Oil legislation could come off the back burner in a budget deal
Bills to raise oil taxes and pay off the state’s $800 million refundable tax credit obligation have stalled for weeks but legislators say both could be part of what is sure to be a strenuous lift at the end of a session in which the festering $2.5 billion annual deficits are coming to a head.
House Resources Committee co-chair Rep. Andy Josephson, D-Anchorage, said during a Majority Coalition press briefing that House Bill 288, which would raise the minimum production tax, could be part of a package of legislation to settle end-of-session negotiations with the Republican Senate.
Josephson held several hearings on HB 288 early in the session and took unfavorable industry testimony over raising taxes, but it hasn’t been addressed formally since Jan. 29.
Sponsored by Resources co-chair Rep. Geran Tarr, D-Anchorage, it would raise the gross minimum production tax rate from 4 percent to 7 percent and generate up to about $250 million in additional revenue at current prices, according to the Revenue Department.
Tarr and others in the Democrat-led Majority have said they felt the need to propose an oil tax increase as some sort of additional revenue measure after the Senate wholly rejected income and payroll taxes last year.
Revenue officials said the bill becomes revenue-neutral at a price of about $72 per barrel, which is when the state’s net profits tax rate takes effect.
Government take of Alaska’s oil is at its lowest level in state history at roughly 54 percent, according to Finance co-chair Rep. Paul Seaton, R-Homer.
Josephson suggested the bill could have a tiered gross tax as well to make it more palatable to Republicans averse to another oil tax change.
Industry representatives said the tax increase would come at a time when many companies have just righted their balance sheets after the $26 per barrel bottom of the oil market in 2016 and are ready to start growing again with more stable prices.
Tax credit bonds
Senate Resources chair Cathy Giessel, R-Anchorage, said in an interview that there is a fair chance that Gov. Bill Walker’s plan to pay off the $800 million-plus refundable tax credit debt could move out of her committee by the end of March.
Senate Bill 176 would have the Revenue Department sell 10-year, subject-to-appropriation bonds in two tranches to pay off the outstanding tax credit certificates expected to total $900 million when the last credits sunset in a couple years.
The debt has accumulated since 2015 when Walker made the first of two vetoes totaling $630 million for the tax credits, and the 2017 and 2018 fiscal year budgets passed by the Legislature have contained only the statutory minimum payments. Prior to Walker’s veto in the early throes of the current budget crisis, the credits had been paid in full every year since 2006. The Legislature has since ended both the Cook Inlet and North Slope credit programs.
The generally small companies owed the money — and some bigger ones such as Repsol that have no production — would need to agree to take a haircut on the tax credits of up to 10 percent on the full amount they’re owed in order to get the vast majority of the money immediately.
The administration hopes the plan could jumpstart industry spending in the state again as banks that lent on the credits as collateral — expecting they would be paid in full each year — now have nonproducing loans and have stopped lending to oil companies in the state.
Numerous companies such as Caelus Energy, Blue Crest and Furie Operating Alaska have cited unpaid tax credits as a reason for delaying previously announced work.
It would also clear the state’s books of the obligation without costing the state additional money, Revenue Commissioner Sheldon Fisher emphasizes, because the state’s expected cost to borrow the money is in the 5 percent range and credit holders would need to accept a discount rate. That discount could be lowered to 5 percent if companies commit to reinvesting the money in the state or agree to make seismic data public sooner.
Republicans have generally indicated at least modest support for the bill, but some on the Resources Committee suggested the state should cut the bond terms and pay the debt off quicker. Giessel indicated the bill could come up again after amendments are drafted to that effect.
Democrat Sen. Bill Wielechowski of Anchorage questioned whether or not the bill fits within the constitutional limits of the state’s ability to bond as a means to pay off other debt.
House Democrats are mixed on the idea but there is a belief it could gain traction if SB 176 makes it over from the Senate. It is scheduled for Senate Finance after the Resources Committee.
Elwood Brehmer can be reached at [email protected].