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Weary Alaska House breaks through oil tax gridlock, passes bill to Senate

  • Author: Nathaniel Herz
  • Updated: September 30, 2016
  • Published May 13, 2016

A bipartisan coalition of House Democratic minority and Republican-led majority members passed a wide-ranging oil tax bill Friday that sharply scales back companies' cash subsidies and tax deductions, sending the legislation to what could be a skeptical Senate.

The passage of House Bill 247, by a vote of 25 to 12, came in spite of opposition from House Speaker Mike Chenault, R-Nikiski, and one of his allies in the Republican leadership, Anchorage Rep. Craig Johnson.

The oil tax bill that came to the floor Friday was a 36-page version of legislation originally sponsored by Gov. Bill Walker but rewritten by the House Rules Committee — chaired by Johnson — to include narrower changes to the state's tax regime, phased in more slowly.

But the rules committee's version of the bill was immediately transformed by a 60-page amendment from Republican Reps. Paul Seaton, a moderate from Homer, and Tammie Wilson, a conservative from North Pole, who brokered a compromise with the minority Democrats.

The amendment passed by a 21 to 16 vote, while the vote on the bill itself picked up a few more Republican-led majority members.

The final 25-12 split saw all 12 members of the Democratic minority who were present voting for the bill, along with 13 of the 25 majority members in attendance, in an unusual alliance that left out two of the House's most powerful lawmakers.

Reps. Lora Reinbold, R-Eagle River, Mike Hawker, R-Anchorage, and Matt Claman, D-Anchorage, were absent.

Among the supporters of the legislation was a weary-sounding Rep. Charisse Millett, R-Anchorage and the House majority leader. She broke with Chenault and Johnson and voted for the bill, saying she was a "reluctant yes" to end the stalemate over oil taxes that's gridlocked the Legislature for the last month.

"I think the House has done the best that it can. It's worked hard, it's worked long hours, long days," said Millett. She added: "We'll get another bite at this apple. We'll see this bill again."

Millett's last comment was a reference to the fact that the legislation still has to clear the Senate, which will consider the bill in a finance committee hearing Saturday afternoon.

A spokeswoman for the Senate's Republican-led majority, Michaela Goertzen, said in a text message that no members were available to comment on HB 247 late Friday.

"Members will not be commenting on the bill until we are in possession of the final House product and begin deliberations on it," Goertzen said.

But Anchorage Sen. Bill Wielechowski, a Democratic minority member, predicted that HB 247 would face criticism from the Senate majority. Their chamber was the first one to pass Senate Bill 21, the 2013 legislation that set up the state's current tax regime and gave a tax cut to the oil industry.

"I think they're very much still invested in the bill. It would surprise me if there was a big change of heart," Wielechowski said in a phone interview. "I think you're probably going to see a lot of people more supportive of the oil industry position, which is not in support of this bill."

The industry, whose unofficial spokeswoman called an earlier oil tax bill a "nuclear bomb," was left with its lexicon outgunned on Friday.

"I've been scratching my head trying to figure out a stronger analogy than that, because this bill is worse," said the same spokeswoman, Alaska Oil and Gas Association President Kara Moriarty. "Pretty easy to say that it's a pretty dramatic shift in oil tax policy, and without a doubt it will result in less production from Cook Inlet to the North Slope."

The new version of HB 247 makes a host of changes to oil tax policy that will affect large and small companies across the state. With Alaska facing a $4 billion budget deficit, the legislation is an effort both to reduce the state's cash subsidy payments to small companies — projected at $775 million next year — and to reduce its future liability, Seaton said during Friday's floor debate.

The Walker administration says HB 247 could boost the state's financial position from the status quo by as much as $580 million in 2018, compared to no more than $90 million for the version passed by the House Rules Committee.

The transformed legislation would make swift cutbacks to the cash subsidies offered to gas and oil producers in Cook Inlet — the basin that supplies natural gas for heating and power for much of Southcentral Alaska — by eliminating a trio of tax credits by the end of next year.

The previous version of the bill — from Johnson's rules committee — would have done the same thing but left two of the credits in place for longer.

One Southcentral Republican lawmaker said Friday that the legislation — which in 2019 also lifts a tax cap on Cook Inlet oil and gas — would ultimately produce higher costs for area residents.

"My constituents are going to then be paying out of their pocket for the heat," said Anchorage Rep. Lance Pruitt. "That just doesn't sit in our community."

HB 247 also scales back a major component of Senate Bill 21 that's likely to affect major oil producers on the North Slope when prices are low. It's a credit tied to losses that the state allows to be carried into future years when companies' tax bills are too small to offset the full amount of credits earned.

Large producers would no longer receive those credits after this year. Smaller producers would accumulate them at a lower rate, ratcheting down to 25 percent of losses by 2025 compared to the current rate of 35 percent.

The result would drop the outstanding credits to $280 million in 2018, compared to a projected $750 million if the current tax system is left unchanged. But critics warned that the change would have drastic impacts.

Rep. Dan Saddler, R-Eagle River, quoted one of the Legislature's oil and gas consultants, Janak Mayer, in criticizing the proposal to change the loss-based credits.

"While I'm not aware of any such tax regime existing elsewhere in the world, one certainly couldn't imagine a system better designed to discourage reinvestment and encourage harvest and rapid decline," Mayer wrote.

Those concepts will likely be closely scrutinized in the Senate.

In the meantime, the House's passage of HB 247 should give new life to the other deficit-reduction legislation that stalled over the last month, while members negotiated an oil tax deal.

The major pending bill is Walker's proposal to restructure the Permanent Fund to help fund state government, though lawmakers also haven't agreed on a final operating and capital budget — or on tax increases proposed by Walker.

The House does not appear to be taking up the pending legislation immediately: It had no committee hearings scheduled for Saturday, while just a few days remain before a constitutional session deadline.

That deadline is Wednesday — day 121 of a session that was originally scheduled for 90 days. Lawmakers can continue past Wednesday for up to 10 days, but only by a two-thirds vote of the House and Senate. Otherwise, they'll have to start vetting legislation again in a special session.

House Finance Committee co-chair Rep. Steve Thompson, R-Fairbanks, said he hopes to have a committee meeting scheduled Sunday. Asked why he hadn't scheduled a meeting for Saturday, he said: "I've got meetings scheduled for tomorrow, but not a finance meeting."

"I want to make sure where I'm at before I go argue it on the finance floor," he said.

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