A proposal to reduce oil production taxes in Alaska — a move proponents argue is needed to make the state “competitive” with other major oil-producing jurisdictions, and which detractors deride as a “giveaway” to oil companies with no guarantee of increased oil production — is set to come before the Senate as early as Monday.
The Senate has yet to debate Senate Bill 21, the oil tax reform proposal. The bill was not read on the Senate floor Friday.
The latest version of S.B. 21 from the Senate Finance Committee includes provisions raising the base production tax rate to 35 percent and then lowering it to 33 percent by 2017, instituting a $5 per barrel production allowance, creating a 20 percent gross revenue exclusion for new oil, and removing the progressivity mechanism, which results in oil companies paying a larger share to the state when oil prices are high, from the tax structure.
The state take is slightly progressive, but generally flat, as oil prices increase under the bill.
Under the bill, according to a fiscal note, the state could lose between $775 million and $875 million in revenue in the next fiscal year, with that range rising to $1.08 billion to $1.33 billion by fiscal year 2019.
That projection does not take into account potential new production, which the fiscal note suggests could eventually result in a net increase in revenue, especially if oil prices are low.
Senate Democrats rallied Friday morning with a hastily scheduled press conference, vowing to oppose S.B. 21 and reiterating their claims that it represents “money being pushed across the table.” Democrats have used similar language to characterize the bill, which was unveiled by Republican Gov. Sean Parnell in January, throughout the committee process.
“This is the chance for our constituents and Alaskans generally to speak out, to let their views be known,” Senate Minority Leader Johnny Ellis, D-Anchorage, said.
The Republican-led majority caucus, which includes two Democrats, holds a 15-5 numerical edge in the Senate. However, several majority senators have been critical of the oil tax proposal in at least one of its incarnations during the committee process, and Senate Democrats said they believe the vote may be close.
Sen. Dennis Egan, D-Juneau, who caucuses with the majority, said Friday afternoon that he opposes the bill in its current form, as did Sen. Bert Stedman, R-Sitka.
“I can’t support it the way it is now,” Egan said. He said most of his constituent feedback last year praised the Senate for opposing Parnell’s oil tax proposal, and that most of it this year has urged him to oppose S.B. 21.
Even still, both Egan and Stedman criticized the current oil tax regime, and Stedman said he is happier with this proposal than he was with Parnell’s past plans.
“This has been a three-year evolution,” said Stedman. “And it’s a slow process, but I think we’re further this year than we were last year, and further last year than we were the year before.”
Asked whether it had progressed to the point where he would support it, Stedman said, “I’m not in support of the way the bill is now, no.”
Egan said his fellow majority Sens. Donny Olson, D-Golovin, and Gary Stevens, R-Kodiak, “have trouble” with the bill as well, although that could not be independently confirmed Friday. Through his office, Olson declined to comment, while Stevens was unavailable.
Sen. Kevin Meyer, R-Anchorage, co-chairman of the Senate Finance Committee, said he expects floor action on S.B. 21 to come Monday.
Meyer conceded that it is not known whether the bill will lead to significant production increases.
“Realistically, we all would expect new oil,” Meyer said. But he added, “It’s kind of a crapshoot. You really don’t know, and the industry certainly isn’t going to say one way or the other, because you know their motivation is to try to keep the rates down as low as they can. But we also know that our rates are too high right now, because we don’t have any new production.”
Parnell and others who support cutting oil taxes note that while Alaska’s oil production is in decline, production is increasing in other oil-rich jurisdictions, including North Dakota, Texas and Alberta, Canada, which have lower effective oil tax rates than Alaska does.
“It’s a risk,” said Meyer of the proposed reform. “I mean, we can do nothing and continue to watch the oil production decline and the budget deficits get wider and wider, or we can do something and hopefully not be in deficit spending anymore, and keep our budgets fairly stable, still have a capital budget to keep the economy strong, you know, have money for education. … I know there’s a risk there, but to do nothing is even more riskier, in my mind.”
With the fate of Alaska’s oil tax structure not yet settled and a month remaining in the regular legislative session, another special session looks possible.
A special session last year on oil tax reform failed to produce a consensus between the House, the Senate and the governor’s office, with Parnell ultimately withdrawing his proposal from consideration.
House Majority Leader Lance Pruitt, R-Anchorage, said at Friday’s House majority caucus, in response to a question about the possibility of a special session, that “30 days is a lot of time in legislative timing.”
“The House will continue to do our due diligence,” said Pruitt of the oil tax issue. “We have spent two years working on it. If we have to go into special session to do this right, I don’t think that’s something that both Alaskans or this Legislature will have a problem with us doing.”
“My position would be we should take as much time as required to make a considered and reasonable and supportable decision,” Ellis said at the Senate minority press conference, adding, “If it takes overtime, it takes overtime. The people of Alaska expect us to make a good business deal. This ain’t a good business deal that they’re proposing and pushing through, and Monday is the showdown. So if it takes more time, it takes more time. The people of Alaska would not mind if we took some extra time to protect their long-term interests.”
Sen. Bill Wielechowski, D-Anchorage, said he hopes to see a full reset on the oil tax proposal.
“My hope is we vote it down on Monday,” said Wielechowski. “And then let’s start all over again.”
• Contact reporter Mark D. Miller at 586-1821 or at firstname.lastname@example.org.