03/14/2013 06:38 pm ET

Alaska Oil Tax Bill Projected To Cost State Billions

A bill currently under consideration in the Alaska Senate would dramatically cut taxes on oil companies, costing the state billions of dollars in revenue, APRN reports.

The tax breaks, which Gov. Sean Parnell (R) originally proposed in January, are projected to cost the state around $1.3 billion next year and as much as $10 billion over the next six years. Alaska's "Big Three" oil companies -- BP, ExxonMobil and ConocoPhillips -- stand to benefit the most from the new legislation.

State Democrats have strongly opposed the tax breaks, citing the potential impact on the state's budget. The state general funds for the 2013 fiscal year total $7.9 billion, and Parnell has proposed cutting the general fund budget down to $6.49 billion for the 2014 fiscal year.

"It creates an Alaska fiscal cliff. It massively reduces taxes on the Big Three and doesn’t require them to spend their tax breaks in Alaska," state Rep. Les Gara (D-Anchorage) said in January, in response to Parnell's original proposal.

The state Senate's Finance Committee is currently debating a version of the bill, and state Sen. Lyman Hoffman (D-Bethel), who sits on the committee, also voiced concerns about the tax cut this week, telling APRN, "To move this much cash across the table is going to have, in my view, detrimental effects to the state’s operating budget."

"These are truly staggering numbers to be looking at," added Hoffman.

Ninety percent of Alaska's state general fund derives from taxes on oil production and pays for everything from teacher's salaries to the state police.

Parnell defended the proposal in his January State of the State address, citing declining oil production in the state. "Two years ago in November, we moved 641,000 barrels a day. This November -- 582,000 a day. That does not bode well. We all know this. So we must, and we will together reverse the decline."

Under the current law, which former Gov. Sarah Palin (R) signed in 2007, oil production is taxed at progressively higher rates as oil prices rise. The new legislation would place a flat 30 percent tax on oil production, with a $5-per-barrel tax credit.

The hope, proponents of the changes say, is that increases in oil production will eventually result in more oil tax revenue, compared to what is being collected under the current scheme.

Exactly how much more oil would need to be produced in order for the state to see a profit, however, remains a matter of debate. According to Roger Marks, a tax consultant who is under contract by the state legislature, in order for the tax breaks to be offset by an increase in tax revenue, 70,000 additional barrels of oil would need be produced every day, APRN reports. Mike Pawlowski, an oil tax adviser for the Alaska Department of Revenue, told the Anchorage Daily News that under most optimistic scenario currently being evaluated, the state would see an increase in oil tax revenue over what is currently being collected by 2018.

Despite the opposition from Democrats, state Senate President Charlie Huggins (R-Wasilla) told the Anchorage Daily News that he was confident the measure would eventually pass. "We're good," Huggins said.



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