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Governor Submits Plan to Increase Production

Protects Alaskans Against Falling Oil Prices

January 15, 2013, Juneau, Alaska – Governor Sean Parnell today submitted legislation designed to increase oil production and attract new investment. The bill was developed with four guiding principles, which Governor Parnell reiterated earlier this month:

  • Tax reform must be fair to Alaskans
  • It must encourage new production
  • Oil taxes must be simple so that they restore balance to the system
  • A tax structure must be competitive for the long term

“Alaska’s North Slope is rich with oil,” Governor Parnell said. “We have billions of barrels of proven reserves in existing fields, with billions more in resources yet to be discovered. Below ground, we are resource-rich. It’s above ground where the challenge has been. We do not have a tax system at high oil prices that creates opportunity for economic growth.”

Compared to current law, Governor Parnell’s legislation better protects Alaskans at lower oil prices, and substantially reduces the risk to the state treasury by restructuring the credit system. It simplifies the tax system by eliminating the monthly “progressivity tax,” restructuring tax credits, and maintaining the flat, base tax rate of 25 percent. The legislation encourages new production by focusing incentives on actual oil production.

The current progressive tax rate structure creates highly variable tax rates, and limits the upside for investors at high oil prices. Additionally, the generous tax credits currently allowed for capital expenditures support spending by companies, but not necessarily spending that leads to new production. In this fiscal year alone, the cost of tax credits will exceed $1 billion, exposing the state to material financial risks. These aspects of the state’s fiscal system combine to encourage short-term spending, while discouraging long-term investment in new production.

“Encouraging new production by lowering tax rates and simplifying the current system will promote growth in the economy and provide a more stable and long-term revenue stream for the state,” Governor Parnell added.

The governor’s bill and transmittal letters will be available tomorrow. A fact sheet on the governor’s proposed legislation is available at:
http://gov.alaska.gov/parnell_media/resources_files/factsheet_011513.pdf

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