New oil tax draft emerges from Alaska House, adds millions to savings

JUNEAU — A new Republican effort to modify the state's oil tax regime would save the state up to $75 million more in 2018 and 2019 than a previous version, but it still may not have enough support to pass the House.

The new draft version of the bill was written by the House Rules Committee, chaired by Rep. Craig Johnson, R-Anchorage, as a replacement for House Bill 247, originally sponsored by Gov. Bill Walker.

The new bill emerged Tuesday following a series of secret meetings of a bipartisan working group that involved establishment Republicans like Johnson and Rep. Lance Pruitt, R-Anchorage; minority Democrats; and one member of the "Musk Ox Coalition," an informal, moderate faction within Johnson's Republican-led House majority.

The meetings apparently failed to produce a consensus, however. One of the group's two Democratic minority members, Anchorage Rep. Andy Josephson, said in an interview that he wouldn't vote for the new version of the bill, while Homer Republican Rep. Paul Seaton, one of the musk oxen, said he sees "problems with the mechanisms that it's using."

The new bill would save the state up to $275 million in 2018 and 2019 — up from the last House proposal that would have saved no more than $200 million. But it's still substantially scaled down from Walker's original version, which was designed to save as much as $1 billion over the same period.

One of the biggest changes in the new bill would solidify the state's minimum oil tax at 4 percent — eliminating an existing provision that allowed companies to use losses to bring their tax rate to effectively zero. It also would eliminate all but one of the state's tax credit programs — set to pay $775 million in cash subsidies to small oil and gas companies next year — by 2020.

"I see it as a middle ground," Pruitt said in an interview, adding that he'd vote for the legislation.

But Josephson said Tuesday that the bill's impact was "insufficient" when measured against other proposals being considered to reduce Alaska's $4 billion budget gap, like steep cuts to the state university system and to residents' Permanent Fund dividend checks.

Johnson didn't return a phone message left Tuesday. Seaton, in an interview, characterized the bill as a "discussion document" that would provoke new debate about the legislation, which has paralyzed the Legislature for the past two weeks and held up progress on other deficit-reduction measures.

"It changes the conversation somewhat," Seaton said.

Walker and the House Democratic minority say Alaska's current oil tax regime is unaffordable with the state facing a $4 billion deficit, while some members of the House Republican-led majority argue that scaling back the tax credits too quickly could produce a shortage of natural gas in Southcentral Alaska — one of the reasons tax credits were passed in the first place.

The new legislation comes after a heavily amended version of Walker's legislation stalled on the House floor earlier this month, when members said it didn't have the 21 votes needed to pass the 40-member chamber.

The House has remained deadlocked since then about whether to raise taxes on big North Slope oil producers and how quickly to scale back the cash subsidies to small oil and gas companies.

A hearing on the new oil tax bill is scheduled for Wednesday in the House Rules Committee.

Johnson, the committee chair and a member of House leadership, was one of the members of the informal, six-person group that held about 10 meetings to work on the oil tax legislation.

Others were Josephson; Pruitt; Seaton; Rep. Bob Herron, D-Bethel; and Rep. David Guttenberg, D-Fairbanks.

Their meetings occurred without public notice and over the last week, participants refused to even acknowledge the group's existence when asked about it by a reporter. House Speaker Mike Chenault, R-Nikiski, initially denied any knowledge of the group, though on Tuesday, he said there was a "group of folks that met to try to put something forward that'd pass muster."

"I think some people may have ideas they may not be comfortable putting out there," he added, when asked to explain why the group met secretly.

The Legislature isn't required to follow the state's Open Meetings Act, and its own guidelines allow closed meetings of groups as long as they're not official committees or a task force established by law.

"The public process comes whenever you actually bring something before a committee," Chenault said.

Josephson, one of the minority Democrats on the working group, didn't register any objections to the secrecy, saying that the idea was to have "all sides at the table."

"There's a belief that there could be a better airing of ideas without the prying eyes of direct stakeholders like the industry," he said. He added: "I think it was helpful."

The oil industry's trade group, the Alaska Oil and Gas Association, didn't have any complaints either. President Kara Moriarty said in a phone interview Tuesday that private meetings are "pretty common."

Ultimately, she added, the bill "is still going to have some type of public process."

That doesn't mean, however, that Moriarty was satisfied with the new legislation unveiled Tuesday.

"We don't see anything in this bill that's going to increase production in Alaska," she said.

Minority Democrats were similarly critical, arguing that the legislation was too limited in scope.

Johnson's 26-member House majority doesn't need minority votes to pass the new oil tax bill. But House Democrats are expected to be needed if next year's budget is balanced with the $8 billion state savings account called the Constitutional Budget Reserve, which requires a three-fourths super majority to pass. And the Democrats' foremost demand has been a change to the state's oil tax regime.

Rep. Les Gara, D-Anchorage, said in an interview Tuesday that the new bill doesn't go far enough to reduce the value of tax deductions that big North Slope oil companies can claim based on their costs to produce oil.

Projections by the state revenue department show that by 2020, under the new bill, companies will have accrued about $2.4 billion in production costs that they can use to offset their taxes by roughly 35 percent of that amount when oil prices go up.

"It's a system that leads us on the pathway to austerity," Gara said.

Pruitt, the Anchorage Republican, said those tax breaks are a fundamental component of a tax structure like the state's that is trying to encourage companies to make investments even when oil prices are low, like now.

"We are partners with them in this," he said. "No matter what tax system is in place, you're going to have positives and negatives."

Nathaniel Herz

Nathaniel Herz is a reporter for the Anchorage Daily News. He’s been a reporter in Alaska for nearly a decade, with stints at ADN and Alaska Public Media. He’s reported around the state and loves cross-country skiing.