Olson's committee pushes for substitute

Posted: Tuesday, October 30, 2007

A substitute bill adopted Sunday by a House special committee that revises Gov. Sarah Palin's proposal for revamping the way Alaska taxes oil and gas developers has a reasonable chance of surviving to a floor vote, Rep. Kurt Olson, R-Soldotna, said Monday.

Palin's bill, called the Alaska Clear and Equitable Share bill (HB 2001), would alter the state's current Petroleum Production Tax (PPT) by increasing the tax rate and other changes.

After 10 days of hearings and debate, the House Special Committee on Oil and Gas, which Olson chairs, proposed a substitute that eliminated Palin's tax increase, but adjusted the PPT's "progressivity factor" by adding a .225-percent surcharge on the gross value of a barrel of oil when the price goes higher than $50.

The surcharge would result in higher revenues than the governor's original bill after barrel of oil reached the $78-$80 range. For example, under the current PPT law, $87-per-barrel oil generates $4.026 billion. The original ACES bill would have garnered $4.538 billion at that price, while the O&G committee's substitute would generate $4.611 billion.

The committee considered but ultimately rejected Palin's request that the PPT base tax rate of 22.5 percent be boosted to 25 percent.

Olson said committee members were concerned that raising the base rate would dampen investment in Alaska by the oil industry.

"While we agree that it is fair to the producers to keep a steady base tax rate, Alaskans are frustrated that, at the exceptionally high prices we are seeing today for crude oil, the producers appear to be getting a windfall," Olson said in a press release.

"We think some of that windfall should land on our side of the fence. That's why we adopted a fairly aggressive progressivity factor based on gross value."

Interviewed Monday afternoon, Olson said there was general agreement among committee members.

"We got it out of committee with no (committee) opposition, which amazed me," he said.

Removing Palin's base tax increase in favor of a surcharge was seen as a better approach to revising the tax structure.

"We ran a number of models," he said. Ultimately, 22.5 percent (the current tax rate) looked best to most of us."

Olson said oil wasn't likely to drop below $50 a barrel any time soon, meaning the surcharge would continue to bring in higher revenues.

"I think the price will be up for the next several years," he said. "And we are only one or two car bombs away from $100 a barrel. It won't take much in the Middle East to affect the price. That's just a fact of life."

Olson also pointed to emerging markets in India and China and the increasing demands those nations are placing on the world oil supply as reasons for oil prices remaining elevated.

Something resembling the House's version may well become law, Olson said, adding that he had spoken with some members of the Senate who had reacted favorably. He declined to say with whom he'd spoken at this point, except that it included Sen. Johnny Ellis, D-Anchorage, who is on record saying that it had some potential.

Other provisions of the Oil &Gas Committee's substitute included:

* Reduces from six to three the number of years a taxpayer can look back to apply transitional investment expenditure (TIE) credits

* Provides numerous amendments to allow better administration of the PPT, including the sharing of confidential information and reports between state agencies

* Disallows producers from claiming credits against the tax for pipeline and facility repairs caused through neglect or deferred maintenance

* Disallows producers from claiming a credit for the costs of construction of a crude oil topping plant on the North Slope.

The O&G substitute included a provision requested by the governor to move oil and gas tax auditors in the Alaska Department of Revenue from the classified (unionized) service to the exempt (nonunion) service. (An identical amendment was retained in a Senate version).

According to the department, recruiting auditors under the state's current contract pay plan has been difficult. Olson said a shortage of oil and gas auditors has delayed answers to legislative requests for financial data.

Jim Duncan, business manager of the Alaska State Employees Association, which represents the auditors, said there is no reason to shift those employees outside the union's coverage.

"We don't think this is necessary," Duncan said, adding that most of the auditing positions were filled, and that the state could increase the attractiveness of state auditing jobs simply by creating new, higher auditing positions and paying them at a higher range under the existing pay plan. "We don't see them having a problem," he said.

Duncan was to testify on the subject before the Senate Judiciary Committee on Monday.

Olson said he and Rep. Mike Dugan, D-Anchorage, have agreed to look into the matter further and in more detail in January.

The House O&G Committee substitute was forwarded to the House Resources Committee, which began public hearings Monday.

Hal Spence can be reached at hspence@ptialaska.net.

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