ACES passed and a new tax schedule was instituted on the oil industry. ACES worked exactly as intended-get a more equitable division of revenues. For many years, the oil industry was no great deal for Alaska. I know there will be a vast majority of readers who could never believe this statement. I don't care to write a history of the industry and subsequent transformation of this state from one of great poverty to great wealth. Without question this state went through monumental changes and hundreds of thousands of peoples’ lives changed for the better—that is, everyone was made better a in dollars and cents measurement. Yes, Alaska prospered, but so did the oil companies. What is lost in the thought process is that the oil, not the oil companies, that provided that wealth. Many believed that the state’s proportion was not equitable and therefore unhealthy.
Did changing the tax structure from the old ELF schedule to the ACES schedule help or hurt Alaska? ACES improved Alaska and should remain in place.
I haven't seen evidence indicating that the saying “what is good for the oil companies is good for Alaska” is true. The responses from the Conoco-Philips presenter were very clear that the oil companies do not care about for State of Alaska or its citizens. Their shareholders are the ones that they look out for. We are not "business partners". That is NOT to dispute that we both benefit form oil production. Alaska’s benefits are incidental. If changing ACES allows more profits to flow to the oil company’s side of the ledger that does not mean greater prosperity to Alaska. The oil companies only care about their side of the equation-which is perfectly fine and understandable.
Why should Alaska trust Conoco-Phillips (any oil producer) when they make claims about leaving this state or reducing/stopping exploration if taxes are not lowered? We know Alaska is not your “business partner” so instead it's more like two sides sitting across from each other at a high-stakes poker game. “How do we know they are not bluffing?” During our class presentation and from testimony before the Alaska legislature, if ACES is amended, leading to relatively higher profits (2-3 billion collectively/year) will this not ensure more exploration? The answer is always “Maybe-We don’t guarantee anything”. How can Alaska trust anyone that states definitely “taxes are killing investment in Alaska!” yet respond to the question “will you guarantee more investment if taxes are lowered?” with “Maybe”? Logically, that makes no sense. This is the reason the Senate failed to pass it out of committee. Anyone looking and listening at this logically would have voted hold the bill.
Also, oil companies tell us they will go to other places that are more attractive unless Alaska lowers its taxes. Don’t you think they’re using that same argument everywhere? Oil industry says to Alberta “lower you taxes or else.” Alberta lowers its taxes. Oil industry says to Louisiana, “lower your taxes or else” Louisiana lowers its taxes below Alberta’s taxes. Oil industry says to North Dakota “lower your taxes or else”. North Dakota lowers its taxes to less than Louisiana’s taxes. Then the oil industry says to Alaska “lower your taxes to less than North Dakota’s or else”. It becomes a race to the bottom. So how low would they like Alaska to set its taxes? 50? 30? 10? How about 0%? What about paying you to take our oil out of the ground? Overall, it is a ridiculous question. It can never be too low for the oil companies. Their only mission, by mandate, is to accumulate as much wealth as they can for their shareholders at the least cost. They are duty bound to gain every last penny that they can. The same philosophy applies to pollution controls-no regulations would be the best.
Part II:
I would also argue that the oil industry could produce self-fulfilling prophecies. They make a conscience decision to reduce exploration. Fewer rigs are hired. Then the oil companies state, “look, we’re not exploring—Alaska, you must do something about this! Lower your taxes.” They can state any reason for the original decision to stop exploring. Was it due to taxation, regulations, or a combination of other factors that Alaska has no control? Alaska will never know—Alaska has no access to the boardroom discussions and therefore Alaska can never see the cards that they have in their hands.
The oil industry is basically asking Alaska to cut taxes in order to raise profits, benefiting their shareholders around the world. In return, they offer nothing other that a possibility of more drilling. It is conceivable, and very likely, that they will take the extra $2-3 billion dollars and raise their shareholders dividends a dollar each or invest that money in projects elsewhere. That doesn’t sound like a wise business plan for the State of Alaska. People are always demanding that the government take a more businesslike approach to its dealings, well ACES is exactly that.
Final point. What if the oil companies are telling the truth? What if they are not bluffing and would explore more if taxes were lowered? The solution could be, here is the $2-3 billion, but you can’t have it until you produce successful drilling seasons. In other words, run the taxes with the current ACES formula and have the companies pay that amount. Also, run the taxes using the proposed tax formula. Take the difference and deposit it in an account. When the companies do what we want them to, then give them the money. Or, reduce their risk by helping to pay for their exploration (which Alaska already is doing) to an extent that they can’t claim it is too risky. Alaska needs to react to the oil companies as equal business partners and not be lead around.
Dave Bisegger
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