Oil tax cut could impact state credit rating

A legislative agency says the state’s credit status will be at risk if the oil tax reductions proposed by the governor become law.

One of the most controversial issues expected during next year’s legislature is a bill introduced by Gov. Sean Parnell that would reduce oil taxes from the current levels by as much a $2-billion a year, depending on oil market prices.

The non-partisan Legislative Research Service reported Wednesday that the substantial decrease in revenue from the tax cut could be seen as a negative factor by credit agencies.

Anchorage Democrat Bill Wielechowski, chairman of the Senate State Affairs Committee, says the governor’s numbers show the state would be losing billions of dollars under his tax proposal.

“The governor’s numbers show that within the next decade the state will be broke. According to this non-partisan legislative research report – the research they’ve done – it is very likely to put downward pressure on our credit rating. The loss of our credit rating will have a severe impact all across Alaska,” Wielechowski says.

As an example, Wielechowski says that by lowering the credit rating by one level – from AAA to AA+ – the price for the Susitna hydroelectric project alone would increase by more than $300 million, due to higher interest on bonds for the project. He says Alaska needs the revenue to build infrastructure projects and protect jobs.

“Two billion dollars into the Alaska economy every year creates thousands and thousands of jobs across the state,” Wielechowski says. “If you take that money out of the capital budget, which is going to have to happen if you pass the governor’s bill, you’re talking about losing probably thousands of jobs all across Alaska.”

Economist Gregg Erickson is Editor at Large for the Alaska Budget Report, which reported in February on the connection between the governor’s tax cut and the state’s credit standing. He is not willing to project the effects of credit ratings on job growth.

But Erickson says the Parnell administration recognized the reason for high Alaska credit ratings was the savings and income from the current oil tax regime. In the Budget Report’s story, however, the administration denied any possible negative effects of a lower income.

“But, of course, their denial, which they issued in an e-mail to me, was totally devoid of any backup at all. They just said it,” Erickson says. “It’s been remarkable how little analysis was done to support the proposed policy. And it’s no surprise, given the lack of analysis, that they haven’t made much progress with it.”

The Parnell administration did not reply to requests for a response to the Legislative Research report, or to Wielechowski’s comments.