Senate passes oil and gas tax bill

Controversial bill wins bipartisan support, faces questions in House

Posted: Friday, April 02, 2010

The Alaska Senate passed a bill to remove the link between oil and gas taxes, a measure which once threatened to be a divisive issue but later won overwhelming approval after it was amended.

Sen. Bert Stedman, R-Sitka, has been warning since early in the session that the linkage between oil and gas taxes could, under certain circumstances, cost the state billions in lost revenue.

Under a scenario during which gas prices are low and oil prices are high, Stedman said, Alaska's combined tax system could wind up not only eliminating all gas taxes, but also end up giving back taxes collected on oil as well.

Stedman said his bill would separate the two, called "decoupling" by legislators, and would make sure that didn't happen.

Alaskans would be dismayed, he said, if they discovered that after a natural gas pipeline went into operation it provided the state with less revenue than an oil pipeline by itself.

"All of a sudden, we don't get a revenue increase, we actually get a net loss," he said.

"We have protected our oil revenue, and the money is in the oil."

While Stedman's proposal won unanimous Democratic support in the Senate, its prospects may not be so good in the House of Representatives.

House Democratic Leader Beth Kerttula, D-Juneau, said her caucus remains skeptical that the Legislature should be rushing to make huge changes in Alaska's oil and gas tax rates.

"A 90-day session is tough enough without trying to decide the future of oil taxes and the gas pipeline in the last two weeks of the session," she said.

Gov. Sean Parnell also questioned whether the change was necessary, his spokesperson said.

Stedman and others supporting splitting the taxes had initially said the decoupling must be done before TransCanada Corp. begins soliciting bids May 1 to ship natural gas during an "open season." Under the state's Alaska Gasline Inducement Act, tax rates in place at the start of the open season remain in effect for 10 years after an AGIA pipeline begins operation.

With the open season imminent, Parnell is worried about the possible impact of the bill, said Sharon Leighow, his press secretary.

"He remains concerned about a major change in taxes just weeks before the open season," she said.

Supporters of decoupling acknowledged on the Senate floor Thursday that the state could decouple oil and gas taxes in the future, but still urged immediate action.

"Should this bill not become law, we can decouple in the future, we can do so at no legal risk to the state," said Sen. Hollis French, chairman of the Senate Judiciary Committee. Lawyers for the Legislature, and an extensive review by the Alaska Attorney General, came to the same conclusion.

French said the decoupling bill still needed to be passed, however.

"This bill basically protects Alaska's future," he said.

The earliest a natural gas pipeline could be operational is likely 8-10 years, according to legislative testimony over the last few months.

Stedman had originally proposed the bill a month ago, but it was dramatically different than the one suddenly passed by the Senate Finance Committee on Wednesday. It was voted on by the Senate a day later.

Three legislators, all Republicans, voted against Stedman's proposal. Con Bunde, R-Anchorage, questioned the rush, saying the bill had been considered for only 20 minutes in committee before being sent to the floor. The Alaska Budget Report said the bill was discussed for 24 minutes in committee before passage.

Bunde later asked for final adoption of the bill to be delayed for 24 hours to give legislators an opportunity to change their votes, a process called "reconsideration." That was denied by the full body.

Reconsideration was instead taken up the same day with the outcome unchanged. Only three senators opposed the bill.

Stedman had originally proposed including a tax reduction on natural gas, but the version passed Wednesday abandoned that effort.

The Senate amended the decoupling bill Thursday to address another Democratic concern. A broadly worded title was replaced with a lengthy, but highly specific one.

Senators said that was intended to make sure that other issues, such as a rollback of the state's oil tax, are not included in the bill in the House of Representatives. House leaders have criticized the state's ACES oil tax law, saying they want it lowered. Bills to do that, including one sponsored by Gov. Parnell, have stalled.

Rep. Harry Crawford, D-Anchorage, had earlier suggested the bill might be aimed at undermining AGIA by eliminating one of the "inducements" it included, ten years of tax certainty for those who commit gas to the project early.

Kerttula said Thursday that she was now convinced the bill is not an attempt to prevent AGIA from succeeding.

"I think Sen. Stedman has a good intent with what he's trying to do," she said.

The decoupling bill is scheduled for its first hearing next Wednesday in the House Resources Committee.

• Contact reporter Pat Forgey at 586-4816 or

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