- The Washington Times - Monday, July 22, 2013

A fight over a tax cut is morphing into a battle over Alaskans‘ sense of themselves and of an energy-based economy that has long distinguished Alaska from the Lower 48.

Faced with steep declines in oil production, the traditional backbone of the state economy, Alaska Republicans approved in May a massive tax cut for oil companies to spur exploration and production, but some residents now say they want the money back.

A citizens group backed by Democrats submitted more than 50,000 signatures last week to place a repeal of Senate Bill 21 on the August 2014 primary ballot, calling the multibillion-dollar tax overhaul an “oil wealth giveaway.”

“Too much was given up in that bill in exchange for too little,” state Sen. Hollis French, a Democrat, said in an op-ed in the Anchorage Daily News. “Alaskans simply saw about $4.5 billion of money that would have been used to build roads and educate our children over the next five years given over to three of the richest corporations in the world.”

There is no doubt that Alaska depends heavily on the oil industry. About one-third of all Alaskans are employed directly by oil companies, a figure that rises to one-half in terms of jobs supported by the industry. More than 90 percent of the state’s unrestricted general fund is supported by oil revenue.

Alaska oil boosters warn that the referendum could do more than repeal a tax cut; it could change the way international energy giants judge Alaska itself.

Barry Pulliam, an economic consultant who worked on the legislation, said it would be a tragedy for the state’s business-friendly reputation if voters overturn the tax cut.

“It would be a long time before Alaska could dig its way out,” Mr. Pulliam said at an oil and gas conference in Anchorage, according to the Alaska Journal of Commerce.

Any repeal would come over the objections of Gov. Sean Parnell, a Republican who led the drive to overhaul the state’s tax structure in an effort to reverse the production decline. He announced in June that BP PLC has agreed to sink $1 billion into two more rigs on the North Slope in response to the legislation.

“Our state is in the midst of a comeback, and Alaskans will continue to benefit as more investment flows north in the form of new jobs, new oil and new opportunities,” Mr. Parnell said last month.

Falling behind

At a time when many states are experiencing oil and gas booms, Alaska’s North Slope production has plummeted by an estimated 40,000 barrels per day, even though analysts say plenty of oil remains under the snow and ice.

Industry officials say the problem isn’t the supply — it’s the tax structure. In 2007, while Sarah Palin was governor, the Alaska State Legislature approved a progressive tax rate that encouraged exploration but penalized companies when oil prices spiked with tax rates that could exceed 50 percent — one of the highest effective tax rates on oil and gas producers in the world.

Since then, Alaska has dropped from the nation’s second-highest oil producer, trailing only Texas, to the fourth, behind North Dakota and California.

“It’s not that there wasn’t more oil to be had; it’s just that it wasn’t economical to do so,” said Kara Moriarty, executive director of the Alaska Oil and Gas Association.

Despite the production drop, high oil prices have resulted in a boom in state revenue, allowing the state of fewer than 800,000 people to approve a $8.6 billion operating budget for 2014 and reserves of $19 billion.

Under S.B. 21, the state is expected to lose about $600 million in the first year and as much as $4.5 billion over five years, which Democrats describe as a bonanza for oil companies at the expense of Alaskans.

“Never in Alaska history has the legislature stolen so much money from the public for so little in return,” the Alaska Democratic Party said in a March statement.

Pat Lavin, campaign coordinator for Repeal the Oil Giveaway, said the bill “threatens to impoverish our state while enriching outside corporations and their shareholders.”

Critics say those predictions assume no increase in production but that S.B. 21 already is spurring development. Along with BP, ConocoPhillips announced in June that it “will increase investment in Alaska as a result of the More Alaska Production Act,” the governor’s office said.

The Alaska Revenue Department estimated “that $5 billion in new North Slope investment could stimulate enough production to pay for the tax and possibly create new revenues by fiscal year 2018,” according to the Alaska Journal of Commerce.

Even though tax collections are expected to drop under S.B. 21 in the short run, the state’s long-term financial health depends on increasing investment and production, Ms. Moriarty said.

“We don’t see it as a giveaway,” she said. “We see it as a policy that sustains Alaska for the future.”

The repeal petitions must be certified within the next 60 days. If the petitions pass muster, the proposal will be put before voters during the statewide election in August 2014.

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