Think about it, play the long game. Play safe.
Wednesday, September 9, 2020 3:57pm
By Laraine Derr
For the reasons discussed below, I take issue with the argument that it is in the best interests of Southeast to support the oil tax initiative, known as Ballot Measure 1 on Nov. 3. I urge a no vote.
The argument goes that because the Prudhoe Bay unit is one of the most profitable, conventional oil fields in the world, increasing the production tax will not impact investment or jobs.
To say that passage of Ballot Measure 1 will not adversely impact investment and jobs is downright misleading. This is seen by comparing the total government take for Alaska (with and without passage of Ballot Measure 1) with other oil provinces such as Texas and North Dakota. Government take includes royalties, state corporate income taxes, property taxes and federal corporate income taxes.
At $40 oil the total government take for Alaska is 109% vs. 75% for Texas and 96% for North Dakota. At $60 oil the total government take for Alaska is 69% vs. 58% for Texas and 62% for North Dakota. The production tax increase resulting from Ballot Measure 1 ranges from 150%-300% depending on the price of oil.
Given Ballot Measure 1’s significant increase in taxes coupled with the high cost of doing business on the North Slope (with its harsh climate, distance from markets, and constant litigation), why wouldn’t ConocoPhillips or any other North Slope operator move future investments to other oil provinces where there is also attractive geology, lower total government take and lower operating costs? Remember, reduced investment leads to declining oil production and thus less oil revenues to Alaska’s treasury.
Comparing ConocoPhillips’s profitability at Prudhoe to Texas is comparing apples to oranges. Texas production includes both oil and gas whereas Alaska produces oil only. The per-unit energy value of gas is a small fraction of the per unit energy value of oil. Hence, the combined average market value per unit of energy revenue received in Texas is lower than in Alaska.
The argument that Ballot Measure 1 will result in $1.1 billion per year of oil wealth to Alaska which could generate 11,000 jobs paying $100,000 per year is specious at best. The $1.1 billion assumes that oil will be sold for an average of $65 per barrel.
Can we expect $65 oil in the future? During the last several months the price of oil has bounced around in the lower 40s. The Alaska Department of Revenue Spring Forecast projects the average for FY 22, 23 and 24 at $41, $44 and $46, respectively.
At such prices, revenue to the Alaska State Treasury will be more like a quarter of a billion, not $1.1 billion. So, do not be persuaded that Ballot Measure 1 will fund our Marine Highway system, avoid cuts to education and save and create future jobs. If Ballot Measure 1 is adopted, Alaska can look forward to a small increase in revenue for several years, but not enough to make a dent in the State’s massive budget deficit.
Rather, in a few years, we can look forward to lower North Slope investment, lower oil production and lower oil revenues to the state treasury.
If, after reading this, you’re thinking that oil tax laws are complicated and hard to follow, you’re right. That’s why oil taxation should be enacted by the Legislature, and not be the brainchild of a single person with a point of view. The legislative process allows for expert witnesses, public testimony and the ideas, amendments and votes of numerous legislators. The result is a tax law fashioned by a majority of legislators representing a majority of Alaskans. The alternative is placing your trust in the individual drafter of the initiative whom you don’t know who has drafted a long, complex law that is very hard to follow and understand.
Think about it, play the long game. Play safe. If you don’t fully understand what this tax initiative will mean for investment in Alaska, Vote no on Ballot Measure 1.
• Laraine Derr is a long-term trustee of the Alaska Mental Health Trust, a former commissioner of revenue and former CEO of the Alaska State Hospital and Nursing Home Association. She has resided in Juneau for more than 40 years. Columns, My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.