Pot, oil props debated

WASILLA — Legislators, former officials and private sector workers for and against a proposed change in oil tax formulas squared off at a debate Friday.

The lunch debates, sponsored by the Mat-Su Business Alliance, also featured a debate on the topic of the legalization of marijuana.

State Rep. Les Gara (D-Anchorage) and State Sen. Bill Wielechowski (D-Anchorage) debated in favor of a “yes” vote for Proposition 1 — the oil tax measure. Former Anchorage mayor Rick Mystrom and business management consultant Neil M cCleary argued for a “no” vote.

Moderator Marvin Yoder started out by asking the opposing sides to describe the heart of the issue as if they were speaking with graduate students in political science.

The critical difference comes down to taxation philosophy, Mystrom said.

“I would tell them … let’s look at the tax philosophy of the people that support yes on 1, and figure out what’s driving them, and look at our philosophy, the no on 1 philosophy, and see what’s driving them,” he said.

Opponents to changes in regulations and tax formula — Mystrom pointed to an op-ed piece written by Sen. Wielechowski — say the three-decade period under which Alaskan oil production was governed by what is known as the Economic Limit Factor, (ELF), as an epoch of failed tax policy, according to Mystrom.

Instead, that era saw many successes. Mystrom, who was the mayor of Anchorage between 1995 and 2000, recalled capital construction projects he said made that formula a success.

Tax policy balances the needs of the state and the needs of the companies, and SB 21 strays too far in favor of the companies, Rep. Gara said.

“This is what I would tell students: You have to draw a balance between a tax policy that gives the state the ability to build schools, hire teachers, hire construction workers, maintain roads and one that also attracts investors,” he said.

A lot of Friday’s debate focused on historical comparisons.

The ELF, introduced upon completion of the Alaska Oil Pipeline in 1977, was a ratio designed set the tax rate for certain fields at zero percent at what was known as the break-even point, where oil extracted from certain fields covers the cost of operating those fields, according to background information provided by the Alaska Oil and Gas Association. This meant that as the profitability of certain fields went up, the amount of taxes did, too. This era of Alaskan history corresponds with a boom in production.

The ELF was modified in 1989 to take oil field size into account, an era known as the ELF II, which lasted until 2006, when legacy, large oil fields faced greater taxation, making them less profitable, and oil companies focused on smaller, marginal fields.

The ELF II was a failure because, while initially profitable, it resulted in lower and lower tax returns for the state, Gara said.

“When the old tax policy (ELF II) was started in the 1980s, it actually worked, but the tax rate went down every year,” he said. “By 2006, that produced 0 percent return of 15 of the 18 oil fields on the north slope.”

“Just giving money away doesn’t work,” Gara added. “It didn’t work then.”

Beyond the timeline of oil taxation in Alaska, supporters of either side disagreed over whether the Department of Revenue’s predictions for declining production from North Slope fields took SB 21 into account or not. A spring 2013 projection showed less oil production, thought it wasn’t immediately clear whether or not that was stemming from SB 21. “No” supporters, like McCleary, say the fall 2014 update will include the impact of SB 21.

“They don’t include that stuff in an update,” he said. “You have to wait until the fall. That’s when the bottom’s up. That’s when SB 21 impacts will be felt.”

Figures have already taken that into account, and the projected decline amounts to 40 percent, Gara said.

“They didn’t sit down three months ago and say ‘Give us a prediction from two years ago,’” he said. “They’re not dumb, and they came before the legislature and said ‘This is the most accurate forecasting methodology we’ve ever had.’”

In addition, opponents to Proposition 1 say it would effectively undo the work of the legislature in the creation of a natural gas line, while supporters say the two issues are unrelated.

A Proposition 2 debate focused around marijuana legalization was relatively short of financial projections, but didn’t lack for emotion. Both sides accused the other of ad hominem attacks, and both sides effectively said principles outweighed potential on-the-ground facts derived from earlier legalization efforts in Colorado and Washington state, where a clear statistical picture has yet to emerge.

For opponents, like Tim Woolston, legalization could lead to greater availability for children. The black-market apparatus used to sell marijuana presently will simply shift to younger users, Woolston said.

“This is the commercialization of an industry that will advertise products, many of them in packages that are appealing to kids,” he said.

Proposition 4 contains provisions allowing the legislature to adopt and implement standards for the product’s availability, said “yes” vote partisan David Shurtleff.

“It’s not like you’re going to wake up Nov. 5 and there’s going to be a marijuana shop down the street,” he said.

Concerns about the black market were overblown, Shurtleff said. He cited alcohol as an example.

“When was the last time someone here bought alcohol on the black market? Or cigarettes?” he said.