Thursday, October 19, 2006

Vote Yes On Alaska 2006 Ballot Measure Two For A Gas Reserves Tax

On Tuesday, November 7, 2006, Alaska voters will go to the polls to elect Sarah Palin as the new Governor, re-elect Don Young to the U.S. House, and....oops, let's get back to at least the appearance of non-partisanship (graphic courtesy of Let's start again [deep breath]. Alaska voters will choose a Governor, a U.S. House Representative, and state lawmakers to represent their respective districts. Voters will also weigh in on two General Ballot Measures. One of those is General Ballot Measure 2 to enact a Gas Reserves Tax (not to be confused with Primary Ballot Measure 2 approved in August, which tacked a bunch of nitnoid restrictions and taxes on the cruise industry) on the oil industry. The official title of the ballot measure is The Alaska Gasline Now Act (click on the title to view the full text of the ballot measure in PDF format). Here's a brief description of the Act from the text:

"An Act levying a tax on certain leases having known resources of natural gas, conditionally repealing the levy of that tax, and authorizing a credit for payments of that tax against amounts due under the oil and gas propeties production (severance) tax if requirements relating to the sale or shipment of the natural gas are met, and providing for an effective date".

The annual rate of levy would be three cents for each 1,000 cubic feet of taxable gas under lease.

As is the custom and tradition with any Alaska ballot measure, official statements of support and in opposition by the respective sponsors are included on the ballot. Here are the salient points from the Statement in Support, co-sponsored by former Governor Walter Hickel, Fairbanks-North Star Borough Mayor Jim Whitaker (who was just handily re-elected), Representative Eric Croft, and the late former Governor Jay Hammond:

1). It creates income from our gas resources now by levying a reserves tax on large deposits of natural gas that have been leased but undeveloped for decades. As a result, the state will receive an estimated $900 million per year for our schools, roads, and other vital government services.

2). It encourages construction of the natural gas pipeline by automatically repealing the reserves tax when the gas pipeline is completed. This creates an incentive for the oil companies to build it sooner rather than later.

3). It promotes exploration and development for oil and gas by assuring new explorers there will be a gas pipeline in which they can ship their new discoveries to market. Any new gas found is exempt from the reserves tax.

4). It treats the oil companies fairly by giving them a tax credit after the pipeline is built. They will get a full rebate if they act quickly to build the gasline. Delay costs money.

The supporters also cite precedence in support of a gas reserves tax. In 1975, Alaska levied an oil reserves tax that was repealed after the Trans-Alaska Pipeline was completed. Their premise is that if the oil reserves tax did not deter or delay the oil pipeline, a gas reserves tax similarly should not delay the gas pipeline.

And here are the critical points from the Statement in Opposition, co-sponsored by former Governor Bill Sheffield, former Alaska Department of Natural Resources Commissioner and current President of the Board of Resource Development Council John T. Shively, and Rasmuson Foundation Chairman Edward B. Rasmuson:

1). Ballot Measure 2 discourages oil and gas exploration and development. Alaska's oil production continues to decline, and we need new investment in oil and gas exploration and development. But, when explorers find oil, they also find gas. That gas would then be subject to billions of dollars of new taxes, making it less likely that the producers would make the investments necessary to find and produce more oil and gas. Alaska needs new investment, and this ballot measure would have a chilling effect on that investment.

2). The Gas Reserves Tax puts the Alaska Gas Pipeline in jeopardy and will delay its development. The Alaska Gas Pipeline would create thousands of jobs and generate new state revenue for roads, schools and other public services. The project is now at a critical crossroads. Alaska can choose to move forward with the project, or not. Ballot Measure 2 will jeopardize the gas pipeline, placing billions of dollars of new taxes on the project, while also discouraging oil exploration. Voting yes on this initiative puts Alaska's future at risk.

3). Ballot Measure 2 would mean fewer jobs, less state revenue, and less money in the Permanent Fund. Alaska needs the gas pipeline, with its thousands of jobs and billions in state revenue. Without the development of the Alaska Gas Pipeline, North Slope oil production will continue to decline, resulting in fewer jobs, less state revenue for roads and schools, and less money deposited into the Permanent Fund. This ballot measure could stop development of the gas pipeline and discourage new investment in Alaska.

4). The Gas Reserves Tax sends the wrong message to Alaska investors and employers. No other jurisdiction in the world imposes such a tax, because it is simply bad public policy. The reserves tax punishes explorers and gas leaseholders and creates disincentives for future investment. Passage of the reserves tax would indicate to investors that Alaska is not open for business and that our policy of stable taxation is eroding.

Opponents cite a statement by Senator Ted Stevens expressing his own opposition to the Ballot Measure as additional justification. Senator Stevens also believes a gas reserves tax would discourage investment.

Analysis: This is a tough call. The proposed natural gas pipeline is a complex project, and other nations are bringing their own pipeline projects to fruition. In addition, Alaska offers complex environmental challenges not necessarily replicated in other locations, to include two significant mountain ranges, permafrost, and a long, harsh winter up on the Slope with wind chill temperatures occasionally dipping to -80F. Operating costs can be higher than in other locations.

However, the same tactic successfully accelerated development of the oil pipeline, serving as a useful precedence. Furthermore, the tax is automatically repealed once production starts. Why should leaseholders of known gas reserves be allowed to continue just sitting on their leases year after year, affording our state absolutely no benefit?

Furthermore, if it doesn't work out, there is an exit strategy. Alaska state law permits the legislature to modify or repeal the Ballot Measure as soon as two years after passage, or as early as the 2009 legislative session.

There are two other factors to consider. First, it is justifiable to treat oil and gas differently than other resources, such as timber and fisheries. While timber and fisheries are RENEWABLE resources, oil and gas are NON-RENEWABLE. This means that once they're gone, that's it. On that basis, we're justified in getting the best deal possible.

Second, unlike the cruise industry, the oil industry has conducted themselves irresponsibly and even maliciously on occasion. Even though British Petroleum's recent problems up at Prudhoe Bay were triggered more by complacency and negligence, Exxon, in contrast, has behaved in an utterly imperious and even a contemptuous way towards Alaska at times. Not only does Exxon continue to refuse to even consider settling the outstanding Exxon-Valdez civil judgement against them, but cry poverty even though they've earned unprecedented windfall profits the past two years and managed to find enough money to give departing CEO Lee Raymond a $167.7 million golden parachute. And to add insult to injury, just today, KTUU reported that Exxon tried to get Governor Frank Murkowski to quash Ballot Measure 2 altogether. To his credit, Attorney General David Marquez refused to do so, and to their credit, neither BP nor ConocoPhillips supported Exxon's efforts.

Consequently, I intend to vote Yes on this measure, despite the huge, expesnive saturation advertising campaign conducted by the opposition forces under the auspices of a group called Alaska's Future, formed last October as a tax-exempt, nonprofit corporation to promote a $25 billion gas pipeline project proposed by BP PLC, ConocoPhillips and Exxon Mobil Corp. The group has been mum about its donors, although BP Exploration (Alaska) Inc. has twice acknowledged that it had given money to the group. The three people listed as incorporators of Alaska's Future are attorneys with the law firm Patton Boggs LLP in Washington D.C. Three Alaskans are listed as directors: George Culpepper Jr. of Anchorage, Shane Langland of Anchorage and Brandon Maitlan of Fairbanks.

In addition, the three leading gubernatorial candidates (Sarah Palin, Tony Knowles, and Andrew Halcro) all oppose it, and a new Craciun poll, posted by ADN reporter Kyle Hopkins on The Trail blog, that shows 27.8% for, 41.7% against, and a whopping 30.5% undecided. However, just because the state's elite oppose Ballot Measure 2 doesn't mean its a bad idea. A way to get the undecideds to vote Yes is to remind them that this ballot measure can be undone in two years if there are negative consequences.


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  2. Just wanted to say THANK YOU for posting this info. I finally had the time this morning to look up the reasons why a person may want to vote FOR the Gas Reserves Tax (instead of just to thumb our noses at the gas companies, which was my plan & my hubby's plan anyway). It's nice to see the reasoning put in PLAIN ENGLISH for those of us who can't read legalese.

    I've forwarded this on to my hubby, my dad, and my sister, so that they may all have a second point of view about where this Tax would take us.

    Now if only we can get the word out to those who are only hearing the radio ads.

    Thanks again!

  3. Kati - you're quite welcome. Passage of this ballot measure will give us an additional negotiating tool to use with the producers.

    With this gas reserves tax in hand, we can go back to the producers and tell them "if you agree to build an LNG extension from the highway route to Valdez, we'll kill the tax". This might make the producers more amenable to building both the highway route AND an LNG extension in order to avoid paying the reserves tax.

    And the people who support this tax are not a bunch of socialists. Walter Hickel, Eric Croft, Harry Crawford - they're all responsible people who want what they think is best for the state.

    Enstar projects that Cook Inlet gas will begin running dry by the end of the next decade. We need an affordable alternate supply source.