Committee begins hearings on latest oil tax reform plan
JUNEAU (AP) — Alaska’s revenue commissioner said Jan. 22 that he’s seen no evidence that tax credits to oil companies have led to increased production.
Bryan Butcher said in an interview that that’s not to say evidence doesn’t exist. But he said he hasn’t seen a direct connection between the credits and increased production.
Butcher was among the administration officials testifying Jan. 22 before a Senate committee that began working on Gov. Sean Parnell’s plan to cut oil production taxes.
Parnell has proposed overhauling Alaska’s oil tax structure, with the goal of making Alaska more competitive and encouraging new production. The plan would eliminate the progressive surcharge that companies have said is a disincentive to new investment and revamp a suite of tax credits, focusing on companies that produce new oil on the North Slope.
Tax credits under the current system could top $1 billion next fiscal year alone.
Butcher said the companies aren’t doing anything wrong by claiming credits, but he said the credits could put a strain on the state, particularly if oil prices — and oil revenues — tanked.
Alaska’s existing tax structure features a 25 percent base tax rate and progressive surcharge triggered when a company’s production tax value hits $30 a barrel. The idea when it was passed in 2007 was that the state would help companies on the front end by providing such things as tax credits and share profits on the back end when oil flowed and prices were high.
Besides industry complaints about the surcharge, which companies say eat too deeply into profits when oil prices are high, lawmakers have questioned what the state is getting in return for tax credits.
Parnell has proposed keeping the base tax rate but not the surcharge. His plan would include a tax break for oil from new fields, including, he has said, new areas of Prudhoe Bay and Kuparuk, long the mainstay of Alaska’s oil industry. His plan would keep in place credits for exploration but eliminate credits for qualified capital expenditures on the North Slope. It also would gear other credits toward production of new oil.
Parnell has said he wants to restore balance to the system, and to make it simpler and durable, so lawmakers don’t need to go back and tinker with it every few years. He said he also wants any tax plan to be fair to Alaskans.
Natural Resources Commissioner Dan Sullivan said there’s an issue of fairness not only for the current generation but also for future generations. He said it’s not fair to Alaskans if the status quo means a continued decline in production.
An analysis of the bill provided by the administration shows the plan would cost the state $900 million next fiscal year and as much as $1.1 billion by 2018. The fiscal note estimates were based on the Department of Revenue’s fall forecast for oil prices and production, which predicts a continued net decline in North Slope production and oil prices ranging from about $109 a barrel next year to $118 in 2019.
Democrats say the plan could cost the state billions of dollars a year when oil prices are high, starting around $125 a barrel or higher. They have branded it a giveaway to the oil industry and dangerous for the state’s economic future.
Some Republicans have also raised questions. Rep. Paul Seaton, R-Homer, said the surcharge is the element “responsible for almost all of the budget surpluses generated in the last five years.”
In a constituent newsletter sent Jan. 21, he said what is most confusing about the administration’s approach is that progressivity is the element that provides the tax incentive to reinvest in Alaska — that is, spend more, get more of a tax break. He said he looked forward to hearing more details. Seaton has introduced a bill of his own to address the oil tax and competitiveness issue.
Sen. Peter Micciche, who co-chairs the Senate committee on oil flowing through the Trans-Alaska Pipeline System, said the panel plans to pass the bill on to Senate Resources by Feb. 7. Industry testimony is planned for next week in his committee.