Committee begins hearings on oil tax plan

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JUNEAU, Alaska (AP) — A special Senate committee is beginning work on Gov. Sean Parnell's plan to cut oil production taxes.

Sen. Peter Micciche, who co-chairs the Senate committee on oil flowing through the trans-Alaska pipeline, 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.

The administration was scheduled to give an overview of Parnell's plan Tuesday.

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.

Democrats say the plan could cost the state billions of dollars a year when oil prices are high, 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 Monday, 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.

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.

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 was 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.

In addition to industry complaints about the surcharge, which they say eat too deeply into profits when oil prices are high, lawmakers have questioned what the state is getting in return for tax credits, which could top more than $1 billion next fiscal year.

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