Politics

Democrats propose oil tax change to close deficit

JUNEAU -- Two legislators are making this session's first attempt to make a big dent in Alaska's $3.5 billion budget deficit following last week's news that budget cuts alone would not solve the state's financial problems.

Sen. Bill Wielechowski and Rep. Les Gara, both Anchorage Democrats, say the state needs to look first to its oil production tax. That tax is now anticipated to bring in $300 million in revenues next year while paying out $700 million in tax credits.

"In this coming fiscal year we are going to pay out $400 million more in oil tax credits that we take in production taxes," Wielechowski said. "We must take immediate action to fix this fundamental flaw in our oil tax credits."

The state's oil production tax, also called a severance tax, was once the state's biggest moneymaker, but falling prices combined with hundreds of millions paid out in credits have now made it a negative. Additional revenue from oil, including royalties the state gets from oil ownership, property taxes and corporate income taxes, means it still makes money for the state.

The measure introduced by Gara and Wielechowski is mostly symbolic, as it comes from minority Democrats who are unlikely to be able to get it passed in the Republican-controlled Legislature.

And top Republicans say they're generally uninterested in any change to Alaska's oil tax regime after Senate Bill 21 took effect at the beginning of 2014, replacing an earlier tax scheme called ACES — Alaska's Clear and Equitable Share. Voters ratified the new tax system in a referendum last summer.

"The key is we want to be viewed as a stable regime," said Sen. Cathy Giessel, R-Anchorage, a strong supporter of Senate Bill 21.

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"To be talking now about changing our tax structure yet again, we're not really looking real stable to do that," she said.

The Democrats' proposal would change Senate Bill 21 to raise its 4 percent base tax rate to 12.5 percent for the state's biggest three fields -- Prudhoe Bay, Kuparuk and Colville River -- and reduce some per-barrel tax credits.

Gara criticized an oil production tax that instead of raising money for the state paid money out to oil companies.

"That's not a production tax, that's insanity," he said.

Gara said legislators were unaware of how little oil companies would pay on some fields under the new tax system when they passed it, he said.

The proposed change would last two years and, at projected prices and production levels, would raise an additional $750 million a year compared to current tax levels, they said.

Gara contrasted that to difficult cuts legislators are now making to state programs, which he said would reduce a projected budget deficit of $3.6 billion to $3.5 billion.

"Here is an actual fix that raises revenue from an industry that's profitable," he said.

But Sen. Lesil McGuire, R-Anchorage, said Monday that she would be skeptical of any oil-tax increases despite the state's current budget deficit.

"I think the big concern that the oil industry has had with Alaska over the last 40 years has been the fact that we are so dependent on one sector," she said. "There is a concern that every time our budget goes into deficit mode we will once again change the the predictable tax structure that they anticipated and invested under."

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