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Parnell: Focus on progressivity 'takes things out of context'

Oil tax element would be removed under proposal

Posted: February 6, 2013 - 9:25pm  |  Updated: February 7, 2013 - 1:11am
Gov. Sean Parnell speaks to reporters during a press conference at the Capitol on Wednesday.  Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Gov. Sean Parnell speaks to reporters during a press conference at the Capitol on Wednesday.

Republican Gov. Sean Parnell and Senate Minority Leader Johnny Ellis, D-Anchorage, both responded Wednesday morning to expressions of concern by two Republican senators over Parnell’s proposal to remove progressivity from Alaska’s oil production tax structure — attention to a detail Parnell said should not be taken “out of context” from the rest of his plan.

Parnell said again that his proposal, which sits before the Alaska State Legislature as Senate Bill 21 and House Bill 72, would spur new oil production while bringing in more revenue to the state when oil prices are low.

A progressive tax structure such as ACES, the current oil production tax regime, generates more revenue when prices are high.

“The bill itself better protects Alaskans because we’re taking less at the high oil prices and taking more at the low oil prices,” Parnell said during a Wednesday morning press conference, his second of the legislative session.

S.B. 21 would also eliminate or restructure certain tax credits. Democrats argue in favor of keeping the tax credits, saying they provide incentives for in-state investment, but Parnell said that if oil prices drop, Alaska’s revenue will go down and it will be unable to cover the cost of those credits.

Parnell said that element of the proposal, as well as other elements, such as the gross revenue exclusion he proposes on 20 percent of new oil, have to be taken into account when looking at it.

“You can’t look at one element of a system and say it’s good or bad. It has to be taken in context of the whole,” said Parnell, reacting to concerns voiced by Sens. Anna Fairclough, R-Eagle River, and Bert Stedman, R-Sitka, over the proposed elimination of progressivity.

Parnell added, “To look at one feature and say, ‘This doesn’t work for me,’ kind of takes things out of context.”

Sen. Mike Dunleavy, R-Wasilla, who co-chairs the Senate Special Committee on Trans-Alaska Pipeline System Throughput, said Wednesday afternoon that perspectives vary among policymakers on how to look at the issue.

“Certainly that’s his approach,” Dunleavy said of Parnell’s suggestion that the proposal should be viewed as a whole. “And I don’t see anything wrong with his approach. It’s just you have a number of different people on these committees with different views. We’re individuals. There’s some folks that see the big picture and they don’t see the parts. There’s some folks that just see the parts, don’t see the big picture. I like to take things apart.”

Dunleavy said he is gathering data on progressivity, tax credits and other components of S.B. 21, examining different scenarios to determine what effects it might have.

S.B. 21 would leave the base oil production tax rate of 25 percent in place. Under the bill, according to analysis by consultants from Econ One Research Inc., the state’s take at about $90 per barrel would be slightly lower than it is under ACES, declining somewhat as oil prices rise.

Summarizing a graph comparing the two tax structure, a Jan. 24 report from Econ One Research read, “Average government take moves from progressive to relatively neutral under proposal.”

Parnell and other proponents of the change say that a tax cut for oil companies at high prices will make Alaska more competitive — many companies now find it more profitable to drill in North Dakota or Texas, Parnell said — and thus lead to new production.

“It’s not just about next year’s state revenue. It’s about a long-term future for Alaska and Alaskans,” said Parnell. “It’s a trade-off. It’s a balance. And what it says, it says as a state, we right now have … $16 billion in savings. We can manage a hit to the treasury of about $500 million that’s related to the lower tax rate for the next year or two or three while new production comes online. That’s the goal.”

Senate Democrats, who comprise a five-member minority in the chamber, have been critical of Parnell’s proposal, saying it represents a “giveaway” to oil companies without requiring that they invest more in Alaska.

In the Senate minority caucus’ Wednesday press conference, held shortly before Parnell’s event, Ellis called the skepticism that Fairclough and Stedman have expressed toward ending progressivity altogether “very encouraging.”

“We’re looking for common ground with majority members based on public opinion, common sense, expert testimony, all the things that are in defiance of the governor’s current version of his oil tax bill,” Ellis said.

Sen. Hollis French, D-Anchorage, a former oilfield worker who has been among the Alaska Democratic Party’s most outspoken voices on oil tax issues, sounded enthusiastic about the fractures visible in the majority caucus.

“I think that’s at least a major signal that the Senate’s not going to accept the bill as it’s written,” French said.

Ellis said he hopes majority members will be willing to break ranks with their caucus to vote against Parnell’s bill.

“People don’t want to go down in history as the 11th vote for a historic rip-off,” said Ellis.

But while Ellis, French and other Democrats have characterized Parnell’s plan as a “rip-off” or “giveaway,” Parnell maintained he is not giving oil companies everything they want with his proposal.

“I understand oil companies want it all, and they can’t have it all,” Parnell said. “You know, that’s Alaskans’ oil. And so I am better protecting Alaskans at lower oil prices with this proposal, and I think that’s something we need to do.”

Senate Democrats were also questioned about their plans to introduce an oil tax reform bill of their own. Democratic senators and representatives have been promising that a bill is forthcoming since the legislative session started three weeks ago.

French said that bill is “coming soon.” Pressed for specifics, he said, “Soon … really means soon. I mean, soon. When I say ‘soon,’ I don’t mean later. I mean soon.”

Ellis said House and Senate Democrats plan to introduce bills that are “in alignment” in both chambers.

Meanwhile, the TAPS Throughput Committee is preparing to conclude its review of S.B. 21. Dunleavy and Sen. Berta Gardner, D-Anchorage, the one senator from the minority on the special committee, said they expect it will be passed along to the Senate Resources Committee next, which will review it before it reaches the Senate Finance Committee.

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

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