Revisiting the trifecta 10 years later: Oil production did not increase with SB 21
A decade ago, Gov. Sean Parnell signed the SB 21 oil package to reduce taxes on the oil industry, predicting the new system would “ramp up oil production in Alaska.”
It was one of the world’s most complex tax systems, but Parnell said otherwise. “It is focused on new production, is simple and balanced, and is competitive for the long-run.” He said it would “turn around guaranteed production decline.”
On May 21, 2013, he began calling SB 21 the “More Alaska Production Act,” a name invented after the fact for PR purposes.
The Alaska Ear provided what remains the sharpest political analysis of the name game, suggesting we should hold off until we saw more Alaska production from the act.
A decade has passed and we have not seen an increase in Alaska oil production. We’ve seen a decline. It is the Less Alaska Production Act.
In the fiscal year that ended last summer, oil production averaged 486,000 barrels a day, down from about 544,000 barrels a day a decade ago.
The league of SB 21 defenders have lowered the bar and redefined success from an “increase in production” to “stabilizing production” at close to 500,000 barrels a day.
But that’s not how SB 21 was sold to Alaskans. And there is good reason to believe that Alaska oil production would have stabilized near 500,000 barrels a day under the ACES tax system or the SB 21 tax system.
The long-term expert on forecasting oil production in Alaska, Dudley Platt, insisted for years that the rate of production decline on the North Slope would slow as time went on and tend to be more gradual. Platt was right.
On March 30, 2011, Parnell said his goal was to cut taxes and have Alaska oil production reach 1 million barrels a day by 2021. On another occasion, he said it would be like cutting the cruise ship tax and seeing more cruise ship passengers, a situation where he had claimed to see cause and effect.
“We are going to set our sights on 1 million barrels a day,” he told Juneau Rotarians.
He sent a letter to President Obama saying, “As a state we are doing all we can to increase responsible oil production to one million barrels per day within 10 years.” But he said the state “will not meet my goal to increase production” without opening the Arctic National Wildlife Refuge and other federal lands.
“Let's meet my goal of one million barrels a day. Let's enact the oil tax reform and spark investment and growth in Alaska,” Parnell told legislators in 2012.
The state had a “comprehensive strategy to increase TAPS throughput to one million barrels a day” that included “meaningful tax reform,” Natural Resources Commissioner Dan Sullivan and Revenue Commissioner Bryan Butcher said on Feb. 11, 2013.
During the signing ceremony for SB 21 three months later, Parnell celebrated what he called the 2013 trifecta.
First, the Alaska Legislature had cut spending to $6.8 billion. Second, lawmakers had approved Senate Bill 21 to cut oil taxes. Third, the Legislature had advanced a natural gas pipeline plan.
"We accomplished all three. That was the trifecta," Parnell said. "It was a big, big lift. Less spending, more oil production, and Alaskans’ gas for Alaskans. It involved a lot of work and hundreds of hours of study, and some action."
In the high-flying years before that declaration, legislators had stashed nearly $16 billion in reserve funds and the Alaska Permanent Fund had grown to $45 billion. Oil was selling for more than $100 and the backers of SB 21 said that more oil would be flowing in the pipeline.
Oil production in Alaska is lower now than it was when SB 21 was approved. Oil prices are nowhere near $100 and the idea of a sustainable budget of $6.7 billion is a distant memory. The gas pipeline is still a talking point. The reserves built up under the ACES oil tax regime are almost all gone, but the Permanent Fund balance has climbed to $77 billion.
The biggest loss over the last decade is the disappearance of the immense earning power of the billions taken from reserves, while the Legislature and governor refused to develop a sustainable fiscal plan.
And SB 21 did not lead to an increase in Alaska oil production.
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