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Stedman: New oil tax puts Alaska far below North Dakota

  • Author: Dermot Cole
    | Opinion
  • Updated: July 7, 2016
  • Published February 24, 2014

FAIRBANKS -- The Alaska Legislature wants to put oil taxes in the "been there, done that" category, as legislators cling to the false hope that the SB 21 tax cut is the final word on the subject.

But regardless of whether the referendum to repeal the 2013 tax law is approved or turned down by voters in August, the legislative hands-off policy leaves critical issues unresolved.

The best argument I've heard about this situation came in a speech delivered to the state Senate Friday by Sen. Bert Stedman.

Stedman, a hardheaded accountant from Sitka, is at odds with most of the other members of the Alaska Senate on oil taxes. They would do well to share some of his skepticism, not only with the old tax law, Alaska's Clear and Equitable Share, but also with the new one, SB 21.

In the course of about 10 minutes, he gave Alaskans a good explanation of why lawmakers will be shirking their duties if they don't deal with oil taxes again this year.

He said that oil tax credits are now $400 million higher under SB 21 than under the old tax system and that the new tax takes in $1.4 billion less than the state would take if it had North Dakota's tax system.

Stedman broke down the Alaska oil industry in billion-dollar increments.

He started with the estimate that the gross value of North Slope oil in the next fiscal year will be about $19 billion. From that number, he subtracted $2.3 billion for the royalty oil owned by the state, $1.6 billion in costs for transporting oil to market, and $7.3 billion in construction and operating costs.

That leaves $7.8 billion to be split among the industry, the state and federal governments, he said.

SB 21 has been advertised as a 35 percent tax, which would mean about $2.7 billion to the state, but the real tax rate is closer to 19 percent, he said.

He said that is because you have to subtract a per-barrel credit in SB 21, expected to total nearly $1 billion in tax reductions next year. With other credits included, state income under SB 21 drops to about $1.5 billion, he said.

"We're precipitously under North Dakota by about $1.4 billion, if we had the tax regime of North Dakota in Alaska today," he said.

He said one of the fundamental problems with the new law is that the "government take" percentage is now in the "high 50s," whereas to be competitive with other oil-producing areas around the world, the state should be in the "high 60s."

His bill proposes cutting the sliding-scale per-barrel credit next year from $6 to $3, which would mean about $500 million more in revenue to the state. He also proposed an increase in the minimum tax that would add about $400 million.

The combination of those two changes, roughly a $900 million increase from the SB 21 levels, would still leave the Alaska tax bite about $500 million below what it would be in North Dakota, he said.

He said it "would put the state in a much more competitive position" with other oil-producing areas and it would eliminate some of the disadvantages with Alaska's Clear and Equitable Share, the old tax system.

"There's a lot of risk if the referendum passes," he said, warning that repealing SB 21 could lead to a loss of momentum on the gas pipeline and a decline in future North Slope capital investments.

"The risk we have if the referendum doesn't prevail -- the impact on our treasury. And leaving that much money on the table when we have to get public support to deal with our budget reductions," he said.

He said his plan would split the difference between ACES and SB 21 and keep the state competitive. He said it would "take a lot of the risk out of both ends of the issue and allow us to move forward."

Democrats introduced their own proposal to revise the oil tax law, which was immediately buried in three committees in the House, perhaps never to be seen again. A similar fate probably awaits a Senate version.

Like the measure offered by Stedman, the plan from the Democrats deals with questions that majority Republicans in the House and Senate would prefer to ignore. These issues are not going to go away, however, especially if it is true that the new tax is now far below that of North Dakota.

If the governor and the legislative majorities really believe in SB 21 and want the voters to endorse their decision, they shouldn't duck this debate in favor of emotional TV ads in which facts are few and far between.

Contact Dermot Cole at dermot(at)alaskadispatch.com. Follow him on Twitter @dermotmcole

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.

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