- The Washington Times - Thursday, March 3, 2011

Alaska’s energy production is declining, and Gov. Sean Parnell is hoping to help revive it by cutting taxes on oil and gas production, modifying a tax structure implemented by then-Gov. Sarah Palin.

House Bill 110 passed the House Resources Committee earlier this week by a 7-2 margin, a vote the governor applauded as necessary to strengthen an industry that provides 80 percent of Alaska’s revenue and thousands of jobs in the state.

“The state may still provide one-sixth of the domestic oil supply, but the volume from existing wells is dropping steadily,” said the governor when thanking the committee for passing the bill and sending it to the Finance Committee. “Our state needs to increase our competitiveness and grow our economy. I look forward to the swift passage of this bill.”

The bill would cut the basic tax on new oil-field production from 25 percent to 15 percent, grant energy businesses more incentives to hire Alaskans, soften the state’s progressive oil-tax structure and provide other pro-business tax incentives.

The current tax system, Alaska’s Clear and Equitable Share (ACES), was pushed through by Mrs. Palin in 2007. Besides lowering the tax rates, HB 110 also would trim back ACES’ system of raising the tax rate as oil prices rise.

Although estimates of its cost range from $1.5 billion to $2.2 billion, Mr. Parnell hopes the changes can make up for that by boosting the state’s flagging oil business — now producing about 600,000 barrels per day compared to 2 million in 1988 — and provide jobs to Alaskans.

Mark Hylen, president of the Alaska Support Industry Alliance (ASIA), a nonprofit state oil-industry trade association, applauds the governor for creating the bill.

“Oil-tax reform is necessary in the state,” Mr. Hylen said, “and we are encouraged by the changes it could include.”

He said that though many Americans think Alaska is a resource-rich state, employment in the oil and gas industry has decreased by 1,000 jobs over the past 18 months and “right now there are very few projects taking place.”

Doug Smith, president and CEO of the oil-field-service companies Little Red Services and Spartan Service, said the state’s current tax structure is hurting the competitiveness of oil companies and Alaska’s research-and-development industry.

“The real issue for us in Alaska is making sure that our state is fiscally competitive,” said Mr. Smith, who also sits on the ASIA board.

He explained that his company has had to lay off workers and decrease health care benefits.

“It’s a local issue for jobs,” he said, “but it’s a national issue for domestic energy production.”

However, Democratic state Reps. Scott Kawasaki and Berta Gardner, who voted against HB 110 in the House Resources Committee, said the bill was being rushed through the legislature too fast.

Mr. Kawasaki said that although he agrees that Alaska needs to find more ways to be competitive, the governor left much to question about the measure.

“We basically had 2½ weeks of industry testimony and a governor who has given us anecdotal information and his opinion,” Mr. Kawasaki said. “The key things that are not answered are how much the bill will actually cost the state of Alaska. We didn’t get any indication from the [oil] industry that they would reinvest back into the state and not just export into the hands of their shareholders.”

With those two questions up in the air, both Democrats were able to add two amendments to the bill in the Finance Committee. The first gives the Department of Revenue six years to review tax-credit applications, and the last offers a tax break to oil industries that hire enough Alaskans to make up more than 80 percent of their workforce.

“I support Alaskan jobs,” he said. “I want to see that pipeline filled.”

Mr. Kawasaki said the oil companies’ support for the measure is unsurprising and that the amendments are needed to make sure the tax incentives actually benefit the state.

“Clearly they are doing what their board of directors want them to do, and that is make money,” he said. “We need to make sure that if we are giving a barrel of oil away we are making some return on that investment.”

HB 110 now goes before the Finance Committee, where Mr. Kawasaki predicts quick passage.

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