Peninsula state senators promise thorough review of deal-tax issue

Posted: Wednesday, February 22, 2006

Gov. Frank Murkowski has been playing games with the Legislature in delaying a proposal to revamp the way oil is taxed by the state, Sen. Tom Wagoner charged Tuesday.

The governor was expected to deliver a proposal last week, but opted instead to share its details with oil industry representatives before letting Alaska’s elected representatives take peek, Wagoner said.

“This whole thing has gotten ridiculous. Either let’s do a piece of legislation or let’s not,” Wagoner said in an interview Tuesday morning, adding he thought the governor was “trying to game the Legislature.”

Over the past two years, Murkow-ski has been negotiating with major petroleum producers, attempting to reach agreement on a variety of issues that would lead to a contract to construct a natural gas pipeline to deliver North Slope gas to markets Outside and to make some of that gas available in the state.

Those negotiations have included discussion of the way the state currently taxes oil, a system now considered antiquated and unfair because the state is not benefiting from the enormous profits high world oil prices are generating for oil companies.

Few details are public, but a yet-to-be-introduced administration bill is reportedly expected to propose a 25-percent tax on net oil profits and offer a 20-percent tax credit on money reinvested in Alaska. At $60-per-barrel oil, that could generate upward of $2 billion a year to the state.

Democrats have proposed a Production Profits Sharing Tax (Senate Bill 292) upping that rate to 30 percent, while offering a 15-percent incentive credit.

Murkowski was expected to finally announce his net profit tax proposal during a press conference scheduled for late Tuesday afternoon. Wagoner said earlier in the day that he wasn’t holding his breath. He also said that whatever is proposed is going to have to please the Legislature or it will go nowhere.

“We are going to do the severance tax legislation prior to any attempt by the administration to roll it into a gas line contract,” he said.

Wagoner also said he has told industry leaders he would oppose any new tax system that locks a tax rate in long term. He wants it reviewed periodically, perhaps as often as every five years.

“If it isn’t working, the state should have the right to change it,” he said.

That, he said, has produced “a lot of whining” from industry representatives.

“But that’s their job,” he said. “Ours is to ensure the state is treated fairly.”

“The key thing here is finding a tax that is fair to the state and at the same time encourages industry to do more exploration,” Sen. Majority Leader Gary Stevens, R-Kodiak said Tuesday.

“The biggest issue facing us right now is the petroleum profits sharing tax proposal. The old system (the economic limitation factor, or ELF), as good as it was at the time, is really no longer as generous to the state because of the high price of oil.”

Stevens said he expects that once the Legislature has the governor’s tax proposal bill to work with, lawmakers will engage in a lengthy and detailed discussion and debate that could take at least two months. That would involve the House and Senate resource and finance committees working in tandem so one house doesn’t “get out ahead” of the other. That work should be completed by the end of the legislative session in mid-May, Stevens said.

Producers need to know what the tax climate in Alaska will be before they’re likely to invest in a $30 billion gas pipeline, Stevens said, adding he had no problem with the govern conducting negotiations behind closed doors, nor his decision to delay last week’s expected announcement of a tax proposal until industry leaders had seen it.

The governor is not empowered to sign such a contract without legislative approval. Thus, once he presents the package, the secrecy will be over, Stevens said. Then lawmakers will take as long as they need to decide whether the proposal serves the best interests of the public, he said.

“This is the biggest thing to come along since I’ve been in the Legislature,” he said. “It is a monumental piece of legislation that will determine the state’s revenue from oil and gas over the next 25 or 30 years.”

Approving a final contract is the Legislature’s purview, Stevens said.

“If it is not in the best interests of the people, it simply won’t happen, and the oil and gas will remain in the ground until we are ready to use it,” he said.

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