Democrats want to hike taxes on oil companies

Posted: Friday, February 06, 2004

JUNEAU Four House Democrats want to rewrite the state's oil tax laws to bring in more money for the state budget.

Rep. Les Gara, D-Anchorage, said an element of the state's tax code results in oil companies paying lower severance taxes each year, and that needs to change.

''To have a tax on oil fields that gets lower every year until it virtually disappears is insanity,'' Gara said. ''It's the elephant standing in the middle of the room. It's time that people stop ignoring it.''

The bill has little chance of passing the Legislature this year.

Democrats said two former Republican governors Walter J. Hickel and Jay Hammond support looking at changes in the oil tax law. But Republicans currently running the government don't like the bill.

''I think the timing is pretty poor,'' said House Speaker Pete Kott, R-Eagle River.

The bill would send a negative message to the industry at a time when the state is trying to persuade oil companies to build a multi-billion-dollar natural gas pipeline from the North Slope to the Lower 48, Kott said.

Republican Gov. Frank Mur-kowski does not support the proposal either because he says it would discourage oil industry investment in the state.

Gara is the main sponsor of the bill, but Beth Kerttula of Juneau, David Guttenberg of Fairbanks and Eric Croft of Anchorage have signed on as cosponsors.

The measure would change the economic limit factor a section of the state's severance tax law that lowers the tax rate on declining oil fields and small fields.

The state's current severance tax rate for most fields is 15 percent, but no fields are actually taxed at that rate because of the economic limit factor, or ELF. The average rate has dropped from 13.5 percent in 1993 to 7.5 percent now and will be down to about 4 percent by 2013, Gara said.

Gara said of 14 new oil fields brought on line since 1989, 11 pay zero or close to zero in severance tax.

''A zero percent tax is not acceptable,'' Gara said. ''You can't just give away the oil.''

However, oil industry representatives point out they don't just pay severance tax. The state owns a share of the oil produced, called a royalty, and also charges oil companies property and income taxes.

''The oil industry in Alaska really pays its fair share of taxes and royalties,'' said Dawn Patience, a spokesperson for ConocoPhillips.

Gara said some people have suggested repealing the ELF altogether, but his bill does not do that.

It still allows the tax to be adjusted based on productivity and field size, but sets a minimum tax rate of 5 percent. Heavy oil, which is hard to produce, would be exempt from the bill.

The bill also contains provisions that would raise the tax rate if oil prices rise above $20 a barrel and lower taxes if prices slip below $16 a barrel. If prices drop below $10 a barrel, half the tax would be waived and half could be deferred.

''We're sensitive to low prices,'' Gara said.

At recent high prices of about $30 a barrel, the bill would have raised another $400 million for the state, Gara said.

Patience said the state would risk losing oil industry investment if it changes the ELF because projects in Alaska have to compete with projects elsewhere in the world.

''The state tax structure and specifically ELF is really working exactly as it's planned,'' Patience said.

''It encourages the development of smaller fields and extends the life of older fields.''

Hickel had not seen Gara's bill, but said in general he supports examining the tax laws to be sure the state is getting what it's entitled to.

''I think the ELF should be looked at every so often just to see if it's in balance,'' Hickel said.

Hammond could not be reached Thursday afternoon for comment. Democrats released a statement attributed to Hammond in which he also said he believed the ELF should be re-examined.

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