Election

Vote on Alaska Oil Tax Still Too Close to Call

August 20, 2014

By Richard Mauer

Alaska voters were narrowly rejecting the repeal of Senate Bill 21 in Tuesday's election, with a four-point margin between the side that would toss out the 2013 oil tax reform bill and the side that would retain it. With nearly all precincts -- more than 98 percent -- counted, the campaign against to the measure and in favor of keeping current oil taxes led by nearly 6,800 votes, out of the more than 153,000 cast.

The vote count to repeal Senate Bill 21, the More Alaska Production Act, and return to the Palin-era tax regime of 2007, Alaska's Clear and Equitable Share, teetered between yes and no throughout the evening. The moods of supporters shifted with the change in tallies.

"It's nerve-racking but we will have to wait and see. It likely won't be over until the very last vote is counted," said Kara Moriarty, one of the leaders of the "no" campaign to reject repeal and keep SB 21. "I believe there are more than 11,000 absentee ballots to be counted so it's possible we won't have final result until Sept 2."

Author and repeal supporter Jack Roderick said the showing by the Vote Yes campaign groups has been impressive, in part because they're made almost entirely of volunteers.

"This issue is alive whichever way it goes," Roderick said. "We want to control our future. And the big boys talked the governor into a giveaway. That's no way to run a business or a government."

Gov. Sean Parnell said when he proposed Senate Bill 21 in 2013 that the new tax law was needed to increase investments in Alaska by oil producers. He said that with the old law, the industry was investing money Outside in states with more favorable taxes.

On Tuesday night, he said he would respect the decision by voters, whichever way it went. But he also said the debate wouldn't be over if the law was repealed.

"Regardless of the outcome, you'll see the elected leaders -- me as governor, the Legislature -- we're going to respect the will of the people, regardless of what happens," Parnell said. "I think by January it will be up to the Legislature and governor at that point in time to decide, but the people, they will have spoken when this is over, either no or yes. We'll either go forward with the more Alaska Production Act, or we'll go forward with ACES."

Even before the votes were counted, one of the leaders of the referendum was back on the streets again with petitions, this time for an initiative to forbid legislators from voting on bills in which they have financial conflicts of interest. Ray Metcalfe, a former legislator, said the initiative would make such behavior a felony.

If such a measure had been on the books in 2013, Senate Bill 21 would probably not have passed. Two senators who voted among the 11 in favor of SB 21 were employed by ConocoPhillips.

Around the state, voters said they were drawn to the polls by two big contests: the Senate Bill 21 referendum, and the Republican primary for U.S. Senate.

In Bethel, Katrina Domnick, 18, was voting for the first time and said she pushed her boyfriend to vote, too. They both voted yes on the measure to repeal Senate Bill 21 and return to the earlier oil tax regime.

"I've done a lot of research," said Domnick, who read up on oil taxes and talked to people in other oil states. While in Anchorage earlier this year, she and her boyfriend, Richard Young, 32, sought out a forum on the oil tax proposal to learn more.

But Debbie White, who has been in Bethel since last November and works for the Association of Village Council Presidents, said she believed that keeping the new oil tax system will mean more jobs for Alaska overall.

"I am looking at the whole state," she said. She voted no.

In a South Anchorage precinct, John Herman, 60, also voted no.

"I don't think this will be the end of it, even if Proposition 1 fails. There is just so much controversy and misinformation out there," Herman said.

Another voter there, Pat Knowles, 62, voted yes.

"When we voted Palin in, she had an 80 percent approval rating, and this (ACES) was her baby," Knowles said.

Oil taxation has always been a central issue for Alaska. The discovery and development of oil fields on the Kenai Peninsula in the 1950s convinced Congress that the new state would at least have a modest tax base to support itself and wouldn't be the dependent basket case that some had feared.

But the mammoth Prudhoe Bay field, discovered on state land less than a decade after statehood, linked Alaska's destiny to oil -- and oil prices -- in a way that had been hard to foresee in the hardscrabble early days. With North Slope production building to 2 million barrels of oil a day by 1988, the state tossed aside its personal income tax and began socking money away into the Permanent Fund.

By 1989, North Slope production began to decline. Slowing that decline has been a function of better technology, capital investment and, some say, tax policy.

The Legislature began overhauling tax policy in 2006, linking oil taxes to the possible construction of a natural gas line. But the Petroleum Profits Tax passed by the Legislature that year was tainted by a corruption scandal that resulted in FBI raids and indictments of Republican legislators.

In the wake of that scandal, Sarah Palin rode into the governor's office on a wave of reform. She and allies among Democrats and moderate Republicans changed the tax structure again in 2007, passing ACES -- Alaska's Clear and Equitable Share. The law had big tax breaks for companies involved in exploration and for capital investment, but it had a sliding-scale tax on production profits that rose progressively as oil prices increased, from a floor of 25 percent before credits to a ceiling of 75 percent if oil reached $342.50 a barrel.

Oil prices never touched that stratospheric value, but they did climb higher than ever -- well over $100 per barrel -- in the years following the passage of ACES. Before the end of the decade, oil companies were arguing that the law had become a windfall profits tax and didn't give them enough money at high prices. Though oil jobs and investment in the North Slope were at an all-time high, production continued to decline. The companies said they were taking their money elsewhere.

In 2013, Gov. Sean Parnell, a former supporter of ACES, introduced Senate Bill 21, a tax cut that he said would boost the state's sagging oil production. Under ACES, production dropped from 740,000 barrels a day in 2007 to 534,000 in 2013, a 4.6 percent annual decline.

The legislative fight over Senate Bill 21 was fierce, with dueling experts and divisions within both parties. The bill eventually narrowly passed, 11-9.

In the run-up to the repeal election, supporters of Senate Bill 21 urged voters to give the tax law a chance to allow it to work, and call on the Legislature to change it if more oil wasn't produced. But the Senate had already had a chance to ensure just that when one of the Republican opponents of Senate Bill 21, Sen. Gary Stevens of Kodiak, tried to amend the bill with a "sunset" clause. Under the amendment, Senate Bill 21 would expire Jan. 1, 2017, unless the Legislature found oil companies had begun producing more oil in return for their tax cut.

The amendment failed by a vote of 9-11, the reverse of the vote by which the bill would pass a few hours later.

Before Parnell could even sign the bill into law, opponents had started a petition drive for a repeal referendum. Parnell disputed the need for a vote.

"I think the referendum was last November," he said at the time, referring to the 2012 election that put Republicans firmly in charge in Juneau.

But that election was held under a cloud. The state Supreme Court had ruled that the districts created for that election were unconstitutional, but allowed the vote to go ahead because there wasn't enough time to create new districts. Democrats said the Republican-dominated redistricting board had gerrymandered them into near-oblivion. The new 2014 districts have passed the constitutional test.

Opponents of SB 21 had 90 days to get 30,000 signatures gathered from 30 of the 40 House districts. When they turned in their petitions at the deadline on July 13, 2013, they had 51,000 signatures.

The campaign against the referendum had started during the petition drive and only swelled once the ballot measure was assured. The fight has been lopsided: As of Monday, the Vote No campaign had raised $14.7 million, mostly from the state's three big oil producers -- ConocoPhillips, BP and Exxon Mobil Corp. The Vote Yes campaign had many times more individual Alaskan contributors, but they were no match for the big companies, with fundraising totaling just $628,600.

The law took effect Jan. 1, and almost as soon there were competing facts on its effectiveness: Was the new law producing more oil, and if so, how could anyone be sure that it was a long-term change and not a blip to give the appearance the law was working in the lead-up to the referendum?

The additional oil the new law may or may not produce has been central to the debate. Tax cut supporters, citing a 0.13 percent drop in production over the last fiscal year, have argued that the production decline has leveled off as oil companies, responding to the new regime, have ramped up oil-field activity.

Tax-cut critics argue that if the decline curve has softened, it's temporary.

Since Senate Bill 21 passed, the Big Three oil companies have increased well-enhancement work to coax more oil out of old fields. ConocoPhillips has said it has added two rigs to its operations that have so far boosted flow about 7,000 barrels a day.

BP and Conoco have said they're considering investing billions of dollars in additional rigs and new fields that could add at least 80,000 barrels a day of production.

Whatever new oil is produced, it's unknown just how much revenue it will bring the state.

Rep. Les Gara, D-Anchorage, has argued the new oil will provide little to zero long-term value because of the larger tax breaks new production receives compared to the so-called old oil produced from legacy fields.

Parnell administration officials have argued that oil companies are more likely to produce new oil under Senate Bill 21. Even if that oil is not taxed as high as it was under ACES, it will generate additional benefits, such as royalties for the Permanent Fund, corporate income taxes, property taxes and jobs.

Sean Doogan and Alex DeMarban contributed to this report.

(c)2014 the Anchorage Daily News (Anchorage, Alaska)

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