Oil taxes will once again roil Alaska’s politics. Lieutenant Gov. Kevin Meyer’s approval of a citizen ballot initiative that would sharply raise Alaska’s oil gas taxes ensures that. On the advice of state Attorney General Kevin Clarkson, Meyer OK’d the gathering of signatures on petitions to place a proposed new oil tax law on the November, 2020 general election ballot.
Meyer’s Oct. 15 action was a procedural step that allows sponsors of the initiative to begin gathering signatures on petitions.
If the signatures on the petitions are found to be valid and if the ballot question is approved by voters, the higher tax would bring in $1 billion to $2 billion a year in new revenue, according to estimates.
All this has the makings of a lively 2020 Alaska election with President Trump’s re-election attempt (assuming he hasn’t been impeached and removed), a possible recall of Gov. Mike Dunleavy and now the possible oil tax initiative all on the same ballot.
Sponsors on the initiative include former state senator Joe Paskvan, Merrick Pierce, former CEO of the Alaska Gasline Port Authority and Jane Angvik, former member of Anchorage’s assembly. Anchorage attorney Robin Brena is advising the sponsors along with former state tax director Ken Alper.
Oil tax controversies have been a constant in legislative sessions since 2006, when former Gov. Frank Murkowski introduced a new net-profits production tax to replace an earlier tax based on net revenues. Legislators went into an extended special session that year to deal with the new tax.
Murkowski’s tax was aimed mainly at changing the form of the tax, from gross revenues to net, but the effect was an increase in the tax. Gov. Sarah Palin, who followed Murkowski, put her own stamp on this with a new version that increased taxes more.
After several years of heated deliberations, the Legislature undid many of Palin’s changes in 2013, which promoted a feisty campaign to repeal the changes in a ballot initiative that lost by a slim margin.
Clarkson recommended approval of the application because basic procedural requirements had been met, but he also warned that the initiative, if approved, would raise a number of procedural and constitutional issues that will cause litigation.
Basically, the initiative undoes many of the modifications to Alaska’s oil and gas tax laws made by the Legislature in 2013, which North Slope oil producers say substantially improved Alaska’s ability to attract new investment by the industry.
A surge in new drilling followed and new oil discoveries were made that resulted in enough new production to halt the steady decline in North Slope production. Large discoveries made recently could actually increase production.
However, the pain created by the state’s three-year economic recession and cuts in the state budget have raised the stakes. When world oil prices collapsed in 2015 there were sharp declines in state revenues, which are mostly from oil and gas. State officials and legislatures moved to cut spending and also tapped, for the first time, a portion of Alaska’s Permanent Fund earnings to help support the budget.
There was criticism, meanwhile, that some of the changes in the petroleum tax law in 2013 went too far, and modifying these will bring in new revenues, eliminating the state’s deficit and the need to tap Permanent Fund earnings. One provision in the revised tax law singled out for criticism is an $8-per-barrel production tax credit. The initiative proposes to repeal the provision.
Roger Marks, a retired state petroleum economist, said the initiative would impose a big tax increase. “The initiative raises taxes at low prices, high prices, and in-between, Marks wrote in an Op-ed appearing in the Anchorage Daily News.
“Presently, the state alone is getting 45 percent of the net profits (from production) at current (oil) prices. It would get 64 percent under the initiative,” Marks wrote. These calculations are his own, he said, and were based on public data.
“At prices under $45 per barrel the (industry) taxpayers would lose money while the state makes several dollars per barrel. At high prices, the marginal tax rate would be 70 percent,” he wrote.
In his Oct. 14 letter of advice to Meyer, Clarkson voiced reservations about legal issues the initiative is passed, would raise: “The language of the (initiative) bill is difficult to interpret and raises a number of implementation and constitutional questions,” Clarkson wrote.
On a purely technical basis, “The bill does not follow normal drafting conventions and does not clearly identify what statutes it is seeking to amend or create, while also stating that the new laws would go into effect ‘notwithstanding’ any existing laws to the contrary.”
“Because of these issues, the bill may not accomplish what was actually intended by the initiative sponsors. It is also likely to lead to litigation over the meaning of various provisions and questions of equal protection, due process and the (unconstitutional) delegation of authority to the Department of Revenue.
Clarkson said, however, none of these issues amount to legal defects sufficient to deny certification of the initiative. “Instead, these are mostly post-enactment concerns,” he said. The laws governing initiatives mainly deal with whether proper procedures were followed by sponsors in the application and gathering preliminary signatures.
Roger Marks said he believes the Legislature, as chaotic as it can sometimes be, is the proper place to write and change complex laws like those dealing with taxation.
“As easy as it is to be cynical about laws that are the outcome of the legislative process … at least that process provides many checks and balances to the initial subjectivity of a single legislator that may be embedded in early drafts,” he wrote in his op-ed.
“For a bill to become a law it will be reviewed by a number of legislators in the initial committee, be analyzed by experts, receive public input, go on to other committees, the body as a whole (House or Senate), and go through the same process in the other body. Along the way, there are exchanges of ideas and the proposition is modified,” Marks wrote.
“In the end, it will be subject to a multiplicity of perspectives and information. The initial favoritism gets tempered. This ultimately results in decisions that are better than could have been made by any single member,” he said.