It’s rare for the Legislature to provide a welcome surprise these days, but one came Saturday with the passage of a compromise deal on oil tax credits that is forecast to save the state hundreds of millions of dollars per year. Although the legislation passed at the end of the group’s second special session doesn’t go all or even most of the way toward closing Alaska’s multibillion-dollar budget gap, it is at least a good step in that direction and a hopeful sign that compromise — even on consequential, complicated revenue solutions — is possible for legislators. Legislators should build on this progress.
Where lawmakers ended up on oil tax credits wasn’t too far from Gov. Bill Walker’s compromise plan put forward in early June, but there were many roadblocks along the way. The Senate’s leadership wanted a relatively straightforward end to cash payments of tax credits without any guarantee of production. The bipartisan House majority coalition also favored an end to cash payments, but also favored revisions to the overall oil tax scheme that they said gave the state a fairer share of revenue. Detractors of the House approach said it was unwise to revamp oil taxes again after several recent changes, accusing the House of trying to soak the industry in a manner that would have a serious chilling effect on oil and gas development.
Ultimately, the Legislature settled on an approach that would require companies to produce oil from sites where they’re attempting to claim credits — a step up from the current system, which rewards exploration regardless of whether it ultimately leads to production. Although the state Department of Revenue doesn’t estimate the move will save money this year, the savings add up quickly in the years to follow — $85 million in fiscal 2019, $185 in fiscal 2020 and a total of almost $1.5 billion during the next decade. It’s the kind of a credit system that makes more sense for the state, one that ties credits to actual increases in production. It should help ensure that firms don’t exploit the system to take fliers on long shots with little chance of development.
Regardless of what revenue philosophy you support, the compromise on oil tax credits is a hopeful sign with regard to unraveling the state’s fiscal crisis. An average of about $150 million per year over the next decade is by no means chump change — it’s almost half of the state’s general fund allocation to the University of Alaska, to give a sense of scale. If lawmakers can come to terms on one revenue measure, there’s no reason further progress isn’t possible, such as the Alaska Permanent Fund earnings restructuring plan that both majority groups agree is worthwhile and necessary to any balanced budget plan.
For the moment, however, the most pressing short-term priority is the passage of the state’s capital budget, which will allow progress on crucial road projects and other items. There are already hopeful signs that legislators are working together to iron out differences and get that budget passed before the end of this month. If legislators can maintain their focus and continue the progress they’ve developed, this year could prove productive for the state. That would be a welcome development, since compromises may be in short supply next year with elections looming.
— Fairbanks Daily News-Miner,
July 18
