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Rep. Gara Calls Out Governor’s Changes to Oil Taxes from 2010

Today, Representative Les Gara (D-Anchorage) called on the governor to explain his continuing change in position on Alaska’s oil tax law, known as ACES.  In 2010, the governor took a position that was in line with that being pushed by House and Senate Democrats—that reasonable tax cuts should be tied to Alaska production, and breaks should not be given to companies that would spend them outside Alaska in “some other country.” 

“The governor has turned 180 degrees on that point, and now he wants to give companies upwards of $2 billion a year of Alaska’s revenue share, that he lets them spend, if they wish, outside Alaska,” said Rep. Gara.

Governor Parnell also announced in 2010 that he had surveyed 10 oil companies, only 2 of which supported changes to ACES.  See Dec. 20, 2009 Petroleum News.   Rep. Gara has asked for the governor to share that information with the public so we know which of the eight companies stated their support for ACES, and so legislators can judge the credibility of company testimony.   According to a December 20, 2009 Petroleum News article:

“Parnell also said that he has already discussed ACES with 10 oil companies.  Of those, he said, “four to five” thought the tax system was ‘just fine’, while ‘two or three’ thanked the state for the tax credit program, and two companies wanted to see ACES changed.”   

The governor’s most significant reversal in course is the most costly to Alaskans. The windfall profits surcharge, commonly called “progressivity” leaves Alaska’s production tax at 25% until a company has made $30/barrel in profits on North Slope Oil it produces.  For harder to develop fields, ACES is written so that the windfall profits surcharge only kicks in at higher prices.  The governor’s current bill does not require companies to spend any of those $1-$2 billion in tax breaks in Alaska. In 2010 he defended Alaska’s windfall profits share, or progressivity, something he wants to eliminate this year. See Jan. 24, 2010, Petroleum News, ACES Working Well But Needs Adjustment.

Governor Parnell, as quoted in the Petroleum News, ACES Working Well But Needs Adjustment, Jan. 24, 2010:

“I’m not interested in changing progressivity so they [the companies] can take that money and invest it somewhere else.  If they’re willing to invest it here, I’m open to considering it, but I’m standing up for Alaskans in this, not some other country.”

“In 2010 he promised he supported Alaska’s windfall profits share at high oil prices, and now he proposes to eliminate it, at a cost to Alaskans of between $1 - $2 billion/year.  He’s previously stated he won’t allow tax breaks to be spent outside Alaska.  This year he proposes an elimination of Alaska’s windfall profits surcharge and lets that money be spent in whatever country companies wish to spend it.  The public has a right to know why policies and statements he’s made recently have been flipped 180 degrees,” said Rep. Gara. 

Likewise, the governor has flipped 180 degrees on tax credits that companies can earn, to reduce their tax rate, if they invest in Alaska.  Originally Governor Parnell sought to increase Alaska’s 20% tax credit for investing in capital projects in existing fields to a 30% credit.  In his House Bill 110 in 2011, the governor proposed increasing state tax credits for existing field well expenditures to 40% of the cost. In contrast, in this year’s bill he seeks to eliminate the same Alaska investment credits he previously claimed would incentivize development. 

“It is rational for oil companies to want to push tax rates as low as they can get.  But as elected officials, we have a duty to protect our shareholders.  The Governor’s elimination of Alaska’s windfall profits share does exactly what he promised he wouldn’t do when he spoke just three years ago.  That’s the largest component of his bill this year, and it lets companies take tax rollbacks worth $1 - $2 billion a year, and spend them Outside Alaska,” said Rep. Gara.

House and Senate Democrats, in contrast, have proposed bills that are more consistent with the governor’s original promises that tax breaks would not be written to let companies spend them outside Alaska.  Major provisions of the Democratic legislators’ bills require companies to produce in Alaska to earn reasonable tax breaks, including:

  • Tax breaks to companies that produce Alaska’s massive heavy oil reserves (equivalent to roughly 85% of the rate under current law)
  • Tax breaks if companies produce new oil in new geological units of existing fields (same break as above);
  • Tax breaks if companies in existing fields produce more oil than they did in 2012 to reverse their production decline (Same break as above);
  • Tax breaks for 7 years to companies that bring new fields on line (equivalent to roughly 70% of the rate under current law); and,
  • Low interest loans to companies so they can build the processing facilities needed to put oil from newly developed fields into the pipeline.

Read the letter from Rep. Gara to Governor Parnell: http://akdemocrats.org/gara/022013_letter_to_gov_re_oil_taxes.pdf

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