Contract could lock state into taxes for 30 years

Governor backs fixed oil tax rate in exchange for companies agreeing to build gas pipeline

Posted: Tuesday, May 16, 2006

Alaska must suspend its authority to alter oil and gas tax rates for 30 and 45 years, respectively, if oil producers sign a natural gas pipeline contract that includes such a provision.

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State Attorney General David Marquez told legislators on Monday the Alaska Constitution allows the state to temporarily give up its power to tax in the case of entering a fiscal contract.

The state is negotiating with a trio of major producers - ConocoPhillips, Exxon Mobil and BP - to build a pipeline that would deliver North Slope natural gas to markets in Alberta and Chicago.

The framers of the Alaska Constitution added a clause allowing the state to offer incentives for developing Alaska's resources, Marquez said.

"The contract will be binding on future legislatures who seek to impair the contract, unless the impairment is justified by an important public purpose," Marquez said. He added that "important public purpose" is narrowly defined.

Subsequent legislative action cannot be taken to adjust the contract. The U.S. Supreme Court in similar cases has favored a federal clause that enforces such contracts that states sign with industries, according to Marquez.

Gov. Frank Murkowski supports locking in tax rates for decades in exchange for the producers agreeing to build the 3,600-mile pipeline, which is expected to cost $20 billion or more.

"When you look at the risk in the size of the project, what does it take to get it done?" said Murkowski, who stopped by Centennial Hall on Monday to hear a portion of the administration's contract overview.

Sen. Gary Wilken, R-Fairbanks, said he had no opinion about the provision, but he expects it will be a problem later. In the meantime, he said he hopes lawmakers will use this week as an opportunity to learn more.

"It's dangerous to take it a piece at a time and make decisions on it until you see how it all fits together," he said.

While the presentation focused on the legality of locking in tax rates, Sen. Kim Elton, D-Juneau, said the administration was not addressing it as a policy call.

"I think that was to maybe avoid a discussion of whether it's right or wrong, instead of what's constitutional or not constitutional," Elton said.

During his 12 years in the Legislature, Elton said, taxes have been approved for the fishing and oil industries, but with a certain understanding.

"We've done that in the knowledge that if we make a mistake, we can fix it next year. This goes a step further," he said.

Alaska has a good history with the oil industry, and hasn't shocked the industry with unreasonable taxes, said Rep. Harry Crawford, D-Anchorage. He was suspicious of the state offering a 30-year deal.

"We didn't do it with the oil pipeline. Why would we do it with the gas pipeline?" he said.

A better way of getting a pipeline would be to release a contract for competitive bids from any company or investor with the means to build the project, Crawford said.

The Legislature and the public have until the end of June to submit comments to the administration about worrisome details in the 350-page contract. After considering the recommendations, later this year, the administration will release a final draft for the Legislature's approval.



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