Reason #12: Senate Bill 21, the Oil Tax Giveaway, is a bad business deal for Alaskans.

ACES, our former tax system, was fair to all parties. It yielded handsome profits for the oil industry (more than $36 billion in 6 years) and Alaskans ($26 billion in production taxes in 6 years).

 

 

Reason #11: Senate Bill 21 will plunge Alaska into deficit spending.

SB 21 will plunge Alaska into deficit spending. Cash flow deficits will exceed $2 billion/year by 2018 and $3 billion/year by 2020, assuming state spending continues along its current trajectory.  We can and must do better!
 

Reason #10: Senate Bill 21 will drain Alaskans’ savings.

Under ACES, our savings grew to $17 billion, giving Alaskans the biggest state savings accounts in the nation. Under SB 21, our most accessible savings account – the Statutory Budget Reserve – will likely be wiped out by 2018, leaving Alaskans empty-handed.

Reason #9: The Parnell Administration Misled Alaskans in an effort to Sell Its Controversial Tax Cuts

Recent news reports about declining drilling in the British North Sea underscore the extent to which the Parnell Administration misled legislators and the public in an effort to win support for its controversial oil tax cuts.

The Administration claimed production in British waters had turned around as a result of tax cuts similar to the ones it was proposing. In presentations to legislators and others, it maintained “Other Basins Have Turned Production Around” and highlighted the United Kingdom as its key example. 

 

Here's a slide from one of their presentations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Administration’s claims could not have been further from the truth.  Production in the British North Sea could plunge by 22 percent this year, which would be the biggest drop-off on record.  A variety of British news organizations have warned of the record slump, including the Financial Times and Telegraph.  (See http://tinyurl.com/kgnfz9v).

In addition, this week Reuters (http://tinyurl.com/os4kstv) reported that drilling in Britain’s North Sea is down dramatically, despite the tax breaks enacted by the British government and touted as a model for Alaska by Parnell.

LONDON, Oct 22 (Reuters) – “The number of wells drilled in the British North Sea fell by more than a third in the third quarter, potentially raising further concerns about the region's outlook after a downgrade to production forecasts earlier this year.

During the three months to Sept. 31, the summer period which is traditionally Britain's busiest for drilling, 11 exploration and appraisal wells were started, 35 percent lower than the same period last year, a survey by Deloitte Petroleum services said on Tuesday.  

The number of wells drilled in the third quarter was also 31 percent lower than in the second quarter of 2013. Britain's oil and gas production from the North Sea has fallen by about two thirds since 2000 and posted particularly steep falls of 14.5 percent last year and 18 percent in 2011.”  (Emphasis added.)

 

Alaskans were repeatedly misled by the Governor, former Commissioner Dan Sullivan, and others in the Administration about the success of tax breaks in Britain and elsewhere. 

 

For example, on February 28, 2013, then-Commissioner Sullivan told the Senate Finance Committee: 

“One of the questions as we were preparing this tax bill over the past several months with the Department of Revenue is, we asked the question, ‘Hey, can we turn this around?  Have other basins, either in North America or throughout the world turned around throughput declines?’

And, Mr. Chairman, as these next few slides will indicate, the answer in some ways was kind of surprising.  It wasn’t that we were searching for who has been able to do this, we realized that almost every major basin is doing this, is turning around their production declines with one very significant exception – the State of Alaska. 

So, for example, this is an example that has gotten a lot of news in the last three or four weeks: the North Sea, another huge mature oil basin within the U.K. went through a similar situation with us.  A big basin.  Declining production. 

Three or four years ago, they cranked up oil taxes on the companies, predictably a lot of the companies left, production declined even more and in the last year or year and a half, the U.K. has undertaken significant tax reform, but already it’s leading to very, very vast increases in investment and production, anticipated production, anticipated state revenues for the U.K.   

Just about three days ago, the Wall Street Journal did a big, big article on this tax reform, increase in production, and I think it’s very analogous in many ways for what we’re trying to do here in the State of Alaska.  So, that’s a good example.  (Emphasis added.)

 
Investment in the British North Sea increased in 2012 before the tax cuts were even instituted and continued in 2013.  But this increase is expected to lower next year, according to Oil and Gas UK, an industry lobbying group.   It is expected to drop from 13.5 billion pounds this year to 8-10 billion pounds in 2015 and thereafter.  Most of this spending is on aging infrastructure and decommissioning of offshore oil rigs that are no longer productive.

 

Alaskans were asked to give up billions in exchange for the promise of production increases.  We were told it had worked in Britain, which is, plain and simple, not true.  The Governor and Commissioner Sullivan peddled bad information to generate support for a flawed piece of legislation.  This is a disturbing betrayal of the public trust.

Reason #8: The Oil Wealth Giveaway will drain Alaskans’ savings.

SB 21 will drain Alaskans’ savings. Under ACES, our savings grew to over $17 billion, giving Alaskans the biggest state savings accounts in the nation. Under SB 21, our most accessible savings account – the Statutory Budget Reserve – will likely be wiped out by 2018, leaving Alaskans empty-handed.

Reason #7: The Oil Wealth Giveaway Violates Alaska's Constitution

SB 21 violates Alaska’s Constitution, which requires the legislature to provide for the development of all “natural resources belonging to the State for the maximum benefit of its people.” SB 21 fails this requirement, thus failing Alaskans.

Parnell"s Oil Wealth Giveaway: A $4.5 billion loss with no strings attached

Reason #6 to Repeal: It’s a massive giveaway of our wealth with no strings attached.

Billions -- For What?

SB 21 will cost Alaskans an estimated $4.5 billion in the first 5 years alone - and this number could be much higher depending on the price of oil. After that, billions more will be given to the most profitable corporations in the world - with no strings attached. Alaskans are not guaranteed anything in return – no increased production, no more jobs, no more investment. If oil prices increase, the loss to Alaskans will grow ever steeper, up to $2 to $3 billion per year. This is money we could invest in roads, schools, growing our Permanent Fund, more affordable energy, public safety … you name it.

Reason #5: State Capital Projects Created 148,000 Alaskan Jobs under ACES

State Capital Projects Created 148,000 Alaskan Jobs under ACES

An estimated 148,000 private sector jobs have been created from state investment in critical infrastructure projects since the passage of ACES in 2007, according to a newly released report from the non-partisan Legislative Research Services.  For the most part, these are construction jobs that last for the duration of the capital works project. 

 
ACES, which is short for Alaska’s Clear and Equitable Share, has enabled the state to invest in new roads, schools, and harbors, pay off debts and save for the future. The state collected $20 billion more under ACES than it would have under ELF, a former oil tax system. This has led to record levels of job creation.

Supporters of Senate Bill 21, the Oil Tax Giveaway, paint ACES as bad for the economy. This report demonstrates those claims are absolutely false. With our fair share of oil profits, we have invested in critical infrastructure across the state, laying a strong foundation for economic growth and creating nearly 150,000 jobs.

University of Alaska economist Dr. Scott Goldsmith provided the economic multipliers used in the report, which details the close relationship between public infrastructure projects and job creation.

Creating jobs for Alaskans and spurring long-term economic growth should be a top priority for all elected officials. ACES achieved both these goals in impressive fashion, which makes the passage of Senate Bill 21 this past session even more puzzling. Fortunately Alaskans will have the opportunity to dismantle this misguided policy next fall with the repeal of SB 21.

Reason #4 to Repeal the Giveaway

Investment Soared under ACES

Under our former tax system—Alaska’s Clear and Equitable Share or ACES—oil industry investment in Alaska increased to all-time highs. Capital investment grew by nearly 70% in 7 years. This demonstates just how successful ACES was in spurring investment in Alaska’s oil patch.

SB 21 lacks the incentives ACES had to boost investment in Alaska. It gives away Alaskans’ wealth without any guarantee of increased investment, new jobs, or more oil in the pipeline. Simply put, it's a bad business deal.

 

 

Oil industry investment urged under ACES.

Parnell's Oil Wealth Giveaway Puts Alaska Jobs at Risk

Reason #3 to Repeal Senate Bill 21, The Oil Wealth Giveaway

It Puts Job Growth in Alaska’s Oil Patch at Risk

The number of jobs in Alaska’s oil patched grew to the highest level in state history under our former tax system, Alaska’s Clear and Equitable Share (ACES).  Oil industry employment skyrocketed from 11,600 jobs in July 2007 to more than 14,700 in July 2013.  This is because ACES rewarded oil industry investment in Alaska with lower taxes.  Senate Bill 21 lacks this feature and risks the gains we’ve made in high-paying jobs for Alaskans.  SB 21 – it’s bad business for Alaska.
 

 

 

The only thing SB 21 guarantees is less money for our children's schools.

Reason #2: Experts Repeatedly Warned Legislators that Cutting Taxes Would Have a Negligible Effect on Production

Legislators were advised on numerous occasions by independent economists that lowering oil taxes would result in minimal increases in production.  “Severance tax rate cuts substantially reduce tax revenue collected, but yield moderate to little change in oil drilling and production activity,” cautioned Professor Mitch Kunce, author of “Effectiveness of Severance Tax Incentives in the U.S. Oil Industry.”  He emphasized that “States should be wary of arguments asserting that large swings in oil field activity can be obtained from changes in severance tax rates.”

 

Dr. Shelby Gerking echoed this warning.  In 2012, he told the Alaska Legislature that “Oil production is quite insensitive to the tax structure” and presented the following slide.  In spite of these clear warnings, the legislature passed the misguided Senate Bill 21.

Governor Parnell & his friends at Exxon want you to believe the Oil Wealth Giveaway will spur increased production.

Reason to Repeal #1 - SB 21 is based on a failed philosphy. It will NOT lead to increased production, yet will cost Alaskans billions.

Governor Parnell claims this massive giveaway will spur increased oil production.  This is his primary rationale for funneling roughly a billion dollars Alaskans would have received each year to Exxon, BP and other multinational oil companies.

However, this strategy has been shown to be ineffective in Alaska and elsewhere.  For 30 years, production taxes in Alaska were minimal.  As recently as 2006, 15 of 19 North Slope oil fields paid zero production taxes. Yet, production dropped 55% from 1988 to 2005 under extremely low tax rates.  (See http://dog.dnr.alaska.gov/Royalty/Production.htm)  Lower taxes did NOT lead to more production.  In fact, low taxes led to 1.15 million fewer barrels per day in oil production, roughly twice today’s production level.  SB 21 takes us back to a failed philosophy that has already cost Alaskans untold billions.

The following graph, prepared by Parnell Administration consultants, shows production declines from 1988 onward.  During much of this time, production taxes were extremely low.  And yet production declined significantly.  On average, it declined by 5% a year. 

 

 

This table shows how much production declined each year from 1988 to 2006 under very low taxes.  It provides ample evidence that low taxes will not necessarily spur increased production.  SB 21 will cost Alaskans billions without any guarantee of more oil in the pipeline.  It is ill-conceived and should be repealed.

 

Year	AK oil production in million of barrels	% decline by year
1988	759	0
1989	704	-7
1990	666	-5
1991	680	2
1992	654	-4
1993	605	-8
1994	595	-2
1995	571	-4
1996	544	-5
1997	508	-7
1998	463	-9
1999	416	-10
2000	388	-7
2001	382	-2
2002	388	2
2003	383	-1
2004	360	-6
2005	342	-5

 

   

Welcome to It's Our Oil - A Place To Share Your Views About Why Parnell's Oil Wealth Giveaway Should Be Repealed

Hello!  This is Senator Bill Wielechowski.  I have set up this new site to provide a place to share my reasons Senate Bill 21, Parnell's Oil Wealth Giveaway, should be repealed by the voters one year from today.  I will also be sharing reasons submitted by fellow Alaskans.

 

As you know, a group of dedicated Alaskans collected nearly 52,000 signatures to put this question on the ballot.  Only 30,169 signatures were required, but this group collected far more than was necessary.  Many Alaskans were eager to  sign the petition and ensure all Alaskans can vote on this critical issue.

 

There is no question that oil taxation is a complex issue.  That is why it's so important to present facts for Alaskans to sort through and weigh.  Certainly the oil industry will be presenting its perspective through a glitzy and expensive ad campaign.  This site is a place average Alaskans concerned about The Giveaway can present their views and learn about my reasons this misguided and ill-conceived bill must be repealed.

 

If you would like to submit a reason, please send it to repealSB21now@gmail.com.  Please provide as much factual back-up for your reason as possible and share the source of your facts, so other readers can follow-up, verify and learn more.

 

I believe Senate Bill 21 was one of the worst bills ever passed by the Alaska Legislature.  I hope this site will help you understand why and prepare you to vote one way or another on August 19, 2014.