Fights over school funding, oil taxes loom in Legislature

The Legislature passed the one-third mark for its 2012 session, which started Jan. 17, and it appears a bruising fight may be shaping up over increased funding for schools as well as for oil and gas tax legislation, which was always considered to be the major issue going into the session.

Meanwhile, there are still expectations that a coastal management bill will be introduced, although it’s prospects would be uncertain. Legislators may have enough on their plates battling over school funding and petroleum taxes without bringing in yet another highly controversial issue to be dealt with in a 90-day session.

Lawmakers are scheduled to adjourn April 12.

Coastal zone management legislation was a major point of controversy in the 2011 legislative session.

Many lawmakers appear to be willing to just let the citizen initiative reestablishing coastal management go to the election ballot next fall and to let the voters decide. That’s also Gov. Sean Parnell’s position on the matter, the governor indicated in a briefing with reporters Feb. 14.

“My position is to let the people decide. The (ballot proposition) petitions have been certified. I say let it go to the people,” Parnell said.

Two Senate committees, meanwhile, started work last week on oil and gas taxes. The Senate Resources took up Senate Bill 192, a new bill that targets, for now, changes in the state “progressivity” formula.

Sen. Joe Paskvan, D-Fairbanks and co-chair of the Resources Committee, said the bill now before the committee is for discussion only and that a changed version will be coming as committee work continues.

Meanwhile, the Senate Finance Committee spent a good part of two days listening to consultant Pedro van Meurs, an expert on oil and gas fiscal systems. Van Meurs presented his ideas on changes to the state production tax that would attract new investment.

Late in the week, PFC Energy, another consulting firm, was to present ideas on changes to the Alaska tax. The Resources Committee also heard from the Department of Revenue, the state oil and gas conservation commission, and major North Slope producers BP, ConocoPhillips and ExxonMobil on various aspects of recent oil field development trends.

In his presentation van Meurs was critical of House Bill 110, the governor’s proposal to change tax, which passed the House last year and is now in the Senate.

“One of the big messages I heard from van Meurs was that we need to simplify our tax to make it easier for companies to understand,” Senate President Gary Stevens, R-Kodiak, said in a Feb. 14 briefing by Senate leaders.

For example, Repsol, a new company exploring on the slope, has said that it has found it very difficult to understand the tax and how it would affect the company, Stevens said.

Sen. Bert Stedman, R-Sitka, said the petroleum tax changes being discussed were complex and the Legislature may have to focus on two or three priority changes before the April adjournment.

On other changes lawmakers, “may have to come back in the fall,” Stedman said, in which case a special session would be needed.

Stedman said he believes changes in the progressivity formula, some adjustments to investment tax credits given for exploration and new oil development and a “decoupling” of the oil and natural gas production taxes are the top three priorities for tax changes.

State taxes on oil and gas are now combined, or “coupled” in a way that could sharply reduce oil income to the state once commercial gas production starts. Even though it will be years before a gas pipeline could be built, it’s important to make the change now so companies considering a gas project will know the fiscal terms.

Decoupling the two taxes is also a recommendation van Meurs made.

Another idea being developed in the Senate is the notion of taxing new oil production at a lower rate as an incentive. Sen. Tom Wagoner, R-Kenai, is proposing that in a separate bill. Even Sen. Hollis French, D-Anchorage, a major critic of the governor’s proposal in HB 100, said he is intrigued with the idea.

Meanwhile, Parnell said he is displeased with the slow pace of the Senate’s work on oil tax changes.

“It has been almost a year since the House passed my bill, and in a year the best they can do so far is come up with is a ‘placeholder’ in this one-and-a-half page bill,” Parnell said in his Feb. 14 briefing. Parnell was referring to the bill in the Senate Resources Committee.

On one other issue, energy costs for consumers, Sen. Lynan Hoffman, D-Bethel, said he is developing a proposal for new state assistance to be provided for residents suffering with high oil prices. The proposal is not yet fully developed, and Hoffman, who co-chairs the Senate Finance Committee, said he is leaning toward a voucher system that would enable residents to buy fuel at discounted rates.

“People in rural areas are looking at Hugo Chavez as a savior. Alaska can do better, particularly when we have such a large surplus,” Hoffman said, referring to the popular fuel voucher program operated by Citgo, a U.S. refining company owned by Venezuela, that operates a program to distribute free oil to low-income and disadvantaged people.

On school funding, the Senate has passed a bill increasing the Base Student Allowance, or BSA, a part of the formula for state aid to school districts that sets the amount schools will receive.

In his press briefing, Parnell said he opposed the increase in the formula but that he might be open to other ways of helping school districts, such as one-time grants to help offset fuel costs.

The formula increases, made over three years, amount to $500 million in additional state money for schools but with expectations of better performance from schools.

“This is a the ultimate giveaway – half a billion but no requirement for better performance,” Parnell said.

House Republican leaders share Parnell’s views. House Majority Leader Rep. Alan Austerman, R-Kodiak, said the Legislature has doubled the BSA amount in the last 10 years.

“The state has not ‘flat-funded’ schools,” a charge school advocates have made, Austerman said. “Ten years ago the BSA was $800 per student. It is now $1,400 per student. Despite this we still have a very low graduation rate.”

One reason why school districts are resisting direct grants for operations costs like fuel and prefer the formula increase, Austerman said, is that the latter gives school administrators the flexibility to spend money as they choose rather than being hemmed in by guidelines on a grant.

Rep. Mike Hawker, R-Anchorage, said the Legislature has approved many other kinds of assistance to school districts in recent years, a big one being the state assumption of a big share of schools’ responsibilities for unfunded pension deficits for retired teachers and other school workers.

“It’s not all in the BSA,” Hawker said.