JUNEAU — Gov. Sean Parnell’s plan to cut oil production taxes cleared a key legislative committee Tuesday, but it faces long if not insurmountable odds in passing the full Legislature before next month’s scheduled adjournment.
The House Finance Committee voted 8-3 to advance the bill to the full House for consideration, and a vote is expected this week. Support in the committee split on party lines, with Republicans arguing that change is needed to address decline in oil production and Democrats branding the bill a corporate giveaway with no guarantees the state will get anything in return.
The bill is a top priority of the House’s Republican leadership. Assuming it passes, it will go before a skeptical Senate where its prospects of passage seem dicey, at best.
On Tuesday, Sen. Bert Stedman, co-chair of the powerful Senate Finance Committee, said he doesn’t believe that lawmakers have all the information they need to make a sound policy decision.
Among other things, he said there’s a lack of available information on how existing tax credits are being used. There’s also a lag in audits of oil companies’ tax forms dating to 2006 — when the state was under a different tax regime than it is today, he said.
Senate President Gary Stevens said the administration hasn’t done a good job justifying the need to change the tax structure. He said there’s also been a disconcerting lack of assurances from industry that they’ll invest more if taxes are cut.
“It all seems to be a hope, a wing and a prayer,” he said, adding later that the Senate won’t be rushed in making a decision on the issue.
Oil provides nearly 90 percent of Alaska’s unrestricted revenue, and Parnell’s plan could cost up to $2 billion a year in revenue, according to estimates released by the Department of Revenue Tuesday that assume a worst-case scenario of no new production through fiscal year 2017.
Revenue Commissioner Bryan Butcher said he couldn’t imagine things getting to that point, or the governor and Legislature not tinkering with the tax again if it wasn’t encouraging new and additional development.
The tax, which has been in effect for less than four years, has a 25 percent base rate and progressive surcharge triggered when a company’s net profits top $30 a barrel. The idea behind it was that the state would help companies with credits on the front end and share with them in the good times, when oil prices were high.
Parnell said the biggest complaint he has heard from industry pertained to the surcharge. He proposed changing how it is calculated and capping it. The bill that passed out of House Finance sticks with that idea. It also puts a limit for how long companies can be taxed at a lower, 15-percent base rate and sets a sunset on certain credits.
Democrats sought unsuccessfully to gut or otherwise make changes to the bill. Rep. Mike Doogan, D-Anchorage, proposed putting a 2014 sunset on Parnell’s plan, to allow lawmakers to reassess the situation in a few years. But Republicans noted that some provisions of the bill don’t take effect until 2013 and concerns were also raised that a timeline would add uncertainty to the investment climate.
Parnell and House Republicans reject characterizing the bill a corporate giveaway; the administration sees it as correcting a tax system that’s too far out of whack, and Rep. Mike Hawker sees it as an investment in the state’s long-term economic future.
Hawker, R-Anchorage, said that when the tax scheme was debated, it was projected the tax, known as Alaska’s Clear and Equitable Share, would bring in about $1.9 billion in revenue in fiscal year 2013. He said the projected revenue now is about $3.1 billion.
The years since the tax was enacted have included periods of high oil prices.
Rep. Les Gara, D-Anchorage, said that if the bill passes, it will likely be “the biggest economic catastrophe in the state of Alaska since the Exxon Valdez.” He called it a recipe for damaging the state’s economy.
Gara has been among those pushing the administration to advertise the breaks the state currently has in place. He believes Parnell is doing more damage to the investment climate than good by declaring the current tax system flawed.
The trade publication Petroleum News this week has an ad from the state Department of Natural Resources’ oil and gas division. It touts existing credits and notes the existing tax “increases and decreases with oil prices and the level of investment: the more you invest, the less tax you pay.”
It declares: “Alaska: We’re Open For Business!”
Democrats used that ad to try to bolster their argument that the state’s tax structure is working. Republican Rep. Bill Stoltze said he thought it was more a case of the state trying to put its best face forward, likening it to placing a personal ad without mentioning you lived with your parents.