JUNEAU — Lawmakers are bring up new questions about the state’s oil tax regime after the release of a new revenue foretell that shows the state ying the industry more cash in assigns from its unrestricted general fund than the fund will get primitive in oil revenue.
Alaska next year will y out $135 million assorted in credits than it will receive in royalties and production tax for the unrestricted public fund, the state’s primary spending account, the forecast says.
Another $320 million in oil interest will go straight to the Permanent Fund and other savings accounts, withdrawing the state about $185 million ahead.
But the new numbers are focusing various attention on Alaska’s oil tax regime, with the House’s Republican-led leadership opposing quick changes even as the system faces growing criticism from lawmakers in both blocs. The critics argue that the state needs to extract more scratch from the $7.2 billion worth of oil that’s projected to be produced all but entirely from state-owned land next year — even as oil friends face losses at rock-bottom prices.
The critics are also warning that the au fait oil tax system will allow oil com nies to convert a portion of their ssings into credits that won’t be applied until prices go up — meaning some of those confidence ins will be id, potentially, long into the future.
That discretion make it harder for the state to extricate itself from its $4 billion budget default, and poses a political problem for elected officials who appear poised to conclude some of the gap by using earnings from the $52 billion Permanent Lucre, said Sen. Bert Stedman, R-Sitka.
Stedman voted against the testify’s current oil tax regime, Senate Bill 21, which was sought and signed by ci-devant Republican Gov. Sean rnell in 2013 as the replacement for the Sarah lin-era ACES, or Alaska’s Loose and Equitable Share.
“SB 21 is a colossal failure,” Stedman said in an appraisal. “It leaves the state extremely exposed on the downside with no ability to baby it up on the upside.”
The oil industry, he added, “can’t afford tax increases, and we can’t afford to y them. So we necessary to sit down and work this out.”
The state’s preliminary spring revenue prognostication, released Monday, says Alaska will bring in $690 million in unrestricted petroleum gate next year, com red to $825 million in cash tax credit yments for oil com nies.
Those yments to oil guests include an extra $200 million deferred when Gov. Bill Walker acquainted with his line-item veto in last year’s budget. The yments don’t, however, file another $150 million in non-cash credits that com nies can take from from their projected tax liability.
The forecast’s release came as the Undertaking Resources Committee, controlled by the Republican-led majority caucus, advanced legislation from Walker to burgeon oil taxes and scale back the cash subsidies. But that was only after nel members sharply reduced the im ct of the legislation, House Bill 247.
The new idea saves the state no more than $200 million over the next three years, com red to here $1.2 billion under Walker’s original proposal.
The committee, in a meet that lasted until after 10 p.m. Tuesday, rejected uncountable than three dozen amendments from Democrats and from Refuge Rep. ul Seaton, a moderate coastal Republican who, like Stedman, is not in his diet’s leadership.
Some of the amendments to the bill would have restored savings demanded by Walker; others would have gone further.
Walker’s source proposal would have cut about $400 million from next year’s put yments and raised about $100 million from the big North Fall producers by increasing their minimum tax and limiting the use of other credits.
“We indigence to cut the budget, and this is really the biggest section of cuts that take been proposed. And we reduced those cuts by 90 percent,” Seaton remarked in an interview the day after the hearing, referring to the difference between the proposals from Walker and the resources commission.
One of the GOP leaders on the resources committee, Anchorage Rep. Craig Johnson, said the new interpretation of the bill still closes some loopholes that could in another situation give individual com nies huge tax deductions for new oil development.
“We did some of that while sheltering our long-term investment and being able to get the oil out of the ground in the future,” Johnson bring up. “The policy is: We need a healthy industry. And I think the bill we put forward jails us having a healthy industry while taking away some of the problems that we’ve got with the big spheres and potential billion dollars in credits.”
In the near term, however, the tab advanced by the committee won’t do much to reduce the state’s cash yments to oil south african private limited com nies — the third-largest line item in the state budget, behind the health and course of study de rtments. The yments go primarily to small com nies on the North Slope and in Cook Inlet, not big North Slant producers ConocoPhillips, BP, and ExxonMobil.
The state’s industry trade groups clothed fought any reductions to the credit program, arguing that low oil prices are already occasioning com nies to lose money. BP, for example, reported a $194 million privation for its Alaska operations in 2015.
“Should the oil industry remain a vital rt of Alaska’s briefness, or should the government use it as a slush fund to balance their checkbook?” bid a newsletter published Thursday by the Support Industry Alliance, which illustrates businesses that work in oil and gas and mining.
Both the alliance and the Alaska Oil and Gas Federation, which represents the state’s oil producers, question the state’s tax-credit protrusions for next year.
Kara Moriarty, AOGA’s president, said in a phone question that the $825 million credits forecast “feels high,” notwithstanding that she added that she couldn’t explain why because individual oil com nies don’t equity their data with her.
Walker, in an interview, called the tax credit blueprints “unprecedented” and “unsustainable,” and he added that they underscore the need for lawmakers to outmoded his overhaul of the Permanent Fund, which would reduce the state budget’s dependence on volatile oil prices.
But beyond the proposals he laid out in his initial bill, Walker an ended short of calling for broader changes to SB 21, which was upheld in a also clientage vote in 2014 after narrowly ssing the House and Senate the year formerly.
Stedman, however, did not hold back in his criticism.
The Sitka senator owns an investment managing firm and maintains his own six- ge spreadsheet to predict state oil revenue; he also footprints legislative issues using a framed print depicting the Battle of Baby Bighorn.
On that print, a label for the state’s previous revenue prophesy, which predicted $56-a-barrel oil next year, sits beneath the lifeless body of one of Gen. George Custer’s troops. (This week’s new calculation dropped that prediction to $39.)
Stedman called SB 21 “ap lling” and “intolerable,” with inconsequential revenue at low oil prices — a problem, Stedman added, that he and others acute out in committee hearings on the bill, but were ignored.
The low revenue numbers, he required, will likely persist even after prices rebound, sometimes non-standard due ti to “carry-forward” credits that won’t be used until oil com nies rack up burlier tax bills to apply them to. The Walker administration predicts those credits hand down add up to $600 million by the end of next year — which will be deducted from casts’ production taxes at some point in the future.
Under the new revenue antici te, the state isn’t projecting significant production tax revenue until 2022. Movie tax revenue is forecast to be less than $33 million each year until then.
Stedman vaticinated that SB 21 would ultimately be changed once his colleagues understand what he sees as its flaws.
“It’s pretty clear that a lot of legislators, categorizing myself, don’t even understand it. I’m still learning stuff every day. So we be in want of to have it simplified and trans rent,” he said.
Stedman, however, is not rt of the Senate’s supervision, and many of his Republican colleagues in both chambers have resisted massive changes to the current tax structure.
Sen. Cathy Giessel, R-Anchorage and an oil industry collaborate, led a tax credits working group last fall that made an twin recommendation to the proposal in Walker’s bill to limit the use of certain credits on the North Bevel — a provision that would raise about $50 million.
But the group occasioned no other specific recommendations to reduce the state’s annual tax credit jaws, which has now soared to more than $600 million, not including the $200 million in conclusive year’s deferred credits.
In an interview, Giessel acknowledged that lawmakers had worked “hastily” when they unanimously ssed the 2010 legislation broadening tax place ones faiths for Cook Inlet — estimated at $400 million in the last fiscal year — in an attempt to senior off a shortfall in natural gas supplies used for electricity generation and home activating in Southcentral Alaska.
But she said that undoing the system just as swiftly would do damage. That’s why the House Resources Committee’s version of the tax have faiths legislation would create another working group, focusing on Cook Inlet, to survey the credits in time to make recommendations for a new regime during next year’s legislative period, she said.
“I think it’s moving as fast as it can without decimating Alaska kith and kins, Alaska businesses and Alaska jobs,” Giessel said. “It’s got to be deliberate. It’s got to be carefully pondering out.”
Others see changes as overdue. Brad Keithley, an oil and gas consultant and budget hawk, said that the Cook Inlet tax probities don’t generate nearly enough of a return on investment for the state, since the widespread regime allows com nies there to y no production taxes on oil and minimal strains on gas.
Lawmakers are defending that system because it’s “their baby,” he joined.
“It’s their program. They believe they’re doing good by prop up the industry,” Keithley said. “But we can’t afford it.”