Is Alaska’s oil tax credit system broken? That’s what Gov. Bill Walker said Wednesday after cutting $200 million from $700 million budgeted by lawmakers to aid companies exploring and developing new wells. Considering these payments to oil producers could soon top $1 billion, it was a necessary line item veto until a larger conversation can happen.
Last year Alaska paid out more in tax credits than it collected in oil production taxes from producers. Until Walker pulled out his veto pen, Alaska was anticipating to spend $400 million more this year on tax credits than it collected.
Under different circumstances, say, $110 per barrel oil, this conversation wouldn’t be necessary. When prices are high, there’s more than enough money to go around. But these are not those times.
Very few in the Alaska Senate’s and House’s Republican-led Majority were willing to tackle the tax credit dilemma despite cries by the Minority to do just that. Majority leadership, among other reasons, has said Alaska needs to send a message of stability to the oil industry by keeping the credits intact. It’s hard to convince anyone of stability when you’re staring down a $4 billion hole this year and next.
Juggling what Alaska spends on tax credits compared to the revenue it brings in through oil is a necessity considering the current fiscal crisis. Every state department has taken its licks, some hard-working Alaskans have lost their jobs, so giving immunity to the oil industry makes little sense when everyone else is being asked to do more with less. Alaska will honor its tax credit commitments, but a cutoff point was needed. Otherwise, prospective oil producers could have recovered more than the $700 million originally budgeted.
Every penny matters, or in this case 20 billion pennies. It’s a fair compromise considering the Minority wanted to do away with the credits entirely and the Majority wasn’t willing to cut a cent.
Smaller companies will still have tax credit payouts available this year, and likely next as well. If the oil is there, and these companies have a means to retrieve it, they will. A $200 million reduction isn’t enough to force businesses to pack up and go entirely. What it will do is temper how much the state invests in these companies before they ever put a drop of oil into the Trans-Alaska Pipeline System.
Slashing payouts to the oil industry is the necessary move if Alaska is ever to balance its budget amid low oil prices. No entity, whether private business or governmental, should be getting a free ride, let alone taking more from the state than it is putting in. This isn’t about picking on oil producers; rather it’s about sharing a burden that every resident and business must bear until Alaska’s budget is once again balanced.
— Juneau Empire,