Senate mulls oil tax bill

Session set to end at midnight Friday

Posted: Tuesday, November 13, 2007

Gov. Sarah Palin has the support from the Alaska House of Representatives to boost the net profits oil tax from 22.5 percent to 25 percent, but will she get the same backing from the Senate?

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That answer may not come quickly, and the Senate didn't seem to be in a rush after House passage late Sunday.

It took nearly all day Monday for the House bill to be drafted and presented to the Senate. After that, the Senate Finance Committee met less than two hours to address the bill.

It's a process in which time is not the Legislature's ally: the special session must end at midnight Friday.

Palin, meanwhile, took Monday's slow day in the Legislature to meet with several ranking lawmakers on her bill.

"No one has shown us why 25 percent isn't the most appropriate rate," Palin said in an interview after those meetings.

Palin is seeking to rewrite a one-year old law she has called a failure and tainted by a federal corruption probe.

Just as important, Palin said, is that the bill didn't deliver as promised; her administration has forecast an $800 million shortfall of expected revenue.

"We don't want to have to come back and revisit this again," Palin said. "We want to provide the stability for our state's economy. We want to get it right this time."

Late Monday afternoon, the Senate Finance Committee began reviewing a bill passed by the House late Sunday night.

The Senate can accept, modify or completely change the bill. Any changes will have to be accepted by the House, or the differences will have to be worked out in a conference committee before the session ends.

Senate Finance Chairman Bert Stedman, R-Sitka, said he's not sure what changes await, but he's long backed a 22.5 percent rate.

In addition to the lower base rate, Stedman prefers using a surcharge that takes advantage of any increase in market oil prices, currently trading in the mid-$90s per barrel. This is called progressivity, a feature also included in the House version of the bill.

The House actually doubled Palin's proposed surcharge from .2 percent to .4 percent as oil prices climb. At the market price of $52 a barrel, the surcharge kicks in - .4 percent per every $1 above the trigger price.

With oil prices nearing $100 a barrel lawmakers have become increasingly interested in the progressivity option.

If the 25 percent tax were to stand, and added to other economic factors like the progressive tax, it would mean a boon for state coffers.

Based on a market price of $80 a barrel, the 25 percent tax - plus other fiscal factors, like the progressive tax - it could mean an additional $1.49 billion to the state treasury for fiscal year 2009, said Revenue Commissioner Pat Galvin.

Palin and Stedman met Monday a few hours before the committee met. Stedman called the meeting pleasant.

"We are a separate branch of government and we look at things a little bit different than the governor does," he said. "We'll proceed with the best interests of the state in mind."

The House passed the bill late Sunday on a 27-13 vote.

Majority Leader Ralph Samuels, R-Anchorage, was among the loudest voices opposing the bill, which some critics have called a short-sighted grab at the expense of future investment.

Oil companies can claim credits against the tax for any new exploration in the state, but some say the higher tax could preclude them from such risky ventures.

Samuels says lawmakers need to be mindful of the North Slope's annual decline of production inching closer to 7 percent from the more often quoted 6 percent.

"The risk to the state is what happens it if it's not a 7 percent decline; what if it's 9 percent?" he said.

"It's really a question of how much risk to the overall economy that you're looking at," Samuels said. "Can you have the best of both worlds? What are the consequences of being wrong?"

The House Finance Committee on Saturday stripped the 2.5 percent tax hike, but the full House quickly brought it back a day later.

"I'm very confident we've done the right thing on this," Rep. Mike Kelly, R-Fairbanks, said. "I'm not fearful whatsoever this is going to harm the investment climate in Alaska.

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