JUNEAU — Gov. Bill Walker is limiting the amount available to pay for oil and gas tax credits this fiscal year, saying Wednesday that no sector of the state would be untouched by Alaska’s current budget situation.
The credits affected are for explorers or companies developing fields but not yet in production on the North Slope and in Cook Inlet.
Walker said the tax credit system is unsustainable and that credits for these companies could soon top $1 billion, becoming one of the state’s largest expenditures. Alaska needs to look for ways to provide incentives that don’t drain its resources, he said.
The state is running deficits, a situation exacerbated by low oil prices, and is using money from savings to help balance the budget.
In a letter to legislative leaders Monday, in which he announced he had signed the state operating budget, Walker said the state would continue funding credits this year but at a slower pace until a more sustainable system is developed or Alaska’s financial situation improves. The new fiscal year started Wednesday.
Walker used his veto power to limit to $500 million the amount available to pay the credits, which he said is roughly the amount in the queue now. The budget had included an estimate for the credits of $700 million and would have allowed them to be paid even if the credit certificates presented exceeded that amount.
Walker said the state would honor its credit commitments over time.
Democrats had similarly pushed for a delay in paying the credits during the budget debate, but majority Republicans balked. While Walker raised concerns about the sustainability of the system in an op-ed in January, he stayed out of the fray during the debate. He told reporters Wednesday, in a conference room in the administration’s temporary quarters while the Capitol is undergoing renovation, that adding this issue to the mix during an already busy session would have been challenging.
He sees his action as the start of a discussion on a way forward.
Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said the group takes Walker at his word that the state will honor its commitment. Alaska’s policy of “encouraging small or new oil companies to pursue tax credits by spending billions of dollars in Alaska remains wise, and new oil will result from the increased activity,” she said in a statement.
Senate Finance Committee co-chair Anna MacKinnon, R-Eagle River, said she is concerned about the impact of Walker’s decision on the smaller companies that the state has been trying to attract in an effort to stem the decline in oil production. She said she looks forward to discussions on the credit issue and Alaska’s fiscal future.
Revenue Commissioner Randall Hoffbeck said the administration would be working on a package addressing credits that could be introduced for the next legislative session. Ideas brought up in past discussions with some of the companies included more active participation by the state, he said.
Discussions on overall fiscal options will continue with the public this summer, and in the fall, the administration plans to release some scenarios showing where the state would be over time under those scenarios, Walker’s budget director, Pat Pitney, told reporters. A package will then be prepared for lawmakers to consider.
Rep. Les Gara, D-Anchorage, who during the regular and special sessions supported an approach to credits similar to what Walker took, hopes to have a discussion on Alaska’s oil tax structure overall, not just on credits. Gara has been a critic of the current tax structure and thinks as part of the revenue discussion that it needs to be looked at first.
“A fair oil tax structure is the first thing we should do, and then we have to see if we need anything after that,” he said.
Walker also rejected several capital project reappropriations, including $175,000 to Arctic Power to promote energy issues. Walker said the group has done a “phenomenal” job, but he’s somewhat taken up the cause of opening the Arctic National Wildlife Refuge and this is another acknowledgement of Alaska’s fiscal situation.
