Lawmakers making their way to Juneau for Tuesday's start of the 2010 legislative session expect a bruising fight over whether to roll back Alaska's oil taxes.
An influential state representative is talking about an idea that could lower the state profits tax by a billion dollars at high oil prices, as other leading Republicans give luncheon speeches and issue press statements that talk about a decline in Alaska's oil industry.
"We have no control over economics worldwide, we don't have any control of the federal taxes. But we do have control over the state taxes and at some point in time during the session this will come up," said House Speaker Mike Chenault.
Gov. Sean Parnell has proposed offering the companies more tax credits if they drill in Alaska. But he argues against lowering the tax rate, saying there's no guarantee the companies would spend the money they save in Alaska. A new Department of Revenue report says oil company jobs and spending in Alaska are increasing.
It's a huge political issue for Parnell, who faces voters in November for the first time since he took the office following the abrupt resignation of Sarah Palin. Former legislator Ralph Samuels is running against Parnell in the Republican primary, saying the oil tax was a "feeding frenzy" and that Parnell is failing to do enough for the economy.
Anchorage Democratic Sen. Hollis French, a key supporter of the oil tax, is also running for governor and chairs the Senate Judiciary Committee, where he could be in a position to block any oil tax changes. French said he's seen no evidence to justify a tax break.
It's a debate that goes to the heart of Alaska's economy and government. Oil production has been in steady decline and petroleum taxes and royalties account for 90 percent of state general fund revenue that pays for schools, roads, state troopers and social services. It's central to the legacy of Palin, who pushed hard to increase oil taxes in 2007 near the height of her popularity as governor, and who cheered when a coalition of legislative Democrats and Republicans took her tax and went even further.
House Republicans who aim to scale back the oil tax won't have an easy time of it. The Senate is ruled by a bipartisan coalition that seems to have little stomach for changing the oil tax system. It includes senators like French who say Alaska remains profitable for the companies compared to elsewhere in the globe, and that the profits tax is a good balance with incentives for exploration and development.
"I don't see quite the interest in the Senate in revisiting the oil tax as there in the House. We'll see what the House comes up with and we'll certainly consider whatever they propose to us," said Senate President Gary Stevens, a Kodiak Republican.
Time will also be an issue. Voters have mandated the regular legislative session last no more than 90 days, and Rep. Mike Doogan said he doesn't see something as complex and contentious as a big change in oil taxes happening in the next three months with the budget and other issues legislators will be working on.
"On the other hand, I'm not sitting around in the councils of the oil industry figuring out their strategy for how they can get their hands on more money, which is always their strategy," the Anchorage Democrat said.
HAWKER WANTS A ROLL-BACK
Many of the lawmakers interested in overhauling the tax are talking more in generalities at this point than proposing specific changes. But Anchorage Republican Rep. Mike Hawker has something in mind: he wants the Legislature to take a hard look at rolling the taxes back to the level Palin herself first proposed in the 2007 special session on oil taxes, before legislators pushed it higher.
"It essentially became a bidding war to see who could outbid the other legislators to punish the industry the most," said Hawker, who fought the tax increase in 2007.
Hawker's wife works in business analysis and accounting for Conoco Phillips, which he's disclosed. He's been a sharp critic of Palin, and never a fan of her push to raise taxes, but now says her plan wasn't bad before the Legislature got hold of it. "Sarah Palin's original bill was a very reasonable piece of legislation," he said.
Palin's plan called for raising the base tax rate from 22.5 percent to 25 percent of net profits. The Legislature agreed. But it also doubled the increase Palin wanted in the "progressivity" surcharge that the state collects when oil prices are high. The Legislature included a 0.4 percent increase for every dollar the price of oil rose above about $56 per barrel.
That adds up fast with oil more than $80 a barrel.
The state estimated at the time that the Legislature's version could bring some $800 million more than Palin's proposal during years when oil prices are as high as now. The oil production tax brought in a total of more than $3 billion last year.
State revenue commissioner Pat Galvin said in a recent interview that the higher charge when prices go up was a tradeoff. In return, he said, the Legislature rejected Palin's proposal for a minimum tax rate on the big Prudhoe and Kuparuk fields.
The tax "floor" on those fields wasn't based on company profits, and was to provide a safety net to protect the state treasury if oil prices plunged.
CONOCO PHILLIPS LOOKING OFFSHORE
The oil companies expect to testify in Juneau this year in support of changing Alaska's tax system. BP has said it will cut capital spending by 15 percent this year. Conoco Phillips said it would not drill an exploration well on the North Slope next year for the first time in 45 years and that instead it will pursue offshore development where state taxes don't apply.
Brian Wenzel, a Conoco Phillips vice president, said the company's spending is growing more focused on pipeline replacement work. "We think that as that work gets finished we're going to see dramatic declines in the level of investment if we don't find a way to create a more favorable investment climate here," he said.
Legislators who don't want to lower the oil tax are fighting back with their own public relations effort. Anchorage Democratic Reps. Les Gara and Berta Gardner published an opinion piece in the Daily News on Jan. 9, saying between 2006 and 2008 Conoco Phillips earned almost $7 billion in profits from its Alaska operations, nearly as it much as it earned on all its Lower 48 operations combined.
House Minority Leader Beth Kerttula said Alaska has a fair profits tax, in which the state takes more when the companies are doing well and takes less when oil prices and profits go down. "I'm going to be very surprised if there really is a need to see much of a change given that we're fluctuating ourselves with the profits," she said.
Find Sean Cockerham online at adn.com/contact/scockerham or call him at 257-4344.
2010 legislative session
WHEN: Starts Tuesday, runs through April 18.
ON THE WEB: The Legislature's site has links to find and communicate with your legislator, track bills and show daily calendars. w3.legis.state.ak.us/
COMING MONDAY: Alaska lawmakers are going into this year's session planning to spend more money on hometown projects, possibly cover the tuition of Alaska college students, and talk about whether to do anything about the high cost of energy.
By SEAN COCKERHAM
scockerham@adn.com