JUNEAU — With days left in the legislative session, the House Finance Committee on Thursday released a revised version of the proposed oil tax overhaul Thursday.
The proposal included a 35 percent base tax rate and a $5-per-barrel credit for oil produced. The per-barrel allowance would apply to what would be considered new oil and production that also would qualify for a 20 percent tax break, known as a gross revenue exclusion. Certain units made up exclusively of leases with higher royalty rates — and those not getting royalty relief from the state — could get a 30 percent tax break.
Administration officials expect the vast majority of Alaska’s legacy fields under the plan would be subject to a 35 percent base rate and a per-barrel allowance on a sliding scale, higher at lower prices, non-existent at higher prices, around $160.
The committee began taking up proposed amendments to the bill on Thursday night.
A fiscal analysis of the bill, prior to amendments, indicated it could cost the state between $4.2 billion and $4.6 billion through 2019. The fiscal impact — a mix of impact on state revenues and the operating budget — in the bill that left the House Resources Committee was $5.4 billion to $5.7 billion. The analysis is based on the latest forecast for oil prices and production, which calls for a continued net decline in production and oil prices between $109 and $118 a barrel through that period. The analyses have been billed as worst-case scenarios throughout the session, given the goal behind cutting taxes is to increase production, and the numbers, still rough and somewhat fluid.
The committee is working to put the finishing touches on a bill, SB21, with the Legislature scheduled to adjourn Sunday. The Senate will have to agree to any changes made by the House or the measure will go to a conference committee composed of three House members and three Senate members.
A consultant to the administration said the bill would make Alaska “far more” competitive for investment dollars. For oil not subject to the gross revenue exclusion, the effective tax rate on the net value would be 25 percent at $100 oil and 30 percent at $120 oil, according to an analysis from the consultant, Barry Pulliam. For higher royalty oil that gets the 30 percent gross revenue exclusion, the effective tax rate would be about 11 percent at $100 oil and 14 percent at $120 oil, according to his analysis.
Oil taxes have been the dominant issue of this session, with supporters of a tax change — including Gov. Sean Parnell — arguing the state can’t just stand by as production continues to decline. They say the state would be in the same predicament it is now, facing a budget deficit and the prospect of dipping into savings to cover costs, with or without a tax break to oil companies.
Critics say they want more production, too, but insist this isn’t the way to get it. They fear the state will give up billions of dollars in revenue with no guarantee from the companies about new levels of production or spending.
Rep. Les Gara, D-Anchorage, is among those who have taken issue with the production decline rate used in some of the presentations. He points to comments made in a ConocoPhillips analyst meeting, which discussed investments in technology that could curb the decline rate in Alaska to about 3 percent a year by 2017. After 2017, the Department of Revenue forecasts a net decline of as much as 7.5 percent by 2022.
Deputy Revenue Commissioner Bruce Tangeman said in an interview that the department talks to all the companies for its forecasts and relies on them to say what their plans are. But he said plans often change, and the department needs to look not at the possible oil but the probable oil.
The proposal scraps a provision added by the House Resources Committee that critics said would have the state rely on oil company statements rather than receipts in determining whether expenses qualify for deductions. It was a provision that also caused concern within Alaska’s Department of Revenue.
The measure reinserts a board to evaluate such things as the state’s competitiveness, which was stripped in House Resources. The measure reinserts a board to evaluate such things as the state’s competitiveness, which was stripped in House Resources. House Finance co-chairman Bill Stoltze, R-Chugiak, said that’s one of the areas that will likely be worked on further.