Democrats introduce plan to plug Alaska's fiscal gap

Posted: Friday, February 06, 2004

As a conference of 55 Alaskans prepares to discuss filling the state fiscal gap with Alaska Permanent Fund dollars, a group of House Democrats has another idea: Get more money for oil.

Anchorage Democrat Les Gara introduced on Thursday what Democrats are calling "the Alaska Fair Share Bill." The bill would roll back tax exemptions for oil producers that were codified under a 1989 law known as Economic Limit Factor, or ELF.

"The Alaska Constitution says in Article VIII that Alaska's resources shall be developed for the maximum benefit of our people. We are not obtaining the maximum benefit from the oil in this state," Gara said.

Oil prices are high these days, at about $32 per barrel, and Gara and the other three representatives who are co-sponsoring his bill said Alaska should be getting more from its resource. According to figures from the Alaska Department of Revenue, the oil companies are profiting at a rate of $3.4 billion per year, while the state's share is about $2.1 billion.

The bill attempts to even the profit rate by establishing a minimum 5 percent severance tax for oil fields. The state's severance tax is at 15 percent, but with ELF exemptions, 11 of the 14 oil fields that have come online since 1989 pay little or no severance tax.

"A zero-percent tax is not acceptable," Gara said. "You can't just give away the oil."

But Dawn Patience, spokeswoman for ConocoPhillips in Alaska, said the industry already contributes enough.

"The oil industry in Alaska certainly pays its fair share of taxes and royalties to the state," Patience said. "If there's some kind of unilateral increase in taxes or changes in taxes, it makes Alaska less attractive for new investments. ... We're in a global business and investment dollars flow to the locations or countries that offer the best economic returns."

Gara's bill, co-sponsored by Juneau Rep. Beth Kerttula, Fairbanks Rep. David Guttenberg and Anchorage Rep. Eric Croft, also would raise the oil field's severance tax at oil prices of more than $20 per barrel. The bill uses a formula that would increase the tax proportionately with oil price increase, with a cap of 25 percent.

The measure also would reduce the severance tax if oil prices dipped below $16 per barrel. If prices dropped below $10 a barrel, half the tax would be waived, and the other half would be deferred until prices rose above $16 per barrel.

The bill exempts "heavy oil," which requires more expensive extraction procedures.

Deborah Vogt, former deputy commissioner of revenue under Gov. Tony Knowles, said it was clear when ELF was introduced in 1989 that it wasn't going to be appropriate forever.

"It was slanted very steeply to tax the big fields more heavily than the small fields. That was appropriate when Prudhoe Bay and Kuparuk were huge.

But there's so much production in the smaller fields now," Vogt said.

The state's oil fields produce nearly 1 million barrels per day, and a little more than half that comes from Prudhoe Bay and Kuparuk, Vogt said.

The rest comes from a variety of smaller fields.

"Most of those small fields aren't paying any tax, and those that are, are paying little tax," she said.

Gov. Frank Murkowski said increasing the tax would result in producers reassessing their development in Alaska and looking elsewhere.

"I think it would have a significant effect on the message that we are sending, on one hand trying to encourage more development, trying to persuade the advance on the gas line, and then we're looking at the energy industry for specifically more revenue," Murkowski said.

Gara said the oil industry's influence in the state might cause legislators to be reluctant to support the bill. But he said if the bill makes it through committees to the House and Senate votes, he is confident it will pass.

"If it reaches the House floor and the Senate floor, it passes because it makes sense," he said.

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