A hard-headed accountant from Sitka delivered the best explanation for why Alaska needed to raise the minimum oil tax—the single most important feature of Ballot Measure No. 1.

Sen. Bert Stedman alerted Alaskans to one of the critical flaws with SB 21 on April 9, 2014, saying the bill was tantamount to a “going out of business sale.”

He said the 4 percent gross tax, which applies at low prices, created a giant risk for the state.

“The state’s risk exposure increases as oil prices drop,” he said.

This was four months before an effort to repeal SB 21 narrowly failed at the polls, buried under the weight of an oil company propaganda campaign similar to that deployed by the companies in 2020.

During the debate on SB 21 in 2013, legislators and Gov. Sean Parnell’s staff spent almost no time worrying about oil prices far below $100 per barrel.

Prices below $80 per barrel were discussed as a remote possibility, and there was a great deal of discussion about prices of $110 per barrel and $120 per barrel.

Anyone who talked about oil prices below $50 per barrel would have been laughed out of the room.

You don’t hear any laughing now and many Alaskans don’t realize the SB 21 oil tax system was designed with much higher oil prices in mind.

Oil is now selling at $42 a barrel, a price so low that it was not included on many of the SB 21 charts and graphs presented in projections made in 2013.

At these oil prices, the gross tax applies, not the net profits tax that applies when oil is about double what it is today.

In 2014, oil prices dropped in half after the SB 21 repeal failed, which meant the 4 percent gross floor tax came into play. It was designed to guarantee that the companies paid some sort of production tax when prices were not high enough to trigger the net profits tax.

During the legislative debate over oil taxes, the Republican majorities in the House and Senate rejected efforts to raise the floor above 4 percent. Democrats proposed a higher minimum tax and so did Stedman, one of the most knowledgable legislators on oil tax questions.

“As the price of oil goes down and the credits go up, we need a higher minimum tax to protect the state’s share of its resource wealth from our legacy fields on the North Slope,” Stedman said.

The Alaska Oil and Gas Association said there should be no minimum tax at all, claiming, as it does with every tax on every occasion, that the 4 percent tax drives away business.

Stedman’s bill would have raised the minimum tax from 4% to 15% of gross value, though he said the exact number would be determined by further review.

There was no further review.

Consider Ballot Measure No. 1 would raise the minimum tax to 10 percent at current prices, a form of further review that legislators refused to perform. The minimum tax would rise to 15 percent at oil prices of $75 per barrel.

Approval of the ballot measure raising oil taxes may be the only way to require that the Legislature includes oil taxes as part of the fiscal plan the state has needed for years and must create in 2021 or else.

The ballot measure can be amended by legislators in the future, a safety valve that removes much of the alleged risk the companies claim, while also allowing voters to express their views on the need to include oil in any fiscal plan.