Overtime Week 4: Legislature still bogged down as latest oil tax revision struggles to get traction

There appears to be some movement, finally, in the quagmire that has become the 2016 state legislative session. The House Rules Committee held hearings during the week on a new version of House Bill 247, the controversial state oil tax credit bill, and moved the bill out of committee Thursday afternoon.

On Friday the House took the bill up for floor action and debated amendments. It was unclear, however, whether there are enough votes to move the bill out of the House.

Approval by 21 of the 40 House members is needed, and none of the versions of HB 247 have gotten the 21 votes needed. If the bill does get out of the House it faces an uncertain future in the Senate.

In a related development the Senate Finance met on the state capital budget, another critical bill, and sent SB 138 out of committee Thursday.

The committee added $12.5 million for the purchase of a building in Anchorage for the Legislative Information Office but declined an amendment made to restore $7.2 million in additional funding to complete a new school for Kivalina, a coastal village in northwest Alaska.

The committee also attached a statement of legislative intent that appropriations made to date for the Kivalina school, which total about $43 million, are enough to satisfy requirements of a settlement of litigation brought by rural parents over inadequate school construction funding.

Several rural schools were built under the settlement and Kivalina was to be the last, but the settlement requires a full $50 million appropriation. So far the school budget is $7 million short.

If the money is not ultimately appropriated the court may void the settlement.

The oil tax and capital budget bills are two of four key pieces of legislation that are hung up in the impasse over adjournment of the 2016 session. Besides oil taxes and the capital budget there is the state operating budget and a measure that would allow Permanent Fund earnings to be used to help fund the state budget.

The operating budget is in a House-Senate Conference committee and the Permanent Fund bills, now in identical form in both the House and Senate versions, are in the Finance committees in both bodies.

Meanwhile, the Legislature reaches its 120-day legal limit May 18, next Wednesday. Under the state constitution lawmakers must adjourn then, although they can vote to extend 10 days with a two-thirds approval of both House and Senate members.

The 20-member Senate could muster that with its 16-member, Republican-dominated majority, but in the 40-member House the votes of all 27 members of the majority will be needed.

If extending the session by 10 days does not receive 27 votes, the session ends and all bills will die. The governor would then call legislators into special session and specify certain bills for action. Legislators can add bills to the list.

The budget is on the front burner as an issue, however. For state government to operate it must have an approved budget by July 1, the start of fiscal year 2017.

If there is no action by June 1, however, the governor must begin issuing pink slip notices to state employees, a contingency in case June 30 comes with no budget. The notices were sent last year when the session extended into June, when lawmakers played a similar game of brinksmanship.

HB 247, the oil tax bill, still appears to be the chief obstacle blocking an adjournment agreement, and there are strong disagreements over it between the various factions in the state House.

Democrats in the House Minority want the credits scaled down sharply in view of the state budget situation — they call it a “giveaway” to the industry — as does Gov. Bill Walker, who cites the heavy effects on the state budget of cash rebates paid under the program.

At the other end of the spectrum is a group of conservative Republicans in the House Majority who feel the tax credit program should be left more or less intact, or scaled back as little as possible, arguing that the program will result in new oil production in the future, with those benefits far outweighing the short-term cost of the tax credits.

In the middle, between the groups at either end, is the majority of House Republicans who want the program moderated but not to the point desired by the governor or the House Minority.

Complicating this further is the question how the bill affects different companies in the industry, which range from small explorers to small and medium-sized independents developing new oil they have discovered, to the medium-sized and large companies who are producing oil on the North Slope and Cook Inlet.

Each version of HB 247 has moved the levers in several of the tax credits ways that affect these companies differently. A lot of the tension around the bill comes from the companies jockeying to protect their own programs at the expense of others, and the large companies who have always been ambivalent about the tax credits.

The small explorers includes two Alaska Native corporations drilling in largely untested Interior Alaska basins and small independents testing the possibility of producing shale oil on the North Slope, which could become significant.

Of companies developing new finds, three new oil projects that could be affected by the outcome of the HB 247 debate include Caelus Energy’s Nuna project and Brooks Range Petroleum’s new Mustang field on the North Slope and BlueCrest Energy’s new Cosmopolitan oil project in Cook Inlet.

These could be producing 20,000 barrels a day to 30,000 barrels a day of new oil in three or four years bringing new oil royalties and other tax revenue to the state if they proceed. BlueCrest President Benji Johnson has shown legislators, in presentations, that its field will repay all of the state’s tax credits in three years if the Cosmopolitan project continues on schedule.

HB 247 was on the House floor in April and caused a rupture of the House majority. Without enough votes to pass on the floor, the bill went back to the Rules Committee. Several versions of attempted compromise bills have been floated since then, none getting legs.  

This time around the House leadership, in frustration, may just let the latest version out on the floor to see It voted down, killing the bill. That would leave either the Senate sending over its version, SB 130 (which may see the same fate) followed by the governor listing the bill on a special session agenda.

If no bill is passed, and the program stays intact as is, the governor might veto a large portion of the $700 million-plus appropriation to pay the credits, as he did last year.

Updated: 
05/13/2016 - 3:21pm

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