Big bills pass, but special session called
JUNEAU — It was a wild ride on the last day of the 2012 legislative session, and now Gov. Sean Parnell has called lawmakers back to take care of unfinished business: changes to the state’s oil and gas production tax.
On its closing day the Senate attempted to insert language reducing taxes on new oil developed on the North Slope into other bills, but the House balked and senators ultimately backed off.
What the Senate proposed was not the comprehensive change to the state tax that Parnell and the state House were seeking.
The special session convened April 18 to consider the oil tax again as well as another bill that failed, Rep. Mike Chenault’s HB 9, which would give added flexibility for the state’s Alaska Gasline Development Corp. to pursue an in-state gas pipeline.
Chenault’s bill passed the House but died in the Senate. Parnell says he wants HB 9 passed so the state has a viable backup plan in dealings with the large North Slope producers in their assessment of a large-diameter pipeline and large liquefied natural gas project.
Senate Rules Committee chair Sen. Johnny Ellis complained that the state House reneged at the end on commitments to move a handful of senate bills dealing with veterans’ issues and the military at the last minute.
“There were a lot of politics at play and some self-serving on things. We could have done more, but it takes two to tango,” Ellis said, meaning that the House has to cooperate with the Senate.
House Rules chairman Rep. Craig Johnson, R-Anchorage, took offense at Ellis’ remarks.
Johnson said Ellis was just covering his tracks over the Senate’s failure to pass Parnell’s sex-trafficking bill (one bill the governor has included in the special session). There were bills pending on public safety and military and veterans’ benefits at the end.
“The Senate chose to do nothing on these until the very last minute, and then, after their game of very high-stakes chicken, chose to lay the blame on us,” Johnson said.
Senate President Gary Stevens took the high road in his own assessment of the session. Both the Senate and House did the best they could dealing with complex issues facing the state, he said.
One important accomplishment on oil and gas that passed was a bill extending a generous set of investment tax credits and a reduced rate of tax for new oil and gas found in unexplored Interior and Western Alaska basins.
It allows investment tax credits sufficient to fund 80 percent of the cost of drilling and 75 percent of the cost of seismic work up to a limit of $25 million for the well and a limit of $7.5 million or 75 percent of the seismic costs. There is also a preferential production tax rate of 4 percent of the gross value of the oil or gas, which is much lower than the tax on North Slope production.
The bill contains deadlines in that drilling and seismic must be done by July 1, 2016, and any new discoveries must be in production by 2022.
The bill for Interior basins, dubbed the “middle earth” incentive by legislators, was attached to a bill extending the state’s film tax credit program and another bill granting special tax treatment for new small business startups that emphasize new technologies.
All of these are now in Senate Bill 23, which passed in the closing hours of the session April 15.
To help Fairbanks address an urgent energy needs, lawmakers approved investment tax credits to help build liquefied natural gas storage facilities. Although intended to help Golden Valley Electric Association and Flint Hills Resources with their plan to build an LNG trucking project from the North Slope, the bill was written broadly so that small communities, not just Fairbanks, could build LNG storage facilities.
These provisions were also rolled into SB 23 on the last day of the session, and passed.
The state capital budget also contained $3.75 million in a grant to GVEA to pay for design and engineering of an LNG project that would serve the utility’s power plant and the refinery, and a separate $3 million appropriation to an undesignated entity, possibly the Fairbanks North Star Borough, to help fund a residential and commercial natural gas distribution system in the Interior community.
Senate Bill 23 contains provisions for tax credits for the LNG project, allowing credits for $15 million or 50 percent of the cost of an LNG storage facility. The storage must be for at least 25,000 gallons of LNG, a level set low enough so that small communities could build facilities for LNG, not just Fairbanks.
GVEA and Flint Hills now burn oil, which is very expensive, to generate power for the cooperative and to operate the refinery. The two have a joint study under way of a project that would build an LNG plant at Prudhoe Bay and truck LNG to Fairbanks on the Dalton Highway.
Once established, the project could be expanded to serve residential and commercial customers in Fairbanks. There is now a small gas utility, Fairbanks Natural Gas, serving parts of Fairbanks with gas delivered as LNG from Southcentral Alaska.
Another energy-related bill that passed was House Bill 250, extending the state’s renewable energy grant program for 10 years, until 2024. The current five-year program winds down in fiscal year 2013.
Lawmakers also appropriated $25 million for new renewable energy projects in the fiscal 2013 budget, the last year of the current five-year program. So far the state has spent about $176.6 million to fund 210 projects, mostly small wind, biomass, small-scale hydro, heat recovery and geothermal projects.
Most of the projects are still in development or in construction. The Alaska Energy Authority estimates that 44 renewable energy projects will be completed by the end of 2013, cutting about 10 million gallons of diesel use annually. Most of the projects serve small rural communities.
Other bills pass
Another bill that passed important to health care providers was House Bill 78, extending incentives to help recruit health care professionals in certain critical fields, including primary care physicians to the state.
The bill provides for assistance in repayment of medical school loans and for grants to experienced professionals who agree to work in underserved communities, such as rural villages.
A number of other bills of interest to business groups were enacted. One was HB 361, streamlining procedures for land and mineral disposals by the Department of Natural Resources. Legislators took out two parts of the bill that the DNR had pushed for: an exemption for small miners on state minerals royalty payments, and a change in the way temporary water-use authorizations are made.
The bill generally gives the DNR more flexibility to negotiate leases of land, in the renewals of minerals and land leases, and in procedures for timber and materials sales, such as for rock and gravel.
Another bill that passed related to sand and gravel was HB 298, which exempted sand and gravel operators from paying the state mining license tax. The mining license tax is primarily written for larger mine operators but now applies to operators of sand and gravel pits, as well.
The accounting costs related to the tax filings are burdensome for small companies and the required auditing imposes more costs on the Department of Revenue than the sand and gravel tax revenue amounts to, as well as additional burdens on the taxpayers.
Lawmakers also gave the Alaska Railroad Corp. authority to negotiate 95-year leases for its lands. This is important in attracting companies interested in long-term investment and development on railroad-owned land, particularly in Anchorage’s downtown Ship Creek area.
Capital, operating budgets
The state capital and operating budgets passed on the final day of the session, which is customary. There were few last-minute surprises in either bill.
The House added a set of its priority projects to additions the Senate had made earlier to SB 160, both on top of the governor’s capital requests that were in the bill the originally introduced. Parnell said he had left “room” in the bill for legislators to add projects but said he wanted the overall cost of the bill to be similar to that for the current year, about $2.9 billion, including federal funds.
If the total cost of the bill as passed by the Legislature exceeds that, Parnell may veto items to bring the price down.
In the operating budget, House Bill 284, the only significant difference between the House and Senate versions was money for tourism promotion. In the end the budget conference committee opted for the higher amount as proposed by the House, $16 million for tourism marketing.
Parnell also supports that amount for tourism promotion.
The capital budget contains a wide range of new construction around the state, but two significant projects are two major new engineering buildings at the University of Alaska campuses in Anchorage and Fairbanks.
Also in the capital budget is $25 million for Alaska Aerospace Corp. as the state’s contribution toward a project expanding the Kodiak Launch Facility owned and operated by the state space corporation.
Contingent on the state funds, Lockheed Martin Corp. is raising about $100 million in financing for the project. The company wants to use Kodiak for launches of satellites with its Athena III rocket. At present the launch facility is too small to handle the Athena rocket.
Construction is due to begin this summer on the expanded launch project.
Tim Bradner can be reached at