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Alaska House passes oil tax overhaul

Published on NewsOK Modified: April 14, 2013 at 5:32 am •  Published: April 14, 2013
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JUNEAU, Alaska (AP) — On the Legislature's last scheduled day, the Alaska House approved an overhaul of the state's oil tax structure, with supporters hopeful it will lead to more production but critics fearful it will be ruinous for the state's budget.

"We are making history tonight," House Minority Leader Beth Kerttula, D-Juneau, said.

The 27-12 vote shortly after 2 a.m. Sunday followed hours of debate and now shifts attention back to the Senate, which passed a different version of the legislation by one vote last month and now must decide whether to agree to the House changes with just hours remaining before the Legislature is supposed to adjourn.

The initial vote Sunday was 24-15, but Reps. Alan Austerman, Paul Seaton and Cathy Munoz, majority members who originally voted against it, changed their votes.

Rep. Les Gara, D-Anchorage, said the bill isn't likely to work and passage will cause Alaska's economy to tumble over a fiscal cliff that the legislation will create. Rep. Eric Feige, R-Chickaloon, said the state will face a grim future if it doesn't take the bold step of cutting taxes.

"It's something we have to do," Rep. Pete Higgins, R-Fairbanks, said.

If the Senate doesn't agree to the House changes, and the House doesn't back off its changes, the issue would go to a conference committee.

The Senate recessed Saturday night to allow members to listen to the House debate, Senate Majority Leader John Coghill said. It could be midday Sunday before the Senate takes up a possible vote, he said, to allow time for senators to talk to consultants and make sure they understand whatever bill comes over.

Heading into the House debate, Senate President Charlie Huggins expressed confidence lawmakers would finish their work on time. Also still outstanding Sunday were the state operating and capital budgets.

Gov. Sean Parnell proposed cutting oil taxes as a way to increase production and investment. He and other supporters say the current system is out of whack and the state cannot stand by and do nothing as production continues to decline. Alaska relies heavily on oil revenues to run, and while production has been on a downward trend since the late 1980s, higher prices in recent years have helped mask the budget impact. The existing tax structure was put in place in 2007.

Critics of the legislation say they want more production, too, but call the bill a dangerous gamble that gives too much to oil companies with no guarantees of what Alaska will get in return.

"If we do nothing tonight, we're going to get nothing," Rep. Tammie Wilson, R-North Pole, said.

Kerttula said she was convinced the debate was not all about tax rates but a history of a monopoly on the North Slope. Alaskans deserve a fair share from the state's resource, she said.

Rep. Doug Isaacson, R-North Pole, said it was bankrupting Alaska to say the state needs the maximum price for its oil.

The House voted down 12 proposed amendments after it began debating the bill Saturday afternoon, including linking credits to certain levels of production and putting time limits on tax breaks.

The lone successful amendment was billed as a cleanup of language related to credits in an area outside the North Slope and Cook Inlet.

The House version of the bill includes a 35 percent base tax rate and $5 allowance per taxable barrel of oil produced. That credit would apply to what would be considered new oil and production that also would qualify for a 20 percent tax break known as a gross revenue exclusion. Certain units comprised exclusively of leases with higher royalty rates, and those not getting royalty relief from the state, could qualify for a 30 percent tax break.

Under the bill, administration officials have said they expect the vast majority of Alaska's legacy fields would be subject to a 35 percent base rate and a per-barrel allowance on a sliding scale, higher at lower prices, zero at higher prices, around $160.

A consultant to the administration has said the plan would make Alaska "far more" competitive for investment dollars. According to that consultant, Barry Pulliam, the effective tax rate on the net value for oil that doesn't get a gross revenue exclusion would be about 25 percent at $100 oil and about 30 percent at $120 oil. The effective tax rate for higher royalty oil that gets a 30 percent gross revenue exclusion would be about 11 percent at $100 oil and 14 percent at $120 oil.

"Race to the bottom if you want," Gara told colleagues on the House floor Saturday night. "I hope you won't."

Rep. Mike Hawker, R-Anchorage, said that's only part of the picture. There's also government take, he said — the "split of the barrel." Pulliam estimated average government take under the bill for existing oil producers between fiscal years 2015 and 2019 would be lower than what passed the Senate last month at $100 oil and less, but higher at $110 oil and above, up to 67 percent at $150 oil.

A fiscal analysis suggested the bill could cost the state up to $4.7 billion through 2019, based on a revenue forecast that calls for a continued net decline in production and oil prices between $109 and $118 a barrel through that period. Such analyses have been billed as a worst-case scenario, given the goal behind the tax-cut plan is to increase production. The analysis did not include changes made in committee.

Critics fear the fiscal impact could be far higher given the relatively small band of prices on which the analyses have been based. Parnell has proposed a five-year plan that calls for reduced spending and use of up to $700 million a year in savings to help absorb the near-term hit.

Three members of the House majority joined minority Democrats in voting against the bill: Reps. Bryce Edgmon, Neal Foster, Bob Herron, all Democrats.

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Follow Becky Bohrer on Twitter at http://twitter.com/beckybohrerap.

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