Alaska governor proposes 'more competitive' flat tax for oil

Alaska state officials last night fired the first shots in what promises to be a heated battle over oil-production tax reform in the 2013 legislative session, with Gov. Sean Parnell (R) calling for a flat 25 percent state oil tax and state Democratic leaders warning that the proposal would slash state revenue by $2 billion each year and result in huge budget deficits.

In his State of the State speech to a joint session of the Legislature, Parnell proposed overhauling Alaska's oil taxes by eliminating progressivity provisions that require oil companies to pay higher fees as the price of oil increases.

The governor and three of the state's major oil companies -- BP PLC, ConocoPhillips Co. and Exxon Mobil Corp. -- say the progressive tax discourages the multinational companies from reinvesting in Alaska's oil and gas fields.

"We do not have a tax system that attracts new investment for greater Alaska oil production," Parnell said. "Unless we restore balance to our tax system, our oil fields will become obsolete."

Along with the flat tax, the governor's plan would revise the state's tax credit program to reward oil production rather than oil industry investment in the state.


"Gone would be old arguments about what qualifies for the capital expenditure credits, gone will be the need to calculate progressivity each month," he said. "What will remain will be a more balanced, more competitive and more predictable tax system."

The governor's plan was immediately attacked by state House and Senate Democratic leaders, who charged that the new flat tax system would reduce funding for critical state programs.

"The reality is that we may be laying off teachers and firefighters while outside shareholders are rewarded with billions in profits from our oil," Senate Minority Leader Johnny Ellis said in a rebuttal.

Ellis said state Democrats are willing to modify the progressive oil tax in a way that would "help the industry bottom line but not rip off the people of Alaska."

He warned that cash-strapped lawmakers could seek to replace oil money by imposing the state's first sales and income taxes and by raiding Alaska's Permanent Fund Dividend. Most Alaskans receive a yearly dividend check based on oil industry revenue.

"That's not scare tactics," he said. "That's what's coming, if this bill passes."

However, the Democrats' ability to influence the governor's plan will be limited this year because the Republicans won control over the state House and Senate in the November election. Many of new GOP members were tax reform candidates who were backed by an aggressive oil industry campaign (EnergyWire, Nov. 8, 2012).

During last year's legislative session, a similar tax reform plan floated by Parnell was blocked by the Senate Bipartisan Working Group, a coalition of lawmakers who favored less dramatic tax cuts. At the time, Alaska's 20-person Senate was equally split between Democratic and Republican members.

In his speech yesterday, Parnell also set a deadline for energy companies to take action on a long-awaited natural gas pipeline project in the state.

By Feb. 15, the governor wants the state's three major oil companies and TransCanada to settle on a concept for the project, including the pipeline's size, daily volume, the location of a gas treatment plant and sites where gas could be diverted from the pipeline for local use.

He also called for on-the-ground work on pipeline planning through the summer.

In October, the energy companies agreed to move forward with preliminary plans for the 800-mile natural gas pipeline, despite the project's estimated price tag of as much as $65 billion (EnergyWire, Oct. 5, 2012).

However, the companies have suggested no timeline for beginning on the pipeline. Instead, they have emphasized that they need more favorable financial ground rules for producing energy in the state before they can build the pipeline.

More federal funds sought for Arctic activities

While state leaders were drawing lines in the sand over oil tax reform, the only Democratic member of Alaska's congressional delegation asked President Obama to increase federal funding to Alaska.

In a letter to the White House, Sen. Mark Begich yesterday requested more money for Arctic research and U.S. Coast Guard operations and ice-breaking capacity in Alaska.

He also called for full funding for the Interior Department, the Army Corps of Engineers and other federal agencies to help coordinate the permitting process of oil and gas development in the Arctic.

"As the Arctic opens, we will have to carefully balance protection of the natural environment and those who rely on it with the economic needs of our nation for efficient oil and gas development, marine shipping, fisheries and tourism," he said. Begich is chairman of the Senate Subcommittee on Oceans and Fisheries.

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