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At overtime halfway mark, GOP lawmakers 'working toward the middle' on oil taxes

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published May 4, 2016

JUNEAU — The Alaska Legislature is now more than halfway through its 30-day overtime session and still hasn't made visible advances on its three biggest outstanding deficit-reduction measures: the budget, an oil-tax rewrite, and legislation to restructure the Alaska Permanent Fund.

But a pair of House members said negotiations last week, set off by a chance encounter of two legislators at the Juneau Fred Meyer store, could soon break a weekslong stalemate over oil taxes and cash subsidies paid to small oil and gas companies. A pending bill to modify oil taxes has blocked progress on everything else, lawmakers said.

"I would hope we could have something by the end of the week," said Rep. Tammie Wilson, R-North Pole, who's been leading oil tax talks with Rep. Paul Seaton, R-Homer. "We're talking to everyone who will listen."

Wilson, in an interview Tuesday, acknowledged her collaboration with Seaton is "pretty surprising." They may both be Republicans, but they represent the polar split in the party. Wilson leans toward the tea party, while Seaton earlier this year was said by a critic, Christopher Kurka, head of an anti-abortion group, to be "the most liberal Republican in the Legislature."

"We're trying to work toward the middle," Seaton said, referring to the talks on oil taxes.

The clock is ticking, however.

A 2006 voters initiative limited Alaska's legislative session to 90 days. That window closed April 17, but the state Constitution allows lawmakers to continue for up to 121 days — with an additional 10-day extension allowed by a two-thirds vote of the House and Senate.

Wednesday was day 107, leaving lawmakers just two weeks to finish the three major bills that have stalled. But several still urged patience, saying the House simply needs time to work its way through the complex legislation.

"I don't blame the House at all — it is a process and I think they're doing hard work," said Sen. Gary Stevens, R-Kodiak, whose chamber has been relegated to spectator status for the last two weeks while the House tries to work out an oil-tax deal. "Some people say, 'Let's have a dictatorship and get everything done.' But this is not that — this is representative democracy."

While lawmakers privately worked on oil taxes early this week, they also did some business in public.

The House Finance Committee held hearings on two smaller components of Gov. Bill Walker's deficit-reduction plan: tax increases on mining and commercial fishing that, as originally proposed, would raise $24 million toward the state's $4 billion deficit.

House members also spent hours on a floor debate Monday and Tuesday to consider amendments to Senate Bill 91, a restructuring of the state's criminal justice system. After adjourning just before 11 p.m. Tuesday, lawmakers were set to return at 1 p.m. Wednesday for more debate, and potentially a final vote on the bill, which would reduce jail time for nonviolent defendants and offenders and save money for the state.

And on Wednesday, the House also rejected, for a second time, a modified version of House Bill 156, a sprawling education bill.

The bill's original subject was local control and testing, but the Senate amended it to require sex education teachers and curriculum to be approved by school boards — a priority of Sen. Mike Dunleavy, R-Wasilla.

The House, in a tight vote, rejected the amended bill last month and set up a joint House-Senate conference committee to reconcile differences between its version of the legislation and the Senate's. But the conference committee on Tuesday sent back the Senate's version of the legislation unchanged, and House members voted against it again, 20 to 19, falling one vote short of the necessary 21 to approve the it. Rep. Mike Hawker, R-Anchorage, is being treated for cancer and missed the vote with an excused absence.

In the meantime, lawmakers have quietly been making progress on the oil-tax bill, thanks in part to the meetings between Seaton and Wilson.

Wilson has been one of the House's most vociferous opponents to changing the state's current oil tax regime, which is set to pay out $775 million in cash subsidies to small oil and gas companies next year.

Seaton, by contrast, has favored reductions to the subsidies, and drafted more than a dozen amendments in committee and on the House floor to change his own Republican-led majority's rewritten, weakened version of House Bill 247 — the original oil tax legislation submitted by Walker.

The differences between Seaton and Wilson represent a broader clash within the Republican-led majority that has kept HB 247 from getting a single hearing since April 13, even though members agree it's the only thing standing in the way of their work on the other major deficit-reduction measures.

The gridlock has forced lawmakers to remain in Juneau even after the Capitol closed for construction. Members are now holding floor sessions in a converted gymnasium up the street, while working out of temporary offices down the hill near the Federal Building.

Wilson said she canceled plane tickets home and started talking with Seaton after running into him at the supermarket.

"I looked at him and said, 'We've got to do something,'" Wilson said.

The premise of their discussion, she said, was asking: "What can we agree on?"

A draft version of their proposed changes would net the state as much as $305 million in 2018 and 2019 over the current system — still down sharply from the $1 billion that could be generated by Walker's original proposal.

But the plan from Seaton and Wilson also produces major savings by phasing out a program called the carry-forward annual loss tax credit, which primarily benefits companies spending money on projects that aren't yet producing oil — though it could also benefit the big three producers on the North Slope if they're losing money due to low oil prices.

Under current law, the carry-forward program is projected to leave companies with $750 million in accumulated tax credits, based on their operating losses, by mid-2018.

Those credits would be deducted from companies' taxes whenever they earn high enough profits to generate them. Critics say that could deprive the state of needed revenue if oil prices bounce back from their current lows.

The oil industry is viewing the new proposal skeptically, with Kara Moriarty, of the Alaska Oil and Gas Association, a trade group, saying it would "decimate" the value of the carry-forward annual loss credits. She added Seaton and Wilson don't appear to be approaching their work with any guiding principles aside from fixing the state's budget gap.

"Their overall goal is to generate more money for the state of Alaska," Moriarty said in a phone interview Wednesday. "They're not focused on production."

The discussions between Seaton and Wilson have grown to include other members of the House majority. They've also met with the Democratic minority, which will likely need to be involved in any oil tax deal because of its ability to veto spending from a state savings account that's expected to be needed to cover next year's budget deficit.

Wilson said the deal she and Seaton negotiated has 20 votes in the House. "We need one more," she said.

"Broadly speaking, I found it encouraging," said Anchorage Rep. Andy Josephson, one of the Democratic minority members who's most engaged in the oil-tax debate. "People did not leave shaking their heads."

Josephson added, however, that the talks have so far been geared at building consensus within the 26-member Republican-led majority — and Democrats will likely want additional changes.

Another minority Democrat, Anchorage Rep. Les Gara, suggested oil ideas currently under consideration by the majority wouldn't be enough to satisfy him. He declined to comment specifically on the work being done by Seaton and Wilson, saying he wanted to "keep the temperature down."

But, he added, there needs to be a "big, major fix."

"Right now, the oil tax credit system is harming the state badly," Gara said.

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