Candidates weigh in on governor's tax proposal

Posted: Wednesday, March 08, 2006

If Gov. Frank Murkowski is successful in pushing through a new production tax and closing a fiscal deal for a North Slope natural gas pipeline, it may be a new governor who has to deal with the consequences.

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And the five announced candidates vying for the Republican incumbent's job are worried that Murkowski has linked his net-profits production tax plan to the fate of the $25 billion North Slope gas pipeline.

The main concern raised by the candidates is over the risk involved in tying the oil tax plan to an unseen gas deal, and whether the governor may be giving up too much to get a contract with the state's three largest oil producers.

"Taxing oil for what it is must be done independent of the secret gas line talks," said Republican Sarah Palin, a former Wasilla mayor and Alaska Oil and Gas Conservation commissioner. "I believe it shouldn't be done within a lame-duck administration."

Murkowski, who turns 73 this month, has not said whether he plans to run for re-election, raising speculation that he may be trying to seal his legacy before stepping out of politics as the governor who brought Alaska a gas pipeline deal.

The governor has said a fiscal deal has been reached in principle with the three would-be owners of the pipeline: Exxon Mobil Corp., ConocoPhillips and BP PLC.

But before the terms, which were negotiated in secret, are released to the public and then to the Legislature for ratification, the governor has said his net-profits tax plan must be passed.

That tax would change the state's production tax to one based on the net profits of oil companies working in Alaska. It would be incorporated into the gas deal after the Legislature approves it. Lawmakers would then be asked to lock up both oil and gas tax rates for years or decades.

That would give the three producers the tax certainty they say they need to move ahead with the pipeline project, although other factors will also determine whether construction goes ahead.

Murkowski has said the oil tax is finely balanced to increase the state's share of profits at high oil prices while encouraging new development of the state's reserves of oil and gas.

The Legislature would have to ratify the gas deal and also any proposal to lock in tax rates for multiple years.

The five candidates running for governor this fall agree on two things. First, they don't like the idea of locking up tax rates for multiple years. Second, they say the oil tax should not be decided without knowing how it fits in with the gas contract. That means the gas contract should be released to the public now.

"If we're being told that passing the bill as proposed by the administration is necessary in order to keep the gas line deal that they struck in place, then the public needs to see the gas line deal in order to make an informed decision," said John Binkley, a Republican candidate from Fairbanks.

Murkowski deserves credit for putting the net-profits tax on the table, said independent candidate Andrew Halcro of Anchorage. Now, he said, it's the Legislature's responsibility to do the right thing: Pass the right tax and get rid of any linkages to the pipeline project.

"It shouldn't be connected to the natural gas pipeline and the Legislature has the ability to make sure that doesn't happen," Halcro said.

The governor's proposal is to tax 20 percent of the companies' net profits, but also to provide exploration incentives such as a tax credit for capital investment and a $73 million automatic deduction each year for each company.

Other incentives include allowing the companies to claim the past five years of capital investments as credits over a transition period, which would save the companies an estimated $1 billion in taxes.

Also, a clause that would have made the tax effective at the beginning of the year was not included in the bill that Murkowski introduced. A later effective date would save the companies hundreds of millions in taxes.

The two Democratic gubernatorial candidates who are also state legislators, Reps. Ethan Berkowitz and Eric Croft, both from Anchorage, have sat in on most of the legislative hearings that have been held on the governor's net-profits tax bill.

Berkowitz said he was concerned that the Legislature was being stampeded by the Murkowski administration to change the production tax to a net-profits tax. The Legislature instead should look at what other alternatives may be out there, he said.

If the Legislature concludes a net-profits tax is the way to go after that analysis, it will have at least made a rational decision on a tax change that will affect the state for years to come, he said.

"This is so important, we must do it right. That means we must take the time to examine the alternatives," Berkowitz said. "I don't know what other alternatives might be out there. But I want to see the Legislature look at them and make a determination as to what best suits Alaska's needs."

Croft said the governor's deal is too laden with incentives, which he called carrots. Giving oil companies more incentives is not going to bring the state a gas pipeline, he said.

"I have a different proposal. Instead of feeding them more carrots - and they will have sat on our porch and eaten all our carrots, and (Murkowski) is proposing giving them more - I want to take a two-by-four and hit them on the ass," he said.

The Division of Elections on Monday certified an initiative by Croft and Reps. Harry Crawford, D-Anchorage, and David Guttenberg, D-Fairbanks, to tax the oil companies who hold natural gas leases in Alaska $1 billion a year until a gas pipeline is built. That initiative will go on November's ballot unless the Legislature passes a substantially similar bill.

That initiative is one stick to encourage construction of a pipeline, Croft said.

The other sticks he said the state has is to enforce the lease agreements and contract obligations the companies signed, plus have Alaska join as a plaintiff in an antitrust lawsuit against Exxon Mobil and BP.

In that lawsuit, the Alaska Natural Gasline Port Authority claims the two oil giants are restricting the nation's supply of natural gas and keeping prices at record highs.

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