Governor defends his new oil tax measure from Democratic critics

ldemer@adn.comJanuary 17, 2013 

Gov. Sean Parnell's latest plan to revamp Alaska's oil tax system would cost the state better than $1 billion a year at predicted oil prices but bring in more money than the state now gets if the price drops -- all with the stated goal of sparking more oil production and reversing a worrisome decline.

Key Democrats in the state Legislature are lining up in force against the measure. While they share the big goal of more oil in the trans-Alaska pipeline, Parnell's proposal is nothing more than a giveaway to the oil industry that ultimately puts public jobs and services at risk, said Sens. Bill Wielechowski and Johnny Ellis, as well as Rep. Les Gara, all from Anchorage. Oil revenues pay much of the bill for schools, roads, troopers -- most state-funded services.

"If oil spikes up to $150 a barrel we would be in a situation in a couple of years where the oil companies are reaping in tens of billions of dollar in profit, and we're going to laying off police and firefighters and talking about a state income tax or a sales tax," Wielechowski said.

Parnell said he doesn't accept the Democratic characterizations of his bill.

"There's no question that this is a totally different and new proposal from last time. There's also no question that the fiscal impacts are less than the prior bill. There's also no question that this is more fair to Alaskans because it protects Alaskans better on the downside while taking less revenue on the upside of those oil prices," the governor said.

Still, even Republican Sen. Bert Stedman of Sitka -- who for years has taken a leading role on oil taxes but in the new Legislature wasn't appointed to the relevant committees -- says the proposal could result in a "lethal" cocktail.

At forecasted oil prices under the Parnell plan, the state would lose $900 million in the coming budget year and more than $1 billion per year by the 2017 budget year, according to an analysis by the state Tax Division. If more oil is produced, the hit to the treasury would be less. State revenue would increase under the most optimistic views of new production outlined in the fiscal analysis.

Parnell, a Republican who has been trying since 2011 to cut oil taxes, rolled out his new measure this week and outlined key elements in his State of the State speech Wednesday night.

The proposal, which runs almost 24 pages, would eliminate the heart of the current tax on oil profits contained in a Palin-era 2007 law known as Alaska's Clear and Equitable Share or ACES.

Under ACES, the tax rate rises when oil prices are high. The state shares in the risk when oil prices are low and reaps the riches when prices soar. Parnell initially was a defender of that approach. But the major oil producers have been fighting it for years.

The governor now wants to abolish the windfall profit tax and instead install a flat 25 percent tax on oil production profit.

"While Alaskans -- and many of us in this room -- haven't always seen eye to eye on these issues, we can all see the obvious: Unless we restore balance to our tax system, our oil fields will become obsolete. We must make reforms, and we must make them now," Parnell said in his Wednesday speech.

Besides getting rid of the escalating tax at high oil prices, Parnell proposes to eliminate a key 20 percent credit back to oil companies for capital expenditures on the North Slope. That puts hundreds of millions of dollars a year back into the state treasury.

Without the elimination of that tax credit, Parnell's proposal would cost closer to $2 billion a year, at forecasted oil prices the next few years of $110 to $118 a barrel. That's about the cost of his last proposal, which died last year in the Senate at a time it was ruled by a bipartisan coalition.

Under the Tax Division analysis of his plan, even without additional oil production, if oil dropped to $90 a barrel, the state would take in $25 million more than under the current system next budget year and $275 million more the year after that.

Democrats say Parnell's new plan is more extreme than his prior proposal, which would have reduced the windfall tax but not eliminated it. Even the oil companies never asked for what Parnell is pitching, Wielechowski said.

"This is more drastic than we've ever seen," he said. "We've seriously gone backwards."

To push for new production, the proposal also essentially cuts the tax rate even further for new oil fields and new areas of the aging giant Prudhoe Bay and Kuparuk fields.

Once other economic factors are considered, including the value of the state's share of the oil itself, corporate income taxes, and property taxes, Parnell's proposal appears to be regressive, cutting the state share as oil prices go up, which is not in the interest of Alaskans, Stedman said Thursday.

"When you mix the cocktail, it becomes lethal," said Stedman, a financial services professional who served as co-chairman of the Senate Finance Committee for the prior six years and also was on the Resources Committee, which considers oil legislation.

Now, with fewer Democrats and more conservative Senate leaders, he's no longer a member of either key committee. Nor is he on either of two new special committees, one on in-state energy and the other focused on stopping the decline in oil production.

During a Senate Majority press briefing after the governor's speech, Stedman told reporters that states like North Dakota are seeing dramatic boosts in oil production because of new technologies allowing oil to be extracted out of shale rock formations. Tax schemes, he said later, aren't the driving factor.

Senate President Charlie Huggins, R-Wasilla, said senators need more time and information to analyze the governor's bill.

"The bill just came out today. I haven't read through the whole thing yet though I've started the process and I'm underlining and putting equations in the margin," said Sen. Cathy Giessel, R-Anchorage and the new chairwoman of Senate Resources.

Newly elected Sen. Peter Micciche, R-Soldotna and the chair of the new trans-Alaska Pipeline Throughput Committee, said his panel will look at whether the current tax structure is preventing oil companies from drilling and producing more.

"We're in the oil business. We want to be fair to Alaskans. We certainly want our fair share. We don't believe in giving away a thing," Micciche said. "We're planning for 30 years out, not for five."

The governor's bill does little to push new investment in Alaska, the Democrats maintain. Oil companies will make more -- and can take those profits elsewhere.

"We need to do tax breaks but they have to be tied to new production," Gara said.

Officials with Alaska's three major producers, BP, Conoco Phillips, and Exxon Mobil, have all repeatedly testified before legislative committees that the state take under ACES is so high, it doesn't leave enough for them to reinvest in Alaska.

The producers were still reviewing the governor's new bill and weren't ready to say it would lead to the new boom both Republicans and Democrats are hoping for.

As it is, BP recently announced that it was halting a test project to produce heavy oil, which is thick and more expensive to extract.

Parnell's tax measure was filed as House Bill 72 and Senate Bill 21. Micciche's committee is holding hearings on it next week.

 

 

 


  Reach Lisa Demer at ldemer@adn.com or 257-4390.

 

 

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