I confess I have a Conflict of interest –in 1968 after school and the Army, the oil patch brought me to Alaska – and gave me and my family the chance to live the American dream. I want – we all want -that same chance for our kids and future generations that same chance to realize their dreams.

In that context, we are here today presumably to talk about Alaska’s oil taxes. Bill Evans past Anch Chamber Chair wrote a beautiful column about one year ago on Alaska oil tax policy. He said that when it came to discussing and choosing between all of the pros and cons of Alaska ‘s arcane oil tax laws he deferred that choice saying “in the words of Forrest Gump, “I am not a smart man”. He then brilliantly came to the core question that Alaska faces in determining taxation is a matter of “character”. He said that is what defines the relationship with our long term partners and they must judge us exactly as we judge them.

He continues on saying when you enter a partnership you need confidence in the character of your partner and our tax policy should be evidence of our character as a state: we afford opportunity and reward hard work. We encourage and support private sector investment, that we do not confuse the wealth of our state with the size of our public bank accounts, and the we do not look upon the success of our partners as opportunities for harvest.

These are clear common sense values not heard in today’s noise of political sloganeering of “giving gifts or selling out”.

Let’s take Bill’s measure of character as a first step and build upon it a platform of necessary steps that must be taken for the goals that we are poised to achieve.

It’s really not that complicated and despite the voluminous consultant’s reports there is really less there than meets the eye.

Let’s start with the first goal both parties agree we need to achieve – more oil production. Governor Parnell set the right agenda for Alaska when he brought the focus to “more production” That is the goal for industry and the state.

And why is more production the goal. Well as we wallow in an embarrassment of riches that can seemingly fund every good and bad idea we can dream up in the long winter nights there is a train wreck about to take place. We are about to enter the world of spiraling down budget deficits. Again Governor Parnell has consistently brought this to the attention of lawmakers and Alaskans.

Remember back in 1998 back when oil was 9$ a barrel? As Governor during that period we knew even at a price that barely covered the lifting cost production was the key to struggling out of that ocean of red ink. Yes we cut the budget, but the top priority was working with the legislature and partnering with the industry to engage in an aggressive program of new oil development by renegotiating the long dormant Northstar lease, working with ARCO to open Alpine, and the Feds to open the first lease sale in a generation in NPRA, and reforming area wide lease sales. ARCO’s slogan during that period was “no decline after 99” and in fact new production leveled off the Prudhoe Bay curve for the first time in a decade.

If it works at an oil price that is at the bottom of the barrel, how much easier it should be at the astronomical price of today.

Yet , since 2002 when we were producing a million barrels a day that production has dropped 40% to the current production of around 600k barrels a day - and is continuing to drop at the rate of 5% a year. And twice the tax rate has been dramatically increased. Within three or four years even at the present high price we will face a deficit budget dramatically growing each year. Higher prices may add a couple of years but with the decline there is the inevitable crash and ladies and gentlemen I have seen - and you have seen - over the edge of that disastrous precipice. life in the great land will be far different than it is today as the production nozzle slowly but inevitably turns off to a point where the price of oil doesn’t matter. So production is the key – no ifs, ands, or buts.

To get more production we need to have the resource and here again there is common agreement that after 50 years of steadily improving technology and hard work, the resource is there. It may be more difficult to produce, more challenging to access, and will take substantial investment to bring on line but we all agree -- the oil is there.

So we all agree that we have the resource and we need more production. What’s the next step? Well there are only two moving parts that the state and the industry control – taxes, investment. And here again its pretty simple who does what. The state as the sovereign entity legislates the taxes for the maximum public benefit of the resource. The industry makes the investment and takes the risk for their profit on production. The forces of the market that are at work show the higher the tax and the states revenues the lower the investment and future production. Conversely the lower the tax and revenues for services, the higher the investment and production. The question is where is that sweet spot that maximizes the mutual benefits as opposed the mutually assured destruction zone that either side can commit. It’s not rocket science --- it’s political science.

If the choice is either a confiscatory tax or walking away from investment in Alaska I am reminded of that movie image of Mel Brooks’ Blazing Saddles where the Sherriff in facing down the outlaws in a gunfight points his pistol to his head while announcing “take one more step forward and I’ll shoot”. The alternative can provide a far more acceptable result. Using another movie metaphor we are at the point where the warden in Cool Hand Luke is tell the recalcitrant prisoner Paul Newman “What we have here is a failure to communicate.”

Looking back in our political history we can find a similar situation where the communication among Alaska leaders of far different positions worked and found that sweet spot called a “fair share”.

In 1981 then Republican Governor Jay Hammond pulled together a historical press conference with himself the Speaker of the House Jim Duncan and the President of the Senate Democrat Jay Kertulla and party leaders from both side of the aisle and bodies of the legislature, Ed Dankworth, Don Bennet, Sam Cotton, and Hugh Malone, and declared in no uncertain terms their joint decision in arriving at what they had determined together was Alaska’s fair share of revenues. It was at a time of then record high oil prices of $35 a barrel and production was at 1.5 million barrels a day and growing.

There loomed a huge fight of forces wanting both higher taxes and lower taxes. Jay Hammond and the legislative leaders – before the details were determined -decided that Alaska’s fair share would be no less than a roughly one third one third one third split with industry, the state, and the federal government. With that decided Jay also noted that a mutually fair share would also bring stability and for almost twenty years this model led to more revenues, more investment, and more production. It was a tough judgement call by good Alaskans – and it worked.

The percentages today are far different with an existing tax regime that overall has the state share at more than sixty percent of total revenues and increases dramatically at the margin with higher oil prices. Yet I believe the Hammond model of determining a unified Alaska position of a fair share, based upon stability, mutual incentives, and - yes character – can provide a resolution with long term benefits.

We are in the perfect position for that to happen. The Governor and legislative leaders have determined there must be a change and there has been an extraordinary amount of work by the Administration and legislatures. While arriving at different position now is the time to commit that the next step is a unified Alaska position on a fair share. Once that is done the details will fall in place. Once again we are calling on our leadership to break the deadlock with a judgement call.

So what is our role – its not to sit back and watch. The critical pressure is not to pick a number or a bill for our support or enter the fray on credits, taxes and investments but to demand that there must be a unified Alaska position on a fair share. – and don’t come home without it.

It’s way too easy to blame the other guy and fall back on talking points. This is an election year and serendipitously every legislative seat is up. We will never have more people power than now and this is Alaska’s number 1 issue. The Governor needs our support – the House Speaker needs our support – the Senate leadership needs our support by us saying you must work out a solution. I don’t mind that there are strong differing opinions. What I do mind is if they have an inability to close the deal. To the first one who wants to fold their tent and call it quits, what do we say? Make it meaningful and don’t come home without it!