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House Democratic Caucus: Oil Giveaway: Even in Unlikely Event it Works, Alaska Still Loses

State numbers show even more production won't overcome billions in lost revenues

JUNEAU - According to a new fiscal note from the Alaska Department of Revenue, Governor Parnell's proposal to give large tax breaks to the oil industry would still cost the state billions of dollars in lost revenue even if future oil production increases. Because producers have not committed to increasing investment, exploration or production should the bill pass, the administration used arbitrary scenarios assuming various degrees of increased production. No scenario showed Alaska making back lost revenues once the bill takes full effect.

"This bill fails if it works," said Rep. David Guttenberg (D-Fairbanks). "And if it doesn't work, and we've not heard any reason to believe it will, then it'll cost billions more."

The governor's bill gives the tax breaks without requiring any increased investment, exploration or production. Even in the unlikely event companies re-invest the tax breaks in Alaska and production increases, the numbers show that by 2017 Alaska will still be losing up to $1.4 billion a year.

In an effort to make sure Alaskans get something in return for reducing oil revenues, Democrats offered amendments in the House Finance Committee to only give tax credits for exploration or building production facilities. The amendments failed on caucus lines.

"Giving close to $2 billion a year to oil companies, when they won't commit to spend the tax breaks in Alaska or increase production, is a fool's game," said Rep. Les Gara (D-Anchorage). "That's why we propose a better idea - to help companies only if they spend money in Alaska for new exploration, and the processing facilities needed to put new oil in the pipeline."

The new fiscal note says that with a five percent increase in production, Alaska would lose over $1 billion in revenue each year starting in 2015, increasing to more than $1.3 billion in 2017, the last year the report estimates. Even with a highly optimistic twenty percent production increase, Alaska would still lose $828 million in 2017 alone.  Factoring in additional royalties from the new production lowers the amount of lost revenue slightly, but the governor's proposal still costs the state hundreds of millions a year in best-case scenarios and over a billion dollars a year even with a five percent increase in production.

The updated fiscal note with the projections is here: HB110 NEW FN(FIN)-DOR-TAX-03-29-11.pdf

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