A recent commentary speculated that passage of Senate Bills 114 and 122 would threaten critically needed community investment by Hilcorp. Among other things, these bills would close a loophole under which Hilcorp, as a private corporation, does not pay the state corporate income tax.
It was speculated that this would result in Hilcorp reducing its charitable contributions. I find this hard to believe. In the first place, publicly owned oil companies that have operated in Alaska, have over the years made considerable amounts of charitable contributions, despite the fact that they have been subject to the state’s corporate income tax. Secondly, once Hilcorp is subject to state income tax, it will be able to deduct its charitable contributions when calculating its state tax obligation. If one is going to speculate, one might just as reasonably speculate that the charitable contribution deduction will incentivize Hilcorp to donate more.
The commentary went on to speculate that the other provisions of Senate Bills 114 and 122 create “challenges” for Hilcorp that “could force a pull back, meaning the company’s spending in Alaska would shrink.” In response to this, one needs only to look at analysis prepared by Bill Cline, the Legislature’s oil and gas consultant, as reported in ADN the day before the commentary in question. In the ADN story, he was quoted as saying that the proposed increase “would likely not reduce Alaska’s existing production,” and that there would also be “limited impacts on current investments and opportunities such as the Willow and Pikka oil projects.”
According to Mr. Cline, the only way that passage of Senate Bills 114 and 122 might adversely affect Alaska would be “some downside risk that a tax change could discourage substantial new investments.” Since even the governor has now come to realize that Alaska’s fiscal crisis can only be solved by new sources of revenue, the issue really is whether the possible downside risk from oil tax reform is greater than the downside risk from the other two options for generating revenue: a statewide sales tax or a state personal income tax.
— Roger DuBrock
Anchorage
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