Legislature takes weekend pause after movement on credits, Fund earnings
The Legislature is still trying to finish its business after there was a flurry of activity this week with the passage of House Bill 247, the embattled oil tax credit bill, and the Senate’s passage of a Permanent Fund earnings restructuring, in Senate Bill 128.
Several tax bills proposed by Gov. Bill Walker were moved out of the House Finance Committee, but not debated on the floor.
The previous week the state operating and capital budgets were passed.
Things seem to be rolling and there were hopes lawmakers could finish things up and adjourn the special session. That didn’t happen.
It now appears that SB 128, the Permanent Fund bill, is bogged down in the House and action on the various tax bills – on motor fuels, mining and fisheries – has also stalled.
Action on these must come in the House and the usual fractures have developed in the House majority, where a dissident Republican “musk ox caucus” has split off to join with the House Minority on several issues.
The votes are very unclear on SB 128. A hearing is set for the bill in House Finance Committee next Tuesday, June 14.
What has complicated things in the House are the hard feelings remaining from the narrow 21-19 approval of HB 247, the oil tax credit bill.
The compromise version of the tax credit bill agreed to in the House-Senate conference committee picked up substantial parts of the Senate-passed version, more favored by the oil and gas industry, instead of the version passed by the House.
That displeased the group of rebel “musk ox” Republicans who teamed up with Democrats on the House version.
The House bill was rewritten on the floor of the House in a lengthy amendment offered by Rep. Paul Seaton, R-Homer. The vote on that, which occurred May 13, passed by 21 to 16, with enough of the musk ox group joining the House Minority to pass the amended version, sending it to the Senate.
When the conference committee compromise bill, which in effect gutted the Seaton amendment, came up for a House floor vote June 6, the vote was 21-19, approving the conference committee bill.
What changed outcome on the House floor was that Rep. Mike Hawker, R-Anchorage, who is part of the House leadership faction, was able to be in Juneau after being gone most of the session undergoing cancer treatment in Anchorage.
Hawker had missed the May 13 vote.
Also, Republican Reps. Jim Colver of Palmer, Tammie Wilson of Fairbanks and Cathy Munoz of Juneau switched their positions. On May 13 they had voted with the Seaton group. On June 6 they voted with the House leadership.
The key parts of the Senate bill which displease the Democrats and musk ox Republicans so much is the provision allowing North Slope producers a 35 percent Net Operating Loss deduction and to be able to carry this forward to apply against production tax liability in future years.
The “NOL” credits are limited to 15 percent for other parts of the state for fiscal year 2017 and end in 2018, but continue at 35 percent on the North Slope.
The enacted version of HB 247 also allows North Slope producers to use the NOLs to bring their state production taxes below the minimum 4 percent gross revenues tax, even to zero. That is another source of irritation for the House Democrats and musk ox Republicans.
Other than those two items, which are important to many House members, many parts of the House and Senate versions of HB 247 are similar. Both versions phase out many of the non-North Slope tax credits over three years, although the House bill was more aggressive and phased out many of the credits more quickly.
It’s uncertain whether Walker will approve the tax credit bill. The administration is unhappy with parts of it, including the North Slope producer NOL provisions. If Walker were to veto it legislators would have to remain in special session for an extended period to make changes, or come back in a second special session.
What has also complicated the picture for SB 128, the Permanent Fund bill, is that passage of the bill by the Senate appears to have energized “don’t touch my dividend” groups among the public. Lawmakers are getting angry emails from constituents over the provision in SB 128 that lowers the dividend to $1,000.
Under status quo, the Permanent Fund Dividend, or PFD, will be over $2,000 this year. Faced with fresh protests from constituents, several fence-sitting Republicans in the House may oppose SB 128. Almost all versions of the Permanent Fund earnings bills considered this year would lower the dividend to make more money available to support the budget.
The fiscal effect is that a $2,000-plus PFD draws down the Earnings Reserve by $1.4 billion. Passage of SB 128 or any variation of the Permanent Fund earnings bills lowers this to $700 million.
If SB 128 were to pass it would allow an approximate $1.7 billion draw (the estimated 5.25 percent-of-market-value of the Permanent Fund) to be taken from the Fund’s Earnings Reserve account to support the budget.
This would reduce the estimated $3.8 billion deficit and CBR draw by $2.2 billion. The concept in SB 128 is that current-year earnings of the Fund would more than replace this withdrawal in the earnings account, so that the ER account would be sustained at its current balance of approximately $7 billion.
However, this doesn’t totally solve the state’s budget dilemma.
If spending remains at about $4.5 billion a year, in state unrestricted general funds, and revenues remain in the $1.2 billion to $1.5 billion range (although oil prices are now gradually increasing) a $300 million to $600 million deficit will remain.
The governor’s proposal is that new taxes would cover that, either from a new personal income tax or higher motor fuels taxes or new taxes on other industries like mining and fisheries.
Those are more likely to be taken up next year rather than this year, however.