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Complaints mount that latest Alaska oil tax bill hasn't had thorough public vetting

Pat Forgey

JUNEAU -- For years, Alaska lawmakers have feared oil companies were lying to them. Now, they hope they are.

Industry allies in the Legislature couldn't get assurances from the state's biggest oil producers that if the state cuts taxes by an estimated $5-6 billion over the next six years, more production would result. But they hope it will anyway.

Senate Democratic Leader Johnny Ellis, D-Anchorage, said Gov. Sean Parnell and legislative leaders were pushing some "epically bad ideas" that would hurt Alaska for years to come.

Late Thursday, a Senate committee voted to cut taxes based on an assurance from consultants that such cuts would make Alaska competitive in tax rates with other jurisdictions. That would spur development of Alaska's oil even if the companies weren't willing to say so because they hoped for even bigger cuts, the senators were told.

"This bill is an effective approach to balance Alaska's oil taxes while making Alaska competitive among other oil producing regions, such as North Dakota, Alberta, Texas and the North Sea," said Sen. Kevin Meyer, R-Anchorage, co-chair of the powerful Senate Finance Committee. He is also an employee of ConocoPhillips, the state's largest oil producer.

'Optimal strategy'

Despite the failure of ConocoPhillips, Exxon Mobil and BP to promise new development, Meyer said he was convinced that the Finance Committee's version of the bill made Alaska competitive enough that it would be one of the best places in the world to do business and make investments.

"The committee believes this is an optimal strategy to develop the state's resources for future generations," he said.

Senate Bill 21 eliminates the progressive nature of the state's current oil tax system, which raises tax rates at high prices. It's a change the oil companies have fought hard for. SB 21 also provides a 20 percent gross revenue exclusion for new oil production and a $5 per barrel production allowance.

It recoups some revenue lost in those changes by raising the base tax rate to 35 percent until 2017, when it drops to 33 percent. The current base tax rate is 25 percent.

Democrats in the Senate minority were dismayed at both the size and structure of the tax reduction. Sen. Bill Wielechowski, D-Anchorage, noted that the companies expected to invest in Alaska had not committed to do so.

He also wasn't comforted by testimony from consultants, hired by the Legislature, who said the companies probably would invest, based on the new tax scheme.

"What I've found in my 20 years of being an attorney, you can go out and hire experts to say almost anything," he said.

Sen. Berta Gardner, D-Anchorage, said it was important to know what questions the consultants were asked, and that legislators were not given adequate opportunity to question them about the basis for their conclusions.

Senate Republican leaders said the bill had a thorough review, with 12 hearings and hours of testimony from the public, the industry and international oil and gas consultants.

Only Big Three testimony

The newest version of the oil tax bill was introduced Thursday. In the hours before it passed there no public testimony. There was no testimony from Alaska's independent oil explorers. The only industry testimony came from Alaska's Big Three oil producers, which had been invited to testify.

"It was sort of striking that the oil industry gets a chance for public comment and the rest of Alaskans don't," Wielechowski said.

Many of the smaller independent players in Alaska's oil patch are the beneficiaries of tax incentives aimed at new production from new fields, rather than the strategy pushed by Parnell and championed by legislative leaders of pumping oil, faster, from known fields.

Testimony from the Big Three acknowledged that the oil-tax changes proposed under SB 21 would make Alaska a more competitive tax environment. But they would not promise new production.

"They're saying it's not even going to make much of a difference," Wielechowski said.

Sen. Hollis French, D-Anchorage, said the oil companies always ask for additional tax reductions, and that it is their responsibility to their shareholders to do so, even if the current system is already competitive.

The bill passed out of the Finance Committee Thursday was scheduled for a first reading on the Senate Floor Friday, but that didn't happen.

Contact Pat Forgey at pat(at)alaskadispatch.com