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Six Alaska Native corporations launch fight to save new oil tax

By Rhonda McBride Photojournalist: Nick Swann - 9:19 AM May 29, 2014

Alaska Native Corporations are increasingly showing their political muscle: Six large regional corporations have launched a campaign against Ballot Measure 1, which will go before voters in the August primary election.

The measure would overturn Senate Bill 21; oil tax reform the Legislature passed last year and that the industry said was needed to spur production.

Ballot measure supporters say SB 21 gives oil companies too big of a tax break. Opponents say SB 21 has led to increased activity on the North Slope and is stimulating the state’s economy.

The last time Native corporations got involved in politics in a big way was during Sen. Lisa Murkowski’s historic write-in campaign in 2010. They helped her win by rallying the rural and Alaska Native vote.

This time, support for the SB 21 comes from a smaller coalition of Native corporations: Arctic Slope Regional Corporation, Doyon Limited, Cook Inlet Region Inc., NANA Development Corporation, Bristol Bay Native Corporation and Bering Straits Native Corporation.

Even so, these corporations are among some of the most profitable companies in Alaska and also do business with oil companies as oil field service contractors and investors.

The six corporations launched their campaign against the ballot measure at ASRC Energy Services’ Anchorage fabrication facility, which builds modules for the oil industry.

Tara Sweeney, ASRC’s vice president for external affairs, said the building was almost empty before the passage of SB 21. Now, she said, it’s a hub of activity.

ASRC President Rex Rock, Sr. will serve as the head of the “No One on One” campaign.

“It is out of concern for the future of our state and economy that we stand before you today,” Rock said. “No one who understands and cares about Alaska’s economy would vote in favor of threatening the opportunities for future generations of Alaskans. No one.”

Others spoke out about the impact of the old tax structure — Alaska’s Clear and Equitable Share, known as ACES — which was passed under Gov. Sarah Palin’s administration.

SB 21 replaced ACES in January. Supporters of ACES say it allowed the state to build up its budget reserves. Opponents say it discouraged activity on the North Slope.

Aaron Schutt, the president of Doyon Limited, said most of his corporation’s Alaska business is in the oil and gas service industry. The company also owns seven drilling rigs.

“Shortly after ACES passed, we had two of our rigs go down,” Schutt said. “They hadn’t been down in a long time.”

“Each drill rig has about 80 employees, mostly field employees. That’s a payroll of $10 million a year,” Schutt said.

Doyon also explores for oil and gas in Interior Alaska. Schutt said the company invested about $50 million last year in drilling activities, including a well west of Nenana.

“We also ran a fairly significant 3-D seismic program in Yukon Flats near Stevens Village, the first time 3-D seismic has been performed in Interior Alaska,” Schutt said. “Those programs were made possible only because of the special provisions of SB 21.”

Opponents of SB 21 say they are not surprised to see the Native corporations side with the oil industry.

Byron Mallott, a Democrat who is running for Governor and a former head of the SeaAlaska Corporation, said he personally wants to see SB 21 overturned but he understands why the six corporations are fighting the referendum.

“I think that their decision is a pragmatic one. It’s in the interest of their shareholders economically,” Mallott said. “Regarding my position, I have to say it’s something of an ambivalent vote.”

Mallott said he doesn’t believe SB 21 is the best tax structure possible.

“We need Alaskans to come together on whatever tax structure we have,” Mallott said.

ACES and SB 21 are taxes that can be favorable under certain circumstances. Both offer a variety of tax credits.

The ACES tax structure has a higher rate of progressivity, which brings in more revenue when oil prices are high.

Sen. Bill Wielechowski, an ACES advocate, said rural Alaskans and Native shareholders have been some of the primary beneficiaries of the old tax structure, which funded energy programs such as Power Cost Equalization  — bridges, roads and other  infrastructure — as well as important services like the Village Public Safety Officer program.

“We’re projecting billions of dollars in deficits every year for the next decade,” Wielechowski said. “We’re projecting we’re going to be broke in eight years.”

Wielechowski and other Democrats blame SB 21 for the deficits. Supporters of the measure say the shortfalls have nothing to do with the tax but are tied to declining oil production caused by ACES, which created a disincentive to explore and find new oil.

Scott Goldsmith, an economist with the Institute of Social and Economic Research, recently issued a report analyzing the two tax structures and said the drop in state revenues would have occurred in either tax structure. Goldsmith also said the new tax structure would generate more tax revenues given current market conditions.

Wielechowski said Goldsmith’s report is skewed towards supporting the oil industry.

“You see all the ads that are being paid for by BP, Conoco and Exxon. And yet the polling remains pretty consistent,” Wielechowski said. “It shows Alaskans aren’t buying it.”

ASRC’s Sweeney said the new coalition has a big job ahead in educating shareholders about the benefits of SB 21.

She said even a small Native corporation with no investments in the oil industry stands to benefit because of the profit-sharing mechanism set up under the Alaska Native Claims Settlement Act.

“For example, ASRC has distributed nearly a billion dollars in every region of the state through this revenue sharing provision,” Sweeney said. “Everyone gets a piece of that pie if you’re an Alaska Native Corporation.”

It’s hard to say how much influence the coalition of six will wield during a primary election. Typically, turnout in rural communities is low because voters are out hunting, fishing and gathering berries during the election season.

Sweeney said the corporations will work their own shareholder base, which could potentially generate tens of thousands of votes against Ballot Measure 1.

“We have the ability to communicate directly through our shareholders, whether it’s through social media or through dedicated web portals, or through our publications and direct mailings to our shareholders,” Sweeney said. “So that’s a very powerful base from which we can communicate the message of why it’s so important to vote no.”

Native corporations have used shareholder lists with success in influencing legislative races.

The largest Native organization, the Alaska Federation of Natives, has taken no position yet on the ballot measure.

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