A Citizen’s Guide

OIL TAX: As the Legislature debates oil taxes in Juneau, numerous economic and political cross-currents will help shape public attitudes in Alaska about how well or poorly lawmakers are handling the issue.

One of the elements is the industry’s aggressive ad campaign and the extent to which Alaskans accept or reject the warnings about decreased future investment. Other factors are the worldwide profit reports to be issued this week by BP, ConocoPhillips and Exxon Mobil, and the steady flow of news about international tensions creating record high crude prices and rising fuel prices. In the last month, according to AAA, the average gasoline price in Fairbanks has jumped by more than 35 cents.

The Senate bill approved Monday, which is likely to be debated a second time today on a reconsideration vote, takes a smaller percentage of oil income than a previous version of the bill. Still, it could mean $2.5 billion more a year at today’s oil prices, consultants say.

At this stage the unfolding oil tax debate reminds me of “Deal or No Deal,” the NBC game show about making the right guesses. Instead of jittery contestants picking numbers out of the air and hoping to get lucky, we have legislators playing “split the difference,” a guessing game that could be worth billions to Alaskans. About the only thing missing is Howie Mandel.

In its deal, the Senate chose a tax rate of 22.5 percent. The economic analysis consisted of finding the midpoint between 20 percent and 25 percent. The Senate essentially ignored the latest advice of one of its consultants, Daniel Johnston, by backing the 22.5 percent tax rate and a tax credit rate of 25 percent. “It surprised me how quickly debate centered and focused on such a narrow band of tax rates, i.e. 20 percent vs. 25 percent,” he said in a memo to legislators Saturday. “The difference between these two is just a government take of about 2 percent. I believe to a certain extent that it is a strange coincidence that we so quickly ended up in this narrow debate. It is certainly strange but unfortunate for Alaskans because the difference is minute and the oil companies must be ecstatic,” said Johnston, a consultant who works for oil companies and governments around the world.

In their public statements, ads and speeches, the oil companies have shown not a hint of ecstasy. The bill approved by the Senate, which would set a higher rate than the governor’s bill, would take too much from industry and threatens investments, the companies say.

The Senate also ignored Johnson’s advice that a single taxation plan to fit all situations in Alaska is “like trying to design a saddle for your horse that must also fit your dog.” Johnston wrote Saturday that he favored a 30 percent tax on Prudhoe Bay and Kuparuk, which would rise at prices above $40 a barrel; a 20 percent tax on North Slope exploration, which would increase at prices above $45 a barrel; and a 10 percent tax on Cook Inlet production. In all of those instances, he said, a 20 percent credit is appropriate.