Skip to main Content

Arguments for SB21 are sleight-of-hand tricks

  • Author: Joe Paskvan
  • Updated: June 29, 2016
  • Published March 4, 2014

Tax cut proponents -- Gov. Sean Parnell, his commissioners and many legislators -- fed the full-throated rush to cut with catchy slogans: 1 million barrels per day and the cut-will-more-than-pay-for-itself and we can stop the decline. The slogans have slammed into the real world, and the SB21 proponents now look to be less than fully clothed. The SB21 whimper now seems to emphasize that at low prices SB21 and ACES are close. But, SB21's whimper covers up the destructive effect SB21 has upon Alaska; SB21 takes away Alaska's ability, at high oil prices, to fully participate in the windfall profits that flow from high oil prices.

The ACES bargain with Big Oil was based upon two fundamental concepts: 1.) ACES allowed generous deductions of operational expenses and capital expenditures (i.e. tax only profit oil -- not the gross) and 2.) ACES provided a low tax rate at low oil prices and received higher rates at high oil prices. Under ACES Alaska subsidized risk at low prices but was rewarded with a greater share when the windfall profits flowed freely. Alaskans would feel the pain of low prices, but we were entitled to our greater share of the windfall at high prices.

SB21 distorts the ACES bargain by taking away Alaska's opportunity for a higher rate at high oil prices. SB21 is the distorted coin flip where the result for the oil industry is 'heads, oil wins; tails, Alaska loses.'

Like the magician (or street hustler) the trick by SB21 supporters is accomplished by diverting your attention away from the real action, which is the significant and real losses at high oil prices. SB21 at lower pricing may bring in a few more dollars, but the intent of the SB21 trick is to get you to ignore the billions and billions lost at higher oil pricing.

In essence, ACES incorporates a balance where Alaska provides a significant subsidy at lower oil prices and receives a significant reward at high oil prices. In contrast, SB21 grants a significant subsidy at low prices, but Alaska doesn't get the increasing rates at high oil prices. SB21 corrupts capitalism in that government -- as opposed to the oil industry -- subsidizes the risk (by allowing generous deductions of operating and capital costs and providing a lower rate), and it transfers all the upside reward to oil (no higher rate for Alaska at high and very high pricing).

There is no dispute that at about $100 per barrel price, from just the Prudhoe Bay and Kuparuk fields, that SB21 would result in $1.7 billion in lost revenues to Alaska in one year (according to March 2013 Department of Revenue analysis of Fiscal Year 2012). If SB21 losses were analyzed at $140 or $150, the losses per year to Alaska are in multiples of billions of dollars. In summary, when Big Oil reaps windfall profits under SB21, Alaska gets less and keeps subsidizing Big Oil.

If you want Alaska to share in windfall profits with higher rates, then keep the ACES bargain by rejecting SB21. If you see the SB21 smoke and mirrors and magician's sleight-of-hand tricks, ignore the low-end analysis and ask them to show you real-world analysis at $140 or $150 pricing. Ask the SB21 supporters to explain the $20 Billion in deficits currently forecast for Alaska under SB21 and ask them to explain the Fiscal Year 2012 $1.7 billion loss from Prudhoe Bay and Kuparuk alone -- had SB21 been in effect.

If the 2014 budget analysis -- showing continuing declining production for years, not 1 million barrels per day throughput -- troubles you, than a prudent consideration is to keep ACES and reject SB21. If the truth is likely that "we can't stop the decline," as stated by Big Oil in November 2013, then it is also likely that SB21 is based upon the politicians fast talking sleight-of-hand. (As an aside, it makes sense -- if manipulation of public opinion is a goal -- that BP runs fluffy, feel good TV commercials and seeks to misdirect you away from its 'we can't stop the decline' statement.

The magicians' tricks are for fun and entertainment; Alaska's oil tax policy is for real. The risks of SB21 are becoming more and more apparent. The politicians' sleight-of-hand on their fast sell of SB21 is shameful; it appears they are shills for Big Oil and not representatives of the people of Alaska. However, the people of Alaska fortunately have the opportunity to demand more by rejecting SB21 this August. Please reject SB21.

Joe Paskvan was born and raised in Alaska and lives in Fairbanks. He is a former state senator, including chair of the Senate Labor and Commerce Committee and co-chair of Senate Resources Committee.

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.

Comments
Sponsored