The Alaska House Resources Committee has approved a bill increasing the state’s subsidy for oil and gas drilling.
The committee voted 7-2 at 10:30 p.m. Tuesday to reverse most of the cuts Gov. Bill Walker had made to the state’s oil and gas tax credit program.
“I would characterize the current version of the bill as unrecognizable compared to the original version of the bill,” said Rep. Geran Tarr, D-Anchorage and a member of the committee.
In December, Walker proposed House Bill 247, which would have cut drilling credits by $400 million and increased taxes on oil companies by $100 million, resulting in a total savings of $500 million per year. HB 247 was part of Walker’s plan to erase the state’s now-$4 billion deficit in two years.
Instead of going with Walker’s plan, members of the House committee decided to emphasize hopes for future production instead of immediate cost savings. Their revised bill saves just $45 million to $60 million per year over the next three years and preserves more of the state’s subsidies.
“We can either pay it now and preserve the production for future generations, or we can take the money now and abandon future generations,” said Rep. Craig Johnson, R-Anchorage and a member of the committee. “The bill will come due; there’s no doubt.”
Under the committee’s approach, the bill will come due quickly and in a big way. Barring changes, the state is expected to pay up to $845 million in oil and gas tax credits in fiscal year 2017, which starts July 1. On Monday, the Alaska Department of Revenue released a report stating that Alaska will earn just $690 million in unrestricted oil revenue in FY17.
Under the committee’s proposal, and without a surge in oil prices, the state will pay oil companies more than it earns in taxes and royalties.
“I guess I’m just surprised that we feel we have to double down on these credits when the industry itself is making cutbacks,” said Rep. Andy Josephson, D-Anchorage and a member of the committee.
Josephson, Tarr and Rep. Paul Seaton, R-Homer, offered scores of amendments Tuesday in an attempt to further cut oil and gas subsidies, but of the 45 proposals, only four were accepted, and none have a significant fiscal impact.
One of the biggest targets for amendment were portions of the committee plan that allow oil and gas producers to reduce their tax liability below the 4 percent minimum in current state law.
A working group of Alaska Senate members assigned to study Alaska’s oil and gas taxes identified the hardening of that 4 percent tax “floor” as a top priority.
Seaton, speaking in favor of one of his amendments, said lawmakers intended for that 4 percent minimum to be absolute, and oil and gas companies are exploiting loopholes in the law.
“I think it’s essential that we implement what we intended to implement,” he said.
Seaton’s amendment was defeated 3-6, as was a proposal to harden that floor at 5 percent.
Other amendments would have shrunk the cap on the amount of credits an individual company can receive in a single year. Walker had proposed a $25 million cap; the committee raised that to $200 million per company, per year.
Seaton said he is concerned that oil companies could exploit partnerships and other means to get around even that higher cap, but amendments brought by him, Tarr and Josephson were all defeated.
Rep. David Talerico, R-Healy and co-chairman of the committee, speaking about the need to avoid harming future oil production, said, “I think it’s careful we navigate around here with a scalpel, not a machete.”
HB 247 now heads to the House Finance Committee, where it has been scheduled for a hearing at 9:30 a.m. this morning.
Assuming its passage out of House Finance, it would then go to a vote of the full House and on to the Senate. Talerico said he isn’t sure what the final version of the bill will look like, but he expects it to change.
“As this moves, I believe it’s highly unlikely that whatever we produce in this committee is the end result,” Talerico said.
• Contact reporter James Brooks at james.k.brooks@juneauempire.com or 419-7732.
