Alaska Legislature

Senate leaders ask House to take deal on oil company subsidies but reject change to broader tax regime

Alaska Senate leaders Thursday urged their House counterparts to accept their offer to end a state program to encourage oil development by giving cash to companies, but they rejected the House's call for a broader tax increase.

"You just can't get the whole enchilada," said Republican Sen. Kevin Meyer, who held a press conference with two of his GOP colleagues in his home city of Anchorage.

Meyer, Senate President Pete Kelly of Fairbanks and Senate Resources Committee Chair Cathy Giessel of Anchorage each said that the state's underlying oil tax structure is working, pointing to the recent uptick in flow through the trans-Alaska oil pipeline. The tax structure was originally established in 2013 by legislation from their chamber, Senate Bill 21, that survived a referendum the following year.

The senators said they're open to debating deeper changes to SB 21 in the future. But the cash payments to companies — a liability projected to grow by $200 million in the next year — should end now, Kelly argued, since the House and Senate majorities both agree on that point.

"The entire fiscal regime of how we treat our businesses that drill for oil up North — maybe that's up for discussion, but not now. The Senate wants to stick to cash payments," Kelly said. "In a day, we should be able to end this thing and we just encourage the House: Get on board."

With the state still facing a $2.5 billion deficit, House majority leaders agree with the Senate and want to end the cash tax credit payments to oil companies. But they've only been willing to do that if the Senate agrees to also raise oil taxes.

[The Alaska Legislature's impasse over oil taxes is jeopardizing a consensus over cash tax credit payments to companies]

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House majority members say the oil industry should help fill the state's deficit since the House is asking Alaskans to do the same by paying income taxes and giving up part of their Permanent Fund dividends. And they argue that the Senate's proposal to repeal the cash payment program does little to change the state's fiscal position, since it would allow companies to replace the cash credits with future tax deductions.

Asked if the House majority would accept the offer outlined at the Senate's press conference, Anchorage Democratic Rep. Geran Tarr, co-chair of the House Resources Committee, laughed, then said: "It will get serious consideration."

But without broader changes, she added, the state's oil tax system is "unsustainable and unaffordable."

The House's latest oil tax proposal would add an estimated $285 million to the state's bottom line by 2022, both by eliminating cash payments and raising taxes, while the impact of the Senate's bill is $150 million in that same time period, according to projections from Alaska Gov. Bill Walker's administration.

The House majority's refusal to address the cash payments alone puts them at odds with both the Senate majority and Walker.

Walker has proposed what he calls a compromise package of deficit-reduction bills that included the Senate's oil tax proposal — with a tweak to adopt a House provision to bar companies from using losses on one project to reduce taxes on another project's production.

Other pieces in Walker's deficit-reduction package — a restructuring of the Permanent Fund and a small tax on wages and earnings — have stalled since lawmakers last week approved the state's annual operating budget.

But Walker is still asking them to remain in a special session in Juneau — the second this year — to reach a deal on oil taxes.

[Yes, the Alaska Legislature will likely quit for the summer without a fiscal plan, or even a capital budget]

An agreement, however, appears elusive, as evidenced by the Senate majority's choice to make its latest offer in public instead of in closed-door negotiations, where deals on major legislation are typically struck.

Many legislators are in their home districts instead of Juneau; Tarr said she watched Thursday's news conference from her Anchorage home rather than in person because her car is marooned in Juneau waiting for a slot on a ferry out of town.

Both sides have also been employing exaggerated oil tax rhetoric.

Tarr argued Thursday that the Senate's proposal "changes the name and pays the same." But in fact, the new deductions to replace the cash payments would cost the state less money, since they'd be claimed in the future, after inflation has eroded their value. And the deductions could only be claimed if companies' projects begin producing oil and owing taxes — unlike the cash tax credits, which can be claimed even if companies haven't started oil production.

Kelly, meanwhile, claimed at Thursday's press conference that there's "$1 million a day going out in cash payments," or enough cash to pay the salaries of seven state troopers for a year. But in fact, last year's budget — after a line-item veto from Walker — included just $30 million for tax credits, or more like $100,000 a day.

The Senate majority has proposed spending some $350 million on tax credits in the upcoming fiscal year. But the House majority opposes that idea.

Asked about the discrepancy Thursday, Kelly responded: "You get the idea."

Nathaniel Herz

Nathaniel Herz is an Anchorage-based journalist. He’s been a reporter in Alaska for nearly a decade, with stints at the Anchorage Daily News and Alaska Public Media. Read his newsletter, Northern Journal, at natherz.substack.com

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