Action Alert: Testify on New Version of HB 111
Senate Finance Overview: The latest version of the bill makes changes to Alaska’s oil and gas cashable tax credits program by eliminating all cash credits statewide beginning in 2018. The committee substitute repeals the net operating loss as a credit, so companies who recovered their losses with a credit in the past will now do so through carry forward deductions. Non-cashable credits would be available for Interior Alaska projects in the form of deductions against corporate income taxes. It also “hardens” the gross minimum four percent production tax floor with regard to net operating losses. The new committee substitute does not include provisions in the earlier version of the bill passed by the House that would have significantly raised oil taxes at prices below $100 a barrel. The new version leaves the underlying voter-approved tax structure in place. The credit reforms in the new bill will increase oil industry cost, but it maintains an “open for business” investment climate to boost North Slope production and grow the revenue pie for Alaska over the long-term. RDC supports leaving the underlying voter-approved oil tax structure in place. In the spirit of compromise and “pulling together,” however, RDC understands the changes to cashable credits. It is important to note that eliminating cash credits will increase total government take, which could potentially impact future investment and production. Going forward, RDC continues to oppose restructuring of the current oil tax structure. Requested Action: For a list of Legislative Information Offices, visit: http://akleg.gov/lios.php If you are unable to testify in person or by phone, please send an email to members of the Senate Finance Committee and your legislators to let your voice be heard: http://www.akleg.gov/basis/Committee/Details/30?code=SFIN Point to consider for your testimony: • The new committee substitute achieves the policy goal set by Governor Walker and his administration to eliminate refundable cash credits, without compromising Alaska’s competiveness to attract future investment. • While the new committee substitute increases the total government take on industry, which to some extent will impact future investment, it is less harmful to future investment than the bill passed by the House that would have pushed Alaska to the bottom of the competitive scale and put future investment, jobs, and new oil production at risk. • The Senate version of HB 111, through modifications of the oil tax credits program, significantly limits future financial exposure for the State of Alaska while retaining important elements of the current oil tax framework that enhanced Alaska’s competitive position in attracting future investment to grow oil production, increase throughput in TAPS, and strengthen the economy. • The Senate is to be commended for eliminating provisions in the earlier version of HB 111, which would have significantly raised oil taxes at prices below $100, resulting in a major restructuring to the current voter-approved oil tax regime. • Oil tax reform in 2013 made Alaska more competitive and a more attractive place to invest. Oil companies have responded with over $5 billion in new projects. Daily production in fiscal 2017 is now expected to average nearly 524,000 barrels per day and is on track to mark the second consecutive year of increased production on the North Slope, the first time production has increased in consecutive years since it peaked in 1988. • It is important that revisions to the current tax structure minimize harm to Alaska’s most important industry and Alaska’s economy. Future production will be a reflection of current tax policy. • Tax policy should focus on long-term revenue from increased production instead of increased taxes for a short-term gain. Alaska cannot increase oil production by increasing taxes. • New oil plays by ConocoPhillips, Caelus, and Armstrong could trigger a major reversal in TAPS throughput by adding up to 550,000 barrels per day of new oil into the pipeline with commensurate economic benefits across the state. Maintaining a stable, durable tax policy with incentives to invest is key to seeing these projects come into production. • The oil industry has traditionally accounted for 88 percent of Alaska’s General Fund revenues. Even in these times of low oil prices, oil provides 67 percent of the state’s unrestricted revenues and supports one-third of our economy. • Under the current oil tax system (SB 21), Alaska’s share is higher than the producers’ at every price point. In fact, the state gets paid even when companies are operating at a loss because it still collects royalties, property tax, and a gross production tax. • It takes an annual industry investment of $3 to 4 billion to keep production levels stable on the North Slope. This requires a durable and competitive tax policy to fund Alaska projects. • Alaska cannot control the price of oil, but it can control what kind of business climate we create here: one that encourages continued investment and more oil for TAPS. |