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Legislature OKs Parnell oil tax cuts that will cost state billions

  • Author: Richard Mauer
  • Updated: September 27, 2016
  • Published April 14, 2013

JUNEAU -- The Alaska Senate on Sunday afternoon approved the oil-tax bill that passed the House 13 hours before, sending to Gov. Sean Parnell the measure he had sought to save billions of dollars for Alaska's leading industry.

The Senate vote was 12-8 to concur with the revised bill that the House approved 24-15 just before 2 a.m. Sunday morning (on reconsideration, three Republicans switched to support the bill). The Senate vote came past the midway point of the 90th day of the 90-day session.

Parnell said that Alaska's current tax regime, which he backed as lieutenant governor in 2007 when it was pushed by Gov. Sarah Palin, is broken. It is taking so much money from industry, he said, that producers have been investing elsewhere, explaining the decline in oil production here. His bill, modified but not changed drastically in either the House or Senate, effectively wipes out Palin's tax policy, Alaska's Clear and Equitable Share, or ACES.

The new bill ends ACES big progressive tax steps, where tax rates increase as the price of oil rises. Parnell and supporters said the progressive tax was punitive toward industry. ACES supporters agreed that the tax took too much money at high oil prices, but the remedy was to lower the rate -- not toss it.

Under ACES and with sustained high oil prices that were not predicted in 2007, Alaska's treasury has swelled. The state cruised through the 2008 recession that devastated swaths of the Lower 48. Despite big budgets, Alaska now has some $17 billion in savings, not counting the Permanent Fund.

But the tax cuts mean those savings accounts will likely need to be tapped even if budgets remain flat, according to the predictions of Parnell's own revenue officials.

Opponents of the tax cuts say even those predictions were rosy. And they said that Parnell was overstating the production decline in his predictions to prove his point -- and so he could claim credit when it turns out to be not nearly as bad in the coming years. Evidence of job growth, business growth and economic activity shows that North Slope producers were indeed investing in Alaska even as they complained that ACES steered them away, the opponents said.

The vote margin in the Senate on Sunday represented a switch by one senator from the 11-9 tally that barely sent the original bill to the House almost a month ago.

The changed vote was cast by Sen. Donny Olson, D-Golovin, who had spoken against the bill on March 20, referring to Alaska's history of ruin-and-run industries: Russian fur traders, Nome gold miners, pre-state salmon packers and copper magnates. With oil, Olson said last month, Alaska had finally grabbed its share of the wealth.

Olson didn't participate in the debate Sunday. But his district includes the North Slope, where the Arctic Slope Regional Corp. had lobbied heavily for the bill's passage.

Only seven senators spoke on the bill Sunday, far fewer than the month before. But they were no less impassioned in making their cases -- not so much fellow senators, whose positions were unlikely to be swayed on the floor, but for the moment in history.

Two spoke for the bill, five against during the 85-minute debate.

Sen. Bill Wielechowski, D-Anchorage, said the assertions made by Parnell and his supporters "are provably wrong."

"The facts haven't changed since this bill left here," he said. "Contrary to the rhetoric we've heard, jobs are not fleeing Alaska. We've had all-time highs in just about every single year since we passed ACES. Contrary to rhetoric we heard, investment isn't fleeing Alaska. We've had all-time high in investment every single year since we passed ACES. Contrary to the rhetoric we heard, companies are not fleeing Alaska. We've had 383 percent increase in the number of companies doing business in the state since we passed ACES."

Said Sen. Hollis French, D-Anchorage: "This bill will be the source of great regret for many people who may be considering voting for it today. ... This bill today will cause us to dip into savings to the tune of $861 million to balance the (2014) budget. That is an enormous amount of money."

Building on the Wielechowski's theme, French said the oil companies will bring out the "brass bands" at drilling rigs and new wells as if it were the oil tax cuts that were the cause. But those investment decisions were actually made under ACES, and they would have been profitable -- just not as profitable as under the new tax regime.

Sen. Lyman Hoffman, D-Bethel, said he just received a report from the Legislative Finance Division that shows the oil-tax cut would lead to a budget shortfall of $1.6 billion for 2014 and the supplemental 2013 budget.

Sen. Cathy Giessel, R-Anchorage, said the main part of the tax bill would only give tax breaks to produced oil, unlike ACES, which provides credits for investments like drilling that may not lead to production. "This is what Alaskans have been asking for," she said. "It's our oil -- we want it produced."

Had the Parnell tax plan been in effect this year, revenues would have been $1.6 billion less, said Sen. Lyman Hoffman, D-Bethel. "Each one of us should be shaking in our boots when we look at that one number," he said.

Sen. Bert Stedman, R-Sitka, said he applied the tax cut to the 2012 budget to see what it would have cost using actual conditions, not projects. The effect, he said, was a $1.7 billion cost. "When you backdate something and it fails miserably, you better go back to the drawing board," he said.

Anna Fairclough, R-Eagle River, the bill's floor manager, said this is the time to change taxes -- for the next generation.

"The sky is not falling -- we have healthy savings accounts. It's to prepare the next generation for a changing time when we don't have as much revenue. It's not disputable -- the pipeline decline is real," she said. Even if opponents are correct that the decline is much less than Parnell asserts, she said, it's still a problem that should be addressed.

"We have one of the best geological composites on Alaska's North Slope -- but guess what, no one's drilling. Well, they're drilling, but they don't want to bring things to production because ACES is too high," she said.

Reach Richard Mauer at or 257-4345.

Senate vote:

Republicans voting yes: Bishop (Fairbanks), Coghill (Fairbanks), Dunleavy (Wasilla), Dyson (Eagle River), Fairclough (Eagle River), Giessel (Anchorage), Huggins (Wasilla), Kelly (Fairbanks), McGuire (Anchorage), Meyer (Anchorage), Micciche (Soldotna).

Democrat voting yes: Olson (Golovin).

Republicans voting no: Stedman (Sitka), Stevens (Kodiak).

Democrats voting no: Egan (Juneau), Ellis (Anchorage), French (Anchorage), Gardner (Anchorage), Hoffman (Bethel), Wielechowski (Anchorage).

House vote:

Republicans voting for passage: Chenault (Nikiski), Costello (Anchorage), Feige (Chickaloon), Gattis (Wasilla), Hawker (Anchorage), Higgins (Fairbanks), Holmes (Anchorage), Hughes (Palmer), Isaacson (Fairbanks), Johnson (Anchorage), Keller (Wasilla), LeDoux (Anchorage), Lynn (Anchorage), Millett (Anchorage), Neuman (Big Lake), Olson (Soldotna), Pruitt (Anchorage), Reinbold (Eagle River), Saddler (Eagle River), Stoltze (Chugiak), Thompson (Fairbanks), Peggy Wilson (Wrangell), Tammie Wilson (North Pole).

Democrat voting for passage: Nageak (Barrow).

Republicans voting against passage: Austerman (Kodiak), Munoz (Juneau), Seaton (Homer).

Democrats voting against passage: Drummond (Anchorage), Edgmon (Dillingham), Foster (Nome), Gara (Anchorage), Gruenberg (Anchorage), Herron (Bethel), Josephson (Anchorage), Kawasaki (Fairbanks), Kerttula (Juneau), Kreiss-Tomkins (Sitka), Tarr (Anchorage), Tuck (Anchorage).

Excused Absence: Guttenberg (D-Fairbanks).

Note: in the reconsideration vote, Austerman, Munoz and Seaton voted for passage.


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