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Gov. Walker resurrects decade-old gas tax concept, but faces skepticism

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published September 25, 2015

Gov. Bill Walker this week resurrected a decade-old idea in proposing a tax on undeveloped North Slope natural gas reserves which he wants to use as a lever to push oil companies forward toward construction of a pipeline megaproject.

"Everything old is new again," Eric Croft, the former Democratic legislator who sponsored a 2006 ballot measure on a gas reserves tax, said in an interview Friday.

The 2006 measure failed in a landslide, with 65 percent of voters opposed. But Walker argues that Alaska is in a dramatically different situation than it was 10 years ago, with the state facing a $3 billion deficit -- and still no gas pipeline.

At a news conference Friday, Walker repeatedly ticked through a list of project agreements that the state had failed to reach in its negotiations with the producers, including a commitment from them that they wouldn't block the pipeline's construction if they decide to pull out of the partnership with Alaska.

CLICK HERE to watch the governor's press conference

"If you don't know your history, you're destined to repeat it. And that's the problem we've had with the gas line for the past several decades. And we are destined to repeat it unless we take a bold move and do what's best for Alaska," Walker said. "This is not anything about anti-oil. This is about pro-Alaska."

The gas tax will be debated at a special session of the Legislature that Walker is convening in Juneau Oct. 24.

The concept, however, faces widespread skepticism from oil companies, observers, and the lawmakers who must approve it -- many of whom say they feared a new tax could upend a delicate agreement between the state and its three oil company partners.

In a pair of prepared statements Friday, ExxonMobil and BP -- two of Alaska's partners in the pipeline project and, with ConocoPhillips, the major North Slope oil producers -- both said a gas tax would impede the state's progress on the project, which could cost up to $65 billion.

Alaska House Speaker Mike Chenault, R-Nikiski, said in his own prepared statement that he was "shocked" by an "unusual and confrontational step."

"Why is there a need to take a shot at our partners?" Chenault said, citing Walker's optimistic statements last week about Asian demand for Alaska's gas.

Walker's argument for the tax is that the current framework for the proposed project -- a pipeline and natural gas liquefaction plant on the Kenai Peninsula -- allows it to move only at the pace of its least motivated participant, which he's indicated is ExxonMobil.

The governor sees revenues from the project as one way to fix the state's budget shortfall.

He hasn't released a proposed bill yet, but says it will be designed simply to ensure that the oil companies can't hold up the project.

The tax itself is not an attempt to raise money, he said, even though the 2006 version was expected to generate up to $1 billion a year.

"This isn't about trying to penalize anybody, trying to put a gun to anybody's head. We have a gun to our own head, on our fiscal situation," Walker said Friday. "If a producer found this objectionable, I'd have to question their motives. It's only a problem if they don't allow their gas to be part of a project."

The fear, however, is that a gas tax could drive the oil producers away from their partnership entirely, said Larry Persily, who used to be the federal government's gas line coordinator and is now an adviser to the Kenai Peninsula Borough mayor.

The oil companies will only invest in the project on terms that make sense, Persily said, especially since they're facing low oil prices and market upheaval -- and they don't like being leveraged.

"I'm not sure this is the best way to get that leverage," Persily said. "You don't rush into a $60 billion project no matter how much you want it."

If the oil companies end up backing out of the project, that could increase the amount of money that Alaska has to contribute to get it built.

Asked at his news conference Friday whether that could put the state at more financial risk, Walker brushed the question aside, saying that Alaska could borrow money, and that there would be plenty of companies willing to buy the state's stake.

"It's like we've discovered we've won the lottery ticket and we're trying to finance our cab ride over to pick up the winnings of it -- my goodness, this is absurd to me," Walker said.

Walker wouldn't say exactly when his tax proposal would be formally released as a bill. But legislators Friday said they were anxious to get it.

Dozens of lawmakers were gathered at the Legislature's Anchorage offices Friday for a seminar on the pipeline project, with a pair of consultants.

Rep. Mike Hawker, R-Anchorage, whose Legislative Budget and Audit Committee organized the meeting, said the agenda didn't change much following Walker's announcement of the tax proposal Thursday.

"We have nothing new in our possession," said Hawker, a member of the Republican-led House majority. "We have not seen any proposals."

Hawker said the Legislature would give Walker's tax proposal a "full and fair hearing." But he said he was skeptical that lawmakers in the 40-member House and 20-member Senate would approve it.

"If I had to gauge the mood of 21 and 11 in the Legislature, I do not see a reserves tax passing," he said, referencing the votes needed to pass a bill. "We are not going to tax our industry into productivity."

That was a refrain repeated Friday by Andrew Halcro, who was one of three gubernatorial candidates to oppose the reserves tax in the 2006 election along with Democrat Tony Knowles and Republican Sarah Palin. (It was the only issue that Halcro, who ran as an independent, could recall the three agreeing on.)

"Nothing's changed in the last nine years," he said.

Halcro cited recent progress on the pipeline project, like purchases of hundreds of acres of land on the Kenai Peninsula.

"There's steps forward," said Halcro. "You throw a reserves tax in there and everything's going to grind to a screeching halt."

Croft, one of the original sponsors of the 2006 ballot measures, argued that years of delays mean that the tax is now "overdue."

"If we'd passed it in 2006, we'd either have a gas line or 10 billion bucks," he said. "We're playing Little League rules in a hardball game, and it's time to get serious."

Croft said he'd seen polling early on in his 2006 campaign that showed the reserves tax ahead. That changed, he added, after oil industry spending on an "avalanche of ads."

Opponents branded the proposal a "gas tax," Croft said, which may have led voters to confuse it with a gasoline tax on Election Day.

Asked what's changed in the ensuing decade, Croft responded that the state, at the time, was facing only a "theoretical possibility of a budget crisis." And oil companies were saying that the tax was unnecessary because they would build the project, he added.

"If it's been built," Croft said, "I've missed it."