JUNEAU — Alaska’s oil tax credits are threatening to overwhelm the state budget and are expected to grow to as much as $1.7 billion a year, costing the state more than it spends for schools and becoming its single largest expense, Gov. Bill Walker said Wednesday.
Walker this week vetoed $200 million in oil tax credits. At a news conference in Juneau, he said his veto was aimed at sending the message the tax credit system is unsustainable and needs to be reformed by the Legislature.
“This will be the beginning of a discussion on how we go forward with that,” Walker said. He suggested there are other ways besides using tax policy to provide incentives for oil companies to drill for more oil.
Walker used his line-item veto to reduce the expected cost of paying for the credits from $700 million to $500 million.
But companies that use the credits to explore and develop oil Wednesday expressed dismay at both the loss of the credits and the message they say it sends.
Caelus Energy Alaska’s Casey Sullivan said companies such as his made their investments in oil production at the encouragement of the state, which said the tax credits would be there.
“It is important to note that investments have been made in good faith by companies across Alaska exploring and developing the state’s resource,” he said.
“Those investments economically benefit Alaska by way of jobs for Alaskans, more oil through (the trans-Alaska pipeline) and royalties and other taxes to the state treasury,” he said.
Caelus hopes to get in line early for the credits it has earned, to have them paid from the $500 million available and not have to wait until next year. Caelus has historically been only a small user of tax credits, he said.
And Sullivan was not happy to see the oil tax debate reemerging after having been resolved with the adoption of Senate Bill 21’s new oil tax system and its survival of a referendum last year.
“Today’s actions and speculation regarding the discussion on petroleum tax credit system overhaul create a good deal of uncertainty across the industry and the investment community,” he said.
Walker on Wednesday was unable to explain how the state benefited from delaying payment of the credits for a year.
It would reduce the amount the state would have to take from reserves to balance the budget this year, he said. But that amount would instead be taken from reserves next year, he acknowledged.
Delaying the payments, Walker said, would interest the industry, legislators and others in discussions about how to reform what he called an “unsustainable” tax credit system.
“It brings the issue to the forefront, and it will begin a discussion,” he said.
Several legislators attempted to raise the tax credit issue at various times during the just-concluded legislative session but were unable to persuade Republican leaders in the House and Senate to roll back credits.
Top legislative leaders Wednesday declined to be interviewed, but Walker said he’s already had some productive discussions with legislators about possible reforms.
“Some had some pretty interesting suggestions,” he said.
The state Revenue Sources Book projected tax credits this year for all producers to be $590 million, in addition to the $700 million in refundable credits earned by nonproducers.
But all the companies may not be impacted to the same degree, BP spokesperson Dawn Patience said.
“At today’s oil prices, BP receives NO tax credits from the State of Alaska,” she said, but she declined to provide further detail.
Walker acknowledged his veto might not actually reduce the state’s budget this year, but defended it anyway for its ability to bring attention to the unlimited tax-credit liability the state is facing.
“To sit back and do nothing would not have brought this discussion and this issue to light,” he said.
Rep. Les Gara, D-Anchorage, supported an unsuccessful effort to limit oil tax credits during the last legislative session. Wednesday, he said concerns about harm to small exploration companies is overblown.
Even if they don’t get their credits reimbursed by the $500 million available this year, the last applicants this year would be first in line for reimbursement next year, he said.
“There’s no way that reduction in tax credits causes any harm,” Gara said. “The most they’d have to wait is two or three months to get their credits.”
This article was written by Pat Forgey from Alaska Dispatch News, Anchorage and was legally licensed through the NewsCred publisher network.