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Note from Rep. Les Gara
Note from Rep. Les Gara  
Oil Tax & Subsidy Bill: Corporate Largesse, Much Fixing To Do.
Oh, and One Good Bill For Kids
Note from Rep. Les Gara

April 11, 2016

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Dear Friends and Neighbors,

I’m tired.  I’m working hard to smile and not let this thing called politics make me cranky.  That’s to say, I hope this E-News update is written in at least marginally decent English.  And I apologize I’ve been AWOL on newsletters recently! Here’s some good and bad and hopeful news on two important issues you may want to know about.

Today we expected to debate a bill by the Governor to fix SOME of the major flaws in an oil tax system that pays oil companies roughly $1 billion more in tax credits and deductions than we get back in Oil Production Taxes. 

Here’s a gem that should make you scratch your head. This isn’t an exaggeration.  Under current law Alaska will receive more revenue in three of the next four years from fishing and hunting license fees than from our current Oil Production Tax law.  That’s because of a bad mix of gold-plated, overly generous tax breaks, deductions, oil company cash payments, and an Oil Production Tax that is so low it could guarantee austerity for a decade.

My other major work tomorrow will be to work to get my Foster Care improvement bill, House Bill 27, though the first Senate Committee (Senators Stedman, Kelly, Stolze, Giessel and Ellis are on that committee).  It passed the House 37-0 on, ack, April Fool’s Day (I won’t read too much into that). The bill has a lot of bi-partisan support, support from Alaska Children’s Trust, a major bi-partisan national children’s organization, and Facing Foster Care in Alaska, as well as the Department of Health and Social Services.  It will improve children’s lives.  It will be a casualty to children if I can’t figure a way to get this passed, but in legislative time, there is enough time left to get this bill passed. 

If you’d like to write a short note of support to all senators on the bill that would be great.  Here is my House Floor speech on the bill:

AKDemocrats.org/rep_gara/2016/04/02/video-rep-garas-floor-speech-supporting-passage-of-hb-27/ 

If you need the addresses for all Senators, or a summary of the bill, just e-mail my aide Molly at molly.carver@akleg.gov.

 Over a Billion Dollars in Oil Company Subsidies is Unaffordable

Today, companies pay a 4% Oil Production Tax – a very low rate, and a low rate we will live with until oil doubles in price to $76/barrel. That rate can be reduced to 0%, or under the current version of the bill, 2%. That’s a pathway to poverty for the state at any anticipated oil prices in the near future, and even at prices when companies are making good profits. 

The average North Slope Field is profitable at $46/barrel.  The 4% rate is intended as an emergency “tax floor. The Governor filed a very modest bill – too weak in many respects – and some legislative leaders have rolled back even those provisions.  Roughly 75% of the deficit reduction savings and revenue from that bill have been deleted in the version of the bill headed to a vote today.  We will try to fix it with members in both parties (and our one Independent House member) who have concerns.

Here’s the basic scoop.  The Governor tried to modestly raise the 4% tax floor to 5%.  Some of us have proposed something, we think, would help our ability to protect and support children, seniors, and savings while treating companies fairly.  Unlike the Governor, we’ve tried to slowly increase the tax rate at prices when companies are profitable.  We’d wait until $60/barrel.  As corporate profits rise, all parties would receive a fair share.  We’d slowly raise the “minimum tax floor” from the current 4%, to 5% at $60/barrel, and up to 10% at much higher prices.  That would allow us to share fairly in oil company profits on Alaska’s oil.  For smaller fields the rate would be even more modest. 

Under this proposal we’d raise an additional $120 million in needed revenue at $70/barrel, and at $85/barrel we’d raise a needed $600 million in additional needed revenue while we face a $4.4 billion deficit.  All at prices when companies profit.

And, Those Luxury Oil Company Tax Credits.  With a low tax, we pay the highest oil company cash and deductible tax credits to companies of any place in the world (in proportion to the production taxes we charge).  We can’t afford that.  For what?  For newer fields that were already being invested in, and were moving forward before we changed our tax laws in 2013.   Companies that conveniently claim new oil production is a result of the new tax law they pushed are, well, wrong.

Here’s some math.  In combination, Alaska pays oil companies, in credits companies deduct from their tax payments and in cash payments that we send to companies, uh, $1.06 billion in 2017 and $820 million projected for 2018. That’s a lot.

The Governor’s bill saved Alaska (with his minor tax increase, and his tax credit clamp-downs) $785 million in 2017, and $435 million in 2018.  The current bill saves $5 - $30 million in 2017 – or 95% less than the Governor’s bill.  And it reduces the deficit by $300 million less in 2018 than the Governor’s bill.

We will try to fix as much of this as possible, and seek allies on both sides of the aisle.

There are some good parts of the current bill, but they don’t raise much revenue.  I’ve called for, and the Finance Committee agreed to, a fix to a problem that allowed most post-2002 fields to pay $0 in Production Taxes until oil prices double, and pass $73/barrel.  The new bill ends that excessive break.  That will help Alaska in the future. But today, 90% of our oil is from older fields that didn’t get that tax break, so the revenue impact of this fix will not be huge in the next few years. It’s a good thing nonetheless.

And one version of the bill ended some of the excess corporate generosity we offer in Cook Inlet.  There is no Oil Production Tax in Cook Inlet, even though Alaska will pay oil and gas companies about $260 million in Tax credits in 2017.  That is unsustainable.  Working with members, we ended that exemption, and imposed a modest tax on profits for oil in Cook Inlet.  But that was deleted in a vote in the Finance Committee – over my objection  - Friday.

Oh.  And – gas producers also pay no Production Tax in Cook Inlet.  They just take company cash payments and tax credits.  Nice deal if you can get it.

I’ll end with this.

Oil and gas companies are the only recipients of more money than the law provides for as far as I can tell.  We have a formula for paying out cash tax credits that is based on a percentage of the oil production revenue we receive.  Since we receive so little Production Tax revenue right now, the formula says we only have a statutory duty to pay $30 million in tax credits in 2017.  But many legislators, and the oil industry, want $900 million in payments when we can’t afford it.  At the same time, children are receiving less money than our 3-year school funding statute promised, and seniors are facing the loss of Senior Benefit payments promised by statute.

“Backwards” is all I can call that.

As always, call if we can help.  And write letters to the editor and e-mails to legislators!

Thanks.

My best,

[signed] Les Gara

 

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