The Alaska Legislature’s House and Senate reached compromise on enough points to pass House Bill 111 on July 15, the last day of this year’s second special session. Agreement had existed for some time on ending cash credits offered to explorers on the North Slope, but differences between an expansive House bill and a narrower Senate bill took time to work through.
Rep. Geran Tarr, D-Anchorage, House chair of the HB 111 conference committee, summarized the points of agreements in an evening meeting July 15: Cash credits will be ended effective July 1; carryforward costs can be deducted once a field is in production; ringfencing limits cost deductions to the lease where they occurred until the field comes into production; there is a down lift - reduction in value of the carryforwards by 10 percent based on the value of the preceding year - starting after the tenth year on non-producing properties and the seventh year on producing properties; a working group will be established to address oil taxes; unpaid credits may be applied toward corporate income taxes; the interest rate on delinquent taxes is set at 5.25 percent above the federal reserve rate applied the entire time the tax is delinquent; and technical amendments related to retroactive regulation making.
There was debate in the House, where the bill passed 33-6, but none in the Senate where the vote was 18-0.
The fiscal issue
“I commend members of the legislature for coming together in the spirit of compromise to eliminate unaffordable cash payments to oil companies,” Gov. Bill Walker said in a July 15 statement. “This is a meaningful step to help shore up our financial situation,” he said.
But Walker said the Legislature’s work is not done and called for “a complete fiscal plan and economic stability for the future.”
Remarks from House and Senate leadership focused on cash credits in relation to the state’s fiscal crisis.
Senate President Pete Kelly, R-Fairbanks, said the Senate “prioritized critical services for Alaskans by ending our cash tax credit program. We do not believe this cash payment reform will significantly curtail investment or endanger jobs.”
Speaker of the House Bryce Edgmon, D-Dillingham, called reforming “Alaska’s unsustainable oil tax credit system” a step toward a comprehensive fiscal plan. “However, one step is not enough with projected deficits of $2 billion or greater for years to come.”
AOGA protests
The bill is not an outcome viewed with favor by the Alaska Oil and Gas Association, the trade association for the state’s oil and gas industry. Member companies are: Alyeska Pipeline Service Co., BlueCrest Energy Inc., BP, Caelus Energy LLC, Chevron Corp., ExxonMobil, Furie Operating Alaska LLC, Glacier Oil & Gas Corp., Hilcorp, Petro Star Inc., Shell Exploration & Production Co. and Tesoro Alaska.
AOGA President and CEO Kara Moriarty said in a July 15 statement that the bill was a tax increase on industry just a year after the last tax increase.
“Make no mistake: HB 111 will cause companies to rethink their investment strategy in Alaska, meaning they will likely spend less money and employ fewer Alaskans,” Moriarty said. “With the state mired in an economic recession, these actions will hurt.”
Senate view
In a statement issued after passage the Alaska Senate majority called the bill a compromise ending cash payment for oil and gas credits, and noted that the move is expected to save the state $200 million through the end of 2017 and up to $200 million each year afterwards.
“The Senate initiated credit reform in 2015,” said. Sen. Cathy Giessel, R-Anchorage, chair of the Senate Resources Committee and the Senate chair of the conference committee. She said the Senate majority is committed to the state’s families, “protecting jobs and keeping Alaskan business thriving. We’re committed to maintaining a fair, competitive oil tax regime that secures these private-sector opportunities.”
House views
A statement from the House Republicans cited ending cash payments as a key element of HB 111, calling it “an easy place to find compromise since the credits have accomplished their goal of encouraging development.”
Rep. Dave Talerico, R-Healy, a member of the conference committee, cited the importance of keeping Alaska competitive. “This compromise allows Alaska to save money while still retaining incentives for the industry,” he said.
The House Majority Coalition noted that in addition to ending cash credits, HB 111 strengthened the 4 percent minimum tax.
Tarr noted that the Legislature’s work on oil taxes is not over, and said the working group established in the bill would keep the House working with the Senate. “Our production tax revenue will continue to play a significant role in our future and is an essential piece of our comprehensive fiscal plan.”
Resources Committee co-Chair Andy Josephson, D-Anchorage, said the working group created in HB 111 will “do the hard work and the analysis to come up with additional improvements to Alaska’s still flawed oil tax system.”
