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Senate defends slow pace

Posted: Sunday, April 10, 2011

State senate leaders are defending their decision to put Gov. Sean Parnell's oil tax reform bill on the slow track, which means certain delay until the 2012 legislative session.

Adjournment is at midnight, April 17, unless legislators vote to extend the session.

Parnell's tax reform bill, House Bill 110, passed the House on a 22-16 vote April 1. The bill changes the structure of the tax and establishes a cap of 50 percent of net profits for current production and 40 percent for new fields, and also adds incentives for new development.

Proponents say changes in the state tax are badly needed to stimulate new drilling and investment to get more oil into the trans-Alaska oil pipeline, which is in danger of shutting down in a few years.

Critics say the governor's bill gives away too much to the industry without concrete assurances of new investment.

Senate President Gary Stevens, R-Kodiak, on Monday assigned the bill to three committees of the Senate, Labor and Commerce, Resources and Finance.

Resources and Finance would be the committees that major resources and tax bills are assigned to, but Stevens said Labor and Commerce chair Sen. Dennis Egan, D-Juneau, had asked to also have the bill sent to his committee.

Stevens said Egan won't keep the bill long. "There are some issues he wants to address," Stevens said in a briefing by Senate leaders Tuesday.

But with days left in the 2011 session, any meaningful changes to the state's oil production tax seem a lost cause.

"I wouldn't say it's a lost," Stevens said Tuesday. "It's a very important bill that has received a lot of attention. There are questions we have, concerns we have, and legitimate reasons to look very carefully at it."

Stevens said, in looking at the various bills, he doesn't see the four of seven votes needed to move them to Finance Committee.

The state started discussions last summer on getting consultant reports purchased so that they can have updated data of hydrocarbon basins around the world, he added. Similar work was completed under the original the tax law passed in 2006, and again under the amended tax law in 2007.

"As we all know the world is fairly dynamic and that data is basically old and stale," said Sen. Bert Stedman, R-Sitka. "We have purchased $96,000 in studies. The arctic portion of one of them isn't due until June. The final review of the five preceding ones isn't due until September. It's pretty difficult to expect, in my opinion, elected officials to make decisions dealing with billions of dollars worth of our resources and then, in the next breath, tell us don't worry about the technical details of the analysis, just vote for the bill."

Stevens said one of the concerns lawmakers have had is when they hear from the governor and the House to go ahead and pass the governor's bill, and then if it's not working, change it.

"It's really hard to change a tax structure and it would be difficult to (do that) down the road if things aren't working. And of course, it flies in the face of what we've heard from industry is that they need assurances. They don't want to be investing without knowing what the tax structure is going to be," Stevens said. "I think there is a fallacy in thinking we can make a change and just in the future make another change. I think Senator Stedman is right. We need to carefully make sure that this is the right tax structure."

Stedman said there is great concern over difficulties the state Department of Revenue is having in doing audits of industry tax returns under the current law and particularly the investment tax credits offered to industry. The last year for which the tax credit audits have been completed is 2006. Audits help the department understand how the industry is spending its capital investments, how much for drilling and activity related to developing new oil and how much for maintenance.

The Senate Finance Committee will propose adding $34.7 million to the state capital budget to allow the revenue department to purchase new software, Stedman said. This will help the department accelerate its audits.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.



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