My Turn: Special session should include oil tax reform

  • By REP. LES GARA
  • Friday, July 8, 2016 1:04am
  • Opinion

Today oil companies are getting a sweetheart deal, at the same time Gov. Bill Walker has used his veto pen to cut public education funds, funds for foster youth, and educational opportunities that can’t just be re-captured in some future school year. As someone who has voted for budget cuts and new revenue, I get the Governor’s bigger vetoes. But I believe they should have ended at unaffordable megaprojects like the $6 billion Susitna Dam, and $430 million in oil company subsidies (the latter payments were delayed, not cut). I don’t think they should have hit schoolchildren who face year after year larger class sizes, and teacher and course losses.

Here’s what would help get Alaskans to join in supporting a fiscal plan, and what I would like to see the Governor, and top Republican legislative leaders who’ve balked at a fair share from the oil industry, join across party lines to fix. It’s long past time that Alaska end a sweetheart deal that sends far too much of our commonly-owned oil wealth to corporate headquarters in London and Houston.

With a $3.5 billion budget deficit, our desire to partner with an important industry shouldn’t mean that we give away the farm. It would be a fib to say that this, alone, can fix a $3.5 billion deficit. But leaders have to face facts, not live in fantasyland. The fact is that people want to know the most privileged and well-heeled are chipping in fairly to solve budget woes that are harming our ability to move this state forward.

The Governor has signed legislation to slow subsidies to small oil companies, but not massive subsidies and sweetheart deals to Exxon, ConocoPhillips and British Petroleum. I like the Governor, but so far he has resisted requests that others, including myself, have made for real oil tax reform — reform that would give Alaskans fair revenue (not just a slowdown of “tax credit” subsidies) from our oil when companies are profitable.

I am renewing a two-year call by Democrats and some moderate Republicans that the Governor join us in pushing for true oil tax reform. I’d even take an honest promise of action by my colleagues in January, if folks claim this needed work somehow can’t be done during the upcoming Special Session (even though it can).

So, what needs to be fixed?

Alaska will take in less in oil production taxes by 2018 than we get from fishing and hunting license fees. That’s, frankly, pathetic. It’s the result of a combination of rock-bottom oil company production tax rates for the oil we own as Alaskans, and super-sized oil company tax deductions and subsidies.

Want a few more facts? Today oil sits at roughly $48 a barrel. But any “new” field started after 2002 gets to pay a 0 percent production tax all the way up to very profitable oil prices of $73 barrel. At current oil prices, that tax break lasts the first seven years of production — during much of the most productive part of an oil field’s life.

Is zero not good enough for you? Here’s something that costs us a lot more. Alaska has a so-called 4 percent “minimum” tax rate for our older, larger and more profitable fields. In fact, companies can use generous deductions to actually pay us no production taxes at all. What about when prices rise, and companies rake in strong profits?

That meager 4 percent “minimum” tax rate stays in place, even for our largest, most profitable fields, and even if oil prices suddenly jump by 50 percent, to $76 per barrel. Large fields like Prudhoe Bay, Alpine and Kuparuk are handsomely profitable at those prices. A rock-bottom 4 percent production tax on profitable oil is a pretty great deal if you can get it. Above roughly $76 per barrel, our tax rate inches up, at the speed of a slug, and we lose hundreds of millions of dollars a year in needed revenue.

Oil executives represent their shareholders well by saying someone else should help with our deficit. You are my shareholders. You deserve to be represented just as well.

• Rep. Les Gara is a Democrat from Anchorage and member of the House Finance Committee.

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