Democrats make oil tax pitch for increasing production

JUNEAU — Minority Democrats in the Alaska House and Senate on Monday introduced their own plan for increasing oil production in the state, calling it their alternative to Gov. Sean Parnell’s oil tax “giveaway.”
Both the governor’s and Democrats’ plans are aimed at new production but take decidedly different approaches.
The Democrats’ proposal — HB111 in the House, SB50 in the Senate — would provide tax breaks for new oil produced from new fields or legacy fields. That includes a break for future production in legacy fields over 2012 levels, a nod to efforts to reduce the trend of declining production in those fields, which have been the mainstay of Alaska’s oil industry.
The plan would cap the progressive surcharge that companies say eats too deeply into profits, discouraging new investment when oil prices hit about $180 a barrel. It also would require development plans from initial leases on state lands, set a tax floor to protect the state if oil prices plummet and make state loans available for production facilities at new fields.
Senate Minority Leader Johnny Ellis, D-Anchorage, said the proposal stands in “sharp contrast” to Parnell’s, which would scrap the progressive surcharge credited with helping to fatten the state’s coffers in recent years and revamp the system of tax credits, focusing those incentives on companies that produce new oil on the North Slope.
Parnell’s proposal keeps the 25 percent base tax rate, as does the Democrats’ plan, and includes a tax break for oil from new fields, including new areas of the legacy fields Prudhoe Bay and Kuparuk. It keeps in place credits for exploration but eliminates credits for qualified capital expenditures on the North Slope. It aims other credits toward production of new oil.
Ellis said with the Democratic alternative, “we as Democratic legislators believe, first and foremost as Alaskans, that we are the group standing up — truly standing up — for Alaska.”
The Democratic plan is built around three tenets, Ellis said: that Alaska must get something in return for what it gives and what it gains must be commensurate with what it gives, any proposed tax break cannot “break the bank,” and the proposal must “truly” reward new production.
“Giving away billions without any assurance of new production is a fool’s errand,” he said at a news conference, flanked by House and Senate Democrats.
For Democrats, the biggest rub with Parnell’s plan is the elimination of progressivity, a concern that also has been raised by some Republicans. Eliminating the surcharge would mean revenue would drop by $800 million next fiscal year and by $1.8 billion by 2017, but the change in tax credits would temper the overall fiscal impact, according to an analysis of the governor’s bill, based on the fall revenue forecast.
Minority members say that amounts to a giveaway, with no guarantee the companies will invest more in Alaska.
Sen. Hollis French, D-Anchorage, said he thinks some of the Democrats’ ideas will get a closer look as lawmakers work on an oil tax bill.
Parnell spokeswoman Sharon Leighow said the administration is pleased the Democrats “agree there is a problem with production under the current system.”
Democratic leaders have said the current system is working, benefiting both the state and companies, but that they are open to tweaks to improve it.
After a cursory look at their bill Monday, Leighow said the governor was concerned the proposal “simply nibbles at the edges of the problem, while leaving Alaska’s treasury at risk and accepting the status quo production decline.” She said the administration would review the legislation more closely and measure it against its four guiding principles for tax changes.
Parnell has said he would be open to legislators’ ideas, but his decision-making would be guided by whether it is fair to Alaskans, encourages new production, is simple and restores balance to the system and is durable.