Capitol Brief by Senator Bill Wielechowski

Keeping In Touch

Representing Muldoon, Russian Jack, JBER, Reflection Lake,
University Area, College Gate, Nunaka Valley, Wonder Park

May 12, 2016
 
Senator Bill Wielechowski
Senator
Bill Wielechowski

716 W 4th Suite 409
Anchorage, AK 99501
907.269.0120
fax  269.0122

sen.bill.wielechowski@
akleg.gov

State Capitol, Rm 419
Juneau, AK 99801
800.550.2435
907.465.2435
FAX: 907.465.6615

Contact the Governor
Governor Walker's Anchorage office may be reached at 269-7450, or e-mail him at gov.alaska.gov

Visit the state website
alaska.gov

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Dear Friends and Neighbors, 

What’s the Problem with Our Oil Tax System?

Yesterday, the Alaska Dispatch News published an editorial I wrote. This is a critical issue that I believe must be resolved immediately. I’ve reprinted my editorial below:

“Development that actually costs the state, remains Alaska’s least understood and most pressing economic problem. Few politicians seem concerned that we do not extract enough wealth from new resource development to offset its costs.”
– Gov. Jay Hammond, 1994

By now, most Alaskans know we are paying oil companies over $700 million more in refundable oil tax credits than we get in production taxes. That’s nearly $1,000 from every man, woman and child in Alaska, this year alone. Yet, this is just the tip of the iceberg. Our oil tax structure is loaded with ticking time bombs that, if left unchecked, will wreak havoc on Alaska’s finances for decades to come.

Under Alaska’s current tax credit and deduction system, oil companies can claim up to 75% of their costs for new exploration, and up to 65% of their costs for new development. If you gave someone 65% of the costs to run their business, you’d probably expect a pretty good return on that investment, right? Well, we used to have a windfall profits tax that did just that – provided a fair return to Alaskans as oil prices rose, but only after the oil companies made massive profits. That’s the provision that allowed us to save $15 billion between 2007 and 2012 – the savings we are currently surviving on today.

Unfortunately, when Senate Bill 21 was passed in 2013, it eliminated this provision of progressivity and crippled Alaska’s ability to rebuild our savings during periods of high oil prices. Instead, SB 21 has socialized the risk for the oil industry so the people of Alaska literally pay the price, but privatized their profits so the oil companies reap the benefits. No business in the world would operate this way. 

Click here to watch my speech against Senate Bill 21
Click here to watch my speech against Senate Bill 21

on the Senate floor back in April 2013.

But it gets worse. Our oil tax structure is a “net profits tax,” meaning that companies can write off expenses and lossesbefore paying production taxes. As oil prices slowly creep up, and when Alaskans should be expecting to finally receive some return on investment for the subsidies we’ve been paying, companies will instead be allowed to write off their losses from previous years. The bottom line? Alaska will lose out on another $751 million through 2023 as companies write off losses from prior years.

As prices increase further, another ticking time bomb explodes. A new set of tax credits kick in, allowing major oil companies to write off over $1 billion in deductible tax credits per year as oil prices hit $80 per barrel, mostly for oil they promised to produce many years ago, in many cases before the passage of SB 21.

Additionally, SB 21 added a section stating that “new oil” is to be taxed at an extremely low rate, or possibly even zero – forever. The oil industry demanded that “new oil” be defined to include any oil produced from fields in place since 2003 – 10 years before SB 21 passed. Eventually, most oil on the North Slope will be considered “new oil,” meaning that as we go forward, another ticking time bomb goes off as the number of oil fields paying production taxes will be greatly reduced if not eliminated entirely.

Numerous other seemingly innocent provisions in SB 21 are actually financial landmines. For example, one section allowed oil companies to change the way they claim credits, from a monthly calculation to a yearly one. Cost to Alaskans: $112 million in 2014 alone.

With all the tax credits and deductions currently allowed, Alaskans will be paying out more in refundable tax credits than we get in production taxes through 2024.

The stated goals of SB 21, dubbed by its supporters as the “More Alaska Production Act,” were to get more oil into the pipeline (Governor Parnell infamously promised one million barrels within 10 years with tax breaks being “vital” to that effort), bring more revenue to the state, and grow the Permanent Fund. Yet even before oil prices crashed, projections showed continued plummeting oil production. In fact, the latest Department of Revenue forecast calls for a mere 300,500 barrels per day in 2025 – nearly half of where we were under the ACES tax structure.

ANS Production Forecast Comparison

The House and Senate Democrats and Independents stand united in our belief that this oil tax structure must be fixed. We share the frustration of many Alaskans, and will not stand idly by as $1,000 from every Alaskan’s PFD is taken away to be handed over for oil company subsidies. The Legislature must think first of the people we were hired to serve, and work in a bipartisan manner to fix this broken system.

In the frenzy to “Make Alaska Competitive” in 2013, the Legislature failed to heed Governor Hammond’s warning about development that actually costs the state.  Alaska’s oil tax structure is flawed at all price levels and across all time horizons. The time to fix it is now.

Click here to view the published piece: https://www.adn.com/article/20160510/we-must-fix-alaskas-broken-oil-tax-system-another-fiscal-time-bomb-goes

Working on a spring newsletter update in my new cubicle in Juneau. In your mailboxes soon. No need for a fancy LIO!
Working on a spring newsletter update in my new cubicle in Juneau.  In your mailboxes soon.  No need for a fancy LIO!

As always, I’m here to represent you and always appreciate your input!

Warmly,

[signed]

Bill Wielechowski
Alaska State Senator
District H - Anchorage

http://senatorbill.org