JUNEAU, Alaska — Over most of the last several decades, Alaska’s North Slope was America’s energy powerhouse. The legendary oil fields of Prudhoe Bay and Kuparuk gushed 2 million barrels a day out of the frozen tundra and down the Trans-Alaska Pipeline.
The state abolished its income tax and paid its citizens generous annual oil dividends. Then in an alliance with Democrats that enraged the GOP old guard, former Republican Gov. Sarah Palin in 2007 helped push through an unabashedly liberal tax regime that boosted oil production taxes, in some cases up to 350 percent above 2005 levels.
The legislation, the largest tax increase in Alaska’s history, was a part of the Palin story many outsiders never heard about. The “Last Frontier” largely skipped the recent recession and went into its current budget with $17 billion in the bank.
But now in a bid to hold on to revenues that are the bedrock of the state budget, lawmakers in Juneau are engaged in an intense fight over the future of oil finance, with an emboldened Republican majority moving to roll back the Palin-era tax hike by up to $5.8 billion over the next six years.
The reason: Somewhere along the way, the North Slope golden goose stopped laying. Production on the slope’s aging fields has dwindled to barely a quarter of what it was in the 1980s; once the nation’s largest oil producer, Alaska now ranks behind Texas, North Dakota and California.
Democrats are trying fiercely to hold on to the tax, accusing the oil industry of buying influence in the last state elections — two of the state’s 20 senators are employees of ConocoPhillips, and Gov. Sean Parnell, a strong proponent of the tax cut, is a former ConocoPhillips lobbyist.
The Democrats also charge that the oil industry is holding the state hostage by refusing to drill without lower taxes.
“We were just about broke in 2006. We’ve now got the largest savings account in the United States. And we’re talking about giving that away?” Democratic Sen. Bill Wielechowski argued as the Senate voted 11-9 last month to send the tax cut bill to the Republican-dominated House of Representatives.
Both sides are predicting that the state could be headed for ruin. Democrats say it will happen if the oil companies are no longer forced to pay up. Republicans warn that the real threat is a decline in production so precipitous that there will no longer be any oil left to tax.
“Our savings will have to be spent to cover the deficits, and then we’re out of money,” said Republican Rep. Eric Feige, co-chairman of the House Resources Committee, which is currently hearing the tax cut bill. “You have a fiscal cliff of epic proportions, and in about 10 years, it really puts into question whether the state can provide even the basic government services.”
Oil company executives have warned that capital is flooding to the new shale booms in North Dakota and Texas, where there is more tax certainty. The controversial progressivity component in Alaska’s taxes — which substantially raises the bill when oil prices go up — leaves companies guessing from month to month what their tax bill will be.