AD Main Menu

Big bills move as session countdown begins

Richard Mauer

JUNEAU -- With 10 days to go for the regular legislative session, two major bills advanced to their final committees Thursday and appeared destined to get to the House and Senate floors next week.

Early Thursday morning, the House Resources Committee ratcheted down oil taxes a few more notches and removed some state oversight from the calculations by industry for its pre-tax expenses, then moved Senate Bill 21 to the House Finance Committee.

Later in the afternoon, the Senate Resources Committee rejected a bid to modify and slow down a bill that will enable construction of a state-backed, small-diameter, $7 billion pipeline to bring North Slope gas to Southcentral Alaska. House Bill 4 was sent on to the Senate Finance Committee.

The hearing on the oil-tax bill ran till after 2 a.m. Thursday, with the most important amendments heard at the end of the session. A recording of the session shows the representatives expressing concern about the hour. For at least some amendments they were unable to get details about the effects of their votes on the state treasury because state revenue officials were unavailable.

Nevertheless, they went ahead. The final amendment dropped the base tax rate from 35 percent to 33 percent — an amount that could cost the treasury $200 million to $300 million a year.

That change was proposed by Rep. Peggy Wilson, R-Wrangell, who termed it a “compromise” between a failed earlier amendment to further reduce the tax to 30 percent and the 35 percent rate passed by the Senate.

“It’s a happy medium between 30 and 35,” Wilson said.

But when the Senate passed the bill a couple weeks ago, it balked at a tax rate that started at 35 percent but dropped to 33 percent after three years. There’s no sign that the Senate would accept 33 percent now.

Wilson’s amendment passed 6-3. In favor were Reps. Wilson, Mike Hawker, R-Anchorage; Craig Johnson, R-Anchorage; Dan Saddler, R-Eagle River; Eric Feige, R-Chickaloon; and Kurt Olson, R-Soldotna. Opposed were Reps. Geran Tarr, D-Anchorage; Chris Tuck, D-Anchorage; and Paul Seaton, R-Homer.

The committee rejected one amendment by Hawker to undo one change in tax policy that was made in 2007 in ACES — Alaska’s Clear and Equitable Share, the Gov. Palin-era tax reform. But the committee accepted another amendment by Hawker to undo another ACES provision.

The first amendment sought by Hawker, whose wife is employed as an analyst by ConocoPhillips, would have wiped out the 2007 change that barred oil companies from deducting their actual transportation expenses from their taxes when they owned the pipelines and ships that moved the oil.

Instead, when the companies were not at arm’s length, ACES made them prove the charges were “reasonable.” The main producers affected were the major owners of the trans-Alaska pipeline — ConocoPhillips, BP and ExxonMobil.

“That had worked just fine for all those years until ACES passed,” Hawker said. ACES created a “byzantine process” for calculating taxes, he said.

But Seaton said the state was cheated out of billions of dollars under that practice and only got some of the money back when it sued.

“If you’re shipping on your own pipeline, you can jack up the rate in the pipeline, pay yourself that jacked-up rate, reduce the value of your oil and then pay lower taxes,” Seaton said. “You get to subtract that higher, supposed value that you took out of your right pocket and put in your left pocket from the value of the value of the oil on the North Slope, and therefore you pay less production tax.”

That amendment failed, 5-4, with Republicans Seaton, Wilson and Saddler joining the two Democrats in voting it down.

But another accounting measure sought by Hawker, allowing companies to use the charge for lease expenses that they pass on their oil company partners rather than provide their actual itemized records to the state, passed 7-2, with only the Democrats opposing. Johnson said in an interview that the partners keep a fierce eye on the charges submitted by the lease operators, so the state wouldn’t get cheated if they used the same documentation to determine taxes.

Over on the Senate side of the Capitol later Thursday, the Senate Resources Committee rejected a bid by its only Democrat, Hollis French of Anchorage, to slow down the pipeline measure.

“This bill arrived in this committee barely 48 hours ago. In the two-minute opening statement given by the bill sponsor (Rep. Hawker), he not once, not twice, not three times, but four times warned us that it was a complex bill,” French said. Yet the committee hadn’t heard from top revenue or natural resource officials on the measure, he said.

“This bill envisions a $7 billion project. It’s a mega-project by any means and I am deeply, deeply concerned that this committee has not done its job vetting this bill,” he said.

Resources chairwoman Cathy Giessel, R-Anchorage, defended her management of the committee, saying French missed a hearing when the commissioner and deputy commissioner of Natural Resources testified. But a committee aide later said that the testimony came during oversight hearings before the gas line bill reached the committee.

Sen. Lesil McGuire said one version or another of gas pipeline legislation had been heard by the Senate for the last three years.

“Alaskans are ready for us to stop studying, to stop putting these binders on our shelves,” said McGuire, an Anchorage Republican. “This is not a state project. It’s going to take the private sector and the gas that they have in their leases.”

The bill doesn’t mandate construction of a line, but sets up an independent state corporation to design a line and seek commercial gas shippers. The line would be paid by bonds backed by revenue from shipping gas through the line, but it would also take a $330,000 million appropriation of state funds to get to the point of construction after millions have already been spent.

Opponents say the line would be too small to allow for large volumes of gas for export that would lower prices for residential and utility consumers in Southcentral. Supporters disagree, and say the line might push TransCanada into building a large diameter line under its state license to Valdez.

The gas line and oil tax two bills unfolded a day before the Revenue Department is expected to issue its spring revenue forecast — a possible bit of bad news Friday that tax receipts from North Slope oil production are not as high as expected. Some 90 percent of general fund tax revenue derives from oil through the trans-Alaska pipeline.

A fiscal summary issued Wednesday by the Legislative Finance Division, the Legislature’s budget trackers, showed that under Senate Bill 21 as passed by the Senate — before House Resources cut taxes even further — the 2014 capital and operations budget would leave the state with about a $763 million deficit. If Senate Bill 21 didn’t pass, the summary said, the state would have a surplus of between $10.4 million and $15.6 million under the budgets being considered in the House and Senate.

Reach Richard Mauer at or in Juneau at (907) 500-7388.

Contact Richard Mauer at or on