Alaska pays out $1.3 billion in oil tax credits & receives only $89 million in production taxes
Giessel says this is growing the pie for Alaskans
By MARY KAUFFMAN
December 18, 2016
According to Senator Bill Wielechowski (D-Anchorage) glaringly absent from the budget proposal was any mention of reforming the state’s flawed system of oil tax credits under which Alaska receives less from the industry than we owe. According to the recently released Alaska Revenue Sources Book, next year Alaska will receive $89.7 million in oil production taxes but will owe the industry $1.374 billion in oil tax credits said Wielechowski.
“We are slated to pay out over $1.3 billion in oil tax credits while receiving only $89 million in production taxes. In fact we are projected to pay out more money in oil tax credits than we get in oil production taxes not just this year, but every year through at least the year 2026, and that’s as far out as they project,” said Senator Wielechowski who sits on the Resources Committee. “This is simply not sustainable, and any responsible fiscal plan for the state must acknowledge that this needs to be fixed.”
“The obvious lack of any mention of subsidies to the oil industry by the administration is the elephant in the room,” said caucus leader Sen. Berta Gardner (D-Anchorage). “This is a huge amount of money, without any accountability or information to allow us to make informed decisions. We appreciate the Governor’s sentiments, and agree that the time to act is now, but it’s impossible to get behind any fiscal plan when it doesn’t even include step one.”
The Alaska Constitution mandates developing resources for the maximum benefit of the people. For more than 30 years, Alaska got about 30% of the gross value of our oil wealth. With our current tax structure Alaska is receiving only 8% of our oil wealth.
“If we were receiving our historical average from our oil resources, there is no question that it fills a huge chunk of the hole in our budget,” said Senator Wielechowski. “I think Alaskans would rather readjust our system to what worked in the past than give up vital services, and have money taken out of their pockets to fund government.”
Sen. Cathy Giessel (R-Anchorage) was prompted to clear the air.
"Alaska's oil industry generates more than 70 percent of our total state income, even in this low price environment," Sen. Giessel said. "In talking about our oil tax system, we must keep our eye on the prize – more production. Oil production delivers tax revenue, good jobs and local business opportunities. We have to have production in order to have something to tax and, in order to have production, we need continued investment by the oil industry. And that means we must be competitive."
Sen. Giessel pointed to news out of North Dakota, where oil production is quickly ramping up as prices climb.
"We're in direct competition with states with much lower costs," she said. "They don't have to fly in equipment and personnel in North Dakota. Our tax system compensates, in part, for the higher costs of doing business by providing companies a way to recover their losses through a credit the companies can apply against their profits in good years. It's standard tax policy."
Oil tax credits are part of Alaska's system, but a declining part. After some legislators fought hard to add a whole menu of credits supporting smaller companies and explorers during the mid-2000s, the new tax law, SB 21, phased out North Slope credits. Only the carry-forward loss credit remains on the North Slope. Two offsets embedded within the tax math are called credits in statute, but are parts of the tax calculation that reduce income subject to tax. They are not reimbursable, and are not related to credits that let a taxpayer lower his calculated tax bill.
The Legislature in 2016 further reduced the availability of tax credits in Cook Inlet, and statewide limited the amount of credits that any single company could cash in with the state in a year. Only companies with new developments not yet producing and companies with small production volumes are eligible for cash back for their credits.
"When we hear about the money the state has budgeted to pay for tax credits this year, we're hearing about a statutory required minimum," Sen. Giessel pointed out. "These dollars were promised to the smaller companies to boost their ability to operate in our high-cost environment, and they cover work already done. The carry-forward loss credit lets the companies recover some of their investment in the years they are developing a project – before oil and profits start to flow."
The industry is subject to Alaska's oil fiscal system, which includes production tax, property tax, corporate income tax, and royalties – a part of which flow directly to the Alaska Permanent Fund. The state estimates $1.6 billion in petroleum revenue for Fiscal Year 2017. The Governor's budget includes $74 million to the oil and gas tax credit fund, which is used to buy credits from the small and new companies.
"We're hardly taking money away from Alaskans and giving it to companies, although some anti-industry people want you to think so," Sen. Giessel said. "We're taking a small amount of the total revenue generated by the industry, and returning it to smaller and new players in our oil patch so we can reap the benefits of their future oil production. We're growing the pie for Alaskans."
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