House bill links Alaska hiring to oil tax reductions

Under one hypothetical in the state analysis, a big oil company with a $1.5 billion tax liability could get a $30 million rebate for hiring just 50 more Alaska workers.

Even without factoring in the local hire tax rebate, the bill would cost the state an estimated $575 million in lost revenue next budget year, according to a state Department of Revenue preliminary analysis.

State Rep. Craig Johnson, an Anchorage Republican and chairman of the House Resources Committee, is prime sponsor of House Bill 308, which he calls the Alaska Job Security Act. He said his intent is to create oil jobs by encouraging investment through tax breaks.

The measure, a mix of tax credits and lower tax rates, revamps the 2007 oil and gas production tax measure known as the Alaska Clear and Equitable Share, or ACES. Republicans in the Legislature and the oil industry say jobs are being lost and oil companies aren't spending on exploration the way they used to. Democrats say ACES needs more time to work before making wholesale changes. They dispute assertions of lost jobs and lower investment.

In a committee hearing Wednesday afternoon, top officials with the state Department of Revenue told lawmakers it's clear the state will lose millions and oil companies will gain under Johnson's bill. The measure cuts in half a progressive tax rate charged when oil prices are high.

"But does it result in new investment? I think that's what you're going to hear a lot of debate about," Revenue Commissioner Pat Galvin told the committee. "From the administration's perspective at this time, given the information that we have received from companies in the industry, there is no commitment to take any tax savings that would result from a lower tax rate and turn it into jobs and investment."

The bill also provides tax credits for well work, including deepening existing oil wells, while lowering certain other tax credits for explorations.

"If it puts oil down the pipeline, that's what we're after," Johnson said.

Oil producers wouldn't reap all the benefit from the tax cuts, said deputy revenue commissioner Marcia Davis. The federal government would also gain because oil companies wouldn't be able to write off as much in state taxes.

The change in taxes at high oil prices would cost the state about $100 million at $60-a-barrel oil, according to the Revenue Department. The federal government would be able to collect all that from the oil companies. At $100-a-barrel oil, the state would lose $1.2 billion. In round figures, the oil companies would hold onto $800 million of that and the federal government would pocket $400 million, according to Davis.

The local hire provision added to the bill this week would give oil producers a break in the 25 percent base tax rate if at least 80 percent of their payroll were Alaskan. State auditors would verify that by checking for resident fishing and hunting licenses or Permanent Fund dividends. Davis said the bill didn't allow for those audits of contractor payrolls. Johnson said he would address that.

The more Alaskans on the payroll, the bigger the rebate. If an oil producer were able to prove 100 percent Alaska hire, the production tax would be 20 percent instead of 25 percent.

Under scenarios worked out by revenue officials, an oil company just shy of the 80 percent mark could reach it by hiring a single Alaskan. In an extreme example, hiring just one Alaskan could mean $30 million in tax savings, Davis said.

In another example, a company with 500 employees, 87 percent of them from Alaska, could get a rebate on its $100 million tax liability by increasing its local hire numbers by just one-half percent. Hiring 20 Alaskans would save the company $2 million, or $100,000 for every Alaskan hired, according to the Revenue Department.

Some legislators wondered whether oil companies would try for the tax savings by firing workers from Outside rather than hiring locally. Johnson said he doubted that.

House Democrats say the local hire provision seems to be a political ploy intended to win support for a bill they don't otherwise like.

Rep. David Guttenberg, D-Fairbanks, said the local hire provision is merely a state subsidy to oil companies. There's no requirement that the jobs be long lasting or well paying, he said.

"Theoretically the industry could hire enough homeless and sit 'em on the bus in Prudhoe, up the number of the percentages," Guttenberg said at a press briefing by Democrats on Tuesday.

Nonsense, Johnson responded.

"This is not politics, and if it is politics, it's for a noble cause," Johnson said before Wednesday's hearing. The cause, he said, is creating jobs -- around 2,500 was his estimate.

House Bill 308 is one of at least four oil tax credit or rollback bills before the Legislature this year. State Sen. Lesil McGuire, R-Anchorage, has a companion bill in the Senate, where she co-chairs the resource panel. State Rep. Charisse Millett, another Anchorage Republican, proposes to lower the oil production tax from 25 to 20 percent. Gov. Sean Parnell introduced a bill to provide tax credits and other relief this week.

On Wednesday, House Speaker Mike Chenault popped into the House Resource Committee hearing and took a seat in the audience, jotting notes to himself. He said he had some free time and wanted to hear more about Johnson's bill. He said he was particularly interested in the local hire provision.

In the end lawmakers may piece together an oil tax bill that incorporates parts of various measures, Chenault, R-Nikiski, said.

Johnson said he would make some changes to the bill in response to the Revenue Department analysis. He intends to bring his bill to a vote on Feb. 17, even if his committee has to work all night. Oil producers are scheduled to testify Monday on the measure.

Find Lisa Demer online at adn.com/contact/ldemer or call 257-4390.