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SB 21 is flawed: Alaska can do better

Posted: August 13, 2014 - 3:08pm

The referendum to repeal Alaska’s new oil tax legislation gives citizens the power to decide what is good for Alaska. It challenges us to make a simple choice about a complex issue where facts are scarce and arguments are many. 

But arguments without facts are opinions, and opinions are based on assumptions and motives that are not always visible. To be useful, opinions require trust as a substitute for facts. So what do we know? How can we decide? And who can we trust?

What do we know? We know that Gov. Sean Parnell proposed Senate Bill 21 (SB 21) as a solution to the problem of declining state revenues caused by declining production of oil. He argued, “Legislation is necessary to drive new investment to create new Alaska production and new opportunities for Alaskans.” 

SB 21 repealed the progressive tax structure in ACES to encourage long-term planning and investment in new production. Its purpose was to reduce state revenue from oil taxes, thereby increasing oil industry profits that could be invested in new production. This shift of income from the state to the industry was intended to provide capital for investment — not increase profits for a very profitable industry. 

How can we decide what benefits Alaska? It will be good if the benefits exceed the costs. The costs are decreased state revenues from oil taxes now and into the future. The benefits are increased state revenues from increased oil production in the future. What needs to happen for SB 21 to deliver on the governor’s promise?

1. Current state oil tax revenues must decline, thereby increasing oil industry profits available for investment.

2. The oil industry must invest their tax savings in new production, although they are not required to do so under this legislation.

3. Increased investment must increase production. This could happen by increasing the rate of extraction of existing resources or by finding new oil. Increasing production from existing fields would deplete known resources faster at the lower tax rate in SB 21. How does this benefit the state?

4. New oil needs to be discovered on state lands.

5. Future oil taxes must generate income to the state that will exceed the costs of granting the tax break in SB 21.  How can citizens be sure that the state income given up today will be recovered, at a profit, in the future? 

Who can we trust?

Not the oil industry. Like Sen. Gary Stevens, I remember the Amerada Hess court case where a judge ruled the industry cheated Alaska out of nearly $1 billion, the Exxon Valdez oil spill and the VECO corruption scandal. This is an industry that has often proved itself to be untrustworthy, and the argument that repealing SB 21 will cause it to close down or leave Alaska is their latest falsehood. 

Not the elected representatives who created this flawed legislation. Too many of them work for the industry or are dependent on the industry for campaign funding.

Not economists who tell us that SB 21 may or may not provide sufficient tax savings to provide the investment capital the governor has promised, but we should support it anyway. 

What can we trust? Not SB 21. It does not require performance for pay. It does not specify how, when, or if increases in future production will generate income to repay our investment with interest.  

Voting yes to repeal SB 21 will give us a second chance with a new legislature, and hopefully a new governor, to create a tax system that is fair to the industry while maximizing benefits for the people. We can do better.

Bill Hall has facilitated 10 dialogues on the referendum to repeal SB 21 in Anchorage, Fairbanks, Seward, Homer and Cordova as part of an evolving network of library-based civic dialogue called “Let’s Talk Alaska.” He is a lifelong Alaskan with experience in local government, banking, politics and education. The opinions expressed here are his own.

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kearbear 08/13/14 - 06:57 pm
ACES creates a negative and

ACES creates a negative and perverse harmful result. ACES is a tax rate that is inconsistent and unpredictable since the rate changes constantly with the price of oil. When an industry is punished as the upward movement of price occurs, all incentive to produce is turned into a negative to produce. The private sector of Alaska was harmed during the reign of ACES. Spending and investing by the oil industry declined. Native Corporations, sub contractors, service and suppliers of heavy duty equipment all declined as spending was curtailed. No prudent investor will increase investment in a venture with the tax consequences and liabilities of ACES. "The ACES structure is not bracketed, so as prices and tax rates go up, the higher tax rate applies to every single dollar of income, which can "significantly suppress" the upside potential that drives industry."

SB21 is Alaska's second chance at a rebirth of economic activity. SB21 is endorsed by leaders from all walks of life in Alaska including: Former Governors Knowles and Sheffield, current Governor Parnell, Senator Murkowski, former Anchorage Mayor Rick Mystrom, 6 Native Corporations, pilots and airlines that transport the new personnel, retail and wholesale businesses that depend on oil industry investment. SB21 has resulted in the creation of jobs from oil derrick operators, truck and heavy duty equipment operators, geologists, scientists, security, administration. SB21 is good for Alaska. Vote No on repeal of tax reform. Save a job. Create a job. Keep people working in Alaska. That is maximum benefit for the people.

jokimball777 08/14/14 - 10:06 am
real alaskans recognize cronyism

In all of the comments, in all of the papers, the vast majority are voting yes on the referendum with very good reasons based on very solid facts. It seems some hired posters keep repeating talking points that make no sense considering they are not based on fact.

For instance, ACES brought Alaska all kinds of money, while the oil companies were still making record profits. The savings account was flush with billions, that the 'conservative' legislature just handed out right and left on boondoggles like Veco's Knik Bridge and Umed road the constituents fought against, and a 'road out of juneau' yes folks, this is the smartest governor and legislature ever that finally came up with a solution...NOT!

While they were wasting money right and left on studies and other BS, they were continually complaining about the money being wasted on schools and Alaska's children. All a person had to do was watch their actions in the legislature to know that nothing they did was for Alaskans, not SB21 and not the $65 Billion pipeline which will bankrupt Alaska if it goes through.

These same companies got caught by FERC inflating their costs on pipeline repairs to increase the tarriff on the pipeline to increase production cost which is why the production cost of oil almost doubled to $50 per barrel which strangely our governor and legislature have no interest in auditing. Google "Judge: Oil Companies cavaliery wasted hundreds of millions on pipeline work"
and see for yourself. It is outrageous!

One more important fact is that the governor, and the deciding voters on this issue work for conoco phillips and anyone with two brain cells can figure out who SB21 was written for.

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