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Walker's oil-tax credit delay breaks a deal and fails to save a dime

  • Author:
  • Updated: June 29, 2016
  • Published July 4, 2015

A deal is a deal. Remember Democrats and union bosses seeking out television cameras and microphones to plaintively argue that as legislative Republicans wrestling with a $3.5 billion state budget deficit tried to cut state worker pay raises? A deal, they huffed, is a deal.

That was before their guy, Republican-cum-independent-cum-undeclared Gov. Bill Walker, ignored the GOP legislative majority's wishes as he signed the $9.8 billion operations and capital budgets and capped $700 million in pending oil industry tax credits at $500 million He effectively vetoed $200 million Alaska owes the oil and gas industry, deferring payment until Alaska is good and ready.

Walker -- apparently channeling Anchorage Democrat Les Gara, a vocal proponent of cutting tax credits, to guide tax policy decisions -- singled out the oil industry, finding little else in the massive state spending plan worth whacking. That says much about his appetite for future budget restraint.

He says he wants to spark discussions about tax credits, but tellingly, "he was unable to explain how the state benefited from delaying payment of the credits for a year," the Alaska Dispatch News reports. The short answer? It does not.

Democrats were enthralled with Walker's move, saying everybody -- except teachers' unions, state employees and Democrats, of course -- should feel Alaska's fiscal pain, triggered by plummeting oil prices.

Walker's veto most likely will hurt smaller operators with not much in the way of tax liabilities or financial cushions; companies receiving credits as cash payments and using them to attract investors for exploration and production; companies pumping money into local economies and providing jobs; companies many see as the future of Alaska's oil industry. Larger players, ConocoPhillips, BP and ExxonMobil, with their healthier bottom lines use credits as tax deductions and, at today's prices, BP says it does not even receive them.

The credits seem to work; the Cook Inlet Recovery Act a good example. The cash payments and tax deductions spurred investment where investment had been scarce. Independent oil and gas companies focused operations there, pumping up local economies and producing much-needed oil and gas, taking Southcentral Alaska from brown-out drills to energy security.

Cutting those credits -- even making them iffy -- will hurt. Worse? Capping them saves no money. Nada. Zip. Zilch. They eventually will have to be paid -- it is not optional -- and they will have to be paid next year or the year after or the year after that, when, unless oil prices miraculously soar past $100 a barrel, there will be even less money. If you think cutting the budget was tough this year, wait.

The long-simmering debate over tax credits arguably should be shuffled to the front burner. It is long overdue. Alaska should look at what it pays; what it gets. There should be few secrets about the credits. We are, after all, talking about public money. How do we compare to other states; other oil provinces? The industry should be prepared to aggressively defend the incentives' necessity and their benefits.

Our current situation is reason enough to take a long, hard look. Plummeting oil prices put Alaska in a position of paying much more in credits for North Slope and Cook Inlet operations than it would receive in production tax revenues during the fiscal year starting July 1. Not long ago, under the failed Alaska's Clear and Equitable Share oil tax, the state was paying $1 billion a year in credits for North Slope capital expenditures that had nothing to do with oil production.

We can, and should, hash out tax credits -- the hows, whys and whats -- sometime soon.

Meanwhile, Walker -- a lawyer who spent his professional career suing oil companies -- says he supports incentives, but wants to fund them "at a slower pace until the state's fiscal situation improves and a more sustainable tax credit system is developed," ADN reports.

In addition to delaying the inevitable until it can hurt worse, that approach stirs unnecessary angst. Uncertainty is economic poison. Will jittery investors eyeing smaller oil companies think twice. Will they seek investing opportunities elsewhere? Or, will the state's Big Three partners, as they sit down to yak about building a long-anticipated $65 billion LNG Alaska project, now fret about the state pulling a switcheroo here, a changeup there? Will withholding credits without warning delay or sideline projects small or large just when boosting production, economic activity and jobs is increasingly important? No good will come from any of this.

Bill Walker is new on the job, with apparently at least one lesson yet to learn:

A deal is a deal.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com

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