Lawmakers again review oil taxes

Gov. Murkowski to address legislators in a joint session today

Posted: Thursday, July 13, 2006

State lawmakers convened their second special session of the year on Wednesday, with Gov. Frank Murkowski filing two familiar bills related to his natural gas pipeline deal with three oil giants.

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The Republican governor for the third time this year introduced a bill replacing Alaska's oil and gas production tax with one based on 20 percent of oil companies' net profits in Alaska.

He also proposes changing the state's Stranded Gas Development Act to give him the legal standing to negotiate a long-term oil tax freeze - the second time the Legislature will consider that bill.

Both bills, if passed, are to be included in the gas pipeline contract proposal Murkowski has already negotiated with the three oil companies that would build the pipeline, BP PLC, Exxon Mobil Corp. and ConocoPhillips.

The bills have died in past legislative sessions, with the production tax bill fizzling twice. Without them, the governor's gas deal with the oil companies is dead in the water.

So Murkowski, whose re-election bid may be riding on his pipeline deal, called legislators back for another try. He will address the Legislature in a joint session this morning.

Forty-eight of the 60 legislators were present when the House and Senate gaveled in Wednesday evening. No real work was expected to be done on the bills until after July 24. Several lawmakers had already planned to attend a meeting of the Pacific Northwest Economic Region next week in Edmonton, Canada, and the special session is expected to be put on hold for that week.

Lawmakers said they had been approached to gauge whether there would be support to override Murkowski's veto of $73.5 million in capital budget appropriations to utility projects along the state's railbelt.

Sen. Lyda Green, R-Wasilla, said she would have voted to override the governor's veto, even though "an override is a gut-wrenching thing." Green and others said too many people were absent for an override motion to draw the necessary 45 votes.

Most lawmakers had to interrupt their own election campaigns to return to Jun- eau, and some who arrived early simmered with resentment at being called back to the Capitol.

Rep. Harry Crawford, D-Anchorage, said the special session will crimp the time he has to conduct a door-to-door campaign of 6,000 homes. He said that strategy is the one advantage he has in his traditionally Republican district, where he faces Republican optometrist Jeff Gonnason.

"I can't match them with money," Crawford said.

Things aren't expected to be any easier for Murkowski this time. Next month's primary election is drawing near, and the volume of criticism from Murkowski's Republican opponents about his tax plan and his gas deal has risen.

That criticism is starting to resonate within the ranks of the Legislature's Republican majority. House Speaker John Harris, R-Valdez, and Senate Resources Chairman Tom Wagoner, R-Kenai, have thrown their support behind Fairbanks businessman and former state senator John Binkley, a harsh critic of Murkowski who hopes to unseat the governor in the primary.

The other leading Republican contender, Sarah Palin, supports a competing pipeline proposal from the Alaska Gasline Port Authority. Waiting in the wings are the two Democratic candidates, former Gov. Tony Knowles and state Rep. Eric Croft, who are also no fans of the governor's deal.

But Mur-kowski has managed to drum up support from a powerful ally: the White House. In recent weeks, state legislators have been deluged by letters, reports and appearances from federal officials urging movement on the pipeline deal.

Murkowski's tax proposal has the same elements as before, a 20 percent tax rate on companies' profits, which would be reduced by tax credits on 20 percent of the companies' capital investments in the state.

The Legislature has not stuck with that so-called 20-20 plan, with most lawmakers saying they should tax industry more. They have heard proposals ranging from 21.5 percent to 25 percent of profits. Plus, they added a sliding scale that would increase the tax rate when oil prices are high.

The compromise that failed in the last special session would have set a 22.8 percent base tax rate, which would have brought an additional $2.5 billion a year to the state in tax revenue when oil is $70 per barrel.

Murkowski spokesman John Manly acknowledges that the last two sessions have shown the Legislature isn't likely to stick with the governor's 20-20 plan this time, but "Governor Murkowski believes the 20-20 is a balanced approach to increased taxation," he said.

Lawmakers could hear two or more alternatives to the net-profits tax bill. One, by Anchorage Republican Reps. Ralph Samuels and Mike Hawker, would base each company's tax rate on the level of capital investment made. The other would do away with a profits tax altogether, and base it on gross oil and gas production.

Wagoner and Rep. Les Gara, D-Anchorage, say they have separate proposals for a gross production tax.

Also to be considered are the amendments to the Stranded Gas Development Act, the law under which Murkowski can negotiate a gas contract. The governor's deal includes a 30-year freeze on oil taxes and up to 45 years of frozen gas taxes for the three companies. The companies say that would give them the stability they need to invest in the $20 billion plus pipeline.

But Murkowski can't legally negotiate oil taxes as part of a contract, which is why he has to get the law changed for his deal to stand. Lawmakers have universally balked at the idea and questioned the constitutionality of locking up taxes for so long.

So when the governor reintroduces his bill this session, he will include a provision for that oil tax freeze that would lock in taxes for less time and only after the pipeline project is sanctioned.

As it stands, Murkowski's contract would not require a pipeline to be built. That decision would be made in about four years, after the project's permitting and design.

In the last special session, the Senate passed the Stranded Gas Development Act amendments. The bill never went to a vote in the House.

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