Divisions deepen as lawmakers tinker with Alaska’s oil tax credits

North Slope Drill Rigs at sunrise

The sun rises on the North Slope between drill rigs, Nov. 6, 2012. (Creative Commons photo by Kevan Dee)

Lawmakers in Juneau are still tinkering with the state’s oil tax credit system.

Ranking members of both the Senate and the House seem to agree that the state needs to break free of a system that will leave it owing nearly $700 million in cash payments to oil companies by the end of the year. But Senate Republicans have completely rewritten the House’s version of a reform bill.

So far this session lawmakers in the majority parties in both the House and the Senate seem to agree that the state oil tax credit system needs a change, but exactly what will change is unclear.

A Democrat-led House bill that kicked off this year’s fight over oil tax credits passed into the Senate last month, and the  Republican-led Senate has crafted a version that looks a lot different.

“I would say the Senate version of the bill is unrecognizable from the House bill, it’s that different,” said Anchorage Democrat Geran Tarr.

Her House resources committee led the charge to push an oil tax credit reform bill through this session. When it passed, primarily along caucus lines in the House, it was designed to cut oil tax credits, a key part of her caucus’s plan to balance the state’s budget.

The House’s bill cut credits that went to legacy fields like Prudhoe Bay. It doesn’t allow companies to dip below the state’s 4 percent minimum tax. And, it axed a credit that companies could trade to the state for millions in cash payments.  

It would have raised North Slope oil taxes by up to $100 million per year in the next few years, according to the Department of Revenue.

Industry is calling it a significant tax increase. And that bill landed with a thud in a Republican-led Senate that has agreed that some reform needs to happen but seems largely uninterested in substantively hiking taxes on the industry.  

There lawmakers have crafted a bill that narrows the focus of the bill. Cathy Giessel’s Senate resources committee wrote the Senate bill.

“In fact, you could argue that they’re the same issues that the House also has consensus with the Senate on…and the governor. That primary issue is the cashable credits simply have to be repealed,” Giessel said. ” We can’t afford them.”

Under the cash credit program the state owes companies about $700 million in unpaid credits now and that could balloon up to $1 billion next year.

Giessel said the Senate version of the bill also hardens the state’s minimum tax, but it allows companies producing new oil to take credits that would dip them below that minimum.

The Senate version of the bill will have to go back to the House for a concurrence vote and it will likely run into opposition there. Tarr said, in it’s current form, it’s too generous. 

“This is not a version of the bill that will be supported by a majority in the House,” she said.

Both the Senate and House versions of the bill have drawn criticism from oil and gas producers and an industry trade association, who have repeatedly asked lawmakers not to raise taxes during a low oil price environment. They’ve also warned of further layoffs and delays in developing projects.

In public testimony,  some Alaskans have echoed those arguments.

For some, like Alex Vaughan, the impact of low oil prices and budget cuts have already hit and  they’ve hit hard. He told a Senate Finance committee that he is leaving the state. 

“A year ago, I was working for Caelus Energy and they shut down the rig, which subsequently meant that I lost the job,” Vaughan said. “And likely within the next month, I’ll be headed to Texas, which is horrible.”

Vaughan said his sister has been laid off from work in the industry as well. He was among the majority of people who told that finance committee they want to see a stable tax structure that would encourage growth in the oil and gas industry.

The bill has a long way to go. The Senate finance committee has hearings scheduled to take it up every day for the rest of the week. If its version of the bill passes through the Senate, it will go back to the House. If it doesn’t pass there, the two bodies will have to form a committee to negotiate on it together.

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