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Gov defends oil tax cut plan, urges action

Posted: Friday, March 11, 2011

JUNEAU — Alaska Gov. Sean Parnell strongly defended his plan to cut oil production taxes, telling reporters Thursday that its passage is imperative but stopping short of threatening to hold a special session if lawmakers fail to act on it before adjourning next month.

He said two provisions of the proposal, lower tax rates for production from new units and infield drilling credits, will lead to new opportunities and investment. While he acknowledged that changes in the way the progressive surcharge is levied will cost the state revenue, Parnell said that doesn’t justify dismissing the bill.

By one state estimate, the plan could cost up to nearly $2 billion a year.

He said the administration would present reinvestment scenarios that show what the state could stand to gain a part of the debate that so far has been lacking.

“I assume that lower taxes means we’re more competitive and companies will come in,” he said. If that doesn’t happen, he said, the Legislature can change it.

The measure could become the first real test of Parnell’s political will. While the measure has cleared one committee in the House, and getting a version of it to the floor for a vote has been a priority of both the administration and leaders of the House’s Republican majority, it faces uncertain prospects in the Senate.

The Senate Resources Committee held the first of what’s expected to be weeks of hearings on the proposal Wednesday, with just over five weeks left in the session. And Sen. Bert Stedman, looked to by other members of the Senate’s bipartisan majority for his expertise on oil issues, said he believes it’s important for lawmakers to have a thorough look at the overall tax regime before tinkering with separate pieces of it.

Stedman sits on the Senate resources and finance committees, both of which Parnell’s bill must clear before getting a vote.

A study commissioned by legislators, comparing oil basins around the world, isn’t expected until June, and Stedman said it would be imprudent to act on a proposal without even looking at a study that could further inform the debate and that taxpayer dollars have already gone toward.

Stedman also indicated his desire to resurrect the debate over whether to change Alaska’s system of taxing oil and gas production together. Last year, he lost that fight to Parnell, who vetoed the change, which he considered an overall tax increase. Stedman disputed that claim.

Parnell said Thursday that he has no interest in revisiting the debate now and that he’d like the Senate to “spend more time on job creation and promoting economic growth” rather than increasing taxes, as he believes the separation of oil and gas production taxes would do.

He refused to speculate on what he might do if the bill failed to pass. “But you all know what the options are there,” he said, alluding to a possible special session.

Senate Majority Leader Kevin Meyer said he knew of no effort by the bipartisan majority to stall on Parnell’s bill. He said the coalition has come to no one decision on the proposal except to let it go through the process.

But he said the key figure in all this is Stedman.

The current tax regime features a base rate of 25 percent. A progressive surcharge kicks in when a company’s net profits exceed $30 a barrel. The tax generated $6.8 billion in fiscal year 2008, a period marked by high oil prices and profits, over $3.1 billion in 2009 and nearly $3 billion last fiscal year, according to the Department of Revenue.

North Slope crude closed Wednesday at $115.05 a barrel.

The idea behind the structure, championed by Parnell’s predecessor, Sarah Palin, was that the state would share with the oil companies during the good times — those of high profits. But the companies complain the tax is onerous and eats into their profits.

Parnell said certain aspects of the regime, known as Alaska’s Clear and Equitable Share, are good, like credits for exploration. And he said he supported the tax change when it was introduced. But, in hindsight, he said, “the progressivity curve is too steep.”

He said his ah-ha moment came in seeing a chart that showed Alaska “in the game” with other energy-producing regions when oil was around $60-a barrel but turning into an outlier when prices rose.

His proposal would, among other things, change the surcharge triggered when net profits top $30 a barrel, subjecting incremental values to higher taxes. For units now in production, it would cap the surcharge at 50 percent when oil prices top $92.50 a barrel; for new fields, the cap would be at 40 percent at higher-priced oil.

“I think Alaska ought to be competitive because we have a world-class resource,” he said.



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