HB 111 compromise offered

Walker proposes adding ringfencing to Senate version of oil tax credit bill

Kristen Nelson

Petroleum News

House Bill 111, the oil and gas tax credit legislation, was among items on which Alaska Gov. Bill Walker suggested a compromise between the House and Senate June 5.

Compromise elements are centered on the operating and capital budgets, an education head tax, a motor fuels tax and use of the Permanent Fund. HB 111 is part of the House’s revenue package, although the governor is proposing the Senate version of the bill, which is more revenue neutral, combined with a ringfencing provision.

The governor said the House would get a status-quo operating budget in the proposed compromise, a broad-based tax structure and the end of cashable oil and gas credits. Ending the cashable credits is an element of both the House and Senate versions of HB 111.

In exchange, the House would have to accept a smaller dividend ($1,000 in the Senate version opposed to $1,250 in the House version).

If it accepted the Senate version of HB 111 (with the addition of ringfencing for carry-forward operating loss credits) the House would have to accept less revenue and progressivity and limited oil and gas reform.

The Senate would get its version of Senate Bill 26, the Permanent Fund Protection Act, and there would be larger payments to the oil and gas industry for tax credits.

The Senate would have to accept what the governor called a modest broad-based tax, based on the education head tax proposed by Sen. Click Bishop, R-Fairbanks, in Senate Bill 12.

The House’s operating budget would be adopted. The capital budget would be the governor’s priorities plus Senate deferred maintenance (oil and gas tax credit payments are also in the capital budget).

In discussing the proposed compromise at a June 6 press availability, Revenue Commissioner Randall Hoffbeck said the addition of ringfencing to the Senate version of HB 111 would mean that loss carry forwards could only be used against the field where they were incurred until production begins, ensuring that loss carry forwards result in production. Once production begins from the field where the loss carry forwards were incurred, Hoffbeck said, then the loss carry forwards could migrate. There is currently no ringfencing on the North Slope, allowing losses at one field to be used by a producer to offset production taxes at another field.

Initial reactions to the compromise suggestion indicate a hard sell for the governor’s proposal in both bodies.