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Senate passes oil tax overhaul

Posted: March 20, 2013 - 10:12pm

JUNEAU — A divided state Senate late Wednesday passed an overhaul of Alaska’s oil tax structure, amid fears it will blow a hole in the state budget and give too much to oil companies with no guarantees.

“This may not work,” Sen. Gary Stevens, R-Kodiak, said of the bill. “I hope it does, but it may not work.”

Supporters say SB21 will make Alaska more competitive for additional investment dollars and should lead to new oil production. Alaska relies heavily on oil revenues to run, and production has been on a downward trend since the late 1980s. Higher prices in recent years have helped to mask the impact of the decline.

The bill passed 11-9, after hours of start-and-stop debate, with minority Sens. Johnny Ellis, Berta Gardner, Bill Wielechowski, Hollis French and Lyman Hoffman and majority Sens. Donny Olson, Dennis Egan, Bert Stedman and Stevens voting against it. Reconsideration was served, meaning the bill could be voted on again before going to the House. The regular session is scheduled to end in 3 ½ weeks.

Just one amendment of more than a dozen passed. It was a majority-backed proposal that would raise the base tax rate from the current 25 percent to 35 percent.

Failed amendments included a proposal put forth by Stevens to sunset provisions of the bill by 2017 — what supporters called an “escape clause” in case the state doesn’t see more production. Also unsuccessful were proposals offered by minority Democrats, some coming from their alternative tax plan, like requiring plans of development for leases or help financing oil processing facilities.

The bill up for debate had proposed a 35 percent tax rate through 2016, after which it would be 33 percent. Some senators felt more comfortable with the higher rate, seeing it as competitive while reducing the overall fiscal impact of the bill somewhat. Sen. Peter Micciche, R-Soldotna, said in an interview that passage of the amendment was critical to his support of the bill.

Prior fiscal analyses had indicated that if the tax rate were raised to and kept at 35 percent that could result in the state holding onto about $550 million more through 2019 than if the tax rate were stepped down, based on the last revenue forecast for prices and production. Overall, the state would still stand to lose billions of dollars under the bill through 2019, including an immediate hit next year, based on the forecast.

Parnell has said the state will be able to use savings to absorb the near-term hit, with the expectation that production will increase as a result of the tax break. The state has about $16 billion between two of its reserve funds.

Sen. Anna Fairclough, R-Eagle River, said the fiscal notes tried to provide the “worst case scenario.” She said a goal was to craft a fair, simpler, durable tax structure.

“I am proud of this bill,” said Sen. Cathy Giessel, R-Anchorage.

Sen. Pete Kelly, R-Fairbanks, acknowledged the revenue impact but said “we’re thinking about the future.” He said he doesn’t accept declining production as inevitable. To accept that is to accept “failure as our future,” he said.

Alaska’s existing tax structure features a 25 percent base tax rate and progressive surcharge triggered when a company’s production tax value hits $30 a barrel. The idea when it passed 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.

But companies have said the surcharge — credited with helping fatten state coffers in recent years — eats too deeply into their profits when oil prices were high, discouraging new investment. And Alaska’s Revenue commissioner has said he’s seen no evidence that tax credits to oil companies — which could top $1 billion next year — have led to increased production.

The bill voted on Wednesday — built off proposals advanced by Gov. Sean Parnell and Senate Resources — is aimed at getting more oil into the trans-Alaska pipeline. It eliminates the surcharge, and 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, long the mainstays of Alaska’s oil industry.

Sen. Bert Stedman, R-Sitka, said the bill has good points but gives too much back in the legacy fields, which he and others said are very profitable for the companies. He worried Alaska wouldn’t reach a break-even point on the tax cut, and said if Alaska’s savings get too low, it could put the state’s AAA bond rating at risk. Sen. Bill Wielechowski, D-Anchorage, said the bill would push Alaska “off the fiscal cliff.” Stevens called it an “historic gamble.”

Sen. Lyman Hoffman, D-Bethel, said the vote could be the most important he’s taken in his political career.

Sen. Hollis French, D-Anchorage, said passage of the bill could ultimately lead to a state income tax or impact Alaskans’ prized Permanent Fund dividends. He said more committee hours were spent on crafting the current tax structure than on this bill.

Sen. Lesil McGuire, R-Anchorage, said she rejected any suggestion the bill was rushed through, and said she would be proud to be the 11th and deciding vote.

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robert white
378
Points
robert white 03/21/13 - 09:40 am
2
1
oil tax

what a gamble, if it doesn't work you better keep your hands off the PFD!! or else

jimbob
74
Points
jimbob 03/21/13 - 09:50 am
6
1
Captain Zero for US Senate!

Now we are getting somewhere! Former oil company employee, Parnell is leading Alaska on the road to Perdition for Alaska's people. Captain Zero with the help of Conoco Phillips employee Peter Micciche and ten others ( unnamed by the Clarion) who are bought and paid for by the oil lobby are squandering Alaska's future. Where is Hugo Chavez when we need him? Alaska should nationalize the oil patch and hire contractors to run it. If the tax structure is so horribly unfair for the oil companies, how did they survive when oil was $12 a barrel when Tony Knowles was gov? Call, email or text your Senators and let them know what a crime they are doing to our state by giving away billions with no commitment to any development. Meanwhile encourage Parnell to run for US Senate. Think what he could do for us there!

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 03/21/13 - 12:04 pm
1
1
jimbob production numbers

These numbers are reflective of Prudhoe Bay ONLY. Not the entire slope. But since PB is the largest of the fields I will use it to illustrate my point.
From 1994 through 2002 (years of Knowles admisitration) Prudhow Bay was Producing 986 thousand barrels per day. Adjusted for inflation, a barrel of oil ranged in price from $27-$47 per barrel. That equates to $26.6 to 46.3 million per day. million of gross production a day. The production for Prudhoe last year was 265,200 barrels per day. The average price for a barrel of oil was $98 per barrel making a gross production per day of $25.9 million per day.
Things have changed dramatically in that same period of time: Water handling is a large issue. There is roughly nine times as much water being pumped out of and back into the ground today as there is oil being pumped out. Water handling costs a lot of money in technological changes and maintenance. Simply put, the amount of gross revenue is the same coming out of Prudhoe Bay, but the cost of operating an aging field has gone up exponentially. This same reasoning stands with gas handling operations. As the field ages, so does the equipment and much of that equipment is in need of replacement or at the very least major overhaul costing hundreds of millions of dollars. Economically, the field is getting less appealing even to the new comers like ENI.

Sources:
Production records
http://www.tax.alaska.gov/sourcesbook/AlaskaProduction.pdf

Oil Price History
http://research.stlouisfed.org/fred2/data/OILPRICE.txt

Raoulduke
3055
Points
Raoulduke 03/21/13 - 09:32 pm
1
1
The losers

The Alaskan is the only loser here. Take those billions,and build a road,and an adjacent rail line from Fairbanks to Nome.This is something that can be accomplished.The rail line could transport people,building materials,food etc.The transportation cost would be less.Than the cost by trucking.Which could be stopped by storms.Where as rail would have far less of this problem.

iroczalaska
11
Points
iroczalaska 03/22/13 - 09:58 am
3
0
Alaska hire

BP just gave a new contract to Bay Valve an out of state company to operate there valve shops.They brought up all out of state worker for this 3 year contract.Ch2mhill had the contract until now with many Alaskans working in the valve shops and now there are none.The state is foolish if they think giving the oil companies on the north slope more money is going to benefit Alaskans.If more jobs are created 50% or more will go to non- residents.

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 03/22/13 - 11:46 am
0
2
Iroc

It is true that Bay Valve won the contract over CH2. They were not given the contract, they earned it through the bidding process. However, it isn't true that they brought up "all out of state workers." Most of the management positions from first line up were replaced (not all). Most of the valve technicians were retained by Bay Valve at a reduced hourly rate. As the field becomes less productive and more labor intensive and expensive to keep operating, expect more of the same.

LaFern
147
Points
LaFern 03/22/13 - 02:16 pm
1
0
One big problem...

All of these out of state companies only hire the minimum token Alaskans for hard labor, foremen, or planning, and Alaskans are never the ones in position of authority.

iroczalaska
11
Points
iroczalaska 03/22/13 - 02:59 pm
1
0
True

The fact of the matter is that BP awarded this contract to a company with no ties Alaska and there management is run with non-Alaskans. They will keep the flow of non-Alaskans coming to the slope along with other companies up here that keep the millions in payroll headed south every month.

Norseman
3373
Points
Norseman 03/22/13 - 06:03 pm
2
0
Big oil needs tax breaks.

Big oil needs tax breaks. Being the richest corporations this world has ever seen isn't enough.

It used to be hotel rooms where envelopes filled with money passed hands. Usually by the smaller oil field sub contractors.
Now, they just finance the campaigns of those that will do them the best. Might be time to start investigating some of our elected offcials again. Wasn't long ago we had 10 or more of em caught red handed taking bribes.

hmmm, lets take a peek at who voted YES:

Bishop, Coghill, Dunleavy, Dyson, Fairclough, Giessel, Higgins, Kelly, McGuire, Meyer, Micciche

Now take a look at who has or had a self serving interest in big oil.
Now see who donated to their campaigns.

Pretty soon anyone can see the deck is stacked in big oils favor.

Stevens, who was Senate president last year when Parnell's bill died in the Senate, urged his fellow senators to be cautious about trusting the oil industry, given its history in the state: he cited three major events, the Amerada Hess court case in the 1970s where a judge ruled the industry cheated Alaska out of nearly $1 billion, the Exxon Valdez oil spill in 1989, and the Veco corruption scandal of 2006.

Yup, let's continue to subsidize and giveaway tax breaks to the richest corporation in the world......really makes sense don't it?????

kksalm
232
Points
kksalm 03/23/13 - 10:15 am
1
0
It was a total partisan vote

If you don't like giving more money to an already record making profit corporation, don't vote Republican.
Have a nice day

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