Exxon Mobil reported profits of $19.7 billion for 2017. And the year ended with a huge cut in the corporate tax rate. You’d never know that listening to Sen. Anna McKinnon, R-Eagle River. She called a suggestion by Rep. Les Gara, D-Anchorage, that the industry can afford to pay more taxes “shocking” because, she says, they’ve “been bleeding and not receiving profits.”
Maybe McKinnon is only referring to small operators. Or she’s measuring their current success against the record profits they earned after oil prices hit $160 per barrel in 2008. Or it’s just more of the same spin we’ve been hearing for years — increasing oil taxes will chase the them all out of Alaska.
Regardless, Alaska’s big three are doing fine.
Next to Exxon, the Alaska Journal of Commerce reported BP finished the year with $3.4 billion in profits. It would have been quite a bit higher if they weren’t still on the hook for damages related to their Deepwater Horizon fiasco.
Conoco Philips did lose several hundred million. But their CEO said 2017 was “a very successful year by all measures.” And the profit they earned from Alaska operations was $652 million.
On the other hand, Alaska’s state treasury has been bleeding badly for several years.
As a member of the House majority coalition, Gara has been arguing the oil companies need to chip in with higher taxes to fix that. Instead, they’re “paying no production taxes whatsoever” on new fields during the first seven years of operation.
As I wrote in December, the industry is benefitting from a progressive tax structure that’s hidden by the language of credits. In Senate Bill 21, it was advertised to be 35 percent flat tax. In a letter the Department of Revenue (DNR) sent to Gara last year, they pegged the effective rate around 12 percent when oil is selling at $60, as it currently is, once credits are factored in.
According to Gara, restructuring the tax law to fix that problem would increase oil tax revenue from $500 to $700 million over the foreseeable future.
Meanwhile, McKinnon and the Senate majority think the problem can be solved without any new taxes. Their optimism is partly buoyed by three consecutive years of increased production on the North Slope.
DNR’s latest forecast predicts that will continue for the next two years. But by 2027, they project it will drop to six percent below 2017 levels. Besides undermining the wishful title — “The More Alaska Production Act” — given to SB 21 by former Gov. Sean Parnell, oil tax revenue will decline too.
A similar fiscal problem has been brewing in Oklahoma. Just before oil prices plummeted in 2014, their state lawmakers voted to make permanent a lucrative tax incentive for new oil and gas production. A year later they were forced to dip into their reserves to balance their budget.
AP reporter Sean Murphy wrote last week that the problem is now “so grim some Republicans are willing to consider the ultimate heresy: raising taxes to fund education and health care”.
Oklahoma State Auditor Gary Jones is one them. The former chairman of the state Republican Party is running for governor. He’s criticizing the production tax incentive and telling voters they need to elect someone “willing to tell the truth about how we got here, where we’re at, and has a plan” to fix the mess.
Another is Oklahoma Republican Rep. Leslie Osborn. In 2012, she helped write a law that enacted automatic cuts to the state’s income tax. This year, she admitted it didn’t produce “the promised surge in economic growth” and contributed to “persistent shortfalls that have led to drastic cuts” in education and vital services. As chairwoman of the House Appropriations and Budget Committee, she led the effort to repeal the next round of income tax cuts.
Oklahoma’s budget shortfall is about $900 million. Ours is $2 billion. Which makes it more imperative for Alaska Republicans to break from the party’s antitax dogma and bleed some truth.
The oil industry struggled for two years after prices fell in 2014. But what really matters is the decades worth of enormous profits they earned and the billions of dollars sitting on the positive side of their balance sheets. They aren’t hemorrhaging. And even before all these tax cuts, they never even needed a Band-Aid.
• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector. He contributes a regular “My Turn” to the Juneau Empire. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.
