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Gov. Walker uses veto to delay payment of some oil tax credits

  • Author: Pat Forgey
  • Updated: September 28, 2016
  • Published June 30, 2015

JUNEAU -- Alaska Gov. Bill Walker announced Tuesday that he had signed state operating and capital budgets, approving $9.8 billion in spending sought by the Legislature but vetoing a possible $200 million worth of controversial oil tax credits.

Alaska's oil tax system includes provisions for tax credits that supporters have said would boost production, but the amount of credits claimed by companies soared beyond expectations.

When oil pries dropped sharply in the last year, tax credits projected to total $1.3 billion dwarfed production tax revenues of $320 million in the fiscal year beginning Wednesday. That actually gave Alaska a negative oil severance tax.

"It is apparent the current oil and gas production tax credit system is unsustainable," Walker said in a letter Monday to Senate President Kevin Meyer, R-Anchorage, telling him of the veto. He signed the budgets Monday, but didn't publish the final documents or announce his actions until Tuesday afternoon. He's planning a news conference in Juneau Wednesday to further explain his actions.

Alaska also gets oil revenue from corporate income taxes and property taxes on industry infrastructure, as well as royalties from actual ownership of the oil resource.

But those oil tax credits helped create a $3.5 billion budget deficit this year, continuing to drain the state's savings accounts.

"I'm glad the governor took appropriate action" on the tax credits, said Rep. David Guttenberg, D-Fairbanks, a member of the budget-writing House Finance Committee.

By limiting payment of credits, he said, oil companies will share the pain that Alaskans are facing due to budget cuts.

"It makes everybody involved in this budget crunch that we're dealing with," he said.

When the state's operating budget was under consideration in the House of Representatives, Guttenberg proposed a $200 million cut to tax credits, but the amendment was voted down by the Republican-led majority multiple times. Similar efforts in the Senate were shot down there, again by a Republican-led majority.

Credits earned by oil companies through investments would still be paid but not until future fiscal years.

"It only delays the payment; we still owe the money," Guttenberg said.

In Walker's letter to Meyer, he didn't provide any explanation of why delaying payment of the credits would benefit the state. The administration's budget director, Pat Pitney, declined to be interviewed Tuesday.

Walker said he supported incentives to encourage oil and gas development, but wanted to fund the credits at a slower pace until the state's fiscal situation improves and a more sustainable tax credit system is developed.

Delaying credit payment could have an unintended negative consequence as well. Companies with ongoing North Slope oil production are estimated to be eligible to claim credits worth $590 million that they will deduct from their taxes. A spokeswoman for one of those producers, BP's Dawn Patience, said that at today's oil prices BP receives no tax credits and that the North Slope's original oil field, Prudhoe Bay, cannot qualify for state tax credits under the current tax system's minimum tax.

The state budget passed by the Legislature estimated credits to be about $700 million and called for paying it, whatever it turned out to be.

Walker used his line-item veto to cap that amount at $500 million, meaning the vetoed amount could be something more or less than $200 million.

Delaying those promised payments is likely to be a bigger financial challenge for the sometimes poorly financed small explorers, not the big producers with their strong balance sheets.

That's a problem, Guttenberg acknowledged.

"It hurts the small, independent operations that are the ones we really want to help," he said.

But Guttenberg said drawing attention to the state's tax credit problem is a good thing in itself, and is something that Republican majorities allied with the big oil producers refused to do in the last session.

The Legislature needs to re-examine what it's getting for all the money it is handing out, Guttenberg said.

Alaska also needs to find out if it is paying for things that will be done without the credits, as well as what other jurisdictions get for their tax credits.

And if Alaska pays a substantial part of an exploratory well being drilled, it should get the information produced by that drilling, Guttenberg said.

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