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Majority Democratic senators unhappy about oil tax reform bill

Olson 'fairly pessimistic,' Egan has 'real concerns'

Posted: February 9, 2013 - 9:46pm  |  Updated: February 10, 2013 - 12:09am
Sen. Donny Olson, D-Golovin, speaks about Gov. Parnell's oil tax bill that will move into the Senate Finance Committe later this session.  Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Sen. Donny Olson, D-Golovin, speaks about Gov. Parnell's oil tax bill that will move into the Senate Finance Committe later this session.

The two Democratic members of the Republican-led Senate majority expressed displeasure late in the week with key elements of Republican Gov. Sean Parnell’s proposal to reform Alaska’s oil production tax structure.

Democratic Sens. Dennis Egan of Juneau and Donny Olson of Golovin said they are concerned that the proposal, which is before the Senate as Senate Bill 21, is too favorable to the oil industry and ends pieces of the current tax regime, ACES, that they would prefer to preserve.

“I don’t want to give the farm away unless we get something in return,” Egan said Thursday afternoon.

Speaking Friday morning, Olson described himself as “fairly pessimistic” about oil tax reform this session.

“We in the Senate, in the majority, have always been fighting against the reform — not so much that we don’t think parts of it can be tweaked, but we don’t necessarily want to go ahead and let a bunch of stuff go,” said Olson, referring to the coalition that controlled the Senate before last year’s elections ushered in a Republican majority.

Olson added, “We seem to have such a pro-industry Legislature and administrative branch this year that, you know, I guess I’m feeling a little bit overwhelmed by that, that there’s no independent — there’s no checks and balances that are out there.”

Olson sits on the Senate Finance Committee, which is scheduled to hear S.B. 21 after the Senate Resources Committee reviews it.

S.B. 21 would eliminate the progressive element in the oil production tax structure, leaving a base production tax rate of 25 percent in place. It would also end or restructure certain tax credits.

Parnell and other administration officials have said the reforms are needed to increase Alaska’s oil production.

“The Parnell Administration is pro-Alaska,” Parnell’s press secretary, Sharon Leighow, wrote in an email Friday, responding to Olson’s characterization of the administration as “pro-industry.”

Leighow added, “To keep our treasury strong and grow prosperity for Alaskans, we need to choose a future of more oil production, not less.”

Olson, whose vast district covers the entire North Slope, said he shares Parnell’s goal of increasing oil production and he is sympathetic to some of his arguments, but he has his own thoughts on what works and what does not in ACES.

“I don’t have any conclusions, but I do have some ideas,” Olson said. “I think some of the tax credits are good. I think they’ve been well placed, especially for the smaller explorers that are out there. So I’m in favor of some of that.”

Egan said of the bill, “I’m still waiting for it to play out, but I have real concerns about doing away with progressivity, like other members of our caucus do.”

Sen. Bert Stedman, R-Sitka, has suggested that the level of progressivity in the oil production tax should be reduced but not eliminated. On Tuesday, Sen. Anna Fairclough, R-Eagle River, also invoked Stedman’s argument during a Senate majority press conference.

Like Stedman and Fairclough, Olson said he is not satisfied with the level of progressivity in ACES — a rate of 0.4 percent per dollar on profits of more than $30 per barrel.

“I think progressivity is a little bit on the high side,” Olson said. “I think most experts conclude that’s the case as well.”

But asked whether he shares Stedman’s stated concerns about a “regressive” tax structure replacing the progressive structure, Olson nodded: “Very much so.”

“A progressive tax, I think, causes tension between the two sides, but at least it’s much more equitable and equal or gives a better or leveler playing field, as opposed to a regressive tax,” said Olson. “As the price of oil goes up, and the amounts start to change, then you go ahead and see a regressive tax being something that doesn’t work in our favor. It works in industry’s favor.”

Parnell has said — and expert consultants have found — that S.B. 21 would increase Alaska’s share when oil prices are low in exchange for giving up more when oil prices are high.

Fairclough acknowledged that progressivity is a tradeoff as well.

“On the high side, I think the people of Alaska want to ride that price point up with the producers, with those that are accessing Alaska’s resources,” Fairclough said Friday. “I think we want to share in the upside. But if we share in the upside, that means we need to share in some of the risk on the downside.”

Of the bill, Fairclough said there is not “enough out there for people to be calling yea or nay just yet,” with legislative consultants still working on models to determine its effects.

“I don’t have those definitive answers yet,” said Fairclough. “But the reason I like the progressivity is to combat the regressiveness of a flat tax.”

Fairclough added, “Definitely on the campaign trail, I believe I said that progressivity needed to be adjusted down. But to what point, I don’t know. That’s where we need the models to look at the regressiveness. Is it 0.1 (percent), is it 0.2? It’s not 0.4 — it just makes us so uncompetitive.”

Fairclough and Egan predicted that S.B. 21 will be altered by the legislative process.

“I think it’s going to change,” Fairclough said. “I think that the governor’s going to defend his proposal, and you know, I think that that’s what we want to see happen.”

Egan was more declarative.

“There’s no question in my mind, it’s going to be amended,” Egan said.

Olson suggested he and a couple of other senators may amend the bill themselves.

“I know I’ve been in contact with both Lyman and Bert about how, having looked at it over the last several years and having gone through the ACES process and been on Finance, there are facts and consultants that have been looked at from our perspective, that we’re trying to come up with something that’s going to be meaningful and still have the votes to go to pass, if there’s an amendment that we can put onto the bill itself,” said Olson, referring to Sens. Lyman Hoffman, D-Bethel, and Stedman.

Neither Hoffman nor Stedman could be reached for comment Friday. Legislative aides to both said they were away from the Capitol.

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

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