Oil tax bill comes up lame after tense negotiations in Senate

Even several long hours of caucusing can't bring senators to a consensus.

Anchorage Daily NewsApril 12, 2012 

JUNEAU -- The Senate's oil tax reform bill hit a major snag Thursday and was pulled from a Senate floor vote after hours of caucusing failed to resolve differences within the bipartisan majority.

The math that caused the bill to stumble was as much about the counting of votes within the politically diverse coalition as it was any particular set of tax calculations in the bill. And that posed an obvious question: Is there any way forward?

"It's very difficult when you're at 10-10 (Republicans and Democrats) and you've got a complex tax structure you're working on," said Sen. Bert Stedman, R-Sitka, one of the bill's lead authors. "We've got an extremely diverse set of opinion."

Reducing oil taxes has been a top priority of the governor and House leadership as a way to encourage the industry to invest more heavily in Alaska to produce more oil and jobs. Stedman and other Senate leaders agree that taxes are too high, but only under some circumstances, and they say the bill passed by the House and favored by the governor would cost the state billions of dollars in revenue with nowhere near matching benefits.

The Senate's tax bill moved out of the Senate Finance Committee on Wednesday night with six of its seven members giving it a "do pass" recommendation. The seventh, Sen. Lesil McGuire, R-Anchorage, said she would also support it, but with amendments.

But the bill came up lame Thursday morning after senators and their aides worked on it overnight. An 11 a.m. Senate floor session to hear it was postponed to 11:30, then to after lunch, with senators, and then the Senate leadership, meeting all the while behind closed doors.

When they finally emerged, they announced a Senate floor session at 3:30 p.m. -- but without the oil tax bill, Senate Bill 192.

Instead, it was diverted to the Senate Rules Committee, a rare stop for any measure. The Rules Committee chairman, Sen. Johnny Ellis, D-Anchorage, usually acts like a traffic cop, taking measures cleared by other committees and steering them to the floor. The committee, a powerhouse of Senate leaders, rarely holds hearings on bills. Stedman said he recalls that happening only twice in the Senate since he took his seat in November 2003.

With the Legislature due to adjourn Sunday on its 90th day, Ellis said in a brief interview Thursday evening that he might not hold a hearing at all. He said he will try to work out differences among the senators in caucus and one-on-one meetings. Then he left for a caucus.

It's unclear what exactly the Senate is stumbling on because caucus rules forbid talking about internal disagreements in public -- or even with aides. But some senators, particularly Democrats, had expressed concern that the bill would reward the biggest oil producers -- BP, Conoco Phillips and Exxon -- for doing what they would do anyway, continue to spend money to develop Prudhoe Bay and Kuparuk.

The tax breaks in the bill have different kinds of tax incentives depending on the kind of oil field. It has big breaks for companies that find and start producing from new fields, for example.

The operators of so-called legacy fields can also get tax breaks, but only if they beat the projected decline of production that afflicts all aging oil fields. One sticking point in the tax bill is how to determine the rate of decline, a number based on past history but affected by the geology of a formation and the technology available to a producer. A tiny difference in the projected rate of decline can amount to tens of millions of dollars in either tax breaks to industry or tax revenues to the state -- an effect that could last long into the future.

McGuire, the Finance Committee member whose "do pass" recommendation was contingent on amendments, said in an interview Wednesday night that she thought the bill might be too hard on legacy producers. Democrats complained it gave them too many breaks.

The tax bill has highlighted the inherent problems in the Senate's bipartisan coalition. While the Senate is split 10-10 between Democrats and Republican, 16 senators joined together at the start of the 27th Legislature in 2011 to select a president, majority leader, committee chairs and committee members. All 10 Democrats and six Republicans joined the coalition.

The group seems a congenial bunch -- no loud voices, for example, emanated from the caucus room within the office of Senate President Gary Stevens, R-Kodiak, despite the obvious frustrations and difficulties that were playing out. But they are ideologically diverse, even though the Republicans within the coalition are more centrist than the ones outside of it.

Stedman said one way out would be to focus on the parts of the bill in which there is broad agreement, such as the incentives for new fields.

"Where it becomes challenging is when we start dealing with the legacy fields, Prudhoe and Kuparuk," Stedman said. "That's where the oil is and that's where the money's at, so it's difficult philosophically."

It's also where the most politically powerful oil companies are.

On Thursday, Ed Kerr, vice president of an independent exploring for new fields on the North Slope, Armstrong Oil & Gas, sent a letter to McGuire praising the Senate bill as "big step in the right direction for meaningful change in the tax code," at least as it applied to his company.

The Alaska Oil and Gas Association, a leading trade organization, came to the opposite conclusion. It urged the Senate to reject the bill because it failed to provide "meaningful reform across all field on the Slope."

Reach Richard Mauer at rmauer@adn.com or 907-500-7388.

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