales pitch not an analysis, and got exactly what everyone knew it would all along: Its own way. It also got lots of outraged dissent.
Forced to vote because lawmakers with obvious and direct conflicts of interest voted on legislation that would create hundreds of millions in direct and immediate benefit to their own employers. They asked to be excused from voting. They were denied. Oil taxes or not, Alaska's legislative conflict of interest procedures are a true and complete disgrace.
Forced to vote because of economic and fiscal analysis that was withheld, incompletely understood, or simply not done during deliberation. New information, new studies, and fresh nuances about how SB 21 behaves are being discovered and examined right now, in the weeks before Tuesday's primary. Consider that for a moment. There are rather glaring aspects of the current tax structure and its effect on state finances that lawmakers did not consider before voting on it.
Forced to vote because the Legislature was caught by surprise by things like a revenue shortfall, a dramatic increase in the amount claimed as deductible lease expenditures, or how "GVR" would behave in the real world, and who knows how many others. All of those surprises -- despite assurances about how rigorous the consideration was -- are a huge indication that the Legislature did not do a thorough job of considering the most basic, short-term possible effects of SB 21. One other effect is that it immediately increased the value of leases and proven reserves.
We voters are being asked to decide a ludicrously complex choice because our leaders have failed to explain transparently why SB 21 would be an improvement on ACES for the direct benefit of the people of Alaska -- all of us, not just a few. Or why it's better for the state to trade concrete resource value guaranteed in our constitution for unwritten promises of indirect benefits and distributed economic impacts.
Because of all that, and more to be sure, on the very day that SB 21 passed the Legislature, a referendum effort to cancel it started in earnest. The fact that the opposition to that referendum is being funded by the industry has created plenty of skeptics, and rightly so.
It could also be said the political process that resulted in ACES was similarly slipshod to the one I've described here. Outrage was running hot after the Veco corruption scandal and the 2006 oil spill, and perhaps Alaska did take too large a share in profits. But the purpose of ACES was at least clear and backed by a broad swath of Alaskans. And there was no referendum effort. Politically and fiscally speaking, it's a better starting place to balance "maximum value" for Alaskans and industry interests than SB 21 is, which could also be thought of as a reaction to ACES, as the pendulum swinging too far the opposite direction.
At latest report, we're on track to hand over at least $800 million to the three largest North Slope companies this year simply for producing oil from leases that already require oil be produced if it is “economic,” not “wildly profitable.”
People lament that Alaska is no longer No.1 in oil production among U.S. states, and it's apparently so important that the Legislature and the governor have created something called a “competitiveness board.” But make no mistake, a huge reason Alaska's production has failed to keep pace with development in the rest of the country is that we allow it to.
Alaska is one of the only places in the world where “duty to produce” is a mere suggestion. Undeveloped leases, delayed well work-overs and other flow maintenance procedures would be matters of litigation in other states and machete mobs in some countries. But here, inexcusably credulous lawmakers accept such delayed work as proof that Alaska has failed to make oil production attractive enough. As if a bought-and-paid-for lease atop a known, economic and proven resource in a state with a long, proud tradition of success on a very challenging oil patch is not attractive enough.
Doug Smith, President and CEO of Little Red Services, an oilfield support firm, and one of the most engaging proponents of vote "no" I've heard in these recent months, said in Tuesday's debate that he warned Trond-Erik Johansen of ConocoPhillips Alaska that if the referendum fails and companies didn't keep the work coming by keeping their word on future projects, that they should “prepare for ACES squared.”
But it's not “ACES squared” we'll be getting if the referendum fails and companies don't back up their assurances with continued and meaningful activity on the oil patch. If the "More Alaska Production Act" survives referendum and those company promises fail, the majority and this administration -- who have largely been absent from the months-long discussion of their signature accomplishment last session -- will take it as a sign that we didn't cut taxes far enough.
The newly created “Oil and Gas Competitiveness Board" will probably help make that case. The best way for Alaska to “compete” will be for it to realize less value from its resource held in common. And that should be no surprise.
We're being asked to “decide” what Alaska's future should be by deciding what its tax policy should be, but it's not our job. It's our legislators' job. A yes vote will force them to try stopping the oil tax pendulum, for the good of all Alaskans and the industry itself. Though the legislature's oil tax deliberations may end up producing a gusher of public faith and confidence, its search for workable policy has produced yet another expensive, dry hole.
Either way this referendum goes, Alaska's not done discussing oil taxes, negotiations over a natural gas mega-project are on the horizon, and this state's future is unwritten, just like all those promises.
Scott Woodham is an opinion pages editor for Alaska Dispatch News.
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, email commentary(at)alaskadispatch.com.