Will Reducing Oil Taxes Spur Production? The Critical Question in Alaska's FY 2014 Budget Process

Abstract

Among western states, Alaska is the most dependent on oil/gas taxes. In late 2012 and early 2013 the its counter-cyclical economy puttered along while oil production (taxes from which provide 87 percent of the state general fund budget) continued to decline. The main fiscal issue during the 2013 legislative session was oil severance taxes, with Governor Parnell making his second attempt (with Republican support) to lower them in hope that the industry would increase its investment in the state, thereby increasing production. A solid Republican bias on the state's redistricting board led to the electoral defeat of Democrats in the Bipartisan Working Group that had fouled the governor's previous attempt. In April 2013 the legislature adopted the governor's plan. Inter-branch and government-public discussions about the operating, capital and supplemental budgets were generally congenial, with a decline in growth of the operating budget and a significant cutback in the capital budgets.