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Gov. Sean Parnell's oil tax reduction bill passes House; faces uncertain future in Senate

Billions in oil industry tax reductions expected to face difficult battle in Senate

Posted: March 31, 2011 - 10:37pm

The Alaska House of Representatives voted Thursday to slash oil taxes, setting up a battle with a reluctant Senate in the last weeks of the 2011 legislative session.

Backers of Gov. Sean Parnell’s oil tax plan said they were confident that it would stem a decades long decline in Alaska’s oil production as they passed House Bill 110 by a vote of 22-14 late in the evening.

Rep. Craig Johnson, R-Anchorage, called the reduction to the ACES oil tax a vote for “long-term growth over short-term greed.”

He was joined in supporting the tax by most Republican legislators, including Rep. Cathy Muñoz, R-Juneau, who said the state was facing a “stunning decline” in oil production that had to be reversed to prevent an economic disaster like the state has had once before.

“I personally believe I have a fiduciary duty to protect my community, to help prevent another economic collapse like the one I experienced in the 1980s,” she said.

Rep. Mike Hawker, R-Anchorage, said the production decline showed that ACES was not working and needed to be rolled back.

“The production decline speaks for itself, the statistics are absolutely uncontroversial,” he said.

Minority Democrats, who had once joined with then-Gov. Sarah Palin and Republicans in 2007 to adopt ACES, led the opposition during debate into the evening on Thursday.

House Minority Leader Beth Kerttula, D-Juneau, said the Parnell Administration was unable to provide evidence that the ACES tax that has brought the state billions when oil prices skyrocketed was responsible for the ongoing production decline.

“We were told ACES hurt our industry, but the proof is not there, it simply does not exist,” she said.

Parnell afterwards praised the body’s vote.

“The House recognizes that a change to increase oil production is critical and ‘doing nothing’ is not a strategy for future economic growth and not a strategy Alaska can afford,” he said.

Democrats said Parnell’s tax reductions themselves, without commitments for more production, were what really threatened the state.

“That approach will create the biggest economic catastrophe this state has seen in a long time,” said Rep. Les Gara, D-Anchorage.

Kerttula said neither Parnell nor the oil companies provided information about how a tax cut would increase production.

“If you are going to take this kind of money from the Alaskan public, they deserve to know what it is for,” she said.

Parnell’s Revenue Commissioner Bryan Butcher on Wednesday provided the last official revenue estimates on how much the tax reductions would cost each year, under a range of possible production increases.

“Under every scenario, the state loses money,” Gara said.

By Thursday’s debate, that was no longer in dispute.

“We would probably take a revenue reduction, and not an insignificant one,” agreed Rep. Eric Feige, R-Chickaloon.

That’s the idea, said Rep. Mike Hawker, R-Anchorage.

“This will absolutely result in a reduction of tax revenue, that’s what tax reform and tax relief is,” he said.

The state’s big oil producers in legislative testimony said the tax reductions will make the economics of oil development in Alaska better, but didn’t pledge more production. They did say that if the reductions weren’t enough to spur production they might ask for more.

Rep. Pete Peterson, D-Anchorage, called it a “fantasy” to think that the oil producers would ever be satisfied.

“No matter how low we make the oil taxes the producers would still want them to be lower,” he said.

The final vote was largely along party lines, with two Republicans, Reps. Alan Austerman of Kodiak and Paul Seaton of Homer, joining Democrats in voting against. Three Democratic members of the Republican-led majority caucus also voted no.

“My goodness sakes we’ve just got to keep oil in that pipeline,” said Rep. Peggy Wilson, R-Wrangell.

Several of the bill’s supporters said the vote was as a difficult decision but ended up saying that the state had to do something to stem the decline in oil production, even if it wasn’t the exactly right thing.

“If this bill doesn’t work out the way we want it, we know that we can change it again,” said Rep. Tammie Wilson, R-North Pole.

She said she was shocked to find out after the pipeline recently had an emergency shutdown how much she discovered the state depended on it, and has only 14 days of heating fuel for the Interior.

After the vote, Kerttula gave notice of reconsideration, which delays final passage for a day. The bill will then go to the Senate, where it faces an uncertain future.

Top Senate leaders have said they doubt the bill can make it through the Senate, but Thursday’s House vote stepped up the pressure on the Senate to take action.

Parnell said the vote “provides us with significant momentum.”

• Contact reporter Pat Forgey at 586-4816 or Patrick.forgey@juneauempire.com.

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