Outside of the State Operating Budget, which I hope to address in the coming week here, there was no more divisive issue before the Legislature than what to do, if anything, on our oil and gas tax credit systems.
The problem many saw, magnified by a fiscal situation that presented an unprecedented and unforeseen $4 billion budget deficit, was the amount of liability the State was exposed because of low oil prices and higher than expected company requests.
Another factor magnifying the credit problem was the Governor’s decision to line-item veto $200 million in FY 2016 credits. All that did was push those payments to our current budget year. So, instead of a $575 million in credits this year, we are on the hook for up to $775 million.
Before I continue, we must address the political wording being used by some to try and sway opinion on the credit transactions. It’s important to lower the temperature as the Governor considers his action on House Bill 247, the bill containing the House-Senate compromise on the systems that stretched into the ongoing Special Session.
We are not making cash payments to industry. Let me be clear: some on the left are calling the tax credit system cash payments to wealthy oil companies to set up a false argument and try and curry favor with Alaskans. The facts are different. No cash is exchanged. We are not writing checks to industry. We are not pitting education, senior benefits, public safety, or anything else against our State tax credit liability. Our budget covers all Alaskans.
Facts matter. The simple fact is we instituted tax credits under ACES that passed when Sarah Palin was Governor. I did not vote for that bill. Some of the same people on the left voted for the credits they are now decrying. I don’t begrudge them their ideology. I share their desire to tackle credits for the final time. I don’t share their desire to re-write our entire oil and gas tax code for the sixth time in 12 years. The Legislature changed taxes under Senate Bill 21 three years ago. The voters affirmed our action by referendum during the last primary election.
Instead of revising history and asking Alaskans not to remember their earlier support for a robust tax and credit program, the left should be working with us to hold to our principles and honor the deals and compromises struck with our partners. Our philosophy, under SB21, was to share in the windfall when prices are high, and help ease the pain when companies have to continue operating at a loss at low prices. It really is that simple. We made a deal. Alaskans were asked if they liked the deal and they said yes. Now that times are bad we shouldn’t be changing course and denying them credits because everyone still wants their pet issue funded.
The difference comes down to that. I didn’t support stripping a provision from law that would get rid of a company’s ability to spread their losses over time, after they’ve been doing so for years. Oil was trading for less than $26 per barrel for a good stretch last year, and the price has still hovered below or near where companies ‘break even’ on their cost to pull the oil out of the ground. I voted against the bill in the House last month, though I did vote to move the bill to the floor for a vote of my peers, both in the Resources Committee and the Rules Committee. It passed the House and a changed version passed the Senate.
I voted for the House-Senate Conference Committee report because I wanted to stop damaging the energy industry and bring finality to this process. You and I both have seen what chilling effect losing a large contributor like an energy company can have. We lost Agrium. With a bill I authored, hopefully we can spin them back up.
As for the compromise, we scaled back credits in Cook Inlet. We moved the dials, with formula and rate changes for different credits. The final compromise brings our liability down by nearly $300 million. That’s a lot of money. It’s not enough to fill the deficit. It’s not enough to eliminate our credit liability. But, a deal’s a deal. It took the Legislature five months to come to consensus. Some won’t like the action we took. Some will say we didn’t go far enough. The art of politics is compromise, and when all sides feel like they were meaningfully included in good faith negotiations — and they all aren’t doing cartwheels when it’s over — you’ve probably done the job.
It’s a tough pill to swallow. I understand the left and their philosophical and political ideals. I also understand the long-term goal of keeping the resource industry alive and vital. Unless and until something comes along that can fill the State treasury without turning us into a tax swamp like California, we must stay the course, continue cutting government without sacrificing services, and come together as Alaskans to meet these challenges. That means not running to the oil company wallet every time we have a budget crunch.
The job is not done. The Governor must decide whether or not to veto a hard-fought compromise and send more mixed signals to industry and the Legislature. He asked for credit reform. We delivered.
Mike Chenault represents Nikiski and the rural Kenai Peninsula’s House District 29. He’s currently in his fourth term as Speaker of the House and eighth term overall. Prior to that, he served on the Kenai Peninsula School Board and as President of the North Peninsula Chamber of Commerce. The views expressed are his own.