Empire Editorial: Alaska’s billion-dollar gamble

  • Wednesday, June 8, 2016 1:03am
  • Opinion

Walking into the new Alaska State Library, Archives and Museum is an experience no one should miss.

Above you, a natural wood ceiling soars. Below you, the state’s shape is etched in stone. Surrounding you are works of phenomenal art and history. This new building is truly a cathedral of learning and a monument to Alaska’s 10,000-year history.

We will never see anything like it again.

The Alaska Legislature’s actions Monday show that the 49th state no longer has any interest in mere education. All will be sacrificed to appease the gods of oil and industry.

The passage of House Bill 247 in its present form is nothing less than a tragedy and a mistake. Gov. Bill Walker should waste no time in vetoing it.

What makes matters so wretched is that the Legislature’s action is a willful mistake.

We have known for the entire Legislative session that Alaska’s system of oil and gas drilling subsidies is broken. In the fiscal year that begins July 1, the state is expected to owe oil and gas companies $775 million in tax credits.

The companies owed these credits are some of the largest and richest in the world: BP, ConocoPhillips, Exxon and others.

This staggering sum is partially the fault of Gov. Bill Walker. Last year, he vetoed $200 million in tax credit payments to oil companies, but because those credits do not expire, they become due in the next fiscal year.

Much more of the fault lies with legislators, however. In 2013, lawmakers passed Senate Bill 21. This measure was hailed as bringing badly needed reforms to the state’s oil and gas tax system. It also reformed the system of tax credits that subsidize oil and gas development.

Many Alaskans thought the bill was broken, and they launched a campaign to overturn the bill at the ballot box.

Ahead of the vote, this paper urged Alaskans to approve the referendum and reject SB 21 because we did not trust it. The oil industry was spending tens of millions of dollars to defeat the referendum. We said that given the oil industry’s history ─ Exxon Valdez, Amerada Hess, VECO, bribery and corruption ─ there was little reason to support SB 21.

Despite our words, Alaskans voted 99,855 to 89,608 to keep SB 21.

We wish we had been wrong.

What none of us realized in 2014 was that oil prices were about to plunge. By Jan. 20, 2016, a barrel of Alaska North Slope oil was selling for $26.23. That’s cheaper than a barrel of olive oil.

When SB 21 was drafted, no one bothered modeling its effects at prices below $60 per barrel.

That mistake has now cost the state of Alaska more than a billion dollars, and it may cost the state still more.

With oil prices so low, the big North Slope oil producers became eligible for a tax credit intended only for new, small arrivals on the North Slope. The big producers collected hundreds of millions of dollars in these “net operating loss” tax credits, then used them to erase virtually every dollar of the production taxes they owe the state.

Alaska’s oil earnings have been almost halved by this feature of SB 21, and jsut when the state needed revenue most.

Making matters worse, this was entirely legal under the rules of Senate Bill 21, but it was not intended. It was a mistake.

The scope of the problem wasn’t apparent until legislators began holding hearings on House Bill 247 earlier this year. Even Gov. Walker’s original version of HB 247 did not address the issue.

Nevertheless, as soon as the problem was revealed, it should have been addressed promptly.

Instead, the Alaska Senate passed a version of HB 247 that ignored the issue and instead focused on scaling back tax credits in Cook Inlet.

It was the Senate’s version of the bill (with some minor changes) that advanced through the House and the Senate on Monday.

This bill is nothing less than a billion-dollar gamble.

North Slope oil prices on Monday were just above $49 per barrel. If they stay above $46 per barrel, the big North Slope producers make money and aren’t eligible for the “operating loss” tax credits.

But if prices drop below that $46 per barrel trigger point, Alaska loses ─ big.

Rep. Paul Seaton, R-Homer, is the co-author of a version of HB 247 that eliminates the operating-loss loophole. That version passed the House but was ultimately thrown out by the Senate and by extreme members of the House.

Speaking on the floor Monday, Seaton said that if oil averages $40 per barrel over the next five years ─ and remember that prices were in the 20s just five months ago ─ the state of Alaska will owe more than $4.2 billion in tax credits to oil companies.

Unless Gov. Bill Walker vetoes HB 247, the state of Alaska will either go bankrupt or be forced to raise taxes on its own residents simply to pay the bill owed to oil companies.

Unless HB 247 is thrown out, the new Alaska State Museum will become a memorial reminding us what we have lost.

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