Petitions are circulating around the state for a referendum to repeal the Legislature’s oil tax bill. If organizers collect enough signatures in time, the question will go before voters in August, 2014. Lawmakers who supported the tax cuts say the oil companies needed the incentive to pick up production. Those who want to repeal the measure point out that the state is giving up billions in revenue with no promise of anything in return.
Matt Lichtenstein discussed the issue with nearly all of Southeast Alaska’s legislators as well as the Lt. Governor when they visited Petersburg for the Little Norway Festival last weekend: For mobile-friendly audio, click here.
The annual celebration of Norwegian heritage is Petersburg’s biggest event of the year, so it usually draws several lawmakers from out of town. They often take the opportunity to meet with local leaders and other residents about legislative issues. This year was no exception and the biggest issue was Senate Bill 21. That measure effectively cut taxes on oil production by billions of dollars.
Juneau Representative Cathy Munoz initially voted against the bill because she thought it needed some changes but when it came up for reconsideration, she voted to pass it along with the rest of the Republican majority.
“The main concern, of course, is that the production has decreased so rapidly. Just in my 5 years in the legislature the production has gone down 25 percent and that represents billions of dollars in revenue to the state of Alaska. So, my strong feeling is that the state needs to do something, that there are problem in the current tax policy, in ACES that need to be refined and made to be competitive as it relates to other taxing juristictions in the western hemisphere,” she said while talking with KFSK radio in Petersburg.
ACES stands for Alaska’s Clear and Equitable Share. That was the oil tax regime instituted in 2007 under then-governor Sarah Palin. It included a windfall profits tax that increased with the price of oil, reaping billions more for the state. SB21 eliminated that provision, which is often called progressivity.
According to Munoz, Alaska needs to provide an incentive for more production not only at existing oil developments, called legacy fields, but at new sites as well. Republican representative Peggy Wilson of Wrangell also voted for bill. Southeast’s other four lawmakers are against it.
Sitka Democrat Jonathan Kreiss-Tomkins doesn’t see a need for incentives. He points out that under ACES, ConocoPhillips made more than half-a-billion dollars in profit in Alaska just for the first quarter of this year.
“I can’t be persuaded that 500 million dollars in three months needs to be increased, I mean, to incentivize more production…..Maybe I should go into the oil business if that’s too low. I just don’t think people can accept that,” said Kreiss-Tomkins. That’s one of the reasons why he and other critics think there’s a good chance the public will vote to repeal SB 21.
According to the Alaska Department of Revenue, the tax cut will cost the state at least four-and-a-half billion dollars in revenue over the next six years. That’s the forecast. Had the changes been in place in 2012, it would have cost the state one-point-seven billion for just one year. That’s according to Sitka Senator Bert Stedman who thinks SB 21 gives away too much:
“The production that was done in 2012, the vast majority of that is already economic, under ACES, by any measure, rate of return, cash margins. So, when you see 1.7 billion moving, red flags should go up. Something’s wrong,” he said.
Stedman thinks the progressivity under ACES should have been toned-down but not eliminated. He was one of two only two republican senators who joined with democrats to oppose SB 21.
“We’re a political sovereign and we should be treated like one and we should act like one. And we should not act or put up with being treated like a third world country where someone says we’ll take your resources and we’ll give you some jobs. My response is, ‘We’ll sell you our resources and well get the jobs to get the resources out to market,’” Stedman said.
Stedman said he’ll sign the petition to get the referendum on the ballot and once it’s on the ballot, he said he’ll campaign for repeal.
Lt. Governor Mead Treadwell certified the petition drive application as part of his job but Treadwell said he would have voted for SB 21 had he been in the legislature, “You know we’ve kind of set ourselves up talking about this as a giveaway or not a giveaway. We have to really begin thinking about attracting investment. Is it a risk? There’s always a risk. You set up a tax system. You hope you’re going to raise your revenues by raising production.”
Treadwell emphasized that unlike ACES, SB 21 ties oil tax credits to actual production rather than just investment, “You know, People said, if we’re gonna reduce taxes, let’s make sure we get a commitment to produce. The biggest thing we did in SB 21 is pull back the credits that were paid out without production and we changed the timing of the credits so that if you get production, then you get the credit.”
Opponents like Representative Beth Kerttula, a Juneau democrat, point out that the elimination of progressivity means a tax break for oil companies whether or not they step up production, “We changed this tax without one guarantee. Not even a memorandum of understanding. Not even one company stepping up and saying we’re going to put new production into the pipeline which is what we’re so desperately after so we can continue that revenue. But what kind of a negotiation is that?”
Kerttula and a her fellow Juneau Democrat, Senator Dennis Egan, say Alaska’s budget outlook, from funding for education to capital project spending, is much worse under SB 21.
“I hope it works but I just have real reservations about it. We’ve tried crazy stuff like this before and it doesn’t work. We could have tweaked the current legislation and done a much better job for the people. You think capital projects are down this year, just wait,” said Egan.
Supporters of the referendum petition have until July 13th to gather enough signatures. If they succeed, it will be up for a public vote during Alaska’s primary election in August 2014.