Lawmakers to review tax credits

Posted: Sunday, January 30, 2011

JUNEAU — Alaska provided $1.3 billion in tax credits to oil and gas companies over two-and-a-half years, and is poised to pay out hundreds of millions more — not counting the expanded credits Gov. Sean Parnell is now proposing.

But it’s not clear whether the programs are leading to the level of increased development the state wants to see.

The issue is expected to be a focus of a legislative hearing in February. Senate Finance Committee co-chairman Bert Stedman wants a better understanding of how the credits work, and what they’re going toward, as the Legislature weighs larger changes to the state’s oil and gas tax regime. He said data and analysis — not emotion or politics — must drive the debate.

“When you have a huge credit AND you drop the tax structure, you’re making colossal changes in the cash flow,” he told The Associated Press.

The fact that one commissioned report isn’t expected until June — and other members of the Senate’s bipartisan ruling bloc have expressed the same sentiment as Stedman — raises the possibility that the tax issue, a major piece of Parnell’s legislative agenda, could get pushed to a special session or to next year. Parnell has said there’s plenty of time to address the issue within the current 90-day session.

Credits are seen as a way to encourage investment; in Alaska, they’re offered in areas including oil and gas, film production and education.

Between July 1, 2007 and Dec. 31, 2009, a period that includes the implementation of the current tax structure, known as Alaska’s Clear and Equitable Share, the state honored about $1.3 billion in oil and gas tax credits.

The governor has budgeted $400 million for existing credits for the upcoming fiscal year, and Stedman said North Slope companies are expected to write-off $450 million as part of another option, credits used against tax liability. That credit “is a real strong stimulus if it’s used to enhance oil production,” Stedman said. “If it’s being used to push maintenance costs to the state, then I think it’s open to discussion.” The Department of Revenue could not immediately provide details on use or application of the credits.

The department reported total North Slope lease expenditures for fiscal year 2010 at about $4.7 billion. It projects about $5.1 billion in expenditures during the current fiscal year and $5.5 billion in the fiscal year beginning July 1.

Parnell also is proposing expanded credits as part of his larger plan to overhaul the tax scheme to help boost investment amid declining oil production. Oil is largely responsible for keeping the state running and political leaders have been looking for ways to get more oil.

The department, in a recent presentation to lawmakers, said longer-range spending by companies, particularly on capital investment, “is highly uncertain.” Steve Rinehart, a spokesman for BP Alaska, said there’s a place for credits.

But he said the bigger concern is having a tax structure in place that’s more inviting to investment and activity in the state’s major fields. He called Parnell’s plan to cap a progressive surcharge a good start.

There are new explorers in the state and new fields under development, said Johanna Bales, deputy director of department. But it’s tough to make a correlation between the credits and increased activity or investment, she said.

Under older tax structures, the state did not receive, as it does now, data showing company investments in exploration and development in the state as a whole, she said.

“Therefore, although we suspect an overall increase in these activities (now), we cannot quantify the increase,” she said. “Credits probably do help,” she said. “But so does the price of oil. So do a lot of other things.”

The department does not release the name of companies that receive credits.

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