Alaska
State Legislature
Representative
Les Gara |
| FOR
IMMEDIATE RELEASE · August 19, 2006 |
|
New
Oil "Tax" Charges Alaskans For
BP Pipeline Failures;
Gives Away
$5+ Billion In State Revenue
Today
Legislative Democrats, who've pushed to close billions of dollars
in oil tax loopholes since 2004, highlighted the oil company
giveaways in the oil tax bill Governor Murkowski announced
he will sign. "Giving away $5 billion in oil company
handouts shortchanges our schools, our state, and our future," says
Rep. Les Gara. Administration estimates about the revenue
the new legislation may provide don't factor in the cost of
most of these givebacks.
A
list of the oil company subsidies in this legislation are included
at the end of this document. Sen. Hollis French (245-7135),
Rep. Les Gara (250-0106) and Rep. Harry Crawford (227-2139)
will be available to discuss this legislation today.
One
of the most controversial is a subsidy to BP, in the form of
deductions and credits which will require the state to pay
a portion of BP's costs related to the recent pipeline shutdown,
and BP's failure to maintain its pipelines. Those
costs are likely to exceed $100 million. Under existing
law, and the Democrats' oil tax proposal, BP would not have
been allowed to charge Alaskans for those costs. "This
is a gift to BP for doing the wrong thing," said Sen. French.
Perhaps
the greatest defect in the legislation Governor Murkowski will
sign today is that it allows oil companies to avoid taxes by
hiding their profits. It taxes a percentage of the profits
oil companies report to the state. "If Enron can cook
its books, you know Exxon and BP can too. That's going
to cost Alaska billions," says Rep. Harry Crawford (D-Anchorage),
who sponsored legislation to tax oil companies on the sales
value of their oil, and not profits.
Since
2004 Democrats, including French, Gara and Crawford, have pushed
a verifiable tax system based on a percentage of the sales,
or "gross" value of oil. That proposal has been championed
by members of the public, oil company watchdog organization
Backbone, and every candidate for Governor except Governor
Murkowski. Republicans voted as a party bloc against
this Democratic proposal, including House Speaker John Harris,
who conceded the Democratic plan would have had support of
a majority of legislators had they chose to work in a "bi-partisan" manner
(KTUU.com, August 4, 2006 story).
The
Republican bill gives away $5 billion in future tax revenue
as a bonus for expenditures the companies would have made anyway. For
example, Exxon has been ordered by the State to develop the
already profitable gas reserves at Point Thomson without any
state subsidies. HB 3001 requires the state to cover 42.5 percent
of Point Thomson development, essentially rewarding the companies
$1 billion for failing to meet their responsibility. "This
bill gives almost every penny raised from Exxon, BP and Conoco
in oil taxes back to them as a reward for investments they
were going to make anyway," French said.
The
following is a summary of the oil company giveaways included
in this legislation.
Giveaway # 1: $3.8 billion To Subsidize Gas
Operations.
The
oil companies have demanded, in essence, that much or all of
the additional oil revenue they pay under any oil tax
legislation, at predicted average prices, be returned to them
in gas subsidies. When the Legislature began this debate,
we all agreed the oil tax system needed to be changed. Unfortunately, the
bill now gives back much of what is raised in additional oil
revenue through a series of gas-related write offs.
The proposed
legislation requires that the state pay 40% (through a
20% deduction and 20% credit) of the cost of non-pipeline related
gas field development costs (for exploration, production and
production facilities). The state will not receive any
ownership share in these facilities/projects.
In
June the Legislature's consultants estimated those costs at
$9.2 billion, $2 - $3 billion of which will be for the development
of Exxon-managed Pt. Thompson, a gas and oil field the Department
of Natural Resources has already ordered (under former Commissioner
Tom Irwin) Exxon to develop with no state subsidies. It
is universally agreed that once a gas pipeline is agreed upon,
gas production will be magnificently profitable, and that
state subsidies to develop gas fields are unnecessary. This
give back amounts to a roughly $3.8 billion tax reduction. That
eats away about 10 years of additional oil tax revenue raised
(assuming companies fairly report their profits) under under
this legislation.
BP
has stated: "It is very likely that, in the medium term, prices
will stand at about $40 on average." Lord Browne,
Guardian Unlimited, 7/12/06. It is projected that
over the course of the next 10 years, at $40 barrel, the new
legislation will raise an additional $4 - $5 billion in oil
tax revenue before these deductions and credits are subtracted. These
gas write offs will eat away almost 10 years of projected
future oil tax revenue.
Giveaway # 2: $500 Million to $1 Billion to "Reward" Companies
for Past Investments.
The
proposed legislation includes an unprecedented retroactive
tax credit. Companies can receive a 20% deduction from
their tax payments for their past 5 years of capital investments. It
is estimated companies have averaged roughly $1 billion in
investment per year, and 20% of $5 billion equals $1 billion
in tax payment reductions. The formula provides
that they can write off 1$ in past investments for every $2
they invest in the future. If companies simply invest
at the level they have in the past, they are entitled to half
of this credit, or $500 million in tax payment reductions. If
they increase their investments they can qualify for up to
an additional $500 million. It is irresponsible, and
unprecedented, to give a $500 million to $1 billion tax break
for past investments - especially past investments made under
a broken tax system that helped earn them record profits. Again,
this give back was requested by the oil companies to offset
any increase in future tax payments.
Giveaway # 3: $350 - 700 Million For
Delayed Implementation Date.
Democrats,
and the Governor when he originally proposed his bill, have called
for the new tax to become effective on the first of this year. Normally tax
legislation takes effect the first of the year, as did Alaska's
1989. The Governor now requests that
the bill not take effect until July 1, and current legislative
proposals would implement the bill as of April 1. A 3
month delay reduces this year's revenue by roughly $350 million. A
6 month delay would reduce revenue by roughly $700 million. If
the oil companies are being given 5 years of retroactive investment
credits, then the state is easily entitled to implement this
tax, as is the norm, as of January 1, 2006.
Giveaway # 4: $1.2 - $2 billion/Year - The New
Proposed Tax Falls Far Short of the World Average Rate:
According
to the Legislature's Expert, Daniel Johnston, "the world average
government take even right now is probably 67% or 70% depending
on how you calculate it." Joint House Resources/Finance
Committees, March 6, 2006. International consulting firm
Wood Mackenzie says it's 70%. That's the total percentage
of oil value received by local, state and federal government. Projections
are that the current legislation would result in a government
take rate of roughly 60% at $60/barrel. At $60 barrel
each percentage of government take raises roughly $200 million
in revenue. Falling 7% - 10% below the world average
costs the state between $1.4 billion and $2 billion/year in
lost revenue. Early testimony on oil tax legislation
was that the state would be justified, given the relative safety
of investments, in taxing at the world average.
Total Loss To Alaska In Bill:
Tax Write-offs: $4.6
billion - $5.5 Billion
Taxing Below
World Average: $1.2
- $2.0 billion/year.
###
|
Sen. Hollis French
