JUNEAU — Alaska’s economic future is on the line if more oil doesn’t flow through the 800-mile trans-Alaska pipeline.
That’s not in dispute.
What’s got Alaska lawmakers in a quandary is whether to cut taxes for oil companies in an effort to spur new development.
Gov. Sean Parnell has offered a plan, but critics dismiss it as a corporate giveaway that doesn’t guarantee the state would get anything in return. And not everyone is convinced there’s a problem with the existing tax structure.
“Am I missing something?” asked Sen. Hollis French, D-Anchorage. “Every piece of concrete data shows the system is working, for both sides.”
Supporters of changing the tax structure say it would spur development on the oil-rich North Slope and that without action, the trend of declining production will continue.
“What we’re saying as a Senate is, ‘Let’s throw some options out there and get the dialogue going,”’ said Sen. Lesil McGuire, R-Anchorage.
There is a lot on the line. Oil is king in Alaska, providing about 90 percent of the state’s unrestricted revenue. Without those funds everything from education to emergency services would suffer.
“We’ve got to be very cautious and make sure any changes we make are the right changes,” Senate President Gary Stevens, R-Kodiak, said. “There’s a lot of pressure on both sides. It will be an intense time to get to the end of this, I’m afraid.”
Oil companies have argued that the state’s existing tax structure eats too deeply into profits in times of high oil prices and discourages increased investment in Alaska. The system features a 25 percent base tax rate and a progressive rate triggered when a company’s production tax value hits $30 a barrel. North Slope oil closed Thursday at $118.34.
The idea, when the structure was adopted in 2007, was that the state would help oil companies on the front end with things such as tax credits and share profits on the back end when oil flowed and prices were high.
Sen. Cathy Giessel, R-Anchorage, says nothing she’s heard as her chamber has delved further into the oil tax issue “has changed my view of our competitiveness on the world market.”
Senators on both sides share the governor’s goal of getting more oil into the pipeline. The Department of Revenue estimates a 4.7 percent decline this fiscal year on top of a 6.3 percent decline last year. Those figures include projects under development or being considered. A 9.1 percent decline in currently producing fields is projected for this year.
About 600,000 barrels a day currently flow through the line. Parnell has set a goal of increasing that to 1 million barrels of oil within a decade, but his administration says that’s not possible under the current tax structure.
Parnell insists the ideas behind his plan represent “meaningful tax reform.” Parnell said companies have pledged at least $5 billion in new investments with the type of tax cut he’s supporting. He said that level of investment could another 200,000 barrels of oil into the line within the next several years alone.
“What I’m fighting for is Alaskans, both today, as well as our kids and grandkids,” Parnell said.
BP Alaska spokesman Steve Rinehart said the company is trying to provide as much assurance as it can about its intentions if taxes are cut.
“If there is meaningful tax change, we have projects that we are anxious to get to work on,” he said, such as a pad for wells targeting thick oil. “But the economics have to be there.”
ConocoPhillips spokeswoman Natalie Lowman agreed: “We’re doing things (now) but it’s really about what else we could be doing.”
Senate leaders have expressed willingness to at least discuss the progressive surcharge. The idea is to see if consensus can be built around that and then look at other aspects of the tax structure, such as credits or the state’s system of taxing oil and gas production together. Parnell sees their willingness to take up the issue as progress.
What everyone wants to know is: How far will the Senate go?
Lawmakers have gotten mixed messages: Concerns that oil jobs are going en mass to places like North Dakota, where the industry is booming, contrast with a recent study that shows average annual employment on Alaska’s North Slope at or near record highs.
Fears of a pipeline shutdown within the next decade contrast with a judge’s ruling in a property tax dispute that the pipeline could be active through 2065.
The view that the tax structure is out of whack, shared by the companies and at least one consultant, stand next to that of an attorney in the property tax case who said progressivity doesn’t always drive investment decisions.
The Senate plans to write a bill designed to address any tax system problems identified during the committee process. The Resources Committee has begun hearings on the issue and will hold joint meetings with the Senate Finance Committee next week. The Senate hopes to get the House a bill by mid-March.
Sen. Joe Paskvan, D-Fairbanks, said the progressive surcharge is a key tax issue that lawmakers will look at: “At the very minimum, I believe it would be healthy to have an open and transparent discussion on progressivity.”