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Alaska Legislature enters last scheduled weekend debating oil taxes

Posted: April 13, 2013 - 11:07pm
Sen. Hollis French, D-Anchorage, offers an amendment as the Senate takes up the Alaska gasline development bill at the Capitol on Friday.  Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Sen. Hollis French, D-Anchorage, offers an amendment as the Senate takes up the Alaska gasline development bill at the Capitol on Friday.

JUNEAU — The Alaska House was gearing up Saturday to vote on a proposed oil tax overhaul as the Legislature enters what is scheduled to be its final weekend before adjournment.

Senate President Charlie Huggins has been adamant that lawmakers will finish their work by Sunday, the final scheduled day.

That assumes the Senate agrees to changes made by the House to the oil tax bill, SB21, the House recedes from its changes or an agreement on the bill is reached by then in a conference committee. Also still outstanding early Saturday evening were the state operating and capital budgets. The House broke in the midst of debate Saturday night to allow House Finance to release a draft capital budget.

Gov. Sean Parnell has proposed an oil tax overhaul as a way to increase oil production and investment. Supporters say the state cannot stand by and do nothing as production continues to decline.

Alaska relies heavily on oil revenues to run, and while production has been on a downward trend since the late 1980s, higher prices in recent years have helped mask the budget impact. Critics of SB21 say they want more production, too, but have labeled the bill a dangerous gamble that gives too much over to oil companies with no guarantees of what Alaska will get in return.

The House considered, and voted down, a number of proposed amendments after it began debating SB21 Saturday afternoon, including one that would have set time limits on tax credits or breaks for oil from legacy fields if production didn’t rise. Rep. Eric Feige, R-Chickaloon, said that flew in the face of the goal of having a stable, lasting system. Rep. Paul Seaton, R-Homer, said it made sense to remove additional incentives if the companies aren’t responding as hoped.

House Speaker Mike Chenault suggested it wasn’t out of the realm of possibility the Senate might concur on changes made in the House, saying he didn’t see a lot difference between the version that passed the Senate and the one the House was expected to vote on.

“But they’re a different group over there,” he said. The House needs to worry about getting a bill passed its own members “and not worry so much about what it takes for their side. But they’re pretty tight,” he said.

The Senate stood in recess Saturday night to allow members to listen to the House debate, Senate Majority Leader John Coghill said. It could be midday Sunday before the Senate takes up a possible concurrence vote, he said, to allow time for senators to talk to consultants and make sure they understand whatever bill comes over.

A Senate majority spokeswoman said Saturday afternoon that she expected the bill, as it advanced from House Finance, would have sufficient support.

That version included a 35 percent base tax rate and $5 allowance per taxable barrel of oil produced. That credit 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 comprised exclusively of leases with higher royalty rates, and those not getting royalty relief from the state, could qualify for a 30 percent tax break.

Under that proposal, administration officials have said they expect the vast majority of Alaska’s legacy fields would be subject to a 35 percent base rate and a per-barrel allowance on a sliding scale, higher at lower prices, zero at higher prices, around $160.

A consultant to the administration has said the plan would make Alaska “far more” competitive for investment dollars than it currently is. According to that consultant, Barry Pulliam, the effective tax rate on the net value for oil that doesn’t get a gross revenue exclusion would be about 25 percent at $100 oil and about 30 percent at $120 oil. The effective tax rate for higher royalty oil that gets a 30 percent gross revenue exclusion would be about 11 percent at $100 oil and 14 percent at $120 oil.

A fiscal analysis suggested the bill could cost the state up to $4.7 billion through 2019, based on a revenue forecast that calls for a continued net decline in production and oil prices between $109 and $118 a barrel through that period.

Such analyses have been billed as a worst-case scenario, given the goal behind the tax-cut plan is to increase production. The analysis did not include changes made in committee.

Critics fear the fiscal impact could be far higher given the relatively small band of prices on which the analyses have been based. The House and Senate Finance committees didn’t hear from budget officials on what impact the bill might have on Alaska’s budget though Parnell has proposed a five-year plan that he has said calls for reduced spending and use of $700 million a year in savings to help absorb the near-term hit.

The Senate passed a different version of the bill last month by one vote. There has seemingly been no softening among the nine who voted against it as the bill has advanced in the House

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