The latest version of a bill cutting the state\u2019s subsidies to oil and gas drillers is about 40 percent of what was first proposed by Gov. Bill Walker, the state\u2019s tax director told lawmakers Wednesday evening.<\/p>\n
The declaration came after members of the House Finance Committee introduced a modified version of House Bill 247 earlier in the day. HB 247 is a cornerstone in Gov. Bill Walker\u2019s proposal to erase the state\u2019s $4 billion deficit by 2019.<\/p>\n
As originally proposed, Walker\u2019s bill would have a $435 million impact on the deficit in fiscal year 2018, which starts July 1, 2017. The House Resources Committee drastically overhauled the governor\u2019s proposal, producing a bill with a deficit reduction of only $70 million. The finance committee took the resources committee\u2019s version and came up with something else.<\/p>\n
\u201cThe bill before you is somewhere in between,\u201d said Ken Alper, director of the state tax division.<\/p>\n
According to documents presented to committee members, the newest version would reduce the deficit by $195 million in fiscal year 2018.<\/p>\n
\u201cIt\u2019s a little bit of a half version or a 40 percent,\u201d Alper said, comparing the new version to the governor\u2019s original idea.<\/p>\n
Reforming the state\u2019s subsidies for oil and gas drillers is the second-biggest piece of Walker\u2019s plan to fill the state deficit. At issue are the tax credits the state issues to drillers for exploration and production, and the tax rate set by Senate Bill 21, a wide-ranging oil and gas tax reform bill approved by the Legislature in 2013. SB 21 set a minimum production tax of 4 percent. That floor contained a significant loophole, however. <\/p>\n
At current oil prices, oil producers are losing money and earn \u201cnet operating loss\u201d tax credits they can use to lower their taxes to zero. Walker proposed removing that ability and raising the floor to 5 percent. He also proposed limiting the amount of credits the state gives out.<\/p>\n
In presentations across the state, representatives of the governor\u2019s office said they expected the governor\u2019s reforms to save $500 million per year.<\/p>\n
The finance committee is considering a milder version of the bill, which includes several key aspects:<\/p>\n
Instead of a minimum production tax of 5 percent, the House bill proposes a minimum tax of 2 percent;<\/p>\n
Instead of a $25 million cap on the amount of credits per company per year, the finance committee is considering a $100 million cap; Cook Inlet oil would be taxed for the first time; Cook Inlet tax credits would be reduced, but not as much as proposed by the governor.<\/p>\n
Speaking to the committee, Alper warned that at current oil prices, the revised bill does not prevent major oil producers from setting up a \u201cwave\u201d of tax credits that could wipe out production taxes for years into the future.<\/p>\n
\u201cBelow $46 a barrel, they\u2019re losing money (on the North Slope),\u201d Alper explained. <\/p>\n
For every dollar the price of North Slope oil is below $46, producers lose $180 million. When that happens, the state pays 35 percent of the loss in tax credits.<\/p>\n
At current prices, the loss is so great that the companies have more tax credits than tax payments. The credits can carry over to next year, wiping out that year\u2019s production tax. The process can repeat for years, the producers building up a larger and larger stack.<\/p>\n
\u201cThat\u2019s a wave that will build and roll forward until, let\u2019s say, you get a catastrophic spike in oil,\u201d Alper said.<\/p>\n
If that happens, the state might expect billions in revenue from production taxes but get millions or billions less because of the \u201cwave\u201d of built-up tax credits.<\/p>\n
Next year, the state is expected to face $825 million in tax credit liability.<\/p>\n
That alarmed at least one member of the finance committee.<\/p>\n
\u201cI think we need tax revenue to be able to afford $800 million in tax credits,\u201d said Rep. Les Gara, D-Anchorage.<\/p>\n
Other members of the committee said the tax credit program seems to be working. Between April 2015 and March 2016, North Slope oil production rose 1 percent. That was the first yearlong increase in production since 2002. <\/p>\n
Production is still expected to decline in the long term, but Rep. Tammie Wilson, R-North Pole, said she would like to hear more about how the credit system is working.<\/p>\n
\u201cThe part we don\u2019t really hear is how much money we\u2019re actually making every year,\u201d she said. \u201cWhen do we know as Legislators that we\u2019ve tipped the scale too much?\u201d<\/p>\n
The finance committee is expected to spend Thursday and Friday debating that issue. <\/p>\n
When it approves the bill, something that could come as early as this weekend, it will go to the House floor for a vote. The bill will then head to the Senate for committee vetting and a floor vote.<\/p>\n
Gov. Walker will have the final say, and if he does not like the final result, he could do what he did last year and veto some or all of the funding for the oil and gas tax credit program. The state is statutorily required to pay only about $70 million in credits.<\/p>\n
\u201cQuite frankly, we cannot provide certainty and stability to the industry under a credit regime if, when it comes time to write the check, we don\u2019t have enough money,\u201d said Revenue Commissioner Randall Hoffbeck.<\/p>\n","protected":false},"excerpt":{"rendered":"
The latest version of a bill cutting the state\u2019s subsidies to oil and gas drillers is about 40 percent of what was first proposed by Gov. Bill Walker, the state\u2019s tax director told lawmakers Wednesday evening. The declaration came after members of the House Finance Committee introduced a modified version of House Bill 247 earlier […]<\/p>\n","protected":false},"author":426,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_stopmodifiedupdate":false,"_modified_date":"","wds_primary_category":4,"footnotes":""},"categories":[4],"tags":[230],"yst_prominent_words":[],"class_list":["post-16637","post","type-post","status-publish","format-standard","hentry","category-news","tag-state-news"],"_links":{"self":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/16637","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/users\/426"}],"replies":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/comments?post=16637"}],"version-history":[{"count":0,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/16637\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/media?parent=16637"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/categories?post=16637"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/tags?post=16637"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/yst_prominent_words?post=16637"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}