In what was a prequel to the fight that will surely absorb much of the next legislative session, state Rep. Les Gara, D-Anchorage, and Bruce Tangeman, Deputy Commissioner for Alaska's Department of Revenue, hashed oil taxes out in a debate on Monday on the campus of University of Alaska Anchorage.
Gara has been one of the most vocal supporters of the current tax structure, one that he helped create in 2007 when Gov. Sarah Palin was at the helm. The tax, Alaska's Clear and Equitable Share (ACES), was a significant increase over the former tax structure created in 2006 by Palin's predecessor, Gov. Frank Murkowski, which itself was a substantial increase over the prior tax structure.
ACES has stuffed state coffers with billions of dollars more than Murkowski's plan would have provided, money that Gara said pays for school teachers and policemen and firemen. In 2010, Alaska took in about $3 billion in production taxes -- nearly half of the more than $6 billion it took in total oil taxes.
In 2011, the Department of Revenue forecasts the production tax to bring in more than $4 billion, for a total take of more than $7 billion.
When oil is about $100 per barrel, as it's been recently, the state take is 53 percent, the federal government's take is about 17 percent, and industry gets the rest. Since 2007, ConocoPhillips has made about $7.8 billion in profits from Alaska's oil, while BP has made $8.5 billion.
When it passed, ACES was supported by Sean Parnell, who then served as Palin's lieutenant governor and now, of course, runs the state himself. And since his days as lieutenant, Parnell's experienced a change of heart with regards to the state's oil tax regime.
Today, Parnell is fighting to lower taxes on the oil industry.
That's one step Alaska can take, he says, to encourage increased exploration and production at a time when North Slope oil is vanishing. A bill he proposed last legislative session -- which passed the state House but not the Senate -- would lower taxes on industry about $1.8 billion per year.
Gara calls that crazy talk. ACES contains a substantial "progressivity rate," meaning the state gets more when oil prices are high. Gara said he might be willing to tinker with taxes on the upper end of the scale if the state could receive assurances of greater exploration and production from the "Big Three" -- ExxonMobil Corp., ConocoPhillips and BP -- the main North Slope players.
So far, only Conoco has said that it will probably invest up to $3 billion in the North Slope's Kupurak and Alpine oil fields. Those fields, however, are already producing oil.
BP told Gara during a 2011 legislative hearing that more Alaska exploration was "not in the plan." Exxon told Gara during that same hearing the company hadn't drilled any exploration wells in Alaska since 1992 and the company couldn't "promise" that reducing taxes will lead to more exploration.
Tangeman on Monday offered a seemingly simple solution: if production doesn't increase in the five years following the tax cut, the state will reconsider and raise taxes again.
However, in Alaska, the fight to raise oil taxes has seldom been simple.
Prior to 2006, Alaska had only increased taxes once in nearly 20 years. The last increase was in 1989, and the fight was enormous even as oil was lapping the shores of Prince William Sound. The vote rested on Republican legislator John Binkley, who ran against Palin in the Republican governor's primary in 2006. If he supported it, another normally pro-industry legislator said he would, too.
Binkley had been on the fence, and his fellow Republican legislators knew it. They also knew that if they allowed him to talk to the governor at the time, Steve Cowper, it was pretty much a done deal. So they surrounded him in the hallways to keep him from doing so. In order to get away from them, he told them that he had left something in his office and would be right back. A few minutes later he was crawling down a fire escape, which took him to Cowper's office.
Murkowski's bill is what was being discussed by Bill Allen and other state legislators in the "Animal House," and which was also, unfortunately for them, being taped by the FBI. It was the bill that led to raids and ruined careers, tarnished reputations, and the rise of Sarah Palin. Palin was then able to use all of the drama -- including a public courtroom scene where the voice of then ConocoPhilips Alaska President Jim Bowles ordering Allen to make sure to get a bill killed that proposed higher taxes than the company wanted to pay -- to get ACES passed.
On Monday, Tangeman said that it's time for Alaskans to "move on" and stop focusing on what happened five years ago. "If the goal is to punish these companies," he said, "mission accomplished."
At the end of the two-hour debate, a member of the audience asked for a show of hands on who won the debate. A large majority in the audience thought that it went to Gara.
Clarification: Gara said that he doesn't think ACES is perfect and that he's sponsored a bill that would add additional tax credits for exploration to ACES.
Contact Amanda Coyne at amanda(at)alaskadispatch.com