Parnell plan to adjust oil taxes could cost Alaska millions

Richard Mauer

JUNEAU -- By changing the calculation of oil taxes from a monthly to an annual basis, Gov. Sean Parnell's new oil tax bill would cost Alaska between $100 million and $200 million a year, Revenue Commissioner Bryan Butcher told a Senate committee Wednesday.

If oil prices are particularly volatile, the cost to the treasury would be even greater, Butcher told the Senate Resources Committee as it opened hearings on the measure. Had Parnell's tax changes been in place in 2008, a year of exceptional price instability, the treasury would have collected $600 million less than it did, he said.

The money that would be lost solely through the change in calculation period is in addition to the estimated $2 billion a year that Parnell wants to save for the oil industry by lowering tax rates when oil prices and profits go up. Parnell said the state's tax regime, put into place in 2007, robs oil companies of the incentive to drill wells and will result in less future production on the North Slope and a premature shutdown of the trans-Alaska oil pipeline.

Some senators and House members lining up to oppose the tax changes say the administration's required fiscal notes failed to account for all the costs in the complicated bill, including the losses attributable to the proposed annual collection period.

"It was disturbing to not see it in the original fiscal note," said Rep. Les Gara, D-Anchorage, who attended the Senate committee hearing as a spectator. The provision has nothing to do with targeting new exploration, he said.

"This falls into the category of money we just give the oil companies to take home with them," he said.

The House Resources Committee heard the measure first as House Bill 110 and passed it by a 7-2 vote at the end of February. It's due to be heard next by the House Finance Committee.

In the Senate, where the measure is facing tougher opposition than in the House, it goes by Senate Bill 49. The bill was introduced simultaneously in both chambers, but the Senate is several weeks behind the House in addressing it.

In his testimony to the Senate Resources Committee, Butcher said the change from month-to-month calculations wasn't included in the fiscal notes because of the impossibility of predicting month-to-month oil prices for the next decade.

Sen. Bill Wielechowski asked him to look at it another way: what would the state have lost if the governor's plan had been in effect starting in 2008? "I believe for 2010 and 2009, it would be just $100 million less by doing it yearly than doing it monthly," Butcher said. "2008, which was the most volatile year for oil prices in history, was considerably higher, I believe it was around $600 million."

Given those numbers, Butcher said, the change would likely average out to between $100 million and $200 million a year over the next decade.

Wielechowski, an Anchorage Democrat, said in an interview after the hearing that Butcher's numbers were larger than those estimated by his Senate staff. In any event, the cost should have been in the fiscal notes, he said.

"It affects the administration's credibility when it does something like that," he said.

The 2007 tax scheme -- ACES, or Alaska's Clear and Equitable Share -- changed Alaska's oil taxes from a production tax to a progressive tax based on oil prices.

When prices rise, the tax rate increases. If prices spike in a given month or two and then decline, the tax rate in that month would have been higher, so even if the price averages out over a year, the state's share would be greater if the tax was calculated on a monthly basis.

Wielechowski said that in passing ACES, the state gave up a minimum tax on production, risking getting nothing in oil taxes if prices collapsed. In return, the state benefits along with industry when prices are high, as they have in the last few years.

"We lost our low-end security, but in exchange for doing that, we got more at the top end," Wielechowski said. "Now we're giving away the profits at the high end."

Alaska's treasury is almost entirely dependent on oil taxes. The state is enjoying a multi-billion dollar surplus at a time when many other states are wallowing in deficits.

Parnell's law wouldn't eliminate the progressive tax, but it would reduce the percentage increases as oil prices rose. The governor has scheduled a news conference for this morning, where's he expected to defend his tax plan in light of recent bipartisan criticism, primarily in the Senate. The measure is at the top of his legislative agenda.

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