Republican Gov. Sean Parnell’s proposal to reform Alaska’s oil production tax system cleared perhaps its biggest hurdle Wednesday night as the Alaska Senate approved the bill on an 11-9 vote.
Senate Bill 21, which has been modified several times as it has gone through the committee process, received senators’ approval at about 9 p.m., after a full day of amendments and debate.
Sens. Dennis Egan, D-Juneau; Bert Stedman, R-Sitka; Donny Olson, D-Golovin; and Gary Stevens, R-Kodiak, were the senators caucusing with the Senate majority who joined all five minority Democrats in opposing S.B. 21.
The version of S.B. 21 that passed the Senate Wednesday would increase the base production tax rate from 25 percent to 35 percent, institute a gross revenue exclusion for 20 percent of new oil, create a $5 per barrel credit offset, and eliminate the progressivity mechanism that significantly increases the state take as oil prices rise.
Opponents of the bill, which has an estimated negative fiscal impact of up to $6.23 billion through fiscal year 2019 if no new production is taken into account, argued that it represented too large a “giveaway” to oil companies without any assurance that production would increase.
“We have nothing,” Sen. Bill Wielechowski, D-Anchorage, said. “We have no commitments.”
The bill’s Republican proponents pointed to declining oil production and falling state revenues, pinning the blame on the ACES tax regime adopted in 2007.
“I don’t accept decline as inevitable,” said Sen. Pete Kelly, R-Fairbanks, co-chairman of the Senate Finance Committee. “If we accept that, then we have to accept failure as our future.”
Kelly argued that by accepting an immediate drop in anticipated revenues, the state may be able to extend oil production in the long term. He added, “We’re clinging on to this decline, and we’re going to ride it down if we keep ACES.”
Several bill opponents gave long speeches criticizing it, with Wielechowski speaking for about 40 minutes during the debate on passage.
Stedman, who spoke for more than 20 minutes shortly before Wielechowski, said S.B. 21 represents a substantial improvement over previous attempts to reform the oil tax system since the passage of ACES.
“It is recognized that this has been a three-year process, and we have come a long way,” said Stedman. “We just have a few more little smaller baby steps to go, compared to where we’ve been.”
However, Stedman said that he could not support the bill, mentioning the production tax cut for oil coming out of “legacy fields” — established oilfields like Prudhoe Bay and Kuparak — as a reason.
“My concern is we are moving cash to fix a problem in that area that doesn’t exist,” Stedman said.
All but one amendment offered to S.B. 21 failed, with a 2017 sunset date for the bill’s changes to Alaska’s oil tax system coming closest to passing. The same nine senators who voted against the bill supported the sunset date, while opposing the successful amendment offered by Sen. Peter Micciche, R-Soldotna, to remove a “step down” clause that would lower the base tax rate from 35 percent to 33 percent in 2017.
“I feel there’s little evidence to support the step down to the 33 percent base tax rate in 2017,” Micciche explained in offering his amendment, which was withdrawn and reoffered after an apparent loophole was spotted by Sen. Hollis French, D-Anchorage, and corrected.
In offering the sunset date amendment, Stevens said the Senate should be able to decide whether or not S.B. 21 had succeeded before letting it become permanent.
“We’re being asked in this bill, Senate Bill 21, to trust that this enormous tax decrease will lead to more oil in the pipeline,” said Stevens. “I hope that happens. I like to believe that that would happen. But if it doesn’t, this sunset clause would offer us an escape.”
Sen. Cathy Giessel, R-Anchorage, argued that provision would create “uncertainty” that could discourage new production.
“For explorers that are out there, it’s going to take them five to 10 years, optimally seven years, to even bring a well on,” Giessel said. “Why would you take that risk knowing that the rug could be pulled out from under you after you’ve discovered and begun developing oil? This creates tremendous uncertainty for our already … challenged environment.”
Speaking next, French said, “I can’t imagine a better way to light a fire underneath the oil industry other than to put this amendment on the bill. … They’d know they’d have to put up to gain the tax breaks that they’re going to get through this bill, or else it goes away in a few years.”
“I’m not sure that what we’re looking for is to light a fire underneath the belly side of the industry that’s out there,” said Olson. “I think all we’re looking for is a good-faith effort for them to show that they are serious about putting more oil through the pipeline.”
Sen. Mike Dunleavy, R-Wasilla, suggested Stevens’ proposed amendment was unnecessary, as the Legislature already has the power to repeal or change existing laws.
“It’s my understand that we can change the tax down the road if that’s something that we want to do and it doesn’t work,” Dunleavy said.
Sen. Lyman Hoffman, D-Bethel, voted against several amendments that were offered by his fellow minority Democrats.
Senate Majority Leader John Coghill, R-North Pole, gave notice that the Senate will also hold a vote on reconsideration of the bill.
• Contact reporter Mark D. Miller at 586-1821 or at email@example.com.