Legislature’s first hearing on Fair Share Act renews long-standing division on oil taxes

Something might be going on in there.The Alaska State Capitol building as photographed in 2010. (Photo by Kimberly Vardeman/Creative Commons)

Update: This post originally incorrectly listed the party of Rep. DeLena Johnson, R-Palmer. It has since been updated. Sorry!

The Alaska Legislature held its first hearing Tuesday on the voter initiative seeking to raise taxes on large legacy oil fields and in doing so highlighted how deeply divided the Legislature is when it comes to oil taxes.

Oil taxes have largely taken a back seat in the last few years as legislators from across the political spectrum banded together to lessen cuts to government services and preserve the last remains of the state’s savings accounts in the face of declining oil revenues.

What’s largely been off the table—other than reducing the Alaska Permanent Fund dividend—has been any talk of new revenue, whether it be a broad-based personal income tax or significant changes to oil production taxes. Tuesday’s hearing in front of the Legislative Council, which is required by state law, explained why.

The political alliances drawn with regards to the PFD were gone at the Legislative Council table when it came to oil taxes as several Republicans outlined stout opposition to the measure that seeks to raise $1 billion a year by raising production taxes fields that have produced 400 million barrels over their lifetime and continue to produce 40,000 barrels of oil per day.

The fiercest opposition to the measure was voiced by Sen. Natasha von Imhof, the Anchorage Republican who co-chairs the powerful Senate Finance Committee, likened the proposal to sin taxes aimed at curbing smoking or drinking and said it looked like the measure was aimed at killing the oil industry.

“We’re looking at almost quadrupling the current taxes we have now, particularly in an area where it’s the lower price-per-barrel where it’s very slim margins at that point and the companies aren’t making all that much revenue and need to make payroll to continue with operations,” she said, referring to Prudhoe Bay, Kuparuk River and Alpine, which are the only fields where the tax would apply according to the sponsors. “With every tax we have there’s a corresponding behavior. … What kind of behavior are we trying to curtail with this bill? Let’s just have no production on the North Slope, let’s just make everything idle underneath $50. … I just look at this and see this as very alarming and we’re essentially wanting to just drive the oil companies into the ground and make them shut down.”

Senate President Cathy Giessel, who chaired the Senate Resources Committee during the session where Senate Bill 21 was passed, was more muted about her concerns with the bill but said that she was concerned that there were portions of the initiative that were “extremely vague” that could end up harming the industry.

The idea that the legislation was “extremely vague” was aided by the analysis presented by the Legislature’s attorneys, who pointed out several areas where they said the measure could go way further than its sponsors claimed.

Democratic Minority Leader Sen. Tom Begich, D-Anchorage, was one of the few legislators who offered anything resembling a defense of the measure at the hearing, noting that the initiative and the backer’s statements make the intent of the legislation—to be narrowly focused on legacy fields—is clear.

The attorney conceded that Begich’s reading “is both probably the most reasonable and, based on my reading of the initiative’s sponsors, is probably what was intended,” but went on to say that you could also read it to go far beyond.

Rep. DeLena Johnson, DR-Palmer, wondered at one point what a legislators’ ability would be to hold town halls to let voters know how uncertain the measure is. Begich said it’s likely a question for legislative ethics (as it could get into the realm campaigning).

Still, the intensity of Republican opposition to the measure wasn’t universal.

In addition to raising production taxes, the Fair Share Act also would require oil companies to disclose much more than they currently do by requiring “all filings and supporting information” that the oil companies provide to the Department of Revenue “shall be matter of public record.”

This was a point that von Imhof also raised, noting that other businesses aren’t treated like that and called it “punitive.”

“I find it despicable that we would treat a particular company or any number of companies like that,” she said.

Begich asked the Department of Revenue if it could tell the Legislature about the production costs or profit on the affected fields. An official told him to ask the companies.

Sen. Bert Stedman, the Sitka Republican who co-chairs the Senate Finance Committee with von Imhof and who ultimately opposed Senate Bill 21, said the complete lack of insight on how Alaska’s oil is developed has created challenges. He said, though, that there’s a wide gulf between more information and “all” information.

“They use the word ‘all filings’ and ‘all supporting information.’ We’ve had over the years numerous presentations on the inability that Alaska has of accessing information in our oil basin. Virtually every consultant that we’ve hired has brought that to our attention,” he said. “It’s just the way we’re structured, and we struggle along with the lack of information. … Where is the boundary between the industry norm worldwide for us to have access to information and the world ‘all filings and supporting information.’ I’m not so sure where that line is, and I think it’s something we need to clarify. Clearly there’s a need, in my opinion, for us to have more information but what is the definition of more?”

Still, Stedman stopped far short of endorsing anything in the Fair Share Act. However, he did not call the proposal for additional transparency in Alaska’s oil industry “despicable.”

Initiative status

The group submitted more than 44,000 signatures to the state, far surpassing the requirement to get a measure on the ballot. The Division of Elections is in the process of verifying the signatures and has until March 17 to certify the initiative (according to the daily report, the group is currently 1,000 short of the requirement with about 14,000 signatures remaining to be reviewed).

The initiative will appear on the first statewide ballot that’s 120 days after the Legislature adjourns. It would only be able to make the primary ballot if the Legislature adjourns on time, otherwise it would likely be moved to the general election ballot.

Assistant Attorney General Mills noted that the initiative could also appear on a special election, which is a possibility with the ongoing effort to recall Gov. Mike Dunleavy.

What’s ahead

The Legislature has the option to bump the initiative off the ballot altogether if is passes something that’s “substantially similar.” The committee spent a fair bit of Tuesday’s meeting asking questions about how that would be determined, suggesting there’s at least some interest in passing an alternative measure.

Assistant Attorney General Cori Mills told the committee that the Department of Law and Attorney General Kevin Clarkson would be involved in the decision, judging whether the bill met the “scope, purpose and means” of the proposed initiative. She also said that any decision on this matter could be appealed to the courts.

She also warned that if the courts find the measure passed by the Legislature is a “hollow gesture” intended solely at defeating the initiative, then the court could choose to put the issue back on the ballot regardless of how the Department of Law rules.

The official decision on whether to bump a measure from the ballot wouldn’t happen until after the enactment of the measure, she said, but noted that these kinds of issues are closely monitored by the Department of Law.

If voters approve the initiative, then it would be protected against a wholesale repeal by the Legislature for two years (something a substantially similar law passed by the Legislature wouldn’t have). It could be amended during that time, though, and regulations would also dictate how several portions of the bill, such as the disclosure, would ultimately work in practice.

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