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House passes reduced oil production tax Governor’s move to attract more investment to Alaska passes 22-16; votes appear lacking in Senate to move bill from key committee Kristen Nelson Petroleum News
The battle continues in Juneau over changes to the state’s oil and gas production tax, Alaska’s Clear and Equitable Share or ACES, passed in late 2007 under the Palin administration.
Gov. Sean Parnell’s bill to reduce production taxes in a bid to make the state more attractive for investment passed the House 22-16 on March 31; notice of reconsideration was given, but not taken up April 1.
The bill’s fate in the Senate appears less certain and the clock is ticking, with this session coming to an end April 17.
The House version of the governor’s tax bill has its first Senate hearing, in the Labor and Commerce Committee, on April 8; it then has referrals to the Resources and Finance committees.
In an April 5 Senate Bipartisan Working Group press availability, Senate President Gary Stevens, R-Kodiak, said that normally the bill would have gone just to Resources and Finance, but Sen. Dennis Egan, D-Juneau, the chair of Labor and Commerce, requested the referral to address some issues in his committee.
Stevens said Egan can move the bill fast, but once it gets to the Resource Committee, Stevens — who sits on that committee — said he didn’t see the four votes out of seven that would be required to move the bill on to Finance.
Senate Resources has had hearings on the Senate version of the governor’s bill and on a bill by Resources co-Chair Tom Wagoner, R-Kenai, which would offer credits for development work for new fields, the investments made between a discovery and when a field first has sustained production.
The production issue Rep. Mike Hawker, R-Anchorage, a supporter of the governor’s bill in House Finance, said at a House Majority press availability April 1 that declining production is the state’s greatest challenge. He said he believes the state has ratcheted its taxes up to the point where it has lost investors because there are better opportunities for them elsewhere.
Hawker said the greatest concern among those opposed to the bill appeared to be where’s the quid pro quo? We’re going to give; what are we going to get?
But he said Alaska doesn’t operate in isolation and while the state has great incentives for exploration drilling, Alaska has priced itself out of the market for development with its production taxes.
Parnell, joining the press availability to thank the House for the bill’s passage, said there are members of the Senate who want to do something, and said he would work with the Senate to increase production. Alaskans won’t stand for a do-nothing Senate, he said.
Making Alaska more competitive for investment needed to maintain and even increase production through the trans-Alaska oil pipeline is the governor’s stated goal for the revision of the state’s production tax.
Fiscal notes for the governor’s bill show that the tax rate change in current producing areas is estimated to total a reduction in revenue of $5.6 billion for the first five years — if there is no change in forecast production. If production rose 5 percent from present projections the reduction would be $4.8 billion over that period.
The administration has said it expects that if there is no new investment the Legislature would act to change the tax rate.
Negotiation without prospect of a return Rep. Beth Kerttula, D-Juneau, the House minority leader, said at a House Minority press availability April 5 that the bill’s most fundamental problem is that it’s a negotiation without any prospect of a return. The bill passed the House after a long floor debate, she noted, and said that while the final vote spread was larger, opponents were within two votes of defeating the bill on the floor.
Rep. Les Gara, D-Anchorage, a vocal opponent of the bill in House Finance and on the floor, said the bill requires no reinvestment and no new production, but would allow the North Slope’s major producers to simply take tax savings under the bill out of the state.
Gara offered amendments both in committee and on the floor which would have removed the governor’s proposed bracketing in progressivity — a system such as used by the Internal Revenue Service for individual tax returns — and replaced it with credits to incentivize more investment.
What next? Sen. Bert Stedman, R-Sitka, who sits on Senate Resources and is co-chair of Senate Finance, said April 5 that Senate Finance has had significant concern for several years over declining productions — nothing new there.
And he noted that legislators started discussions on tax changes in the Legislative Budget and Audit Committee last summer and purchased $96,000 in studies. A portion of one study on the Arctic isn’t due until June and the final review of five other studies isn’t due until September.
He characterized pressure to move forward on the bill as elected officials being told to make decisions on billions of dollars of the state’s resources and in the next breath being told not to worry about the technical details of the analysis, just vote.
Audits aren’t even available from the Department of Revenue on ACES, and $34.7 million is being added to the capital budget to allow the Department of Revenue to accelerate purchase and implementation of tax software to help accelerate the audits, Stedman said.
He said the bills won’t die and there will be work done in the interim and the Legislature can pick the bills up when it reconvenes in January.
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