Senate to take up its oil tax proposals

The state Senate’s proposal for changes to the state’s oil production tax will be introduced the week of Feb. 6 and hearings on it will begin in the Senate Resources Committee on Feb. 10, Senate President Gary Stevens and Sen. Tom Wagoner, R-Kenai, co-chairs the Resources Committee, said in a briefing.


On other issues, the education committee in the Senate has passed out bills that increase state funds to local school districts, although the proposals must still pass the full Senate and the state House.

A hearing also is set for Feb. 6 on coastal management, another major issue, in a combined meeting of the House and Senate judiciary committees. In the Senate leadership briefing, Stevens said it is not clear that the organizers of a citizen initiative that would place a proposition on the fall election ballot to reestablish a state coastal management program have the required signatures.

However, state law requires the Legislature conduct a hearing on the possible ballot proposition, which will be done, Stevens said. If the initiative is approved by Lt. Gov. Mead Treadwell, the Legislature can pass a bill that is substantially similar and take the proposition off the ballot.

Senate and House leaders have asked for a legal opinion on what constitutes “substantially similar,” which is the standard required by law.

On oil taxes, Wagoner said an existing tax bill, Senate Bill 85, will be changed to include the new language proposed by the Senate.

Stevens said the bill will be in the Resources Committee for about a week and a half and will then go to the Senate Finance Committee for further consideration about Feb. 22. The plan is to get it out of the Senate and to the House by mid-March, Stevens said.

“I have told the Speaker (Rep. Mike Chenault, R-Kenai) that we will have the bill to the House a month before adjournment, to give the House time to consider it,” Stevens said.

The House passed its version of oil tax reform, in House Bill 110, last year. The bill is now in the Senate Labor and Commerce Committee. Stevens and other Senate leaders said they will use a separate bill to incorporate the Senate proposals.

Wagoner said Sen. Lesil McGuire, R-Anchorage, has been given the responsibility to develop alternative proposals to deal with changes to the progressivity formula in the production tax, a part of the tax law that is now viewed as needing changes.

In the same briefing, McGuire said the changes in the progressivity formula made by HB 110 will appear in the Senate proposal as a placeholder, but that she will present three other alternative changes as amendments.

“The (Resources) committee will make the final decision,” McGuire said. “It’s my belief that the progressivity formula is one part of our fiscal system that is broken.”

Stevens said there is “enormous” interest in the Senate in dealing with the formula, which is a part of the tax law that ratchets up the tax rate when oil prices are high.

Critics of the tax have said that at current oil prices the Alaska tax rate is among the highest in the world, which has made Alaska less competitive in attracting new industry investment.

Sen. Bert Stedman, R-Sitka, co-chair of the Senate Finance Committee, said the “split of profits” between the state and the industry, which is what the progressivity formula does, is one of two important issues in the oil tax. Another is the investment tax credit part of the law.

“We’ll be looking extensively at both of these at the Finance Committee,” Stedman said.

Wagoner said a part of the Senate proposal still being developed is a new incentive aimed at getting more oil produced from existing producing fields.

“We’re declining at 6 percent to 7 percent a year (in oil production) and we’ve got to do everything we can to reduce that decline,” he said.

There are economically marginal projects in existing fields that, if given help, could result in new oil production relatively quickly. The language accomplishing this is “still a work in progress,” Wagoner said.


Education funding

Another issue that has emerged early in the 2012 legislative session is education funding. The Senate Education Committee passed out two bills Jan. 30 that increase state funds to local school districts by increasing the Basic Student Allowance, a formula under which state funds are distributed.

“We know that what we have proposed is not as much as the school districts wanted, but we wanted to get something on the table,” said Sen. Joe Thomas, D-Fairbanks, who co-chairs the Senate Education Committee. “We believe the number we have put forward (for the increase) is reasonable.”

There is concern in the Legislature that most state agencies are getting increases in the budget, but not education, Thomas said. School districts, however, are getting hit hard by high energy costs and other rising expenses and most are facing big budget deficits and the likelihood of laying off teachers.

In the long run, education is the best investment the state can make, Thomas said.

“All evidence shows that we save money in the long run by educating our kids,” because education helps young people get better jobs and avoids social problems, and even prison. “Our priorities are a little confused by basically defunding education,” in comparison to the support given other state functions.

Sen. Kevin Meyer, R-Anchorage, the other co-chair of the Senate’s education committee, said he believes the House of Representatives will support more money for schools.

“The Speaker (Chenault) told us he believes there is an appetite in the House to increase education, so my gut feeling is that something will happen. It could be a formula increase, as in the BSA, or in special one-time appropriations like Learning Opportunity Grants, an approach the governor likes. We’re not concerned with the mechanism,” Meyer said, only that it gets done.

However, having dealt with the formula change in the BSA, the Senate Education Committee will turn its attention to other school funding issues such as pupil transportation, state aid for school buses, and distance-learning, so that students in rural schools can take more complex courses that might not be offered in small community schools.