Politics

Oil tax cut 'crapshoot' pummeled by critics in Alaska Legislature

Opponents of Gov. Sean Parnell's proposal to cut oil taxes called it a "crapshoot" Tuesday, and used its delayed introduction on the Senate floor to highlight uncertainties about what it would accomplish -- and at what cost.

"Here we are in a crapshoot in the dark, being asked to give away billions," said Rep. Beth Kerttula, D-Juneau and leader of the House's Democratic minority. Official estimates from the Parnell administration put that number at $6 billion over the next six years, but Democrats said they fear it could go much higher.

Democrats this week have been jumping on statements from Sen. Kevin Meyer, R-Anchorage, a leading advocate of the oil tax cut, saying that it might not accomplish his stated goal of new oil production. He called the bill "kind of a crapshoot" while defending it to the Juneau Empire.

Delay getting to floor

Senate Bill 21, approved by the Senate Finance Committee last Thursday, was expected to have arrived on the Senate floor a day later, but was delayed until Tuesday and then delayed again until later Tuesday -- typically a sign a bill's supporters are having difficulty getting commitments from the required 11 members of the 20-member Senate to ensure passage.

A meeting of the Senate Rules Committee Tuesday morning at which the bill could have been amended to make it more to the liking of potential swing votes was cancelled. Now, amendments are expected on the floor Wednesday from both the Republican-led majority and Democrats.

Though formal debate on the oil tax bill was not supposed to begin until Wednesday, the pointed questions asked by Democratic critics on the Senate Floor Tuesday certainly had the look and feel of a debate.

Among the points of contention is Senate Bill 21's elimination of higher tax rates when profits are higher, a feature known as "progressivity" that could cost the state as much as $1.5 billion per year in 2015 at expected oil prices. That amount would likely go higher, perhaps far higher, if oil prices shoot up again.

ADVERTISEMENT

Sen. Lyman Hoffman, D-Bethel, urged the Senate Finance Committee to demand information about just how much more it would cost Alaska from the Parnell administration, but the bill has been progressing without it.

From 35 to 33 percent

That sort of uncertainty was what Kerttula and critics on the Senate floor highlighted Tuesday, but the bill's advocates pushed forward without answers. The bill includes a 35 percent base tax rate that drops to 33 percent in 2017 to reward the companies for new production.

"If they do indeed do what we ask, the new tax rate goes down to 33 percent," Meyer said.

Sen. Hollis French, D-Anchorage, questioned that, asking, "Is there a section of the bill that does that, or is it simply a wish and a hope that they do that."

After a break to confer with staff and supporters, Meyer responded that the reduction "goes into effect automatically" without new production. Between the Democrats' questions, there were frequent pauses in the proceedings so Meyer and other advocates could confer -- both with their staff and Mike Pawlowski, petroleum systems adviser with Parnell's Department of Revenue.

Another area of uncertainty was the bill's provision for "gross revenue exclusion," which would allow 20 percent of the value of new oil to be excluded from taxation.

"My concern is that oil currently forecast for production for 2014, or for any year for that matter, does not qualify for gross revenue exclusion," Sen. Berta Gardner, D-Anchorage, said.

Meyer said the producers would have to meet stringent conditions to get the "new oil" tax break.

The oil producers are "going to have to prove this is indeed new oil," he said. The Department of Revenue estimates the cost of that provision at $25 million to $175 million by 2015, based on current oil production forecasts.

Meyer defended the tax break for oil that's already expected to be produced by saying the Department of Revenue "is trying to be very conservative, give us the worst-possible case possible." He acknowledged those were difficult numbers to predict.

'Hard to say for sure'

"It's hard to say for sure exactly what new oil will actually fall under the GRE," he said.

Another part of Senate Bill 21 would provide a tax credit of up to $10 million a year per taxpayer for manufacturing or modifying oilfield service equipment in Alaska. That amount is not included in the total cost estimate of Senate Bill 21, but is elsewhere said to be as much as $25 million per year by the Department of Revenue.

Meyer said that provision was to "try to help the Alaska buy, Alaska hire, by only giving this credit if it occurs within the state."

Sen. Bill Wielechowski, D-Anchorage, said that provision was open to exploitation as were tax credits for work already begin done.

The questions being asked by Democrats may provide a precursor for Wednesday's Floor debate, as the bill's advocates appeared increasingly irritated at the scope of the questions. Senate Rules Chair Lesil McGuire, R-Anchorage, who's an industry ally, repeatedly tried to cut off questions.

Some key lawmakers have yet to take public stands on the bill, including Sens. Click Bishop, R-Fairbanks, and Mike Dunleavy, R-Wasilla. Neither participated in the questioning and provided no clues to how they would vote.

Contact Pat Forgey at pat(at)alaskadispatch.com

ADVERTISEMENT