JUNEAU — This will be a “weekend of decision” on a proposal that would overhaul Alaska’s oil tax structure, the leader of the Senate’s Democrats said Friday.
The latest version of SB21, designed to make Alaska more competitive for new oil investment and lead to more production, could reach the floor for debate as early as Monday.
Senate Minority Leader Johnny Ellis, a critic of the plan, said for some, this also will be a “weekend of resistance to some epically bad ideas and public policy” proposed by Gov. Sean Parnell and members of the Senate’s Republican-led majority.
The Senate Finance Committee advanced a version of the bill late Thursday that would raise the base tax rate on the value of oil after certain costs are deducted from the current 25 percent to 35 percent through 2016. After that, the rate would rise to 33 percent.
The proposal also includes a $5 allowance for each taxable barrel of oil produced and a 20 percent tax break for oil from new fields and new oil from legacy fields, the mainstay of Alaska’s oil industry.
The plan eliminates the progressive surcharge triggered when a company’s production tax value hits $30 a barrel. The surcharge has been credited with helping fatten state coffers, but companies say it eats too deeply into their profit when oil prices are high.
An analysis of the bill shows it would have a negative fiscal impact — a mix of the effect on revenue and the state operating budget — of $775 million to $875 million next fiscal year, and that would rise to between $1.1 billion and $1.3 billion by 2018, based on the last Department of Revenue forecast for oil prices and production. The forecast predicted a continued net decline in North Slope oil through 2022, and prices ranging between $109 and $118 a barrel through 2019.
Consultants told the Finance Committee the plan would make Alaska more competitive, with levels of government take — which includes state and federal royalties and taxes — around 60 percent for new entrants and about 63-65 percent for existing producers at oil prices ranging from $80 a barrel to $140 a barrel. Barry Pulliam, a consultant working with the administration, said it would be “economically irrational” if the changes being considered didn’t lead to more investment and production.
The North Slope’s three major players, BP PLC, ConocoPhillips and Exxon Mobil Corp., made no commitments. They said the proposal is better than the current system but doesn’t go far enough toward making Alaska more attractive.
Last year, a consultant not being used this time told lawmakers government take of 70-75 percent for existing operations was “reasonable,” though maybe slightly high. Sen. Bill Wielechowski, D-Anchorage, said lawmakers also heard reducing the severance tax would have little to no impact on production.
“This bill has to be stopped,” Wielechowski said. “I understand the vote’s close, and to any senators out there wavering on this, this is going to be a vote that you will be remembered by,” he said.
Committee co-chair Kevin Meyer, R-Anchorage, said he would be “very comfortable” voting for the bill, noting the consultants have been consistent and saying he believes it will lead to more production.
Sen. Lyman Hoffman, the only minority Democrat on the committee, said he mistakenly marked “do pass” on the committee report but got that fixed. He opposes the bill, which he said would move too much cash to the oil companies with no assurances from them.
Senate Majority Leader John Coghill said Thursday that he thought there were at least 11 votes to support the bill, sufficient for passage. Some senators Friday were gathering or reviewing information, like Mike Dunleavy. The Republican freshman from Wasilla said the current proposal is the best approach he’s seen thus far, but he wants to study it further over the weekend.
Sen. Bert Stedman, R-Sitka, said the structure of the proposal is on the right track. But he said it would give up too much cash from the legacy fields. He doesn’t support the bill as it stands.
The debate comes with legislative leaders already looking at ways to limit state spending amid declining oil production. Alaska relies heavily on oil revenues to run. Higher prices in recent years have helped mask the impact of the production decline.
Rep. Alan Austerman, a co-chair of the House Finance Committee, said he expected savings would have to be used to help buffer the impact of lost revenue under an oil tax plan. He said the big question is how far savings would stretch if it takes seven to 10 years to increase production and the tax base.
The state has about $16 billion in savings between the constitutional and statutory budget reserve funds, but it also has some big obligations, like a multibillion-dollar unfunded pension liability.
The proposed operating budget passed by the House Thursday totaled $9.8 billion.