“BOTAX”

Dave Harbour

Glen Biegel

Lawyer’s oil & gas tax scheme threatens Alaska’s economy

(.PDF of this commentary here: Footnote Version & Clean Version like this w/o footnotes.)

By

Dave Harbour and Glen Biegel

First, let’s get some ‘housekeeping’ out of the way on the proposed oil tax initiative.  Then we’ll explain why all Alaskans should be concerned.

Alaska Lieutenant Governor Kevin Meyer recently certified a voter’s initiative petition application entitled “An Act relating to the oil and gas production tax, tax payments, and tax credits.”  Attorney General Kevin Clarkson refers to this initiative application as “19OGTX”.  The lawyer advocating the initiative prefers to nickname it: the “Fair Tax Act”.  For important reasons we’ll make clear to readers in this opinion piece, we will use a more accurate acronym, “BOTAX” (“Brena’s Oil Tax”).

Meyer’s letter to the BOTAX initiative applicant and major advocate, lawyer Robin Brena, says the proposed initiative uses the required form with a sufficient number of qualified sponsors.  Brena followed the process.

The Department of Law reviewed the application to approve Brena’s voter’s initiative to increase oil taxes.  The Attorney General confirmed that the application (i.e. filed back on August 16) is substantially in the required form, and includes a sufficient number of qualified sponsors, as outlined in AS 15.45.070.  Again, Brena knows Alaska’s process and he followed it.

Should Brena and his allies obtain sufficient statewide signatures supporting the newly approved initiative application, voters could find this major tax act on next fall’s general election ballot.

Attorney General Clarkson’s formal opinion focuses heavily on the filing requirements over the substance of Brena’s petition.  Clarkson did not, therefore, oppose certification of Brena’s application to sponsor a voter’s initiative.  But Clarkson’s 13 page opinion did describe the legal chaos that could arise should voters convert Brena’s BOTAX idea into law.

Clarkson identified many practical and legal flaws in Brena’s proposed BOTAX.  He said, “…the language of the bill is difficult to interpret and raises a number of implementation and constitutional questions (Note: Emphasis added in this and the following paragraph).  The bill does not follow normal drafting conventions and does not clearly identify what statutes it is seeking to amend or create, while also stating that the new laws would go into effect ‘notwithstanding’ any existing laws to the contrary.”

“… It is also likely to lead to litigation”, he stated, “over the meaning of various provisions and questions of equal protection, due process and the delegation of authority to Department of Revenue.”

Brena’s questionable craftsmanship seems certain to invite legal turmoil and lawsuits.  We believe that citizens should not get within 10 feet of anyone standing in front of a grocery store with a clipboard, asking for our signature.  If passed, we believe BOTAX would ultimately benefit lawyers and anti-development causes but hurt citizens, just like “ACES” (i.e. Alaska’s Clear and Equitable Share was Governor Sarah Palin’s, now repealed and revised, progressive production tax that replaced Alaska’s more predictable 15% severance tax).

As Clarkson concludes, “….However, none of these issues amount to legal grounds to deny certification of the initiative.  Instead, these are mainly post-enactment concerns.

In our opinion, “post-enactment concerns” are frightening and will likely include:

  • A big, new, faulty tax is sure to sour Alaska’s relationship with our oil partners
  • We’ll experience a new era of lawsuits, project delays and unemployment.
  • Company investors will look elsewhere to invest and create jobs
  • As with ACES, we’ll end up with less oil in the pipeline
  • Since oil development provides the lion’s share of state tax revenue, we will see less long-term revenue to the state
  • Alaska’s economy – at least 1/3 dependent on oil – will struggle even harder to recover from recent years of high “ACES” oil taxes and low oil prices

Companies deciding to invest in a place consider every possible risk and benefit, including a primary risk accompanying an unstable tax and regulatory climate.  Most importantly, an economy with a lot of expenses and only looking to one industry to solve a budget gap is the definition of an unstable tax and regulatory climate.  Good faith investments in Alaska can rapidly devolve into regrettable mistakes and bankruptcy for our investors.

Typically, oil and gas states change taxes and regulations with great care, accompanied by public hearings, legislative action and the signature of a Governor.  Brena’s BOTAX, like earlier “voter” initiative and legislative attempts to create an oil or gas “reserves tax”, brings in an unstable fiscal climate that repels investment and renders a state an unreliable partner.

BOTAX, like any major restructuring in the middle of ongoing production, should expect lawsuits.  As some lawyers circle in like wolves, we’d see the state spending millions taken from state programs to deal with BOTAX lawsuits.  We’d see oil and gas partners defending before their boards why they should continue to invest in Alaska rather than a place where the laws might be more predictable.  We’d see environmental activist groups using the new act to stall the resource wealth production that Alaskans need, our Constitution encourages and upon which the Statehood Compact depended.  We believe new investment will dry up (i.e. as it did with passage of the so called “ACES curse”), making it harder for any republican or democrat mayor, legislator, or governor to create sustainable budgets.

Undisciplined Alaska government budgeting over the years has led to years of unbalanced budgets, unrestrained spending and negative credit ratings.  Poor money management, therefore, is no excuse for hopping on Brena’s bandwagon, thereby making our high oil tax state even less competitive.

In his letter, Meyer promises Brena, “The Alaska Division of Elections will prepare petition booklets for circulation throughout the state. 19OGTX sponsors will have one year to file the initiative petition from the date notice is given that the petition booklets are ready.”

We must admit that, intended or by accident, “BOTAX for lawyers” may be an act of strategic brilliance rather than bumbling, legal craftsmanship.  Brena has created a flawed law benefitting lawyers via a voter’s initiative that environmental and social activists throughout the state may help promote FOR FREE — with the State funding the printing costs!

Here’s a question for each of us.  Should we enact the higher taxing and more confusing BOTAX initiative at a time that endangers our slowly improving economy?

After reviewing the Attorney General’s opinion, we believe our fellow citizens will rightly come to consider BOTAX an unproductive and confusing lawyers’ enrichment act.  We hope most Alaskans will conclude that this attack on Alaska’s loyal investors should not be called the “Fair Tax Act”.   After all, Alaska’s oil taxes are among the highest.  Our producers have paid — over 4 decades — for 80-90 percent of state budgets that fund roads, bridges, schools, municipalities, airports, ports and so much more.

When local and imported clip board activists, from here and abroad, ask us to sign Brena’s BOTAX petitions, remember the anti-drug counsel of a beloved, former First Lady, “Just Say No”.

Here are some useful reader references:

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About the authors:   Glen Biegel, a well-known Alaska radio current events host, frequently invited Dave Harbour to appear on his program.  Harbour is a retired state regulator, university vice president, gas pipeline executive and energy industry writer.  The authors have no financial interest in providing this voluntary public interest opinion piece.  Contact: Glen Biegel, 360-2674; Dave Harbour, 227-7110.

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