Rep. Andy Josephson
Serving Neighbors in Midtown, University, and East Anchorage

MARCH 25, 2016

Representing District 17:
Midtown, University, and East Anchorage

I Answer to You!

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716 W 4th Ave, Room 412
Anchorage, AK 99501
(907) 269-0265
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Legislative Update
House Bill 247 (Oil and Gas Tax Credits)

Dear Friends and Neighbors,

Rep. Josephson listens to amendments in House Resources
Rep. Josephson listens to amendments in House Resources

In the wake of extremely low oil prices (about $30 per barrel on the West Coast) and leveling off of production on the Alaska North Slope, the state has seen a sharp reduction in revenues from oil and gas combined with a drastic increase of tax credits to the industry. Built into the oil and gas production tax system is a generous credit system intended to incentivize production and institute progressive taxation. When profits are low, the tax rate is less and credits mitigate industry losses. Also, to curb decreased production, there are credits to incentivize the development of new fields.

However, due to the Legislature not anticipating such low oil prices while crafting SB21 the law has several inadvertencies, and now the current tax regime is now hemorrhaging credits and has been called the closest thing to free money in the world by industry. The repurchased part of the credits (versus those which are tax deductions) are the third largest state expenditure, following education and HSS.

In FY15, credits refunds and credits against liability spiked to $1.292 billion while state revenue from production taxes plummeted to $389.7 million. For comparison, credits in FY11-14 ranged from $716 to $918 million whereas production tax revenue ranged in those years from $2.598 and $6.146 billion. Thus, the state lost roughly three times as much in credits than it received in production taxes in FY15.

DOR’s Preliminary Spring Forecast 2016 estimates that production tax revenue in FY16 will be less than half of FY15 and will hit rock bottom at $10.7 million in FY19. In comparison, the forecast estimates that the state will issue $620 million in credits this year and around $805 to $940 million between FY17 and 19. The Governor’s HB 247 saved the state $500-600 million dollars in expenditures and foregone revenue in FY17 and $925 million over three years between FY17 and 19.

However, the House Resources Committee accepted a Committee Substitute of the Governor’s Bill which the Department of Revenue estimates saves the state merely $160 million over three years and eliminates the most substantial cuts of the original bill. The CS intends to preserve the status quo for the most part in fear of instability in the tax regime deterring investment in Alaska.

Representatives Seaton, Tarr, and I offered 33 amendments during committee, two of which were accepted: Representative Seaton’s $250,000 surety bond requirement and Representative Tarr’s requirement that minority members have seats in the working group.

The changes made by the CS turn what was supposed to be one of the larger cost saving measures proposed by the Governor into a pittance of savings and helped create arguably an even larger deficit (read my letter to the editor here). The bill still has to make it through the House Finance committee and the House floor before being sent to the Senate, but today marks the 67th day of session. We are running out of time to act on a sustainable budget and this bill, as it is currently written, does little to help.

As always, please call or email with any thoughts, ideas, or concerns.

I Answer to You!


Andy Josephson[signed]

Representative Andy Josephson
State Capitol Bldg., Room 430
Phone: 907-465-4939

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