Alaska’s oil taxes from ELF to SB 21

Rep. Bill Stoltze has been on House Finance through the tax battles; thinks ACES went too far, has supported changes to that tax

Steve Quinn

For Petroleum News

House Finance Committee Co-Chair Bill Stoltze has had a front row seat to all of the state’s oil tax debates since 2006 when the Legislature addressed the first of three oil tax regime changes in seven years. The Chugiak Republican held the vice-chair seat when the Legislature changed the state’s tax regime known then as the Economic Limit Factor, ELF, to the Petroleum Production Tax, PPT, in 2006.

A year later, he held that same seat when the Legislature rewrote PPT and put Alaska’s Clear and Equitable Share, ACES, in place. Stoltze supported rewriting PPT, which was drafted under a heavy cloud of political corruption.

Like many in the Legislature who favored ACES, Stoltze sided with Gov. Sean Parnell’s efforts to rewrite ACES, believing the 2007 law went too far.

In April, with Stoltze serving his third term as the Finance Committee co-chair, a Republican led Legislature passed Senate Bill 21, but the debate never died. The bill’s opponents have collected 51,000 signatures toward getting a referendum on next year’s primary ballot to overturn the new law.

Stoltze, who has held a seat on the Finance Committee since he began serving in 2003, discussed these developments with Petroleum News.

Petroleum News: You have a new law, yet the issue and the debate on oil taxes won’t ease up. When ACES passed, there were people who were upset, but there wasn’t this kind of response. Why do you suppose this still has such momentum?

Stoltze: I think it’s different because you have a lot of vested interests. You have the Democratic Party. You have some aspects of the government, organized labor and environmental groups. There are people who have a vested interest in spending money. For some reason in Alaska, I don’t know all the ingredients that make it, there seems to be a visceral attitude toward the largest employers — some of the largest segments of our economy — by large groups of folks. It’s not unnatural, but I think oil taxes have been a debate since they first started.

Petroleum News: You’re known to interact with constituents a great deal — and even others outside your district. What have you heard from them?

Stoltze: For all the signatures that have been gathered, I haven’t had interaction with people who have approached me and real contention with the tax reform. At least not that I know of, but it’s possible with the volume. But I’m out a lot. I can tell you that. I don’t stand in front of a grocery store or a used bookstore and tell a story, or the folks who sell the camping goods where the CEO of that outfit (REI) is the Interior secretary (Sally Jewell).

I was expecting within my constituency, there would be some contention. It’s been not just a majority but a preponderance of folks who said we’re glad you did something. We needed to do something with the economy. And not just with the oil taxes. They said, we’re glad you guys actually buckled down and did something.

I was expecting criticism and that includes all around my district. I’m out at a lot of events. I spend a lot of time in Wasilla and I spend a lot of time in Palmer. People I don’t know stopped me in grocery stores and said, “You’re Bill Stoltze.” Then it follows in the discussion, “I’m glad you finally did something.”

I suspect there may be other discussions in other areas because a lot of people signed the petition. I just haven’t felt that feedback in my district and I’m out trying to get it.

Maybe it’s happening in a different part of Alaska. I’m confident my district got the 7 percent to sign. I would see one of my constituents out getting signatures and we never discussed the issue. I suspect he knew where I was on the issue and how I voted. We’ve always been very cordial to each other. One time I did have (political activist) Ray Metcalfe come up to me and ask if I was a registered voter. Then he walked by. I’m not sure if he was goofing around, but he didn’t recognize who I was and that was fine with me.

There was an awareness that status quo was not acceptable. They weren’t always sure if this was the exact right thing to do, but we needed to do something. I don’t think I’m so isolated in my district that I haven’t had the feedback that others have heard or tried to stir up.

I would purposely go out in large areas. I welcome people stopping me and talking to me in the grocery store or the post office. I have a pretty good assurance the people who do come up to me are in my district.

Petroleum News: Does that tell you you’re representing your district in a way that accurately reflects its voice?

Stoltze: Maybe so. Maybe my district is different from the folks with the signature gatherers planted around them. Even so, at one point polling showed that the Mat-Su Valley was very skeptical of the industry. I didn’t find this out until after the fact of the tax bills. I don’t really follow polls that way. But I was told about it afterward. So there has been a shift back from seven or eight years ago. I think a lot of it has had to do with job loss, slowdown in the economy and losing contractors and things like that. Some part of the reality has hit the wall.

Even so, I was still expecting a haranguing on the tax bill. Some people had questions about it. You have to trust certain economic realities. I have not had people beating up on me on this one. It’s been the other way. Those who aren’t certain, they see that at least we are trying something different.

Petroleum News: What’s different about this debate than the initial tax reform debates about changes?

Stoltze: I think the biggest thing is when ACES went through it was probably the most substantive change going to back to when taxes were originally debated, and it’s probably the most substantive when you’re starting from ground zero. Most of the changes were done, not in committee but on the Senate floor without a lot of debate and without a lot of analysis. We know one thing it did. It brought a lot of money to the treasury. The second thing is we haven’t had substantial production since then. If you’re looking for just revenues, it was the appropriate decision. If you’re looking for a sustainable economy, it’s been disastrous. I would say ACES and the manner it was done — the reason it was a take-it-or-leave-it approach — because it went to the last day of the special session. There were a lot of dynamics that forced a take-it-or-leave-it scenario. I was one who voted for it back then and subsequently I’ve been an advocate to fix what we did in that hasty session.

Petroleum News: Do you regret that vote? It was tough to vote against the governor (Sarah Palin) at that time.

Stoltze: I supported the original change. I guess I regret that we didn’t have enough time. I wish it had gone to a conference committee like issues often do. It did during PPT; it went to a conference committee. It’s hindsight, but I wear glasses on my face and hindsight isn’t much good. Do I think I made the right decision? No. That’s why I spent these years advocating readjusting the tax formula.

Stoltze: I supported some of the changes and like things often do with a legislative body, things do get out of hand. It got away from the focus. I’ve repeated it either in committee or on the floor subsequently that I was trying to fix what I believe was a mistake that I was a part of. I’ve been pretty candid about that for multiple years.

Petroleum News: What do you like about SB 21?

Stoltze: It’s a tradeoff. You’re trading short-term revenue for more stability in the long-term. No government official involved in budgeting likes uncertainty. I do like longer-term certainty. I won’t call it a bet or a wager. In an economy you have to ask what’s your choice going to be? Clearly we could continue to take high revenue for a few years or we could try to have a sustainable economy. I don’t know anything else that is going to replace oil, not even gas. It’s really not a bet or a wager; we didn’t have any choice if you’re looking at the long-term sustainability of the state. In fact, the state, the state government, the state economy, oil touches all of it.

Petroleum News: Is there any particular provision you liked about the bill?

Stoltze: I think the strongest part of the bill is that it supports market economies and business reality. I have as much faith in it as I do in our free-market system and what the realities of a market economy are. There are some intuitive things in play here. We have a tax policy and we haven’t had a production boost. Our tax policy has more impact and transformative effect on behavior than anything else. We are trusting how the free-market economy and the world economy works. We want to be a participant in it, and I think we had to adjust to that.

Petroleum news: The governor believes if the referendum reaches the ballot, it will have a chilling effect on investment. Do you agree?

Stoltze: It creates uncertainty. What will they make investments on? Existing state law or will the oil companies wait for the outcome of the public referendum? The referendum process is a valid and constitutionally provided mechanism. But we have to look at what the result is. We have the ability as citizens to repeal what the Legislature did. I have dual roles, as a citizen and as a legislator. I don’t think it helps us out having the industry waiting to see what the outcome is and lose another season.

Petroleum News: The Legislature has overturned the voters’ voice in tourism, changing what the voters called for at the polls. Is there a sense in the Legislature the voters have made mistakes and they need to change them, meaning things like this should not be in the voters hands?

Stoltze: I’m very cautious. I voted for some of the changes to the cruise ship initiatives. It took multiple years. But we’ve also repealed state laws that have been poorly drafted or had negative consequences. I suspect if the voters overturn this, they are voting to decide on short-term revenues and not be as concerned for the long-term health of the industry. That’s what the advocates Mr. Gara (Rep. Les Gara) and Mr. French (Sen. Hollis French) and others are speaking toward. I don’t have a lot of taste or like the idea of overturning initiatives or the idea of referendums. My goal is to convince voters that we are heading in the right direction with this change. It’s like getting out of credit card debt. It’s a painful process. You’ve got to change some behaviors and wants and needs. State government has to realize we are heading toward a new era and we need to focus on the long term, not short-term gratification.

Petroleum News: Along with oil tax reform, on the budget side you’re addressing that as well, right?

Stoltze: This is not irrespective of what happens with the fall of 2014 decision on short-term revenues. We’ve got to continue and maybe accelerate our approach on spending and reductions. Otherwise, it’s not sustainable.

Petroleum News: You have other resource development issues that come to your committee, such as natural gas pipeline. The Legislature recently approved the pursuit of a small-diameter line and $300 million-plus state backing? So now you have two projects getting state assistance, the small line and a large-diameter line for LNG export. What would you like to see in advancing a pipeline project?

Stoltze: As opponents of the legislative initiative and the governor have talked about, they are both hoping this (small line) brings the parties together. That is one of the things I sure hope happens.

Petroleum News: Would you like to see the state begin negotiating fiscal terms, such as taxes? Some still have hard feelings over the Murkowski administration’s negotiations.

Stoltze: Fiscal terms are a part of any realistic expectation, especially as the Democrats have grabbed a line — the big line — that’s going to speak to fiscal terms. They had better make sure their rhetoric on the big line matches with what’s probably an expectation a big line needs in certainty. It’s a better function for the executive branch to deal with the companies. It makes more sense than having a collective effort to try to do it. We have a strong executive. It’s more practical. All the mechanisms are focused on the negotiations. That ought to be ongoing. It’s part of any potential success and I think it’s a necessity.

I would like the executive branch to see if there are terms in the best interest first of Alaska, and proceeding with this project and that will also give the business community the willingness and certainty to want to be a participant. All of those things have to be together.