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Paul Jenkins: Road to Appalachia is paved with ACES

Paul Jenkins

Of all the hogwash hustled by charlatans working to repeal oil tax fixes needed for Alaska's healthy fiscal future, perhaps the most egregious is the claim that reform is a "giveaway" to the evil oil industry -- anywhere from $2 billion to $8 billion, depending on the fibber.

The Legislature this year passed Senate Bill 21 to spur slumping North Slope oil production and generate new tax revenue for Alaska, which relies on that money to make ends meet. About 90 cents of every dollar the state spends comes from that revenue.

The law SB21 fixed, Alaska's Clear and Equitable Share oil tax, or ACES, was lousy, with a 25 percent base rate and progressivity contributing to a marginal tax rate of more than 90 percent at higher oil prices. It squeezed industry far beyond what was necessary to pay for burgeoning government and fat capital budgets. Predictably, investment dollars for new oil production went elsewhere.

Worse, ACES contained tax credits for North Slope capital improvements that had nothing to do with increased oil production. The state found itself picking up a hefty slice of exploration and construction expenses, costing Alaska nearly $1 billion annually -- and producing not one drop of new oil.

The old tax did much damage. U.S. oil production has been skyrocketing. This nation is producing more than 7.7 million barrels of oil daily -- outpacing oil imports for the first time since 1995, despite the Obama administration. As production soared in places such as North Dakota and Texas, it declined in Alaska -- falling behind even California -- because of ACES. A good indicator of the state's fiscal health is throughput in the trans-Alaska oil pipeline -- drying up at 6 percent to 8 percent a year. This year's volume is about half of 2000's.

Because of flagging production, Alaska already is receiving hundreds of millions less than just a few years ago. Spending remains unabated, and economist Scott Goldsmith says by 2023, if things remain unchanged, Alaska will have blown through its hefty savings and be in a fix.

Because of all that, lawmakers finally moved this year to fix ACES. Even Democrats, mostly happy with it and "fine with the decline," had a plan, although it was only a tweak. Nobody wanted to keep ACES exactly as it was.

The Republicans' SB21, dubbed the More Alaska Production Act, aims to boost production and investment for new and additional North Slope oil. That's the law Democrats want to dump in the upcoming primary election to again embrace ACES.

While repeal proponents paint SB21 as a giveaway, in reality it is a tax cut incentive and its cost to Alaska hinges on oil prices and production. With prices at about $100 per barrel, Alaska could lose $200 million to $475 million a year -- initially. Not $2 billion. Not $8 billion. At higher prices the loss increases but prices have been leveling at about $100 a barrel.

SB21 contains a 35 percent base rate -- fought tooth and nail by the oil industry -- but no progressivity. It offers substantial tax credits but for increased oil production rather than capital improvements. It offers a tax exemption for some 20 percent of revenue from oil produced from new North Slope fields. There is a $5 credit per barrel of new oil, and progressivity is replaced by a sliding, per-barrel credit based on price that zeros out at $120 a barrel.

Production increases are predicted to replace lost tax revenues at about 20,000 new barrels of oil a day. Newspaper headlines already indicate increased North Slope activity. ConocoPhillips may add 55,000 barrels a day by 2018, says one headline. BP says it plans to invest $1 billion more in Alaska, says another. And "Repsol plans three more wells, three more rigs," says yet another.

That is what SB21 is about, making Alaska's taxes attractive enough to draw North Slope investment and spur production. Alaska stands to gain over the long haul -- in jobs, revenue and a sound fiscal future.

If voters repeal oil tax reform -- and it could not be more clear -- we will be living in a place like Appalachia, as I've mentioned before, only darker and colder.

We could call it Alaskalachia. Its motto: North to the Poorhouse.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications, which is performing services for the "Vote No on 1" anti-repeal effort.


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