The Alaska Dispatch today carries a story on the North Slope employment study commissioned by the Senate Finance Committee last week. According to the story, the study is to analyze “North Slope oil field hiring practices in an effort to figure out whether it’s true that the coveted jobs are not going to Alaskans and why.”
The study may produce interesting data, but the story raises a concern about how at least one Senator intends to use the data the study produces. The article reports that the study and related hearings that Senator Dennis Egan (D-Juneau) plans on holding are “aimed at getting oil industry officials and workers to shed light on the existing situation [the apparent underemployment of Alaska workers on the North Slope] and how it can be improved. Otherwise, it makes no sense for the state to give away state money when it is getting no new jobs in return, he said.”
“Why are we giving them more tax breaks when we are already giving them billion in tax breaks when they’re not employing Alaskans,” he said. “It doesn’t make sense.”
The Senator is wrong. It does make sense — actually, it makes a lot of sense — to continue working on oil tax reform even if the results of the study disappoint. The State of Alaska makes money off of oil production, not jobs. Alaskans pay no income tax, little to no sales tax and relatively small property taxes. On the other hand, roughly 90% of state government general fund revenues come from oil royalties and production taxes, both of which depend on oil production. No production, no government revenues.
As this page and others have continually reported over the last couple of years, Alaska oil production is in steep decline. See, for example, yesterday’s post on this page — “Alaska Oil| A Better “Picture Worth A Thousand Words.” And as this page and others have further reported, a significant contributor to that decline is the current fiscal structure applicable to Alaska oil. See “Its our oil … but its their investment” (Mar. 2010), and “Alaska’s Economic Future Is At Stake,” (Nov. 2009).
Simply stated, the share of oil revenues state government is taking is so high, oil companies are investing development dollars other places than Alaska. Reduced investment, reduced development, falling production.
As a consequence, what is important in evaluating whether oil tax reform is appropriate is whether it will lead to a production response. If it does, good for Alaska; if doesn’t, then Senator Egan may be right, tax reform may not make sense.
The jobs issue, however, is separate. Even if all of the North Slope jobs were performed by out of state workers, tax reform would still make compelling sense if it produces a production response. Not only does state government depend on production, as Scott Goldsmith of the University of Alaska – Anchorage’s Institute for Social and Economic Research has pointed out, up to half of the current jobs in the state also depend directly or indirectly on oil production. It would be foolish to jeopardize those existing jobs — and the livelihood of those existing Alaskans — as punishment for not keeping even more in the state.
Don’t get me wrong. Personally I strongly favor Alaskan’s filling additional North Slope jobs and support studying the issue to determine whether there are steps the state or industry can take to do a better job of achieving that goal. I certainly value the importance of industry paychecks to the small and medium business owners that populate our state.
But, let’s not mix apples and oranges. Whether to make changes to Alaska’s approach to oil taxes should turn on whether reform is reasonably likely to lead to a production response. Whether oil tax reform also results in an increase in Alaska jobs is a good issue to raise, but should not determine the outcome.
Printed also in Alaska Dispatch, Commentary (Aug. 11, 2011) (http://www.alaskadispatch.com/article/north-slope-employment-study-useful-not-determinative).