I believe the most important vote since statehood will occur this August. Alaskans will be asked to vote on Measure 1, a referendum to repeal Senate Bill 21, which was passed in 2013. After much study and debate, SB21 rectified the extremely complicated and highly progressive tax structure known as ACES, Alaska’s Clear and Equitable Share. What SB21 was intended to accomplish is already working. Oil companies have announced billions of dollars of new investment. Drilling activity is up, which will stem the critical decline in the pipeline flow. Private business and confidence is up. It is not a major giveaway as people who oppose Senate Bill 21 continue to portray. It is an investment in our future.
So why do some people want to repeal the current tax policy? Pedro Van Meurs, a noted oil consultant hired by the Legislative Budget and Audit Committee, may have identified why when he said “there is a dependent relationship of Alaska on three major oil companies, which creates resentment among some Alaskans.” To some degree that resentment may be understandable as Alaskans tend to be independent people. However, it is those companies that have invested billions in our state and which has given us the benefits we enjoy, such as a good school system, roads, buildings, harbors, airports, our great university, and a permanent fund. Yes, it is our oil, but only they with their considerable resources and technology could have developed the fields. Now it is going to take much more investment and technical expertise to develop the marginal fields and get the pipeline flow up. The current flow rate is low, and if it falls much lower, we are in trouble. One-third of all employment and 90 percent of state government are funded by the flow.
A legislator is quoted as saying that the oil companies will never leave the state or shut down the pipeline, as they have a fiduciary responsibility to protect their capital investment. I think that statement is a dangerous assumption and is indicative of a lack of understanding by some on how corporations function. Any business must protect its capital investment but only as it affects their ability to be profitable and stay in business. The corporate directors’ real fiduciary responsibility is to provide a return to their shareholders. Public corporations are legally mandated to make prudent decisions to protect their shareholders’ investment. The major oil companies are public corporations with thousands of shareholders, including 401(k) and fund investors like Alaska’s permanent fund and retirement systems.
Much of the individual shareholders’ interest is represented by investment institutions. Those institutional investors keep their customers by how they invest their customers’ money and how good the stocks performs. As the major oil companies are multinational corporations, they must look at the best place to risk their capital for the greatest return. And they do have options.
A privately owned company does not have the same restrictions as a public company but nevertheless must make prudent decisions to stay in business. A graphic example is the recent announcement of the forthcoming shutdown of the privately owned Flint Hills refinery. Despite repeated requests for relief from a premium tax on the state’s royalty oil, not charged to other users, and requests for help on the cleanup of a chemical spill not caused by Flint Hills, it fell on deaf ears. State officials were non-responsive and thought they could stick it to the deep pocket. The full adverse effect of the closure to the community, including on the Alaska Railroad, Golden Valley Electric Association and the Petro Star refinery, are yet to be determined. Let’s hope we can find a way to keep the refinery open.
We can continue to debate whether our tax system is too high or too low, but in the final analysis, it is whether Alaska’s tax policy is stable and competitive with other areas so companies large and small will continue to invest.
Before Senate Bill 21 rectified an onerous and complex tax policy, companies were looking elsewhere. Now there is renewed interest, and it is showing in the activity. We know it will take time and much more investment to improve the pipeline flow, but our economic future and quality of life are much more secure.
Maybe our grandchildren can have a future in Alaska. Let’s be smart and keep Alaska competitive. Please join me in voting no on Measure 1.
Richard Wien is a lifelong Alaskan and businessman. He lives in Fairbanks.