Alaska House budget committee approves millions for oil and gas drillers

JUNEAU — With high oil prices expected to bring billions of dollars in extra revenue to Alaska state government, members of the House Finance Committee voted last week to spend $532 million on outstanding oil and gas tax credits, an act that would return money to drillers, explorers and those who finance them.

The proposal was one of several approved by the committee during a week of debate on an operating budget proposal that would take effect July 1. The committee finished its work on Thursday, and debates in the full House are set to begin Monday.

Last spring, lawmakers approved a $4.3 billion operating budget. The proposal heading to the House this year is about $7 billion. Neither figure includes the Permanent Fund dividend or the state’s budget for construction and renovation projects.

The largest difference between last year and this year is $1.2 billion reserved for school funding in the 2023-2024 school year. Lawmakers are effectively funding two years’ worth of school budgets in one, and some have referred to it as a way to save money in case oil prices drop in the next year.

In addition to the tax credits, the finance committee also approved a $57 million one-time funding boost for those schools, more money for the University of Alaska, and an “energy relief check” of about $1,300 per Alaskan. (The cost of that check is about $875 million.)

Each of those items could change as the full House debates the budget. When the House finishes its work, the Senate will write its own version, and the different ideas will be compromised into a final version. Alaska GOP Gov. Mike Dunleavy can veto parts or all of the proposal.

One of the committee’s biggest additions to the budget is the line item that would pay more than half a billion dollars in tax credits issued under a defunct subsidy for oil and gas drilling.

State law calls for Alaska to pay off a certain fraction of the total outstanding credits each year, but Rep. Sara Rasmussen, R-Anchorage, proposed paying them off early.

“We have the ability to pay off an obligation that the state made when we essentially begged the private sector to come explore in Alaska,” she said.

Since the middle of the last decade, lawmakers in the state House — which is controlled by a coalition of Democrats, independents and Republicans — have been reluctant to pay for those credits, citing the needs of residents.

“In the end, if we put this forward, then ... we’re not putting that money somewhere else,” said Rep. Dan Ortiz, I-Ketchikan. “We’re not putting it into the higher education fund, or we’re not putting it into a PFD or it’s ($530 million) that we don’t have to spend on the capital budget, for example.”

But this time, attitudes like Ortiz’s were in the minority. Rasmussen’s amendment passed the committee in a 7-4 vote and had the support of majority coalition members Andy Josephson, D-Anchorage, and Kelly Merrick, R-Eagle River.

“My view was to just get them off the books, and so I joined in an amendment to do that,” Josephson said.

After the vote, Rasmussen said the expected windfall of oil revenue and the arguments of “pro-industry” lawmakers helped the vote pass.

There was another factor too — the Permanent Fund dividend.

“There was another camp that I feel wanted to take money off the table,” she said.

Members of the coalition in charge of the House are supporting a 2022 Permanent Fund dividend of about $1,250, plus the energy relief check, for a total payout of about $2,500.

Dunleavy has proposed a 2022 dividend of about $2,500, plus a retroactive, supplemental payment that would raise the total payout to about $3,700.

The governor’s proposal also includes a long-term change to the Permanent Fund dividend payment formula. But members of the House coalition say the governor’s formula isn’t sustainable in the long term and are opposing it.

Rasmussen and other members of the finance committee said the budget was written by design to create trade-offs if lawmakers want to increase the dividend.

For example, if oil prices or production are lower than forecast, the amount of saved money will drop. If prices or production drop significantly, the amount reserved for future K-12 school funding would also be reduced.

Spending more on the dividend would reduce the savings buffer, making it more likely that advance K-12 funding would be affected.

The Legislature could add money for K-12 schools later, but the advance funding is intended to provide certainty for parents, students, and educators.

“Every Alaskan who has a child or a loved one in any state school district would be affected,” Rasmussen said.