Walker’s tax credit bonding bill introduced
The Walker administration has introduced a bill to allow the state to issue bonds to pay for its cashable oil tax exploration credits.
In a press release on the bill the governor said he was “proposing this bill to achieve fair resolution to the small independent oil exploration company tax credit purchase program, and to free up capital for the small companies who participated in the program to resume investing in future oil exploration leading to additional production. Passage of this bill would allow the state to move past the uncertainty on these tax credits and focus on growing Alaska.”
The bill allows for payment of credits at a discounted rate so there would be no additional cost to the state.
There is a remaining balance of $800 million in cashable oil and gas exploration tax credits, and an additional amount up to $200 million is expected to accrue in the next two to three years before the last credit programs ended, the administration said.
State corporationIn a letter accompanying the bill, Walker said the bill would create a state corporation authorized to issue bonds to purchase oil and gas exploration tax credits.
The state’s program to purchase oil and gas tax credits was ended with the passage of House Bill 111 last year. The governor said major producers have always been ineligible to participate in this program, which provided small producers and explorers to earn credits.
Alaska has purchased more than $3.5 billion in these credits since the program began in 2007, the governor said, but with the downturn in oil prices and the state’s budget challenges it is no longer able to purchase the credits as quickly as they are submitted.
Since 2016, Walker said, the state has appropriated funds based on a statutory formula, resulting in the large accrued balances. He said this payment delay “as resulted in significant uncertainty for Alaska’s small producers, some of whom have had a difficult time borrowing additional money to complete their projects.”
Commissioners as directorsThe Alaska Tax Credit Certificate Bond Corp., to be created by the legislation, would be authorized to issue up to $1 billion in bonds to finance purchases of oil and gas tax credits at a discount from face value, the governor said. The discount offered to holders of the credits would be used to pay the cost of financing the bonds, Walker said. He also said the bonds would not constitute a general obligation of the state; authority to issue bonds would expire Dec. 31, 2021.
The Department of Revenue would have authority to negotiate purchase of tax credits at less than full value when bond proceeds are used for those purchases, and applicants would have to notify the department of interest to purchase tax credits from bond proceeds at a discounted amount.
The face amount of the tax credits would be discounted each year by 10 percent, the governor said, although a lower discount could apply for applicants agreeing to conditions which benefit the state, including: overriding royalty interests, waivers of confidentiality for early release of seismic data and commitments to make future qualified capital expenditures in the state.
Walker said the lower discount rate would apply automatically to certain corporate income tax credits for gas storage facilities and in-state oil refineries, with the lower discount based on the state’s true interest cost plus 1.5 percent, currently estimated at about 5.5 percent.
However, the governor said, the corporation would not issue bonds unless the discount rate applied in the department’s purchase of the credits would exceed the state’s true interest cost on the bonds by at least 1.5 percent per year.
The Department of Natural Resources would handle agreements for overriding royalty interests and waivers of confidentiality for early release of seismic data.
The governor said the bill would have an immediate effective date, allowing the Alaska Tax Credit Certificate Bond Corp., the departments and those requesting purchase of the credits “the ability to start work right away to address these tax credits.”