North Slope

Gov. Bill Walker voiced concerns about changes in the types of oil and gas companies that would benefit from state tax credits under a bill the House Rules Committee unveiled Tuesday.

The bill also received a cool reception from industry, but it may be the best chance to resolve one of the thorniest issues facing the state.

Walker said in a Capitol press availability Wednesday that he likes that there’s been movement in the Legislature on oil and gas taxes. But he’s concerned about some of the bill’s contents.

“We don’t want to be a situation where we’re pitting … producers against the independents, those that are coming in on the exploration side,” Walker said.

The bill would phase out a type of tax credit based on net operating losses. In addition, the bill scales back oil and gas tax credits at a slower pace than Walker has proposed.

“The longer we put this off, the longer we stay in this period of deficit spending,” Walker said.

While Walker would like to see the tax credits scaled back quicker, that doesn’t mean the bill satisfies the industry’s concerns. Alaska Oil and Gas Association President and CEO Kara Moriarty said scaling back tax credits will discourage oil and gas companies from investing in the state.

“If the State of Alaska changes the policy, we will respond accordingly,” she said.

Moriarty has said that an earlier version of the bill would particularly harm investment in Cook Inlet. The new version also would eliminate tax credits in Cook Inlet, but at a slower pace than the Senate bill, which Moriarty described as a “nuclear bomb.”

“The House Rules version is still a bomb,” Moriarty said, adding: “It may not be nuclear.”

Oil and gas industry expert Larry Persily said the criticism coming from both Walker and the industry reflects the issue’s contentiousness. Persily is an adviser to Kenai Peninsula Borough.

“It is clearly an attempt to try to find enough votes, because there’s not enough votes for any plan at the moment. And clearly, not enough votes for this one, either,” Persily said.

The governor’s bill would save the state up to $720 million more over the next two years than the House Rules version of House Bill 247. Walker says that if the oil and gas tax bill doesn’t include these savings, the state would have to come up with the savings somewhere else. Persily said the differences over the oil and gas tax issue are predictable.

“Getting into oil taxes, whether it’s credits or tax rates or minimums or deductions, you know, that is the big battle in Alaska,” Persily said.

Walker’s fiscal plan and the current bills either passed or being considered by the Legislature are nearly a billion dollars apart this year. Considering the governor and the Legislature’s majorities remain far apart on an income tax and other tax increases, it doesn’t look like the session will end any time soon.

 

 

The House Rules Committee Tuesday unveiled the latest attempt to rewrite tax credits for the oil and gas industry. The bill would save the state more money over the next three years than a previous version of House Bill 247. But the savings are much less than what Governor Bill Walker proposed.

However, the savings under the new version would grow beginning in 2020.

Anchorage Republican Rep. Lance Pruitt worked with others on the bill. He said the House could pass the legislation – something that it’s been unable to do with previous versions.

“I think the goal was to see if there something we could pass over to the Senate,” Pruitt said. “I mean, obviously, this was kind of at a deadlock, where it was.”

The bill would save the state up to $80 million in the fiscal year that starts in July 2017. Those savings would grow to be as much as $390 million in 2022.

Pruitt said the bill balances the interests of the state in reducing credits, with encouraging the industry to continue to invest. It also phases out credits more slowly than Walker proposes.

But Anchorage Democratic Representative Andy Josephson said he’s concerned with the bill. Josephson participated in legislative talks on the new version.

“We’re going to continue to look at spending close to a billion dollars a year on our total credit portfolio,” Josephson said. “I think that’s unsustainable and unaffordable.”

Even if enough members of the Republican-led House majority vote for the bill so it passes, it still faces a major hurdle. That’s because members of the Democratic-led minority caucus can block one of the principal ways that the state can pay for the budget – drawing from the Constitutional Budget Reserve. Democrats have said they won’t vote to spend money from the reserve if the state continues to pay out large oil and gas tax credits.

The tax credit issue has held up the Legislature from ending its session. An agreement could lead to several other major bills passing, including changes to the Permanent Fund and cuts to Permanent Fund dividends.

The Legislature didn’t finish its work in time for the scheduled end of the session Sunday.

But it became clear that the largest stumbling block is how much and how quickly to scale back tax credits for the oil and gas industry.

House Speaker Nikiski Republican Mike Chenault said it’s a challenge to write a bill that the Republican-led House and Senate majorities can agree on – and that will gain support from the Democratic-led House minority.

“We’re having a hard time getting past the oil tax credit,” Chenault said. “We think that has to be the first piece that passes before we can get buy-in from the minority, or even our members going into closing out the budget and, also, all of the revenue measures.”

Minority caucus votes are needed if the Legislature draws on the state’s Constitutional Budget Reserve to close the budget deficit.

Lawmakers also didn’t resolve other major bills they debated this session.

This includes reconciling the House and Senate versions of the state government’s budget. The House proposed cutting the budget by $283 million, while the Senate would cut it by $345 million. The biggest difference between the two is that the Senate included $100 million in cuts that weren’t allocated to specific areas.

In addition, it’s not clear whether the Legislature will adopt new revenue measures.

Potential revenue sources include drawing money from the Permanent Fund, which depending on the plan adopted, could cause dividend payments to drop to $1,000. And another measure would tax mining, fisheries and gasoline.

Anchorage Democratic Rep. Chris Tuck said an oil and gas tax credit compromise could be based on a provision of a Senate bill that reduces oil tax credits for Cook Inlet production – as well as amendments proposed to a House bill that gained bipartisan support.

“What we don’t want to see happening is we don’t want to see Alaskans pulling money out of their pockets to give to the oil industry,” Tuck said. “We’re paying out more to the oil industry than we’re taking in production taxes. That’s just simply unacceptable.”

For his part, Chenault said the oil and gas tax credit bill is the linchpin. Once it’s resolved, the other pieces will come together. Those may include time limits on any tax increases – so that they will disappear if the economy improves and oil prices rise.

“When you get to the budget, we need to continue to try to reduce the budget where we can to drive the cost of government down where we don’t feel the need or have the need to tax Alaskans or tax Alaskans’ businesses in order to pay for government,” Chenault said. “So we need to keep our thumb on the size of the budget, keep downward pressure on that.”

The budget committees of both houses and the budget conference committee are scheduled to meet Monday.

 

The legislature on Friday narrowly approved former Fairbanks North Star Borough Mayor Luke Hopkins to serve on the board responsible for developing the Alaska gas pipeline.

A joint session of both houses voted 31-27 to confirm Hopkins to the  board. Gov. Bill Walker appointed Hopkins in November, after overhauling the board.

Fairbanks Democratic Rep. David Guttenberg said Hopkins’ experience is what the AGDC board needs. Hopkins is Guttenberg’s brother-in-law.

“Luke’s got a long history of getting things done — or trying to get things done — with the pipeline,” Guttenberg said.

Eagle River Republican Rep. Dan Saddler opposed Hopkins. He questioned whether the AGDC board is following the right direction. He referred to former AGDC President Dan Fauske’s ouster.

“The personnel changes in the staff and the board at AGDC give me cold comfort that the organization’s effort is to achieve the model which I believe is in the best interest of the state,” Saddler said.

The legislature also confirmed Dean Williams as the commissioner of the Department of Corrections. It voted by a wider margin to confirm Williams, 49-9.

His appointment has been controversial. The corrections officers union opposed Williams. Union officials say an administrative review co-written by Williams was unfair to the officers.

But North Pole Republican Sen. John Coghill said Williams is the right man for making changes in the department.

“This is a job that is needed to be done for a lot of years, so I’m going to support him,” Coghill said.

Anchorage Democratic Sen. Bill Wielechowski said Williams’ review didn’t give the public an accurate view of officers’ work.

“This has severely, severely damaged the morale and the public’s impression of our correctional officers,” he said. “And the problem is a number of things in that review were seriously, seriously taken out of context.”

The legislature confirmed dozens of other appointments. The only person rejected was Hope resident Guy Trimmingham to the Board of Game. Opponents said his interest in sightseeing was inappropriate for a board that promotes maximizing wildlife for consumption.

The House spent six hours debating oil and gas tax credits Tuesday night. And they’re not done yet – lawmakers will pick up the bill again Wednesday.

The debate reveals a deep divide among lawmakers over how to respond to low oil prices – and the resulting state budget gap.

The debate on the floor came down to this: Should the state expect oil companies to pay taxes, even when prices are so low they might be losing money? And how quickly can the state scale back its cash support for smaller oil and gas companies?

For six hours, members of the Democratic minority offered amendment after amendment – but the divide wasn’t solely along party lines.

Homer Republican Rep. Paul Seaton broke with most of his caucus to propose more aggressively scaling back tax credits for oil production.

“I think we need to look at what we’re doing and the hole we’re digging in the budget with these tax credits, for not yielding any production, especially when there is basically zero production tax coming back,” Seaton said. “It’s hard to have production tax credits when there’s no production tax to offset it or ever retrieve that money back from.”

Other Republican House members say the bill as it’s currently drafted may go too far in taxing in the oil industry.

Big Lake Republican Mark Neuman says imposing a hard tax floor of 2 percent violates the trust of an industry that the state relies upon for long-term investment.

“We made commitments to industry,” Neuman said. “We should stand by those commitments. Because if we can’t, we’re saying that we can’t be trusted.”

Lawmakers pointed out that the state is scheduled to pay out $775 million in tax credits this year – which is about the same size as proposed cuts to the Permanent Fund dividend.

Juneau Democrat Sam Kito says it’s unfair to ask education and social services to take cuts while oil and gas producers are spared.

“At a time when we’re telling municipalities that we can’t maintain the revenue sharing program because we don’t have enough money, at a time we’re telling seniors we can’t maintain the senior benefits program because we don’t have enough money, we’re saying, ‘But we can’t change things for the oil companies,’” Kito said.

But Republican members note the industry has been laying off workers and has supported the state government for decades. And even if they pay no production taxes, oil companies continue to pay more than a billion dollars to the state, mostly in royalties.

North Pole Republican Tammie Wilson says it’s shortsighted for the state to raise taxes on an industry she described as its “bread and butter” when it’s already losing money.

“Maybe we need to change our attitudes, and be glad that they did invest here, and we are getting oil down the pipeline. Because I’m telling you guys, (if) that line goes down, we’re going to have real problems,” she said.

The bill’s fate remained unclear heading into the second round of debate Wednesday.

 

The Senate Finance Committee is looking to re-route money from the Power Cost Equalization Endowment Fund to replace the Community Revenue Sharing program that the state government started when oil prices were higher.

The concept arose from a concern over Senate Bill 210, which would reduce the amount that municipalities receive in revenue sharing. Without a source of revenue other than the state’s annual budget, this program – which legislators want to rename community assistance – would disappear.

That’s where the second Senate Bill 196 comes in. The bill originally was written to use excess money from the Power Cost Equalization Endowment Fund to offset some of the state budget. But under a new version, this money would instead go to assist communities.

Some legislators wanted to use more — if not all — of the fund this year. Wasilla Republican Sen. Mike Dunleavy asked why this isn’t happening.

“We’re experiencing a $4 billion hole. There’s a billion dollars in this fund,” he said. “Why wouldn’t we use this fund to at least backfill some of the deficit?”

However, under the latest versions of both bills, the $930 million PCE fund would continue to be used primarily for a program to help rural electric ratepayers. In years when the fund earns more than the roughly $40 million that’s needed for that program, up to $30 million would go to community assistance and up to $25 million would go to rural, bulk fuel and renewable energy programs.

Bethel Democratic Sen. Lyman Hoffman supports both bills. He doesn’t want to spend the PCE money all at once on the budget.

Hoffman said the fund could provide a lasting source for both power cost equalization and community assistance – as long as the main PCE fund remains intact.

That will help communities that have come to rely on revenue sharing while taking pressure off the state budget.

“If the dollars were taken, there would be a one-time use, and people in rural Alaska would end up paying substantially more in electric costs,”

But not all municipalities are happy about the change. Anchorage would receive $5.7 million in the coming year, which is $9 million less than the revenue sharing in the past. In future years, Anchorage would receive no more than $2.3 million.

Anchorage Mayor Ethan Berkowitz’s chief of staff Susanne Fleek-Green says it will cost residents more in taxes or reduced services. The municipal government had budgeted for a $5 million reduction, and must make up the gap.

“To counteract the effects of this legislation, the municipality will have to add to the additional burden being felt by property owners in the municipality,” she said. “This bill effectively is shifting an additional $4 million to property taxpayers in Anchorage, Eagle River, Chugiak, Girdwood and all other parts of the municipality.”

Under the latest changes, municipalities would receive $30 million in community assistance, compared with $50 million in Gov. Bill Walker’s budget.

Rural communities are largely protected from community assistance cuts. An extreme example is Aleutians East Borough, which receives nearly $10,000 for every one of the 39 residents who lives in unincorporated areas.

Every community with fewer than 500 residents would receive at least $400 per person in state assistance.

Alaska Municipal League Executive Director Kathie Wasserman says she’s can support using the Power Cost Equalization Fund for community assistance. But the reduced amount of aid – combined with a formula that benefits some place more than others – puts her in a difficult position.

“I’ve just had trouble with the formula that’s presently in place,” she said. “No matter which direction the Alaska Municipal League goes, whether to support the formula or not support, I throw a number of my municipalities under the bus, so that’s why we’re just not taking a position on the formula at this point.”

Both houses have until Sunday to act on the bills.

Correction: A previous version of this story misstated the amount Anchorage would receive under the legislation.