Anchorage Daily News

JUNEAU -- The chairman of a key state House committee was deposed and Alaska's most important oil tax law fell under new scrutiny Saturday as lawmakers reacted to the arrest of one current and two former legislators on federal corruption charges.

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Rep. Vic Kohring, R-Wasilla, will lose his chairmanship of the Special Committee on Oil and Gas, House leaders said. Kohring was charged with selling his vote on oil taxes last year to oil field services company Veco.

The House committee had an important early role in shaping gas pipeline legislation this year. Republican majority leaders placed Kohring in charge of the committee this session, even though he was one of six legislators whose offices were raided by the FBI in a Veco-related probe last fall.

Kohring appeared before a federal magistrate Friday in handcuffs to face charges of bribery, extortion and conspiracy. Also appearing were two Republican colleagues from last year's legislative session, Pete Kott of Eagle River and Bruce Weyhrauch of Juneau. All three pleaded not guilty.

In detailed indictments, the three were charged with selling their votes and influence over other legislators for money and jobs during the 2006 legislative session.

The legislation in question was an overhaul of the state's oil production tax, which pays for most of state government and adds to the Alaska Permanent Fund. Veco wanted to keep the oil tax low and also was pressing for construction of a gas pipeline from which it would profit, according to the indictment.

Gov. Sarah Palin said Saturday that in light of the indictments, she wants a review of how the Legislature made its decision on the petroleum profits tax, known as PPT, and also a look at how well the tax is working.

"Yesterday's activities reinforce to me the desire and the need to revisit and evaluate the PPT to ensure Alaskans are getting the proper value for our natural resources," Palin said. "Alaskans need to know whether it was a fair debate or not. And whether there was unfair influence and if that influence led to the rate that was adopted."

Legislators from both parties seemed to agree. But with only 11 days to go in this year's legislative session, no one was predicting an immediate effort to change the tax.

The mood in Juneau Saturday was subdued, said Rep. John Coghill, R-North Pole.

"There's definitely a cloud over the whole Legislature," Coghill said.

'IT TAKES TWO TO TANGO'

Several legislators predicted that the arrests, and the appearance of undue oil industry influence, would strengthen Palin's hand as she pushes her Alaska Gasline Inducement Act, which is her plan for promoting a gas pipeline. Palin has been at odds with the major oil producers over how to build the line, with legislators poised in the middle.

"You know, it takes two to tango," the governor said Saturday. "Yesterday it was the Legislature who was under fire. But those who were exerting their powers will also have to be held accountable. And I think Alaskans will be very disappointed if they learn that the same people are still exerting power as the Legislature discusses AGIA."

Palin said she hopes no one in the Legislature uses Friday's arrests as an excuse to halt progress on her bill.

"I wouldn't want to stand in the way of that train now," said Sen. Tom Wagoner, R-Kenai, a supporter of the Palin bill.

Palin swept to electoral victory last fall on a campaign for ethics reform and open government, boosted by a pre-election FBI raid in late August that has opened into the biggest legislative scandal in Alaska history.

Major ethics reform legislation has been passed in both the House and Senate this year, but a final bill appears stalled by what appears to be disputes over personalities and who gets credit. No one was predicting that Friday's arrests would remove the logjam on ethics.

Palin called the stalling of ethics reform "perplexing."

Veco and its officials have not been charged with anything. But Veco was easily identifiable as "Company A" in the charges, and Veco's lawyer confirmed the identification on Friday.

For years the company has been a huge influence in Juneau, in terms of both campaign contributions and lobbying. Since the FBI raids Aug. 31, it has had very little visible presence in the Capitol.

A fourth legislator targeted in the federal probe, former Rep. Tom Anderson, R-Anchorage, was charged in December with taking bribes from a lobbyist representing private prison interests. Anderson also had a private consulting contract with Veco, but that was not a factor in the charges against him.

Kohring is the first sitting legislator charged with corruption since two state senators faced charges in the early 1980s. One, George Hohman, was convicted of bribery in 1981 and expelled from the Senate. The other, Ed Dankworth, left voluntarily but never faced trial after successfully appealing his 1982 conflict-of-interest charges.

The state constitution says members of the Legislature can be expelled on a two-thirds vote of the body they serve in, but it requires no particular response in the event of criminal charges or convictions.

IINNOCENT UNTIL PROVEN GUILTY

House leaders were struggling Saturday to find a position that would be fair to Kohring but also protective of the Legislature's reputation. They said they considered him innocent until proven guilty -- but nevertheless decided to strip him of his committee chairmanship.

Kohring is expected to continue appearing as a voting member of the Legislature, said House Speaker John Harris, R-Valdez. But a special committee will be named Monday to remove him as chairman of the oil and gas committee, a position he has held for four years.

"You have to go under the assumption innocent until proven guilty, except in our business, a lot of what we do comes with public perception, and there is a cloud of suspicion over us," Harris told The Associated Press. "We need to make sure we remove that as much as possible."

Coghill said no review of Kohring's work on the gas line bill early in the session is necessary. The still-pending legislation has been through many hearings and changes since then, he said.

A LIKABLE MAN

Kohring will find emotional support from his House colleagues, many of whom find him to be likable, during what must be a difficult time for him, Coghill said. But no one is likely to come to his defense on the alleged bribery case, he added.

Still, Coghill defended the leadership's earlier decision to make Kohring chairman.

"An investigation isn't an indictment, and an indictment isn't a conviction," he said.

Kohring's leadership position was not challenged when the session began, but objections were raised by minority Senate Republicans when Sen. John Cowdery, R-Anchorage, another FBI search target, was named chairman of the powerful Rules Committee. The minority said the committee chairman shouldn't be someone under "a cloud of suspicion."

The state's oil tax code came up for revision in 2006 after oil prices skyrocketed and legislators decided the old tax laws weren't giving the state much of the windfall. A revised oil tax was seen as a necessary prelude to working with oil companies on a gas line.

Some legislators wanted to continue taxing gross production in Alaska's oil fields, but the majority supported a net-profits tax proposed by Gov. Frank Murkowski, which would allow oil companies to deduct expenses.

Fierce debate raged over how high to make the PPT.

The federal indictments released Friday say Veco was pushing legislators to hold the line at a 20 percent tax. Others argued for a rate as high as 30 percent. Even Kott said he would have supported 30 percent were it not for Veco chief executive Bill Allen, according to a taped conversation cited in Kott's indictment.

The rate finally adopted in August, after two special sessions, was 22.5 percent.

Two of last year's candidates in the governor's race, Palin and Democrat Tony Knowles, said they had some concerns about the Murkowski-backed PPT but wanted to give it a chance before attempting any revisions.

The new tax, which was retroactive to April 2006, boosted last year's oil field return to the state by $800 million, to about $2 billion, according to the state Department of Revenue. But that was some $150 million less than expected. Of that shortfall, $50 million was because oil company deductions were higher than anticipated.

Coghill said any effort to revisit the PPT could be made next year, when he expects the Legislature to look at natural gas taxes as part of its gas line effort. Sen. Hollis French, D-Anchorage, also said it might be good to "cool down a bit" and take up the tax next year.

Former Rep. Ethan Berkowitz, D-Anchorage, who pushed for a tax on the gross as House minority leader last session, said a special session to address the oil tax was in order because of the high stakes -- both in terms of the state's finances and the Legislature's reputation.

But it makes sense to wait, he added, until further revelations emerge about the FBI investigation and what took place last year in Veco's suite in the Baranof Hotel.

"We don't know who else went into Room 604," Berkowitz said. "Would that paralyze or motivate them? We have to see where it unfolds."

Daily news reporter Tom Kizzia can be reached at tkizzia@adn.com or in Homer at 1-907-235-4244. Sabra Ayres can be reached at sayres@adn.com or in Juneau at 1-907-586-1531.