Note from Rep. Les Gara: “It’s Déjà vu All Over Again” or “90 Days of Groundhog Day.”

 

The Legislative session began on Tuesday, which is why I’m in Juneau where it’s snowing and raining a lot. It’s good to be back, and I don’t really mind temperatures that are in real life double digits. Above zero, that is. OK, I’m done bragging – now down to business.

 

 

A debate about oil company taxes is likely to dominate the legislative session. Again. Like it did in 2006. And in 2007. And last year. Currently the state has over $12 billion in savings, much of which was made possible with the oil tax reform law we passed in 2007. You might remember that when we changed the tax system in 2007, oil companies opposed the move, in part saying tax changes create “instability.” Well, this time they, I guess, want the instability and are pushing for major changes. Oh well. 

 

I don’t believe oil tax policy can be discussed in sound bites. Nor do I believe that if we reduce the share oil companies pay Alaskans for developing this publicly owned resource, investment in Alaska will necessarily go up. In 2006, when Alaska had a very low production tax - 0% on most fields, no matter how high the price of oil was - investment was more than 20% lower than it is today. A low oil tax didn’t get companies to start increasing investment. The idea that companies are hurting under the new tax system also seems like an exaggeration. ConocoPhillips has reported over $6 billion in Alaska-based corporate profits over the past three years. Exxon and BP don’t report their Alaska profits, but as co-owners of the North Slope’s Prudhoe Bay leases, they likely did similarly well here.

 

If you’d like a more detailed discussion of this issue, here’s a link to a recent editorial I wrote with Senator Hollis French for the online newspaper, Alaska Dispatch, which came out before the governor’s proposal to reduce the state’s share of oil taxes. His legislation, in a year when he’s proposed a budget with a deficit of roughly $150 million, would reduce the state’s share for our oil by $1.2 - $1.5 billion a year. To me it looks, on first blush, though hearings will better inform all of us, like a recipe for deficit spending. If it were in place this year, we’d have a $1.5 billion deficit under the governor’s proposal.

 

Alaska already offers substantial credits for new development – 40% of capital costs for new fields, plus a deduction that brings the total tax write off to more than 60%. And we have a smartly worded provision that allows substantial tax reductions if a company proves, with facts and not just sound bites, that a tax reduction is needed to make a new development profitable. And, as you’ll see in the attached editorial, the bigger drivers on investment are outside of the sphere of tax law. We should be moving forward with production from the NPR-A – something the Army Corps of Engineers has blocked. That’s one of the most promising new oil basins in the state, and, under the current tax law, Conoco has proposed drilling there. So, production declines are more related to oil basin and regulatory issues than the state’s oil tax law.

 

 

There’s more to do than debate oil taxes. I will keep pushing for statewide Pre-K education for families that seek it. The studies show Pre-K leads to more employment, better graduation rates, lower jail rates, and higher incomes for those who attend. Alaska is one of only 10 states in the nation that doesn’t have a statewide Pre-K system.

 

There’s more to do on foster care, including the need to emphasize to the state that it’s normally not OK to split siblings up when they are placed in the system. A sponsor statement for legislation I am working on with Rep. Bill Thomas (R-Haines) and Rep. Bob Herron (D- Bethel) available here.

 

The gasline. Why keep talking about it? Because it is one of the very few projects on Alaska’s horizon that can produce tax revenue to run this state, substantially add jobs to our economy, and produce affordable energy. A recent study shows that a much touted, smaller in-state-only gasline would produce very expensive natural gas -possibly at $20/mcf, or triple what we now pay in Anchorage. Since in-state gas isn’t taxed, this line won’t provide any real revenue. If the state is going to subsidize a natural gasline, I hope we will first consider subsidizing the larger line. Estimates are that a large diameter line will provide much cheaper in-state gas, and revenue for the gas exported outside of Alaska. 

 

That’s a lot for now. Stay in touch. I’ll try too. 

 

Best Regards,