The Defense of Alaska Oil Tax Law is Seriously Misleading

In a recent commentary published by the Alaska Beacon, the four co-chairs of the 2014 “No on 1” campaign defended Senate Bill 21, the oil tax legislation passed in 2013. While their intent appears to be to clarify misconceptions surrounding Alaska’s oil taxes, their arguments are deeply misleading and fail to present the complete picture.

Misinterpretations of the Economic Impact

The central claim made by the co-chairs is that SB 21 benefits all Alaskan families. They assert that increased oil production leads to higher oil royalties, which in turn contributes billions to the Permanent Fund. However, this narrative falls short when we closely examine the Department of Revenue’s Spring 2024 Revenue Forecast.

According to the forecast, while projected oil production will rise significantly—by over 35%, increasing from 467,600 barrels per day at the beginning to 640,200 by the end of the ten-year period—the oil royalties available for general fund spending remain largely stagnant, only increasing by about 1%.

More concerning is the projection that revenues from SB 21 production taxes will drop sharply. Over the same period, these revenues are expected to decline by 30%, falling from $940 million at the start to only $658 million at the end. As a result, overall unrestricted petroleum revenues are anticipated to decrease, from $2.43 billion initially to $2.27 billion by the conclusion of the decade.

Consequences for Alaskan Families

The implications of these trends are significant. While oil companies and their contractors may thrive, this does not translate to benefits for the wider Alaskan economy or families. Instead, two outcomes are likely:

1. The state Legislature may need to cut inflation-adjusted spending levels to make up for declining oil revenues.
2. Alternatively, the state could implement revenue substitutes that shift the burden of funding away from oil companies and onto Alaskan families. This could manifest through reduced Permanent Fund Dividends (PFDs) or new forms of taxation.

In essence, while oil companies may see increased profits, many Alaskan families may end up financially worse off. The potential trade-off is alarming: Alaskans could find themselves subsidizing the gains of the oil industry while their own economic situation deteriorates.

Acknowledging the Need for Reassessment

It is important to clarify that while I initially supported SB 21, recognizing its potential to foster investment and production in Alaska’s oil sector, I also believe it is crucial to address its evident shortcomings a decade later.

Rather than calling for a repeal of SB 21, which has indeed brought benefits to some Alaskan families, I advocate for necessary modifications to ensure a more equitable distribution of oil revenue. It’s vital that both current and future generations of Alaskans benefit from the state’s oil resources, rather than allowing those benefits to be concentrated among a select few in the oil industry.

As Alaska moves forward, I hope that those elected to represent the state will recognize the need for adjustments to the oil tax structure. We must strive for a fairer system that serves all Alaskans, balancing the interests of the oil industry with the economic well-being of families across the state.