Chugiak-Eagle River delegation supports oil tax reform, opposes Proposition 1

Wednesday, August 6, 2014 - 23:00

As legislators sworn to serve the best interests of our constituents and the state as a whole, our delegation is proud of our unanimous votes to pass the oil tax reform bill known as Senate Bill 21. We encourage all Alaskans to join with us to vote no on Proposition 1 seeking its repeal.

Oil plays a tremendously significant role in Alaska’s economy. Oil pays about 85 cents of every dollar spent for state government services, created the $50 billion Permanent Fund and directly or indirectly supports a third of our economy. Alaskans rightly expect their Legislature to work hard to make sure the oil industry stays healthy and continues to benefit the people.

In recent years, however, we saw evidence that ACES, the previous oil tax system, was not operating in Alaskans’ best interests:

• Tax rates varied wildly each month with changing oil prices, making it extremely complicated for the state to audit tax accounts, and for industry to evaluate whether investing more in Alaska made economic sense.

• Industry pursued more lucrative investment opportunities elsewhere, including low-tax regions in the Lower 48.

• ACES obligated the state to pay up to 40 percent of the industry’s North Slope capital expenses, totaling hundreds of millions of dollars each year with no guarantee of increased production.

• ACES focused on taking profits at high oil prices, placing Alaska at risk that low prices would not generate enough tax to pay for essential state services.


Industry responded to ACES by diverting investment dollars to other oil provinces where they could share more in the profits from oil high prices. Oil production in Alaska continued to decline even as it increased elsewhere, even in such mature regions as Texas. Alaska fell to fourth in the nation in oil production.

We as Alaska legislators faced a choice: We could resign ourselves to the pessimistic view that Alaska’s oil age was ending, and keep the ACES tax system to squeeze the last possible dollar from a dying industry.

Or, we could act to extend the life of Alaska’s still-rich oil fields and incentivize new production with a tax system that encourages investment for long term, allows industry the opportunity to profit from new investment, and lays a stable groundwork for development of North Slope natural gas. This is the path we chose, by passing SB 21, which Governor Sean Parnell calls the “More Alaska Production Act.”

This new law establishes a consistent 35 percent oil production tax rate. It significantly scales back tax credits for spending, in favor sliding-scale credits to reward new production. It provides stability, predictability and consistency in state oil tax policy. And it repositioned Alaska more toward the middle of the global pack in terms of total government take – including royalties, production taxes, property taxes, and corporate income taxes.

SB 21 was created in the bright sunshine of full public process. It was drafted with input from world experts in the oil industry and tax policy, analyzed and critiqued by multiple sets of independent consultants, and debated and amended in multiple committees. It was passed by state lawmakers freely elected by Alaskans.

SB 21 took effect Jan. 1, 2014, and we are already seeing results:

• BP and Conoco Phillips have announced $6 billion in investment aimed at more drilling and increased production.

• Exxon-Mobil is building infrastructure at Point Thompson to produce gas liquids, and expand its reach for possible oil exploration east of Prudhoe Bay.

• The decline in Alaska oil production has halted compared to a year ago, leading to a sense of optimism in our business community, and hope across the state.

• Real progress on a natural gas pipeline progress is being made, with the state partnering with producers to plan an LNG project to bring gas to Alaskans and to export markets.


Far from a “giveaway,” SB 21 generates about the same tax revenue as ACES at current prices of about $105 per barrel, and it would bring in more than ACES at lower prices. SB 21 accounted for only a small part of a projected state deficit that is actually due mostly to declining oil production and increasing production costs, according to analysis by respected economist Scott Goldsmith.

There are few subjects more complicated than oil tax policy, and few issues more important to Alaskans. As legislators deeply involved in the issue for several years, we believe SB 21 is a responsible effort that meets our obligation to manage resources for the maximum benefit of our people, in terms of revenue, jobs, and the investment necessary for a healthy resource economy.

Voting now to abandon the benefits of SB 21 would be a serious blow to the state’s long-term economic prospects. We believe it is essential for the future well-being of our state that Alaskans join with us in voting no on Proposition 1.


Sen. Anna Fairclough represents Eagle River-East Anchorage; Rep. Bill Stoltze represents Mat-Su-Chugiak, Rep. Dan Saddler represents Chugiak-Eagle River and Rep. Lora Reinbold represents Eagle River in the Alaska State Legislature.

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