The Alaska House rejected Democratic efforts Thursday to cap state spending on oil company tax credits at $500 million, as majority members argued that deferring $200 million or more in cash payments for even a few months could harm small oil and gas companies that need the cash.
"I want to be very clear, this money is not going to the Big 3," said Rep. Craig Johnson, R-Anchorage, referring to BP, ConocoPhillips and Exxon Mobil. "There's a little bit for Exxon on Point Thomson. These are tax credits that are going to those small producers that may be very highly leveraged."
Johnson said that even if the delay in payments was only three months, as asserted by Democratic backers of the amendment, "we could be jeopardizing the future of those small producers." He said the payments should not be capped because the consequences of doing so are not known.
But Rep. Sam Kito, D-Juneau, said he was a little worried about "companies that are so overextended that they can't wait two months for receipt of a tax credit."
"Do we really think that those companies are viable if they are needing our money to operate?" he said. Kito said that those companies that wouldn't get paid right away would have the option of selling their credits to the major oil companies that have a tax liability, although it would be at a discount.
The House rejected the amendment by Rep. David Guttenberg, D-Fairbanks, on a 26-12 vote. Guttenberg said delaying $200 million in payments would not raise the ultimate cost to the state and "we're cutting the budget every place we can find a spare dollar."
"When you can't afford your house payments, you refinance," Guttenberg said. "When you get zero interest, you don't pay off your loans right away. The state's in a dire crisis."
The extended debate included conflicting arguments about a technical issue in state law concerning the formula for the oil and gas tax credit fund. The law says that 10 percent of production revenues should go into the fund, from which tax credits are paid. But the argument concerned whether the 10 percent should be an upper limit or lower limit.
Rep. Mike Hawker, R-Anchorage, said it was supposed to be a minimum, not a maximum, challenging a memo from the Department of Revenue that said the formula reflected an intent to link the amount paid in credits to the amount received in production taxes. Guttenberg said 10 percent is the standard in state law and that anything above that is at the discretion of the Legislature.
In most of the eight years since the oil credit fund was established in law, the state spent well below 10 percent on credits. But with the drop in oil prices, the state has gone far beyond the spending formula in 2015 and in the proposed budget for 2016, adding budget language to say that when the credit fund runs out of money, all "tax credit certificates presented for purchase" would be paid out of the general fund.
The language to fund all tax credits, regardless of the fund balance, has been in the operating budget every year since 2010, but it has only become a major point of contention this year, with revenue from production taxes down by about $2 billion since fiscal year 2014. Gov. Bill Walker vetoed the language from the budget bill he returned to the Legislature, leaving open the question of whether oil tax credit payments will be capped.
In debating a similar tax credit amendment Wednesday before the House Finance Committee, Rep. Mark Neuman, R-Big Lake, said many of the credits "go back over to smaller companies who are investing in the state of Alaska. The original intent, I believe, was to go back and make sure they had liquid capital and reinvest back into the state."
The gap between the statutory requirement of $91 million and the expected total of $700 million in 2016 credits should create a bipartisan opportunity for compromise on the budget, according to House Democrats, but the Republican-led majority didn't see it that way.
Appearing on the statewide public radio program "Talk of Alaska," House Democratic leader Rep. Chris Tuck said the legislative majority has taken conflicting positions on formula programs -- it reduced the amount for education in the base student allowance while refusing to trim oil tax credits to get closer to the 10 percent target in state law.
"I don't like the fact that we're ignoring the statutes for the base student allocation for public education," he said, while going far beyond "what our limits should be in paying out those oil tax credits."
Also on "Talk of Alaska," House Speaker Mike Chenault, R-Nikiski, responded that the state should not delay payment of tax credits. "The tax credits are there and we owe those tax credits. Now you can defer that tax credit to next year, but you still have to pay it next year," he said.
Chenault said that delaying the payment is like "taking one credit card and paying it with another and hoping that the bill goes away. And it won't, it just usually gets more expensive."
"Let's not defer tax credits and then bump up the size of the budget and tell people that we saved money this year," he said.
State regulations say that if the amount of cash refund applications exceeds the amount of money appropriated, the department will deal with them on a first-come, first-served basis, holding them over until more money is appropriated. A delay would have little impact on the oil companies, House Democrats said.
The state has paid out about $3 billion in tax credits since 2007 and collected about $32 billion in production taxes over that period. The production tax for the next fiscal year, about $910 million before deductions, is expected to drop to about $320 million after deductions, according to a state Department of Revenue analysis.
Tuck said that in the current climate, credits should not be an open-ended expense, with the state paying out hundreds of millions more than it collects in production taxes.
In a phone interview Tuesday, Anchorage Democratic Rep. Les Gara said the largely forgotten 10 percent provision in state law justifies reduced payments on credits at a time when spending needs to be cut. "I don't think we can afford to pay oil companies $600 million more than they're entitled to under the statute, giving them more than we promised, when right now the education budget gives $48 million less to schools than we promised in last year's statute," he said.
He said the companies have read the statute, know what it means and realize this change would not damage them."If we capped them say at even $500 million, oil companies would get their tax credit payments, just maybe two or three months later," Gara said.