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Oil tax debate revolves around dueling statistics, and how they should be interpreted

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published July 14, 2014

With five weeks until voters hit the polls to consider repealing the oil-production tax cut, experts on both sides squared off at a debate in Juneau on Monday night, with Rep. Les Gara brandishing Parnell-administration statistics to argue for a repeal and a pair of high-level staffers who had worked for Gov. Frank Murkowski arguing that the tax cut should stay and that new investment has already led to higher-than-expected production.

Gara, a staunch opponent of the tax cut, said the administration of Gov. Sean Parnell, who introduced Senate Bill 21, predicted a steeper decline under the oil-tax cut than under the previous system known as Alaska Clear and Equitable Share that taxed producers more heavily as oil prices rose. Under Senate Bill 21, oil production that's now around 500,000 barrels a day is predicted to drop to 285,000 barrels per day by 2024.

Bill Corbus, Revenue commissioner under Murkowski from 2003 to 2006, said the forecast was based on old industry investment plans that have jumped substantially because of the tax cut, with the state's major oil companies now planning $37 billion in investment over the next decade, up from $28 billion.

Those long-term production figures should change when new state forecasts are published in December, he said.

Jim Clark, who served as chief of staff under Murkowski from 2002 to 2006, said thanks to the tax cut, an annual 6 percent decline in production has leveled out for the first time in years.

Gara provided audiences with figures saying the Parnell administration had predicted in 2011, with ACES still in effect at the time, that 2014 would see a slight uptick in production.

Clark said during the debate that numbers are being thrown around that are tied to estimates and that in some cases are unknowable. But a key fact to remember is that everyone agrees ACES needs to be fixed, including its current supporters. The Legislature made that fix, and the new cut needs to be given a chance to work. It can be amended if it turns out it is not leading to enough new production, he said.

Former oil and gas attorney Lisa Weissler argued with Gara for a repeal. She said ACES should be refined, not thrown out. As it's done in the past, the oil industry represented its shareholders well as it fought for the oil tax cut. But the state didn't do very well. "The state ended up giving and giving and giving until we're left with not that much," she said.

Gara relied on a little-discussed section in a study by economist Scott Goldsmith to argue that crude production qualifying as "new oil" will get such generous incentives it will essentially bring the state little to no revenue. Included in the new-oil deal is crude produced from the Oooguruk and Nikaitchuq fields, where oil began flowing before Senate Bill 21 passed, as well as oil from other fields that advanced under ACES but where production is yet to begin.

Gara also argued that at today's prices, Senate Bill 21's tax rate is 27 percent, but that falls to 13 percent for the so-called new oil, such as the oil from the Oooguruk and Nikaitchuq fields.

Clark countered that the bill's base tax rate is 35 percent. And the large pool of existing oil will continue to be taxed at high-enough rates that it won't be overwhelmed by the breaks for smaller pools of new oil, such as the 10,000 barrels of natural gas liquids to be produced at Point Thomson, at least not anytime soon. It won't take place in his lifetime or mine, Clark said, referring to Gara.

The forum was organized by Juneau Votes, a newly formed group that calls itself a nonpartisan collaborative community project trying to increase voter registration and turnout in Juneau. Held at Juneau's Mendenhall Valley Public Library, it was broadcast to some libraries around the state. In Anchorage, about 15 people gathered to watch at Loussac Library.

Penelope Wells, who is retired, said she's pro-oil but has been leaning in favor of voting for a repeal. Gara's performance persuaded her further in that direction, she said. She said she's concerned the state is giving away too much – leading to cuts in education and other services -- while the oil companies continue to make tremendous profits as they have for decades.

"The oil industry is here to stay," she said, adding that the industry won't stop producing oil anytime soon because by law it's responsible for dismantling the pipeline once the oil stops flowing, and that would be a costly endeavor.

Sharon Winner, who works at a law firm, said she plans to vote to repeal the tax cut but said her husband is undecided. She told him she'd attend the debate and listen for sound arguments in favor of keeping the tax cut. She said she had nothing to bring back to her husband.

"Senate Bill 21 will produce budget deficits long into the future," she said. "We'll be cutting schools, parks and teachers. It doesn't make any sense. We should share in the windfall profits."

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