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Parnell removes oil taxes from special session

Associated Press Modified: April 25, 2012 at 10:45 pm •  Published: April 25, 2012
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JUNEAU, Alaska (AP) — Gov. Sean Parnell on Wednesday pulled oil taxes off the Legislature's special session call, saying the Senate "appears incapable of passing comprehensive oil tax reform."

The stunning decision came just one week into a special session intended to deal with three issues: oil taxes, an in-state gas line and human trafficking bills.

The trafficking bill was taken care of last week, so that just leaves HB9, the pipeline bill. Senate President Gary Stevens said Senate leadership would meet Thursday morning to discuss what they want to do with the measure, which is in the Senate but faces a tough road.

Parnell's announcement on a 6 p.m. TV news broadcast came amid mounting criticism of his bill and what some lawmakers, particularly senators, saw as an inability of his administration to adequately defend its plan.

Parnell's bill borrowed from a proposal the Senate passed during the last weekend of the regular session, providing a tax break, or "production allowance," for the first 10 years of production from new fields on the North Slope. But it also cuts taxes for existing producers and allows tax incentives for well-lease expenditures, provisions more in line with HB110, a tax-cut bill he pushed last year that stalled in the Senate.

His proposal faced skepticism, if not outright rejection, from senators from the start of the special session. Some saw it as nothing more than a repackaged version of HB110. A legislative consultant this week said it takes an approach that winds up giving oil companies "quite a lot" of money for projects that are economically viable today.

Sen. Lesil McGuire, R-Anchorage, who said she agrees philosophically with Parnell on the need to make Alaska a more competitive place for industry investment, last week called the plan "half-baked" and told Revenue Department officials she didn't think they understood the ins-and-outs of the bill.

"And we all know it's going to end in a train wreck, and now it's just a matter of who gets to be blamed for it, and I think that's silly," she said.

The Senate spent two months during the regular session delving into the oil tax issue, but an overhaul of Alaska's tax structure stalled in the Senate's bipartisan majority during the last days. A major stumbling block was how best to address legacy fields like Prudhoe Bay and Kuparuk, the mainstays of Alaska's oil industry, where production has been declining.

One of the concerns was with giving too much money to oil companies, particularly for oil they would have produced anyway.

Sen. Bert Stedman, R-Sitka and co-chair of the Senate Finance Committee, said before Parnell's announcement that he felt that lawmakers increasingly were moving away from tax breaks for legacy fields. He said if there was a choice between Parnell's plan and nothing, it would be nothing.

Parnell, in a statement, said, "Given the hardline position of some in the Senate against increasing production from both existing and new fields, the Senate appears incapable of passing comprehensive oil tax reform."

Sen. Bill Wielechowski, D-Anchorage, learned of Parnell's decision while at the gym. He said it's "factually untrue" to say senators had taken a hardened position, noting that the Senate had passed a bill intended to encourage new-field oil. Parnell, he said, "completely and utterly failed to make his case" for a broader tax break.

"I'm a little disappointed and surprised the governor gave up on the people of Alaska," Wielechowski said.

What all this means is it could be a year or more, given the upcoming legislative elections, before the Legislature tackles the tax issue again.

The end goal of the oil tax debate has been to produce more oil. Alaska relies heavily on oil revenues to run, but production has been declining, and high prices have helped mask the decline in recent years.

While not everyone agrees the current tax structure is broken, there had been a growing recognition — particularly on the Senate side — about a need to address progressivity. Alaska's tax system features a base tax rate of 25 percent and a progressive surcharge triggered when a company's production tax value hits $30 a barrel. That's been a main complaint of the industry, especially at times of high oil prices.

Earlier Wednesday, industry officials testified before the House Resources Committee that Parnell's plan represented a meaningful change. The committee, in conjunction with the House Special Committee on Energy, had been delving into the specifics of Parnell's tax-cut plan and trying to understand its implications.

"Meaningful" has become the buzz word in the oil tax debate but it means different things to different sides.

Revenue Commissioner Bryan Butcher, in an interview about 24 hours before Parnell's decision, said things hadn't gotten to a point where there seemed to be "no hope of it passing. That may very well be the case but that's not the way we've been working forward yet."

When asked what would happen if the bill stalled, Butcher, the public face of the tax plan before legislators, reiterated that dealing with oil taxes remains Parnell's top goal.

"It's the future of Alaska, and if something substantive doesn't happen in this special session, I would imagine we're going to continue to take the time and figure out what the best way to go forward is," he said. "However, the issue is still of vital importance to the state, and it's still something we're going to be focused on trying to get accomplish."


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