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 The federal government has provided funds to build the Knik Arm bridge. Should the legislature approve this project? 


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Jim Pound
Oil & Gas Staff

Alaska State Legislature
24th Alaska State Legislature
The 24th Alaska State Legislature
Alaska State Representative Vic Kohring
Opinion-Editorial

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Interim:
600 E. Railroad Ave.
Wasilla, AK 99654
Phone: (907) 373-1842
Fax: (907) 373-4729

716 W. 4th, Suite 680
Anchorage, AK 99501
Phone: (907) 269-0153
Fax: (907) 269-0154

Recent Oil Tax Hike Hurting Alaska's Economy
by Representative Vic Kohring
Alaska State Legislature
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Released:
March 5, 2005


"... since the new taxes were announced, BP Explorationís "I-100" well at Prudhoe Bay has been deferred indefinitely."
- Rep. Kohring

 

It is a truism in political economy that higher taxes cause lower production. Put another way, if the state wants increased revenue into its treasury, it must lower tax rates. Our governor found a legal way to squeeze up to $190 million more dollars out of the oil companies in his January 12th announcement, and the results are quickly becoming evident. There is already evidence that activity in Alaskaís oil patch is growing less than expected.

When arbitrary and instant new taxes are laid upon the oil and gas industry, the effect is that producers begin to reexamine where they place their investment dollars. The uncertainty of never knowing when new taxes will fall like a Guillotine, is causing money that would have been spent in our stateís economy to be spent elsewhere. Case in point: since the new taxes were announced, BP Explorationís "I-100" well at Prudhoe Bay has been deferred indefinitely. That well was supposed to have been drilled this winter. It was intended to be an "appraisal well" for the Orion Satellite area in the western part of Prudhoe.

The word from oil executives is that they intend to invest less than originally planned. They believe the state unfairly changed tax rules on the Slope after investment decisions were made. Theyíre right. One of the best things government can do to encourage economic growth and prosperity is to have low taxes and a stable, known regulatory and tax policy. The stateís instant raid on oil companies may bring some temporary extra millions, but itís undermining the whole oil trade. Itís like winning a minor battle, but losing the war.

When you are investing billions into huge projects, you must clearly know the rules in advance. Can you blame oil company planners for asking how they are supposed to plan if the stateís policy is prone to sudden changes? Industry executives are absolutely correct.

ConocoPhilips, after reeling under the stateís new dagger, was forced to delay portions of the Orion Satellite Field indefinitely, as the project is no longer able to compete with other investment opportunities elsewhere. That means money that would have gone into the pockets of Alaskans will now end up somewhere else. This is one of the unintended consequences of instant taxation.

If giants like BP Exploration and ConocoPhillips are staggered from these new taxes, smaller independent companies like Anadarko and Unocal that planned forays into Alaska oilfields will have much less of a chance. Small companies donít have the resilience and ability to absorb millions of dollars in taxes. The consequence will be fewer Alaskans employed on the Slope, and fewer dollars flowing into the state treasury in the long run.

As these delays begin to reverberate through the economy, the State Department of Revenue Fall Forecast predicted a $450 million dollar windfall from the Orion Field. Obviously, if ConocoPhillips delays or ultimately decides not to drill at all, the state will have taken in $150-$190 million, but lost $450 million! That is the direct result of arbitrary tax policy.

I call on my peers in the Legislature to take a new look at the alarming impact of this random tax policy, and reverse the stateís tax raid. We should not wait until there are new and even larger cancellations of Alaska oil projects. I call upon the governor to reverse his decision now that the facts are fully known. He maintained when he ran for office that we could "grow our way out of our financial problems instead of taxing." He was right then; it still can be accomplished.

We have had the most robust oil production in the world and the lowest prices for gas and oil relative to Europe and Asia. We got that way because of a tradition of having freer markets and lower taxes. It makes no sense to charge our way into the abyss of a Third World Economy that government intervention causes. The time to reverse it is now. Free the markets. Free the entrepreneurs and let the outcome be as it used to be...the envy of the entire world.

Rep. Vic Kohring serves Wasilla and the Mat-Su in the Alaska State Legislature, and is Chairman of the House Oil & Gas Committee

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