Alaska's fiscal puzzle

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We have ingredients for success but need the right recipe

By Gail Phillips

State economists tell us Alaska has shed 3,640 oil and gas jobs over the past two years. The last time we saw job losses of that magnitude was in the 1980s.  And – these thousands of oil and gas jobs lost do not include the hundreds of other jobs that have evaporated due to the cut-backs in our one sustaining industry. 

This represents a lost payroll of hundreds of millions of dollars - $166,000 for every primary job – and millions more from other economic sectors as every primary oil and gas job supports 20 other jobs.

"I about cried when I first saw the data — it was shocking," said an economist with the Alaska Department of Labor and Workforce Development who tracks the numbers.

I felt the same as I watched Alaskan after Alaskan testify on HB 111, the latest effort to raise oil taxes and eliminate the incentives that gave us the first increase in production in more than a decade. I heard their stories of losing their jobs, laying off valued employees and moving their business outside.

Alaska has all the ingredients for success – if we would only find a winning recipe.

  • Our geology is world-class – so good our explorers found three of the biggest discoveries in the world in just the last year.
  • We have many of the assets we need already in place – the existing North Slope infrastructure, the pipeline and the marine terminal at Valdez.
  • We have some of the best workers in the world.

That’s the upside. Here’s the down.

  • Alaska is very, very expensive. It takes $3-4 billion a year just to stabilize production on the North Slope – and up to $10 billion to bring some of the new discoveries on-line.
  • Attracting this level of investment is challenging in the best of times but increasingly difficult in times of low oil prices.
  • Investors want to know what the rules are before they commit – and that’s a big problem in Alaska. We have an almost serendipity attitude when it comes to oil taxes. We’ve changed the production tax rules six times in the last 11 years – and we’re talking about doing it again – even though it was less than a year ago when the legislature last changed them.
  • Investors also need to know that a promise made is a promise kept. With the passage of SB 21 in 2013, we lured new explorers to Alaska with the promise of incentives. They came, we signed contracts with them, they found financing based on those contracts and then went out and found a huge amount of new oil and gas. But like the cheat who crosses his fingers behind his back, we now say we’re sorry but we have to renege on what we said we’d do.

I don’t know about you but I would be out of business if this were my business model.

Our oil and gas industry can continue to be a healthy pillar of our economy if we can keep our part of the bargain and stop changing the rules at a whim. We passed SB 21 to provide the industry and the state with a more stable, predictable and durable tax system. Then Alaska said yes to this model when they voted to keep SB 21 the law of the land.

And SB 21 has delivered on its promise.

  • North Slope production increased for the first time in almost 15 years last year.
  • Even with low oil prices, industry invested more than $5 billion in projects that increased production from existing fields and brought new fields online.
  • New explorers found new oil in unexpected places.
  • The state took in more oil revenue than it would have under the old tax regime called ACES. In fact, Department of Revenue Commissioner Randy Hoffbeck told Senate Finance that “SB 21 brings in substantially more revenue to the State at low prices than ACES.”

For 40 years, oil has paid Alaska’s bills. Even today, it still accounts for 72 percent of unrestricted state revenues. We all recognize that we have a very large fiscal problem but we cannot continue to balance our finances on the back of oil alone.

We need a stable, predictable tax law that lets us develop our incredible potential.

I hope the co-chairs of House Resources are listening. We Alaskans need to continue letting them know that we want to keep Alaska’s investments safe and our economy growing.

Gail Phillips served in the Legislature when oil fell below $8/barrel and helped balance a budget that took care of Alaska’s while keeping its largest industry whole.


P.O. Box 220884, Anchorage, AK 99522 | 907.569.7070 |
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