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Alaska Legislature

Alaska House members return to Juneau as hopes rise for an oil tax deal

The Alaska Capitol in January. (Marc Lester / Alaska Dispatch News)

Alaska lawmakers were set to meet Saturday in Juneau to take up what legislative leaders described as an emerging deal on oil taxes — one that would end companies' cash incentive payments and replace them with tax deductions that can only be taken if the company is producing oil and therefore paying taxes.

The leaders of both the House and Senate said Friday that they're optimistic that a compromise can be reached Saturday, which is the deadline for lawmakers to finish a special session convened by Gov. Bill Walker. But Senate President Pete Kelly, R-Fairbanks, added that he's not celebrating yet — a reminder of how lawmakers seem to have snatched legislative defeats from the jaws of victory a few times already this year.

"I am in a non-giddy, optimistic mode right now," Kelly said in a phone interview. He added: "There's reason for optimism, but we've had too many false starts to get giddy. Optimism is as far as I'd probably go."

Alaska Senate President Pete Kelly, right, stands with colleagues before a press conference earlier this year. Kelly, a Fairbanks Republican, said Friday that he’s in a “non-giddy, optimistic mode” with lawmakers appearing to move toward an oil-tax deal. (Marc Lester / Alaska Dispatch News)

The deal on the table appears to be largely in line with an earlier offer from Kelly's Republican-led Senate majority, which has favored replacing the system of cash payments with one that allows companies to earn tax deductions at the same rate — 35 percent of losses.

Members of the largely-Democratic House majority, citing the state's budget crisis and its precipitous drop in oil revenue, had pushed to lower the rate for the deductions — a step that doesn't appear to be included in the latest proposal.

But the deal does include a significant concession to the House, according to Rep. Geran Tarr, a key oil tax negotiator as co-chair of the House Resources Committee.

Under the deal's terms, Tarr said, it would start to gradually reduce the value of the tax deductions on companies' books after 10 years if they haven't been used. That could happen, for example, if a small oil company loses money developing a new project that takes more than a decade to bring online, and the provision could add hundreds of millions of dollars to the state's bottom line over time, Tarr added.

Kelly said Tarr's general description of the compromise isn't "too far off" from his understanding of the proposal.

The House and Senate majorities have been fighting over oil taxes for the special session's 29 days, which came after a previous month-long special session and a 121-day regular session.

The two caucuses and Walker agree that the cash payments — which have cost the state hundreds of millions of dollars a year — need to end in order to fix Alaska's $2.5 billion deficit. But until now, they've disagreed about how the program should be replaced.

If lawmakers finally agree on an oil-tax deal Saturday, their work still won't be done, since they also haven't approved the state's annual capital budget.

The pending oil tax legislation, House Bill 111, will require a series of procedural steps to be taken Saturday before any vote on final passage can take place. And one of those steps — to ignore certain legislative rules — requires two-thirds approval in the 40-member House, which means that it will need votes from the 18-member GOP minority.

Eagle River Republican Rep. Dan Saddler, the minority floor leader, said he hadn't heard the details of the proposal Friday afternoon. But he added that his caucus will review any compromise that emerges from a joint House-Senate conference committee and "give it every consideration, and make our decision as to whether to waive rules."

Alaska House Speaker Bryce Edgmon, D-Dillingham, speaks to reporters in May. (Nathaniel Herz / Alaska Dispatch News)

The House speaker, Dillingham Democratic Rep. Bryce Edgmon, said he was confident enough about negotiations that he was willing to send his caucus back to the capital — a step he hadn't been willing to take earlier in the week.

"I think there's been real progress made," Edgmon said in a Friday afternoon phone interview from Dillingham, where he was planning to board a plane a few hours later. "The House majority is comfortable in sending members to Juneau to actually bring this whole thing to a close tomorrow."

A deal on oil taxes, however, won't mean that lawmakers' work is finished; they still have to address the capital budget, which failed to pass by the July 1 start to the fiscal year for the first time in decades. And Walker administration officials have indicated that they may still push lawmakers to pass legislation to reduce the state's $2.5 billion deficit — like bills to levy taxes or restructure the Alaska Permanent Fund — before the end of 2017 and the start of the 2018 election year.

Several deficit reduction bills advanced through the House and Senate this year, but none passed because the two chambers' majorities couldn't agree on how to fit them together.

Walker, who has the power to call lawmakers back into a third special session, gave no indication of his next move.

He's attending the National Governors Association's summer meeting in Rhode Island and appeared on national television Friday to address the health care bill moving through Congress.

His press office didn't respond when asked how he'll proceed if the Alaska Legislature approves the oil tax legislation, though it did send a prepared statement that quoted Walker bemoaning Thursday's announcement that Moody's had downgraded the state's credit rating.

"We simply cannot afford to wait any longer to take our finances and budget issues seriously. Alaskans are depending on us," the statement quoted Walker as saying. "I will continue to work to resolve Alaska's fiscal problem this year."

Kelly, the Senate president, said the Legislature would turn to the capital budget "rather quickly," though he added that an exact timeline hadn't been determined. And he said he doesn't know when lawmakers will take up additional fiscal reforms.

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