The Alaska Senate is about to enter a bruising debate over whether to slash how much Alaska taxes oil companies, with Senate President Gary Stevens calling the governor's tax cut plan a giveaway that could cost the state billions with little in return.
"We have been asking the administration (of Gov. Sean Parnell) for months to give us some proof this will do Alaska some good," Stevens said last week.
It's a debate likely to dominate the 90-day session of the Alaska Legislature that begins in Juneau on Jan. 17. The state House has already passed the governor's bill so the pressure from the state chamber of commerce and other groups who want to lower the tax is bearing on the members of the Senate who so far have stonewalled Parnell.
Parnell calls his bill to lower oil taxes the top economic priority of his administration and said he will keep pressing.
"We need a game-changer to turn declining production into increasing production," Parnell said in a recent speech. "And not just any old oil tax change will do; the changes have got to be meaningful, tweaks are not enough to make us competitive."
Proponents of cutting the oil tax are touting recent statements of some state senators about changing the system. But changes under discussion in the Senate are much more modest than what Parnell has been talking about.
"Many senators have concerns about the bill. Real and important questions. If it does make it out of the Senate it will only be with changes, major changes I suspect," Stevens said last week to the policy group Commonwealth North.
Stevens spoke of near record employment numbers on the North Slope and a recent presentation to legislators by international oil consultant Pedro Van Meurs. "It is quite telling that Pedro Van Meurs was just here in Anchorage and in his presentation he implied that Alaska tax rates are not particularly out of line with other regions and he suggested that there may be no need to make significant changes in Alaska's oil tax program," said Stevens, R-Kodiak. (Read the full speech here)
Van Meurs did not recommend Parnell's oil tax bill. The consultant did suggest in his presentation, however, that "if Alaska wants to slow down the decline of light oil production, it is very likely that stronger incentives are required."
Senators are talking about changing what's called "progressivity," a feature that increases the tax rate as the price of oil goes up along with company profits. Sen. Bert Stedman, influential co-chairman of the finance committee, is maintaining his opposition to Parnell's bill but said he's convinced the state does tax too much at very high oil prices.
"We need to go back and review the government split at high oil prices and the structure that allows a continuous increase in the state's share at the upper end. At some point that needs to be balanced with the industry," Stedman said.
But Stedman, a Republican from Sitka, said the imbalance exists when oil prices are at extremely high levels. He said he sees problems with Alaska's tax structure when prices are in the range of $130 a barrel and even higher.
Prices don't get that high very often. The monthly price average for Alaska North Slope crude has only crossed the $130 threshold twice.
Senate Majority Leader Kevin Meyer, R-Anchorage, said he thinks there is potential for larger changes to the oil tax than that. He said the biggest problem with Alaska's tax is the state takes so much as oil prices go up that the companies don't see the potential benefits of an increase in profits that would help justify the risk of Alaska investing.
"My gut feeling is that the majority in the Senate realize there are some tweaks, some changes that need to be done," said Meyer, a facilities support coordinator for Conoco Phillips. "But I think most don't feel that we need to do as much as proposed in (Parnell's bill)."
Anchorage Democratic Sen. Bill Wielechowski said his takeaway from oil consultants is that the state tax only takes too much at prices in the $150 to $160-per barrel range, stratospheric prices that Alaska crude has never reached.
"Our government take at current levels is still lower than Norway, still lower than other nations like Libya, Russia, Kazakhstan, Angola, China, Venezuela," he said.
Parnell said those who say he hasn't made the case just need to look at the decline in Alaska's oil production. The decline started in 1988, long before the current oil tax system was in place, but Parnell said the status quo needs to change.
"Giving up some present, short term gains during this high oil price environment to gain more production and revenue for the long term economic health of our people, it is still the right thing to do," he told the Resource Development Council.
Reach Sean Cockerham at firstname.lastname@example.org or 257-4344.