Work begins on oil tax revision

Before special session gaveled in, lawmakers hear from consultants

Posted: Friday, October 19, 2007

Even before the special session of the Alaska Legislature formally started Thursday evening, lawmakers began work on a proposed oil tax revision submitted by Gov. Sarah Palin.

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Many legislators, including the Juneau delegation, sat in on an eight-hour meeting with two expert consultants about options for getting the most from the state's vast but declining oil resources.

Sometimes contradictory recommendations from the experts show why it took so long to reach an agreement on taxes last year, and the difficult decision facing the legislators this year.

One of the state's highest profile consultants, Pedro van Meurs, had been former Gov. Frank Murkowski's top oil advisor last year. Van Meurs on Thursday recommended doing nothing but making a few needed tweaks to the Petroleum Profits Tax adopted last year. PPT calls for a regular review in 2011, and he recommended waiting until then to see if changes needed to be made.

"I would strongly recommend not making any changes," he said.

Palin wants it reviewed now, however, and has proposed legislation called Alaska's Clean and Equitable Share to do that.

Rep. Bob Lynn, R-Anchorage, said it was the fault of those involved in the scandal that the Legislature had to act.

"This special session would not be happening without the bribery and corruption," he said as the Legislature convened.

Still, he said, he could assure the oil companies that the Legislature would not raise taxes too high.

"This is not Venezuela," he said.

Though raising taxes initially might bring in more money, the resulting lack of tax certainty might cause oil companies to delay or cancel needed investments in Alaska, van Meurs said.

"Quite frankly, you become a basket case of instability," he said.

The initial year's tax receipts under the PPT came in $800 million less than expected, according to Department of Revenue Commissioner Pat Galvin.

Van Meurs said that was just the first returns, and predicted revenues would rise, possibly by as much as several hundred million dollars, after state audits of the companies returns are completed.

Oil prices between $80 to $90 a barrel will bring in much more money than the state had anticipated earlier, van Meurs said, which should reduce concerns about lost revenue.

"If you change your taxes every year, you get a bad name, that's just the way it is," he said.

Industry consultant Dan Johnston, who advised legislators last year, agreed with Palin that the taint of the ongoing corruption trials left Alaska under a cloud that had to be lifted, despite the negative effect inherent in change.

"If it weren't for that cloud, I would heartily agree" with van Meurs, Johnston said.

Because it was a company in the oil industry whose executives pleaded guilty of bribing several legislators, it would be unusual to not take a new look at the tax law passed last year, he said.

"The case for making a change is just to let the whole world know that you don't put up with such things," Johnston said.

Van Meurs said too much was being made of the bribery, however.

He said he originally proposed to Murkowski a tax rate of 25 percent, but the administration last year chose to propose a 20 percent rate. The Legislature eventually settled on a rate of 22.5 percent. The legislators implicated in the scandal pushed unsuccessfully for a lower tax rate than that, van Meurs said.

"I don't understand what the cloud is," van Meurs said. "These people didn't win their battle."

State Rep. Mike Kelly, R-Fairbanks, said those legislators implicated in the bribe reports influenced the process, even If they didn't technically support the final PPT version.

One change van Meurs said he supported was that Alaska's process of taxing oil needs more transparency, including more interim cost projections and better auditing.

Johnston said Alaska didn't need to worry so much about driving away investment by raising oil tax rates. With oil prices nearing $90 a barrel, the companies can afford to pay more, he said.

"When prices are this high, there is still a lot of money to be made," he said.

That's based, in part, on competitive bids submitted by oil companies that result in a government take topping 90 percent for some jurisdictions. Alaska's government take is far less than that, though most calculations differ on the exact amount.

The dynamics of state politics have changed dramatically in the last year, however. Palin differs dramatically from Murkowski, despite common roots in the Republican party.

The state Senate has changed almost as much. Last year's Senate leadership consisted of Sen. President Ben Stevens, R-Anchorage, and Rules Committee Chairman John Cowdery, R-Anchorage, neither of whom is in attendance this session.

An oil industry executive testified in court that his company had bribed both men, though neither has been charged with any crimes.

The House of Representatives continues to be led by Speaker John Harris, R-Valdez, though additional Democrats elected last November give Minority Leader Rep. Beth Kerttula, D-Juneau, more clout than Democrats had last year.

Among those new Democrats is Kerttula ally Rep. Andrea Doll, D-Juneau. Doll replaced former Rep. Bruce Weyhrauch, R-Juneau, who has been indicted on charges of accepting bribes to pass last year's oil tax bill.

• Contact Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.



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