Recent statements by Merrick Pierce (ADN, Jan. 11), about Alaska's fiscal situation are riddled with misinformation and strong opinions, creating substantial uncertainty to the industry that is the backbone of Alaska's economy. Alaskans deserve the facts about the current tax structure including credits, the importance of fiscal stability to industry investments and the impact of falling prices.
The place to start is with this essential fact: Had voters repealed SB 21 in August, and gone back to ACES, the state would be paying more in credits at these lower prices AND collecting less revenue. In other words, Alaska would be worse off this year under ACES.
SB 21 was engineered to be robust across a broad range of prices and to give the state better protection than the previous tax policy at low prices. Because the fact is no one knows what commodity prices are going to do and a practice of changing tax policy every time commodity prices change is a strong disincentive to long-term investments.
One key protection the current tax structure provides to the state comes from directly incentivizing production through targeted tax credits. Increasing production generates not only tax revenue, but also royalties to the state as the land owner. It is royalties that feed the Alaska Permanent Fund. More importantly, the simple truth is that more production will also allow for essential job growth and increased security for Alaska at a precarious time for global oil markets and our economy.
Tax credits are an important piece of Alaska's tax policy, and a key driver for attracting many of the smaller companies operating in Alaska today, as both Gov. Walker and Revenue Commissioner Hoffbeck have acknowledged. This policy increased production and jobs, most notably in Cook Inlet where production has increased a staggering 80 percent. Just a few years ago, Southcentral residents were being asked to turn down their heat, and to prepare for a potential natural gas emergency. Now, local utilities have contracts to provide gas to Southcentral through at least 2018. This turnaround did not happen by chance. Instead, competitive, stable tax policies provided incentives for what the state needed -- production -- and helped to drive investment. A competitive, stable policy will prove absolutely essential to maintaining future investments in the energy sector in times to come.
Critics of the new tax law have also falsely implied that oil companies are essentially double dipping by being able to pay a minimum tax rate at low prices, as well as collect production-based credits. This is simply wrong. The refocused production-based tax credits can only be applied to the base tax rate of 35, but if taxpayers are indeed paying the minimum 4 percent tax at current low oil prices, they do not qualify for any additional production-based credits.
Make no mistake: Tax reform is working for Alaska, even at these low oil prices. Our friends in the Lower 48 are experiencing drill rigs going idle, job layoffs and a reduction in capital spending. So far, that is not happening here, but we need our elected officials to strongly reinforce the stability of our tax and regulatory policies.
Any suggestion of changing our tax policy causes unnecessary uncertainty. Why would we want to change the positive momentum? In the past 18 months, we have seen the third largest lease sale in the state's history, increased investment, record employment, and production on the rise. As the governor's deputy chief of staff stated, "Greater investment by the oil and gas industry on the North Slope and solid performance of state investment makes Alaska's overall financial health sound." This greater investment includes four new rigs in the near future and $3 billion more in investments.
Maintaining a stable tax policy is essential to maintain the positive momentum. As the governor said to the Resource Development Council in November, "Alaska has a history of coming together at times of challenges and this is a time to do that. Alaskans need to come together and grow the economy. We are an oil and gas state. We need to drill more. We need more oil in the pipeline." We agree.
Kara Moriarty is executive director of the Alaska Oil and Gas Association, a nonprofit trade association.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.