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Alaska House votes to slash billions in taxes on oil companies

Pat Forgey
Lawmakers in support of the oil tax cut hope it will lead to more production in Alaska's aging oil fields. But there are no guarantees. Stephen Nowers photo

Calling Alaska's oil tax system "socialistic" and "confiscatory," allies of Big Oil in the House of Representatives passed a tax-cutting bill they promise will overcome decades of decline in oil production.

At 2 a.m. Sunday, the House passed Senate Bill 21 by a vote of 27-12. State financial estimates say the bill will cost Alaska nearly $6 billion over the next six years at currently projected prices and production levels, more at higher prices.

But Rep. Eric Feige, R-Chickaloon, said it would actually make money for the state by turning Alaska into an even more attractive place to invest, resulting in increased production in the state's declining oil fields. Feige -- whose spouse is general manager for Linc Energy, the company developing the Umiat oil field -- carried Senate Bill 21 on the floor for Gov. Sean Parnell.

The loss of revenue will mean almost immediate and substantial deficits for Alaska, according to state financial estimates. And despite the strongly held belief of the Senate Bill 21's supporters, there has been little, if any, evidence in months of hearings that Alaska would get the result it is seeking. The state's largest oil producers -- Exxon Mobil Corp., ConocoPhillips and BP -- have praised the cuts, but said they aren't enough to get the increased production the state hopes for.

Still, Feige said the state would demand they do so anyway.

If the state doesn't see an increase in production as a result of the tax cut, the Alaska Legislature will have to revisit the tax structure, Feige said.

"My expectation is that (such a tax) change will not be a pretty one for the oil companies," he said.

During months of debate on Senate Bill 21, the claim was made repeatedly that reducing taxes would lead to more oil production, but the Parnell administration studiously avoided predicting how much, whether that would make up for the revenue loss, or whether pumping the state's remaining oil faster would be a net benefit to Alaska.

Nonetheless, the majority of House members believe the oil-tax cut will rejuvenate Alaska's oil industry, even though oil production has been in decline since the late 1980s.

"The point of this bill is so that we get higher investment, we build our production, and we prosper," Feige said.

"We are going to increase the amount of oil that goes in that pipeline," said Rep. Craig Johnson, R-Anchorage.

Rep. Charisse Millett, R-Anchorage, said, "I'd be happy if we'd stymie the (production) decline. If this bill can just do that, I'd be happy with it."

Supporters of the cut said that under the state's current oil tax structure -- Alaska's Clear and Equitable Share (ACES) -- jobs are down, investment on the North Slope is down, oil production is down, and that ACES is to blame. ACES was championed by former Gov. Saran Palin in 2007 in the wake of an oil-legislative bribery scandal that preceded it. ACES, coupled with high oil prices, has led to billions of dollars in savings for Alaska. Jobs are up, too, in the North Slope oil fields, according to the state.

But Rep. Tammie Wilson, R-North Pole, said if she could get a legislator who disputed the ACES job losses to visit Fairbanks, she could prove the cost of that legislation. "I'll show him the effects of ACES, I'll show him what we've lost," she said.

"As we watch the decline in the pipeline, we're watching the demise of our jobs," said Rep. Doug Isaacson, R-North Pole.

Blaming ACES for job losses has long been a strategy for those trying to reduce taxes, despite state Department of Labor and Workforce Development data showing continued growth in oil and gas jobs, which hit a record level of 13,600 last year.

Rep. Mike Hawker, R-Anchorage, called ACES a failed policy, and said it was causing companies to invest elsewhere.

ACES is "a policy that has caused investment to flee Alaska to other jurisdictions, where they can invest that same money and receive a greater reward," he said. It was Hawker who called ACES "confiscatory" and "socialistic."

Rep. Les Gara, D-Anchorage, passed out Department of Revenue data showing a doubling of investment since ACES, which he said was due to the state's tax credits. Senate Bill 21 would change that by reducing the tax credits and tax rates, and letting the companies invest their profits elsewhere.

"If you give a company permission to take your money and spend it any place in the world, that's what they do," he said.

Tax-cut supporters also blamed ACES for oil production declines since ACES was passed in 2007. Johnson said oil production averaged 734,000 barrels per day in 2007, and is only 543,000 barrels per day now.

Democrats said that decline happened because the state's huge, aging oil fields are being drained, something that tax cuts cannot reverse.

"Decline happens," said Rep. Chris Tuck, who said the reduced production has been going on since the late 1980s and happens with all fields. The ACES oil tax was adopted to let oil producers buy down their tax rates by reinvesting in new production, he said. And it's worked, he said, with billions of dollars in new investments.

The House's Democratic minority, badly outnumbered, argued that the tax cuts would devastate the state without helping production. "We must not lose sight of getting our fair share, which is what the Alaska Constitution is all about," said Rep. Beth Kerttula, D-Juneau, and House Democratic leader.

Two votes were taken on Senate Bill 21, with three Republicans joining the Democrats in opposing Senate Bill 21, but on reconsideration Reps. Alan Austerman, R-Kodiak, Paul Seaton, R-Homer, and Cathy Munoz, R-Juneau, changed their votes to be in favor. Democrat Rep. Ben Nageak of Barrow, voted for the bill.

"It was a done deal, no reason to fight it," Austerman said. "It was already passing, who knows," Seaton said. Both spoke upon leaving the House chambers.

The early Sunday morning action followed passage of Senate Bill 21 earlier in the Senate by a vote of 11-9.

The bill now goes back to the Senate to see if it concurs with the changes made in the House. Sunday is the final day of the 90-day legislative session.

Contact Pat Forgey at pat(at)alaskadispatch.com