Senate Passes Oil Tax Bill in Tight Vote

A bill reworking the state’s oil tax structure has cleared a major hurdle, passing the Senate late Wednesday night on an 11-9 vote. The package would effectively lower taxes on producers with the hope of getting more oil in the pipeline. But without firm commitments to ramp up production, opinion on the legislation was split almost down the middle.

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If you had to tally the debate in numbers, a few would come to mind. Thirteen: The number of amendments offered. Forty: How many minutes the longest speech lasted. Six-billion: The number of dollars Alaska could forego in state revenue over the next five years if the bill passed. Ninety-thousand: The number of extra barrels that would need to be produced every day to offset that loss.

For hours, senators went back and forth on whether that could happen. Supporters of the bill characterized it as a necessary risk that would make the state more competitive.

”It’s time to act. Alaskans – Alaskans’ future needs to be secured,” Anchorage Republican Sen. Anna Fairclough said. “Our generation, the next generation depends on that.”

Other members of the majority caucus rolled out personal stories of Alaskans leaving for the promised lands of North Dakota and Texas, and they spoke of a need to pass a healthy economy on to their children.

But they were reluctant to give specific numbers on the amount of oil they expect to see produced under the proposed tax regime, or give a hard timeframe for when the state should see changes to the production decline.

Meanwhile, opponents of the bill gave wonky treatises focused on the history of Alaska’s tax system and the factors contributing to declining oil production. Sen. Bert Stedman, a Sitka Republican, warned that a big hit to the state’s treasury could affect the state’s bond ratings and ability to secure low-interest loans for capital projects. Sen. Hollis French, an Anchorage Democrat, listed the number of times oil companies have misled the state on oil taxes.

“This is a bad bill that should be voted down. It’s a giveaway, it’s a crapshoot, it’s a far, far cry from our best work and what we’re capable of doing. I’ve watched each committee negotiate against themselves, waiting for some positive word form the oil industry. The words never came,” French said.

The bill that passed is a significant reworking of the state’s tax code. Right now, Alaska has a windfall profits tax that requires producers to pay more when oil prices are high. This measure gets rid of that, while adding a higher base tax that’s offset by a $5 per barrel tax credit.

Just one amendment was made to the legislation. A measure setting the base tax rate on oil at 35 percent passed with the support of 11 members of the majority. An earlier version of the legislation would have kicked that tax rate down by a couple of percentage points after 2016.  That would have meant an extra $300 million in state revenue lost at forecasted levels of oil production.

In a late-night press conference following the Senate floor session, Anchorage Democrat Johnny Ellis suggested that amendment was needed to appease Click Bishop, a Fairbanks Republican who was seen as a swing vote.

“They didn’t have the 11 votes until amendment number one passed,” Ellis said.

Majority leadership denied that this was the case.

For his part, Gov. Sean Parnell is happy with the bill. The original legislation came out of his office, and lowering the state’s oil tax rate has been a consistent priority of his administration. He says he expects the legislation to start working shortly after it’s put in place.

“We should start turning things around in the near term, like three to five years, and that way we are not stuck without savings and little to no production,” Parnell said.

The bill will now be considered by the House. The first stop is Resources. Rep. Eric Feige, a Chickaloon Republican who co-chairs the committee, says that he shares the governor’s goal of making Alaska’s tax rate more competitive. When asked if the narrow margin of the Senate vote would affect his committee’s work, he said it would not.

Republicans have an overwhelming majority in the House, and in the past they’ve been more sympathetic toward the governor’s oil tax reform efforts than the Senate. If they pass a bill with changes, it would have to be reconciled with the Senate version.