Dec
05
2017

When More is Less: Higher Oil and Gas Taxes Harm Alaska

 

Alaska’s citizens and the oil and gas industry have a long and mutually beneficial relationship. The industry continues to be a leading employer, generating over 100,000 jobs. Since 1982, most Alaskans have received direct payments from the Alaska Permanent Fund, created in 1976 to ensure that citizens would benefit from petroleum revenues. Even as oil prices fluctuate and trend lower because of abundant global supply, oil and gas continues to pay a significant share of taxes that support a wide range of government services. Over $180 billion dollars has flowed to Alaska’s treasury over the state’s existence.

Like many states, Alaska is weathering an ongoing recession, coupled with a declining population and higher unemployment. Many policymakers are sincerely engaged in exploring a range of solutions for reducing expenses and raising revenue. Unfortunately, some politicians have chosen to focus too much on raising taxes on the oil and gas industry. Continuing down this path is the wrong way forward for Alaska.

Businesses large and small thrive when they can operate in an environment of fiscal and regulatory certainty. Oil and gas in Alaska has lacked that certainty, in part thanks to seven significant changes in the state’s oil and gas tax law in just 12 years.

The two most recent and notable changes came in 2016, with H.B 247, and in summer of 2017 with enactment of H.B 111. H.B. 111 raised taxes on the oil and gas industry by removing many of the tax credits that used to create flexibility for exploration and production companies.

The bipartisan, bicameral Oil & Gas Working Group (OGWG) established under H.B. 111 got underway in late October 2017. The OGWG features a broad cross-section of legislators who can contribute a great deal of knowledge and experience to the debate.

As the OGWG ramps up, working on recommendations to deliver to the legislature, its members are asking many of the right questions, such as “how do we attract more exploration and drilling companies to Alaska?” or “what makes some companies stay in the state?” and “what draws investment to an area?”

However, the OGWG process, especially in light of Alaska’s ongoing budget woes, leaves many wondering if yet another round of unpredictable tax policy changes that will push oil and gas companies out of the state and exacerbate the ongoing recession may be forthcoming.

Higher taxes on the oil and gas industry will not yield the right answers. Raising taxes on an industry that has repeatedly demonstrated its commitment to Alaska, but yet is buffeted by low commodity prices and global economic pressures, will have the effect of a downward spiral and will chase exploration and production to other parts of the U.S and the world. More taxes on a declining body of revenue will simply push off the day when Alaska’s budget woes are repaired in sustainable manner.

A smarter way forward in Alaska is to resolve to cease tinkering with the oil & gas tax code, re-engage the industry in forward-looking conversations about continued exploration and production, and to look diligently at other options for creating or boosting economic engines in the state that can work alongside the oil and gas industry.