Severance tax is imposed by a governing body for removal of resources from the ground.  In Alaska, the government acts as both a property owner and a governing body.  The severance tax rate in Alaska is discounted by the economic limit factor or ELF, which adjusts the tax rate depending on the production and size of an oil or gas field.
 
Several highly profitable oil fields in Alaska are now receiving severance tax reductions due to the current ELF formula.  Governor Murkowski and the Republican majority in the legislature have been promoting use of the Permanent Fund, statewide sales tax, and user fees on individuals, elimination of the Longevity Bonus and reduced deposits to the Permanent Fund principal to pay for state government.  No serious consideration has been given to a moderate adjustment of the ELF, which could raise huge amounts of revenue for the state.
 
“With falling state revenues and threatened taxes on Alaskans, now is the time to stop giving away our states oil resources”, said James Price, Vice President of a statewide fiscal watchdog group the Alaska Voters Organization.  Price went on to say, “ELF, the states “Economic Limit Factor” is a corporate give-away with no benefit to the citizens of Alaska”. 
 
One example of an ELF reduction is the projected 2005 severance tax rate for the Kuparuk River Field, the second largest oil producer in the United States.  Alaskans will receive 2.58% in severance tax, rather than the original 12.9%.  Price said, “There is no evidence that Alaskan oil producers need an "incentive" to profitably produce $30.00 per barrel oil. The facts show current incentives granted by the Legislature are not necessary. By simply stopping the give-away of our oil resources by the Legislature, the fiscal crisis could be solved”.
 

“Discussions should include modification of the current ELF formula if other taxes and permanent fund raids are to be considered as possible solutions to the current fiscal crisis”, Price said.

Several bills have been introduced that would make modest changes to the current ELF formula.  HB 441 was sponsored by Representative Les Gara and co-sponsored by Representative Eric Croft, Representative David Guttenberg, and Representative Beth Kerttula.  The senate version is SSSB 321 which was sponsored by Senator Hollis French and co-sponsored by Senator Lyman Hoffman and Senator Kim Elton.

HB 441 is currently in the House Ways & Means Committee which is chaired by Representative Mike Hawker (800-478-4950) and vice-chaired by Representative Bruce Weyhrauch (800-968-6744).  Committee members include Representative Vic Kohring, Representative Dan Ogg, Representative Norman Rokeberg, Representative Ralph Samuels, Representative Peggy Wilson, Representative Max Gruenberg and Representative Carl Moses

SSSB 321 is currently in the Senate Resources Committee which is chaired by Senator Scott Ogan (800-862-3878) and vice-chaired by Senator Thomas Wagoner (800-964-5733).  Committee members include Senator Fred Dyson, Senator Ralph Seekins, Senator Ben Stevens, Senator Kim Elton, and Senator Georgianna Lincoln

The Alaska Voters Organization Board of Directors passed a resolution in support of HB 441 and SSSB 321 at their April 14, 2004 meeting.  “With this resolution, Alaska Voters are asking legislators to address the current fiscal crisis before basic government services are disrupted and those most at risk are harmed”, Board President, Mike McBride said. 

An excellent power point presentation is available which will help citizens of Alaska understand this important issue.  It is interesting to see the impact of changes proposed by this legislation using projections provided by the Alaska Department of Revenue (DOR).  Everyone is encouraged to get informed and then contact the legislators listed above with comments and suggestions.  NOTE: The committee chair is responsible for scheduling public hearings on legislation in their committee.

A U. S. Department of Energy report that lists the nation's oil fields by size can be found HERE.

After reading this, the next time one of those expensive "feel good" oil company commercials plays on TV, everyone will know  where the money came from that paid for the ad.

Final thoughts can be found in a note by Representative Les Gara, prime sponsor of HB 441 to the people of Alaska on the benefits of modest changes to the ELF formula.