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Walker vetoes $200 million in tax credits Calls this first step in discussion; will delay payment to smaller companies; governor also vetoes $175,000 in Arctic Power funding STEVE QUINN For Petroleum News
Gov. Bill Walker’s delayed payment of $200 million worth of oil tax credits sent a stark public message about the state’s economy: no group or industry gets held harmless.
In what many consider to be the boldest veto in recent memory by an Alaska governor, Walker surprised even those advocating for such a measure when he reduced the amount from $700 million to $500 million.
“We are way beyond low-hanging fruit,” Walker said in a July 1 news conference with reporters in Juneau. “We are now into the part where people are going aware of the financial situation we are in.”
Walker says this veto begins a renewed look at how the state will stimulate investment into the state’s oil patch, be it the North Slope or Cook Inlet.
Walker told reporters that he did meet with various industry leaders, providing them a heads up on his decision before going public.
“What I wanted to emphasize to them this is not a shift in policy; this is not a shift in direction for the state of Alaska,” he said. “This is recognizing my fiduciary obligation to the state of Alaska to make sure that everybody is somewhat at the table of this discussion going forward.”
Options for tax credits Those who qualify for tax credits have three options: use it against an obligation should they have one; sell it to a taxpayer with an obligation, likely at a reduced value; or have the state purchase the credit.
Per a formula under Alaska statute, the state needed to have at least $91 million available.
Moving forward Walker says he’s concerned that the tax credits could be the state’s largest financial obligation, overtaking education and Medicaid, adding that exploration payments could be as high as $1.3 billion next fiscal year.
“We need to be mindful of that, and look to see if there is another way we can provide incentives in such a way that it doesn’t drain our resources and we are borrowing money to do that,” Walker said.
During the regular legislative session, and special sessions that followed, many leaders in the House and the Senate routinely used the phrase “everything is on the table,” when discussing how to address a budget shortfall reaching $3 billion.
That now includes the state’s oil tax credit system.
Lawmakers respond But at what cost, some lawmakers wonder.
“Right now I don’t know what message we are sending to some of these independents and the lending institutions that provide financing on these projects,” said House Speaker Mike Chenault, a Nikiski Republican.
“So I really don’t know what’s next,” he said, “but it’s going to be a discussion we will have to have between now and next session, and then see what transpires out of those.”
The veto reflects efforts by Democrats in the respective minorities who sought this delayed payment, but it also caught them by surprise.
House Rep. David Guttenberg, who serves on the House Finance Committee, said no one from his caucus lobbied Walker for the veto.
“I didn’t see it coming,” said Guttenberg, who did try getting the reduction into the operating budget through amendments in the committee and on the floor.
Guttenberg said he likes the governor’s idea of taking a close look at the credits and what value is being brought to the state.
“It’s healthy to be looking at what we were doing,” said the Fairbanks Democrat. “When we are spending a lot of money, we need to ask ourselves, are we getting the results we wanted? I’m all for the credits. If it produces oil and gas by giving them credits, that’s something we should be doing.
“But I still think we need to ask ourselves what we are doing compared to what other jurisdictions are doing. What I’d like to see is a report of what other sovereigns are doing.”
Concern for small producers Senate Resources Chair Cathy Giessel says she’s worried that the delayed payment may have undermined the work lawmakers have done the last several years, especially with the tax re-write under Senate Bill 21, but also changes under the Cook Inlet Recovery Act.
“I am concerned that the governor’s announcement of postponing $200 million of tax credits has had the unintended consequence of killing financing for these smaller producers,” said the Anchorage Republican. “I am hearing from several smaller producers that their financing is now gone, that their projects are now on hold.
“You know the Legislature had worked really hard over the past few years to diversify our oil fields hoping to invite in the smaller producers who would bring in new outlooks, new technology, new funding. All of that has been wildly successful.”
Arctic Power funding vetoed In addition to delaying the credit payments, Walker also vetoed $175,000 for the group that’s lobbied with little success to open the Arctic National Wildlife Reserve for oil exploration and production.
This comes six months after Walker spoke out against the Obama administration’s intent to designate the coastal area as wilderness.
“You know I have been a long proponent of development of oil and gas in Alaska, and I will continue to work on ways that we can do that. The Arctic Power folks have done a phenomenal job. I remember when Roger Herrera started Arctic Power about 25 years ago, but this year we are not going to fund that effort on Arctic Power.
“I have taken up that challenge a bit, on the opportunity on ANWR. I‘ve had a half a dozen meetings with the secretary of Interior (Sally Jewel) and I’ve had three meetings with the president. I’ll continue to have more. So our not funding Arctic Power should not be interpreted as a lack of interest in ANWR. It’s the opposite. It’s just an acknowledgement of the fiscal situation we are in right now.”
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