Voices

Alaska needs analysis of oil tax credits and production tax payments

BP America President John Minge said last week that "despite what you see in the papers," his company is paying more in Alaska oil production taxes than it is collecting in state tax credits.

But there were no papers containing the claim that Minge took pains to knock down Friday in his speech to the Alaska Support Industry Alliance.

What people did see in the paper was a column by Gov. Bill Walker revealing that total oil industry production tax credits in this fiscal year in Alaska are expected to exceed the total production taxes by about $100 million. The gap is expected to climb to $400 million in the fiscal year that begins next summer.

Walker did not name BP, ExxonMobil or ConocoPhillips. He was referring to the sum total of the companies doing business in Alaska.

Alaska offers a wide variety of oil industry tax credits, expected to total about $1.4 billion this fiscal year.

About $625 million of the tax credits are in the form of cash payments, typically going to smaller companies that don't owe a large amount, or any, production taxes. About half of the money is going to companies operating on the North Slope, while half is going for operations in Cook Inlet and elsewhere.

Under the Parnell administration, the state adopted a mixture of subsidies and tax breaks to try to increase investment and oil production. Former Gov. Sean Parnell and the Legislature said this combination was responsible for what they called the "Cook Inlet renaissance" and that it attracted additional firms and investment to the North Slope.

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There are other tax credits that benefit companies that do have tax liabilities. Those credits are expected to total about $724 million this fiscal year, with BP, ExxonMobil and ConocoPhillips getting the most credit.

Most of those credits are expected to be claimed under a per barrel tax credit included in the SB 21 oil tax change. The tax credit peaks at $8 per barrel when oil prices are below $80. It drops to zero when oil hits $150 per barrel. It is a form of a progressive tax, with the state paying out less in credits when oil prices climb.

There was next to no discussion in the Legislature in 2013 about the fiscal impact of the credits if oil prices dropped to where they are today.

With low oil prices, the credit is expected to total $668 million this year, dropping to $431 million in the next fiscal year before climbing to $1 billion in fiscal year 2017, according to a summary by a Department of Revenue economist.

The exact amount that each company pays or doesn't pay in production taxes is confidential under state law. But this fiscal year the state expects to collect about $525 million in production taxes, dropping to about $300 million in the next fiscal year.

Oil prices are down more than 50 percent, and that's the major reason the production tax revenue has shriveled. But the SB 21 credit system and the minimum 4 percent gross tax floor it contains are also factors. Overall, tax credits to the oil industry exceed the tax payments, according to figures released by the Walker administration.

So far, the reaction to the release of this startling information has been predictable. On one side are those who say that SB 21 should have been repealed for ACES, while on the other side are those who say that Alaska voters made the right call and "SB 21 is collecting more revenue than ACES would have at this price."

We need a more informed debate, not a repetition of the half-truths that marked the campaign last summer. The claim that there are only two choices is false.

One of the things that Minge said Friday makes a lot of sense to me. "Too many people still believe the problem is SB 21, but this is not an SB 21 versus ACES issue," Minge said. "It's a low oil price issue. We don't control the price of oil. The solution for Alaska is production."

The price of oil is the major factor in the collapse in tax revenue. But there are others. For instance, do we know that providing $1.4 billion a year in credits is the right number? Based on what? Those are questions the public will expect the Walker administration and the Legislature to address.

Part of what's missing is a clear and detached review of the entire package of credits and taxes in Alaska and the fiscal tradeoffs -- for the state and the companies. An analysis that tracks the flow of dollars and the biggest beneficiaries is a place to start.

Dermot Cole is an Alaska Dispatch News reporter and columnist. He has written about Alaska oil and gas politics for decades.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.

Dermot Cole

Former ADN columnist Dermot Cole is a longtime reporter, editor and author.

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