We all know the frustration that arises with mail from out of state. It’s not uncommon for someone to mistake AK for Arkansas instead of Alaska. However, we do not expect that from our elected officials.
In all the craziness around the Senate Judiciary Committee last week, some may have missed a Monday (4/2/2018) hearing in the House Resources Committee. Despite the previous agreements under House Bill (HB) 111, which seemed to indicate this wasn’t the year to change oil and gas taxes once again, self-proclaimed oil and gas fiscal system expert Representative Geran Tarr (D – Anchorage) has decided differently. On Monday night, Tarr presented HB 288, a bill that would again raise taxes on the oil industry.
Tarr’s thesis seems to be primarily that Alaska has one of the lowest effective tax rates in the nation and that the industry should “chip-in” more (despite already providing some 85% of all revenues collected). She makes one big blunder though.
In her presentation, Tarr presented a chart showing the effective tax rates of different states, including Arkansas, which has one of the highest tax rates in the nation at 12%. The chart on Tarr’s slide is sourced and is derived directly from a chart from the study “2016 Oil and Gas Taxation Comparison for the State of Idaho” (Note the graph on page 18)
The problem is, Arkansas is not in the study! In fact, the AK stands for Alaska and the study clearly illustrates that Alaska, not Arkansas, has one of the highest effective tax rates in all the nation. Yikes.
STRIKE ONE!
Tarr also told committee members at the beginning of her slide deck to use “how much profit per barrel” when assessing competitiveness.
Near the end of the hearing Representative Chris Birch (R – Anchorage) presented the committee with a graphic generated by the Alaska Oil and Gas Association (AOGA). It illustrates the different profits per barrel at $60/barrel for Texas, a legacy North Slope field, and a new North Slope field. The punchline? After all is said and done, producers in Texas profits per barrel are near 2.5x greater than the legacy fields in Alaska, and hugely advantageous to a new North Slope player. The question on the slide asks “where would you invest?”
Tarr seemed shocked by the data and uncharacteristically stammered, saying that somehow AOGA had proprietary data, and she’s not aware of those figures. She didn’t seem too happy that the numbers hugely conflicted with her back of the napkin calculations.
Birch was glad to point out that the data is public and is, in fact, sourced and derived by the legislatures own oil and gas fiscal consultant, Rich Ruggiero. The same consultant picked by Tarr in last year’s oil tax debates.
I agree with Tarr that, yes, lawmakers should continue to look at our competitors to ensure that Alaska can remain a viable place to attract investment – but the facts do matter. And the facts clearly state that Alaska has one of the highest effective tax rates in the nation, a lower profit per barrel in comparison to Texas, and therefore not a very competitive investment climate. Not to mention the high costs to operate in Alaska compared to Texas.
STRIKE TWO!
I do support paying off tax credits, wait, no I don’t!
Last November, Tarr told the Resource Development Council that she agreed with much of her panel regarding the owed oil exploration tax credits. She said it’s time to for the State to honor its obligations and pay the owed tax credits.
The administration has put forth a solid plan to issue bonds to pay off the earned credits this year. However, in hearings on HB 331, she has continued to berate the departments, the companies, and visiting investors by saying they should have all read the fine print and too bad for them. And she appears to be purposefully delaying the bill due to a combination of caucus infighting and the fact that her tax bill isn’t getting the limelight. Sigh. Again, the Resources Committee Co-Chair continues to drive uncertainty. The many investors listening can only surmise that they should be investing anywhere else BUT Alaska.
STRIKE THREE!
Perhaps it’s time that Co-Chair Tarr, and others in the House Majority, stick to their word and work within the oil and gas tax working group towards thoughtful policy rather than suggesting off the handle reactive tax increases that would only further damage an already hurting industry in Alaska.