Gov. Bill Walker's bill to reduce tax credits to the oil and gas industry, worth $500 million to the state primarily through reduced spending, underwent tough questioning during its first hearing in the House on Wednesday, with a lawmaker who describes himself as the father of Cook Inlet tax credits demanding an analysis of the bill's impact to the state's oil and gas industry.
House Bill 247 would reform a program that is expected to pay out $625 million next year, which the administration says is no longer sustainable now that the state's petroleum-based income has collapsed with the price of oil.
Among its numerous provisions, the bill, a companion to Senate Bill 130, calls for raising the veil of secrecy that has surrounded the credits by disclosing companies that receive them.
It would harden the state's minimum production tax and raise it from 4 percent to 5 percent – provisions unrelated to tax credits that at today's low oil prices would bring an extra $100 million annually.
The state would gain another $200 million mostly by repealing some tax credits and closing some loopholes. The state would also defer payment on another $200 million in tax credits, allowing those to be reimbursed at a later date to help offset companies' production taxes.
Department of Revenue officials who appeared before the House Resources Committee said the state will pay the tax credits it owes. The obligations include the $200 million that Gov. Bill Walker struck with a line-item veto in June, capping this year's tax credit obligation at $500 million.
Rep. Mike Hawker, R-Anchorage, who called himself the father of Cook Inlet tax credits, asked why Walker wants the Legislature to completely reverse its tax credit policy.
Revenue Commissioner Randy Hoffbeck said the administration wants to continue promoting opportunity in the oil and gas industry by retaining some of the tax credits while also helping close a $3.8 billion deficit. He said credits paid in Cook Inlet have helped increase gas production, alleviating fears of a shortage in Southcentral Alaska for years to come.
The credits are not a "core government service" and must be balanced against necessities that include education, life, health, safety and road maintenance, he said.
"It was prudent to pull it back, but we are not pulling it all the way back," Hoffbeck said of the program.
The state revenues from oil production are down sharply to about $200 million a year currently, compared to $4 billion collected in 2013. A Senate working group convened last year by Sen. Cathy Giessel, R-Anchorage, recommended careful adjustments to protect advancing projects.
Ken Alper, director of the state's tax division, said "adequate consideration" was not given to the effect of low oil prices in 2013, during the passage of Senate Bill 21, which overhauled the state's tax system.
With oil prices hovering around $30 a barrel lately -- one-third of what they were in 2013 -- Alper said that "technical features of the law are reacting in unpredictable and unknown ways."
The 4 percent minimum tax can be altered in some cases because some companies are facing high net-operating losses that can bring them more tax credits than they pay in production taxes.
An angry Hawker said the Legislature did its homework before passing Senate Bill 21.
"If that is your allegation, that we had an inadequate process here, we need to have a conversation in the public about that," Hawker said.
Hawker demanded to know if the state is studying the consequences of its decision to pull back credits on an industry "that is not making much" at today's prices.
The state has contracted with the Institute of Social and Economic Research to study the consequences, Hoffbeck said.
"That analysis is being done, but recognize there isn't a way to balance a $4 billion deficit without some collateral consequences to the economy," Hoffbeck said.
The Resources Committee, which took no action, is scheduled to examine the bill further in a second hearing on Friday.