Deciding vote: How Sen. Bishop came to support the oil-tax bill

rmauer@adn.comMarch 30, 2013 

JUNEAU -- As the oil-tax bill approached the Senate floor the other week, a single holdout senator drew the attention of supporters and opponents alike. Would freshman Click Bishop punch the Yes button and provide the margin of victory, or derail the bill with the No button?

When the vote finally came at 9 p.m. on March 20, Bishop, a lifelong Republican who spent years as a member of Operating Engineers Local 302 and more recently as state labor commissioner, lingered momentarily, then pushed Yes.

His vote provided the margin in the 11-9 vote and sent Senate Bill 21 to the House.

Now, with the bill making the rounds through two House committees, Bishop, from Fairbanks, is again being watched. In agreeing to vote "yes," he made clear his bottom line on taxes -- a smaller cut than Gov. Sean Parnell and most fellow Republican legislators wanted, but a far bigger cut than was acceptable to opponents of the bill.

What will happen if the House, under pressure from oil companies to increase the cuts, passes a bill back to the Senate that doesn't meet Bishop's bottom line? Would he vote to kill the bill on the return visit, or affirm the original Senate bill and send both versions to a conference committee for resolution?

"Wait and see," was all Bishop will say.

Malcolm Roberts, a leader of the advocacy group Backbone, said he had thought Bishop might vote "no" in the first go-round after a conversation they had earlier this month.

"We had an excellent meeting with Click. I hadn't met him before, and I think he's got a lot of stuff to him. But he certainly disappointed at the last minute. Maybe there's still hope there."

In an interview last week, Bishop described the circumstances that led him to his historic vote and to the conditions under which he might once again oppose an oil-tax bill.

Now 55, Bishop graduated from Lathrop High School in Fairbanks in 1974. Days later, he said, he went to work building the trans-Alaska pipeline, where he quickly learned that few Alaskans qualified for skilled jobs in the construction trades.

He became a heavy equipment operator and a member of Local 302, a large local with branches in Alaska and Washington state. In 1991, he became administrator of the union's Alaska training program, a job he held until newly elected Gov. Sarah Palin left a message on his home phone. She wanted him to join her administration as commissioner of Labor and Workforce Development.

Bishop, acquainted with Palin's husband, Todd, from helping set trail for the Iron Dog snowmachine race, told her no.

"I don't have a college degree. I know what I know and I know what I don't know. I had a great career training Alaskans and I loved what I did," he said. "Part of me was a little interested, but I was timid. I didn't want to come down here and fail."

But he changed his mind and began working for Palin in 2007 and stayed until she quit, then remained with Parnell until March 2012. He decided to run for the state Senate about a month later, challenging conservative Republican party stalwart Ralph Seekins in the primary. As a candidate, Bishop refused to sign a pledge that he wouldn't join a majority Senate caucus with Democrats.

Bishop said he was deeply involved in Palin's gas pipeline efforts but was on the sidelines of her big oil-tax change, Alaska's Clear and Equitable Share, which significantly increased taxes on Alaska oil and gas producers. Senate Bill 21 undoes ACES.

 

"COMMON SENSE"

In his first floor Capitol office, the big windowsill contains a collection of heavy equipment models. Copies of the training reports he prepared for Palin sit on the coffee table. Bishop has a wardrobe of Filson wool clothing and he was wearing an Alaska flag bolo tie and lace-up work boots.

Bishop said he tried to apply common sense to the oil tax bill. His starting point was the failure of two oil-tax bills to get through the Legislature last year, he said.

One, which passed the House and was supported by Parnell, would have cut oil taxes by $1.6 billion to $2 billion a year, leaving a huge void in the treasury. Parnell and House leaders said the cut was necessary to encourage the industry to spend more money in Alaska, halting or slowing declining oil production. Opponents who spiked the bill in the Senate described it as a giveaway to industry with no promises of development in return.

The other bill, with a price tag of about $500 million, emerged in the Senate in the waning days of the Legislature last year and was primarily designed to encourage new exploration through tax breaks. It died in the House.

"There's one thing that has got me as far along in life as I've got -- that is common sense," Bishop said. "And I said somewhere between here and here (the two bills), there's going to be a number that we're going to come to grips with. In my heart, that number has always been south of a billion."

This year, he said, "the governor's bill, it came out at 30 (percent), and it's pushing $1 billion across the table (to the industry) right off the bat, and I'm not there." Succeeding versions changed some of the formulas, but the final version in the Finance committee had a 35 percent base rate tax that dropped to 33 percent after three years and gave hundreds of millions of dollars back to industry with a $5 per barrel credit.

At a hearing March 14 on that version, Bishop said he was unimpressed by testimony on that version from executives of the three major oil companies.

"I couldn't get a straight answer out of them," Bishop said.

A recording of that hearing shows Bishop and fellow freshman Mike Dunleavy, R-Wasilla, in a dialog with Damien Bilbao, head of finance for BP in Alaska. Bilbao told Dunleavy that the tax rate made Alaska "more competitive" for winning oil company investments that could be made elsewhere.

"But we don't feel that it would go as far enough to attract the type of meaningful investment that's required to make the future look different than the last six, seven years, which is a continued decline of 6 to 8 percent" in production, Bilbao said.

"Damien, thanks for your testimony," Bishop said, then asked Bilbao for the percentage rate that BP wanted.

"What is the number on the base rate?" Bishop said.

Bilbao referred back to the state's consultants, who had described a 30 percent base rate as a tax that would put Alaska "in the middle of the pack" among governments -- but not enough to overcome other expenses in the state.

"Consultants aren't producing the oil here," Bishop pressed. "I just want to know what your number is."

Bilbao again referred back to the consultants.

"I'm trying to build some trust and a good working agreement, and show a little good faith, and I ain't getting any from the other side," Bishop recalled in the interview.

In testimony later, one of the consultants, Barry Pulliam, managing director of Econ One Research, said the bill actually represented "a very positive change." It would put Alaska "in the ballgame and put you into a very attractive position."

 

"IT'S ON THE INDUSTRY"

The day before, Senate President Charlie Huggins predicted a strong showing for the bill when it reached the Senate floor.

"Shoot, I'd be surprised if we didn't have 15 (votes)," he told a reporter. "We're good."

But his optimism was inflated. At that point, he didn't even have 11, the minimum required for passage, and might have had 9 or less. Bishop said he wouldn't have voted for it. Dunleavy was a question mark.

Six days after the last Finance Committee hearing, on the afternoon of March 20, the bill was on the Senate floor and open to amendments. The first was offered by Sen. Peter Micciche, R-Soldotna. It removed the three-year base rate tax drop to 33 percent, leaving it at 35 percent. Those two points translate to big numbers for a state looking at sharp budget deficits in the coming years -- each point would add between $150 million to $170 million in revenue.

Bishop said he didn't tell his caucus what would win his vote, but Micciche's amendment looked like it would do just that. It passed with the same vote that the entire bill would eventually get, 11-9.

Bishop didn't speak on the floor, but in the interview he said he became persuaded to support the bill after Micciche's amendment by projections that showed its revised cost to the state was around the middle of the two bills that failed last year.

With the amendment, in 2014, the loss attributed to the tax cut was $775 million to $875 million, he said. "$465 to $665 in 2015, that's not a billion dollars. Year 2016? $640 to $890 -- it's not a billion dollars."

The loss jumped to over $1 billion in 2017, but that's not counting new oil from new investments, Bishop said. The industry had better prove it was taking advantage of the lower taxes by then, he said, or he would personally lead the charge to raise taxes again.

 

"ATTRACTIVENESS"

But there's still a long way to go before Senate Bill 21 can become law. It's currently in the House Resources Committee with another stop in the Finance Committee -- and there's only two weeks of session left. House Resource co-chairman Eric Feige, R-Chickaloon, brought out a new version of the bill Friday that adds a larger element of progressive taxation by raising the $5 tax credit at lower prices and lowering it at higher prices. Feige said he'd have hearings Monday and Tuesday and consider amendments Wednesday before moving the bill -- with 11 days to go.

Testifying on the bill in House Resources earlier last week, when it was still the unmodified Senate version, representatives of the oil industry pressed another word into their vocabulary: Where the watchword had been "competitiveness," it was becoming "attractiveness" as they argued for still greater tax cuts.

The ConocoPhillips, ExxonMobil and BP representatives agreed the Senate bill made the state competitive. But they said it could be more attractive.

Speaking of the $5 per barrel exemption, Dan Seckers, ExxonMobil's Anchorage-based tax counsel, said, "Does the committee substitute make Alaska more competitive? Yes, your consultants have shown that. But the real question to us now, is, does it make you attractive enough to get the investments that your really need?"

He added: "While making yourself more competitive is great, the question that should be before you now, is with this CS (the Senate bill), can it make you as attractive as you should be? The base tax rate, in this bill at 35 percent, is just too high, and it's something that we hope you give consideration to reducing."

Scott Jepsen, ConocoPhillips' vice present for external affairs, also said the base rate needed to come down: "Reducing the base rate is one way to move Alaska back into the regime, that it's going to be more attractive than we see under the current SB."

And Bilbao, from BP, said the Senate bill placed Alaska's taxes in the high end of the states and countries it competes with.

"While it is a step forward in making Alaska more attractive to investment, Alaska's geographic, technical and cost challenges are such that Alaska may not want to be satisfied with settling on the upper end of average on the competitive scale," Bilbao said.

But for Bishop, the 11th vote back in the Senate, it's the producers that need to move now, not the state.

"The burden of proof is not on me -- it's on the industry," he said. "I want to see increased spending and I want to see increased production."

Twitter updates: twitter.com/richak

 

 

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