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It's oil tax debate season in Alaska, but let's do it right

  • Author: Cathy Giessel
  • Updated: June 25, 2016
  • Published May 17, 2016

As routine as annual dipnetting and moose hunting seasons, this is the season for rehashing Alaska's oil taxes. It's becoming a ritual, complete with its own traditions, and its own myths.

I have read in these pages that Alaska "is giving away more in tax breaks than we collect" from the oil industry. This is simply not true. From 2007-2014, Alaska's government received nearly $27 billion in oil and gas taxes, and nearly $40 billion in total oil and gas revenue. Even at 2015's depressed prices, Alaska cleared $1 billion in net oil profits, after all applicable credits were paid.

Oil has paid nearly every bill and seeded our Permanent Fund for decades. Naysayers focus on production taxes, and overlook the state's royalty take: one of every eight barrels of oil goes straight to the state, before any tax or credit calculations even take place.

Alaska's staggering oil income came at a time of historically high prices, and demand for fuel worldwide was insatiable. Still, Alaska's production, continued to go down year after year. At one point, California, with more environmental red tape than a Macy's Thanksgiving Day parade, surpassed the Last Frontier in production of black gold.

Why?

Our tax system, called ACES, was punishing at higher prices. Alaska already has operating costs three to four times higher than anywhere else in North America. ACES just added insult to injury.

On top of that, ACES had a wrinkle: credits that were not tied to production. This past week, the Alaska Department of Revenue testified between that same 2007-2014 period, over $7.4 billion in credits were issued under ACES. Of that, $5.4 billion went to the North Slope in a shotgun approach. Even worse, ACES credits had no bottom: if prices collapsed, companies could spend indiscriminately on work not designed to get more oil to market, and credits could drive Alaska into the red.

The flaws in ACES were known for years, and we worked hard to fix them in Senate Bill 21.

The irrefutable numerical fact is that the sea of red ink we are swimming into today would be much deeper if ACES were still the law of the land. Thank goodness voters knew best.

SB 21 worked to protect the state by balancing the scales: instead of punishing, progressive tax rates, we raised the base rate and removed several credits, then tied credits to actual production instead of expenses.

And what about that falling production? For the first time since 2002, oil production year-over-year actually grew this year, reversing the 7 percent decline in average annual production we saw in calendar year 2013. And this production increase happened despite a worldwide price collapse.

SB 21 has delivered more money and increased production all in the same package. How is that broken?

As we work to reform the remaining oil and gas tax credits this year, we are striking a delicate balance.

Just six years ago, I recall neighbors, business leaders and city officials leading the charge on getting more gas out of Cook Inlet. Anchorage was testing brownouts, in the coldest months of the year. For any region in the United States, especially one next to abundant gas fields, this was unacceptable.

The Cook Inlet Recovery Act sponsored by Rep. Mike Hawker was passed, enthusiastically, by every single member of the Legislature.

That's right, many of the very same voices decrying credits today, voted "yes" just yesterday. It's an election year, and every hero needs his villain. Amnesia can be very convenient. But don't Alaskans deserve the facts?

The fact is we need to reform oil and gas tax credits yet again. The fact is the Senate and House majorities have been consistent on that front: every version of our bills has seen more and more reductions in credits, and more potential disruption to an industry that employs thousands of Alaskans statewide.

Alaskans would be far better served by sticking to the facts and not being misled by statements about "giveaways" and "free rides" and "oil costing us more than it provides." Yesterday's investment might look like a giveaway, but that doesn't change the fact that production and revenue are higher today than they would be under ACES.

As we finish this legislative session, and we reform oil and gas tax credits, we must exercise patience, discipline and work with a long-term vision. Rewriting history while dramatically overhauling the rules that made success possible does not move Alaska forward.

Sen. Cathy Giessel, R-Anchorage, represents District N in the Alaska State Senate.

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@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

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