It's 'bizarro world' in Juneau as lawmakers reopen battle over oil taxes

JUNEAU — Another oil tax battle is brewing in the Alaska Legislature.

After last year's fight over cash subsidies and tax rates for oil companies derailed lawmakers' work on a deficit-reduction plan, House Democrats are expected to introduce legislation this week to resurrect many of their ideas that were rejected by the Senate's Republican-led majority, which is still largely intact.

The two sides are already starting to stake out their positions, with the Senate president, Republican Pete Kelly of Fairbanks, on Monday saying that critics of Alaska's current tax policy are living in "bizarro world."

The debate centers mainly on the existing tax regime, as established in 2013 by Senate Bill 21 and narrowly upheld in a public vote a year later. The legislation scaled back the state's escalating tax rates at higher oil prices, with an eye toward encouraging oil company investment.

Critics attacked the bill as a giveaway to the industry — an argument that's grown more potent as Alaska's oil revenue has crashed in tandem with global prices, and with lawmakers contemplating broad-based taxes and reductions to residents' Permanent Fund dividends as a way to fix the state's $3 billion deficit.

The 2013 legislation remains so politically fraught today that Sitka Republican Sen. Bert Stedman takes care to distinguish it from his 2017 bill also numbered SB 21, which addresses the Permanent Fund, not oil taxes.

Last year's oil-tax legislation, which was passed with largely Republican votes in both chambers, sharply reduced cash subsidies available to companies developing natural gas projects in Cook Inlet, on which Southcentral Alaska relies for heat and electricity. It also put a seven-year cap on what had been an indefinite tax break for new oil projects called the gross value reduction, and capped annual cash payouts in the form of tax credits for individual companies.

Still, some lawmakers didn't think the legislation went far enough, and the issue is bubbling to the surface again.

A series of hearings last week in the House Resources Committee — which flipped from Republican to Democratic control in last year's election — set the stage for the oil-tax legislation expected later this week.

Committee members first heard from the oil industry, whose representatives warned against tax increases and argued that SB 21 was paying off, pointing to last year's increase in oil flowing down the trans-Alaska pipeline — the first uptick in 14 years.

"The current system is working," Kara Moriarty, the president of the Alaska Oil and Gas Association, an industry group, told committee members Wednesday. "We have more production."

Two days later, the committee heard a withering dissent from Robin Brena.

Brena is an oil and gas attorney with clients like Tesoro and Anadarko Petroleum who's fought court battles against Alaska's big three producers — Exxon Mobil, ConocoPhillips and BP. He's also a deep-pocketed political donor who gave $60,000 to a group that attacked a pair of Senate Republicans in last year's elections, and held a fundraiser for two new Democratic members of the House's majority coalition.

At Friday's hearing, Brena delivered a 70-page PowerPoint presentation cataloging what he described as flaws in SB 21, telling committee members, "The way you know your new production tax needs reform is because the industry says it's working."

"No reasonable Alaskan would vote that way again," he added.

GOP lawmakers in the House and Senate objected to the two-hour block of testimony given to Brena, with one, Anchorage Rep. Chris Birch, asking the attorney if he was involved in any lawsuits with "our industry partners."

And at a Monday news conference, Kelly, the Senate president, continued the attack on Brena.

"Robin Brena is not an expert," Kelly said. "He has a political agenda."

With lawmakers eyeing taxes and dividend reductions, and with oil prices far lower than when SB 21 was approved, Kelly and other Senate Republicans have nonetheless acknowledged that some elements of the existing tax regime may need review this year.

Alaska's budget crisis has put growing pressure on its oil-tax system, with a focus on the state's plummeting tax receipts and the hundreds of millions of dollars in cash subsidies it has pledged to companies producing fewer than 50,000 barrels of oil a day.

Walker administration officials have testified that SB 21 actually generates more cash for the state at low prices than the tax system that preceded it did.

But critics have argued that it's more generous at high prices and allows companies to earn cash subsidies at a rate the state can't afford. Walker has vetoed hundreds of millions of dollars in subsidy payments out of the budget in the past two years, arguing that Alaska shouldn't pay them unless it adopts deficit-reduction measures. But those obligations haven't gone away, and his administration predicts that the state will owe about $1 billion by the middle of next year.

Senate Republicans have sharply criticized those vetoes. But one of the Republicans, Senate Resources Committee chair Cathy Giessel of Anchorage, acknowledged that Walker's actions may bring lawmakers back to the negotiating table.

"Right now, instead of a process to make policy, it's being made by veto pen," Giessel said in an interview. "We're in a system right now that is very flawed in terms of making solid policy that is stable, predictable, durable."

She added, however, that the Senate is focused on ensuring "the health of the private sector."

The House Democrats' new legislation will resurrect some of their ideas that their Republican colleagues rejected in last year's oil-tax bill.

Andy Josephson, who co-chairs the House Resources Committee with another Anchorage Democrat, Geran Tarr, said the new bill will include sections affecting Alaska's 4 percent minimum tax floor.

It will address companies' ability to earn tax deductions valued at 35 percent of any operating losses, and tighten annual caps on cash subsidies, he said in an interview. Josephson said he also hopes to have provisions for payouts of some of those subsidies if lawmakers agree to broader deficit-reduction reforms.

Josephson said he wasn't sure if the legislation would include an increase to the minimum tax rate. But it won't try to balance the budget, he said.

"I don't think Rep. Tarr or myself are of the school of thought that there's a way to just get more blood out of the turnip — and that there's a way to fix a $3 billion deficit on the backs of the oil industry," he said. "But that doesn't mean that we're not looking at reforms."