Don't buy the hype, gas reserves tax makes sense for Alaska

Vic Fischer/Spectrum

Vote yes on Ballot Measure 2. The gas reserves tax will be the best leverage that the state will have to get gas production going.

The oil industry has spent millions in advertising against the proposition. That, alone, should make you wary. So be very, very wary.

This initiative does not mean the end of the gasline. Instead, it gives Alaskans a tool to compel the producers to negotiate. It taxes delay by the producers, so its effect will be to speed construction of the pipeline.

Accusations that the initiative could add $10 billion in upfront cost are totally fallacious. The reserves tax does not add anything to the cost of the pipeline project, as the cost of steel, labor and engineering is not affected by the tax.

The proposed tax falls only on the holders of gas reserves at Prudhoe Bay and Point Thomson. It affects Exxon, BP and ConocoPhillips as holders of those reserves. If the producers build the pipeline, as contemplated by the Murkowski administration, the cost of their pipeline will not increase due to the tax.

The reserves tax does not fall on the gas pipeline, regardless of who builds it. Both major gubernatorial candidates say they are open to all pipeline proposals. If TransCanada, MidAmerican (Warren Buffet), the Alaska Natural Gasline Development Authority (Southcentral spur line), the Alaska Gasline Port Authority and Sempra (the All-Alaska project), and/or other entities build the line - this tax does not apply to them.

Without the initiative, the producers can refuse to sell gas, as they have in the case of the Alaska Gasline Port Authority. With a reserves tax looming over them, producers cannot effectively refuse to sell gas - at market value - to another entity.

Thus, the reserves tax can provide effective leverage to the state to get gas production going, provide jobs for Alaskans, and develop a new source of revenues for the state.

There is another reason, a very basic one, to dismiss the polemics against Ballot Measure 2 - and that is found in Alaska's Constitution. It provides a way for the reserves tax to be effectively applied.

Under the Constitution, an initiative is a law enacted by the people. Ballot Measure 2 is an initiative put on the ballot by the signatures of close to 50,000 Alaskans. The Constitution states:

€ An initiative law becomes effective 90 days after certification;

€ The law may be amended by the Legislature at any time:

€ An initiative may be completely repealed after two years.

If voters approve Ballot Measure 2, the initiative law takes effect in February. Thus, while the reserves tax cannot be repealed until 2009 at the earliest, the law may be amended during the very next legislative session. Amending an initiative law is not unprecedented; such laws have been changed before, most recently with respect to aerial wolf hunting and campaign financing.

Authority to amend is particularly important in the case of the reserves tax measure. Various adjustments can be expected after Proposition 2 comes into effect.

For example, the tax could be held in abeyance while pipeline negotiations are under way. Or the tax can be suspended until gas sales contracts are executed, or held off until gasline construction starts.

Having the tax, even if it's held in abeyance, will pressure the producers to sell the gas if another entity builds the gasline. And if the producers are to construct the line, the existence of the tax will speed its completion.

Conclusion. Again, the gas reserves tax can provide effective leverage to get the pipeline built and gas production going, provide jobs for Alaskans, and develop a new source of revenues for the state. It will do no harm.

So yes, vote for Ballot Measure 2.

Vic Fischer is professor of Public Affairs at UAA's Institute of Social and Economic Research. He was an elected delegate to Alaska's Constitutional Convention and served in both the territorial Legislature and the state Senate.