Are lawmakers near a deal on oil-tax credits? It depends on whom you ask

The Alaska Legislature is approaching the end of its second special session with no deals in sight on a fiscal plan, even as Gov. Bill Walker pushes for a compromise on an oil-tax bill.

Walker and members of the largely Democratic House majority coalition expressed optimism Monday that lawmakers could agree on a plan to eliminate cash incentive payments to oil companies by the end of the week. But an Anchorage senator who's a key member of her chamber's Republican-led majority said she's still waiting to see details of the House's latest proposal.

"I'm not 100 percent clear on exactly what the proposal is yet. I don't vote or accept anything until I've seen it in writing," Sen. Cathy Giessel, chairwoman of the Senate Resources Committee, said in a phone interview. "So, my caucus will review it when we get it."

Lawmakers are still technically in a special session called by Walker last month — which came after an initial 30-day special session and a 121-day regular session kept the Legislature convened in Juneau continuously since Jan. 17.

The regular session was initially scheduled to finish after 90 days, in mid-April. But by then, lawmakers had failed to agree on any substantial measures to reduce Alaska's $2.5 billion deficit, or even on their annual operating and capital budgets.

The Legislature finally passed the operating budget June 22 — two months late and a week before a looming government shutdown. But lawmakers still haven't approved a capital budget or any legislation to restructure the state's finances, and are relying on savings to cover this year's deficit — a move that won't be possible next year because Alaska's primary savings account, the Constitutional Budget Reserve, is projected to not have enough money left.

Walker has asked lawmakers for a full fiscal plan that balances the state budget by restructuring the $60 billion Permanent Fund — and reducing Alaskans' dividend checks — as well as levying a broad-based tax, such as on sales or income, and adjusting the state's oil-tax regime.

But for now, he's set everything aside except for oil taxes, saying he thinks lawmakers will work most efficiently if they tackle one thing at a time.

At an Anchorage news conference Monday, Walker praised lawmakers in both the House and Senate for taking "hard votes" on tax and Permanent Fund legislation, and for getting close to agreements on deficit-reduction bills.

But since the two chambers haven't reached a final deal on any proposals, none have taken effect, and Walker urged the Legislature to "finish the job."

"Without finishing it, all you've done is take hard votes," Walker said.

He said he's already made his own tough decisions in politically difficult legislation like taxes and PFD reductions, adding that the final authority to vote yes or no on such measures rests with the House and Senate.

"I don't have a red or green button in front of my desk," Walker said.

With the special session scheduled to end Saturday, Walker is under increasing pressure to add the state capital budget to the Legislature's agenda, which currently includes oil taxes alone. Alaska's fiscal year started July 1 without a capital budget for the first time in decades, and the state's construction industry lobby, the Associated General Contractors of Alaska, wrote lawmakers Friday to urge them to pass the legislation by July 31.

Last August, the state received $28 million in redistributed federal highway cash from states that hadn't spent it, the group wrote in a letter. Without a capital budget, Alaska would be ineligible for this year's cash — a hit to the state's economy, the group wrote.

"Rumors are rampant. We will have a capital budget by July 31, Aug. 31 or perhaps by Sept. 30. What is certain is that we are without a capital budget today," said the letter, signed by two AGC officials, Dan Hall and Anton Johansen.

At his news conference, Walker didn't give a firm deadline for passing the capital budget, though when asked, he said: "I would rather it not be in September — I'll put it that way. I'd rather it be before September."

Walker also didn't say how he would respond if lawmakers failed to pass the oil-tax legislation, House Bill 111, before the end of the special session. Instead, he suggested that a deal on the bill was already a fait accompli, and that the Legislature would be able to move on to deficit-reduction measures like taxes or restructuring the Permanent Fund.

"I'm very hopeful that we'll see this, (HB) 111 — the product of the bodies working together on the conference committee — I think we're going to see that this week. And that will be a great accomplishment to have that piece of it done," he said. "You've got to have each piece in place before the next one comes along."

But in interviews with legislators Monday, an oil-tax compromise still sounded far away.

The House and Senate are still trying to work out how to eliminate the expensive cash subsidy program that's paid out hundreds of millions of dollars to small oil producers and explorers to encourage the development of new projects.

The two majorities and Walker want the program to end. But the House majority hasn't been willing to phase out the cash payments without an accompanying increase in oil companies' taxes — a proposal that the Senate majority has rejected.

[The Alaska Legislature's impasse over oil tax credits is jeopardizing a bipartisan consensus]

The Senate, meanwhile, wants the cash payments to be replaced at the same rate by tax deductions tied to losses. The House majority says the rate should be lower.

The latest proposal from the House majority is to eliminate the cash payment system altogether and decide how to replace it later — meaning that companies with low production that are investing in new projects would be temporarily ineligible for tax deductions based on their losses, said Anchorage Democratic Rep. Geran Tarr, co-chair of the House Resources Committee. Lawmakers could ultimately approve legislation next year and make it retroactive to allow companies to recover some of their losses, she said.

In a phone interview Monday from Richland, Washington, where she's attending a conference, Tarr said she was waiting for legislative attorneys to finish an official draft of the House's proposal so that it could be presented to the Senate. She said she anticipated that happening before the end of the day.

"I'm still optimistic. We still seem to be headed in the direction of compromise," Tarr said.

Such a proposal, however, seems likely to face opposition from the state's major oil industry group, the Alaska Oil and Gas Association, which has been open to eliminating the cash subsidies if the companies receiving them would remain eligible for deductions tied to their losses.

Without some mechanism to allow recovery of their losses, Alaska's oil industry won't be competitive with other places, said Kara Moriarty, AOGA's president. And changing the existing subsidy system "piecemeal," she added, would give companies less of the "certainty" they need to make investments.

With little clarity around the special session's final days, many lawmakers were still traveling or in their home districts Monday. Democratic House Speaker Bryce Edgmon said in a phone interview from his hometown, Dillingham, that he's waiting to see if the Senate will accept the House's oil-tax offer before deciding whether his members should fly back to Juneau.

In the meantime, businesses, lobbyists and the public are still waiting to see how, or if, lawmakers will tackle the larger problem of the deficit. Their inability to do so over the past two years has damaged the state's economy, though it's hard to quantify exactly how much, said Gunnar Knapp, an economics professor emeritus at University of Alaska Anchorage's Institute of Social and Economic Research.

"I don't know how you separate out and measure: What is the effect of the state's inability to get a grip on its finances?" Knapp said. But, he added: "I think it's real. I think it's big."

Another state lawmaker, Anchorage Democratic Rep. Andy Josephson, acknowledged that at this point, the Legislature has little to show for itself after nearly six months in session.

"If you're a supporter of the status quo and you want to just hear no evil, see no evil and you literally don't want to see any change to the state's finances and revenue generation, then it was an absolute success," he said. "If you see the writing on the wall, then so far, through July 10, it's been a disaster."