The Parnell administration is poised to introduce oil tax reform legislation. Previous attempts have failed to gain enough support to pass the state legislature. The new bill was previewed for the Fairbanks Chamber of Commerce Tuesday, and it incorporates some ideas raised in recent year’s discussions.
Alaska’s current oil tax system allows companies to buy down their liability with infrastructure investment, but it also ups taxes at high oil prices, something the governor argues is stalling new production. Deputy Revenue Commissioner Bruce Tangeman says a bill planned for release next week by the governor doesn’t throw out the current ACES system but tweaks it to up oil output.
“How do we tie those tax credits to production? And that’s really what the bill is going to be focused on, is bringing down the progressivity to realign that. But also realigning the tax credits so they’re not harmful to the state up front, realizing that we have to give something back on the higher end in the out years,” Tangeman says.
Tangeman says the bill has not been finalized, so he cannot provide any specifics. He says it taps input from the last couple years oil tax debate as well as from other state’s like North Dakota, that have begun out producing Alaska due to a boom in shale oil production. Shale oil is being investigated on the North Slope, and it’s pointed to by some as the way to stem a long trending production decline, but Tangeman says the drilling intensive development will be tougher in Alaska.
“In North Dakota, you can drive to every square block of the state, back a truck up, and start drilling. The regions that they’re looking at on the North Slope, there’s no roads at all. So, if you look at North Dakota and Texas, it’s like a checkerboard almost, and you can see drill rigs off on the horizon,” Tangeman says. “So, the first challenge is, how are we physically going to get this checkerboard of drill rigs out into the tundra?”
Tangeman says shale oil development may not happen with Alaska’s production tax and credit system, but that doesn’t mean he’s down on the potential for new oil production. He says the state has massive undeveloped and undiscovered oil sources, many conventional, and that warrants a tax model that allows high crude prices and big industry profits to drive production at the sacrifice of a shorter term revenue bonanza.
Democrats in the legislature’s minority haven’t offered a counter proposal, but they have introduced bills that handle some of their concerns about oil tax reform in a piecemeal fashion.
One item would require oil companies to provide detailed information on how much they’re spending on their leases. Another bill would require the state to look at how much business a tax credit is actually bringing the state.
Reviews of tax credits would occur after they’ve been in place for seven years. According to a report done by the New York Times in December, Alaska spends over $700 million on tax incentive programs each year.
Sen. Bill Wielechowski is the bill’s sponsor.
“We have no idea whether they’re working, we have no idea what they’re going for. The administration has testified that we just don’t know whether they’re working or not,” Wielechowski says.
That bill would apply not just to oil tax credits, but subsidies to the mining, construction, and film industries.
Wielechowski also still thinks there may be some skepticism toward the governor’s oil tax reform program in the Senate, even with a new solidly Republican majority.
“I know that everyone’s saying there’s a drastic change in the structure, and there is certainly is in the structure of the majority, but what people need to remember is you still need 11 votes. And when you look at the votes that are out there, I’m not sure there’s 11 votes to make a radical change like the governor is proposing on ACES. I’m just not sure there’s 11 votes there to do that,” Wielechowski says.
A 16-person coalition of Democrats and Republicans in the Senate blocked the governor’s oil tax proposal last year. That coalition was effectively broken up after six members of that coalition lost their seats last election.