A Citizen’s Guide

JUNEAU — Gov. Sarah Palin says she’s pleased with the work done so far by legislators on her plan to raise taxes on the oil and gas industry and is confident the final bill will capture a fair share of the revenue for Alaskans.

Just how revising the petroleum profits tax, or PPT, would raise those extra dollars is being debated by the Legislature in a special session that’s set to expire at midnight Nov. 16.

Lawmakers are grappling with the paradox of trying to increase the state’s share of the North Slope’s oil and gas riches while at the same time encouraging companies to explore for new deposits.

Palin’s original plan sought to bump the base tax rate to 25 percent of a company’s net profits in Alaska. It would have also set a surtax of 2 percentage points for every $10 a company’s netback topped $30 a barrel and increased the minimum tax on the state’s oldest oil fields.

There’s growing consensus in the halls of the Capitol, though, for leaving the much lower existing minimum tax while substantially increasing the surtax to capture a greater amount of revenue at high oil prices.

“Our idea was to have that gross floor so we could be at a less risky position at low prices,” Palin said. “But when we rolled it out, I knew that the knobs would be turning.”

“That is the trade-off that lawmakers are choosing right now — to increase ever so slightly that risk on the low prices to capture more at the high,” she added.

In an interview on Monday, Palin said she was comfortable with the trade-offs legislators were making in the committee process to try to reach a balanced bill.

“I’m very pleased with this whole process,” Palin said. “It’s so obvious these legislators, for the most part, know the importance of being here. Some are still pushing back, but there’s been a healthy debate.”

A number of Palin’s fellow Republicans in the Legislature oppose changing PPT a scant 15 months after its adoption. They argue the administration hasn’t given the tax system a chance to work and believe any revisions should wait at least until next year when the Department of Revenue can conduct a full audit.

The industry opposes another tax increase.

Exxon Mobil has called on the state to lower the existing 22.5 percent tax rate, which it argues is too high to encourage investment in the viscous oil and smaller deposits — under 50 million barrels — that are expected to make up the majority of future discoveries on the North Slope.

The state’s other two major producers — BP and ConocoPhillips — have told lawmakers a tax increase could reduce or defer investment in marginal projects, though they refused to discuss specific projects.

Consultants hired by the Legislature believe the state can limit any potential effect on investment by leaving the base tax rate alone and upping the surtax instead.

Palin dismissed the producers’ public posturing on the tax proposal.

“It’s predictable and Alaskans have been through this before,” she said. “We’re not going to drive off industry. Our resources are much too valuable for any reasonable and competitive corporate player — like any of those big three — to pack up their tools and go home.

Under the current versions of the bill separately making their way through the House and Senate committee process, the state would reap around $4 billion a year when the price of oil reached $80 a barrel. Palin’s proposal would earn $3 billion at the same level.

Alaska North Slope crude oil delivered to the West Coast was listed at $95.20 a barrel Tuesday.

The increase to state take at high prices is an indication that lawmakers understand what’s at stake, Palin said.

“These are nonrenewable (resources),” she said. “When the oil is out of the ground, we don’t get a second chance at this. Let’s make sure we have appropriate value received today at high prices.”

The version of the bill that is attracting the most support among the majority of legislators would grab a greater percentage of the oil wealth at high prices in exchange for dropping Palin’s proposed increase to the minimum tax, which would ensure the state received some tax revenue at prices below $25 a barrel.

As it stands right now, Palin supports the direction the Legislature is moving.

“I’m pleased with the process so far,” she said. “But I think it will be changing.”

Palin believes the changes proposed by the administration are sufficient to remove the stain that she claims has plagued PPT since three former legislators were indicted on federal corruption charges for allegedly voting last year for a lower tax rate favored by industry. Two of those have been convicted; the third is awaiting trial.

While some Republicans have continued to steadfastly defend the oil industry’s interests in the tax debate, Palin doesn’t see outside interests trying to sway lawmakers illegally.

“I’m absolutely convinced and at ease that there isn’t the undue influence coming at them,” she said.

The bill is before the House and Senate Finance Committees, the last of three committee referrals in each chamber, but legislators are bracing for bruising floor and conference fights over the look of the final version.

As for whether she’ll call a second special session if this one fails to deliver an acceptable bill, Palin said she’d cross that bridge when she comes to it.

“I have a lot of faith that in the next week and a half they’re going to be able to produce for Alaskans what is very fair to Alaskans,” she said.

Contact Washington correspondent R.A. Dillon at dcnews@newsminer.com.