I have watched this year’s oil tax debate with dismay. Some of Alaska’s senators appear to be working harder to score political points than to craft wise public policy. For more than a decade, two critical issues have threatened the future of Alaska’s economy – declining oil production and unrestrained growth in state spending. For more than a decade, Alaska’s business leaders have called on our elected officials to manage these issues through a comprehensive fiscal policy addressing both revenues and spending. Unfortunately, we continue to see the same short term thinking that limits Alaska’s economic growth and prosperity for all Alaskans.
Oil production has declined by more than a third since 2006. At the same time, unrestricted general fund spending, which is financed almost entirely with petroleum revenues, has more than doubled. These two lines are going in the wrong direction, and the longer the legislature waits to turn them around, the more difficult it will be to bridge the gap between state government’s insatiable appetite for money and funds available from fewer and fewer barrels of oil.
I commend the governor for his vision of one million barrels per day down the pipeline – it’s a vision that attracts commitment, energizes people and galvanizes action. It’s the vision of a leader, and one that all Alaskans should embrace. Some of our legislators would rather poke holes in the vision than work to make it happen; claiming that production decline is inevitable and no state action can slow it down. Yet we have billions of barrels of oil still in the ground and skilled Alaskans who know how to produce it if the right fiscal policies are in place.
On the spending side, the governor’s current budget proposal reduces general fund spending by 2%, a very positive step in the right direction. However, some of the same senators who are dragging their feet on oil tax reform have announced that they plan significant increases in the state’s budget above the governor’s proposal.
Legislators who want to keep spending talk about oil tax reform as if the only outcome will be reductions in state government revenue. They seem to believe that all the other variables will remain the same – oil prices will stay high and production will continue at forecast levels despite an uncompetitive tax structure. These short term thinkers don’t calculate the bounty – not only to the state treasury, but to Alaska’s citizens and small businesses – that will come with increased industry investment and increased oil production.
It’s very difficult for legislators to have long term vision – particularly in a year where 59 of 60 legislators must run for reelection. The Senate’s oil tax reform bill appears to be designed to tick the box so they can tell their constituents they fixed an uncompetitive oil tax. Unfortunately, their bill will not move the needle to drive meaningful investment to slow or stop declining production – much less meet the governor’s million barrel challenge.
Alaska’s economy is dependent on oil production and will be for many years to come. We are in the oil business, where time horizons are long, and investments made today may not pay off for many years, if at all. We need leaders who understand the business and those time horizons. We also need leaders who can plan for the future when it comes to state government spending. Instead of focusing on maximizing state government’s take in the short term, they must focus on Alaska’s people, and Alaska’s economy, in the long term.
Some of our legislators have discounted the views of Alaska’s business leaders when we have called for a competitive tax structure to attract private investment and a rational fiscal policy for public spending. If the philosophy of increased private investment and lower government spending does not resonate with them, perhaps the hopes and dreams of future generations of Alaskans will. If our leaders believe that there are plausible alternatives to our petroleum economy going forward, all Alaskans need to see their plans.
Editor's Note: This opinion piece appeared in the Sunday, April 8 Fairbanks Daily News-Miner.