House OKs 23.5 percent oil tax rate

Juneau delegates split on latest plan

Posted: Wednesday, June 07, 2006

Backers of a 23.5 percent tax rate on oil company profits held strong on Tuesday during the Alaska House's final vote on the bill.

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Absent were the hours and hours of debate usually accompanying a vote on oil tax rates, which have been caught in a tug-of-war since Gov. Frank Murkowski proposed changing the tax scheme. Murkowski has linked the tax rate to a deal the state is trying to strike with gas producers to build a pipeline to carry North Slope natural gas to potential markets.

With the most bipartisan support seen in the House this year, Senate Bill 2001 passed with a vote of 29-9. Votes from Juneau's representatives were split.

"Frankly, a lot of it has to do with the fact that we've had more time with the issue and we also finally got to see a little more of the contract," said Rep. Beth Kerttula, D-Juneau, who voted for the tax.

The bill earns more revenue than any previous version passed by the House. Included is an escalator that increases the rate by .25 percent for every $1 above $50 a barrel. At $60 a barrel, the House's latest version would earn about $2 billion more than the current tax plan, according to legislative consultants Econ One Research.

The rate is closer to the 25 percent that the Alaska Legislature's hired consultants recommended during the regular session.

Kerttula added that not everybody is completely happy with the bill, including herself. She has reservations about taxing net profits instead of gross profits. But this version of the tax bill contains enough compromise to make it livable, she said.

Rep. Bruce Weyhrauch, R-Juneau, voted against the bill.

"It's was probably more of a vote of frustration than anything else," he said. "I thought the whole bill ended up being a mess and I'm not sure if it gets us to a gas line."

He said competing information - that a low tax is right for future investment by oil companies but a high tax maximizes state revenue - was confusing.

"I just don't know if we really know what the right rate is," he said.

Lawmakers initially approved the same bill Sunday, but the vote came up again for reconsideration. A delay on Monday signaled some House members were rallying support to lower the tax rate to levels seen earlier this year. Coghill said the Monday delay in the House vote was to make sure all the lawmakers could be present if another rate change was proposed.

"I think there were members within the body talking to each other. But there was no real heavy duty lobbying from the third floor," said House Majority Leader, John Coghill, R-North Pole, referring to Gov. Frank Murkowski's office on the third floor of the Capitol.

Murkowski has been pushing for a 20 percent tax since introducing the new tax scheme in February, saying any increase in the rate may scuttle a deal the state is trying to strike with three major oil producers.

The ever-elastic bill heads to the Senate for a concurrence vote. If that fails, a conference committee will iron out the differences.

House Speaker John Harris, R-Valdez, already appointed three members to a conference committee, under the assumption that the Senate will not concur with the new version. His appointees are Rep. Mike Kelly, R-Fairbanks, Rep. Ralph Samuels, R-Anchorage, and Kerttula

The Senate has voted on three versions of the net-profits tax so far this year, and the latest one would be its fourth. Two weeks ago, the Senate approved a tax bill with a rate of 22.5 percent as members in the majority said they were being cautious not to increase oil companies' taxes too much.

Sen. Kim Elton, D-Juneau said weariness, combined with senators beginning their campaigns for the August primary election, could lead to a change in voting behavior.

"They could throw up their hands and say this is it, let's go home," said Elton, adding that the opposite could also happen and legislators may let the bill expire to have another crack at it during a second special session.

The special session that was called May 10 expires Thursday night. If the two bodies can't agree on a final draft, the bill dies. Lawmakers could take it up again during a second special session, which the governor is expected to call this week so legislators would have more time to debate amendments to the Stranded Gas Development Act.

Murkowski has warned that increases to the tax rate could scare off ConocoPhillips, Exxon Mobil and BP, the producers negotiating to build a pipeline to deliver North Slope natural gas to markets in Alberta and possibly Chicago.

"You never say never to anything, but it is a finely balanced deal," said Ken Konrad, a vice president at BP Alaska. "Whenever you're raising taxes, you're decreasing the probability of investment occurring. It clearly puts the future at risk."

While oil reserves on leases are drying up and searching for heavy oil stands to be expensive, keeping the North Slope alive for the next two generations will take billions and billions of investment dollars, Konrad added.

Murkowski spokesman John Manly said it's unknown whether the governor will veto a bill that includes a tax rate above 20 percent.

"We won't know until we see what we can get from the Legislature," Manly said.

• Andrew Petty can be reached at

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