Sarah Palin – ACES Incentivizes Oil Production and Development

Demonstrating the widespread nature of the bipartisan support for ACES, former Republican Governor Sarah Palin has weighed in on the battle over oil taxes now raging in the Alaska legislature. Defending one of the key pieces of legislation that was passed during her administration, Palin calls out the New York Times, Big Oil, and hypocritical legislators in a recent posting on Facebook.

The New York Times just can’t seem to get much of anything right lately. No wonder they’re facing economic and reputation woes. Their article today falsely reporting on my record as governor is full of spin, and I shall call them out on it.

Regardless of the recent political posturing, ACES (Alaska’s Clear and Equitable Share) is a success for all stakeholders who want more domestic energy supplies for our great country. The Alaskan people (who collectively own the natural resources, via our state constitution), the resource producers who bid on the right to develop our oil and gas, and consumers all benefit under ACES. It incentivizes production and development. It works.

Amazingly, to the uninformed (or to those who really don’t want to incentivize oil exploration in America) ACES is spun to sound like an oil windfall profits tax and its progressivity is made to sound excessive. In reality, it was born of a need to have a tax structure that did three things:

1. It could not be created under a cloud of political corruption and self-dealing like the former Alaska administration and legislature’s PPT oil valuation structure. That’s a critical fact that is now frequently overlooked years later. Remember the legislators and oil industry players who went to jail because of bribes leading to votes in favor of the former administration’s PPT, which was unfairly tilted in favor of the resource producers against the resource owners (i.e., the people of Alaska)? Have we conveniently forgotten the fact that a corrupt process brought forth PPT, and I and others set out to change it by cleaning up the corruption?

2. It had to align the interests of Alaskans and the oil producers through exploration and production credits in partnership so that they benefit proportionally from commercialization of Alaska’s sovereign resources. This is very different from a government overtaxing personal or corporate income in which the government has no ownership stake in whatever it is that is being taxed.

3. It had to use a progressivity system that protects the producers from commercial strain when oil prices are low; otherwise the producers would seek development opportunities elsewhere. ACES does incentivize industry, but beware that Big Oil will always do what it does best for its shareholders: it will look out for its bottom line and always claim that it needs even more tax breaks. More power to them for trying, but resource owners deserve A CLEAR and EQUITABLE SHARE (ACES) of the value of their commonly-owned oil and gas.

ACES accomplished all three. The current criticism of this fair valuation makes no real sense. As an article at Big Government notes:

“The number of oil companies filing with the Alaska Department of Revenue has doubled indicating that competition has indeed increased. Alaska has the second most business friendly tax set-up — up two spots since the passage of ACES. Additionally, a report from Governor Parnell’s Department of Revenue indicated that 2009 yielded a record high in oil jobs. Even more recently, the newest employment numbers from Alaska show that oil job numbers were higher in January 2011 than in January 2010, indicating that jobs are growing at the seasonal level. Parnell argues that state revenues are in jeopardy, but it is estimated that his proposal would reduce revenues by $100-200 million.

Most importantly, Alaska enjoys a $12 billion surplus thanks to ACES and the sound fiscal policies of my administration.

Support for ACES with supporting links can also be found at the blog Conservatives4Palin.

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The Oil Bailout – Facts vs. Oil Company Spin

Looking to get up to speed on the facts behind the Governor’s oil tax bailout and the ACES tax structure? Here’s a compilation of recent news articles about both so you can read the  facts yourself and make up your own mind about this controversial issue.

A Tax System In The Dark

“Battle of perceptions over Alaska oil investment climate grows more complex,” Fairbanks Daily News-Miner, 03/09/11 [News-Miner]

  • Excerpt: “The investment climate is not the same for one company as another because the companies are not identically situated…Understanding these differences is important, but they have been largely overlooked in the oil tax debate. One reason for this is that the state does not have all the information it should have to shape a coherent policy. One consultant compared our situation to throwing a dart in a dark room where you don’t know which wall has the target.”

Lack of information hinders legislative oil tax review,” Fairbanks Daily News-Miner, 03/09/11 [News-Miner]

  • Excerpt: “The lack of information about what Alaska receives in exchange for its system of oil tax credits came up again today in the first Senate hearing on the governor’s plan to cut oil taxes. Without a clear understanding of what tax credits are being used for by the oil industry and where the money is going, the administration can’t justify its proposed tax cuts.”
  • Excerpt: “Lawmakers were surprised last week to find that Alaska has given as much as $4 billion in tax credits to oil companies since the incentives were first put in place in 2006. But they were stunned when they learned that state revenue officials can’t say what the money has gone for.”

“Alaska gives out $4 billion in tax credits to oil companies since 2006,” Alaska Dispatch, 02/16/11 [AK Dispatch]

“Limited Information Required On Tax Credits,” Associated Press, 3/14/11 [ADN]

  • Excerpt: “Oil is king in Alaska, the revenue source largely responsible for keeping the state running. The department itself can’t say for sure whether the current tax structure is helping or hurting industry, citing repeated changes to the regime in recent years.”

ACES Myth vs. Reality

“Oil industry boosting Alaska spending,” Juneau Empire, 11/30/10 [Juneau Empire]

  • Excerpt: “Critics of ACES, including numerous candidates running in the Nov. 2 election, said the high tax rate was stifling development. The state’s official revenue forecast, released by the Department of Revenue last week, would appear to indicate that’s not happening. Spending on oil development is increasing, and is increasing faster than projected.”

The Governor’s Plan

“Parnell plan to adjust oil taxes could cost Alaska millions,” ADN, 3/10/11 [ADN]

  • Excerpt: “By changing the calculation of oil taxes from a monthly to an annual basis, Gov. Sean Parnell’s new oil tax bill would cost Alaska between $100 million and $200 million a year, Revenue Commissioner Bryan Butcher told a Senate committee Wednesday… The money that would be lost solely through the change in calculation period is in addition to the estimated $2 billion a year that Parnell wants to save for the oil industry by lowering tax rates when oil prices and profits go up.”

“Gara blasts Governor’s oil production tax,” KINY Radio, 3/16/11 [KINY]

  • Excerpt: “Gara added that evidence emerging from this week’s hearing is not all of that money would go to oil companies. He claims $1.2 Billion will go to the federal government.”

What People Are Saying

“Cutting Taxes Will Hurt,” ADN Letter to the Editor, Rep. Les Gara, 3/10/11 [ADN]

  • Excerpt: “They’d like to reduce oil company corporate taxes by over $2 billion a year. That will exhaust the state’s $12 billion in savings in roughly five years, which means Gov. Parnell and his allies will then have to institute an income tax or cut your Permanent Fund dividend.”

“Petroleum News Interview With Rep. Paul Seaton,” Petroleum News, 3/13/11 [Petroleum News]

  • Excerpt: “That’s what the profits tax was created to do. If you reinvest your money here, you don’t have to pay taxes on it. If you take it to Bolivia or Indonesia, you’ll have to pay on the profits. It’s going to cost you money to take it out of Alaska. It has worked. The question is has there been the level of reinvestment that we want? No. Is there more investment than there was prior? Yes. That’s the data the Revenue Department came up with. Maybe some of it was maintenance. Maybe it wasn’t all drilling wells. You can always question the data. But the one thing you can say is that there is more investment now and the investment didn’t occur before.”
  • Excerpt: “We have seen no projects proposed that were slowed down or didn’t happen because of the tax rate. You’ve got Point Thomson which is a disputed unit; you have CD-5, which didn’t go forward because of the U.S. Corps of Engineers and building the bridge over the (Colville) River; you have Liberty, which was supposed to come on and be drilled, but BP is reassessing the capacity of the rig to do it safely. Every single project that has been delayed can be identified with a specific reason that has nothing to do with the tax rate.”

“Legislature: Budget bills moving but problems loom for oil tax reform,” Alaska Dispatch, 3/13/11 [AK Dispatch]

  • Excerpt: “This is nothing against the governor, he already knows I don’t agree with him on his bill,” Sen. Tom Wagoner, co-chair of the Senate Resources Committee told reporters on Tuesday. “If we’re going to continue with a bill that gives away $2 billion to the companies with no guarantees at all of how that money will spent or what work will be done with money in the state of Alaska and how many Alaskans will be hired, I have a hard time supporting the bill. I guess that’s an overall problem of mine.”
    • Excerpt: “A Jan. 18 report from the governor’s Department of Revenue provides plenty of food for thought. The producers tell us ACES will reduce investment. The report says capital expenditures in Alaska’s oil patch have increased in each of the four years since we switched to a net profits tax. The producers tell us exploration will suffer. The report says exploration is up and that development continues in three new North Slope fields. Are you recognizing a trend here? The producers tell us employment will dip, but the report says … you guessed it, jobs are up since ACES became law. One reason for that is the number of oil-related companies filing annual tax returns in Alaska has doubled, meaning competition is also increasing. Last time I checked, competition was a good thing.”
    • Excerpt: “Before ACES, Alaskans were earning about zero dollars on Alaska’s most productive fields. Even though the producers were claiming all that extra cash, exploration and reinvestment were stagnant. In fact, when the producers set world records for net profits, they chose to pay windfall profits dividends to their shareholders rather than reinvest in Alaska.

“Jobs, oil revenue increased under ACES,” ADN Compass Piece by Rep. Mike Doogan, 1/29/11 [ADN]

“Our View: Oil Taxes, Gas Line,” ADN Op-Ed, 1/18/11 [ADN]

  • Excerpt: “Critics argue that the problem with Parnell’s and similar proposals is that the only fiscal certainty they provide is that the state will lose revenue; there’s no guarantee the oil companies will ramp up exploration and production. We know what we’ll be lose, but we don’t know what we’ll gain.”
  • Excerpt: The difficulty is that, as BP’s Alaska president recently said, “It’s not always only about taxes.” The most obvious example is the price of oil, which makes an enormous difference in a company’s investment decisions…It isn’t good enough to simply lower oil taxes and hope for the best. A general reduction in oil taxes that does not work to produce greater investment in Alaska does nothing to promote a healthy long-term industry here. Conversely, any reasonable tax relief proposal that will lead to more Alaska jobs and more Alaska oil will get serious consideration from the Legislature.
    • Excerpt: “So, what can we do? First, we have to ask for smarter proposals than just lowering the share Alaskans receive for our oil. We should focus on tax incentives that lead directly to Alaska investment, and should craft tax breaks that don’t just let companies take more Alaska profits outside. For example, under a provision called “royalty relief,” we already reduce company royalty payments if they prove the tax break is needed to bring a new field, or field enhancement, on line.”

“Lowering oil taxes doesn’t guarantee investment,” ADN Compass Piece, Sen. Hollis French & Rep. Les Gara, 12/6/10 [ADN]

“Lowering taxes didn’t increase oil output,” ADN Compass Piece, Sen. Hollis French & Rep. Les Gara, 12/4/10 [ADN]