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As we head into the election season in Alaska, a new debate is gearing up on an old issue:
Whether reforming oil taxes in the state will help boost production.
The issue has grown more heated as output at the North Slope declines. This month it stands at just 525,000 barrels a day. That's about one quarter as much as the state produced 24 years ago -- at the height of its oil boom. North Slope Production been declining at an average rate of 6 percent a year for the past 5 years. It's projected to flatten some, and decline at 3% a year for the next decade or so.
The main question centers on this:
Reform of ACES, "Alaska's Clear and Equitable Share" tax structure. ACES was Governor Sarah Palin's measure and it reformed oil taxes in the state starting in 2007. And the impact of the new, higher tax rate has been dramatic. In 2006, Alaska collected just $3.7 billion dollars in taxes from the oil companies.
Last fiscal year, it collected $8 billion. That means oil tax revenues for the state have more than doubled in just 6 years. And remember, oil funds 90% of state government. It also fuels 40% of Alaska's economy.
Part of the reason for the huge boost in state revenues is, of course, the higher tax rates put in place by ACES. Another significant reason for the doubling of revenue is the fact that oil prices have climbed from just $55 a barrel in 2006 to approximately $110 per barrel today.
And now a lobbying group called, "Make Alaska Competitive" -- which consists of business people and native corporations, and is fronted by former Governor Tony Knowles -- is pushing for "meaningful tax reform" on the North Slope. The group is afraid that a doubling of state oil revenues in just 6 years constitutes too much of a good thing. They fear the higher tax rates are discouraging oil companies from making added investments to existing fields.
This past legislative session, Governor Sean Parnell's phrase for tax changes that included substantial proposed cuts for existing North Slope fields was also "meaningful tax reform." However, the group will not say whether it is allying itself with Parnell's plan -- which was voted down overwhelmingly by the state senate.
But like Parnell, Knowles' group believes that operating costs at the North Slope are so high, that substantial tax cuts are needed to encourage more investment and -- hopefully -- lead to a refilling of the Trans Alaska Pipeline.
However, a group of Bipartisan Alaska State Senators has been studying the issue for 2 years. It blocked the Parnell tax-cut plan last session, characterizing it as a "giveaway".
The Bipartisan Senate Coalition feels that if tax breaks are not focused mainly on new oil, the state stands to lose money. Most Senators do not feel cutting taxes on existing fields is a good idea. Alaska is a stable part of the world, they point out. Oil companies operating here don't have to worry about the government nationalizing their oil fields, and they don't have to protect those oil fields from insurgents, as they might have to do in some Middle Eastern Countries.
The debate is likely to become more intense in the months to come, especially as the November elections heat-up.
These are the first elections since redistricting, and they could change the make-up of the Legislature.
If that happens, then Parnell's proposed tax cuts could find new receptivity in the upcoming session in January.