A Citizen’s Guide

In the first of five statewide “community briefings” to advance an upcoming special session, Gov. Sarah Palin introduced Fairbanks to her new oil and gas tax on Friday night, kicking off conversations and debates about how the state should collect revenue from its largest industry.

Before a packed house in the lobby of the Carlson Center, Palin reiterated her thoughts that the current tax structure “isn’t working as promised,” and asked legislators to “let the numbers speak for themselves” when they meet in Juneau next week to debate her new bill, called Alaska’s Clear and Equitable Share, or ACES.

Those numbers filled up about a dozen poster boards set up around the Carlson Center, where members of Palin’s oil tax team manned three “break-out sessions” designed to unravel the complexity of ACES, but also to try and show why legislators needed to reconvene to rethink the current tax system — known as the Petroleum Production Tax, or PPT — approved just 14 months ago.

“The governor recognized in the spring that PPT is not a stable tax system,” Revenue Commissioner Pat Galvin said.

The Palin administration has been building a case against the PPT for months, starting with the governor’s State of the State address in January, when she called for the Department of Revenue to “assess and adopt necessary regulations to ensure PPT works as Alaskans were promised, and tighten up any loopholes.”

Several months later, the administration released forecasts for the current fiscal year showing how revenue generated under the PPT would fall $800 million short of projections, even as it collected $250 million more than gross tax it replaced.

Recently, Palin and her team have said the public has lost trust in the tax after federal prosecutors charged several current and former legislators with accepting bribes last year from an oil services company in return for votes favorable to the industry during the debate over PPT.

During her gubernatorial campaign and early days in office, Palin spoke out against the profits tax, calling it a “much more complicated system” than the gross tax in place for years. At the time, she expressed skepticism about “basing taxes on an oil company’s ‘claimed’ expenses and profits.”

Galvin said the team tried to return to the gross tax, but “could not identify a gross tax structure that would provide revenue without impacting fields.”

ACES would raise the tax on oil and gas profits from 22.5 percent to 25 percent, and create a 10 percent gross tax on the Prudhoe Bay and Kuparuk oil fields during times when the price of oil is low. While the bill expands on the tax credits for exploration expenses created in the PPT, it also removes certain deductions offered to oil companies, such as expenses related to improperly maintained equipment and pipelines, an issue the Legislature tried but failed to rectify this spring.

But unrelated to tax rates, the bill also includes a list of requirements designed to open up the flow of information not only from oil companies to the state, but also among various state departments currently bound to secrecy even from each other because of contracts protecting proprietary information.

The break-out sessions on Friday night attempted to show how ACES compared with tax systems around the world, how ACES would theoretically prompt oil companies to continue investing in Alaska and how ACES would give the state more information about industry expenses and profits to better help the state regulate and predict the revenue it intended to collect.

“Without those, we’re really shooting in the dark,” Galvin said.

Part of the effort to better regulate the industry would require a team of auditors, Galvin said. The state has been unable to attract the caliber of auditors it wants with the salaries it has to offer. ACES would exempt auditors from the current pay scale, allowing the state to pay whatever it chose for the work.

The informal setting on Friday night allowed for individual interaction between members of the public and the state economists and officials who crafted the bill, but also set up a forum where area entrepreneurs and business leaders talked and argued with state officials and legislators, city and borough officials along with members of the public tried to pin down the basics of the new bill.

Local Democratic legislators plan to hold their own town hall meeting in Fairbanks on Monday to take comment on ACES. Rep. David Guttenberg, D-Fairbanks, said he believed any profits-based tax would face some opposition locally, but also felt the Palin administration presented a “more open” attitude than previous Gov. Frank Murkowski.

Earlier in the day, Deputy Revenue Commissioner Marcia Davis and Joe Balash, special assistant to the governor, provided a more in-depth analysis of ACES for the Interior delegation. At the meeting, Rep. Jay Ramras, R-Fairbanks, cited his displeasure with revisiting the PPT so soon, a concern shared by oil companies and some lawmakers.

Palin, in a short interview with the News-Miner, said, “When you recognize something’s broken, the smartest thing to do is fix it.” She added that by waiting, the state risked compounding any problems with the bill, and said “We owe it to Alaskans right now to explore what the solutions are to the problems that PPT has caused this state.”

Palin also responded to recent industry advertisements criticizing the new tax as an attempt to grow government, saying she considered her administration to be “a very pro-development, pro-industry administration trying to create a stable environment for industry and for other segments of industry to be able to grow to prosper.”

The special legislative session to debate ACES is set to begin in Juneau on Thursday, when the Legislative Budget and Audit Committee is scheduled to hear from consultants Dr. Pedro van Meurs and Daniel Johnston on how the current PPT structure compares with other tax systems around the world. Van Meurs and Johnston both played a role in last year’s debate over the PPT.

The House Special Committee on Oil and Gas will begin hearings on the bill on Friday.

Contact staff writer Eric Lidji at 459-7504.