CSHB 488 (RES) Testimony Before House Finance Committee

April 1, 2006

For the record, my name is Tadd Owens.  I am the executive director of the Resource Development Council.

Thank you for the opportunity to comment on the CS for House Bill 488.

RDC is concerned with applying a significant tax increase on the one industry responsible for nearly 90 percent of the state’s general fund revenues.

The PPT tax as conceived in the CS will add hundreds of millions of dollars at current prices to a state budget already experiencing a revenue surplus.  There has been little discussion of how this money will be managed over time.  Does the promise of additional revenue mean state government will simply grow to fit the new projected surplus?  Conversely, what provisions are being made for periods of lower prices?                                           

In our view the legislature must focus on two issues when considering the new tax structure.  First, what system will make Alaska a competitive place for capitol investment for the next several decades?  Only through significant new spending will Alaska’s oil patch remain vibrant and Alaska’s coffers healthy.

Secondly, will the new system contribute to budgetary stability or will it exacerbate our historical pattern of revenue peaks and valleys?  We believe the new tax system should place Alaska at a competitive advantage in terms of attracting capitol and we believe efforts should be made to address the issue of long-term revenue stability.

RDC recognizes there may be structural issues with the current ELF system that warrant revision.  However, the original version of HB488 doubled the industry’s effective tax rate and the Legislature hardly batted an eye.  In fact, the body seems intent on driving the state’s total take ever higher.  RDC fails to see how taking an additional $1 billion annually from the industry will encourage the levels of investment Alaska needs to maintain a healthy oil business.

RDC’s members are concerned the CS focuses too greatly on short-term revenue generation at the expense of long-term investment.  Rather than begrudging the industry for making money, we ought to create a system that ensures the long-term profitability of operating in Alaska.  A profitable oil and gas industry equates to economic opportunities for Alaskan firms, jobs for future generations of Alaskans and a healthy revenue stream to state government.

Thank you for the opportunity to provide comments on behalf of the Resource Development Council.