JUNEAU — A pair of Alaska lawmakers who have been among the staunchest defenders of the state’s oil tax structure say they are open to addressing the issue of “progressivity,” the much-debated system that generates revenue for the state budget and criticism from production companies.
But Democratic Sens. Bill Wielechowski and Hollis French say dealing with progressivity alone isn’t the answer to getting more oil in the trans-Alaska pipeline, an issue important to the state’s economy.
Wielechowski and French say that if Alaska gives something to the oil industry, such as a tax cut, the state should get something in return.
Much of the state’s budget comes from oil revenue, and increasing production is seen as key to preventing service and budget cuts.
But the progressive surcharge has been one of the oil industry’s biggest gripes with the system, with officials saying it eats too deeply into profits when prices are high and is a disincentive to new projects and new drilling.
During a recent Senate Resources Committee hearing, French said he wanted to see the projected financial impact before deciding whether he agrees with a hard cap on progressivity — a concept he has supported in theory.
French said he, like Wielechowski, has been persuaded by industry and expert testimony that Alaska’s take is probably high at times of high oil prices. But he said he has reservations about this aspect of tax change with nothing to guarantee more production. He called himself a “foot dragger” on the issue of a cap, and wants to see the numbers involved.
Wielechowski has joined French in putting out for discussion capping progressivity at 60 percent. For the cap to be hit, it is estimated that oil would have to trade at $225 a barrel. North Slope crude closed Monday at $127.06 a barrel.
Wielechowski said in an interview Monday that he’s willing to look at capping progressivity as part of a packaged deal that ensures Alaska gets the maximum benefit from its resources.
He said he is interested, among other things, in setting a production tax floor to ensure the state doesn’t lose money if oil prices tank to $50 a barrel or less, and in modifying lease terms to require that oil and gas companies seeking an exclusive lease of state lands submit a plan of exploration or development before even being allowed to bid on a lease.
“I haven’t been convinced that major changes need to be made,” Wielechowski said. “If changes can be made to improve the system for all sides, then I’ll look at it as a packaged deal.”
Last year, the governor’s plan to cut oil production taxes as a way to boost investment and stem the trend of declining production stalled in the Senate after narrowly clearing the House, with Senate leaders saying they needed more information to make a sound policy call.
Senators this session have said they will work to build consensus on progressivity, and then move on to other aspects of the tax structure, like credits or the state’s system of taxing oil and gas production together.
The resources committee has proposed a narrow measure that would cap progressivity and lower the progressive rate. The committee discussed possible amendments, including different approaches to progressivity and rewarding companies for new production. Public testimony is planned for this week.
French said Monday that the goal is to make a “good system better.”
Revenue Commissioner Bryan Butcher told the committee Monday that he doesn’t think the current committee bill, SB192, goes far enough toward being the game changer that Gov. Sean Parnell argues is necessary to garner substantial new investment — and get significantly more oil into the pipeline.
Compared with the current tax structure, the revenue department estimates the bill would result in a loss of about $125 million in revenue next year, $230 million in fiscal year 2014 and about $200 million from 2015 through 2020.
By comparison, the progressivity aspect alone of Parnell’s plan would reduce revenues by about $700 million next year, $1.3 billion in fiscal year 2014 and $1.1 billion in fiscal year 2015, figures that assume no change in production.
Parnell has said that companies have pledged at least $5 billion in new investment under his proposal. Butcher said a tax cut of a couple hundred million dollars isn’t likely to change how companies view Alaska, in terms of investment. He said the state doesn’t want to make such a small reduction in taxes that it’s merely giving away funds and getting nothing in return.
The Senate Bipartisan Majority, of which Wielechowski and French are a part, last week issued what it called principles on oil development. The caucus wants oil profits to be shared fairly between the state and industry, and for any “significant” reduction to Alaska’s current share of oil profits to directly induce investment, increase production and create a more competitive investment environment.