JUNEAU, Alaska — Alaska Gov. Sean Parnell said the Senate’s work-in-progress proposal to cut oil taxes offers “no hope” for more investment and does nothing to stop the decline in oil production.
Parnell, who is pushing a steeper tax cut of his own that’s a nonstarter in the Senate, made the comments in an email alert to Alaskans on Monday, urging them to testify on SB192.
The Senate Resources Committee is working on the bill, which Parnell’s Revenue commissioner has said offers a “modest” tax reduction compared to the current tax structure. Nearly 20 possible amendments have been offered in the committee but have not been acted on.
Industry trade and support groups spoke in opposition to the bill Tuesday.
Kara Moriarty, executive director of the Alaska Oil and Gas Association, said none of her group’s 16 member companies believes the proposal represents “meaningful” tax change. She said the governor’s plan is a good first step toward that end. She said her members were uncomfortable coming to a conclusion on any of the proposed amendments until they know how the pieces will come together.
Rick Rogers, executive director of the Resource Development Council, called the bill insufficient to change investment behavior and said the Senate cannot simply offer tweaks to a broken system. He said the Senate seems intent on “imposing the highest tax politically possible” on producers, a statement that Sen. Bert Stedman, R-Sitka, dismissed as unhelpful and not in line with the direction the Senate is heading.
Senators heard a wide range of comments during public testimony Tuesday evening, from people urging the Senate to not reduce taxes or give incentives to companies, to others calling on senators to kill the current tax structure and reconsider the governor’s plan.
Parnell, in his email “action alert,” said the Senate’s bill “offers no hope for increased private investment, does nothing to stem the decline of oil production and builds no confidence in our state’s tax regime.”
He also called it a tax increase. Revenue Commissioner Bryan Butcher said Parnell was referring to the first iteration of the bill and hadn’t received the department’s analysis of the latest version — showing it is a reduction from the current regime — until after the mailing was sent.
Under the current tax structure, known as Alaska’s Clear and Equitable Share, or ACES, there’s a 25 percent base tax rate and a progressive surcharge triggered when a company’s production tax value hits $30 a barrel. The industry has said that the surcharge eats too deeply into profits at times of high oil prices and discourages new projects and new drilling.
The resources committee’s initial bill didn’t include a cap, but Senate leaders called the measure a placeholder, saying they intended to fill in the details to address any problems that emerged during the committee process.
The latest version of the bill would cap progressivity and reduce the progressive rate.
Compared with ACES, it would cost the state $125 million in revenue next year, $230 million in fiscal year 2014 and about $200 million from 2015 through 2020, according to the revenue department. One estimate shows the progressivity aspect alone of Parnell’s plan would reduce revenues by about $700 million next year, $1.3 billion in fiscal year 2014 and $1.1 billion in fiscal year 2015, figures that assume no change in production.
Parnell has said that companies have pledged at least $5 billion in new investment under his plan.
In a missive of her own Tuesday, Patti Higgins, the chairwoman of the state Democratic party, called the Senate’s approach a “reasoned alternative to the governor’s massive giveaway.”
The Senate has a 16-member bipartisan majority.
Senate Resources Committee co-chairman Joe Paskvan told reporters Tuesday he worries that claims from Parnell and industry groups are misleading the public.
For example, Paskvan noted that the decline of oil flowing through the trans-Alaska pipeline has been ongoing since 1989 and isn’t some new phenomenon. Paskvan also said the Alaska Oil and Gas Association’s contention that oil production has plummeted 140,000 barrels a day under the current tax regime implies the tax structure is the cause. Paskvan, D-Fairbanks, said this doesn’t paint the full, true picture.
Senate President Gary Stevens, R-Kodiak, said it’s “purely deceptive” to say senators are trying to raise taxes. He said no one in the Senate has ever even talked about that.
The Senate last year refused to follow the House and act on Parnell’s plan to cut taxes, with leaders saying they didn’t have the information needed to make a sound policy call. Fears were raised during last year’s debate that the pipeline could become too expensive or hazardous to operate within the decade if oil throughput continued to decline. A state court judge, ruling in a property tax dispute several months ago, determined there were likely decades of life left for the line.
“We’ve gone beyond some of those deceptions and confusions that were sort of heaped upon the public in order to frighten them,” Stevens said. “I hope we can not consider those again because they’re not true.”