As the special session of the Alaska Legislature called by Gov. Bill Walker for July 11 headed toward what is expected to be an early adjournment by legislators, Senate Finance heard the governor’s oil tax credit bill.
In his transmittal letter for the bill, 5005 in both House and Senate, the governor said it would do more to correct the state’s “unsustainable system of oil and gas production tax credits.”
The bills were assigned to Finance. House Finance had not heard the bill when Petroleum News went to press July 14, but Senate Finance heard it July 13 in Anchorage.
Tax Division Director Ken Alper told the committee the bill addressed the North Slope net operating loss issue, re-introduced things that had been in House Bill 247 but were not in the conference committee version passed in the last special session, increased the minimum tax at certain prices and provided technical fixes to HB 247.
There was considerable pushback from committee members.
Sen. Mike Dunleavy, R-Wasilla, noted that the bill goes beyond tax credits, affecting tax policy.
Alper said the bill does affect the minimum tax, but said it stays away from the core issues of the current oil and gas production tax system, passed in 2013 in Senate Bill 21.
Finance co-Chair Anna MacKinnon, R-Anchorage, asked Alper why the administration was introducing things the Legislature had already denied them. Alper said the governor thought it was important to bring them back - sometimes the third time is a charm, he said.
Goal of bill?
Dunleavy asked what the administration was hoping to accomplish in the bill - more revenue or less spending.
Alper said the bill needed to be viewed in context of the rest of the bills introduced for the special session. He said the bill would save money and earn a bit more, but for the most part it would provide savings of $100 million to $150 million a year.
Dunleavy asked how the bill ensures that the state will have ongoing exploration and development to keep oil in the pipeline.
Alper said the administration can’t ensure that. These are private companies, he said, and a lot of things govern investment, with the biggest being the resources available, known to be good in Alaska, and the price of oil, which is currently poor. He acknowledged that taxes and tax credits are a consideration.
Alper said the administration is reducing the state’s participation with new players, so it might get fewer of them, but asked if overall the state can afford the level of support it is currently providing.
Revenue vs. expense
Finance co-Chair Pete Kelly, R-Fairbanks, said it is important to look at things from the perspective of the revenue stream. The administration, he said, is looking at the expense stream.
He said the tax regime in 2008-11 was probably going in the wrong direction, trying to extract as much revenue as possible and was probably discouraging work.
SB 21 was a response to that, he said, noting that that direction was approved by voters.
We’re talking about revenue, Kelly said, you’re talking about expenses.
He asked for information on what the bill would do to production: increase it, leave it the same or decrease it? He said he thought the likely result would be to decrease production.
Kelly said what he wanted to see from the administration was a tax or credit regime that increases production or at least doesn’t decrease it and said the danger is in decreasing production.
Alper said he can’t argue that the bill would increase production, but asked if the state was giving more than it gets.
Earlier incentives, he said, come from a period when the state had a lot of money coming in and wanted to invest money toward future production. With the much lower price of oil, Alper asked, can the state afford the same investment when it isn’t an investment of surplus?
Cutting back support is not out of malice, he said, it’s about the state not being able to afford that level of support.
NOL issue
MacKinnon asked about the difference between tax credits and the net operating loss. The NOL, she said, is not a credit, but is like deductions in the federal income tax.
Alper called the production tax something of a hybrid. It’s not an income tax, he said.
Revenue Commissioner Randall Hoffbeck, testifying by phone, said there are two flavors of NOL, those used by developers and explorers, which are truly credits, vs. those used by producers as write-offs against revenue.
There was considerable discussion about the governor’s veto of credits.
Alper said the credits were an obligation going forward, and said there was no cost of delay to the state. He also said that veto was a difficult decision for the governor, because it was known it would put a strain on industry.
