Legislature marks 30 days with narrow agenda on oil taxes

Alaska Journal of CommerceFebruary 17, 2013 

At Day 30 on Wednesday, the state Legislature was one-third through its 2013 session, with the Republican-led state House and Senate focused on a narrowed agenda.

Oil and gas tax changes and constraining growth of the budget are the big priorities, Senate Majority Leader John Coghill, R-Fairbanks, said at a Senate leadership briefing Tuesday.

There may not be a lot else on the table this year, although the governor's priority bills including changes in cruise ship discharge standards and a bill making changes in permitting on state lands and water flow reservation requirements are on a fast track.

In fact, the cruise ship bill, House Bill 80, was before the Senate for final passage Feb. 13. Amendments were expected but final passage of the bill was considered likely.

The bill allows cruise ships to use a "mixing zone" of water to dilute treated wastewater to state water quality standards instead of being required to meet the standards at the end of the discharge pipe.

Mixing zones are commonly used for treatment of municipal and industrial plant wastewater but were denied to cruise ships when a 2006 citizen ballot proposition was passed by voters.

Sen. Anna Fairclough, R-Eagle River, said she was initially open to concerns, and a possible amendment, on cruise ship discharges within state marine critical habitat areas, such as near Homer.

But she changed her mind, she said, when she learned that standards for Homer's municipal waste treatment plant discharging effluent into nearby critical habitat waters were well below what would be required of cruise ships several miles offshore.

"That took the issue off the table for me," Fairclough said.

HB 80 has whizzed through the Legislature, introduced Jan. 18 and passing the House Feb. 4. It had been given single-committee referrals to the Resources Committees in both the House and Senate, signaling the pro-business bent of House and Senate Republican leaders.

The big issue occupying legislators is a change to the state's oil and gas production tax, which Parnell argues is too high and is discouraging industry investment in new North Slope oil development.

Parnell's bill would eliminate the "progressivity" formula in the production tax, which hikes the state's tax rate too as oil prices rise.

The formula is structured so that the tax rate gets to high levels, higher than most other oil-producing regions, when oil prices are $110 per barrel and above.

However, Parnell's bill also eliminates a 20 percent capital investment tax credit in the law, which has the effect of increasing industry's tax bill in the early stages of a project. The investment tax credit is not directly linked to increasing production, however, and has also become an increasingly expensive financial burden for the state.

The combined cost of the tax credits is estimated at $1 billion next fiscal year, according to the Department of Revenue.

The Senate's Special Committee on TAPS Throughput, chaired by Sen. Peter Micciche, R-Soldotna, held several hearings on SB 21 and sent the bill on to the Senate Resources Committee Feb. 7.

The Resources Committee, chaired by Sen. Cathy Giessel, R-Anchorage, began hearings Feb. 11.

Simultaneously, the House Resources Committee, chaired by Rep. Eric Feige, R-Chickaloon, and Dan Saddler, R-Eagle River, has been holding hearings on the House bill, HB 72. House and Senate hearings were held on the same days to maximize the efficiency of consultants brought to Juneau by the administration and Legislature, which include PFC Energy for the Legislature and EconOne for the administration.

A Letter of Intent sent along with SB 21 by Micciche's committee has signaled new directions the Senate, and possibly the House, may take on the oil tax. The TAPS special committee basically felt the governor's bill was a starting point, but not the final answer.

"Although SB 21 is an adequate platform from which a respectful dialogue can begin, in the current form the bill may not adequately provide production credit incentives and opportunities; a level revenue proportion for Alaskans; and protection for Alaska-hire and re-investment," the committee recommendation said.

In particular, some senators in the Republican majority may not be so ready to give up the "progressivity" formula in the production tax. Eliminating that is a critical component of the governor's bill.

"Evaluating progressivity as a tool to level the proportion of take for Alaskans across the various oil price environments," the TAPS special committee said in its recommendations.

Senate leaders, in their Feb. 13 briefing, acknowledged that retaining but changing the progressivity formula was being discussed within the Senate majority caucus meetings, which are closed.

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