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Walker administration to ask Permanent Fund to consider investing in oil tax credits

  • Author: Alex DeMarban
  • Updated: September 1, 2016
  • Published September 1, 2016

The Walker administration plans to ask the Alaska Permanent Fund board an unusual question Friday: Would the corporation be interested in investing in oil and gas tax credits issued by the state?

The idea could be a money-making opportunity for the $54 billion fund without hurting a state that's already on the hook for paying hundreds of millions of dollars for the tax credits, said Craig Richards, who resigned from his post as Alaska attorney general in June and is now a private attorney providing advice to the governor under a $50,000, six-month contract.

Richards will join John Hendrix, a cabinet-level oil and gas adviser to Gov. Bill Walker, in presenting the concept to the board during a work session in Anchorage preceding the board's annual meeting Sept. 27-28 in Juneau.

"All we will be presenting is the idea for their consideration," said Richards, who served as a trustee to the Permanent Fund board for seven months before his resignation. "If the Permanent Fund wants to run with it great, it not, we're fine with that."

The Alaska Permanent Fund is closely watched by many Alaskans in part because it provides the money for the annual dividend checks collected by Alaska residents. With the state facing multi-billion-dollar deficits, Gov. Bill Walker used his veto power in June to cap this fall's dividend at $1,000, essentially saving the fund $666 million in dividend payouts and chopping the previously anticipated dividend roughly in half. If the huge deficits continue as expected, the fund could become a major revenue source to help fund government services.

One way the tax credits currently work is that an oil producer that pays production taxes in Alaska, such as ExxonMobil, BP or ConocoPhillips, can buy a tax credit at a discount from an independent oil company that pays no taxes but did the work to earn the tax credit, officials said. The big oil producers can then benefit by collecting the full value of that tax credit from the state. In other words, they buy the tax credit low and sell it high.

The investment idea that will be presented to the board would be similar to that concept, with the Permanent Fund potentially buying the tax credits at a discount, and selling them to another buyer for a higher value or waiting until the Alaska Department of Revenue can pay the full value of the credits.

One way the fund could lose is if the state becomes financially incapable of paying those credits or waits too long to pay them.

Walker this year vetoed $430 million in tax credits owed by the state, saving money this year by deferring the state's obligation to pay the tax credits until a later date.

But that is a slice of what will ultimately be owed. By the end of the fiscal year on June 30, the state could be on the hook for around $700 million in tax credits.

The investment opportunity would work like a bond issued by a municipality, said Richards.

Talking to the board could help raise the profile and market value of the tax credits, potentially stoking interest among other sovereign funds or pension funds that are looking for better investments than the low government bond yields currently available, Richards said.

Paulyn Swanson, the fund's communications manager, said the Walker administration asked to give the presentation and the board agreed to listen.

"Any investments made by the Alaska Permanent Fund Corporation must be fully vetted and meet the due diligence and return objective thresholds," she said by email.  "This proposal will be subject to the same vetting process by our investments staff and subject to the same criteria."

The six-member board of trustees is appointed by the governor and serves staggered, four-year terms.

Asked if the corporation has previously invested in Alaska projects or bonds issued by governments in Alaska, Swanson said at times over the last four decades the corporation has owned various real estate holdings in Alaska, including its headquarters in Juneau.

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