Budget deal is done, but oil tax reform remains elusive

For months, Democrats in the Legislature were clear on one thing: they would not vote for a budget unless it was paired with major cuts to state subsidies for oil companies.

Then, Tuesday night, they did just that, voting for a budget without those cuts in place.

But the budget passed by the Legislature this week left out about $775 million owed to oil companies this year. And Democrats say, if companies want that money, there has to be an overhaul of oil tax credits first.

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Just a week ago, House Minority Leader Chris Tuck, D-Anchorage, was insisting that oil tax reform was the key to any budget deal: “It all depends on what we do on the oil tax credits,” he told APRN last Monday.

Tuck said Democrats wouldn’t supply the votes to dip into the state’s piggy bank, the Constitutional Budget Reserve, unless there was an agreement cutting future tax credits.

Fast forward one week, and Wednesday morning found Tuck and House Democrats praising a budget deal — one that didn’t include the oil tax reform they’d been holding out for.

So what changed?

Democrats said they got a good deal — a budget that reverses cuts to the University of Alaska, public schools, the Marine Highway System and more — and that waiting any longer put the state at risk of a government shutdown.

And, they said, there’s still time for an oil tax deal. That’s because one thing the budget doesn’t yet include is money for existing credits.

Lawmakers are touting a $4.4 billion operating budget this year, compared with about $5.2 billion last year.

That sounds like a big cut — until you realize that this year’s total doesn’t include hundreds of millions of dollars in oil tax credits that have already been earned by companies throughout the state. The Department of Revenue estimates Alaska will owe about $775 million in cash payments to oil companies this year; the budget only allots $30 million.

Instead, lawmakers included about half the amount owed, $430 million, in a separate section of the budget (which, through a combination of accounting maneuvers and the use of leftover funds from previous budgets, will show up as an expenditure in last year’s budget, not this year’s.) That money can only be released if some version of the oil tax reform bill, House Bill 247, passes.

Anchorage Rep. Les Gara, a Democrat, hammered home that point during a press conference Wednesday morning.

“We used as much leverage as we could to say, you don’t even get half of the money that we owe under this terrible system, unless you pass that oil tax credit bill,” Gara said.

Meanwhile, the bill itself is sitting in a conference committee, which must iron out the differences between the House and Senate.

Sen. Cathy Giessel, R-Anchorage, represents Senate Republicans in those negotiations.

“I am very hopeful, actually optimistic, that we are going to arrive at a good compromise on House Bill 247,” Giessel said. “I won’t say that I have that equal confidence that it will pass both bodies.”

She means she isn’t sure it can pass the House, where several Republicans joined Democrats to pass a more sweeping reform bill.

Giessel said there is broad agreement on several points: everyone, for instance, agrees that subsidies for companies in Cook Inlet are too high, and that generous tax perks for new oil should eventually expire. She said she hopes those changes are enough.

But Homer Rep. Paul Seaton, one of the Republicans who bucked the leadership in the House, said any bill must also address credits on the North Slope.

“We need to limit that liability instead of just waiting for it to hit us on the head like a hammer,” Seaton said.

Either way, lawmakers said they expect to see some new version of the oil tax reform bill soon.