Oil tax 'fair share' hearing bill gets a second hearing

Bill sponsors say they're encouraged by governor's comments in state of state speech

Posted: Sunday, January 15, 2006

A proposed makeover of Alaska's oil production taxes got a lukewarm reception in a house committee on Friday.

The House Ways and Means Committee heard the plan by Rep. Les Gara and Sen. Hollis French, both Anchorage Democrats, to restructure and raise production taxes on Alaska's oil fields.

After a presentation by Gara, Chairman Bruce Weyhrauch, R-Juneau, said "something will happen with the bill" within the next three weeks, but he would not say if he would allow it to move out of committee.

The bill sponsors, however, were heartened by comments Gov. Frank Murkowski made about the production tax in his state of the state speech on Tuesday.

"He's closer to us than he's ever been," Gara said.

Murkowski proposed getting rid of the economic limit factor, or ELF. The ELF formula calculates tax percentages based on the output of oil by wells. It was set up to give a break to old and marginal fields but opponents argue it benefits even the most productive fields.

If the ELF is repealed, all the state's oil fields would have to pay the full production tax, which is 12.25 percent for the first five years and 15 percent afterward. No field in Alaska now pays the full percentage.

In his speech, Murkowski proposed replacing ELF with a net profits tax on Alaska's oil.

"It will allow us to share the risks and rewards of anticipated higher oil prices," he said.

Gara said the governor made it clear that oil taxes need to be reformed now and urged the governor to file a bill. Murkowski instead proposes to include the changes in a stranded gas contract, which he is negotiating with three oil producers.

At Friday's committee hearing, Gara said under his proposal the state would collect about $1.2 billion more in taxes when oil is $50 per barrel.

He proposes a minimum 5 percent severance tax for all oil wells, but the amount of tax producers would have to pay would be adjusted depending on the price of oil.

Gara said lawmakers have a constitutional duty to provide the state's citizens with the maximum benefit from oil. Instead, he said, the state is giving out unjustified tax breaks while lawmakers fight over money for schools.

"I believe this state is allowing itself to be poor when it should be rich," he said.

Weyhrauch said he would allow the oil industry an opportunity to respond to Gara's presentation.

Oil and gas officials have said ELF is central to Alaska's tax system and protects low-producing oil fields while allowing Alaska to have a high production tax rate.

The bills are House Bill 63 and Senate Bill 50.

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