Alaska Governor Sean Parnell continues his assault on Alaska’s Clear and Equitable Share, the oil revenue tax system that is one of his predecessor – Sarah Palin’s – key accomplishments, Alex DeMarban, of the Alaska Dispatch reported March 13. Gov. Parnell “says the state must eliminate billions of dollars in tax credits paid to oil companies because the incentives aren’t leading to new production, yet his administration has provided little evidence to support his claim,” DeMarban wrote in his lead.
The oil companies meanwhile contradict Gov. Parnell’s claims saying the tax credits are essential to inducing them to explore in the state. One smaller explorer has larger operations in Texas and says that state requires far less headaches, time and money to explore. Alaska’s remote spaces, unique geography and short seasons with Arctic winters mean it can take up to seven years to get oil flowing from a well versus one year in Texas. The oil companies, however, support Gov. Parnell’s efforts to abolish production taxes, which are a core component of ACES. “As always, state lawmakers are being asked to make multibillion-dollar decisions with little information due to confidentiality rules surrounding Alaska tax policy and agreements with oil companies,” DeMarban wrote.
The combination of foreign imports and shale exploration in the Lower 48 states have conspired to reduce Alaska’s oil output by 75% from over 2 million barrels per day to 500,000. Parnell thinks abolishing ACES will return Alaska to its prior heyday. ACES has brought in over $1.5 billion per year in revenue in the seven years it has been in force. Alaska is one of the few states that has a surplus and has avoided a recession. Abolishing the progressive feature of ACES would severely reduce state income and possibly trigger deficits in the long term. Gov. Parnell’s move to eliminate the tax credits is intended to stanch the revenue bleed that would result from his proposed abolition of ACES.
The Parnell administration claims the capital expenditure “tax credits are too broad — they’re paid out for items that aren’t directly tied to production, things such as trucks or runway improvements or emergency response facilities.” The credits are worth 20 cents on the dollar. But oil company executives say the tax credits pay for infrastructure that helps production. The large companies take $3 billion in capital expenditures tax credits which helps them offset the production taxes. The smaller ones take $1.2 billion, deMarban wrote. The smaller companies tend to be more aggressive about exploring, a point also frequently made on the Bob and Mark show. DeMarban cited the work of Brooks Range, which has drilled 10 out of 36 penetrations on the North Slope using $31 million in capital expenditure tax credits. The state of Alaska stands to receive $1 billion in tax revenue over the the 44 million-barrel life of the field.
The claims about ConocoPhillips getting paved runways and snack rooms are murky and with the confidentiality agreements surrounding them, the truth will never known.
ACES is a graduated tax system, whereby taxes on oil and gas revenues increase as the value of the resource increases – in the case of oil above $52 per barrel. A portion of this money goes into state savings and another portion is distributed to all Alaskans via the Permanent Fund Dividend (PFD). Another point often missed when discussing ACES is that it contains a built-in incentive to explore and drill new fields by levying little or no tax when these operations are being conducted. Tax credits are given to develop new infrastructure and reinvest in existing infrastructure.
ACES was developed with strong bi-partisan support to supplant the Petroleum Profits Tax. Governor Palin signed ACES into law on December 19, 2007.
For further background, see: Alaska Dispatch Myth Busts Parnell, MAC and others on ACES.
Alaskan readers are urged to call their representatives and state senators and tell them to say NO to SB-21.
H/T Lynda Armstrong, “I Stand With Sarah: a Tribute” Facebook Group