Oil is us. Face it.
Alaskans went all-in long ago on the idea we could live off the fat of one natural resource, and once again it appears we're about to pay the price. Wiser folks might have figured things out when oil prices tanked in the mid-80s and many walked away from their mortgages and fled the state.
Wiser folks might have tried to diversify the state's tax base instead of keeping nearly all the eggs in the oil-industry basket. From time to time over the last 50 or so years, we've tried to be wise folks by holding round-tables, panels and conferences to address the inevitable problem of declining oil revenue. But we're clearly not wise folks.
Roll this number around in your head a bit: $7.1 million.
Seven million dollars is chicken feed by state budgetary standards. The Alaska Marine Highway, which manages the state ferries on which most mainland Alaskans have never ridden, costs the state something on the order of $100 million per year.
This is not a knock on the ferry system. The state ferries are a great way to see Alaska, and important to many coastal towns. But then again, the new Ferrari LaFerrari supercar would be a great vehicle to own if you could afford the $1.35 million price tag. Obviously, someone can.
The real costs of things are relative to your income.
All of which brings this back to that $7.1 million number, and Alaska's income problem in the face of declining oil prices.
Theory of revenue relativity
$7.1 million is the amount of tax Alaska commercial fishermen paid on their more than $1 billion catch in fiscal year 2014, according to the fall 2014 Revenue Sources Book from the Alaska Department of Revenue.
Alaska motorists contributed more than five times as much ($39.3 million) to state coffers thanks to the tax on the fuel to power their cars and trucks. Alaska smokers paid more than four times as much ($30 million) in taxes in order to puff on cigarettes. Alaska drinkers paid more than twice as much in taxes ($18.3 million) on booze to enjoy a glass of wine at dinner or a beer at lunch.
$7.1 million in taxes from the greater than $1 billion bounty pulled from Alaska's water amounts to a tax rate of less than three quarters of 1 percent. About 0.71 percent to be exact. According to an August web note by ISER economist Matthew Berman, the base tax rate on a barrel of oil produced on the North Slope ranges from 4 percent to 35 percent, depending on oil's market price and other factors like expenditure credits. We are, sadly, at the low end of that now because of falling oil prices. We will start making a lot more money once oil prices climb again.
The fish tax does not change. If the price of fish were to double this summer, and fishermen were to make twice as much, nearly all of that $1 billion profit would go in their pockets.
But taxes are only one way we squeeze money out of common-property resources. There are also leases, in the case of minerals; timber sales in the case of trees, and both lease sales and per-barrel royalty payments in the the case of oil. There are many ways we as Alaskans squeeze money out of the oil industry, starting with the leases they pay to get at the oil on state lands and the royalty average they pay of about 14 percent per barrel that flows out of a wellhead.
The royalty is considered our cut of a common property resource. Fish are a common property resource, too, but we get no cut on the take. Instead, we get a piddly little amount from a piddly little tax.
For some reason, there is a huge disparity between how we treat oil in this state and how we treat every other common property resources. As things now stand, the 0.71 raw fish tax paid by fishermen amounts to one-20th of the raw crude royalty. But, of course, the taxing of one sort or another doesn't stop as soon as the resource is killed or pulled from the ground.
Both the oil industry and the fishing industry pay additional taxes. According to the Revenue Sources Book, "Fisheries Businesses'' paid $25.1 million to the state on top of what fishermen paid in taxes in fiscal year 2014.
The combined contribution of fishermen and fishing businesses to state coffers in fiscal 2014 was $32.2 million. The yearly value of Alaska's fisheries at wholesale, which includes processing, "easily tops $3 billion,'' according to the Alaska Department of Fish and Game.
About $32 million in taxes on $3 billion would amount to an effective tax rate of about 1 percent.
Think about it. If the state taxed the oil industry at this rate, the $4 billion haul last year would shrink to about $108 million. The oil industry would kill for a deal like this. Kill for it. But they're never going to get it. Given the current economic climate, it seems inevitable the opposite is likely. It's only a matter of time before the cry that we're not getting our "fair share'' out of oil builds again.
Fair share? Depends on which pie
What about our fair share of the state's other resources?
Mining doesn't do much better than fisheries. It produced $16.2 million in rents and royalties in the last fiscal year and another $23.6 million in license fees. That's almost $40 million total, about 20 percent more than fisheries contributed.
Who cares? It's still diddly squat.
Logging doesn't even show as a revenue source, but who wants logging or, for that matter, mining. Both run into heavy opposition no matter where they are suggested in the 49th state. The reality these days is that there isn't all that much mining or logging to tax.
Alaskans could impose a sales tax, or at least a seasonal sales tax, and make some money off the tourists and seasonal workers who flock here when the weather is nice. But personal taxes are anathema to Alaskans.
A sales tax in this state appears about as likely as an income tax, which Alaska politicians don't dare suggest for fear of ending their own careers. Alaska's new governor could propose scaling back state government (in fact he'll almost have to do that) to keep spending in line with falling oil revenues without eating up too much off the state's budget reserve fund.
Scaling back state government is always on the list of good ideas of conservative Alaskans, but here's the thing: scaling back state government means losing jobs, and losing jobs is never good for the economy.
Yeah, I know, we can all sit around and hope and pray oil prices start going back up to bail us out once again, but there's a new reality to face. Even if prices go back up, state revenue is going down because the volume of oil moving through the trans-Alaska oil pipeline is falling and is destined to continue falling for a long time.
The gravy train is coming to an end. New oil is a bit of a pipe dream, and even if it comes through somewhere far down the line, it is unlikely to spare Alaska from what is starting to look frighteningly like a journey from Fat City to ghost town. Shell's Chukchi drilling plan, the next big hope, is going nowhere fast and might well sit dormant for decades.
So what economic pony do Alaskans saddle to fund state government for the ride into "AK-AO,'' as in "after oil"? Because it's pretty obvious about the only thing we're taxing now is oil.
Well, that and Anchorage homeowners. Some local governments, unlike the state, have figured out a way to get actual Alaskans to actually pay their "fair share.'' But if the mayor and Anchorage Assembly want to roll the rate on my house back to 1 percent of its value to provide me some equality with the fishing industry, that would be nice.
It would be the Alaska thing to do, too, because every real Alaskan knows we're not supposed to pay any price to live here. The oil industry is supposed to pay that.
Craig Medred is a columnist and reporter for Alaska Dispatch News.
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)alaskadispatch.com.
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