On oil and gas subsidies, House commits turnover

It was an alley-oop pass gone awry.

On Wednesday night, as Kobe Bryant played his final game of professional basketball, the Alaska House prepared to toss the Senate a multimillion-dollar bill reforming the state’s subsidy for oil and gas drilling. While Bryant finished with 60 points, the House’s pass didn’t go as well.

After lawmakers spent five days waiting for a vote on House Bill 247, Speaker of the House Mike Chenault sent it back to the House Rules Committee, saying there wasn’t enough support for the measure.

“I didn’t see there was support from either side,” he said, adding that the governor’s office – which originally proposed the bill – asked him to postpone a vote.

“We asked them if they had the support, and they said they didn’t,” he added.

The action doesn’t mean the bill is dead. “It’s just not sitting there, languishing on the floor,” Chenault said. “It can be brought back out of Rules at any time.”

When it will be brought back out is unknown.

In a Wednesday morning press conference, Rep. Chris Tuck, D-Anchorage and leader of the House Minority, said reducing the oil and gas subsidies are crucial to a deal on slashing the state’s $4.1 billion annual deficit.

“What is clear is this is key to having a fiscal plan for the state of Alaska,” he said.

At the start of the Legislative session, Gov. Bill Walker proposed HB 247 and a companion bill, SB 130 in the Senate, to reduce the state’s subsidy by some $500 million.

Other than a plan to use earnings from the Alaska Permanent Fund, no other single bill has as large an effect on the state deficit.

In the House, however, lawmakers from the Republican-led majority worried about the effects that Walker’s bill would have on long-term oil and gas production.

“The truth is, Alaska’s oil industry is struggling just like Alaska’s economy,” Alyeska Pipeline Service Co. president Thomas Barrett wrote in an open letter released Thursday morning. “A truth remains: the long-term health of Alaska’s oil and gas industry is as connected and vital as ever to the health of our state.”

In the House Resources Committee, members of the Majority rewrote Walker’s bill, restoring hundreds of millions of dollars in subsidies.

The House Finance Committee took that rewrite and made more changes, coming up with a version that contained about 40 percent of Walker’s savings, according to Ken Alper, director of the state tax division.

That was the version that advanced to an evenly divided House floor. Many members of the House Majority felt it cut too much from the state subsidy. Many members of the House Minority felt it cut too little.

Without significant cuts, they said, they cannot support measures that would divert money from Alaska Permanent Fund Dividends to state operations. Without cutting oil and gas subsidies, the state would effectively be diverting dividends to oil and gas companies, they said.

In between the two sides were people like Rep. Cathy Muñoz, R-Juneau, a swing voter.

“It’s really a key component to the endgame,” she said of the oil and gas tax bill.

In 2013, the Alaska Legislature approved Senate Bill 21, which rewrote the state’s oil and gas tax structure. Lawmakers intended for SB 21 to implement a 4 percent minimum production tax effective even when oil prices dropped.

Prices have dropped so low, however, that North Slope oil producers are losing money on each barrel of oil they pump through the trans-Alaska Pipeline System.

Under SB 21, the producers can receive state tax credits worth 35 percent of their losses, and they can use those credits to go below that 4 percent minimum – all the way to zero.

Furthermore, the credits (called Net Operating Loss credits) don’t expire in a given year. Companies can roll over unused credits to the following year, and their losses right now are so large that the state is expected to have more than $1 billion in outstanding NOL credits within two years.

“If we have those NOLs too high, then even when prices go back up, we lose out,” she said.

Muñoz is among the lawmakers seeking to reduce the number of NOL credits and to “harden” the 4 percent minimum tax so oil companies can’t go below it.

“I think doing away with the floor is a mistake,” she said.

The version of HB 247 that reached the House early this week contained a “hard” 2 percent floor, but that was removed in an amendment approved 20-19 on Wednesday night in the House.

The resulting bill, resting in the House Rules Committee, contains just 20 percent of the savings originally proposed by Walker.

“It becomes, roughly speaking, a $100 million bill instead of a $200 million bill,” Alper said of the amendment.

House lawmakers had been expected to pass some sort of oil and gas legislation, an act that would move the bill to the Senate. The Senate, in turn, would pass a Permanent Fund spending bill to the House, and negotiations could progress on a compromise.

Instead, the House turned the ball over, and unless lawmakers there can reach a compromise, it will be the Senate driving the discussion on both the Permanent Fund and on cuts to oil and gas subsidies.

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