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Oil tax debate heats up in Juneau

  • Author: Patti Epler
  • Updated: July 1, 2016
  • Published February 14, 2011

The debate over Alaska's oil tax structure is picking up speed in Juneau but some lawmakers are worried time will run out before the complicated financial issue can be sorted out.

The House ramped up work on a bill introduced by Gov. Sean Parnell that would revamp the current tax structure known as Alaska's Clear and Equitable Share or ACES in a way he believes will entice oil companies to invest more in Alaska and beef up North Slope oil production over the long term. The House Resources Committee kicked off the debate in earnest with hearings all week aimed at educating members on the issue as quickly as possible.

"Clearly these changes need to be made," House Resources Co-Chair Eric Feige told members on Monday, setting the tone for what is considered must-do legislation by House Republicans. "It's the objective of this committee to make sure this bill puts more oil in the pipe."

The governor's bill, House Bill 110, would reduce the tax rate paid by oil producers in a couple of ways, first by lowering the base rate from 25 percent to 15 percent on some fields and also by reconfiguring the controversial "progressivity" provisions that kick in as the price of oil rises. The concept is similar to a bill introduced by House leadership at the beginning of the session and GOP leaders have agreed to let the governor's bill be the vehicle for debate, although they promise changes will be made in some areas.

The Senate took up the tax debate with a hearing on oil tax credits and incentives, something lawmakers say are equally as important to the discussion as the tax structure itself.

Tax structure change could cost Alaska billions

And two Democratic lawmakers who have taken the lead on opposing changes to ACES -- Rep. Les Gara and Sen. Hollis French -- tried to shine a light on the lucrative tax breaks the state already provides the industry with a press conference and a letter to the governor urging him to do more to publicize the "excellent incentives currently available in Alaska" before cutting taxes on the companies.

At stake are billions of dollars that the state would lose if taxes are cut. Opponents of changing ACES say the state needs to collect as much money as it can from the dwindling oil fields to pay for roads, schools and other state services now and in the future.

High oil prices a few years ago, when ACES first kicked in, is primarily the reason the state has more than $10 billion in budget reserve accounts.

Now, there's general agreement that, under Parnell's bill, the state would lose about $1.5 billion a year if oil prices are $82 a barrel, the price the fiscal year 2012 budget is based on. Gara says that loss rises to $3 billion if oil goes up to $100 a barrel because ACES brings in more state revenue as oil prices go up. If the price of oil drops to say, $50 a barrel, "then Alaska will become California, a state where you start firing teachers and police officers," Gara said.

But Parnell and proponents of changing the system say what's really at stake is the future of the state -- if they don't cut taxes now to spark investment there will be no new oil development, no new jobs and eventually no oil revenue that the state depends on.

"If we as a state do not reconsider what we call our fair share of oil production, there will be no oil production to share at all," says Rep. Mike Hawker, an Anchorage Republican and leading proponent of revamping ACES to encourage more investment.

Hawker is trying to whip up a sense of urgency in Juneau about the tax debate and he's more than a bit worried the complexity of the legislation will butt up against the need for lawmakers to thoroughly understand it before acting on such an important issue. That could mean there won't be enough time before the session legally must end on April 17 for legislators to make an informed decision.

Should Legislature save oil tax for special session?

Hawker notes that there are also a number of new lawmakers and new state officials including the commissioners of revenue and natural resources who need to get up to speed on how the state taxes the oil industry. The learning curve is steep right now, he says, and "it makes it very difficult to address this and address it responsibly in 90 days."

On the other hand, he says, if the issue is left to a special session -- something a number of lawmakers think is likely -- or is tabled until next year, other issues begin to become distractions. Hawker mentions redistricting as one of those distractions because that brings the spectre of election politics and political turf wars as legislative district are redrawn to adjust for population shifts.

Hawker and Feige expect HB 110 to spend another week or two in the Resources Committee then pass on to the House Finance Committee where it will get much of the same treatment -- educational sessions to bring members up to speed followed by debate and tweaking.

That puts it --optimistically -- at mid-March before the House might have something in place.

And then there's the Senate. While the House is working steadily on the primary ACES bill, the Senate has held one hearing -- on tax credits. And that's causing some to wonder what Senate leadership is up to.

Sen. Bert Stedman, the Sitka Republican who co-chairs the Senate Finance Committee, dismisses those concerns as unnecessary. He points out that besides the tax credit hearing ACES has clearly been part of the presentations on revenue forecasts.

Oil industry tax credits and incentives amount to close to $4 billion when you add in the FY 2012 figures, he said.

"That's a substantial amount of credits," Stedman said. "We've got to look at what's generating them."

Stedman says the overall oil tax picture, including credits, isn't something "that can be dealt with in two or three weeks." He wants fairly thorough analysis on various pieces of the puzzle to have taken place before it gets to committee.

And he said he saw presentations in the House last week that only gave half the picture. He does not want that to be the case in the Senate. "Some of those presentations so far have been on the light side," he said.

Stedman expects the Senate Resources Committee will take up a bill in the next couple weeks. And the Legislative Budget and Audit Committee, which is chaired by Hawker and where he is vice chair, is spending about $96,000 on studies that look at how Alaska compares to other oil-producing regions when it comes to tax structure and other factors that go into a company's investment decisions.

One report is coming to the Legislature in six parts, the last one expected in June, after the end of the session. Another study is anticipated soon but will be confidential and lawmakers will need to agree not to reveal the details if they want to see it.

Stedman is hoping to line up a presentation by that consultant, Wood MacKenzie, of information that can be publicly revealed.

Still, waiting until June or beyond to finalize an oil tax bill is a consideration, although not his first choice. "It would depend on how comfortable the legislators are in their ability to grasp the details of the subject matter," Stedman said.

"It's extremely complex and I'd be very surprised if we had a bill on the governor's desk by the middle of April," he said.

Stedman agrees with Hawker that the oil tax issue is a prime example of the problems with a 90-day session, which started in 2008. "I don't think in a 90-day session you have time for any major piece of legislation on anything," Stedman said. "It it was 120 days, the chance of having an oil tax bill would be increased substantially but even then it's not guaranteed."

Both say a special session is a real possibility.

Stedman pointed out that previous oil tax regimens have been worked on for years before they were finally in a form that lawmakers could make some choices.

Hawker doesn't see it quite the same way. He thinks it's readily apparent that Alaska is not getting the oil industry investment it should.

"I truly believe we have sufficient empirical evidence in front of us to identify, evaluate and provide a responsible solution to what are clearly problems facing Alaska," Hawker said. "We don't have to wait for a report from some Outside consultant to know we have a problem with declining production and a problem with deliverability of gas to Southcentral Alaska."

"The problem with the Legislature has been the lack of a sense of urgency," he added. "We've been fiddling while Rome burns."

Contact Patti Epler at patti(at)