Senator says there won't be an oil tax cut this session

April 6, 2011 

JUNEAU -- Gov. Sean Parnell said Wednesday that he'd allow the Legislature to spend as much as it did last year on the capital budget as long as it passes a bill addressing oil taxes this session, but a leader of the Senate Finance Committee said no such bill will pass the Senate.

Parnell has threatened to cut infrastructure and other capital spending if an oil-tax bill doesn't pass, saying the Senate's failure to act would consign the state to a future of declining oil production. That would require limited spending to preserve budget reserves owed largely to oil prices, he said.

The House narrowly passed a bill cutting oil production taxes and expanding credits last week, but leading senators have said they don't have the information they need to make a sound decision on the issue.

Sen. Bert Stedman told The Associated Press Wednesday that the Senate will not move an oil bill this session. And he took exception to the governor's position, saying the capital budget is not related to Parnell's plan to cut oil taxes. "And to try to entice or purchase votes and circumvent the fiduciary responsibility of the finance committee is appalling," Stedman said. "It's not going to happen under my watch."

At a news conference where updated revenue figures were released, Parnell said he would allow capital spending to match last year's level of $2.8 billion, assuming an oil-tax bill passes. He also proposed putting at least $2.5 billion into savings, assuming the same.

This includes $400 million toward an endowment for his merit scholarship program, a suggestion that lawmakers have been loath to embrace amid fiscal uncertainties and lingering doubts about the nascent program.

Stedman, R-Sitka and co-chair of the Senate Finance Committee, said the Senate has already proposed saving $1.4 billion, including $1 billion for reserves and $400 million for an energy assistance program endowment. He said his committee is working on an additional savings component that could approach another $1 billion.

With the new revenue forecast, which projects Alaska could receive $3.4 billion more than earlier anticipated for this fiscal year and next, basically due to higher-than-expected oil prices, Parnell said reserves could top $14 billion.

He believes it's worth discussing how much savings is too much.

"When we're putting away $2- to $3 billion a year, I think we have to ask, what are the state's constitutional priorities, how much does it take to fund those and what are we taking away from the private sector when we do that," he said.

The state stands to lose potentially billions of dollars in revenue by changing its tax scheme, as Parnell as proposed. Critics, including House Democrats, see this as a giveaway to industry with no assurances the state will see any increased investment. But supporters see it as an investment in the state's long-term economic future and as a righting of a tax scheme now too far out of whack.

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