JUNEAU — Gov. Sean Parnell is proposing an overhaul of Alaska’s oil tax structure, saying his new plan is simpler and aimed at making the state more competitive while encouraging new production.
The proposal, expected to be announced Wednesday, scraps the progressive surcharge that companies have said is a disincentive to new investment and revamps the state’s system of tax credits, focusing those incentives on companies that produce oil from new fields on the North Slope.
The plan builds off what the administration saw as an emerging consensus toward the end of last session, to take meaningful steps to encourage production from new fields while also addressing the level of government take at high oil prices.
Parnell briefed House and Senate leaders on the plan Tuesday, his third crack at a bill to change Alaska’s tax structure. Oil taxes have been a dominant issue at the Legislature for the past two years, with political leaders sharing a goal of getting more oil flowing through the trans-Alaska pipeline — the state’s economic lifeline — but unable to reach agreement on how best to go about achieving that.
One of the stumbling blocks in the Senate last year, as lawmakers worked unsuccessfully toward an overhaul, 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 giving too much money to oil companies for oil they would have produced anyway.
Parnell described the feedback he got from lawmakers Tuesday as “more just gracious listening and a willingness to consider what we’ve put forward.” He said there seemed to be general agreement on the guiding principles for his plan, including making sure it is fair to Alaskans, encourages new production and is simple and durable, so it doesn’t have to be reworked or changed every few years.
“I just was pleased to be able to have something to offer to the discussion that is a new and different way of how to move us forward,” he said in an interview with The Associated Press.
Parnell said his plan “will not only offer better protection to Alaskans but will offer a better return on investments to companies as well.” He couldn’t immediately say what the fiscal impact would be, saying the package was still being finalized.
Alaska’s existing tax structure features a 25 percent base tax rate and progressive surcharge triggered when a company’s production tax value hits $30 a barrel. The idea behind it was that the state would help oil companies on the front end with things such as tax credits and share profits on the back end when oil flowed and prices were high.
But companies have complained that the surcharge eats too deeply into profits when oil prices were high, discouraging new investment. And questions were raised about what the state is getting in return for what many in Juneau consider to be a generous suite of tax credits. Credits could top $1 billion next fiscal year.
Revenue Commissioner Bryan Butcher said his department did a five-year review to see how the state was benefiting from the credits. “We could show that we’re getting a lot of spending as a result of them, but we didn’t see the connection to production that I think would be hoped (for) when these tax credits were put on the books initially,” he said.
Parnell’s proposal keeps the 25 percent base tax rate and includes a tax break for oil from new fields, including new areas of Prudhoe and Kuparuk. It keeps in place credits for exploration but eliminates credits for qualified capital expenditures on the North Slope. It gears other credits toward production of new oil.
By eliminating the surcharge and changing the tax credit system, Parnell said, “we restore that balance. We promote production and simplicity. It’s a new way of thinking about our fiscal regime.”
“Sometimes we get locked into one way of thinking, that there’s only one way to solve the production challenge that Alaska faces. And we have been focused on trying to modify progressivity and tinker with the levers of the existing system when really we ... are paying out tax credits now in significant amounts and collecting a lot of revenue at high oil prices to cover them,” Parnell said. “But the state’s at risk if and when oil prices go low again, because we’re still responsible for those credits, but we won’t have the revenue to cover them.”
The administration hired a consultant during the interim to take a fresh look at the issue. The departments of Revenue and Natural Resources also were involved.
Some lawmakers have introduced bills of their own to address oil and gas taxes and tax credits. Rep. Les Gara, D-Anchorage, said House Democrats also plan to introduce a bill to address production.