Path to End Oil & Gas Cash Payments Offered
House Majority Says Flaws in Alaska’s Oil Tax Regime are Bigger Than Paying Cash for Tax Credits
June 29, 2017
House Bill 111 is a priority of the Alaska House Majority Coalition as part of a series of bills that make up a comprehensive fiscal plan. The House version of HB 111 would end the practice of paying oil companies cash for tax credits but also included provisions limiting the nearly unlimited liability to the state under the current oil tax credit system.
Both versions of HB 111 end the practice of subsidizing the oil industry on the North Slope with unaffordable tax credits, which is expected to save the State of Alaska an estimated $1.5 billion over the next 10 years. However, according to the Alaska House Majority Coalition, the Senate version of the bill would result in the loss of an estimated $1.45 billion by replacing the cash for credit system with a higher percentage of “carry forward” deductions that oil companies could subtract from production and other taxes they pay to the State of Alaska.
"We believe it is urgent to pass legislation ending these cash payments," said Senate President Pete Kelly (R-Fairbanks). "The state will bleed at least one million dollars per day between now and the end of the year – that could pay for seven troopers for an entire year – unless we act now."
With little more than two weeks remaining in the second special session called by Gov. Bill Walker, Senators are urging their colleagues in the Alaska House to come to the table and end a program both sides agree the state can no longer afford.
"Under this proposal, the state will stop offering cash payments for credits beginning July 1, 2017," said Sen. Cathy Giessel (R-Anchorage), chair of the Senate Resources Committee. "We must stop this cash bleed. It will save us at least $200 million between now and Dec. 31 – possibly more."
The Alaska Senate passed a bill to end cash payments to oil and gas companies on May 15, but the House failed to concur. In an effort to strike compromise, the Senate adopted several changes, including a provision to enact "100 percent ring-fencing."
The provision would mean that 100 percent of losses incurred on a lease stay with that lease until it enters production. Then, the losses could be applied against the taxpayer's overall segment (North Slope or Cook Inlet). As a result, the state will, essentially, require production before allowing loss deductions.
"The Senate is prepared with a proposal to move forward on, reach compromise, and end cash payments, today," said Sen. Giessel. "We are calling on the House to join us and take action. We can and must do our job, now."
“We continue to see a kick the can approach from our colleagues in the Senate Majority on this and other fiscal plan measures. We have said from day one that Alaska’s flawed oil tax system needs to be fixed to give industry the stability they need to make investments going forward,” said House Resources Committee Co-chair Rep. Geran Tarr (D-Anchorage), Chair of the Conference Committee tasked with working out the differences between the House and Senate versions of HB 111.
Tarr said, “This new Senate Majority proposal is a half-measure that continues a flawed system that leaves Alaska on the hook covering potentially billions in industry losses for years to come. I look forward to working with Senator Giessel on this issue, but the proposal they unveiled today does not address the underlying problem of costs to the state.”
“I can’t support the Senate Majority’s new proposal because they essentially are just changing the name of the liability but the state will still pay the same to the oil companies. We may not pay cash but will still lose revenue for our commonly held oil resources. Changing the name but paying the same is not a solution,” said House Resources Committee Co-chair Rep. Andy Josephson (D-Anchorage), who sits on the HB 111 Conference Committee.
Josephson said, “The members of my Coalition tried to fix many of the well understood flaws in the oil tax system last year, but those solutions were rejected by the Senate Majority. We are trying to fix these flaws again this year but the Senate Majority continues to refuse to act. Our Coalition has had a sense of urgency to fix this flawed system since the first day of the session. The first time I have seen a sense of urgency on this issue from the Senate Majority is this morning.”
Department of Revenue analysis of the two versions of HB 111 shows that by Fiscal Year 2027 the tax value of the carried forward losses by oil companies on the North Slope is estimated at just over $600 million under the House version of the bill but jumps up to over $1.45 billion under the Senate version. That same analysis shows that the House version of HB 111 brings in additional revenue to the State of Alaska, but under the Senate version of the bill production tax revenue will decline.
Alaska House Republicans say they are glad to see a proposal on oil cash payments (HB111), brought forward by the Senate Majority, which they can get behind. The proposal just laid out comes at a crucial time, as highlighted by the Senate, because the state would be losing $1 million a day if cash payments to oil companies are not addressed.
?The key component of their plan, ending cash payments to oil companies, is bold and would take effect almost immediately. During this fiscal environment, House Republicans believe there is a need to recognize the state cannot afford these cash payments.
Now it's up the Democrat led House Majority to come to the table on this issue. Our members are ready to work and urge quick action before the end of this special session.
Governor Bill Walker included House Bill 111 on the agenda for the Second Special Session of the 30th Alaska State Legislature, which is scheduled to end on July 17.
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Reporting and Editing by Mary Kauffman, SitNews
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