Informed debate, not sloganism, urged in oil tax talks

What others say

Posted: Wednesday, January 26, 2005

As political rhetoric goes, "Stick it to the oil companies" and "Let's get our fair share" rank right up there with the often uninformed, knee-jerk calls of "Don't touch my dividend" and "Don't raid the fund." They all hold lots of emotion, but a little inquiry sometimes can show that those screaming the loudest often know the least and haven't done much to educate themselves.

Alaska can't afford such behavior now with the burgeoning talk of changing the tax structure that oil companies operating in this state have been working under for three decades. It's natural that with the state government facing substantial budget shortfalls — although the present fiscal year's gap has been wiped out by unexpectedly high oil revenues — that people would want to review the tax structure to make sure Alaska is being treated fairly.

Gov. Frank Murkowski, in his state of the state speech last week, shocked the oil industry and legislators with his order changing the tax calculation for six Prudhoe Bay satellite oil fields effective Feb. 1, a decision that is expected to bring the state an additional $150 million annually. The governor argued that the satellite fields and the mother ship Prudhoe Bay field have essentially been acting as one unit and that the satellite fields should not be considered separately when applying the tax formula, which is guided by what is called the Economic Limit Factor.

The ELF keeps taxes low on smaller fields. Now, with the price of oil having skyrocketed, the ELF is getting another look by people in and out of government. There are bills in the Legislature, the governor says the formula might need to be revisited, and there's even a move under way to place an initiative on the ballot to repeal the ELF altogether.

The key reason for the sudden interest is that some people believe the state, under the present formula, isn't benefiting enough from the high oil prices. As an example, they note that the state received about $1 billion less in revenue than the oil companies did in their net proceeds from North Slope production last year.

Alaskans do need to have their elected officials determine, in a public way, that the state is getting all that it can from the oil companies. But at the same time, those elected officials need to seek a balance so as not to make the circumstances fiscally unpalatable for the oil companies, thereby harming future exploration prospects. To that end, an old phrase associated with anticipated state oil revenue from the Arctic National Wildlife Refuge comes to mind: "Getting 50 percent of something is better than 90 percent of nothing."

The coming debate — and it's clear there will be one — must be thorough and reasoned and give serious consideration to what that oil industry's representatives have to say. If the tax formula does need to change, it should in time become obvious to all involved after such a review.

What the debate doesn't need is a lot of ill-informed sloganeering that could lead, either in the Capitol or at the ballot box, to bad legislation.

— Fairbanks Daily News-Miner,

Jan. 18

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