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Oil industry complains that billions in Alaska tax cuts aren't enough

Pat Forgey
Will oil industry allies in Alaska's House of Representatives take the bird in the hand, or seek billions more in tax cuts before they vote?
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After squeaking through the Alaska Senate on an 11-9 vote, Gov. Sean Parnell's oil tax cut is now in the friendlier confines of the House of Representatives. There, in the Resources Committee, a notably oil-friendly legislator gave Exxon Mobil Corp. a warm welcome, even suggesting the Exxon Valdez oil spill wasn't the company's fault.

Rep. Kurt Olson, R-Soldotna, is a member of the committee now hearing Senate Bill 21, which would cut oil taxes. Exxon Mobil, one of the three major oil producers in Alaska, was represented at the hearing by Dan Seckers, its Alaska tax counsel.

Exxon Mobil is the company responsible for the Exxon Valdez oil spill in 1989, the largest spill in U.S. history until BP's Deepwater Horizon spill in the Gulf of Mexico eclipsed it.

To Olson, however, the Exxon Valdez wasn't the company's fault, and he told Seckers as much.

"Your company has been tied to the history of Alaska probably for an event that had more to do with the name of a vessel than  something you may have been directly responsible for," Olson said, who went on to praise the company for its reliability.

"Wow," said Seckers, who went on to give the standard Exxon apology for the spill and say how much the company had changed and learned in the years since.

Billions in tax cuts a 'positive start'?

Now that Gov. Sean Parnell's tax cut proposal is in the friendlier House, the question facing oil-industry allies is whether to use their bigger majority of Republican lawmakers (25-15) to force through bigger tax cuts than the Senate was willing to adopt. The House has 24 Republicans and 14 Democrats, while the Majority Caucus has 30 members, while the Minority has just 10.

Senate Bill 21 passed the Senate with an estimated cost in lost revenue of perhaps $6 billion over the next six years. It prevailed in the Senate despite testimony from the oil industry that the tax cut wasn't deep enough.

Now in the House of Representatives, industry executives are saying they need bigger tax breaks, even while praising Senate Bill 21 as a "positive start." ConocoPhillips executives told the House Resources Committee that Senate Bill 21 made Alaska competitive, but that that might not be enough. It might need to be attractive, they said. 

"The bill is at the high end of the middle of the pack," said Bob Heinrich, Conoco’s vice president for finance in Alaska, saying the company might need even lower taxes to persuade its board to invest even more in Alaska. The bill "might incentivize production, but maybe not as much as you want," Heinrich added.

BP's Damian Bilbao said the latest version of the bill "fails to move the bar" to get more oil production.

Exxon's Seckers criticized the size of Senate Bill 21's base tax rate, now at 35 percent, even with a $5 per barrel tax credit. He called the bill "not enough" for the state to gain the increased oil production it wants.

Would Senate OK deeper cuts?

Changing the bill in the House sets up new conflicts, however. Increasing the total size of the tax cut -- which House Democratic Leader Beth Kerttula, D-Juneau, already called "a giveaway to some of the world's most profitable companies while schools suffer" -- could cause new political problems for bill sponsor Gov. Sean Parnell.

While House Resources Committee Co-chair Eric Feige, R-Chickaloon, and House Speaker Mike Chenault, R-Nikiski, may have the votes in the House to push through bigger cuts, the Senate would then have to agree to those changes.

It took a last minute amendment in the Senate to bring along Sen. Click Bishop, R-Fairbanks, as the eleventh vote needed to pass the bill. That amendment lowered the amount of revenue lost to the state, and it remains an important concern, he said this week. Bishop's continued support "boils down to total fiscal impact pushed across the table," he said.

If the House increases the size of the tax cut, that might jeopardize Senate approval.

But some say the companies are bluffing in seeking more tax cuts. They'll increase production under Senate Bill 21, the argument goes, even if the companies publicly say it’s not enough.

A consulting firm working for the governor said Senate Bill 21 will deliver the investment Alaska wants, even if the companies deny it. The companies are just seeking deeper tax cuts, said Barry Pulliam of the firm Econ One, which is working for Parnell.

A consultant hired by the Legislature told the House Resources Committee that he agreed. "The Senate bill gets Alaska where it needs to be," said Janak Mayer, with PFC Energy.

But Exxon and its fellow oil producers have been equally adamant that while Senate Bill 21 is an improvement over the current ACES system, it is unlikely to be enough to get the industry investment and subsequent production the state wants.

"Being in the middle of the pack is not enough," Exxon's Seckers said. A much deeper tax cut would get Alaska more investment, ConocoPhillips' Heinrich added.

And the companies said they could be relied on to tell the truth. "When Exxon Mobil says something, we say what we mean and we mean what we say," Seckers told the House Resources Committee this week.

Contact Pat Forgey at pat(at)alaskadispatch.com