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Juneau reps not sold on oil tax reform proposal

Kerttula opposes SB 21; Muñoz undecided

Posted: April 13, 2013 - 1:28pm

Neither of Juneau’s state representatives offered a glowing review Friday afternoon of the latest version of Senate Bill 21, the oil production tax reform bill that is expected to face a House floor vote Saturday.

House Minority Leader Beth Kerttula, who has been an outspoken critic of Republican Gov. Sean Parnell’s efforts to lower the effective tax rate oil producers pay to the state of Alaska, indicated she will oppose the bill, which passed out of the House Finance Committee Thursday night.

Kerttula’s fellow Juneau representative, Republican Rep. Cathy Muñoz, said she is unsure of how she will vote Saturday.

“I’m going to see how the amendments go, and depending on what the final bill is, what the final outcome (of) the amendment process (is), will determine whether or not I vote for it,” said Muñoz.

The House Finance Committee version of the bill raises the base tax rate on oil production to 35 percent, while establishing a system of tax breaks, or gross revenue exclusions, for “new oil,” as well as providing per-barrel tax credits on a sliding scale.

Parnell’s original bill included a 20 percent gross revenue exclusion for new oil as well, while keeping the base tax rate at 25 percent and eliminating or restructuring certain tax credits.

Both bills do away with the system known as progressivity, which allows for a gradually increasing tax rate as oil prices increase.

“I think, overall, it’s a better bill than the bill that the governor originally introduced,” Muñoz said of the latest version of S.B. 21.

But Muñoz expressed discomfort with the speed at which House committees have advanced the bill, spurred on by the 90-day legislative session that is set to end Sunday.

“We haven’t really had that in-depth analysis on how, fiscally, we plan with our savings to cover the budget shortfalls in the years until increased production happens,” said Muñoz. “I’m feeling at this point that I wish we had had a little bit more time.”

A fiscal note attached to the bill suggests an immediate fiscal impact of $670 million to $720 million over the next fiscal year, with that range rising to $740 million to $815 million per year by the end of the decade. That analysis does not take any additional production on the North Slope into account in calculating the impact to state revenue.

Proponents of S.B. 21 argue that while the bill may cause a short-term loss of revenue, lowering the amount that the state takes in taxes from oil producers is a necessary investment to attract investment, increase oil production and make Alaska’s tax system more competitive with that of other oil-rich jurisdictions.

Kerttula said that without oil companies promising to increase their production in Alaska if the bill passes, she opposes what she calls a “giveaway” of oil wealth.

“I have the same problem I’ve had since the beginning,” said Kerttula. “We’re giving Alaska’s resource revenues away without any kind of commitment that we’re going to see any increase in production or anything that’s really going to help balance our budget in the future.”

Both Kerttula and Muñoz were critical of how S.B. 21 defines “new oil.”

An alternative bill offered by Democrats, House Bill 111, would provide a gross revenue exclusion on new oil as well, but would stop considering it “new” after seven years of production.

Provisions to sunset new oil after a certain number of years have been considered by majority legislators as well, but they did not make their way into the version of S.B. 21 that advanced Thursday.

“I mean, why would you give someone a break on, quote, ‘new oil,’ when it’s not really new?” Kerttula wondered. “It’s something that’s existing. It’s something that would be brought online anyway.”

Muñoz floated a hypothetical scenario wherein a large oilfield is discovered and production begins, but it is considered new oil production and thus eligible for a 20 percent or greater gross revenue exclusion indefinitely.

“What happens if a major discovery happens and the lower tax rate then is locked in for the life of that operation?” asked Muñoz. “That’s a concern.”

Muñoz said she would like to see an amendment offered Saturday to avoid new oil indefinitely being considered “new” and suggested she would be open to a provision to sunset the bill without legislative action to extend it. An amendment to that effect offered by Sen. Gary Stevens, R-Kodiak, when the Senate was considering the bill narrowly failed along the same 11-9 lines by which the bill eventually passed.

Kerttula and Muñoz parted ways over whether reform to ACES, the current oil tax regime, is actually needed.

“ACES has been very profitable for Alaska,” said Kerttula. Of declining oil production, which has been ongoing on the North Slope since the late 1980s, she said, “That was always going to happen. It’s not new. That isn’t because of ACES. I heard someone say that was because of ACES, and that’s just laughable — completely untrue.”

Muñoz sounded more sympathetic to the argument promulgated by Parnell and many other Republicans that reform is needed to stem the production decline.

“I would say the majority caucus members, and those are Democrats and Republicans — the ones that I’ve talked to — have recognized that the state is in a very serious fiscal situation and that the option of doing nothing is really not an option,” Muñoz said, referring to the sentiments she has heard from fellow members of the bipartisan Bush Caucus. The Bush Caucus includes many representatives from rural parts of the state, including all of Southeast Alaska’s representatives.

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

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