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Alaska Legislature

Alaska lawmakers set to end cash subsidies for oil companies

JUNEAU — The Alaska Senate approved a House proposal Monday to repeal a cash-subsidy program for oil companies. But a debate is still raging between the two chambers over what to do about the subsidies the state already owes but hasn't paid.

The Republican-led Senate majority wants to spend about $360 million to pay off some of the oil-company claims projected to exceed $1 billion by next year — with the majority of the cash coming from a state savings account, the Statutory Budget Reserve, once thought to be empty.

Eagle River Republican Sen. Anna MacKinnon. (Nathaniel Herz / Alaska Dispatch News)

The largely Democratic House majority, meanwhile, is proposing to pay only $37 million, with members like Fairbanks Democratic Rep. Scott Kawasaki criticizing the Senate for "paying profiting oil companies during a time of austerity," as Kawasaki wrote in a constituent newsletter last week.

Kawasaki's newsletter sent readers to a story about BP reporting profits in Alaska last year. But oil industry boosters and Senate Republicans point out the cash subsidies can only be paid to companies with less than 50,000 barrels of production a day — meaning they're not going to majors like Exxon Mobil, BP or ConocoPhillips.

"From my perspective, the left has made it about a sound bite," said Eagle River Republican Sen. Anna MacKinnon, co-chair of the Senate Finance Committee. "These issues are very complex — and these are smaller companies and mom-and-pop contractors and support service folks that have worked in Alaska that are not getting paid."

Lawmakers created the oil-tax subsidy a decade ago with an eye toward enticing new companies and competition to the Alaska oil industry. The program had enthusiastic, bipartisan support when oil prices were high and the state had extra money to spend.

But the subsidies have faced growing opposition from Democrats over the past three years, with oil prices slumping and the state facing a multibillion-dollar deficit that's tested lawmakers' commitments to core state obligations like education and public safety.

Alaska Gov. Bill Walker vetoed $430 million the Legislature set aside to pay credits last year, leaving just $30 million for companies. But even with the veto, the money was still obligated — it just wasn't being paid.

Walker's administration last month revealed for the first time the names of the companies that received the cash payments — which had been confidential until the passage of an oil tax bill in the Legislature last year.

The state paid out $73 million in 2016, using money from two different fiscal years. More than half went to Cornucopia Oil and Gas Co., which is owned by a German holding company, which itself owns Furie Operating Alaska — a company that's been developing the Kitchen Lights gas prospect in Cook Inlet.

The second-largest recipient was Renaissance Umiat, which was bought by Delaware-based Malamute Energy after Renaissance's Australian parent company, Linc Energy, filed for bankruptcy last year.

Other companies that received subsidies included Doyon, the Fairbanks-based Alaska Native corporation, which got $650,000, and Texas-based Bluecrest Energy, which is developing an oil and gas project in the Inlet and got $2.3 million.

The state once touted the subsidy program. One brochure from the state revenue department promised companies that "for the entire lifecycle of your project, the state of Alaska is there for you."

"We do not just talk big, we follow through big — with cash!" the brochure said.

After Walker's veto of the subsidies last year, one wildcatter, Jim Musselman of Caelus, compared the state to Lucy, the character from the "Peanuts" comic strip who pulls the football away each time Charlie Brown is poised to kick it.

"There is a commitment by the state of Alaska to pay these credits, and frankly some of these companies are small, they don't have a lot of cash flow, and these credits have kept them afloat," said Kara Moriarty, president of the oil industry's main trade group, the Alaska Oil and Gas Association. "It was just part of their business model, because that was the system that the state created. They should not be demonized just because they came in and followed the letter of the law."

There's a bipartisan consensus among lawmakers that the subsidy system needs to be eliminated, and both the House and Senate have approved legislation this year to largely repeal it. But not paying the subsidies already claimed by oil companies sends a message the state is not a good business partner, Moriarty said.

House Democrats, meanwhile, argue the companies should have known what they were getting into.

"It's true in the past the behavior was different. But if you're a company and you're planning, you should probably be as conservative as possible," said Anchorage Democratic Rep. Geran Tarr, co-chair of the House Resources Committee.

She questioned the Senate majority's proposal to pay far more than the minimum guideline for subsidy payments while simultaneously proposing to cut nearly $100 million from schools and the state university system.

"Positioning those priorities against each other — we're constitutionally obligated to provide services for education," Tarr said. "If you've got $10 to spend, you've got to meet your constitutional obligations first and then see what's left."

Tarr said her caucus would be willing to pay off the outstanding subsidies if the Legislature approves a "comprehensive fiscal plan" — which House Democrats want to include an income tax that Senate majority members have opposed.

MacKinnon said spending on schools and oil companies are "two different conversations," since cash for schools goes in the operating budget while much of the cash for the subsidies would go into the capital and supplemental budget.

She said making a larger payment this year would help clear the subsidy obligations from the state's books, stabilizing Alaska's finances in the future. While they go unpaid, the state misses out on production and jobs, she argued.

"What we're trying to do, at least from my perspective, is get our financial house in order so that we can make sure that we can invest in education and other things," MacKinnon said. "I don't want to spend the money — I want to keep the money in our savings account. The problem is we're still going to owe it."

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