New initiative would increase oil taxes on established fields

Alaska’s budget situation has boiled down to cuts to services versus cuts to the Alaska Permanent Fund dividend even though many—including many legislators—have argued that there’s a third way to balance the state’s budget: Taxes.

More specifically: Oil taxes.

A new initiative application filed on Friday would give Alaska voters the opportunity to implement increased oil taxes on what the sponsors say are “the largest and most profitable oil fields” and increase overall revenue to the state by $1 billion per year.

The Fair Share Act would target only North Slope oil fields that have produced at least 40,000 barrels a day in the previous calendar year and have a cumulative production of 400 million barrels of oil production. The main fields affected would be the Prudhoe Bay, Kuparuk and Colville/Alpine units. All other fields would be unaffected tax-wise.

The legislation would set a 10 percent gross minimum production tax on the fields when oil is below $50 a barrel. That rate would ratchet up 1 percent for each additional $5 that a barrel of oil costs, capping at a 15 percent tax when oil is $70 per barrel.

Unlike the current regime, the legislation would prevent companies from applying credits, operating losses and carried-forward lease expenditures against the tax, effectively creating a solid tax floor for the affected fields. The ability for companies to get below the tax floor in the current tax regime has been a point of contention for critics.

The initiative would also rework the net production tax for the larger fields by eliminating the $8 per-barrel credit and levying a 15 percent tax on producers’ profits when those profits exceed $50 per barrel.

The producers would pay either the gross minimum production tax or the net production tax depending on whichever is greater.

The group says the changes would increase state revenue by about $1 billion but doesn’t offer modelling to show how the state would reach that number under the proposed changes.

Finally, the measure would also make it so “all filings and supporting information provided by each producer” for determining their taxes will be made public.

The backers

The initiative is spearheaded by Anchorage attorney Robin Brena, the managing attorney for Robin, Bell and Clarkson. The firm previously employed current Attorney General Kevin Clarkson and currently employs former Gov. Bill Walker.

Brena is well-known as a ringer in oil and gas litigation, particularly when it comes to local municipalities’ battles over the valuation of the trans-Alaska pipeline system. His team has regularly—and successfully—argued in front of the Alaska Supreme Court that TAPS has been vastly undervalued when it comes to local property taxes, netting municipalities tens of millions of dollars.

A 2011 ruling by the Alaska Superior Court ruled that the 800-mile pipeline and affiliated infrastructure was worth nearly $10 billion during the property tax years running from 2007 to 2009. The pipeline owners had argued that it was worth just $1 billion during that time.

“Alaskans should receive their fair share from the sale of our oil,” states Robin Brena, one of the initiative committee members and the former Chair of Governor Walker’s Transition Subcommittee on Oil and Gas. “We are currently giving away $1-$2 billion per year in tax breaks for oil produced from our largest and most profitable fields. Alaskans need to get a better deal for our oil from these fields.”

The initiative committee also includes Jane Angvik and Merrick Peirce.

What’s ahead

The state has until Oct. 15, 2019 to review the application for legality before it can issue the petition so the group can begin its signature-gathering effort. Any initiative will need to gather at least 28,500 signatures to appear on the ballot. The group must collect signatures equal to 7 percent of the 2018 turnout from 30 of the 40 house districts.

This kind of voter initiative would be affected by Gov. Michael J. Dunleavy’s proposed constitutional amendment that would make it more difficult to implement new taxes. The constitutional amendment would require any taxes passed by the Legislature to go to a public vote before being implemented, but would also require the Alaska Legislature to approve any taxes created by voter initiative.

Under the currently drafted (and unlikely to gain any traction in the Legislature) version of the constitutional amendment, the Legislature wouldn’t even have to hold a vote to kill a voter-passed tax. The Legislature as a whole, despite its recent trends towards bipartisanship, has shown no interest in reopening oil taxes.