Today, every qualified Alaskan is $878 richer, thanks to the wisdom of Alaskans 36 years ago when they voted to save some of the state’s massive oil wealth for the day the oil runs out.
I am pleased to say that I cast one of the yes votes.
As supporters wrote in the statement in support of the constitutional amendment to create the Alaska Permanent Fund: “just as a wise family saves for the future, Alaska should ‘set aside a rainy day fund to benefit this and future generations of Alaskans.’”
The creation of the permanent fund was a bold step to support the principles set forth in Alaska’s constitution to ensure that Alaska’s natural resources benefited current and future generations.
Oil has been the greatest of these resources and has poured more than $170 billion into state coffers since it first entered the trans-Alaska pipeline in 1977. Oil has provided an average of 85 percent of unrestricted state revenues during the past 35 years, and last year it accounted for 92 percent.
This massive dependency on oil to take care of our basic needs should worry every Alaskan, because North Slope production is plummeting and the investment we need to slow the decline is going to places like North Dakota and the Gulf of Mexico.
The reason is our extraordinarily high production tax called Alaska’s Clear and Equitable Share. Under ACES, the state takes a larger percentage of oil revenues through progressively higher tax rates as the price of oil increases. So the higher the price of oil, the larger the state’s share.
That might make good sense, except that ACES goes much further than most every other place in the world. The total government marginal share in Alaska at current oil prices — including all state taxes (severance, property and income), royalties and federal income taxes — is approaching 90 cents on the dollar.
That’s a huge disincentive to invest the dollars we need to increase production and fill a pipeline that’s three-fourths empty.
North Slope production is declining and that decline will continue without new investment. Oil production peaked in 1988 at 2.1 million barrels a day. In 2011, oil production fell to an average of 582,842 barrels per day. North Slope production has fallen by more than 140,000 barrels per day since ACES passed. At the same time, state spending has grown 60 percent, setting us on a course that is unsustainable.
Compounding the problem is the fact that, as North Slope fields age, it becomes more difficult and technically challenging to produce new oil. Drilling a new well now costs three to four times what it used to cost. This comes at the same time that maintenance costs are skyrocketing.
Investments in oilfield development normally would go up as oil prices go up, as they have in every other oil province in the United States except Alaska. But in Alaska, most of the benefit of higher prices is consumed by Alaska’s high taxes, so Alaska cannot compete for increased investment.
In North Dakota, for example, the total government take in taxes and royalties to the landowners is 55 percent. Right now, it’s about 85 percent in Alaska. That’s why people are leaving Alaska and going to work in North Dakota. In return, production is up more than 200 percent in North Dakota, up more than 20 percent in Texas and 18 percent in the Gulf of Mexico.
In 1976, Alaskans said yes to the following constitutional amendment: “At least 25 percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the state shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law.”
The permanent fund now totals more than $42 billion, fueled by $13.7 billion in dedicated oil deposits, including $914 million from last year alone.
Alaskans have the opportunity to cast another monumental vote Nov. 6 when they decide if the state Senate continues its path towards economic Armageddon or if we reform our oil taxes so our children and grandchildren inherit an Alaska fueled by a vibrant oil economy.
This is one of the most important elections Alaska has faced. That’s why I’m voting for more oil, more jobs, a stronger economy. I’m voting for oil tax reform and I hope you do, too.
Richard Wien, a lifetime resident of Fairbanks, owns a local business and has been active in community affairs for many years. The son of aviation pioneer Noel Wien, he has had an extensive career in that field as well.