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House Resources moves committee substitute for oil tax credit bill
The House Resources Committee moved a committee substitute for House Bill 247 March 22, dropping a good many of the proposals included in the administration bill, including most of the revenue-generating changes to the state’s oil and gas tax credit system proposed by Gov. Bill Walker.
Over some 20 hearings, and discussions of amendments to the CS, views of committee members appeared to split between concerns about encouraging future oil and gas development in a time of low returns for the industry and low revenues for the state and a focus on reducing state support for oil and gas exploration and development provided by tax credits and increasing taxes on the oil and gas industry.
In an overview of CS changes, Tax Division Director Ken Alper said the revenue impact of the original bill was $500 million to the state in fiscal year 2017, while the impact of the CS was $45 million, although he said those numbers were based on the fall revenue forecast. Impacts to the state under the original bill were projected at $425 million in FY18 and $250 million in FY19; impacts of the CS would be $60 million in FY18 and $55 million in FY19.
The CS eliminates hardening the production tax floor and increasing that minimum tax from 4 percent to 5 percent, eliminates extension of the minimum tax to “new” oil and eliminates a provision which would not have allowed the small producer credit to reduce tax payments below the floor.
Alper said proposed changes to the system under Senate Bill 21 which had been retained were the GVR, the new oil value reduction, can no longer be used to increase the size of a net operating loss and a municipality which owns production and sells a portion can only deduct the share of expenses for the portion it sells against revenue.
Alper said the CS also preserved a fix which provides for compound interest on underpayments and assessments, although the CS removed a proposed increase in the interest rate.
The original bill repealed two Cook Inlet credits effective July 1; the CS phases out the two credits, one by phases in 2017 and 2018, the other in 2022. The Cook Inlet net operating loss is reduced from 25 percent to 10 percent in 2017.
The CS also creates a legislative working group to evaluate Cook Inlet tax credits and develop a new Cook Inlet tax regime for consideration by the 2017 Legislature.
Cook Inlet benefits retained Janak Mayer of enalytica, the consultants employed by the Legislature to evaluate oil tax changes, noted the $25 million cap on per-company credits had been increased to $200 million, which would protect against the potential liability for a major new development, such as the proposed Armstrong development at Pikka.
The big difference between the North Slope and Cook Inlet - with the majority of refundable credits going to Cook Inlet producers - would be retained in the CS, Mayer said.
The reduction in Cook Inlet benefits, he said, would reduce spending support for new developments to 30 percent, vs. 55 percent under the status quo and 25 percent in the original bill, and reduce spending support for current production to 20 percent, vs. 30 percent under the status quo and zero in the original bill.
North Slope major producers would see no change at any price under the CS, he said, while for North Slope new or smaller producers there would be no change at higher oil prices, but if the company has an operating loss, the gross value reduction cannot be used to increase the size of the loss to earn a larger net operating loss credit.
For North Slope new project developers, there would be no change at any price, although Mayer did note very large new projects would be limited by the $200 million per company cap, which at a 35 percent net operating loss would require a bit over $570 million a year in capital spending for a single company to reach that limit.
In a statement released after the bill passed the committee, Resources Co-chair Ben Nageak, D-Barrow, said: “These are difficult times for Alaska and industries operating in Alaska.” He said the committee “worked hard to maintain a balanced resource policy between exploration and production. The committee realized that exploration success over the next three to five years becomes the production for the next 20 years and into the future.”
House Speaker Mike Chenault, R-Nikiski, an alternate committee member, called the bill “one of the biggest issues we’ll face this session” and said he looked forward to the work the House Finance Committee would do on the bill.
Geran Tarr and Andy Josephson, Democratic committee members from Anchorage, said in a statement that changes made in the bill removed $450 million in savings and new revenue.
“The current oil tax credit system is not sustainable,” Tarr said. Josephson said with the state “staring a recession square in the eye” it can no longer afford the oil tax credit system.
- KRISTEN NELSON
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