By Governor Sarah Palin
November 05, 2007
I rolled out Alaska's Clear and Equitable Share (ACES) plan, defining reality for legislators and Alaskans: our current oil valuation system, PPT, is of unreliable origin and we have devised a way to fix it.
The fix is ACES, as it was originally proposed.
Here is a reality: PPT was born out of failed gasline negotiations between the previous administration and oil companies. The administration was desperate for a gasline deal - seemingly at any cost. As a result it compromised the original plan's 25 percent tax rate. It included giveaways for past investments. And it left the state without needed tools to protect our interests and enforce the new tax law.
PPT failed to deliver on its fiscal promises by failing to secure an equitable share of our non-renewable resources for Alaskans.
When legislators were presented with the proposed tax legislation last year, they were constantly told that PPT was the gateway to a natural gas pipeline, and were warned they'd jeopardize the prize if they strayed too far from the "deal."
Nevertheless, legislators made changes to the deal they were handed, but unfortunately, were forced to make decisions based on faulty assumptions. The data they had to rely on didn't reflect the reality of North Slope costs. That data impacted virtually every oil and gas decision made by the 24th State Legislature, especially the compromised tax rate.
Keep in mind that the original oil tax rate recommendation was 25 percent. That's the same rate we are recommending in ACES. It has been reviewed by numerous economists with worldwide oil and gas experience. There is no dissention - 25 percent is the right number.
ACES remedies shortfalls we've uncovered in PPT, including tools needed to protect Alaska: clearer rules, tough auditors and better information. Most importantly, with our 25 percent value component, ACES provides Alaska with an equitable share of our valuable non-renewable resources - resources being sold for us at a premium.
The State of Alaska is currently the largest investor on the North Slope, having paid for 50 percent of all investments in 2007. Yet our share of net revenue, including royalties, property and corporate income tax, was about 40 percent. The "equitable share" component in ACES narrows this gap. Sticking to a tax rate of 25 percent helps accomplish that.
In rolling out ACES, I knew lawmakers would want to "turn knobs" on my fiscal plan to reach the same goals in terms of revenue and positive investment climate created by ACES. That's part of the lawmaking process.
But if one knob is turned, for example on lowering our proposed gross floor tax, then it's imperative to turn another knob to recover an equitable share when oil prices soar. A disparate array of specialists, hired by administration and legislators, agree that if the legislature wants to eliminate our gross floor component, progressivity must be more aggressive.
One of the key knobs in my plan is the progressivity knob. Progressivity is the additional share we capture when oil prices and profits are high. I chose to set the progressivity knob at a relatively low level in exchange for more security when prices are low. We accomplished this through a gross tax floor at our legacy fields. If the Legislature chooses to discard that floor, then the knob on progressivity needs to be set higher - to make sure we capture a more equitable share when prices are high and profits extraordinary.
The reality is we are a state
very rich in natural resources. Currently, we do not receive
fair value for our resources as they're extracted and sold for
us, at a premium, to very hungry markets. My administration and
the 25th State Legislature have an opportunity to build a tax
structure that is clear and equitable. That's what we get with
Received November 02, 2007 - Published November 05, 2007
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