Legislature opens with battle over oil taxes

Anchorage Republican Rep. Craig Johnson said he knows his bill would have a heavy impact on the state treasury. But he said it is worth it for the Alaska jobs that rely on the oil industry.

"It's going to be a philosophical discussion. Do we want jobs or do we want the state to have the money?" Johnson said in an interview.

The other co-chairman of the Resources Committee, Big Lake Republican Rep. Mark Neuman, also signed on as a sponsor. House Speaker Mike Chenault referred the bill to just two committees -- Neuman and Johnson's resources panel and the Finance Committee, where co-chairman Mike Hawker has expressed support for the approach Johnson is taking.

The production tax brought in more than $3 billion to the state treasury last year.

Anchorage Democratic Rep. Harry Crawford said there's no reason to think the companies would use the money saved under Johnson's bill to create more jobs in Alaska, rather than sending it somewhere else in the world.

"He's just looking to have a big tax giveaway to the oil companies, and there's no guarantee we'll get any new jobs out of it," said Crawford, who is running for Alaska Republican Don Young's seat in Congress.

Gov. Sean Parnell is against lowering the oil tax. But he does want to provide incentives by offering more tax credits that companies could shave off their taxes if they drill in Alaska. Those incentives are included in Johnson's bill as well.

A new Department of Revenue report says oil company jobs and spending are increasing in the state. Parnell said the oil tax increase the Legislature did in 2007, known as Alaska's Clear and Equitable Share, is generally working as intended.

Johnson disagreed. He said it's costing Alaska jobs, and he hears especially from people in his district about cutbacks. Johnson, who represents the Bayshore area of South Anchorage, said this is an attempt to get people back to work fast.

When asked about the Revenue Department saying the jobs are increasing, Johnson responded that a large number of the jobs are for maintenance work to renew the aging North Slope fields. When those projects are finished and the jobs are lost, the state will be in trouble without more oil going into the pipeline, he said. He pointed to the decision by Conoco Phillips not to drill an exploration well on the North Slope this year for the first time in 45 years. The company said it will instead pursue promising offshore prospects, where the state's taxes don't apply.

company profits in STATE

Legislators who oppose changing the oil tax say Alaska remains hugely profitable for the oil companies and that between 2006 and 2008 Conoco Phillips earned almost $7 billion in profits from its Alaska operations, almost as it much as it earned on all its Lower 48 production combined.

Crawford said the oil companies enjoy a far sweeter deal here than in Iraq, where a Shell-led consortium recently signed a government contract that calls for the companies to be paid $1.39 per barrel produced over current levels. It's not Alaska's tax rate that's causing companies not to drill, he said.

Johnson said he plans to put provisions requiring Alaska hire in his bill, although the language of that is still being worked out. His bill hasn't yet been analyzed for how much it might cost the state treasury. But the Revenue Department estimated in 2007 that the oil tax system that is now law could bring in some $800 million more a year when oil prices are as high as they are now than the approach Johnson is proposing.

high prices, less tax

Johnson's House Bill 308 wouldn't change the basic rate of Alaska's oil production tax. But it would cut in half the "progressivity" surcharge the state collects when oil prices are high. The Legislature's 2007 tax rewrite includes a 0.4 percentage point tax increase over the base tax rate for every dollar the price of oil rises above about $56 per barrel.

Johnson's bill would bring that surcharge down to 0.2 percentage points, mirroring the original proposal made by then-Gov. Sarah Palin in 2007. The Legislature decided with her enthusiastic approval to take it higher. The surcharge adds up fast with current oil prices at $80 per barrel.

Revenue Commissioner Pat Galvin, who held the same position under Palin, said going along with the higher surcharge than Palin proposed was a trade-off: In return, he said, the Legislature rejected Palin's desire for a minimum tax rate on the big Prudhoe and Kuparuk oil fields. That tax "floor" was to provide a safety net to protect the treasury if oil prices plunged.

While Johnson's proposal is controversial, he is far from alone in the state House in his views. Republican leaders of the House majority are very interested in at least debating oil taxes during this 90-day session and continually talk about Alaska's decades-long decline in oil production. Oil taxes dominated talk in the state Capitol hallways on Tuesday as the 90-day legislative session got under way.

senate is cautious

The Senate is ruled by a bipartisan majority, which is divided over whether to dive back into the contentious issue of oil taxes.

Key Democratic leaders in the Senate support the current oil tax, and there will be a time crunch for Republicans who'd liked to change it.

"I look at what we have to do in the 90 days we have, and we have a lot of bills, we have a big issue with the budget to deal with. ... It looks to me like (changing the oil tax) is a step too far," said Senate President Gary Stevens, a Kodiak Republican.

But Senate Finance Committee Co-Chairman Bert Stedman said he plans to launch a review of the oil tax.

The Sitka Republican said he'll see where it leads and how much time there is.