For a pdf version of the below talking points, click here

Alaska’s Fiscal Crisis
For more than 20 years, RDC has advocated for a long-term fiscal plan, including efforts to limit Unrestricted General Fund spending to a sustainable level, support some use of the Permanent Fund earnings as part of a fiscal plan, and tax policy and incentives that encourage future investment in Alaska’s resource industries.

Low oil prices, a historic long-term decline in production, and unsustainable state spending are the root causes of today’s budget problem.

The state’s operating budget is on an unsustainable path. Unrestricted general fund spending should be $4.1 billion or less, and state budget reserves should be used to aid in the transition to a long-term, sustainable budget.

Permanent Fund Earnings
Permanent Fund earnings need to be part of a long-term, sustainable solution to Alaska’s fiscal situation. State law allows these earnings to be used to support essential services.

Governor Jay Hammond’s vision for the Permanent Fund included the eventual use of the fund’s earnings to help pay for essential government services. With TAPS throughput running at three-quarters empty and the precipitous drop in oil prices driving oil revenues to new, lower levels, the time has come to use some of the earnings to fund services.

Budget cuts and taxes alone cannot bridge the fiscal gap. Alaska needs to use Permanent Fund earnings, but only in a sustainable manner.

University of Alaska economist Scott Goldsmith has proposed using both current revenues and earnings from the state’s portfolio of assets to pay for public services.

Responsible Tax Policy
Raising taxes on Alaska’s natural resource industries at this time will hamper future investment. Higher taxes in this low-priced commodity environment for oil, minerals, and fish could be a game changer for Alaska, leading to lower state revenues, less jobs and a weaker private sector. The private sector is the foundation of Alaska’s economy and its underlying health is the key to sustaining jobs, state government and the overall economy.

To sustain our economy, Alaska needs to encourage new investment, jobs and production by maintaining a stable, competitive tax structure.  Conversely, the more Alaska taxes commodity-producing companies, the less likely they will invest in future production.

Alaska’s natural resource industries are not asking for a decrease in taxes, but they are asking for stability, which includes a fiscal policy that encourages investment in our state and keeps Alaska open for business.

Alaska’s oil and gas, mining, tourism, fishing and forest industries already have skin in the game, paying significant taxes to state and local governments, and providing jobs to Alaskan families. Instead of increasing taxes, risking jobs and future investment, Alaska needs to incentivize economic growth and business investment, which will grow the revenue pie for both the private and public sector.

Oil taxes
Alaska cannot increase oil production by increasing taxes. Alaska cannot tax away the industry’s incentive to invest and still expect to have a sustainable economy.

While it is tempting to collect every dollar possible from the oil industry through increased taxation, doing so makes Alaskan projects less competitive with those elsewhere and robs the companies of the investment capital they require to expand existing fields and discover new ones. In the long run, increasing taxes on the industry will do more harm to Alaska’s economy. Conversely, more investment means more production, more revenue for the state, and more jobs for Alaskans.

The oil industry has traditionally accounted for 88 percent of Alaska’s General Fund revenues and is the largest property tax payer in the North Slope Borough and Kenai Peninsula Borough. Even in these times of low oil prices, oil provides 67 percent of the state’s unrestricted revenues and supports one-third of our economy.

Alaska cannot control the price of oil, but it can control what kind of business climate we create here: one that encourages continued investment and more oil for TAPS.

The current oil tax system is balanced, setting a higher minimum floor than the previous tax system, while setting a stable and predictable rate when oil prices rise again. At current prices, Alaska’s oil tax policy has brought hundreds of millions of dollars more in tax revenue to the state than it would have under the previous system.

Under the current oil tax system, Alaska’s share is higher than the producers’ at every price point. In fact, the state gets paid even when companies are operating at a loss because it still collects royalties, property tax, and a gross production tax.

Oil tax reform in 2013 made Alaska more competitive and a more attractive place to invest. Oil companies have responded with over $5 billion in new projects. Alaska saw no production decline in 2014, a slight dip in 2015, followed by the first production uptick in 14 years in 2016. Oil tax reform played a significant role in the production increase in 2016.

New oil plays by ConocoPhillips, Caelus, and Armstrong could trigger a major reversal in TAPS throughput by adding up to 550,000 barrels per day of new oil into the pipeline with commensurate economic benefits across the state. Maintaining a stable tax policy with incentives to invest is key to seeing these projects come into production.

The new 2017 oil tax policy proposal (HB 111) represents the seventh major tax change in the last 12 years. Imposing significant tax increases and eliminating access to critical incentives will do nothing to increase production. It creates more harm to Alaska’s largest industry and the state’s economy as a whole.

Raising taxes on companies that are reporting negative cash flow positions is not sound tax policy.

Raising taxes and eliminating tax credits could slow or stop investment. Alaska needs that investment now more than ever to keep oil production up to protect Alaskan jobs and businesses as well as the revenue that production generates for the state.

In 2016, the Legislature passed House Bill 247, a major piece of oil tax legislation. That bill phased out tax credits in the Cook Inlet, and sunsetted exploration credits on the North Slope, among other changes. The full economic impact of this legislation has yet to be understood. Introducing yet another tax bill before seeing how the current law is performing is short-sighted, and could jeopardize recent gains achieved in Alaska’s oil industry.

It takes an annual industry investment of $3 to 4 billion to keep production levels stable on the North Slope.

This requires a durable and competitive tax policy to fund Alaska projects.