Oil tax credit bill on its way to the Senate, with ultimatum from House

Rep. Geran Tarr, D-Anchorage, during a debate on the state House floor over an oil tax credit overhaul bill on Monday in Juneau. Tarr spoke in favor of the bill. (Photo by Rashah McChesney/Alaska’s Energy Desk)

After hours of debate on the state House floor, an oil tax credit bill is on its way to the Senate.

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House Bill 111 passed, primarily along caucus lines. Proponents said that it will stabilize the state’s tax regime and get Alaska a larger share of the profits from its oil.

Opponents said they were rushed in reviewing the latest version of the bill. And, they say that increasing taxes on oil industry when prices are down will drive away the industry Alaska relies on for most of its money.

Alaska is one step closer to getting another oil tax credit overhaul. Representatives in the State House voted to send a contentious bill over to the Senate.

Facing stiff opposition to a tax hike from Senate Republicans, the House Finance committee that put out the latest version of the bill tied it to a Senate-approved permanent fund bill. They added language that said the permanent fund bill will only pass in the House if the House’s version of the oil tax credit bill passes in the Senate.

The latest oil tax credit overhaul drew a lot of criticism from opponents in the House who said that it goes beyond fixing a cash-for-credit system that many said the state cannot afford.

Wasilla Republican Delena Johnson and many of her colleagues in the House minority said they did not have enough time to look over the newest version of the bill. It was put out on Friday.

“To take on this bill without understanding the consequence, having it sneaked in at the last minute, having less than 12 hours to put in amendments, it just doesn’t make good sense,” Johnson said.

In its current form, the bill drops a program that offered tax credits that can be transferred to other companies or exchanged for cash for work done on the North Slope. The state’s delayed payments on those tax credits has resulted in a tab that will reach about $900 million this year.

That’s a provision that lawmakers on both sides of the aisle agree with. Especially since there have been large discoveries on the North Slope that could leave the state on the hook for billions in credit liabilities before it makes any taxes or royalties from those developments.

Rep. Chris Birch, R-Anchorage, argues during a debate on the state House floor over an oil tax credit overhaul bill on Monday in Juneau. Birch spoke against the bill. (Photo by Rashah McChesney/Alaska’s Energy Desk)

Proponents of the bill said that it’s a better idea to reform the tax credit system to into something the state can actually afford, rather than continue along with credits that the state has to delay paying.

In the new bill, companies would be expected to carry their losses until they are producing oil and owe a tax liability to the state — then they could use those losses to offset those taxes.

A new addition to the bill cuts off a per-barrel credit given for oil production. But, it also drops the base tax rate for the North Slope by 10 percent.

If the oil industry investment in the state stays the same, and oil prices don’t change dramatically, the Department of Revenue forecasts that the new oil tax credit system would raise oil income to the state for at least the next decade.  According to its projections, the state could bring in $130 million more in revenue by 2019 all the way up to $475 million more by 2027.

But there are a lot of caveats to that projection, and the bill isn’t assured to pass in its current form.

Opponents and industry representatives have repeatedly argued that the state changes its oil tax credit regime too often.

Alaska’s Revenue commissioner Randall Hoffbeck said the political infighting and instability in the state’s oil tax credit system go hand-in-hand.

“As long as you’ve got a state that’s 50/50 split and a legislature that’s 50/50 split on whether the current tax structure is an appropriate tax structure, there will always be a large amount of uncertainty in the underlying tax structure,” Hoffbeck said. “What we need to do is get to a tax structure that enough people say ‘That is good enough. We’re going to leave it alone and we’re going to leave it alone for a long time.’”

Hoffbeck said having a predictable tax system is more important than the actual amount of tax revenue the state brings in.

Opponents also question the idea of raising taxes on the industry at a time when oil prices are low. The oil and gas industry has shed thousands of jobs since record high employment in 2015. And it’s projected to lose another 1,500 this year.

Fairbanks Republican Steve Thompson said a tax hike will cause more people to lose their jobs.

“The oil companies have said they’re going to be laying down drill rigs if this is what we’re going to end up doing because we will not be profitable,” Thompson said.

But many in the Democrat-led majority caucus said that industry will not walk away from Alaska citing other states and countries with higher tax rates and the state’s high-quality oil.

Fairbanks Democrat David Guttenberg said Alaskans should look at what the multinational oil companies say about Alaska in their shareholder meetings. He said Prudhoe Bay will remain an attractive place to invest.

“Part of what they have successfully conveyed to this legislature, which has always bothered me, is that their shareholders are more important than our people,” Guttenberg said.

Guttenberg and 20 other legislators in the House are betting that the industry can handle the pressure. But, there isn’t a lot of time left in the regular session for the Senate to decide what it’s going to do. Next Sunday is the 90-day session deadline, but without a fiscal plan for the state or resolution on oil tax credits, lawmakers will likely continue to meet.

KTOO’s Andrew Kitchenman contributed to this story. 

Rashah McChesney is a photojournalist turned radio journalist who has been telling stories in Alaska since 2012. Before joining Alaska's Energy Desk , she worked at Kenai's Peninsula Clarion and the Juneau bureau of the Associated Press. She is a graduate of Iowa State University's Greenlee Journalism School and has worked in public television, newspapers and now radio, all in the quest to become the Swiss Army knife of storytellers.

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