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Dwindling state revenue projections spark oil tax debate

By Rhonda McBride 10:52 AM December 6, 2013

Oil tax reform opponents say sharp decline in Alaska oil revenues provides more ammunition to repeal SB 21

ANCHORAGE – Just one week before Alaska Gov. Sean Parnell is scheduled to roll out his budget for the next fiscal year, state finances took a huge hit.

Revenue from oil and gas taxes has decreased sharply. Earlier this year, the state was expecting about $4 billion in revenue for the current fiscal year. But new budget estimates cut that number in half.

The Parnell administration said the $2 billion dollar shortfall is because of lower-than-expected oil prices and a decline in production — not SB 21, the oil tax reform bill that was signed into law this year.

Vic Fisher, one of the backers of a referendum to repeal the bill, questioned the administration’s explanation.

“Well, that’s pure nonsense,” Fisher said. “The price of oil is down by $4. That would make it a minimal difference in the tax take. I think Alaskans should be very alarmed. They should look very closely at what is being projected, and they should vote to repeal SB 21 in the next election.”

Voters will get to weigh in on Proposition 1, the referendum to repeal SB 21, in August’s primary election.

The revenue projections for the current fiscal year are based on two different tax structures. The first half of the 2013-14 fiscal year is under Alaska’s Clear and Equitable Share (ACES), a tax reform bill designed to capture more revenue when oil prices are high.

Oil in the second half of the current fiscal year will be taxed under SB 21, which Parnell has rebranded as MAPA, the “More Alaska Production Act.” The legislation takes effect Jan. 1.

“The governor’s projections are bringing us to a precipice, where within a very few years you will see the economy of Alaska hurting very, very bad,” Fisher said. “They will have no one to blame but themselves.”

The Alaska Oil and Gas Association, a trade industry organization representing oil and gas producers, paints a very different picture.

Kara Moriarty, AOGA’s executive director, points to recent signs of increased production.

“There are new rigs coming on line in Kuparak and Prudhoe,” Moriarty said. “The number of rigs in Prudhoe are going to go from five in 2012, up to nine. So we have more money in the private sector today in eight short months before the law even takes effect than we ever had under ACES.”

Moriarty contends that the state is already better off, even before the new tax regime takes effect.

She worries that the referendum backers will use the revenue shortfall to further distort the picture and scare away potential investors a natural gas line.

Parnell said he stands by MAPA, and believes the law will actually help capture more oil revenue than ACES because its structure is more favorable to today’s current low-oil-price environment.

Fisher doesn’t buy that argument and believes the trend in declining oil revenues could deplete the state’s $17 million in budget reserves.

“That can disappear in less than five years,” Fisher said, who fears this could lead to drastic cuts and perhaps an income tax.  “It’s going to be a real hit to the economy, and it will reduce jobs in Alaska. It will reduce the quality of life in Alaska.”

Moriarty doesn’t see it that way. She believes increased oil production will grow more jobs and revitalize the state’s economy.

Despite the differing visions of the future, the bottom line for now: $2 billion less in revenues, and very likely, some painful cuts ahead for state government.

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