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Another senator doubtful on ending oil tax progressivity

Sen. Fairclough invokes Stedman's opposition to 'regressive' structure

Posted: February 5, 2013 - 5:26pm  |  Updated: February 6, 2013 - 1:02am
Sen. Anna Fairclough, R-Eagle River, speaks about future oil tax decisions the legislature will need to make this year during a Senate Majority press conference at the Capitol on Tuesday. Senate President Charlie Huggins, R-Wasilla, listens.  Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Sen. Anna Fairclough, R-Eagle River, speaks about future oil tax decisions the legislature will need to make this year during a Senate Majority press conference at the Capitol on Tuesday. Senate President Charlie Huggins, R-Wasilla, listens.

Ahead of a meeting of the Senate Special Committee on Trans-Alaska Pipeline System Throughput Tuesday, one of its members said in a Senate majority press conference that she is unsure about Republican Gov. Sean Parnell’s proposal to remove progressivity from Alaska’s oil production tax structure.

Sen. Anna Fairclough, R-Eagle River, who is also on the Resources Committee and the Finance Committee, two other committees which must review Parnell’s Senate Bill 21 before it can go to the Senate floor, agreed with fellow Republican senators that “Alaska is noncompetitive” and that its oil tax system should be reformed.

But Fairclough also said she is not sure eliminating progressivity is the right step to take.

“Alaska has always had to be careful with our partnership with the oil industry, and in the past, that partnership has come under question,” said Fairclough. “I think we need to be very careful as we move forward. I haven’t been convinced that progressivity should be thrown out.”

Fairclough’s remarks echoed those of Sen. Bert Stedman, R-Sitka, who answered a question posed to him in the new Senate majority’s first press conference on Jan. 16, just after Parnell’s State of the State speech, by criticizing the oil tax proposal as “regressive” due to its elimination of progressivity.

Stedman was not at the press conference Tuesday morning, but he reiterated his criticism afterward.

“The issue with (progressivity) is, in the current structure, the magnitude of it,” said Stedman. “Without a progressive mechanism within our tax structure, the tax structure itself is regressive by nature of its composition. What that means in layman’s terms is the price of oil goes up, the percent of the buy that Alaska gets goes down. … And that’s unacceptable.”

Before the 28th Alaska State Legislature was elected and a bipartisan coalition controlled the Senate, Stedman was co-chairman of the Finance Committee and a potent voice on oil tax issues. He did not retain his Finance Committee seat when Republicans took a majority of Senate seats in last year’s election, and he does not sit on any of the three committees set to hear S.B. 21.

Stedman said that has not dissuaded him from trying to call attention to progressivity.

“I’m not exactly quiet about the subject, even though I’m not on the committees,” Stedman chuckled.

The reluctance of majority senators like Fairclough and Stedman to abandon progressivity moves them closer to alignment with the Democratic minority.

Sen. Hollis French, D-Anchorage, said of progressivity Tuesday, “I think it’s an essential piece of any profits-based oil tax.”

Where French and like-minded minority senators part company from pro-progressivity majority senators like Stedman is on how much progressivity each believes is appropriate.

Stedman argued that the current tax rate at higher oil prices is too burdensome, the same charge Parnell and his backers have leveled at ACES. He has expressed a preference for a more moderate progressive tax, a position French indicated he does not share.

“The daylight’s probably somewhere in there, between .2 and .4,” said French, referring to rates of progressivity.

Sen. Mike Dunleavy, R-Wasilla, who co-chairs the TAPS Throughput Committee along with Sen. Peter Micciche, R-Soldotna, said during the press conference that his committee will send the bill to the Senate Resources Committees “with some thoughts and recommendations.”

“This is probably going to be one of the most vetted issues in this session,” said Dunleavy. “This is a top priority for the Senate.”

The TAPS Throughput Committee has been gathering testimony from members of the public and industry representatives, as well as hearing consultants’ presentations breaking down Parnell’s proposal and comparing its effects to that of ACES, the current oil tax regime.

Parnell, a Republican, rolled out S.B. 21 last month. In addition to removing progressivity from Alaska’s oil production tax, leaving the base tax rate of 25 percent intact, the bill would eliminate or restructure certain tax credits and provide for a gross revenue exclusion on 20 percent of new oil.

Parnell and other supporters of the proposed reform argue the bill would simplify the tax system, bring rates at higher oil prices more in line with some of Alaska’s booming competitors like Australia and North Dakota, and encourage new exploration and production in Alaska.

In his weekly message released Tuesday afternoon, Parnell pointed to consultants' analysis showing Alaskan oil production growth lagging behind a broader North American boom, saying it suggests Alaska is not globally competitive.

"It's not because we lack oil, but because our tax system is far too complicated and discourages investment," Parnell said. "They warned that our tax system taxes too much when oil prices are high and exposes Alaska to credit obligations when prices are low. That's why I proposed a simpler tax regime with incentives geared toward actual new production. With targeted reforms, Alaska can move to the front of the oil-producing pack."

“This bill is unlike anything else we’ve ever seen, and I want to compliment the governor’s team in particular for taking a step back, admitting that past efforts may not have been successful and to rework that bill,” said Sen. Lesil McGuire, R-Anchorage, who sits on the TAPS Throughput Committee as well.

S.B. 21 represents Parnell’s third attempt to get an oil tax reform bill through the Senate and signed into law. This year appears to represent his best opportunity yet to pass oil tax legislation, as a unified Republican majority now controls the Senate, with two Democrats caucusing alongside them.

• Contact reporter Mark D. Miller at 586-1821 or at mark.d.miller@juneauempire.com.

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