Tax Policy Influences Business Decisions
Juneau Chamber of Commerce
Governor Sean Parnell
February 19, 2012
Thank you, and good afternoon, Juneau Chamber of Commerce. Thank you, Sheldon Winters for the introduction. It’s great to be back here.
Speaking of winter…it is gone! It’s April in the Capital City. And the weather has been so good, this is a time to take a walk on Sandy Beach with your dog, and get your boat in the water. And time to get ready to welcome the many visitors who bring a huge jolt of cash into our local Juneau economy.
Speaking of visitors, the Legislature fully funded my request for tourism marketing to bring more of those independent travellers to Alaska’s local businesses. And cruise passenger traffic is expected to increase by about 100,000 visitors over the next two years, further evidence that tax policy drives business decision making.
I’d also like to highlight at least one of our legislative initiatives – a boost for small businesses and entrepreneurs. That’s our microloan bill to provide critical access to capital for entrepreneurs and start up businesses, as well as mariculture business owners, and halibut charter fishermen.
Startup business owners have a tough time getting these small loans from banks, and considering how important small businesses are to our economy, this is something we’ve been pushing for three years – and finally got it through. And we’re very happy about that.
And I’d also like to mention Representative Cathy Munoz’ very important legislation that will allow municipalities a lot more flexibility in creating tax incentives for certain developments. Rep. Munoz’ work will be a big help to Juneau in making more housing available here, and other communities will benefit by having more tax flexibility. Good job, Cathy!
On Juneau Access: The Department of Transportation and Public Facilities is in the
middle of the draft Environmental Impact Statement process, and should have a final done in 2013, and a decision from Federal Highways.
As for the road to Cascade Point, I am told that three-mile stretch of Glacier Highway will open to the public this July, and paved next year.
The Juneau delegation was successful in their budget work, as well:
- Aurora Small Boat Harbor work
- Glacier Highway reconstruction (Starting from Fritz Cove Road)
- Marine Highway System funding for deferred maintenance, regular maintenance, and a funding start on a second new vessel
- UAS dormitories (Banfield Hall)
- UAS Mining Workforce Development
And of course, you have likely already seen the news on building pieces like money for the State Library and Archive Museum -- SLAM -- and the Fish and Game building renovation.
Most of these appropriations are funded by oil from our legacy fields: A steady stream of black gold fueling our economy for decades.
Hold that thought until I come back around to how an oil tax reduction leads to new production.
From a statewide perspective, one of my biggest priorities is education. You could call this the Education Session.
The single greatest achievement in this area has to be that Alaska Performance Scholarships are now fully implemented! This is historic and several years in the making.
In 2010, Alaska Performance Scholarship criteria was established—and included a rigorous curriculum. In 2011, $400 million was set aside to fund it.
And this year we were able to create a separate fund, called the Higher Education Fund, put that $400 million into it, and set the payout criteria. Two thirds goes to performance scholarships and one third goes to needs-based grants under the Alaska Advantage program.
We also we made significant improvements in public safety. Let’s turn to our initiative to end the epidemic of domestic violence, sexual assault, and child sexual abuse.
On the primary prevention part of our Domestic Violence and Sexual Assault Initiative, one key element is the Choose Respect March:
And I want to thank all of you, my neighbors here in Juneau. Thank you for taking part in the Choose Respect march last month.
When we stand up with our signs, and when people hear our message, and when they see our rallies against domestic violence, rape, and exploitation, it gives people courage to get help.
This effort is helping individual Alaskans: I hear from them, and they are encouraged, and strengthened by our support.
Also in the area of prevention, I was so pleased to learn about Coach John Blasco’s Coaching Boys to Men approach out at Thunder Mountain. It’s an approach I want to see permeate the state. That will be the next step -- to grow cultures of respect throughout the youth sports teams of Alaska.
That covers some of our prevention efforts—but better enforcement in the criminal justice system has its role as well.
Every community must be protected, but not every community has a law enforcement officer. I made a commitment to put 15 Village Public Safety officers in each budget I was in office and the appropriate trooper support behind them to meet the law enforcement needs of communities that have no VPSO presence.
We’ve doubled the number of these officers across the state in the last five years, from 46 to more than 100. We’ve added trooper support, too. And this year, true to my promise, another 15 VPSO positions were added.
We’ve also strengthened the criminal justice arena in other ways.
This year the Legislature passed my legislation creating stiffer penalties for criminals who target the state’s most vulnerable citizens, our elderly.
And I have asked the Legislature in special session to finish its work on HB 359 to crack down on human trafficking.
Sex trafficking and human trafficking is invisible to most casual observers. Most of us don’t even think through how girls and sometimes boys, mostly runaways, are being entrapped in what has for years been known as prostitution, but today we refer to it as trafficking.
Girls, and sometimes boys, are being lured into the trade, which the Executive Director of Covenant House Alaska describes as “a calculated torture.” I call it modern day slavery, and we ought to treat trafficking as the serious felony offense it is.
Transportation and Infrastructure
Three years ago, I started a five-year Deferred Maintenance Program. And the Legislature has approved $100 million each year that I’ve asked to continue “Taking Care of What We’ve Got.”
In addition, our Roads to Resources funding passed, opening opportunities for responsible development, including upgrades to the Klondike Highway out of Skagway.
Oil Tax Reform
And so that brings us to one of the topics driving the Special Session: Oil Tax Reform.
The challenge is this: In March, average Alaska North Slope production slipped below 600,000 barrels a day. It’s on a steady decline with no new production on the horizon.
And, at prices over $80 per barrel, Alaska’s tax regime works against us. At $80 per barrel and higher, companies can take their profits somewhere else to invest and get a greater return on their investment than here.
The question is, are we going to settle for status quo decline, or are we going to create a more competitive investment climate to bring about more production over time?
To me, the answer is self-evident, but I have run into a bit of a headwind.
I proposed HB 110 last year. The House took it up, made changes to it and passed comprehensive tax reform for new fields and the existing legacy fields last year.
At the end of this session, the Senate, passed legislation that does give some hope for operators in new fields, but they did not address meaningful tax reform for existing legacy fields—those fields currently producing like Prudhoe, Kuparuk, and Alpine.
In doing so, the Senate said a change in tax policy could induce more drilling in new fields, but they so far have failed to extend that same logic to existing fields.
I called the Legislature back into special session to address what the Senate did from a comprehensive position.
In other words, the Senate finally admitted that tax policy actually does influence business decision making—but they said that was so only for new fields.
So I took that Senate logic, and put forward a blended proposal between the House and Senate position, but addressed it to both new and existing fields. If tax policy can influence business decision making in new fields, then why doesn’t that same logic apply to existing fields?
Some will say, “In producing fields they are going to produce that oil anyway.” But that is just not true. And that argument reflects a fundamental misunderstanding of oil reservoirs.
Most people think that where there’s a pool of oil, the companies simply drain 100 percent of it. However, companies can only economically drain a percentage of an oil reservoir. The rest of the oil in the rocks and sand is too costly to get at compared to the return on their investment dollars -- especially, where oil can be recovered more easily and cheaply elsewhere in the world for greater return.
Take viscous oil and heavy oil on the North Slope. There is a lot more of it to be had, but right now it’s too costly to recover, as we have the some of the highest government take in the world here.
Really, all I’m asking of the legislature is to apply the Senate’s methodology and logic in a comprehensive fashion to both existing and new fields. It’s not enough to say we can get only new production from new fields while sending the message that more of Alaskans’ oil can remain locked in the ground in legacy fields.
The goal is to make Alaska competitive again, bring in billions of dollars of new investment, jobs, and hundreds of thousands of barrels of new production---that’s good old-fashioned opportunity for Alaskans.
Gasline: Natural Gas—HB 9
We’ve seen more progress this year than virtually any other in Alaska’s history on getting Alaskans gas to Alaskans and markets beyond.
- Point Thomson Resolution—requiring the companies to produce hydrocarbons from fields that should have been producing long ago.
- Alignment of companies who hold our leases along with a pipeline builder and operator on a project in Alaska to tidewater in our state.
- The final piece to keep us on track this year is contained in HB 9, a bill that is part of this special session.
- And finally, I’ve asked lawmakers to pass legislation that will get Alaska’s gas to Alaskans and markets beyond.
HB 9 would give the Alaska Gas Development Corporation the tools it needs to hold a viable open season in the second and third quarter of 2013. And, it brings ANGDA under its roof—further consolidating Alaska’s gasline efforts to two converging paths.
The first group I mentioned was comprised of TransCanada, British Petroleum, ConocoPhillips, and ExxonMobil. And this path to a gasline project is being driven by the Alaska Gasline Development Corporation.
If the Legislature fails to pass a version of HB 9 that empowers AGDC to successfully conduct an open season in the second or third quarter of 2013, they will set back gasline plans by one to two years.
I’d like to leave time for questions. Thank you!
# # #