Compromise Achieved to Reform Alaska’s Unsustainable Oil Tax Credit System
July 19, 2017
One of the most significant provisions of HB 111 ends Alaska’s cash for tax credits system retroactively to the first of July with provisions that allow companies to recover their costs through lower production tax payments once a project is producing oil or gas. This incentivizes actual production and protects the State of Alaska from huge future liabilities to cover losses from non-producing projects. allows oil companies to carry forward losses for either 10 or 7 years depending on the field's production and changes the interest rate to 5.25% for money owed to the state. Ending cash payments to oil companies was a key element to HB111 and according to a House Republican news release, an easy place to find compromise since the credits have accomplished their goal of encouraging development. In the past 2 years Alaska has seen year over year increases in production for the first time in 3 decades. “Overall the most important aspect is that Alaska must remain competitive in the global market for oil. This compromise allows Alaska to save money while still retaining incentives for the industry,” said Conference Committee Member Representative Dave Talerico (R-Healy). “Ending cash payments to oil companies was an easy place to find agreement but I’m thankful the area of Net Operating Losses saw compromise,” said Rep. DeLena Johnson (R-Palmer). "Removing the ability to deduct losses would've been dangerous, as it is allowed by every other oil producing regime." The Alaska Legislature passed the compromise version of legislation Sunday night to reform Alaska’s system of subsidizing the oil industry on the North Slope with tax credits. House Bill 111 ends Alaska’s unique cash for tax credits system and strengthens the four percent minimum tax to ensure Alaska receives some production tax revenue in times of low oil prices. Sunday’s compromise was brokered by House Resources Committee Co-chair Representative Geran Tarr (D-Anchorage), who served as the Chair of the HB 111 Conference Committee. Governor Bill Walker reacted positively Sunday night towards the passage of House Bill 111 on the final day of the Second Special Session of the 30th Alaska Legislature. HB 111 was the only bill remaining on the second special session call for lawmakers to address. Walker said, “I commend members of the legislature for coming together in the spirit of compromise to eliminate unaffordable cash payments to oil companies,” Governor Walker said. “This is a meaningful step to help shore up our financial situation. I thank Representatives Geran Tarr and Andy Josephson, and Senator Cathy Giessel for leading negotiations to bring each body to this compromise deal. However, the work is not yet finished. Alaskans deserve a complete fiscal plan and economic stability for the future. I urge lawmakers to continue with this spirit of compromise and collaboration, and pull together to fix Alaska.” Governor Walker said legislators need to present him with a compromise on the capital budget before he places it on the call for another special session. “The state does not need to spend thousands of dollars in daily expenses simply for the parties to negotiate,” Governor Walker continued. “I have been assured, however, that legislators will reach a compromise in time to pass a capital budget before July 31. Once a deal is reached, I will immediately call them back into session.” “I’m pleased a compromise was reached on House Bill 111 that includes the critical feature of eliminating cash credits. There were significant disagreements about how to achieve reform and that simply took some extra time to work out,” said Rep. Tarr. Tarr said, “I appreciate the hard work of the Conference Committee members and every lawmaker who had a hand in crafting and passing this significant piece of legislation. However, our work is not over. We have a working group as part of this legislation that will keep us working with our Senate colleagues. Our production tax revenue will continue to play a significant role in our future and is an essential piece of our comprehensive fiscal plan.” “HB 111 does several important things including authorizing the creation of a working group to do the hard work and the analysis to come up with additional improvements to Alaska’s still flawed oil tax system,” said House Resources Committee Co-chair Rep. Andy Josephson (D-Anchorage), who sat on the HB 111 Conference Committee. An important compromise provision included in HB 111 is a limited form of ring-fencing, which stipulates that losses incurred from fields that are not producing oil cannot be written-off against fields that are producing oil and gas. Instead, ring-fenced losses can only be written-off when the field where they were incurred comes into production. “By reforming Alaska’s unsustainable oil tax credit system, we move one step closer to the kind of comprehensive fiscal plan we need to protect our economy, address the fiscal crisis, and respond to the ongoing recession. However, one step is not enough with projected deficits of $2 billion or greater for years to come,” said Speaker of the House Rep. Bryce Edgmon (D-Dillingham). “The Senate initiated credit reform in 2015. [Sunday's] action is the culmination of that work and sets the state on a responsible, sustainable course,” said Sen. Cathy Giessel (R-Anchorage), chair of the Senate Resources Committee. “Our Senate Majority’s highest priorities are the needs of Alaska’s families, protecting jobs and keeping Alaskan business thriving. We’re committed to maintaining a fair, competitive oil tax regime that secures these private-sector opportunities.” “[Sunday] the Senate has prioritized critical services for Alaskans by ending our cash tax credit program,” Senate President Pete Kelly(R-Fairbanks )said. “We do not believe this cash payment reform will significantly curtail investment or endanger jobs.” The compromise version of House Bill 111 passed the Alaska House of Representatives Sunday night by a vote of 33-6. The Alaska State Senate passed the bill by a vote of 18-0. HB 111 will be sent to Governor Walker for his signature. After Sunday night’s passage of HB 111, both the Alaska House and Senate ended the Second Special Session of the 30th Alaska State Legislature Sine Die.
Editing by Mary Kauffman, SitNews
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