Since the Murkowski administration, every Alaska governor has offered his or her own version of oil tax reform. Now, Gov. Bill Walker is taking issue with aspects of the current tax regime, without committing to any immediate legislative changes.
On Thursday, Walker took to the pages of the Alaska Dispatch News to raise concerns over how the existing oil production tax works at low prices. With the value of oil now in free fall, Walker explained the state is now collecting less money than it is paying out. The Department of Revenue expects to collect $524 million in revenue this fiscal year, after North Slope producers deduct $750 million available to them in liability credits. Those liability credits can be used to buy their tax burden down, but do not require the state to pay out money. The major producers — Exxon, BP, and ConocoPhillips — are the top beneficiaries of these credits.
But on top of those deductions, the current tax law also grants smaller producers refundable credits meant to encourage more competition on the North Slope and stimulate production in Cook Inlet. These independent companies are eligible to receive $625 million in subsidies that can be cashed out if they end up exceeding their tax bill.
Once both kinds of credits are applied, the state expects to lose $100 million on its oil production tax.
Walker called this situation “irresponsible and unsustainable,” and said the revenue problem must be addressed “from all angles.” But that doesn’t mean legislators should prepare for an oil tax fight this session. In an interview with APRN, Walker said he does not plan to introduce a tax bill.
“No, no, no. I think we have to maybe look across the board and give it some thought. Nothing maybe this year — I’m not looking at going in and making any significant changes,” said Walker. “But I just feel it’s part of my job that Alaskans know what I know, and this is unusual.”
Walker also has no plans to make regulatory changes to the oil tax system that would affect the credits.
While campaigning, Walker came out against the current tax regime. He was in favor of a ballot referendum to repeal Gov. Sean Parnell’s 2013 oil tax law, known as Senate Bill 21. When the referendum narrowly failed in August, Walker said that he respected the outcome and that he would give the law more time on the books if he became governor.
Since Walker was elected on November 4, oil prices have fallen from $80 to $50 per barrel. Walker said that drop is responsible for the state going into the red with its production. His office has done an analysis of how Parnell’s Senate Bill 21 compares at current oil prices to the system that preceded it — ACES — and found the outcomes were not “significantly different.”
“Whether it’s ACES or Senate Bill 21, we’d be in this situation either way, quite honestly,” said Walker. “So, it’s not being judgmental on one versus the other. But’s a new place for us. We’ve never been here before, that we’re paying out more than we’re receiving in production tax.”
Historically, oil tax receipts have made up the bulk of the state’s revenue. Last year, the state generated nearly $5 billion in oil revenue, with more than half of that coming from production taxes.
The state still expects to collect $2 billion this year from other forms of oil revenue, including royalties, corporate income taxes, and property taxes from production.