Senator Berta Gardner

March 22, 2013

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Serving Midtown, Spenard, and UMed

State Capitol Bldg. Rm 417
Juneau, AK 99801
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D.C. DELEGATION

Senator Mark Begich
907-271-5915
EMAIL: Sen. Mark Begich

Senator Lisa Murkowski
907-271-3735
EMAIL: Sen. Lisa Murkowski

Congressman Don Young
907-271-5978
EMAIL: Rep. Don Young

The Multibillion Dollar Giveaway

Dear Friends and Neighbors,

Senator Gardner asks a question of Senator Click Bishop.
Senator Gardner asks a question of Senator Click Bishop.

         In reply to a direct question and in what was perhaps an unguarded moment, a leading proponent of the Governor’s oil tax giveaway said, “we would all expect new oil,” adding “It’s kind of a crapshoot.  You really don’t know, and the industry certainly isn’t going to say one way or the other, because you know their motivation is to try to keep the rates down as low as they can.” In a nutshell, those two sentences made my entire case for voting against the giveaway. However, there are important points to be made. 

         We’ve heard reasons to change ACES but only one makes sense – increasing oil in the pipe. Everyone can agree we want more oil in the pipe. The philosophy behind lowering oil taxes is that multinational oil corporations will receive a bigger profit and will reinvest in Alaska. But will that work?

          Neither the Governor nor a producer has been able to name a single project, field, unit which is unprofitable under ACES but will be made profitable under this bill.  Wednesday, late into the night, we passed SB21 which will transfer billions of dollars from the state treasure to ConocoPhillips, BP and Exxon, some of the biggest, richest, most powerful companies in the world, ….in exchange for no commitment or ANY new production. The vote was 11-9.

          There are many reasons why this giveaway is not in the best interest of Alaska:

  1. It Removes Progressivity: In 2010, an elected state leader told Petroleum News, “I’m not interested in changing progressivity so they can take that money and invest it somewhere else.” That elected official was our current Governor.

He then wanted to keep progressivity, but bracket and cap it. Now he wants to get rid of it all together. There has been a real randomness in the approach to this so called oil tax reform.

Progressivity is a state tool to encourage the producers to invest in Alaska some of the profits made in Alaska.  Producers who feel the tax rate is too high can reinvest some of the profits in ALASKA, reducing the tax rate on every single dollar of profit.  Just last month, in answer to one of my questions, the Department of Revenue acknowledged that progressivity had been effective in this goal, though at the cost of dividends to oil company shareholders.

Needless to say, distributing profits to our shareholders - the people of Alaska and  who are owners of the resource - is vitally important to us.  While I applaud a happy, healthy oil industry, quite frankly I am working to see that my shareholders get healthy dividends too.

  1. It Removes Capital Credits: There has been a significant evolution in thinking about this. Capital credits are crucial for the smaller producers especially because they don’t have the upfront capital the majors do. State sharing in investments, reducing risk for and sharing in costs for all investors, large and small, encourages new exploration, development and ultimately production. In removing the credits we are removing guaranteed reimbursement with a promise of a lighter tax load in the future.
     
  2. It creates tax break for “new oil” – which actually includes oil that is currently going to be produced - exempts 20% of gross value of oil forever. The Legislature last session created incentives for development of oil and gas to be used by Alaskans in other parts of Alaska, outside of the North Slope which was limited to 7 years only.  If a 35% tax rate without progressivity and capital credits makes Alaska “competitive” the state should not be taxing net profits below this “competitive” rate FOREVER on new oil. Even their own consultants said we were being too generous with this.
A quick word during the oil tax debate.
A quick word during the oil tax debate.

Note also that we are giving the industry generous credits on the GROSS value of the oil but taking our severance tax on the NET value.  Does this make SENSE?

  1. REDUCING GOVERNMENT:  Although, this is not directly part of the bill, I am very troubled by the comments made by state leaders in the press.  They have talked about  reducing the state take on the value of oil as a tool to reduce spending and the size of state government. While those issues would certainly be valid conversations, I totally reject them as arguments for giving away our resource.  The state take should be entirely a function of the value of our resource less the cost of taking it to market …that cost certainly including the producer profits.
     
  2. The Industry has steadfastly been unable to make any commitments for new investment or for new oil, telling us only that “this moves the needle” or “this is in the right direction” or “this helps” or “it’s a start” and “it’s not enough!” legitimizing that this is simply a pure giveaway and a crapshoot.

             The money we are pushing across the table with SB21 takes us very quickly off the fiscal cliff, harming our ability to continue important state services, and forcing us to look for funds elsewhere. It won’t be long before there will be proposals for a state income tax or to discontinue the Permanent Fund Dividends.

           Ultimately, Alaska lost Wednesday night. In passing SB21 The Giveaway Bill, the legislature fails the people of Alaska.

           I’m Berta and I’m still listening,

           If you have any questions, please feel free to contact my office

signed: Berta


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