Senate Finance OK’s capital budget including tax credit funds
With the oil tax credit bill on the backburner, the Senate Finance Committee approved a capital budget bill May 9 that includes $288 million to pay down the state’s growing tax credit obligation.
Finance Co-chair Sen. Anna MacKinnon, R-Eagle River, said the appropriation, if agreed to by the House and Gov. Bill Walker, would cover roughly one-third of the about $900 million in refundable tax credits the Department of Revenue is projecting the state will owe by June 30 at the end of fiscal year 2017.
The $288 million appropriated to the Oil and Gas Tax Credit Fund is the last cash left in the Statutory Budget Reserve Fund, or SBR, savings account.
Last spring, state budget managers discovered the SBR still had $288 million in it because the 2015 fiscal year deficit was slightly smaller than expected — but still more than $3 billion.
The Democrat-led House Majority has sharply criticized the state’s refundable oil and gas tax credit program. However, House Democrats have agreed to appropriate hundreds of millions of dollars to the Tax Credit Fund in the past two budget cycles, acknowledging that, like it or not, the credits are a debt the state must pay at some point.
Walker has ultimately vetoed portions of those credit appropriations — $200 million out of $700 million in 2015 and all but $30 million out of $460 million in 2016 — before signing the budget bills. Walker contended the state cannot afford the payments without separate substantial deficit reduction measures and new revenue.
The current version of House Bill 111, the legislation to repeal the refundable tax credit program that is currently sitting in Senate Finance, would eliminate the Tax Credit Fund come Jan. 1, 2018.
But because the capital budget takes effect July 1, the first day of the 2018 fiscal year, the Department of Revenue would have six months to pay out the $288 million if the bills pass the Legislature looking like they do now.
The credits are paid on a first-in, first-out basis, meaning companies holding the oldest credit certificates would be paid first.
According to Revenue officials, there were $477 million in certificates awaiting repurchase on Jan. 1 and the state has issued $600 million in refundable certificates this fiscal year.
About $132 million of those issued certificates have been paid, sold to another company to be used against tax liability or repurchase had not been requested as of Dec. 31, 2016.
The big provision in the Senate’s version of HB 111 would switch current, cashable 35 percent net operating loss, or NOL, credits, to a more traditional carry forward tax deduction for small producers and explorers when they have production tax liability.
It would also allow small producers — those with less than 50,000 barrels per day of production — to use the $5 per barrel tax credit on oil from new fields to take their production tax obligation below the 4 percent gross minimum tax.
The Revenue Department projects that provision would cost the state between about $20 million and $40 million per year in forgone revenue at forecasted oil prices.
Overall, the bill is expected to save the state about $115 to $150 million per year by eliminating the directly refundable tax credits, according to Revenue projections.
An inverse provision to prohibit loss deductions from taking a producer’s tax liability below the minimum tax on oil from the large legacy fields would increase tax revenue at market prices of about $40 per barrel or less, prices at which the major producers would be expected to start incurring losses.
The “hardening” of the tax floor is not expected to have a revenue impact at current and forecasted oil prices, however.