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Alaska oil industry defends tax credit program in ad campaign

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published October 14, 2015

Alaska's oil industry trade group has launched an advertising campaign defending the state's oil and gas tax credit program, which last year paid $628 million to companies on the North Slope, in Cook Inlet and elsewhere.

The campaign, which debuted last month, comes as a state Senate working group has been scrutinizing the payments, and as Gov. Bill Walker's administration says it will propose changes to the program. Alaska is facing its second consecutive $3 billion budget deficit, with its savings expected to be exhausted in about three years, and administration officials say it might be time to scale back a program that pays up to 65 percent of costs for companies searching for gas in Cook Inlet.

The payments to companies working in the Inlet -- about $400 million last year -- have been aimed at reviving the natural gas industry there, following a period several years ago when Southcentral officials were warning of shortages.

The state's revenue department now says that "many years of gas" are believed to have been discovered, and it argues that the biggest factor limiting production in Cook Inlet is market demand.

In the Alaska Oil and Gas Association's new radio commercial defending the tax credit program, a narrator says that the credits are "a little confusing," and urges listeners to visit an AOGA website to get information from "reliable, third-party sources."

"In short, oil tax credits are an investment Alaska is making today for the next generation of Alaskans," a video on the site tells viewers, as cartoon coins roll into a slot on the side of a map of the state.

Kara Moriarty, AOGA's CEO, said the campaign was in part designed at countering what she described as "misinformation" about the credits -- that companies, for example, are getting "free money."

"We want to provide information about what credits have done, how they've worked," she said in a phone interview.

Defending the existing tax credit program in the upcoming legislative session will be challenging for the oil industry because of cuts expected to be proposed by Walker and lawmakers to other areas of government, said Marc Hellenthal, a Republican political consultant in Anchorage.

Hellenthal predicted, however, that Republican-leaning lawmakers -- whom he described as "messengers of the oil industry" -- would still be inclined to preserve the existing program. He also noted that politicians are less likely to make cuts during election years.

"They've got some tough decisions to make," Hellenthal said in a phone interview. "I would hate to be in Juneau -- this is not a good time to be a legislator."

Anchorage Democratic Sen. Bill Wielechowski, an outspoken critic of the state's current oil tax regime, said he thought AOGA's advertising was evidence that "the dynamic has changed pretty significantly."

In a phone interview, Wielechowski pitted the tax credit program against the state's Permanent Fund, saying that leaving the payments to oil companies at their current rate would force lawmakers to "raid" the fund to balance the state's budget. (Even completely eliminating the tax credit program, however, would still leave a multibillion-dollar budget gap, and many experts say that spending some Permanent Fund earnings will ultimately be necessary.)

"I think when you put it that way to people, that's going to make a difference," Wielechowski said. "People are going to start paying attention more closely."

Wielechowski, however, said he was not optimistic that a proposal to scale back the tax credits program would progress to a vote in the upcoming legislative session. He pointed out that AOGA and another resource development group were invited by Sen. Cathy Giessel, R-Anchorage, to participate in the meetings of the Senate working group that's currently studying the program.

"It's more like a cross-examination," Wielechowski said, referring to the working group's sharp questioning of Walker administration officials who say they want to change the program. "That's very odd to me -- it's not the way government usually works."

Giessel responded by pointing out that Walker had recruited feedback from the state's business community as he developed next year's state budget plan. Wielechowski had been invited to sit on the committee to provide his perspective, and the oil industry is "not an insignificant industry for our state," Giessel added.

It's still too early to tell whether changes need to be proposed to the tax credit program, she said, noting that the working group hasn't yet heard from oil producers working in the "Middle Earth" area outside of Cook Inlet and the North Slope.

"I need to sit down and actually look at the accumulated information before I could answer that question," she said. "We're not yet done with data collection."

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