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Alaska Legislature

Oil and gas industry ‘left harmless’ in Dunleavy budget, Democrats say

  • Author: James Brooks
  • Updated: February 24, 2019
  • Published February 24, 2019

JUNEAU — Gov. Mike Dunleavy’s proposed cuts to state services have drawn the ire of many Alaskans, but something uncut is drawing attention from the two minority members of the Senate Finance Committee.

Sen. Bill Wielechowski, D-Anchorage, and Sen. Donny Olson, D-Golovin, said last week that the governor is leaving the oil and gas industry untouched even as he pursues cuts to education, health care and other state services.

“They’re more than held harmless. They’re actually getting additional money that was not in the original budget,” said Wielechowski.

Wielechowski’s remarks followed similar ones from Olson, who heard Office of Management and Budget policy director Mike Barnhill declare on Feb. 18, “There’s literally no plan that we can put before this committee, some element of it that somebody won’t hate.”

Olson responded: “What I see in this budget is that the oil companies don’t see anything in here to hate. They in fact probably embrace this budget because they are left harmless."

The text of the governor’s budget calls for $254 million in tax credit payments to oil and gas drillers. The payments would be split between the current fiscal year and the fiscal year that begins July 1. The budget approved by lawmakers last year already calls for $100 million in payments during the current fiscal year.

These are payments the governor’s office says are required under the state’s obligations to drillers. Wielechowski has a different opinion.

Between 2003 and 2017, the state of Alaska promised billions of dollars in tax credits to smaller oil and gas companies that pledged to drill for oil and gas in Cook Inlet and the North Slope. Some of those credits can be sold back to the state for cash. After petroleum prices plunged, lawmakers ended the tax credit system with bills in 2016 and 2017.

Those bills stopped the state from issuing old credits, but they didn’t take care of the old ones. The state had been scheduled to pay much of them off, but Gov. Bill Walker vetoed some payments as part of his budget-cutting efforts.

According to the latest report to the Alaska Legislature, oil and gas companies have requested the state repurchase $836.7 million in credits. Another $197.3 million in credits have been issued, but requests for repurchase have not been filed.

A bill approved by the Legislature last year would have allowed the state to borrow up to $1 billion to repay the remaining credits, but that legislation has been challenged in court and is not active.

“The unfortunate thing for the Legislature is that it’s put them between a rock and a hard place,” said Kara Moriarty, director of the Alaska Oil and Gas Association.

With the lawsuit blocking last year’s repayment plan, Dunleavy is following a repayment formula set in state law, but that formula has been interpreted in different ways. Last session’s House coalition majority — before the bonding legislation was approved — argued that the formula requires lower payments than suggested by then-Gov. Walker or Dunleavy today. Wielechowski is continuing those arguments.

The governor’s approach would take money for the credits from the Alaska Industrial Development and Export Authority, not the state treasury. It isn’t clear what the effect on AIDEA would be.

Senate President Cathy Giessel, R-Anchorage, said she supports the payments in the governor’s budget. The alternative, she said, “is like the IRS saying, ‘Oh, we owe you a refund? Sorry, we’re going to parse that out over the next 10 years.’ I mean, none of us would like that."

Moriarty pointed out by phone that the companies holding these tax credits are smaller firms, many of which have borrowed money against the credits and are feeling a financial pinch.

“If they decide to not do the payment this year, or if the Legislature decides to cut that, it will continue to have a tough impact on those companies,” she said.

That could have broader consequences, Giessel warned. She’s afraid that if companies are discouraged from drilling for gas in Cook Inlet, Anchorage could again find itself without a reliable gas supply. A forecast shortage in the first part of this decade prompted the creation of some of the most generous tax credit programs.