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Dems unveil new oil tax plan

Posted: March 5, 2014 - 12:12pm

Minority Democrats in the Legislature unveiled their vision of an oil tax system should voters this summer roll back the tax structure lawmakers approved last year.

It includes the idea of the state getting directly into the oil business by allowing the Alaska Industrial Development and Export Authority, the state development finance corporation, to finance oilfield development with small independent companies and own an equity share in the field, not just a tax and royalty interest.

“There are (state) entities around the world that own a share of their oil industry (through state oil companies) and I have confidence that we have the ability to do this,” said Sen. Bill Wielechowski, D-Anchorage.

The state is already proposing to own a share of a proposed large gas project through the state-owned Alaska Gasline Development Corp., Wielechowski said, and AIDEA itself has invested in oil drilling rigs.

“I like the idea of AIDEA providing venture capital to oil and gas projects. There are independent companies coming to Alaska who lack capital,” Wielechowski said.

“The governor’s giveaway is a pathway to poverty,” Rep. Les Gara, D-Anchorage, said in the press conference. “He throws two billion dollars out of an airplane and hopes it lands in the piggy bank. Our bill makes sure Alaska’s oil money goes into Alaska’s piggy bank, and that for every dollar we give back to the industry, we get more oil production in return.”

Gara did not explain in the Feb. 24 press conference, however, how the Democrats’ bill ensures that tax reductions are reinvested in the state, or how the proposal was better than a targeted per-barrel tax credit for new oil allowed in Senate Bill 21, the tax change that was passed by the Legislature last year.

The per-barrel credit in SB21 replaced a general capital investment tax credit that was not targeted to new production. In the press conference, French acknowledged that, “targeted tax credits work better.”

The Democrats’ proposal is similar to a plan they put forth last year as an alternative to the plan pushed by Gov. Sean Parnell that ultimately passed. Democrats say their plan also is aimed at ensuring Alaska gets its “fair share” for its oil.

Senate Minority Leader Hollis French, D-Anchorage, called the Democrats’ plan a fair alternative.

“Or, as we say, there’s a better way than the giveaway,” he said.

Had SB21, the tax-change bill passed by the Legislature in 2013, been in effect from 2007 through 2013 instead of the former tax system, Alaska’s Clear and Equitable Share, or ACES, the state treasury would be poorer by $8.5 billion, French said.

The Democrats’ proposal would, among other things, provide time-limited tax breaks for oil from newer fields and new developments in legacy, or older, fields. It would provide tax breaks for future production of heavy oil and for future production in legacy fields greater than 2012 levels.

It also would require minimum work commitments as part of lease terms and allow AIDEA to issue loans to build or improve North Slope oil processing facilities and other infrastructure.

There is another bill pending in the Legislature, House Bill 230 by Rep. Paul Seaton, R-Homer, that would enable AIDEA to invest in oil processing facilities.

Sen. Bert Stedman, R-Sitka, also has proposed legislation, in SB192, that would reduce some of the tax benefits allowed to companies under the new tax law enacted by SB21. French said he supports Stedman’s bill. The Democrats’ bill goes further than Stedman in proposing changes, however.

Voters in August will decide whether to keep or repeal the oil tax structure passed by lawmakers in 2013. If the referendum is successful, the system will revert to what was in place before the change, ACES, French said.

The Democrats’ proposal builds off ACES. That system featured a 25 percent base tax rate and a progressive surcharge triggered when a company’s production tax value hit $30 a barrel, which industry representatives said ate too deeply into profits, discouraging new investment. The surcharge also was credited with helping fatten the state’s coffers when prices climbed in recent years.

The Democrats’ proposal — Senate Bill 202 and House Bill 338, in their respective chambers — would reinstate a progressivity formula that was in the ACES tax but reduce it at higher oil prices and cap it at about $192.50 a barrel under current estimates, according to a fact sheet.

“We do bend the curve on progressivity at the high price levels,” French said.

The law passed last year took an entirely different approach to oil taxes. It has a 35 percent base tax rate compared with 25 percent under ACES and per-barrel tax credits for what would be considered new oil and production. For legacy fields, there is a sliding-scale per-barrel credit that is higher at lower prices and decreases to zero at higher prices.

Willis Lyford is a spokesman for the Vote No on 1 campaign, which opposes the referendum.

He said in a statement that the Democrats’ measure should not be viewed as a serious policy proposal because they are advocating something different than the old system that they have urged voters to support.

Tim Bradner is a reporter for the Alaska Journal of Commerce.

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