During hard times, it is vital to be candid. While there are plenty of people cluttering the public discourse with misinformation, it does not get Alaska anywhere closer to a solution. The indisputable fact is, even at these painfully low oil prices, the state of Alaska still receives more revenues from the oil industry than it pays out in incentives. Despite what longtime industry critics Reps. Les Gara and David Guttenberg keep insinuating in their carefully crafted news releases, the state still makes most of its money off the oil industry.
In their recent commentary, printed in Alaska Dispatch News March 29, the representatives failed to acknowledge one painful truth: Alaska's main economic driver is bleeding. Oil prices have plummeted 70 percent in less than two years, and oil companies are cash flow negative. In other words, on a day-to-day basis, the companies do not have enough daily cash to cover their daily expenses. Even more troubling, this is the case even before the companies pay any taxes.
Companies can only sustain this business model for so long, and it represents a brutal wake-up call for Alaska. Companies are forced to make tough choices about how much activity they can actually afford. In just the past few weeks, we have seen several startling, and frankly, chilling announcements about companies shutting down rigs, or simply leaving the state entirely. The current economic realities are fundamentally changing the oil and gas landscape in Alaska.
Despite that grim reality, Gov. Bill Walker and the usual slate of anti-oil legislators propose the same, tired, and frankly, completely unrealistic budget "solution" of adding more costs to industry through increased taxes and loss of incentives. Taxes will increase by at least 25 percent for some companies under their proposal, and others will pay much more.
Consider this: the only reason the administration is proposing the sixth fiscal policy change in 11 years is to drum up more money for government. Despite the oil and gas industry being the largest source of the state's spending money, and by far, the largest taxpayer, the governor and Reps. Gara and Guttenberg want to raise taxes on Alaska's largest economic driver while the industry is swimming in red ink -- it is a flagrant money grab, and disregards basic economic tenets and compromises the long-term health of the state.
Gara and Guttenberg say the oil industry needs to pay its "fair share." The truth is, industry is already contributing to government in a vital way, and has been since its inception. In fact, even if no changes in fiscal policy were adopted, and regardless of oil price and a projection that industry will post close to a $1 billion loss in Alaska in 2016, the industry will still pay royalties, production taxes, property taxes, and corporate income taxes, all before they pay themselves.
Assuming the governor's fiscal plan proposal is adopted in its entirety, the oil and gas industry will still pay far more in taxes than any other industry in Alaska: 7.5 times more than the governor's proposed income tax, 37 times more than commercial fishing, and 50 times more than mining.
In the spirit of "pulling together," and in order to survive the current economic downturn, it cannot be emphasized enough that increasing costs on an industry that is losing money is only going to make things worse. Cutbacks, additional job losses, and less oil production are certain to follow such a policy. This is not an academic discussion: deciding to treat the oil industry as a cash register despite the industry being upside down on every barrel of oil it produces will have bad outcomes for Alaska families. This reality is not in question.
You can shear a sheep many times, but only skin him once. It is a simple statement of fact. Decisions made today must account for not only short-term benefits but long-term costs.
In light of Alaska's fiscal reality, it is unconscionable for the state to actively seek legislation that knowingly makes a bad situation worse.
More information on AOGA's position on oil taxes and credits is available online.
Kara Moriarty is president and CEO of the Alaska Oil and Gas Association.
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