New Alaska House oil tax bill emerges but faces an uphill climb in Senate

JUNEAU — With its income tax proposal stalled, the Alaska House majority is now moving its oil tax bill instead, unveiling a new version of the legislation Friday that limits cash subsidies for companies and makes substantial changes to tax rates and credits.

The oil tax measure, House Bill 111, passed the House Finance Committee in a 6-5 vote Saturday and will head next to the floor over the objection of GOP minority members. One member of the majority coalition, Anchorage independent Rep. Jason Grenn, also voted against the bill in Saturday's committee hearing.

The new substitute version of HB 111, from the House Finance Committee, replaces an earlier draft from the House Resources Committee.

The revised bill preserves many of the original elements, like eliminating cash subsidies for North Slope companies and stopping companies from using most types of tax credits to bring their tax rates below a minimum floor.

But it also takes a new step of eliminating a key tax credit issued for each barrel of oil production — a move that would be offset by lowering the base tax rate.

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Kara Moriarty, head of the state's main industry group, the Alaska Oil and Gas Association, called the new version of the legislation a "very significant increase in taxes" that was worse than the previous version from the resources committee.

"Alaskans may not care about the impact to the industry, but it will hurt the economy," she said in a phone interview Saturday.

If the state's oil price forecast is accurate, the legislation would add $130 million to the state's bottom line in 2019, rising to $325 million by 2023, according to projections by Gov. Bill Walker's administration that account for higher revenues and smaller cash subsidy payments.

The largely Democratic House majority —
Rep. Paul Seaton is one of three Republican members — says oil tax revisions must be part of any broad plan to fix the state's deficit of nearly $3 billion.

Coalition leaders argue that the state can't let companies continue to earn cash subsidies at current rates, though actual payments of such subsidies fell sharply when Gov. Bill Walker vetoed hundreds of millions in payments from the state budget over the past two years.

House majority members also are pushing for higher oil taxes as a way to balance an income tax and reductions to the Permanent Fund dividend — steps that are also included in the majority's deficit-reduction plan.

"If you don't want to fix our oil system, what you're doing is creating more pressure for unnecessary taxes and unnecessary cuts to the dividend," Anchorage Democratic Rep. Les Gara said in an interview Friday.

But any oil tax proposal that passes the House will also have to pass the Senate before it can be sent to Walker for his signature.

Leaders in the Republican-led majority in the Senate have signaled a willingness to tighten the state's system of cash subsidies. But Senate majority members wouldn't answer questions about oil taxes Friday, though Senate President Pete Kelly, R-Fairbanks, released a brief statement.

"Any bill regarding the oil tax structure has to answer one question: Will it increase production?" the statement quoted Kelly as saying. "That said, if we receive a bill from the House addressing cashable tax credits and the state's exposure, we will give it fair hearing."

Republican minority members issued a torrent of criticism at Friday's hearing after the majority introduced its substitute legislation.

"This is the way to destroy industry right here," said Anchorage Republican Rep. Lance Pruitt. "I thought we were only going to have a focus on the credit discussion. This is a total rewrite of our tax system."

House majority leaders told reporters at a Friday briefing that they plan to send the main pieces of their deficit-reduction plan to the Senate by Day 90 — a week from Sunday. A 2006 citizens initiative limited the legislative session to 90 days, but because the initiative made a law, and the Legislature writes its own laws, its work can continue through a 121-day limit set by the state Constitution.

The majority's current plan includes oil tax changes, a restructured Permanent Fund and a state-level income tax.

Both the oil tax and broad-based tax proposals will face skepticism if they move to the state Senate, which has already approved its own Permanent Fund restructuring plan and says changing the oil tax system isn't necessary this year.

But even before reaching the Senate, all three policy measures also pose challenges for the House majority, which, with its 22 seats in the 40-member chamber, can't afford to lose more than one vote without relying on defections from the GOP minority.

At least two majority members, Grenn and Ketchikan Rep. Dan Ortiz, both independents, have signaled their discomfort with the House's income tax proposal.

House Bill 115, which combines the income tax with the majority's Permanent Fund proposal, languished in the finance committee this week, with two hearings on it canceled.

And Grenn and Kotzebue Democratic Rep. Dean Westlake both said in interviews Friday that HB 111 would also be a tough vote.

Grenn, a freshman, said his district includes blue collar oil industry workers as well as executives; it also voted 60 percent against repealing SB 21, the current oil tax system, in a 2014 referendum.

"I came into the campaign and came into office thinking that SB 21 was mostly working. I thought we needed to have some fix-its to it; outside of that, I'm very hesitant of changing our current structure," Grenn said. "I think HB 111 has some good ideas, but in some ways I think it goes too far."

While the rest of Grenn's caucus is pushing oil taxes as part of its broad-based fix to the state deficit, he said he doesn't want "short-term gains to hurt anything on the long-term scale" — suggesting that, in his view, increased tax revenue comes at the expense of future investment.

Westlake represents a vast swath of northern Alaska that encompasses the headquarters of Native corporations like NANA Regional Corp. and Arctic Slope Regional Corp., which do business with the oil industry.

"Their livelihood is service in remote camps," Westlake said. Without revealing how he would vote on HB 111, he added: "Oil and gas is our district. Mining is our district. These are things that are really, really close to home. So, I've had to struggle with this more than anyone else."