By BECKY BOHRER, Associated Press
JUNEAU, Alaska (AP) — Oil long has been king in Alaska, but the state's Republican governor is having trouble finding support for a tax break he believes is critical to ensuring it remains so.
With a stunning defeat in the state Legislature this week, Gov. Sean Parnell has failed twice since last year to reduce production taxes on oil companies, a strategy he believes is crucial to bringing in new companies and ensuring those already here invest more and boost North Slope production. That would ensure Alaska's financial lifeline remains healthy for years to come.
Oil accounts for roughly 90 percent of unrestricted state revenue in the resource-rich state. It has helped make possible yearly dividend checks that Alaskans get just for living in the state. And recent flush years have created budget surpluses.
What's unusual in Parnell's defeats is that lawmakers from both parties, particularly this year, showed little stomach for his plans, albeit for differing reasons. Some saw the recent tax-cut plan as a corporate giveaway or unneeded by oil companies that consistently post huge profits; others, including some in his own party, say Parnell's bill was ill-conceived or poorly explained.
The latest setback came Wednesday, when Parnell abruptly announced in a rare live appearance on a TV newscast that he was removing his oil tax bill from consideration by lawmakers. The surprise move — unprecedented in Alaska — came just eight days into a special legislative session that he had sought mainly to deal with the issue.
He blamed the bipartisan-controlled Senate, which he said appeared incapable of passing "comprehensive oil tax reform."
After sometimes combative hearings, especially in the Senate, lawmakers in both chambers said the administration hadn't made their case. To many, it remained unclear, for example, how many barrels of new oil the state would see produced under Parnell's plan, or when Alaska might break even on any tax breaks it gives.
While the bill was aimed at boosting oil production over time, the near-term impact on the state's economy also came into play. While Alaskans have enjoyed a healthy state budget in recent years, due in part to the high price of oil, Parnell's budget director said the state could find itself in a deficit as early as next fiscal year under his plan, and would need to dig into its reserves to maintain a certain level of spending. A legislative consultant said Parnell's approach would wind up giving oil companies "quite a lot" of money for projects that are profitable to do today.
Anchorage Republican Sen. Lesil McGuire said she agrees philosophically with Parnell on the need to make Alaska a more competitive place for industry investment, but in a hearing called his plan "half-baked" and predicted the special session would end in a "train wreck."
In an interview, Parnell said he still believes strongly in the need for tax changes but decided to pull oil taxes from the special session call "to give folks a breather and let calmer heads prevail across some more time and make the case again down the road."
When asked how much time, he said he didn't know.
"We need to change some minds or change some people, either way," he said. Nearly all legislative seats are up for election this year.
Oil's relatively high price has helped to mask a decades-long decline in production. An average of 609,000 barrels a day has coursed through the trans-Alaska pipeline this year. At the peak, in the late-1980s, 2.1 million barrels a day flowed through the 800-mile line.
It likely would take billions of dollars in additional investment a year by oil companies just to begin to stem the decline curve, and officials from the North Slope's three major players say Alaska's current tax structure discourages new investment.
The system, a legacy of former Gov. Sarah Palin, features a 25 percent base tax rate and a progressive rate triggered when a company's production tax value hits $30 a barrel. The idea behind it was that the state would help oil companies on the front end with things such as tax credits and share profits on the back end when oil flowed and prices were high. But companies say the surcharge eats too deeply into profits.