Opposition of HB 247 • Before House Resources, Juneau
Good evening. My name is Marleanna Hall, and I am the executive director of the Resource Development Council, commonly referred to as “RDC.”
To introduce myself for those of you who do not know me, I have been with RDC for almost nine years, but this is my first opportunity to testify in front of your committee as executive director. I am originally from Nome, graduated from Chugiak High School, and went on to graduate from the University of Alaska Anchorage. My husband, son and I live in Anchorage and we hope to live and work here in Alaska for the rest of our lives.
While I don’t have a presentation today, I think it is very important for me to be here to offer RDC’s perspective on HB 247.
RDC is a statewide non-profit business association comprised of individuals and companies from Alaska’s oil and gas, mining, forest products, fisheries and tourism industries. RDC’s membership of nearly 400 corporate members and hundreds of individual members, includes the 12 land owning Alaska Native corporations, local communities, organized labor and industry-support firms across the entire economy, all of which depend on a healthy oil and gas industry. RDC’s purpose is to encourage a strong, diversified private sector in Alaska and expand the state’s economic base through the responsible development of our natural resources.
As you can see, RDC members are truly the life-blood of Alaska’s economy. We believe the best approach to expand the economy and generate new revenues for the state is to produce more oil, attract more tourists, harvest more fish, and mine more minerals. Increasing taxes on our natural resource industries will not increase production for the Trans Alaska Pipeline System, it will not encourage the development of new mines in Alaska, it will not attract more tourists, and it will not increase investment in the fishing industry. Higher taxes in this low-priced commodity environment will likely deter investment and lead to lower state revenues and a weaker private sector over the long run.
With regard to HB 247, raising taxes on companies that are reporting record losses and are in negative cash flow is not sound fiscal policy.
According to the Energy Information Administration, oil prices today are not only the lowest we’ve seen in a decade, when adjusted for inflation, they are the lowest since the mid-1980s. In less than two years, oil prices have fallen 70 percent. This obviously has impacted state revenues, but also the industry, which receives 100 percent of its revenue based on the commodity price.
This is clearly not the time to raise taxes on the primary engine of Alaska’s economy. The oil industry is struggling with low oil prices and tight capital markets. Companies are cutting budgets and making tough investment decisions. Increasing taxes on the industry at this time will compound a bad situation and jeopardize new investment, further damaging our private sector economy and shrinking the economic pie for everyone.
The oil industry is truly the foundation of Alaska’s economy and keeping it strong is the key to sustaining the private sector, Alaskan jobs, state government, and the overall economy. A healthy and strong oil and gas industry is also vital to progressing the Alaska LNG mega project. To sustain our economy, Alaska needs to encourage new investment, jobs and production by maintaining a stable, competitive tax structure.
When you incentivize something, you get more of it. Look at the current tax policy. It has brought new exploration, jobs, and continued investment to the state. It has stabilized North Slope production and has somewhat shielded Alaska from the massive cut backs that have occurred elsewhere. Following the enactment of the new tax law in 2013, Alaska saw $5 billion in new investment across the state from legacy companies to new companies that have made big investments in good faith under the current regime. The sudden and dramatic drop in oil prices have slowed progress as companies struggle with low cash flows, but Alaska is in a much better position because of those investments. The tax policy has done what it was supposed to do: increase investment.
Conversely, HB 247 moves us in the wrong direction. It represents the sixth major tax change in Alaska in the last 11 years. Raising taxes when prices go up, and then raising them again when prices are down, creates instability and fails to provide investors with any fiscal certainty. HB 247 will make Alaska less competitive for global investment and risks future projects that would put more oil in TAPS, which should be our number one goal. Alaska needs a plan that grows the pie bigger for everyone.
RDC’s members are not only the oil companies that will be directly impacted by HB 247, but also companies in the support industries and native corporation ventures. Alaska’s Native Corporations (ANCs) are, and will continue to be economic engines in Alaska. A large part of the ANC success we see today is a result of purchases or joint ventures of oil and gas support industry companies in Alaska.
These investments not only create jobs for Alaska native shareholders, but often result in job training, education, and opportunities where few others exist. In addition to these benefits, oil production on native-owned land directly benefits the shareholders of all 12 land owning ANCs and some 220 village corporations.
Other RDC member companies, some of whom you have heard from already or will hear from today, will further explain to you the negative impacts of HB 247 on their companies. These companies, both big and small, rely on a healthy and stable oil and gas industry.
Another major concern that we have with HB 247 is that the administration has not conducted a risk analysis on the bill’s impact on the oil industry. The effect of this tax proposal must be fully reviewed and unintended consequences, including potential impacts on future investment and production, considered.
Our members are not asking for a tax decrease during this time of low commodity prices like other states and countries are considering, but we do request that as the state considers changes to tax policy, it do no harm to the state’s largest industry, an industry facing significant economic hardship. Otherwise, we may soon learn that the more Alaska taxes companies, the less likely a company will invest here – and the more likely its limited capital will go to jurisdictions that do encourage investment.
We are deeply concerned HB 247, if enacted, will force industry to reduce investments, which will lead to reduced oil and gas production and ultimately result in less revenue for the state, exacerbating the revenue crisis.
In closing, it is important for Alaskans to remember that the oil industry is a major revenue producer for the State of Alaska, and is the largest producer of revenue for the North Slope Borough, the City of Valdez, and the Kenai Peninsula Borough.
Co-chair Nageak, co-chair Talerico, and members of the House Resources Committee, I thank you for the opportunity to offer RDC’s perspective on HB 247 today.