A Citizen’s Guide

JUNEAU–With two days left in the summer’s second special session, lawmakers still haven’t settled on the specific structure or rates of a change to the state’s oil production tax.

After testimony from the governor’s lead adviser on oil and gas issues, the Senate may scrap a proposal approved in the House to tie the tax rate to industry investment.

“There’s a lot of concern over some of the formula mechanisms in the House bill,” said Sen. Gene Therriault, R-North Pole.

Lawmakers also are considering other changes to the tax proposal, including one that would limit the state’s contributions for repairs to Prudhoe Bay or other infrastructure, he said.

But even with the 11th-hour changes, lawmakers say they’re hopeful both bodies of the Legislature will approve an oil tax bill and go home.

“We’re pretty dialed in,” said Sen. Gary Wilken, R-Fairbanks, of the Senate Republicans who met to hash out a plan for changing the bill.

Wilken said he and other members of the Senate Special Committee on Natural Gas Development, which is reviewing the oil tax proposal, were influenced by testimony from Pedro van Meurs, the governor’s adviser.

At committee meetings Monday and Tuesday, van Meurs argued the taxing mechanism passed by the House was overly complicated, would not necessarily result in increased investment, and could cause the state to pick up between 80 and 90 percent of oil companies’ capital investments.

Because of the bill’s combination of deductions, credits, and tax rate adjustment, he said Tuesday, “Companies would barely spend any money out of their own pocket (for capital investments).”

The result could be a situation of “overstimulating” investment, in which companies invest in ways that don’t necessarily increase production, he said.

Dan Dickinson, a consultant with the Department of Revenue, defended the House proposal. He did not disagree with van Meurs’ analysis but said he saw the bill differently.

“There are situations in which increased investment will drive down the tax rate,” he said. Dickinson said a mechanism in the bill would limit the percentage of investments paid by the state.

Sen. Ralph Seekins, R-Fairbanks, who chairs the Senate committee, said the Senate’s intent “is to try to simplify the bill.”

Seekins’ own goal is to increase revenue to the state while limiting the opportunity for “gaming” by oil companies, he said.

As lawmakers set to work on the bill, van Meurs, who is promoting the governor’s oil tax proposal and gas pipeline contract, became an unlikely advocate. He said Tuesday he thought the Senate would come out with a “pretty damn good bill.”

“I’m getting very positive noise out of my Senate friends now,” he said.

Van Meurs said the body was considering adding in a floor, or bottom limit on the effective tax rate, which he said would ease some concern about the bill.

He said lawmakers also were sympathetic to a change he suggested that would limit the state’s responsibility for costs associated with the impending shut-down of Prudhoe Bay.

“These things are going to occur again,” he said. “This way Alaskans are protected.”

Van Meurs said the change would eliminate the motivation for companies to delay repairs, which would not qualify for credits, in favor of replacements, which would.

Therriault said he was working on another proposal to protect the state from costs incurred by companies through inadequate maintenance.

While the Senate version of the tax bill is likely to be based on net profits, lawmakers from both parties are still promoting a tax based on gross production, which Gov. Frank Murkowski said Friday he would veto.

Therriault said a tax that was based on gross production and added in certain deductible expenses would be simpler than a tax based on net profits and limited deductible expenses.

Democratic Rep. David Guttenberg of Fairbanks said he also supported a gross production tax and claimed there was wide support for one among lawmakers from both bodies.

“The votes are on the floor if we get a tax on gross,” he said.

Rep. Mike Kelly, R-Fairbanks, promoted the House version of the bill to the Senate committee Tuesday but suggested later that he and other representatives would support a bill without the variable tax rate the House approved.

“Job one is to fix the broken cash register,” he said. Kelly said he was optimistic the Senate would make changes the House would accept.

According to lawmakers, there’s still time to fix the tax during this special session, which ends Thursday night.

The failure of the Senate committee to forward a bill Tuesday to the Senate floor won’t preclude a conference committee on Thursday should the House turn down the changes made by the Senate, according to Seekins.

“We’re still a little pushed for time,” he said, “but we have adequate time.”

Stefan Milkowski can be reached at smilkowski@newsminer.com or 459-7577.