By GARLAND KENNEDY
Sentinel Staff Writer
Alaskans will vote next Tuesday on Ballot Measure 1, which proposes to raise state revenue by increasing taxes on oil production on the largest North Slope oil fields.
The initiative proposes two possible mechanisms: a tax on gross value or a tax on net value, otherwise known as an additional tax. The ballot measure specifies that only the higher of the two would be collected. The first is a minimum tax to ensure that some tax is levied for every barrel taken from the ground, regardless of how cheaply it is sold or what it cost to produce. The second captures a larger share when oil is at a higher price, but lets oil companies deduct their expenses in the traditional way.
Initiative co-writer and sponsor Robin Brena compared the ballot measure to a fiscal life jacket for the state. Brena’s group Vote Yes for Alaska’s Fair Share is the chief organization supporting the ballot measure.
“We’re ten miles from shore, we can eliminate the PFD, we can eliminate the ferry system, we can eliminate our capital budget. We can gut our university system and K-12 education. Rural electrification equalization is gone. OK, so how exactly are you going to save yourself?” Brena said in a Sentinel interview.
The text of the measure specifies the tax rates to be levied.
“One tax would be a tax on gross value (the value prior to expenses) at the point of production at a rate of 10% when oil is less than $50 per-barrel… (and) increase to a maximum of 15% when oil is $70 per barrel or higher,” the ballot measure summary reads. The full text of the two-page ballot measure is at ballotpedia.com.
The second type of tax is a net tax, which allows for oil companies to deduct operating and transportation costs.
Brena, a Skagway man who has worked as an Anchorage oil and gas attorney since 1984, calculated that if the initiative had been in place in recent years, it would have brought in an average of $1.1 billion annually for the state. He likened this to adding 11,000 jobs each paying $100,000.
Alaska’s budget deficit for 2020 was $1.3 billion, the Anchorage Daily News reported in July, but an August report by National Public Radio indicated that the state’s revenues will fall by $815 million due to the pandemic, thereby adding to the deficit for 2021.
Brena says Ballot Measure 1 will move to address this. He criticized Senate Bill 21, a law passed in 2013 that changed oil tax structure in the state and gave oil companies a credit of $8 for each barrel of oil produced in the state.
“We’re just giving away corporate welfare,” he said.
The main group opposing the ballot measure, One Alaska - Vote No on One, argues that increasing oil taxes will harm the Alaskan economy and that taxes should be left to legislators.
One Alaska Campaign Manager Kara Moriarty told the Sentinel that if the ballot measure passes, it will reduce oil companies’ interest in Alaskan development. Moriarty also serves as president and CEO of the Alaska Oil and Gas Association.
She says the measure would cost Alaska jobs and industry investment.
“Statewide economic impact would be just about 6,300 jobs, and 14% of industry investment would be lost if Ballot Measure 1 were to pass,” she said.
Moriarty said that while the ballot initiative wouldn’t drive oil companies from the state, it would reduce investment.
“It’s not that companies would automatically leave on November 4, it’s that they would have less money to invest in the existing fields. Which means they would have less money to invest in new opportunities that would accelerate our production decline,” Moriarty said.
She added that if oil and gas companies are made to pay additional taxes, they will invest less in capital projects.
“If you are paying more in taxes, you have less money to invest in capital projects. That’s a basic part of Vote Yes that is basically flawed,” she said.
She said ConocoPhillips wouldn’t continue its 2021 proposed drilling plan if the new tax passes. Moriarty added that possible future drilling projects in places like the Arctic National Wildlife Refuge may also be impacted.
“We certainly believe that (ANWR) is a mega field that would fall under the category of this tax,” she said.
Under the ballot initiative, an oil field would become subject to the new tax only when the field reaches a certain production threshold.
“This act would change oil and gas production tax for areas of the North Slope where a company produced more than 40,000 barrels of oil per day in the prior year and more than 400 million barrels total,” the initiative summary reads.
Brena said that this would allow new oil fields to operate without paying the new tax until the field is “mature.”
He added that oil companies operating on the North Slope are able to bear the cost of the new tax. He repeatedly referred to this as a “fair share.”
“They’re making two or three times more in Alaska than in the lower 48 or internationally. If they pay their fair share it will still be an attractive investment. And we know that because they paid it for 30 years (prior to SB 21). They paid more (under tax structure prior to SB 21) than Ballot Measure 1 would require… Whether you invest in something depends on how much you make out of it, and paying the resource owner a fair share for the oil you’re taking is the cost of doing business. And our three fields (Prudhoe, Kuparuk, and Colville, the three fields big enough to fall under the new tax) are more than able to pay that cost,” Brena argued.
Moriarty disagreed.
“They are looking at one component of revenue for states, they’re not looking at it holistically. If you look at it holistically when it’s all said and done, royalties, taxes… we are at a higher state take of any state in the nation,” she said.
Moriarty said the initiative would harm the Permanent Fund by decreasing overall oil production in the state.
“What you would see down in Southeast is you might have a short-term impact to state revenue long term if production goes down that means less royalties, that means less deposits into the Permanent Fund which impacts every Alaskan regardless of where they live,” she said.
Brena claimed the opposite, arguing that by passing the ballot measure, the state would no longer be tempted to cut the Permanent Fund to meet short-term budget needs.
“If we don’t get our fair share (of oil money), your PFDs will be gone in a year or two. Even with a $0 PFD, we have a half-billion dollar to a billion dollar deficit,” he said.
He likened the anti-tax efforts to “gaslighting.”
Brena refuted the claim that the oil and gas industry pays its share in taxes by noting that the state issues large credits to the companies under SB 21.
“We used to get a significant share of our oil (revenues), and since Senate Bill 21 we have owed them more in credits than they have paid in production taxes,” he said.
The ballot measure would also require oil and gas companies to release their tax information as “a matter of public record.” Current statutes publicize fiscal data only from Prudhoe Bay, he said.
He argued that publicizing oil tax records would enable Alaskans to make better policies on the issue.
“As stewards and owners of hundreds of billions of dollars of resources we have to know how our fields are doing so we can make oil policy for Alaska... We need transparency. We need to understand what they get in revenue from the field, what they pay in cost for each field, and what their profit is for each field,” he said.
In terms of funding, One Alaska has raised over $17 million in their effort to fight the ballot initiative, the Associated Press reported last month. The largest donors are ConocoPhillips Co., ExxonMobil Corp. and Hilcorp Alaska LLC, corporations which would face tax increases under the ballot measure.
Vote Yes has raised $1.3 million, much personally donated by Brena, according to the Alaska Public Offices Commission.
Voters also will have a chance to influence how Alaskan elections work next Tuesday. Ballot Measure 2 proposes to replace Alaska’s voting system with a ranked-choice voting system and new rules mandating disclosure of campaign finances. The Sentinel ran a story detailing Ballot Measure 2 on August 28.
The election is Tuesday, November 3.
