|
ACES changes likely legislative topic Pre-session indications Alaska production tax system will be up for debate, especially progressivity which ties rate to oil price Kristen Nelson Petroleum News
Last year reconsideration of Alaska’s oil and gas production tax was an issue before legislators, but never reached critical mass. If what legislators are saying prior to this year’s session is any indication, ACES — the tax passed under the name “Alaska’s Clear and Equitable Share” when Sarah Palin was governor — will be an issue again in the Legislature which begins Jan. 18.
The state’s production taxes were revised under Gov. Frank Murkowski and the old ELF or “economic limit factor” tax, in place from 1977 to April of 2006, was replaced by the “Petroleum Production Tax,” or PPT, with a base tax of 22.5 percent and a progressivity factor, which kicks the tax up as the price of crude oil increases.
ACES, passed by the Legislature in late 2007, increased the base tax to 25 percent and raised progressivity to 0.4 percent when the net value of a barrel of oil is more than $30 (under PPT, progressivity was 0.25 percent; the trigger was $40 net).
The 2007 passage of ACES was a bipartisan affair, with Democrats teaming with some Republicans to pass the tax.
The Speaker of the House in 2007, John Harris, R-Valdez, who voted for the bill, voiced his concerns after passage.
“The governor and her administration have crafted a bill and pushed it through the Legislature that will either tap the producers for another $1.5 billion without harm, or end up hurting our economy by driving away oil industry investment,” Harris said. “We will need billions of dollars of investment to keep our production up, so I am hopeful the governor has not made a serious mistake with this legislation. But we won’t really know for sure for a couple of years.”
The jobs issue One issue that has been raised about ACES is its impact on jobs in the industry, and House Speaker Mike Chenault, R-Nikiski, told the Resource Development Council Jan. 6 that he would be asking producers for job numbers as he looks at ACES.
“A number of us feel and have felt since ACES was passed that it is an unfair tax; and that needs to be addressed,” he said.
Chenault said he didn’t know if there was enough support in the Legislature to make changes, but said a number of members of the House “are interested in looking at ACES overall, whether it’s the progressivity or the base tax.”
Chenault said he thinks major changes are necessary and said he believes the Legislature needs to “rewrite the whole piece of legislation.”
“We’re not seeing investment in the state,” he said.
Chenault said he has asked major producers for “information dealing with employment in the state, especially at Prudhoe Bay, and employment related to not only operations, but maintenance and exploration.”
He said the information he’s asked companies to provide is an employment breakdown between maintenance and operations. Chenault said he wasn’t asking for details, but for “some generalities so that I can make the argument that those jobs are affected; that they are going away.”
Senate Resources will take a look Also speaking to the Resource Development Council was Sen. Joe Paskvan, D-Fairbanks, who will co-chair Senate Resources.
Paskvan said he believes “there is a concern going forward that needs to be looked at” on production taxes.
He said he wasn’t in the Legislature for the passage of either PPT or ACES, “so I am coming in, I’m looking at these issues with a fresh set of eyes, trying to find out what is going to be the solution that’s going to make sure that we have an economic future for the next 50 years.”
Sen. Tom Wagoner, R-Kenai, the other co-chair of Senate Resources, told RDC the state can’t prosper with a tax regime that strangles growth.
“I was part of the ACES; I was part of the PPT,” Wagoner said. “And we thought we were doing the right thing at that time.”
But, he said, he told the producers when ACES was passed that if the state wasn’t doing the right thing, “show us where we’ve made mistakes; I’ll work with you to correct it.”
Wagoner said he thinks the problem is with progressivity. He said he thinks “we did get it wrong and I’ve got the figures and it’s a lot of money.”
He said he will be proposing legislation promoting reinvestment, which would have companies reinvest money in partnership with the state on projects to improve the industry, such as providing more access to lands.
From zero percent Both sides of the ACES argument got airings at the Anchorage Chamber of Commerce in early December, when legislators, among them Sen. Bill Wielechowski, D-Anchorage, talked about legislative priorities.
Answering an audience question about ACES Wielechowski said:
“We had an oil tax structure just a few years ago that had zero percent tax rate on 16 out of the 19 fields. And when we had that zero percent tax rate, guess what, jobs went down and investment went down.”
He said that he’s asked every person coming to him about a tax break or incentives, “what do we get out of it?”
“And I haven’t been able to get a single assurance that we get more investment or that we get more jobs,” he said.
Alaska’s tax rate is not the highest in the world and it’s not the lowest, he said. “We’re comparable to the countries that have similar types of mature basins as we do.”
Sen. Lesil McGuire, R-Anchorage, told chamber members that there are tensions on tax policy issues, and said she’s a believer in “if you build it they will come,” but also said she doesn’t think you can exact promises from industry in advance.
She said the state needs to position itself to be competitive globally on taxes and said she believes “ACES did go too far in the area of progressivity” and wants to see a competitiveness review done on Alaska’s tax system.
Incentives need to lead to investment Sen. Hollis French and Rep. Les Gara, both Anchorage Democrats, co-authored a two-part compass piece on ACES which appeared in the Anchorage Daily News in early December. The two said “it’s important to have a fair discussion on the merits of Alaska’s current oil tax investment incentives and the tax oil companies pay now, which they only pay when fields are profitable.”
Rather than just lowering the tax, the state “should focus on tax incentives that lead directly to Alaska investment, and should craft tax breaks that don’t just let companies take more Alaska profits outside,” they said.
Because ACES is a net profits tax, “it self-adjusts to the economics of each individual reservoir,” they said, so profitable fields pay more tax than fields which aren’t so profitable.
And for projects like heavy oil, which requires more investment before production occurs, under ACES the costs for those challenging fields can be subtracted from a company’s revenues before tax is paid.
And, they noted, ACES allows credits against the tax, credits “specifically designed to reward companies that invest their money here in the state.”
They said that just lowering oil taxes and hoping for the best isn’t the way to go.
“A general reduction in oil taxes that does not work to produce greater investment in Alaska does nothing to promote a healthy long-term industry here,” the men said. “Conversely, any reasonable tax relief proposal that will lead to more Alaska jobs and more Alaska oil will get serious consideration from the Legislature.”
| 