Bengt called recently to tell me of a conversation he overheard in the Minneapolis-St. Paul Airport. (I mentioned before that he came to Alaska during world War II with a Navy PBY Squadron based at Adak in the Aleutians. He loves Alaska and remained here until e our legislature witlessly repealed Alaska’s state income tax in 1980). The conversation he called about was between two well-dressed men chatting as they waited for their flights. Bengt said it was clear they were oil industry executives and he guessed that at least one was from Exxon. One, call him Mo, complained about the complex problems of unstable governments and terrorism as they take oil out of the Middle East. The other one, call him Pete, said, “You guys are crazy to go there. We’re working in Alaska and that’s like shooting fish in a barrel.”
Pete went on to say in effect, “We wrote the new tax law. It was known as Senate Bill 21, and it is sweet. It took some doing. One Republican Senator, Gary Stevens, who voted against SB 21 on the senate floor in March 2013 said, ‘This bill gives away too much to the major oil companies…Those fields (Prudhoe Bay and Kuparuk) seem to be doing just fine under the current tax policies and are enormously profitable to the industry.’ Some other Republicans, like Bert Stedman, also voted against it.”
“The opposition from two key Democratic Senators from the Interior was taken care of by skillful maneuvering and gerrymandering, so they were gone by January 2013 and SB 21 squeaked through by one vote. There was a big fuss and 50,000 people signed a petition to repeal it. They only needed 30,000 to put it on the ballot, but 50,000 signed on pretty fast. We spent $20 million to stop the repeal and although it was close, we beat it and now are airborne.” Mo asked how that one change of the tax laws could be so effective for the industry.
Pete explained that they did away with progressive increase in taxes as the price of oil goes up. But a nifty part is that the new law gets the State of Alaska to pay about half of any industry cost of “new development.” Then, as in the Thompson Point field, when the oil flows it is considered “New Oil” which means that it gets another break in taxes. The credits and tax breaks are even better when it comes to exploration for new oil, such as in seismic surveys where the Alaskans pay 85 percent and we only kick in 15 cents on every dollar spent. “We now have the tax breaks and credits to the industry exceeding the revenue in taxes that we pay to the State of Alaska. So there you have it! We don’t have to deal with unstable, scary governments and terrorists but instead we have Alaskans paying us to take their oil. How about that for a good deal?”
Mo asked how long Alaskans would put up with this. Pete replied, “Don’t give it a thought; most people can’t read the new law. The proverbial Philadelphia lawyer wrote it so even the legislators are puzzled. We included a 30 percent reduction on the interest for late taxes. It was intended to be low-hanging fruit for a Republican majority in the finance committee to remove so they could look tough during the bill’s approval process. Unbelievably, it sailed right through. There’s just no telling what they would not have approved. We were too embarrassed to go any further with it. We convinced some legislators that we might not contribute to their re-election campaigns, or that we might pull out and go to Somalia if they question us.”
“All it took was a small investment in a few election campaigns to buy the Alaska Legislature. We even thought of claiming our purchase of the legislature as a business expense on our federal income tax form.”
Mo said, “But the Alaska House is starting to push back on our low oil taxes and high credits. They also want to re-establish the income tax and use some of the earnings of the Permanent Fund for their original purpose. And remember, the governor is no longer in our corner. All this could reduce our clout.” Pete said, “Don’t worry! We still have the Senate leadership in our pocket.”
• Carl Benson is a professor emeritus of geophysics at the University of Alaska Fairbanks. He resides in Fairbanks.