New Senate oil tax proposal preserves key tax break for big companies

JUNEAU — The Alaska Senate on Tuesday dismantled the compromise oil tax bill passed by the House last week, offering a substitute that accepts a pair of significant House provisions but eliminates its North Slope tax increase aimed at big producers.

The Senate Finance Committee's revised version of House Bill 247 was unveiled at a Tuesday morning hearing by Republican co-chairs Anna MacKinnon of Eagle River and Pete Kelly of Fairbanks.

The Senate legislation would preserve an existing tax credit, tied to losses, that the state allows to be carried forward into the future. The House proposed a complete elimination of that program, which would drop the amount of outstanding credits to $280 million in 2018, likely at the expense of major North Slope producers ExxonMobil, BP and ConocoPhillips. The Senate Finance Committee's decision to stick with the status quo would leave $750 million in outstanding credits in 2018, according to projections by the administration of Gov. Bill Walker.

Oil companies could deduct that $750 million from their taxes in the future if oil prices rise and their tax bills are high enough to offset them. The credits would have the effect of prolonging lost state revenue even if oil prices rise and producers restore their high profitability.

MacKinnon and Kelly refused to answer questions after Tuesday's hearing.

Critics of the House proposal have said it would get rid of the linchpin of the state's oil tax regime and leave companies without incentives to invest in upgrades, upkeep and infrastructure. But its supporters say that Alaska can't afford its existing tax structure — projected to generate less than $50 million in production tax for the next five years, and no more than $1.5 billion in royalty revenue — while the state faces a $4 billion budget deficit.

Some House members reacted to the Senate's proposal with chagrin, and in the case of Anchorage Democratic Rep. Les Gara, with dismay.


"Who knew the new welfare queens lived in Texas?" he asked, referring to the location of the oil companies' headquarters.

Homer Republican Rep. Paul Seaton, who engineered the House's compromise with Rep. Tammie Wilson, said the Senate's proposal was insufficient.

"I don't think it lowers the future liability to the state to any appreciable extent for the North Slope, which is where our largest liability is created," he said in an interview.

The Senate Finance Committee's 36-page proposal does accept at least two proposed reforms from the House.

One would limit the lifespan of a generous tax break for relatively new developments — the "gross-value reduction" — to seven years, while current law leaves it in place forever.

The second places a $70 million cap on the cash subsidies the state can pay individual companies each year.

But those concessions may not be enough to maintain majority support for the bill when it goes back to the House for a concurrence vote on the Senate changes. The bill passed the House in a bipartisan, 25-12 vote last week.

The total benefit to the state of the Senate's proposal is projected at a maximum of $165 million in 2021, compared to $475 million based on the House bill.

Legislative staff worked early into Tuesday morning to finish the new version of HB 247, with drafters finishing the bill around 3 a.m. Legislative aides starting work a few hours later, MacKinnon said at the hearing.

Lawmakers are scrambling to finish as much work as they can before a 121-day session limit set by the Constitution that they reach Wednesday.

Nathaniel Herz

Anchorage-based independent journalist Nathaniel Herz has been a reporter in Alaska for nearly a decade, with stints at the Anchorage Daily News and Alaska Public Media. Read his newsletter, Northern Journal, at natherz.substack.com