JUNEAU, Alaska (AP) — With days left in the legislative session, the House Finance Committee advanced its version of the oil tax overhaul late Thursday, amid concerns from some members that there were too many unknowns.
The committee, which started its day unveiling a rewrite of SB21, finished it by putting its finishing touches on the bill late Thursday night.
The proposal includes a 35 percent base tax rate and $5-per-barrel credit for oil produced. The credit would apply to what would be considered new oil and production that also would qualify for a 20 percent tax break, known as a gross revenue exclusion. Certain units made up exclusively of leases with higher royalty rates — and those not currently getting royalty relief from the state — could get a 30 percent tax break.
Administration officials expect the vast majority of Alaska's legacy fields under the plan would be subject to a 35 percent base rate and a per-barrel allowance on a sliding scale, higher at lower prices, non-existent at higher prices, around $160.
Successful amendments to the bill included an extension of credits in what is known as Middle Earth, an area outside the North Slope and Cook Inlet. Failed amendments included a proposal — which garnered the support of three majority members and both minority members — that would have limited the gross revenue exclusion to 7 years after the start of production. Deputy Natural Resources Commissioner Joe Balash said setting a time limit could result in companies shutting-in wells prematurely to avoid having their taxes go up or the state otherwise not seeing maximum recovery.
Rep. Les Gara, D-Anchorage, said the state "can't build an economy" on the kind of effective tax rates the bill is proposing.
A fiscal analysis of the bill, prior to amendments, indicated it could cost the state up to about $4.7 billion through 2019. The fiscal impact — a mix of impact on state revenues and the operating budget — in the bill that left the House Resources Committee was up to $5.7 billion. The analysis is based on the latest forecast for oil prices and production, which calls for a continued net decline in production and oil prices between $109 and $118 a barrel through that period. The analyses have been billed as worst-case scenarios throughout the session, given the goal behind cutting taxes is to increase production, and the numbers, still rough.
Critics of the bill contend the fiscal impact could be far higher than the analyses suggest given the relatively narrow band of prices on which the analyses have based. The committee didn't hear from budget officials on what impact the bill might have on the state's budget. Rep. Bryce Edgmon, D-Dillingham, said he was uncomfortable with that and wanted that on the record.
Edgmon said he walks away from the committee table with a bit of nervousness, wondering if the bill could have been vetted more. He said he expects the votes are there to pass the bill and is hopeful it's the right way to go. But he said the nervousness won't go away until he sees it actually works.
The committee finished its work on the bill with the Legislature scheduled to adjourn Sunday. The Senate will have to agree to any changes made by the House or the measure will go to a conference committee.
A consultant to the administration said the bill would make Alaska "far more" competitive for investment dollars. For oil not subject to the gross revenue exclusion, the effective tax rate on the net value would be 25 percent at $100 oil and 30 percent at $120 oil, according to an analysis from the consultant, Barry Pulliam. For higher royalty oil that gets the 30 percent gross revenue exclusion, the effective tax rate would be about 11 percent at $100 oil and 14 percent at $120 oil, according to his analysis.
Oil taxes have been the dominant issue of this session, with supporters of a tax change — including Gov. Sean Parnell — arguing the state can't just stand by as production continues to decline. They say the state would be in the same predicament it is now, facing a budget deficit and the prospect of dipping into savings to cover costs, with or without a tax break to oil companies.
Rep. Mia Costello, R-Anchorage, said people can argue about what the right tax rates are. But she said it's clear the current tax structure isn't working and that it would be irresponsible to ignore the continuing trend of declining production.
Critics say they want more production, too, but insist this isn't the way to get it. They fear the state will give up billions of dollars in revenue with no guarantee from the companies about new levels of production or spending. Rep. Scott Kawasaki, D-Fairbanks, said he could not in good conscience support the bill going forward.
Gara is among those who have taken issue with the production decline rate used in some of the presentations. He points to comments made in a ConocoPhillips analyst meeting, which discussed investments in technology that could curb the decline rate in Alaska to about 3 percent a year by 2017. In 2017, the Department of Revenue forecasts a net rate of decline of 4.6 percent and a net rate of decline of 7 percent in 2018.
Deputy Revenue Commissioner Bruce Tangeman said in an interview that the department talks to all the companies for its forecasts and relies on them to say what their plans are. But he said plans often change, and the department needs to look not at the possible oil but the probable oil.
The proposal scraps a provision added by the House Resources Committee that critics said would have the state rely on oil company statements rather than receipts in determining whether expenses qualify for deductions. It was a provision that also had caused concern within Alaska's Department of Revenue.
The measure reinserts a board to evaluate such things as the state's competitiveness, which was stripped in House Resources.
Follow Becky Bohrer on Twitter at http://twitter.com/beckybohrerap.