Providing coverage of Alaska and northern Canada's oil and gas industry
January 2018

Vol. 23, No. 4 Week of January 28, 2018

HB 288 intended as conversation starter

Rep. Tarr tells House Resources bill moves just one lever in oil tax system, offered because broad revenue measures off the table

Kristen Nelson

Petroleum News

House Bill 288, an increase in the state’s minimum oil and gas tax from 4 percent to 7 percent, was introduced in House Resources Jan. 22 by sponsor Rep. Geran Tarr, D-Anchorage, co-chair of the committee.

Tarr suggested members think of the bill as a conversation starter, not as something set in stone. She noted that House Bill 111, passed last year, established an oil and gas tax working group, and said she remains very committed to that process.

Asked by Rep. DeLena Johnson, R-Palmer, if the bill shouldn’t go to the working group for review, Tarr said that HB 288 was not changing anything fundamental to the oil tax structure, including the 35 percent base rate, the per-barrel credit, gross value reduction, minimum tax or lease expenditure deductions. She also said that the working group was set up to provide recommendations to the Legislature, and did not have committee authority to hear bills.

Tarr said HB 288 just changes one of the calculations for the minimum tax, whereas the working group is looking at the fundamental structure of the state’s oil and gas tax system, assisted by consultants the Legislature has hired.

The oil price

Tarr said she believes based on Senate Bill 21 discussions that if oil had been $60 when that bill was discussed the Legislature might have developed a different tax system. When SB 21 was being discussed, $60 seemed the low mark.

Tarr said she has three questions: how much is profit per barrel; how many total barrels are there; and how much revenue goes to the state.

At $60 per barrel, under the minimum tax, the state gets $2.03 per barrel, she said.

Asked by Rep. George Rauscher, R-Sutton, how the bill fits in with curing instability in the state’s fiscal system, a topic he said he has heard raised repeatedly, Tarr said the committee will hear from industry at its Jan. 26 meeting, and said she imagines that industry will want to see the state diversify its revenue sources so the finger isn’t always pointed at them.

Tarr said the state has few other options, and by suggesting an increase from 4 percent to 7 percent in the minimum tax, she hopes people will consider all options and ask whether there is a bit of room to push up the minimum tax without threatening investment and leading to job losses.

No one expects the oil price to go above $80, she said, and industry has suggested it may dip below where it is currently, so, she asked, what can the Legislature do in the $50-$60 price range while the working group looks at the state’s underlying tax structure.

Focus on the math

Rep. Chris Birch, R-Anchorage, said it appeared from the sponsor statement that Tarr wouldn’t have introduced this bill if a broad-based tax had passed last year.

Tarr said that would have changed the deficit outlook, and from her perspective would change things because the math would be different.

Birch said it seems like the Legislature is back at the well again, and said he was concerned this would impact production.

Tarr said she shared that concern, but was focused on solving the math problem. If the state diversified revenue sources it would change the pieces. She said she didn’t think this was the only option but thinks it has to be part of the conversation.

Tarr said she had no interest in turning this into an oil tax session, which is why the bill is limited to changing one lever. She also said that her constituents think $2 a barrel is too low, and noted that the specter of a citizens’ initiative on oil taxes had been raised last year, adding that she doesn’t think that’s the right way to go, as she doesn’t think tax policy should be done by initiative.

In the House Majority Coalition press availability on Jan. 23 Tarr again said that she views HB 288 as a conversation starter, noting that Senate leadership has said new revenue measures are off the table, which is why they’re looking at the minimum tax (co-sponsors of the bill include Tarr, Resources co-Chair Andy Josephson, D-Anchorage, and Finance co-Chair Paul Seaton, R-Homer, all members of the House Majority Coalition).

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