Alaska Oil Tax Cuts Veto Referendum, Ballot Measure 1 (August 2014)

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Ballot Measure 1
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Type:Veto referendum
State code:Senate Bill 21
Referred by:Citizens
Topic:Taxes
Status:On the ballot
The Alaska Oil Tax Cuts Veto Referendum, Ballot Measure 1 is on the August 19, 2014 primary ballot in Alaska as a veto referendum. The referendum seeks to repeal Senate Bill 21, also known as the Oil and Gas Production Tax, which was passed by the Alaska State Legislature and grants tax breaks to oil companies.[1]

To land the referendum on the ballot, supporters had to collect at least 30,169 valid signatures by July 13, 2013. They ultimately collected more than 52,000 signatures by the deadline, 45,664 of which were confirmed valid by the state's Division of Elections.[1][2][3][4][5]

Those supporting the referendum and seeking to repeal SB 21 believe the tax breaks will only benefit oil companies and not the citizens of Alaska. Those who are against the referendum believe that the tax cuts outlined in SB 21 are necessary to incentivize these companies to continue drilling for oil in Alaska. A majority of Alaska's budget is balanced using revenue from oil taxation.[1] So far, the opposition campaign has outraised the support campaign by a margin of 34 to one.[5]

The full text of SB 21 can be found here.[6]

Text of measure

In Alaska, veto referendums are currently worded in such a way that a "yes" vote repeals the law in question, while a "no" vote upholds it.

Ballot title

The official ballot title of this measure will read as follows:[7]

Ballot Measure No. 1: Referendum

An Act Relating to the Oil and Gas Production Tax, Interest Rates on Overdue Taxes, and Tax Credits[8]

Ballot summary

The full ballot summary, as prepared by Attorney General Michael C. Geraghty (R), can be read here.[7]

SB 21 text

The full text of SB 21 can be found here.[6]

Background

State budget and oil revenue

Alaska does not have a state income tax or statewide sales tax. Eighty-two percent of Alaska’s estimated state revenues for 2010 were from oil taxes, royalties and fees.[9] Alaska has the lowest tax burden of all 50 states.[10] It therefore relies heavily on revenue from oil to balance its budget, as taxes on oil are the state's primary source of revenue. They provide for 90 percent of discretionary funds and are used to compensate teachers, some law enforcement officers, roads and snowplows, health care, and state social workers.[1][5]

Tax code changes

Under the previous tax code, oil companies paid a base rate of 25 percent on the first $30 of net profits from a barrel of oil, plus a 0.4 percentage point increase in tax rate for each subsequent $1 in profit per barrel. Under SB 21, oil companies pay a base rate of 35 percent, but the additional add-on tax matching the market price of oil is removed. Given the new provisions detailed in SB 21, it is estimated that the tax on oil will be approximately 14 percent.[2]

Use of veto referenda in Alaska

Since this issue successfully made the ballot, it marks the fourth time Alaskans have employed their right of veto referendum. They used it first in 1968, with the Voter Registration Referendum, again in 1976, with the Compensation and Retirement Referendum, and most recently in 2000, with the Alaska Land-And-Shoot Referendum.

Support

Alaska Vote Yes Repeal the Oil Giveaway 2014.png

Supporters of the referendum have created two separate campaigns. One campaign is "Stop the Giveaway - Vote yes on Prop 1," which has supporters including Hal Gazaway (D), Barb Gazaway and former Alaska representative Ray Metcalfe.[11] The second campaign is called "Vote Yes! Repeal the Giveaway!" The referendum's proponents include former Fairbanks mayor, Jim Whitaker, former governor and state representative Jay Hammond's widow, Bella, and former senator, Vic Fischer.[12] Supporters claim the bill only benefits oil companies, not Alaskan citizens. They are confident oil companies will come to Alaska with or without the added incentive of a tax break.[1] After the measure was officially certified in early September 2013, Whitaker said, "I think all Alaskans should be pleased that we have a chance to make a decision individually about something that is going to affect the future of our state for a long time. And this is our shot. This is our chance to do what we think is right."[13]

Supporters

  • Hal Gazaway (D)
  • Barb Gazaway
  • Ray Metcalfe (R)
  • Jim Whitaker (R)
  • Bella Hammond
  • Victor Fischer

Arguments

Vote Yes - Repeal the Oil Giveaway developed a slideshow that supplied seven reasons to oppose the oil tax cuts and support the veto referendum. The following is an excerpt from the slideshow:

1. It’s a massive giveaway of our wealth with no strings attached.

The Parnell Administration estimates SB 21 will cost Alaskans $4.5 billion in the first five years alone. After that billions more will be given to the most profitable corporations in the world. If oil prices increase, the loss to Alaskans will grow ever steeper, up to $2 to $3 billion per year. This is money we could invest in roads, schools and public safety... It’s a bad business deal for Alaskans and a bonanza for multinational oil companies.

2. It violates Alaska’s Constitution.

The legislation shall provide for the development of all “natural resources belonging to the State for the maximum benefit of its people” (Article VIII, Section 2). [SB 21] gives to multinational oil companies revenues that are due to the people of the state. It denies Alaskans a fair share of their oil wealth. Our current oil tax system has enabled us to save more than $16 billion in two “rainy day” accounts, giving Alaskans the biggest state savings accounts in the nation.

3. It will drain Alaskans’ savings and push us off a fiscal cliff.

Some Alaskans believe SB 21 shows we have become an “owned” state. The campaign to repeal the oil wealth giveaway aims to change that. Our state was founded on the principle that all Alaskans own the natural resources of the state. That’s why Alaska is referred to as an “owner state.” One of our two savings accounts (the Statutory Budget Reserve) will likely be wiped out by 2018. And we will have a significant cash deficit starting next year. Our cash flow deficits will exceed $2 billion a year by 2018 and $3 billion by 2020, assuming state spending continues along its current trajectory. Let’s NOT squander our hard-earned savings and plunge into deficits! We can do better.

4. Our current tax system workers and is fair to all parties.

Our current tax system — Alaska’s Clear and Equitable Share or ACES — works and is fair to all parties. In the years since ACES passed, oil industry investment in Alaska has increase to an all-time high. [Oil company] spending has increased by 70% in 7 years. In 2011, 19 oil companies competed for 616,000 acres of new petroleum-rich lands, paying the state nearly $21 million. The bidding generated the 6th largest amount ever for tracts on the North Slope… In 2008, the first year after ACES passed, 18 tax returns were filed by oil and gas companies. In 2009, it grew to 26 and, in 2010, to 47. In 2011, 69 returns were filed: a 383% increase under ACES... Under ACES, oil company profits in Alaska have been phenomenal… ACES has not only provided record profits to the oil industry, but record earnings for Alaskans… This healthy revenue stream has enabled the state to invest more in infrastructure, create jobs, and fund critical state services such as education and public safety. ACES has helped to keep property taxes down and local governments afloat...

5. It will discourage investment in Alaska.

SB 21 will discourage investment in Alaska. It removes provisions in ACES that encourage companies to invest their earnings here. Under ACES, a company could decrease its taxes by investing more in Alaska. SB 21 offers no incentives like this. Companies can take their money and run.

6. It was built on myths and distortions, at best.

SB 21 was built on myths and distortions. Facts took a back sit [sic] in the debate over oil taxes this year.
Myth #1: Oil production is declining because of ACES.
This is simply false. Oil production has been steadily declining since 1988, long before ACES...
Myth #2: Industry is fleeing Alaska.
Nothing could be further from the truth. Investment has grown since ACES passed and the number of companies doing business here has ballooned...
Myth #3: Alaska is losing jobs because of ACES.
Again, the facts don’t support this. According to the Department of Labor, employment in the oil and gas industry has increased since ACES was implemented...
Myth #4: Your PFG is at risk unless we give big tax breaks to the oil industry.
Nothing could be father from the truth. ACES ensures that Alaskans get their fair share for the oil they sell. It provides revenue for state services, protecting your PFD, and ensuring that an income tax is not necessary. SB 21 will create perennial deficients. Pressure will mount to find new sources of revenue, including an income tax or spending money from the Permanent Fund Dividend.
Myth #5: Alaska is “uncompetitive.”
Critics say our taxes are so high they are driving business away. But Alaska’s tax rates rank in the middle of other oil producing jurisdictions… In Alabama, Texas and Florida, [the total government take]] is 73% on private lands. In Alaska, it is 71%... A recent survey of 645 oil and gas industry executives conducted by the Frasier Institue shows our tax structure is just fine...

7. Alaskans deserve a say in a decision of this magnitude.

[SB 21] will affect our schools, cities, services, property taxes, roads, public safety, and everything else. This is our future. It’s our oil. Get involved... Our oil tax system should be fiscally responsible and balanced and provide a bright future for Alaskans. It should not break the bank. We deserve a tax system that provides a sound business deal for Alaskans and the oil industry.

[8]

—Vote Yes - Repeal the Oil Giveaway, [14]

Campaign contributions

Total campaign cash Campaign Finance Ballotpedia.png
as of May 28, 2014
Category:Ballot measure endorsements Support: $159,822
Circle thumbs down.png Opposition: $3,790,179

As of May 28, 2014, two campaign organizations have received an aggregate total of $159,822 in contributions.[15]

PAC info:

PAC Amount raised Amount spent
Vote Yes! Repeal the Giveaway $159,822 $82,790
Stop the Giveaway! Vote Yes on Prop 1 $651 $36
Total $159,822 $82,826

Top 4 contributors:

Donor Amount
BJ Gottstein $35,000
Robin Brena $35,000
ASEA/AFSCME Local 5 $3,000
Anselm Stacch $2,500

Former Alaska Senate president Chancy Croft, one of the referendum's supporters, predicted in early 2014 that the opposition campaign would outspend the "Vote Yes" campaign 10-to-1. Upon hearing that the opposition campaign had raised $3.5 million by early February, he remarked, "So I was wrong. They are going to outspend us 50-to-1."[5]

Opposition

Alaska Vote No on 1 2014.png
Alaska Keep Alaska Competitive 2014.png

Four campaign organization have formed to oppose the veto referendum, including Vote No on 1, Keep Alaska Competitive - Vote No on 1, No One On One, and We Are Alaska.[16][17][18][19]

Gov. Sean Parnell (R) sponsored and strongly supports Senate Bill 21, and therefore is against the effort to repeal it. The governor claims the tax break will entice oil companies to come to Alaska and boost production. Alaska relies heavily on revenue from oil to balance its budget, as oil taxes are the state's primary source of revenue. They provide for 90 percent of discretionary funds and are used to compensate teachers, some law enforcement officers, roads and snowplows, health care and state social workers.[1][5]

Opponents

See also: A full list of opponents

Officials

Former officials

  • Rick Mystrom (R), Former Anchorage Mayor[20]
  • Leslie Hajdukovich, Former President of the Fairbanks North Star Borough School Board

Organizations

  • Alaska Republican Party[20]
  • Alaska Libertarian Party
  • Alaska Federation of Republican Women
  • Anchorage Republican Women's Club
  • Make Alaska Competitive Coalition
  • Alaska Alliance for Cruise Travel
  • Alaska Bankers Association
  • Alaska Cruise Association
  • Alaska Forest Association
  • Alaska Miners Association
  • Alaska Oil & Gas Association
  • Alaska Trucking Association
  • Alaska State Home Building Association
  • Associated Builders & Contractors of Alaska
  • Associated General Contractors of Alaska
  • Consumer Energy Alliance Alaska
  • Council of Alaska Producers
  • The Alaska Support Industry Alliance
  • Resource Development Council for Alaska, Inc.
  • Anchorage Economic Development Corporation
  • Fairbanks Economic Development Corporation
  • Alaska Teamsters
  • First Things First Alaska Foundation
  • Mat-Su Business Alliance
  • Mat-Su Home Builders Association
  • Southeast Conference
  • Anchorage Tea Party
  • ProsperityAlaska.org
Chambers of Commerce

A Vote No on 1 online ad titled, "Oil tax reform matters to Alaska's schools."

  • Alaska Chamber of Commerce[20]
  • Anchorage Chamber of Commerce
  • Chugiak Eagle River Chamber of Commerce
  • Greater Fairbanks Chamber of Commerce
  • Greater Ketchikan Chamber of Commerce
  • Greater Palmer Chamber of Commerce
  • Greater Wasilla Chamber of Commerce
  • Juneau Chamber of Commerce
  • Kenai Chamber of Commerce
  • Seward Chamber of Commerce
  • Soldotna Chamber of Commerce

Businesses

  • Alaska Cruises, Inc.[20]
  • BP Exploration Alaska
  • Bristol Bay Native Corporation
  • Chevron
  • ConocoPhillips
  • Denali Drilling
  • ExxonMobil
  • Halliburton
  • Nabors Alaska Drilling, Inc.
  • Pioneer Natural Resources, USA
  • Puget Sound Pipe & Supply Co.
  • Repsol
  • Samson Electric

Arguments

Keep Alaska Competitive - Vote No on 1 issued a frequently asked questions sheet that detailed responses to questions about the oil tax cuts. The following is an excerpt from such sheet:

Q: What is the goal of oil tax reform?
A: Alaska runs on oil and the new oil tax reform legislation is designed to incentivize additional production. Oil funds 90 percent of the state’s general fund, but oil production is now lower than it was on the day in 1977 when the first oil flowed through the pipeline. Alaska has lost more than 200,000 barrels of oil/day under the flawed ACES tax regime, and the pipeline is operating at dangerously low levels.

Q: Hasn’t Alaska benefited from high oil prices in recent years?
A: Yes and no. While high oil prices have poured billions into the state treasury, they also disguised our plummeting production levels. Since ACES passed in 2007, North Slope production has fallen almost 31 percent. In contrast, New Mexico production increased 38 percent during the same period, Oklahoma 35 percent, Utah 46 percent and Texas a whopping 70 percent. Alaska was the only North American oil province to suffer declining production in 2011-2012 and now ranks behind Texas, North Dakota, California and Alberta in daily production...

Q: How does a 35 percent tax on production compare with other oil and gas provinces?
A: It falls in the high end of middle – but it’s important to remember that the production tax is only one of four taxes producers pay to the state. Producers also pay royalties – which typically vary between one-eighth and one-sixth of production – property tax and a corporate income tax. Producers also pay corporate income tax at the federal level.

Q: Isn’t the new legislation a $2 billion giveway?
A: Absolutely untrue. The new legislation is designed to earn the state more money over the long term by increasing production. But even if no new oil is produced – which is highly unlikely given the renewed activity on the North Slope – its fiscal impact varies from about $140 million at $100/barrel oil – today’s price – to a high of $815 million at $120/barrel oil.

Q: Has oil tax reform produced any results?
A: Yes, even though the new law does not go into effect until Jan. 1, 2014. Repsol, BP, ConocoPhillips and new entrant Caelus Energy have all responded with additional development plans, which will result in new production, new oppor tunity and new jobs for Alaska...

Q: Isn’t the new oil tax responsible for the projected FY 2014 and FY 2015 deficits?
A: Absolutely not. The deficits are a direct result of the state losing 200,000 barrels of oil every day under ACES. In fact, State of Alaska projects it will take in slightly more money under the new tax than it would have under ACES. Here’s why: Overall oil revenues are down due to bigger-than-expected production declines (caused by ACES), increased costs to produce and move the oil (partly caused by lower production), and significantly lower oil prices. The progressivity formula in ACES is very aggressive. It ramps up rapidly when oil prices rise and falls just as fast when oil prices decline – as they have in recent weeks. With the ACES base tax rate of 25 percent – compared to the new tax at 35 percent – the end result is a slightly higher FY 2014 tax rate under the new tax...

Q: Doesn’t the state constitution require Alaska to get maximum benefit from our oil?
A: Yes – for both current and future generations – and we’ve done very well. Of the $191 billion in oil revenues we’ve collected, we’ve managed to finance 90 percent of state government, stash $67 billion away in savings and pay Alaskans $21 billion in permanent fund dividends. We have another $87 billion worth of petroleum wealth in the ground, which can support Alaska’s economy for decades to come. But oil in the ground does us no good unless it’s produced and sold. That’s why it’s so important to keep Alaska competitive – for us and for our children. [8]

—Keep Alaska Competitive - Vote No on 1, [21]

Campaign contributions


A Vote No on 1 television ad.

As of May 7, 2014, three campaign organizations have received an aggregate total of $3,790,179 in contributions.[15]

PAC info:

PAC Amount raised Amount spent
Keep Alaska Competitive $195,512 $38,549
We Are Alaska $27,363 $27,381
Vote No on 1 $3,567,304 $2,081,210
Total $3,790,179 $2,147,140

Top 5 contributors:

Donor Amount
BP Exploration Alaska $1,311,658
ExxonMobil $1,306,588
ConocoPhillips $352,750
Repsol USA $264,600
Chevron $150,000

Reports and analyses

Goldsmith ISER report

Scott Goldsmith, professor emeritus of economics at University of Alaska Anchorage Institute of Social and Economic Research (ISER), published a study in May 2014. The study was funded by a grant from Northrim Bank, which is sponsoring ISER’s Investing for Alaska’s Future research initiative. Goldsmith's study examined the effect of SB 21 and the impact it would have to uphold versus repeal it. The following were Goldsmith's four main points:

  • About 4% of the $2.1 billion drop in the fall oil revenue forecast for 2014 is due to the new tax. Most of the decline can be traced to lower price and production assumptions—as well as higher cost assumptions—in the forecast, and the effects of those changes on the tax rate. The rest of the decline is a one-time drop, with oil producers claiming credits expiring with the old tax.
  • Future revenues are very sensitive to oil prices and costs of production and are difficult to forecast. If current trends continue—if costs continue to rise faster than oil prices—the new tax could produce more revenue. But if conditions revert to those of past years, when production costs were lower, relative to oil prices, the old tax could produce more revenue. Among the factors contributing to rising production costs in recent years have been inflation in the price of inputs, maintenance of aging facilities, and development of marginal fields.
  • The tax change, combined with a modest increase in new production, would produce higher revenues under a reasonable range of assumptions about oil prices and production costs. New investment would drive up tax deductible costs in the short run—reducing production taxes—but that loss would be more than offset in later years by additional production tax and royalty revenues from new production, even at a lower average tax rate.
  • Investments that draw new outside money into the oil patch could create long-lasting jobs and increase consumer purchasing power. For example, $4 billion in new spending in the oil patch could add an average of 5,000 public and private sector jobs per year over 20 years, with more than $300 million of additional wages and salaries annually.

[8]

—Scott Goldsmith, [22]

Response by Liden Companies

Jim Jensen, chairman of Liden Companies, used Goldsmith's report to bolster the companies' claim that "$2 billion giveaway" is a myth in a June 2014 meeting at the Bethel Community Services Building.[23]

Response by Rep. Les Gara

Rep. Les Gara (D-18) wrote an editorial widely published throughout the state in May 2014, in which he generally opposed SB 21, but also specifically addressed Goldsmith's report. Rep. Gara pointed out that the report, which has been seen by some as refuting the need to repeal SB 21, "concedes SB 21 would have reduced Alaska revenue by more than $1 billion/year if it were in place at 2012 and 2013’s higher oil prices."[24][25] Other supporters of the passage of Ballot Measure 1 have been quick to point out this part of Goldsmith's report, as well.[26]

Path to the ballot

See also: Laws governing the initiative process in Alaska and Veto referendum

In order to get the referendum on the August 2014 ballot, supporters were required to gather at least 30,169 valid signatures. The campaign had to obtain these signatures from at least 10 percent of the number of voters who participated in the prior general election, and signatures had to be gathered in 30 of the 40 House districts, with at least 7 percent of eligible voters in each district signing. The deadline for these signatures was July 13, 2013.[1][27][2]

Supporters collected over 52,000 signatures - well above the number required - and surpassed their goal by more than 50 percent. Pat Lavin, one of the referendum effort's organizers, stated, "It's exceeded my expectations." Though support for the referendum has been strong, a 2005 measure that sought to ban aerial wolf hunting still maintains the record for the most number of signatures collected. That measure, which was ultimately successful at the polls, garnered more than 55,000 signatures. On September 3, 2013, Division of Elections Director Gail Fenumiai officially certified the referendum, noting that supporters had met all signature requirements.[13][5]

Legislative action

On March 20, 2013, the Senate passed SB 21 with a vote of 11-9.[28] On April 13, 2013, the House passed the bill 24-15.[28] The bill was signed into law by Gov. Parnell on May 21, 2013 and took effect on January 1, 2014.

Alaska Oil and Gas Production Tax, SB 21 Senate Vote
ResultVotesPercentage
Approveda Yes 11 55%
No945%


Alaska Oil and Gas Production Tax, SB 21 House Vote
ResultVotesPercentage
Approveda Yes 24 62%
No1538%

See also

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Suggest a link

External links

Basic information

Support




Opposition

Additional reading

References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 Anchorage Daily News, "Critics of oil tax cuts move ahead with referendum to repeal the legislation," April 18, 2013
  2. 2.0 2.1 2.2 Alaska Dispatch, "Deadline looming, Alaska oil tax repeal petition gains momentum," June 11, 2013
  3. Alaska Public Media, "Repeal Group Exceeds 45,000 Signatures For Referendum," July 12, 2013
  4. Alaska Dispatch, "Oil-tax repeal backers claim 51,000 Alaska signatures, far more than needed," July 13, 2013
  5. 5.0 5.1 5.2 5.3 5.4 5.5 Anchorage Daily News, "Oil companies are spending millions to stop repeal of Alaska tax cuts," February 9, 2014
  6. 6.0 6.1 The Alaska State Legislature, "28th Legislature(2013-2014): Bill Text 28th Legislature, Senate Bill 21," accessed March 27, 2014
  7. 7.0 7.1 State of Alaska Division of Elections, "Proposed Ballot Summary and Title from Attorney General Opinion," accessed March 28, 2014
  8. 8.0 8.1 8.2 8.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
  9. Reuters, “Alaska sees $1.25 billion budget gap on oil price drop,” February 19, 2009
  10. Tax Foundation "Monday Maps: State and Local Tax Burdens vs. State Tax Collections" May 2010
  11. YesOn1, "Stop the Giveaway - Vote Yes on Prop 1," Sept 13, 2012
  12. Alaska Dispatch, "Referendum to repeal governor's oil tax cut takes another step," April 18, 2013
  13. 13.0 13.1 Alaska Public Media, "Oil Tax Referendum to Appear on Ballot," September 5, 2013
  14. Vote Yes - Repeal the Oil Giveaway, "Slideshow," accessed May 28, 2014
  15. 15.0 15.1 State of Alaska, "Campaign Disclosure: Forms," accessed May 29, 2014
  16. Vote No on 1
  17. Keep Alaska Competitive - Vote No on 1
  18. KTUU, "Alaska Native Corporations Move to Protect Oil Tax Reform," May 28, 2014
  19. We Are Alaska
  20. 20.0 20.1 20.2 20.3 20.4 Vote No on 1, "Coalition for Alaska's Future," accessed May 28, 2014
  21. Keep Alaska Competitive - Vote No on 1, "FAQ," accessed May 28, 2014
  22. UAA ISER, "Alaska’s Oil Production Tax: Comparing the Old and the New," May 2014
  23. The Tundra Drums, "Oil tax debate comes to town," June 12, 2014
  24. Mat-Su Valley Frontiersman, "Don’t be fooled by rosy oil tax reform talk," May 23, 2014
  25. Anchorage Daily News, "Paul Jenkins: Tax cut repeal backers target Goldsmith over giveaway claim," May 31, 2014
  26. Homer Tribune, "Alaska: ‘Owner’ state or ‘owned’ state?" accessed June 13, 2014
  27. Homer News, "Parnell spares budget vetoes, signs SB21," May 29, 2013
  28. 28.0 28.1 OpenStates.org, "SB 21, Alaska Senate Bill," accessed April 25, 2013