By Peter Micciche
Wednesday evening, the Alaska State Senate took historical action in rewriting the oil production tax structure to incentivize increased production while ensuring the interests of Alaskans are protected. Over the last couple of weeks I heard from many of you on this important issue. As in most key issues facing our state, messages were both in support and in opposition to changing the existing ACES tax structure. Several of you offered meaningful suggestions, which I considered carefully. Almost every comment conveyed a heartfelt concern about the impact of this momentous action. I greatly appreciate all of your input, as it demonstrates that you care about our state’s future.
Again, I’ll cover the details about Senate Bill 21 in the next newsletter; however I’ve included a few key items below for your consideration:
The ACES system had a very high level of tax (progressivity) to offset the significant exposure to the state due to generous corporate credits that were the very definition of corporate welfare that have not resulted in significant production of new oil.
Since the exposure to the people of Alaska has been dramatically reduced by the reduction in credits not related to production in SB 21, there is no longer a reason to remain uncompetitive in the marketplace through punitive progressivity that was never well-considered at today’s oil prices.
We carefully modeled the definition of competitiveness across the board of regions that compete globally for production projects and resources, using internationally recognized economic experts.
My slightly progressive 35 percent tax and $5 per barrel system was not proposed as a last minute solution, it was carefully considered over the entire spectrum of oil price potential and the reason my amendment returning to the system was so important during this discussion.
The amount of taxation now makes Alaska competitive with other producing areas and will result in reducing the decline of North Slope oil production.
Opponents that created ACES have picked and chosen numbers to exaggerate the cost of the change at $2 billion dollars per year. The actual cost is expected to be much closer to $500 million per year until new oil begins adding revenue to the budget.
In the long term, the amount expected to be collected by the state is higher than what would have been collected under ACES, primarily due to oil being produced that would have remained in the ground due to Alaska’s uncompetitive tax regime.
With the 35 and 5 system, the tax regime overall becomes a slightly progressive system that provides a consistent share between Alaskans and industry. The people of Alaska receive a slightly increasing proportion as oil prices increase.
This discussion is about sustainable revenue for Alaska and should never be about what’s best for corporations. The 35 and 5 reduces the impact on the treasury and brings a greater share for Alaskans than the Governor’s or Senate Finance bills.
The 35 and 5 eliminates the boutique and fragile nature of ACES and releases the most effective guarantee for Alaskans… the basic and essential laws of sound and elementary economics that cause every business to either fail or succeed. Like it or not, Alaskans are in the oil business. It’s time to reverse the decline and succeed for our kids and grandkids.
Senate Bill 21 will next progress through the House of Representatives. As I have done since the legislative session began, I will continue to follow the developments on this bill. Rest assured that I will not support an end product without a fair share for Alaskans of the oil we own. I will utilize my positive relationships with representatives to assist them in clearly understanding the effects and ramifications if changes are considered on Senate Bill 21.
The oil tax issue is an emotional issue and probably the third most important decision in my life after proposing to Erin and choosing to have our children. What happens to the bill in the House of Representatives will determine if I will continue to support the bill when it returns to the Senate.
Sen. Peter Micciche, R-District O, is serving his first term in the Alaska Legislature. He is the manager of the ConocoPhillips’ LNG Plant in Kenai and served as mayor of Soldotna. This is an excerpt from his weekly newsletter.
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