Anchorage Daily News

JUNEAU -- Lawmakers started discussions on stripping key provisions from an oil tax increase and returning more than $800 million to North Slope producers -- just hours after one major producer posted record profits.

The timing was not lost on some members of the Senate Finance Committee on Friday.

Sen. Kim Elton, D-Juneau, said he felt awkward asking about the bill's hit to the state treasury in light of the $40 billion in profits for 2007 announced Friday by Exxon Mobil Corp.

The measure, SB 242, is sponsored by Sen. Charlie Huggins, R-Wasilla, and would reverse parts of the legislation passed in November that boosted production taxes on the oil industry from 22.5 percent to 25 percent.

Huggins' bill would abolish the limit on operating cost deductions at Kuparuk and Prudhoe Bay, the state's oldest and largest oil fields. It also would eliminate a provision to make the tax hike retroactive by six months.

By changing the June 30 retroactive date to Dec. 20, the bill would cut $800 million in state revenue for the current budget year, which ends in June. That's half the expected revenue for the year.

Huggins, who was not at Friday's session, has said making the tax retroactive was unfair to taxpayers.

That provision and the limit on how much oil companies can deduct from their oil taxes were part of a package of tax increases and incentives that lawmakers passed in the fall special session.

Revenue Commissioner Pat Galvin said the administration is opposed to overturning the work that went into crafting the compromise legislation.

"The governor supports the entire package, and we think it would be against that good faith effort if we pulled one of the underpinnings that people felt very strongly about after the fact," said Galvin.

But committee Chairman Bert Stedman, R-Sitka, said he is concerned that the limit on deductions will dilute incentives designed to encourage capital investment in the oil patch and slow the decline in oil production.

"If you can't deduct your operating costs, that takes away part of the incentive for the capital investment as an offset. That's what we are trying to sort out: How much of an impact is this?" Stedman said.

Galvin said he had similar concerns and that's why he successfully pushed for the cap on deductions to expire, or "sunset," in three years.

"We think the effects are mitigated by the sunset clause and won't be a primary driver over the next few years," Galvin said.

The cap, which limits the growth in deductions on operating expenses to 3 percent a year, helped win votes from Democrats worried oil companies would claim too many deductions.

The committee will take up the bill again on Monday.

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