Politics

Alaska Senate to take up debate on revised oil-tax cut

Despite questions about whether giving billions of dollars in tax reductions to Alaska's dominant industry would result in new oil production, the state Senate Finance Committee moved to the floor a new tax cut bill late Thursday.

After some legislators expressed sticker shock at a version of Senate Bill 21 that could have cost the state as much as $9.5 billion over the next six years, the committee chaired by Sen. Kevin Meyer, R-Anchorage, came up with a new version that cuts that amount by almost $3 billion.

The approval of the bill by the Finance Committee came despite testimony from the state's big oil company in which an Exxon Mobil Corp. executive praised tax cuts generally, but declined to say whether those being proposed were enough to spur the oil production increases state lawmakers hope will result.

The oil tax debate, which has been going on for years now in the Alaska Legislature, turns on whether the state's tax rate is so high that it discourages investment in oil exploration. Alaska also offers tax credits aimed at spurring production, but Gov. Sean Parnell claims they haven't done much to stem the decline in oil production.

For Alaskans who pay no state income or sales taxes and depend on the sale of state oil to fund much of government, the decision to slash oil taxes is risky. The state could lose billions of dollars in tax revenue. And some worry that could eventually result in Alaska having to tax its residents in the coming years.

On Thursday, Exxon's Dan Seckers said Senate Bill 21 was a remarkable improvement over the current tax structure, known as Alaska's Clearn and Equitable Share, which was championed by former Gov. Sarah Palin and her administration, including then- Lt. Gov. Parnell.

"Anything has got to be better than ACES," Seckers said.

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He and representatives from BP and ConocoPhillips -- Alaska's two other large oil producers -- declined to promise new investments in Alaska's Arctic oil fields, let along new oil production, despite prodding from legislators.

BP's Damian Bilbao said his company liked the earlier Senate Finance committee version better, but BP would evaluate projects on a "case by case basis." Conoco's Bob Heinrich criticized the change made Thursday, but said the previous version with the larger tax cuts was better and "puts you in the hunt" for new oil prospects.

Sen. Click Bishop, R-Fairbanks, sought more assurance from the oil companies that Alaska would get the development he wanted for the money it would lose in tax dollars.

"You need to understand the position I'm in with my constituents and the people of Alaska," he said.

Despite the oil companies' reluctance to promise new oil production, legislative consultant Barry Pulliam said the tax reductions would result in new investment, and probably new production. He said he heard enthusiasm about the amount they were getting in the oil executives' presentations, combined with a hope for more.

Pulliam called it "a combination of excitement, and 'Gee, can we get a better deal."

Sen. Lyman Hoffman, D-Bethel, was skeptical the companies would do more development than they were promising. "If we pass this, I can guarantee you that billions of dollars will move across the table," he said.

Given the better deal they were getting in Alaska, Pulliam said, it would be "economically irrational" for the oil companies not to invest more in Alaska. The companies are probably reluctant to put a "hard number out there," Pulliam said, because if they didn't spend it they might be held accountable for it.

The committee Thursday listened to testimony only from the state's big three producers, despite a recommendation from Pulliam that they also hear from Armstrong Oil & Gas and Brooks Range Petroleum, two smaller companies exploring in Alaska.

The bill sent to the full Senate eliminates the progressive portion of the ACES tax law, a proposal made by Gov. Sean Parnell. It also changes the base tax rate to 35 percent for the next few years, but then drops it to 33 percent in 2017.

It recoups some of the lost progressive tax revenue by eliminating current tax credits used to spur production.

It would take between 55,000 and 70,000 barrels per day of new oil for the state to break even on the revenue loss, the legislature's consultants said.

The bill also includes a gross revenue exclusion for profits from fields or areas considered to be new, as well as a credit of $5 per barrel as part of the mix.

At Thursday's meeting, an amendment proposed by Sen. Lesil McGuire was also adopted to include in the bill a new competitiveness review board, that would annually review Alaska's oil taxes and propose possible changes. She said the Canadian province of Alberta has raised its oil taxes, and "seen the bottom fall out of their economy," which she described as "very similar" to what had happened in Alaska after the adoption of ACES in 2007. A similar board helped Alberta turn around its economy, she said.

Debate on the oil tax bill is expected Monday on the Senate Floor. The bill would then go to the House of Representatives, which has scheduled debate of the bill in the House Resources Committee that afternoon "pending referral."

Contact Pat Forgey at pat(at)alaskadispatch.com

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