April 28, 2012 in Business

Tax cuts for oil encounter rare lack of support

Becky Bohrer Associated Press
 
Oil’s perks

 Oil accounts for roughly 90 percent of unrestricted state revenue in Alaska. It has helped make possible yearly dividend checks that Alaskans get just for living in the state.

JUNEAU, Alaska – Oil long has been king in Alaska, but the state’s Republican governor is having trouble finding support for a tax break he believes is critical to ensuring it remains so.

With a stunning defeat in the state Legislature this week, Gov. Sean Parnell has failed twice since last year to reduce production taxes on oil companies, a strategy he believes is crucial to bringing in new companies and ensuring those already here invest more and boost North Slope production. That would ensure Alaska’s financial lifeline remains healthy for years to come.

What’s unusual in Parnell’s defeats is that lawmakers from both parties, particularly this year, showed little stomach for his plans, albeit for differing reasons. Some saw the recent tax-cut plan as a corporate giveaway or unneeded by oil companies that consistently post huge profits; others, including some in his own party, say Parnell’s bill was ill-conceived or poorly explained.

The latest setback came Wednesday, when Parnell abruptly announced in a rare statewide televised news conference that he was removing his oil tax bill from consideration by lawmakers. The surprise move – unprecedented in Alaska – came just eight days into a special legislative session that he had sought mainly to deal with the issue. He blamed the bipartisan-controlled Senate, which he said appeared incapable of passing “comprehensive oil tax reform.”

After sometimes combative hearings, especially in the Senate, lawmakers in both chambers said the administration hadn’t made its case.

While the bill was aimed at boosting oil production over time, the near-term impact on the state’s economy also came into play. While Alaskans have enjoyed a healthy state budget in recent years, due in part to the high price of oil, Parnell’s budget director said the state could find itself in a deficit as early as next fiscal year under his plan. A legislative consultant said Parnell’s approach would wind up giving oil companies “quite a lot” of money for projects that are profitable to do today.

Oil’s relatively high price has helped to mask a decades-long decline in production. An average of 609,000 barrels a day has coursed through the trans-Alaska pipeline this year, just over a quarter of what flowed through it during the 800-mile line’s heyday in the late 1980s.

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