JUNEAU — Members of a Senate committee on Tuesday pressed industry representatives on what Alaska could expect if the state’s oil tax structure is overhauled.
Sen. Lyman Hoffman, D-Bethel, said the amount of investment needed to eat into or reverse the trend of declining oil is “staggering” — perhaps an additional $3 billion to $5 billion a year. He said he’s not sure it will be achievable with any legislation the Senate Finance Committee devises.
The committee is working on SB21, the governor’s bill.
Industry representatives reiterated that there are positive elements to the measure, such as scrapping the progressive surcharge triggered when a company’s production tax value hits $30 a barrel. But they said there are problems with the bill, too, like a proposed 35 percent base tax rate that some see as too high, and the fact that a 30 percent tax break known as a gross revenue exclusion would not apply to currently producing areas.
Hoffman said there will be “great expectations” among Alaskans for more production if a bill scrapping progressivity is passed.
The surcharge has been credited with helping fatten state coffers in recent years, but industry officials have said it eats too deeply into profits when prices are high.
An analysis of the current version of SB21, going out to fiscal year 2019, indicates scrapping the surcharge would cost Alaska $800 million next fiscal year and as much as $1.8 billion by 2017, based on the 2012 fall revenue forecast. Other provisions of the bill, including eliminating or revamping existing tax credits, would help temper the overall fiscal impact, the analysis shows.
Sen. Pete Kelly, R-Fairbanks, said it’s reasonable to say the decrease in production in recent years is related to policy decisions made around the current tax structure.
“We’ve got a problem here, and it seems to be related to our tax policies in the past,” he said. “They’re too complicated. They take too much. And it seemed to be the goal of the policymakers at the time to extract more from the people who were the producers.”
Kelly said lawmakers need a plan that is based on what’s best for Alaskans, “and if we have to reduce our take a little bit to achieve that, I’m OK with that.”
Production has been on a downward trend since the late 1980s. Higher prices the past few years have helped to mask the effect of declining production in the state, which relies heavily on oil revenues to run.
BP and ConocoPhillips representatives said Alaska could expect investment or activity in the near-term if the bill made the state more competitive compared with other energy-producing regions. They did not get into specific investment levels. But Bob Heinrich, vice president of finance for ConocoPhillips Alaska, said the company expected all eyes to be on it.
SB21, as rewritten by the Senate Resources Committee, would increase the base tax rate from the current 25 percent to 35 percent and provide a $5-a-barrel credit for oil produced. Committee members had said this was aimed at concerns raised about Gov. Sean Parnell’s plan that the government’s take was too low at higher oil prices and too high at lower prices.
The bill also would increase from 20 percent to 30 percent the gross revenue exclusion for oil from new fields and new areas of legacy fields proposed by Parnell.
The Senate Finance Committee is looking at a number of possibilities as it studies the measure, including whether to reintroduce a bracketed version of progressivity at high oil prices. A legislative consultant also has raised the possibility of a profit tax with royalty and property taxes reimbursed.
ConocoPhillips, in a presentation Tuesday, said the increase in the gross revenue exclusion is an improvement over the earlier version of the bill but said that provision is less effective than tax credits.
Committee co-chair Kevin Meyer said capital credits have left a “bad taste” for some legislators, because they haven’t led to the kind of activity hoped for. Parnell’s revenue commissioner has said he’s seen no evidence that credits to oil companies under the current tax structure have resulted in increased production.