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Compass: Repeal SB 21 and start real partnership with oil industry

  • Author:
  • Updated: September 28, 2016
  • Published November 22, 2013

Recently, the Anchorage Chamber hosted a debate on how to address Alaska's growing budget shortfall and maintain a vibrant state economy. One side argued we should immediately slash spending on public services by $1.5 billion -- from snowplowing to caring for our seniors to public safety. Thousands of Alaskans would lose their jobs, sending our economy into a free fall.

The other side proposed cutting spending by a more modest amount while imposing a broad-based sales tax or using Permanent Fund earnings.

Interestingly, both sides included strong supporters of Senate Bill 21, which gave billions in tax breaks to the oil industry. Apparently the charade that giving away billions with no strings attached will somehow lead to more state revenue is over and we now face the harsh realities of this new tax policy -- billions in deficits into the foreseeable future.

For decades, we have attempted to influence oil production by giving massive tax breaks. That policy has been a massive failure. Under the old ELF tax structure, 15 of 19 oil fields paid zero production taxes, and the four that did paid a paltry 12.5 percent or less. After decades of low taxes and record oil prices, production plummeted by more than 50 percent. And Alaska lost hundreds of billions of dollars.

One need only look at Norway to see how our poor tax policies have cost Alaskans. Norway started its Permanent Fund 19 years after ours. Alaska's Permanent Fund has roughly $48 billion. Norway's has more than $800 billion.

Imagine what we could do with a Permanent Fund of even 20 percent of Norway's. We could create the best education system in the world, eliminate property taxes, provide affordable energy for all Alaskans and increase our PFDs by thousands per year. Instead, we made a policy call decades ago to give that money to the oil companies -- for more promised production that never came. SB 21 brings us right back to that failed policy.

Let's not make that same mistake again. Let's repeal SB 21 and forge a new relationship with the oil industry.

How was Norway able to do it? It partners directly with the oil industry. This creates alignment between the government and industry and has allowed Norway to charge a staggering 78 percent tax rate -- much higher than Alaska's ever was. Yet business is booming and companies still make huge profits.

Part of the problem in Alaska is our lease structure. Instead of leasing our oil-rich lands to the highest bidder, we should lease to the best bidder -- the company whose development plan provides the greatest benefits to Alaskans. We've seen way too many instances of companies warehousing our oil for decades, including Point Thomson. Instead of litigating endlessly to get our oil developed, let's set the terms right from the start so everyone is in alignment.

Next, let's partner with industry and give the state the opportunity to take an equity share in our oil and gas fields, just like some are suggesting we do with the natural gas pipeline. We would pay a share of operating costs and, like other owners, get a matching share of revenues. This would not only generate huge revenues for Alaska but give Alaskans a seat at the table when development decisions are being made. Instead of economic and development data shrouded in secrecy, as it is now, we would have access to the information we need to create a tax system that is stable and encourages industry investment.

Alaskans should not be scared into settling for a second-rate education for our kids, higher crime rates or poorly maintained roads. Rather than sending our economy into a nose drive, Alaskans need to take a close look at truly partnering with the oil industry.

Alaska Industrial and Export Authority already partners with companies on promising development projects. Instead of doing the same thing that failed us for decades and now expecting a different result, let's change the relationship and begin partnering with the industry.

Bill Wielechowski, D-Anchorage, has served in the state Senate since 2007.


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