A Citizen’s Guide

The regular legislative session will end Tuesday night, and there’s no reason lawmakers can’t find a compromise on the oil and gas production tax bill before the deadline. Dragging out the debate until a special session would be not only an embarrassment, but a costly one at that.

Another year without changes to the state’s production tax formula would mean hundreds of millions of dollars — maybe $1 billion, depending on oil prices — in state revenues lost to indecisiveness. And that’s just one year. At the rate that Alaskans are asking their legislators to spend money on the Three P’s — projects, programs and pupils — that’s money Alaska can ill afford to leave on the table.

Like it or not, it’s come down to this: A reasonable compromise that boosts state tax revenues from the publicly owned resource to a passable level is better than the disturbingly low tax rate that has been in effect far too long.

No doubt this year’s bill will come up short of being perfectly fair to all parties, and probably with no shortage of technical flaws, either. But remember, most anything can be fixed. And no matter what the governor or the oil industry may think or want to dream, the Alaska Legislature can go back and change the law whenever it wants. So there’s no need to get hung up on the irresponsible notion that today’s tax changes should be locked in place for 30 years or more. That may be on the industry’s wish list, which the governor has accepted, but it has no place in good public policy.

So where does that leave the Legislature in the final three days of the regular session? Lawmakers are working hard to improve on the governor’s bill, and they deserve praise for that. The final version should include some degree of what’s called “progressivity,” which means the tax should move up as oil prices — and profits — move up. The intent is to keep taxes reasonable at low prices, so as not to discourage investment, but to garner for the state a bigger share of the income at high prices.

The final version should stick with the 20 percent tax credit for new investments. That credit would be on top of the usual deduction against taxable income for expenses, which means the total works out to the state “paying” 40 percent of the cost of oil and gas investments by forgoing tax revenues. That should be enough.

The final version, unlike the governor’s bill, should tie tax credits for past investments to future spending. If the companies want to collect tax credits on their $5 billion or so of investments from recent years, fine; let’s see some future spending, too. That spending will be good for all of us at the table — more exploration, more development, more production and more oil money.

The final version should include a small boost in the tax for the state’s oil spill prevention fund, as legislators have proposed.

The final version should include the feature added in House Finance that links the standard deduction on oil and gas company taxable profits to capital spending. It’s only fair that tax deductions and credits go to those who spend some of their profits on new production in Alaska.

The final version should prohibit tax credits for spending on well abandonment costs, which rightly is where the House and Senate are headed.

And then there is the tax rate itself. The governor wants 20 percent. The industry had wanted 12.5 percent but says it is willing to settle for 20. Different legislative committees have endorsed 20, 22.5 and 25. Lawmakers are right to ask whether the 20 percent rate is high enough, but it would be best not to nudge it so high that Alaska goes to war with the industry. No one wins in a war.

BOTTOM LINE: The time has come to pass an oil and gas tax bill that increases state revenues while also encouraging future investment.