JUNEAU — A survey of Alaska state senators indicates Gov. Sean Parnell’s plan to cut oil production taxes faces a tough road in the upcoming legislative session.
Just one of the 11 respondents to The Associated Press survey, Sen. Linda Menard, R-Wasilla, said unequivocally that she would vote for the bill, HB110, if a vote were held today. Most of the senators who responded — six — said the current tax regime needs to be changed, but others were still looking for answers or not convinced an overhaul is necessary, as Parnell has insisted, to reverse the trend of declining oil production.
“My personal belief is, I would not be interested in passing something just to say that something was passed,” said Sen. Joe Paskvan, D-Fairbanks, who has sent lists of detailed questions to the departments of revenue and natural resources. The answers, he says, are crucial to weighing the merits of Parnell’s bill.
“Just like any other business decision, the Legislature must have a clear idea of what our investment will buy us,” said Sen. Joe Thomas, D-Fairbanks.
The AP survey went to all 20 senators two months ahead of session, as Parnell continues to call on the Senate to pass the bill. The measure cleared the House 22-16 earlier this year but stalled in the Senate, where leaders said they did not have the information needed to make a sound policy call.
Oil taxes are expected to be a dominant issue when lawmakers return to Juneau in January, and several senators, including Lesil McGuire, R-Anchorage, and Fred Dyson, R-Eagle River, said the issue should be addressed before they leave, given that oil is Alaska’s economic lifeblood and state government relies heavily on oil revenues to run.
The current structure, a legacy of former Gov. Sarah Palin known as Alaska’s Clear and Equitable Share, or ACES, features a 25 percent base tax rate and a progressive surcharge triggered when a company’s net profits hits $30 a barrel; it also has a suite of tax credits. The idea, when the bill passed in 2007, was the state would help companies on the front end but also would share with them in the good times, when oil is flowing and prices are high. North Slope crude closed at $111.20 a barrel Thursday.
Critics, including Parnell and the oil industry, argue the surcharge is excessive and a disincentive to investment. Parnell’s administration has pointed to increased investment in other energy-rich areas, like North Dakota, to validate its point that change is necessary to boost production and investment here.
Of the senators favoring changes to the tax regime, most cited concerns with the progressive surcharge.
McGuire and Sen. Kevin Meyer, R-Anchorage, who indicated probable or likely support for HB110 with changes, expressed support for bracketing the surcharge so that different portions of the net profit would be taxed at increasing incremental levels. The current bill offers a version of that.
McGuire, who is on the Senate Resources and Finance committees, said she also would like to see an overhaul of the tax credit system that’s more in line with a proposal she and Sen. Tom Wagoner, R-Kenai, have been working on that would defer credits until there is new production.
Sen. Bert Stedman, R-Sitka and co-chair of the finance committee, plans to look at range of issues, including progressivity, tax credits and whether the state should continue taxing oil and gas production together. The latter issue, decoupling, overshadowed the 2010 session, and Parnell ultimately vetoed a measure that would have separated the two, contending it would have amounted to a tax increase.
Stedman also is interested in potential incentives to boost incremental production from Prudhoe Bay and Kuparik. He said those fields, and possibly Alpine, too, are key to increased production through the line.
Work has continued on the oil tax issue during the interim, and a 90-day session is ample to move legislation, if that’s what lawmakers decide is best for the state, he said.
“But we want to be careful we don’t make the situation worse,” he said.
Sen. Bill Wielechowski, D-Anchorage, also a resources committee member, said he has yet to see evidence that ACES is broken. He cited increases in capital investment, jobs, the number of companies doing business in Alaska, and company profits in the years since the law was passed.
He said there are “smarter ways” to increase production, such as offering capital assistance to companies having trouble securing capital in a tight credit environment, ensuring the major energy players are developing and producing as their leases require, and exploring building a gas-to-liquids plant to convert natural gas to clean synthetic oil that can be shipped through the trans-Alaska pipeline.
Sen. Dennis Egan, D-Juneau, said he’s not opposed to “tweaking ACES but not without commitments from industry to expand their exploratory programs in Alaska.”
Parnell, in reiterating his support of HB110 last month, said the state needs a “game changer” — more than tweaks — to reverse the trend of declining production.
Critics see Parnell’s plan as a corporate giveaway, with no firm guarantees that companies will invest more here if their taxes are cut. The Department of Revenue said the state could lose $670 million to $870 million by fiscal year 2013 and from $1.9 billion to $2.1 billion by fiscal year 2017 if HB110 passes and there is no new production.
But the administration has cast that as an unlikely scenario, arguing that the governor and Legislature would never let a tax regime that wasn’t working stand for years on end without change. The estimates were based on the spring revenue forecasts.
“The majors have billions of barrels of proven reserves at this point,” said Thomas, a finance committee member. “As I have consistently stated — privately and in writing — knowing what specific projects will move forward should tax rates be lowered, along with the costs of these projects and their impact on production will be integral to finding a solution.”