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Former UA president says oil tax reform need to secure Alaska's future

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Posted: Saturday, March 12, 2011 3:53 am | Updated: 1:56 pm, Wed Dec 26, 2012.

FAIRBANKS — Former University of Alaska President Mark Hamilton delivered a grim forecast for Alaska’s economy during a speech Friday in Fairbanks, saying the state needs to revamp its oil tax structure to ensure its future prosperity.

Speaking to a crowd of more than 300 people at the Fairbanks Princess Riverside Lodge, Hamilton said the current tax is driving away investment in Alaska oil fields. In a state that relies on oil for a majority of its revenues, he said there’s danger on the horizon if that trend isn’t reversed.

“Here’s the bottom line,” Hamilton said. “No oil, no jobs, no future.”

Hamilton has delivered the message throughout the state this month on behalf of the Make Alaska Competitive Coalition, a group of business officials, labor leaders and politicians. The organization, which said it accepts no money from Big Oil, hopes to put pressure on the Legislature to pass a revamped oil tax this session.

The current tax system was passed in 2007 under former Gov. Sarah Palin. The decline in Alaska oil production began long before that — it’s dipped from about 2 million barrels per day in the late 1980s to about 600,000 barrels per day — but Hamilton said the tax structure is bad for investment and makes it unrealistic the trend will change.

The rally made repeated references to North Dakota, “where the industry is welcome and the industry is booming.”

Alaska collects nearly twice as much in royalties on a $100 barrel of oil as North Dakota, Hamilton said. He said Alaska’s tax rate is near the highest among oil-producing areas, making it inevitable oil companies would invest elsewhere before pursuing projects on the North Slope.

“We are absolutely an outlier,” Hamilton said. “We are not in the game when it comes to oil taxation.”

The numbers bear that out, he said. Eighteen exploratory wells were drilled in Alaska in 2007, and the number has dipped each year since. Only one exploration well is expected in 2011.

Hamilton said the most persuasive political argument against oil tax reform is Alaska is raking in enormous revenues off the current structure, resulting in big state surpluses.

But he said those gains do little to achieve long-term stability, and the mature response is to balance short-term gains with new development.

Tables at the event were filled with tools for lobbying the Legislature and Gov. Sean Parnell to push ahead with a restructured tax.

A form letter, awaiting a name and address, thanked Parnell for introducing a new tax plan. The Greater Fairbanks Chamber of Commerce collected cards from people who agreed the tax structure should be amended. Cards with contact information for the 11-person Interior legislative delegation were placed in front of each seat.

Hamilton said Parnell’s tax plan has been unfairly criticized because it doesn’t require any pledges from oil companies to invest their savings in Alaska during a time of enormous profits. Hamilton said that criticism is an unrealistic view of the way companies operate.

“This is business,” he said. “There are no guarantees.”

Hamilton acknowledged federal drilling limitations also hurt the prospects for new development, and said that hurdle needs to be overcome. But with 5 billion barrels of oil beneath Alaska — and as much as 30 billion more in heavy crude — Hamilton said the state will quickly become attractive again if it taxes at a competitive rate.

“We’ve got the oil,” Hamilton said. “That’s our competitive edge.”

Contact staff writer Jeff Richardson at 459-7518.

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