An alternative take on the state’s battle with municipalities over oil and gas property taxes

Gov. Mike Dunleavy has proposed legislation that would end local government taxation on the oil and gas properties in the state. You have heard from several representatives of our local government expressing their views against this bill. I would like to give you my version, as one of the legislators that passed that tax. I was Speaker of the House in the October 1973 special session. I was very active in supporting the entire oil tax package.

The oil and gas tax package of eight bills was introduced by Democratic Gov. Bill Egan. The legislation was passed by a Republican House and Senate. Sen. Terry Miller of Fairbanks was President of the Senate. The oil and gas property tax was Chapter 1 of that session.

The tax was proposed by the governor and evaluated by the Legislature with two primary principles:

1. a 20 mill state levy on all the oil and gas properties in the state of Alaska, with a limited local government share on the property tax of 2 mills, and

2. that 2 mills was deducted from the 20 mills the state levied.

We arrived at the 20 mills leverage because we believed it was a reasonable average levied on property in the state of Alaska and we believed it was a good average of what all the oil producing states charged.

Secondly, we decided that we did not want a local government where vast amounts of the oil properties were located to receive an unduly large portion of that tax, but that the tax should go to benefit the entire state. These facilities were large in size and cost. The populations where the bulk of facilities exist were the North Slope and Valdez, and therefore, it did not make good sense to give a large portion of a very sizable dollar amount tax to a sparsely populated local jurisdiction. We further added a provision that if the local government was going to default on bonds, it could charge more.

After the bill was ready to be voted on in the Legislature, we heard conversations that the primary lobbyist for the North Slope was telling the people on the North Slope not to worry. If they needed the money to meet a bond obligation, they could charge a larger amount. On the House side, as a result of that conversation, we had the primary committee of referral write a committee report to make clear the local government could charge more than 2 mills only if they were about to default on the bonds. We did not intend to open the door for any taxation for a local government to try to operate by issuing bonds.

Shortly after the effective date of the law, the North Slope Borough proceeded to levy a tax rate far above the 2 mills by using the bonding process. Shortly after that, a lawsuit was filed challenging their tax rates. In the meantime, the state got a new governor, Jay Hammond. In the trial court, the Hammond administration did not object to local government charging more than 2 mills. Subsequently, the trial court ruled the local government could charge whatever it needed to tax to pay off bonds.

Upon appeal to the Alaska Supreme Court, it ruled local government could charge whatever it needed to cover bonds, but all the local government’s ad valorem tax could not exceed the 20 mills that the state levied. The Supreme Court’s decision gave protection to the oil industry, but did not give protection to the general populace of the state of Alaska.

Now the legislation was debated in committees in the House, Senate and on the floor. Everyone in the Legislature knew what this bill was meant to accomplish. As a matter of fact, the limit of the local government tax was substantially debated. The argument that local governments should be entitled to more than 2 mills was more than adequately discussed. Clearly the Democratic governor and the Republican Legislature thought that was a correct balance.

Last year, for example, the North Slope received $372.1 million and the state received $121 million out of $562.6 million total tax. The borough’s tax rate was 17.99 mills.

There are approximately 10,000 people living in the North Slope Borough, and there are approximately 700,000 people in the state.

There are several things I suggest you consider. The oil industry wants very few local government services. When they have billions invested, they would rather provide whatever local government normally provides. Local government, in fact, provides few services. Additionally, the legislation was drafted by a Democratic governor and was passed by two Republican-controlled legislative bodies. In spite of that conflict, it passed. Finally, the Alaska Constitution says that the natural resources of the state are for the benefit of all the people of the state.

The governor may be more successful politically on this issue if he takes the entire state oil and gas tax and divides it up on a per-capita basis to all the local governments in this state.

Tom Fink served as mayor of Anchorage from 1988-1984, as a representative in the State House from 1967-1975 and as Speaker of the House from 1973-1974.

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