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Oil tax cut advocates don't want Alaskans to know how deep the cuts go

  • Author: Les Gara
  • Updated: June 30, 2016
  • Published August 14, 2014

It's interesting how more than $12 million in oil company ads don't mention a hidden special interest provision in SB 21 -- one they won't talk about before this Tuesday's repeal vote. SB 21 retroactively gifts companies a production tax that gets Alaskans a near-zero or negative value for EVERY field after 2003, and every future field. Republican Sen. Bert Stedman was right that SB 21 sells our oil at a "going out of business sale" price.

Where does this zero-value production tax fact come from? This multibillion-dollar gift is in the Scott Goldsmith report touted by the "Vote No" folks and funded by Northrim Bank. I should let you know, since they won't, that Mr. Goldsmith's analysis of this near-zero or negative worth production tax provision begins on page 19 of his online presentation.

No private business would sell its products for little or a negative worth. Alaska shouldn't either. A near-zero or negative production tax value means a damaged economy. It will continue the last three years of teacher and educator cuts, and grow this year's $1 billion-plus budget deficit so we won't be able to afford road construction, maintenance, engineering, affordable energy, public safety, health care and other jobs. That will harm businesses where lost workers would have shopped.

I'd work to improve our prior law, ACES. But SB 21 directly guts our ability to create job opportunity and reverse what will be more than 1,000 lost teachers and staff between 2011 and the end of the latest three-year legislative school austerity plan passed this year. I'd like an equal partnership with industry, not a junior partnership and worse schools.

Let's correct a few more ad myths.

Oil investment grew vastly -- by more than 50 percent -- under ACES. Unfortunately, the latest ads mislead that SB 21 is somehow "turning around" a nonexistent ACES investment "decline."

Those mythical "new" fields? The 50 percent-plus investment increase under ACES paid to develop and explore all the falsely billed "new" fields companies claim they are investing in because of SB 21. Fields companies were investing heavily in to lease, explore and develop under ACES include CD-5, Moose's and Bear Tooth in the National Petroleum Reserve-Alaska, years of pre-SB 21 announced expansion commitments in Kuparuk and its undeveloped southwest corner, Exxon's Point Thomson field, and every field companies invested millions in under ACES before 2013.

Want to talk special-interest legislation? This near-zero or negative production tax worth provision in SB 21 unapologetically rewards illegal conduct. Exxon violated the law for 30 years by breaching its lease duty to develop the large Point Thomson field. Legal action was brought against Exxon during ACES. That case settled under ACES to require Exxon start production at Point Thomson. By delaying development 30 years, Exxon now qualifies for SB 21's near-zero or negative production tax value provision. When production belatedly starts, it will be considered "new oil." Exxon gets rewarded for breaking the law.

How can the state can get a negative or zero worth under SB 21? As Goldsmith explained, post-2003 and future oil fields -- cryptically labeled "GVR" oil in SB 21 -- pay so low a tax rate that it barely or never covers the money the state pays up front, in development tax credits and deductions to help develop these fields.

SB 21 produces a steep oil production decline, and less oil than ACES would have. Where does that come from? Facts, not ads:

Since 2013, Parnell's Department of Revenue has produced what it calls its most accurate oil production forecast ever, working with industry. It says production will fall by 40 percent in the next decade under SB 21.

In their last ACES forecast (April 2013), they said ACES would produce more oil by 2022 than SB 21 (April 2014, SB 21 forecast). Why? Because SB 21 doesn't require its massive tax reductions to be invested in Alaska. They can and will be spent in places like Russia and Azerbaijan. Under ACES, or any smart improvements on ACES, companies should be able to reasonably buy down their tax rate if they invest in Alaska to bolster Alaska production.

Oil has been Alaska's lifeblood. It won't be if we just give it away.

Rep. Les Gara, D-Anchorage, has served in the state House of Representatives since 2003.

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(at)