A new organization dedicated to turning around the decline of Alaska’s oil patch launched its campaign Wednesday. Alaskans should support the effort.
The Make Alaska Competitive Coalition, which takes no money from oil producers, argues Alaska’s highly progressive tax rates have capped industry investment. To reverse this dangerous trend, they support the sort of reform Gov. Sean Parnell has proposed.
Parnell wants to ratchet back the state law that takes an ever greater share of profits when oil prices rise. He would still have oil tax rates grow progressively as prices rise, just not as steeply.
Parnell believes the short-term loss of tax income will pay off in the long term, as the industry returns to the business of finding more oil in Alaska.
In the short-term, the governor’s proposal would take a big bite out of the state’s revenue. It’s a hard thing to swallow. It would require state government to dip into savings at a time when such deficit spending has become a political pariah.
Opponents of the governor’s initiative also note oil companies earn grand profits at today’s oil prices. Therefore, the companies need no tax breaks from Alaska, the skeptics assert.
Focusing on what oil companies need miscasts the issue, though. The issue is what Alaska needs.
Alaska needs more oil. The amount of oil in the trans-Alaska oil pipeline is declining at a steep rate. The average daily volume it carries will fall to about 600,000 barrels this year, less than a third of its capacity.
This decline will continue unless we get more investment in new production, not just maintenance, on the North Slope. If the trend doesn’t change soon, it won’t be long before the economic viability of the pipeline itself becomes questionable. Then our progressive oil tax rate will be of no help. Our income will plummet.
How do we encourage more investment? There are no guarantees, but improving the tax structure is one simple step we can try.
No doubt this seems crazy to those who focus on the oil companies’ profits. Those companies are making very good money. Oil prices topped $100 per barrel Wednesday.
Some of those substantial profits will be reinvested by the companies. The question is: “Where?” The answer is: “Where the money will produce the best returns.” That’s not simply because greedy corporate tycoons are trying to line their personal pockets. It’s because company shareholders demand their dollars seek the best return. Those shareholders are all of us who have investments in pension funds, mutual funds, retirement accounts and company stocks.
If Alaska isn’t a competitive place to invest, in comparison to the next state or country on the options list, it doesn’t matter how much oil we have or how profitable the companies are. Those profits will be invested elsewhere.
Alaska can’t risk that. It must find a way to reverse the pipeline’s decline. Dialing back the state’s highly progressive tax rate is a necessary step.
Read more: Fairbanks Daily News-Miner - Reverse the decline Coalition takes on Alaska’s risky drop in oil production
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