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Oil tax bill would have immediate fiscal impact

Posted: January 17, 2013 - 1:10am

JUNEAU — Gov. Sean Parnell’s oil tax proposal would cost the state $900 million next year, a new analysis shows.

The analysis was attached as a fiscal note to his tax-cut plan, which was introduced in the Legislature on Wednesday.

The fiscal note estimates are based on the Department of Revenue’s fall forecast for oil prices and production, which predicts a continued net decline in North Slope production through 2022.

The note looks out until fiscal year 2019, and oil prices during that period are forecast to vary from about $109 a barrel next year to $118 in 2019.

Next year’s $900 million fiscal impact, a mix of the measure’s effect on revenue and the operating budget, drops to $550 million in fiscal year 2015 and rises to $1 billion by 2017, according to the analysis.

Parnell has said his plan is simpler than the current tax structure and aimed at encouraging new production and making Alaska more competitive for oil company investment. But critics have charged his plan is nothing more than a reworked version of his previous proposals, which stalled in the Legislature the past two years.

“Terrible,” is how Sen. Bill Wielechowski described it. The Anchorage Democrat, who was still studying the bill, has been one of the staunchest defenders of the current system.

“I don’t see this as a good faith effort to promote something that the Legislature can accept,” he said. “I think this is going backward. It will go through the committee process. I hope it changes, significantly.”

Kay Brown, executive director of the state Democratic Party, said the current tax structure is working and that Parnell’s plan is “based on a fiction.” She said it would “impoverish our state.”

The current tax structure features a base tax rate and progressive surcharge triggered when a company’s production tax value hits $30 a barrel. The idea, when it passed, was that the state would help oil companies on the front end with things like tax credits, and share profits on the back end when oil flowed and prices were higher.

But oil companies have complained that the surcharge eats into their profits too much when prices are higher, discouraging new investment. And lawmakers have questioned just what the state is getting for the suite of credits it offers.

Parnell has proposed keeping the base tax rate but scrapping the surcharge. His plan includes a tax break for oil from new fields, including, he said, new areas of Prudhoe Bay and Kuparuk, long the mainstay of Alaska’s oil industry. His plan also would keep in place credits for exploration but eliminate credits for qualified capital expenditures on the North Slope and gear other credits toward production of new oil.

He said this week that it would restore balance to the system.

In his transmittal letter to the leaders of the House and Senate, Parnell said the bill “provides a path to more Alaskan opportunity through more Alaskan oil and production.”

Eliminating the surcharge would mean revenue would drop by $800 million next fiscal year and up to $1.8 billion by 2017, according to the fiscal note. However, the change in tax credits tempers the overall impact, the analysis says.

A number of legislators said Wednesday that they hadn’t yet read the bill or were still digesting it.

Rep. Eric Feige, R-Chickaloon, and co-chair of the House Resources Committee, called Parnell’s proposal a “great starting point” for lawmakers and said the administration has done its homework. A criticism of past efforts by the administration was that officials were ill-prepared to respond to lawmakers’ questions or that there were too many unanswered questions for lawmakers to move forward.

Feige said he has long advocated for a simpler system. He said expects an oil tax bill, of some kind, to pass this year. The charge for legislators, he said, is to make sure that any bill is fair to all involved — including Alaskans and companies.

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The governor’s oil tax bill is SB21 on the Senate side and HB72 on the House side. Text of the bill can be found at: http://www.legis.state.ak.us/basis/get_bill_text.asp?hsid=HB0072A&sessio... .

___

Follow Becky Bohrer at http://twitter.com/beckybohrerap .

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