Special session drags on

Kenai Peninsula's House contingent splits on ACES bill

Posted: Tuesday, November 13, 2007

Alaska House members representing Kenai Peninsula districts found themselves on opposite sides last Sunday when voting to pass a rewrite of state's Petroleum Production Tax that included a base tax rate on oil company net profits of 25 percent.

Rep. Paul Seaton, R-Homer, voted for the amended Alaska Clear and Equitable Share (ACES) bill, HB 2001.

"I am confident that the tax rate and progressivity will not deter investment in Alaska," he said in an interview Monday morning. "I believe it will give Alaska its fair share (of oil revenues)."

Reps. Mike Chenault, R-Nikiski, and Kurt Olson, R-Soldotna, did not share that confidence and voted against the measure, primarily over the 25-percent base tax rate.

Chenault is co-chair the House Finance Committee. Late last week, his committee backed off the 25-percent base tax rate proposed a few days earlier by the House Resources Committee, returning the base tax rate to 22.5 percent, the rate charged in the state's existing Petroleum Production Tax law.

He said he wasn't happy that the full House voted to reinsert the 25-percent tax.

"I certainly hope my worst fears don't come true," he said. "My concern has always been that if taxes are too high, when investment decisions are made, we become an area that is unattractive. That's the point it ends up hurting Alaskans."

Granted, a higher tax rate could bring in more money, Chenault said, but that's not good if Alaska ultimately loses jobs.

"Alaskans don't need more money for state government," he said. "Alaskans need jobs."

Now that the Senate has the bill, he'll just have to wait and see what happens, Chenault said.

"Whether they can send back something the House can pass, I don't know."

Olson said he went to Juneau with two questions: Is the current PPT working? And is Alaska getting a fair share?

The answer to the first, he said, is generally yes. As for the second, Olson said he agreed with Gov. Sarah Palin that Alaska should get more, especially when prices are sky high.

"We attempted to address that with a gross progressivity tax in the Oil and Gas Committee (which he chairs), but that is not part of the current bill," he said. "I have a problem with the 25 percent tax and with the fact that the bill would bring in almost $1 billion more than the governor asked for."

Taking so much money taken from the oil companies could result in a reduction in exploration and future development, Olson said.

"I believe it will be changed in the Senate, and I believe I will be able to support what the final bill is," he said.

Amendments to the ACES bill nearly double the revenue oil companies will pay for production on the North Slope, a House Majority press release said.

"I was pleased to see that the work done on the bill was done in a very clear, very open and transparent process," House Speaker John Harris, R-Valdez, said. "I believe the governor is getting nearly everything she asked for, and in some areas more than she asked for."

Harris warned, however, that concern remains that raising taxes on the oil companies could have "serious unintended consequences," such as reducing investment in exploration in the state.

The House version, which now heads to the Senate, increases the base tax rate from 22.5 to 25 percent of net profits, plus adds and surcharge of .4 percent per dollar, whenever the price rises above $30 per barrel.

According to the House, HB 2001 would generate about $4 billion at $80 per barrel, twice what the current PPT law would be expected to generate.

The measure also eliminates transitional investment expenditures, or TIE credits, for expenditures made under the former Economic Limitation Factor (ELF) system. Under the existing law, the industry can take credits for investments made up to six years ago.

It also redefines transportation costs, thus revising how the wellhead value of North Slope crude oil is determined, and dumps a provision that would have moved tax auditors out of the classified (unionized) state service into exempt service, but creates "audit masters" positions in the departments of revenue and natural resources, which would be exempt.

Another provision provides for rewarding whistleblowers for alerting the state to a company's violation of the tax law, but punishes persons providing erroneous information in bad faith.

It would require bad faith whistleblowers pay the costs of investigations but would pay whistleblowers up to a maximum of $1 million for information leading to the collection of additional taxes, penalties or interest from a producer.

Sen. Tom Wagoner, R-Kenai, applauded the House version in a conversation Monday afternoon.

"If we (the Senate) can get there, this looks pretty good now," Wagoner said. "But I don't know what's going to happen on the Senate side. We have no committee substitute yet."

He said he thinks the Senate Finance Committee likely would begin working with the House version he said he expected to be read over to the Senate on Monday afternoon.

Wagoner said he liked the 25-percent tax rate, saying, "I always have," but said the progressivity regime was a little high.

"But I can live with that," he said.

Wagoner said he thinks there is plenty of time for the Senate to develop its version and conduct negotiations with the House to bridge any gaps before the special session gavels to a close Friday.

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

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