Ballot initiative to ditch oil industry-friendly tax treatment heats up in Alaska

ANCHORAGE, Alaska -- T.J. Presley, campaign manager of "Vote Yes! Repeal the Giveaway," is hoping that 2014 will be the year of the underdog for his grassroots group's oil tax referendum battle against the state's oil giants.

This year's election season has seen some stunning upsets in other parts of the nation, from Virginia to Hawaii. Presley is hoping the same will happen tomorrow as voters in the Alaska primary weigh in on Ballot Measure 1.

The referendum will decide the fate of an Alaska law known as S.B. 21, which cut the oil taxes that energy companies pay on crude extracted from the North Slope. Championed by Gov. Sean Parnell (R), the law scrapped Alaska's progressive oil tax system and replaced it with a 35 percent flat tax.

In the aftermath, opponents formed Vote Yes and collected 50,000 signatures to add the anti-S.B. 21 referendum question to the state's Aug. 19 primary ballot.

Those voting "yes" on the referendum favor repealing the pro-industry tax law; "no" voters support maintaining the oil companies' lower oil tax structure.

In advance of the primary, the two sides have faced off in a series of public debates and penned dozens of op-eds that outlined the technical pros and cons of the oil tax law. In the end, however, the oil tax referendum will most likely be decided on emotional appeals.

Industry supporters argue the lower tax structure is needed to prevent oil companies from fleeing the state. They say S.B. 21 is already beginning to reverse the North Slope's declining oil production and will provide thousands of direct and indirect jobs in the Last Frontier.

"The question before Alaska voters is simple: Will our children and grandchildren inherit a state full of jobs and opportunity, or will we go back to the unsustainable path of economic decline?" Parnell asserted Sunday in opinion columns in Alaska's major newspapers.

Those opposed to the new oil tax law criticize it as a giveaway to international energy corporations. They warn the lower oil taxes could drain Alaska's budget surplus and force stark cuts in state social programs.

"It's our oil -- we've all heard that," state Sen. Bill Wielechowski (D) said at a recent debate. "But what does that mean? Gov. Wally Hickel talked often about Alaska being an owner state. We all own the oil and minerals in the ground."

Wielechowski recalled that in the 1960s, Hickel gave the oil companies an ultimatum: drill or the state will take the lands. The resulting exploration led to the massive oil discovery in Prudhoe Bay.

He charged that Parnell is allowing the oil company to keep more profits without a guarantee that they'll expand their investment in Alaska.

"Sadly our new philosophy today seems to be: You drill or we will give you massive tax breaks with no strings attached," he said.

Alaskans are heavily dependent on oil money. Ninety percent of the state's annual budget comes from oil tax revenue. State officials have estimated that the oil industry will pay $4.3 billion in oil tax revenues this year under S.B. 21. That's down from $6.3 billion in 2013 under the previous tax structure.


'Crony capitalism' or good business?

The battle over Ballot Measure 1 has been lopsided from the start. The oil industry has poured millions of dollars into a campaign to preserve S.B. 21. The oil tax opponents have had a shoestring budget and a compelling bumper sticker: "Repeal the Giveaway."

For the last year, Vote Yes volunteers have conducted a ground war, rallying support through yard signs, door-to-door outreach and information tables.

But early this month the Vote Yes push got an influx of cash when the family of one of its board members contributed $300,000 to the campaign. At the same time, two big Alaska unions -- the International Brotherhood of Electrical Workers Local 1547 and Alaska State Employees Association -- threw their support behind the group and added another $40,000 to the pot.

That brought the budget for the Vote Yes campaign up to $600,000.

With more money in its coffers, Vote Yes is engaging the industry groups in a radio and newspaper ad war over the oil tax law. "We're a real campaign now," Presley said. "We're on the map and we're scaring the shit out of them."

The anti-S.B. 21 campaign gained even more attention when former Gov. Sarah Palin (R) jumped into the debate. Last week Palin released an 18-minute video warning voters not to be "suckered again by Big Oil and some of the crony capitalists with their hands in all this."

While governor, Palin authored the progressive oil tax law that S.B. 21 replaced. At the time, Parnell was her lieutenant governor.

On the other side of the debate, Alaska's three major North Slope oil producers -- BP, ConocoPhillips and Exxon Mobil Corp. -- have contributed $11.3 million to fuel a multimedia blitz urging Alaskans to preserve the new oil tax structure by voting "no" on the oil tax referendum.

Vote No on One and two other industry campaigns have raised more than $13 million to block the ballot initiative. The pro-S.B. 21 groups are spreading the word through the radio and TV ads, road signs and direct mail. Their ads are even popping up on digital media web sites in the state.

Despite the David versus Goliath funding disparity, Presley said the outcome of the race is "nail bitingly close." He predicts the referendum could be decided by as few as 1,000 to 4,000 votes.

Vote No on One campaign director Willis Lyford is optimistic that his group will prevail.

His group has conducted voter focus groups and repeated opinion polls to gauge the impact of their campaign messages. But Lyford remains mum on the results of the polls.

"I think everything's moving in the right direction," he said in early August. "Campaigns are a lot about momentum, and I really see things are happening for us in the right way."

North Slope comeback?

The tax debate is focused on Alaska's oil-rich North Slope, where crude production has steadily declined since peaking at 2 million barrels per day in 1988. Those oil fields are controlled by BP, ConocoPhillips and Exxon.

Proponents of S.B. 21 say the lower tax rate will encourage the major oil companies to add more oil to the Trans-Alaska Pipeline System, which carries crude to Alaska's export terminal in Valdez.

Although the law didn't take effect until January 2014, Gov. Parnell and the oil companies say that S.B. 21 is already attracting new oil exploration on the North Slope.

In June, ConocoPhillips CEO Ryan Lance said his company expects to add more than 40,000 barrels a day of North Slope oil production by 2018, all because of the tax cuts.

He also hinted that the tax cuts could pave the way for the oil companies to partner with the state of Alaska to build a multibillion-dollar natural gas pipeline and export project aimed at commercializing the state's 34 trillion cubic feet of North Slope gas.

"We know that a healthy, robust oil industry makes Alaska's North Slope LNG project even more competitive as we think about the options for that development," he said (EnergyWire, June 25).

Opponents of S.B. 21 say the industry has manipulated the system, holding back oil development projects until after the tax law passed. They argue that oil production is based primarily on future world oil prices.

Since oil was discovered in Prudhoe Bay in 1968, state lawmakers have repeatedly changed the oil tax rates for the North Slope. But for the last 24 years, North Slope oil production has declined irrespective of the tax rates.

Most Vote Yes activists agree that the previous tax system, known as Alaska's Clear and Equitable Share, or ACES, needed to be amended. But they charge that Parnell's overhaul of the state's oil tax structure was too generous and provided too many tax loopholes to the oil companies.

ACES set a oil tax base rate of 25 percent and included a progressivity clause that kicked in when oil prices rose above $30 per barrel. By early 2013, state officials said the combined oil tax rate under ACES was around 66 percent.

By comparison, S.B. 21 imposes a flat 35 percent tax on oil production and provides a $5-per-barrel production allowance. The law also provides a 20 percent gross revenue exclusion for new oil development.

Parnell, a former oil industry lobbyist, began his campaign to rewrite ACES as soon as he succeeded Palin as governor in 2009.

For several years, Parnell's industry-friendly oil tax bill was blocked by a bipartisan coalition in the state Senate, which favored more modest changes to ACES.

But in 2012 Parnell and the business community helped defeat several Democratic senators who opposed his tax cut plan (EnergyWire, Nov. 8, 2012).

The change gave state Republicans control of that chamber. In April 2013, the state Legislature adopted the controversial tax system by a single vote.

Heads down before election

As the primary day approaches, the Alaska senators who waged the unsuccessful 2013 fight against S.B. 21 -- mostly Democrats -- have been on the front line of the Vote Yes campaign, writing opinion pieces and appearing at debates and public events across the state.

However, the state Republican leaders who aggressively twisted arms in the Legislature to pass the new tax law have mostly taken a back seat role.

Even Parnell, who is running for re-election in November, didn't take part in the debates on the Ballot Question 1 and remained relatively quiet until penning his opinion column two days before the primary.

Lyford of the Vote No campaign said state Republicans haven't led the charge against the grassroots referendum because "it's been part of our plan not to make this a partisan issue."

"From the Republican legislators' standpoint, there's a feeling that we've heard all this before," he said. "This is the same debate that occurred in the Legislature when we passed this."

Instead, the Vote No campaign turned to the state's business community and conservative economists. "We have a coalition of 500 small businesses that have signed up for us," Lyford noted.

In June, Alaska Sen. Lisa Murkowski (R) joined four North Slope oil workers unions in announcing her support for S.B. 21.

Some Alaska political insiders speculate that Ballot Question 1 could cause a domino effect on other Alaska races. They suggest Parnell's bid for a second term could take a serious hit if voters repeal S.B. 21 in tomorrow's primary.

His two opponents -- former Juneau Mayor Byron Mallot (D) and Independent Party candidate attorney Bill Walker -- have been strong critics of S.B. 21. Parnell defeated Walker in the 2010 primary for the Republican gubernatorial nomination.

Whether the outcome of the oil tax referendum will play a role in the state's contentious U.S. Senate race is open to speculation.

The three candidates in tomorrow's Republican primary for the Senate nomination -- Alaska attorney Joe Miller, former natural resources commissioner Dan Sullivan and Lt. Gov. Mead Treadwell -- have come out in favor of retaining the current tax regime (Greenwire, Aug. 15).

However, incumbent Sen. Mark Begich (D) has yet to take a position on S.B. 21.

Lyford said his group's polling indicates that most voters have made up their mind on the referendum question. He estimated that 35 percent of Alaska's 495,012 registered voters are likely to cast ballots in the primary race -- a significant number for a primary in a midterm election year.

Alaska media outlets report that private polls show the race is neck and neck, though Lyford said he wouldn't agree with them. "We think we've done a good job at getting the message across, but you don't know until you know," he observed.

Proponents for both sides are expected gather late tomorrow night to watch the election results come in at the Anchorage Convention Center. Until then, both sides are focused on bringing their supporters to the polls.

"At this point no one knows who's going to win. It's really, really coming down to the wire," said Presley of Vote Yes. "For us to stand up against $15 million and even be like a speck on the map has been a big surprise to everyone."

Twitter: @hobsonenergywire | Email: mhobson@eenews.net

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