Interview: Gov. Parnell Talks Oil Tax Overhaul

Governor Sean Parnell. Photo by Daysha Eaton, KSKA - Anchorage
Governor Sean Parnell. Photo by Daysha Eaton, KSKA – Anchorage

Over the course of his administration, Gov. Sean Parnell has made an overhaul of the state’s oil tax system a top priority. In previous legislative sessions, his efforts to bring down the overall tax rate on oil companies has been stymied by the Senate. But this week, that body passed an amended version of his plan.

On Thursday, he sat down with APRN’s Alexandra Gutierrez to discuss the status of the bill.

What does success look like to you, and do you have any metrics in terms of a hard number of barrels you’d like to see go through the pipeline? And at what point do you say this bill is successful? And when do you say it needs to be revisited?

I think it’s highly speculative question in terms of eliciting a highly speculative answer. But success to me is an Alaskan comeback, an Alaskan comeback on oil production.

The reason I want to see an Alaskan comeback is that I want to see more opportunity for Alaskans from oil. I think there is plenty more oil to be had. I want to see us be competitive and get it for Alaskans.

So a metric for me, I think it’s going to take three to five years before we start seeing new production. But we should see significant investment begin to ramp up in that time frame  and I think we need only look to the North Sea and the UK from their recent tax changes and they are now having billions of British pounds sterling being invested in the North Sea for their changes. My recollection is it’s been several years since that occurred.

And so it doesn’t sound like there’s a specific measure then?

No, because this system, every tax regime should be built to last. Unfortunately we found that the current system is not, especially at these high oil prices. We’re missing out. So the bottom line is, it’s got to be competitive across a long time frame and we should start seeing things change in the near term, like three to five years. That way we’re not stuck long term without savings and little to no production.

Is turning things around bending the decline curve, stopping decline, or ramping up production?

For me, it’s maximizing that asset that’s in the ground for Alaskans. So you had senators talking about how there are 9 billion barrels of proven reserves. And stating, what is the problem?

Well, the problem is, companies won’t invest in getting those 9 billion barrels of oil across the next 30 years without a tax regime that makes sense for them to get it. That means Alaskans oil remains locked in the ground, something that minimizes Alaskan opportunity. Like the Senate majority that voted for the bill, I want to maximize opportunities for Alaskans.

Some legislators have said they want to see a fiscal plan with this proposal and also a scenario for what happens if we don’t get [increased production]. Are we going to get that as this bill is being considered?

So, at the beginning of session I met with majority leaderships in the finance committees and with the presiding officers. And I told them I want to be engaged with them on a five-year fiscal plan.

Because, number one, even if no change is made, that means we have to rein in spending even harder given declining production. But part of the principle or result of tax change, is that in the near term, we’re going to need to use our savings to get us through to more production.

So I’m working with House and Senate leadership, engaged in discussions with them in a five year fiscal plan. You saw the first stages of that with Scott Goldsmith speaking up in Senate Finance. I anticipate arriving at a place where we’ll rein in spending, we’ll used budget reserves to get us through to that point of new production.

One of the [Senate] amendments has to do with a three-year sunset … Is that something you would consider?

No, it’s an incredibly stupid idea, and let me tell you why.

When companies plan to invest hundreds of millions and perhaps billions of dollars, they need to recover that capital over 20 years, say. They plug in the tax regime across that time, if there’s a sunset on a tax regime that’s out there three years, five years, seven years, not only do they have the uncertainty of each year’s legislative session where the law could change, they then know that the law will be changed in three or five or seven years. that will chill investment.

But with the sunset, there’s the possibility of renewal.

But it’s about uncertainty. They will not invest where there is legal uncertainty that they could ever recover their investment. So a sunset provision would chill investment in Alaska until that sunset is resolved with another tax regime. It would be worse than the current system.

In that same amendment, there’s a community revenue sharing component with clearer language on how much could be appropriated. The current bill doesn’t have that in there. How do you feel about the state of revenue sharing?

Revenue sharing was originally and currently factored into the progressivity calculations. Because those are going away, we had said let’s just use the corporate income tax account as the accounting mechanism for it. I’m committed to revenue sharing, it will continue at current levels. And the legislature right now has essentially made that same commitment.

You’ve said this [Senate] bill fits with your guiding principles [for an oil tax package]. Are there any changes you’d like to see in the House version?

I have not had enough time to think about any changes. I think any bill can be improved and I’d be happy to get back to you on any changes we plan to advocate for. Given the change that occurred on the floor last night, I had a cursory briefing on what happened and the effects financially on it. But we’re going to look more closely to see if we can make it any better, just like I know the House of Representatives will. “

Gov. Sarah Palin was the one who brought ACES into being. She’s been quiet on this issue in public. Have you been in touch with your predecessor?

I have not. And I’ll speak for myself. ACES was modeled on $60-80 a barrel oil and there was very little discussion about higher price oil situations like we’ve been in recently. And given the history now of what we know happens under ACES, we have five years of history to look at with investment running to Texas and North Dakota and their production turning upwards and ours not. Because of that, change is required at this point in our history and that’s why I’m moving to change it.

The most persistent opposition to the legislation has been from Democrats in the minority in both chambers. And without the numbers to get any of their alternatives heard, they’re using a public relations strategy of sorts. And they have put more effort in making public records requests of your office and talking a lot about transparency. They’ve been saying they haven’t gotten the answers they want [on the oil tax issue]. How do you respond to that?

I think it’s just more political gamesmanship. It’s designed to distract us from the goal of maximizing Alaskans opportunity. And here’s what I mean. They’ve asked for information. The legislature has their consultants. The administration has their consultants. Between our two sets of consultants, there have been, 21 presentations from these experts in these committees where they can be asked out in the open for information.
So the notion that individual legislators, 60 of them, should be able to make their own individual requests when they have their own is the height of political gamesmanship. It’s not reality.

Are you alluding to [Democrats’] claim that you’ve been keeping consultants on lock that you have previously hired?

Yeah, welcome to the world where they pay for their consultants as legislators and the administration pays for our consultants, and then they both go to the committee table in the open-air public hearing to get evaluated.

In this case, they’ve had 21 different opportunities to ask consultants questions. So, again, I think it’s political gamesmanship. I’d rather see them focus constructively on creating opportunities for new production and new jobs for Alaskans.

Is there anything else you would like to add?

I think Sen. [Charlie] Huggins said it best when he told about meeting that young Alaskan man working in North Dakota. It was a very personal story about a young man who had to leave the state to find a job in the oil patch, which is what he wanted to do. And when that young man looked Sen. Huggins in the face and said, and you fix it so I can work in Alaska? That’s what strikes home for me.

This is about creating opportunity for him. I’ve already had — and Sen. Huggins has already had — a wonderful life of opportunity here in Alaska. Sen. [Pete] Kelly referenced it. This is for our kids and our grandkids. This change, brining about new production, will create an economy here for generations now. And I’m not willing to sacrifice that without a fight. And Alaskans deserve more than political spin and a pr campaign has been mentioned. They deserve serious work. And I think they’re getting it, they got it from this Senate and I think they’re getting it from the House as well.