By Rep. George Rauscher
House District 9
The legislature voted for the passage of House Bill 111, the oil and gas tax bill. I was a no vote, let me explain why.
Simply put, the bill will raise taxes and add costs to the oil industry, a move that will decrease investment and inevitably make it harder for new oil fields to be developed.
Like the majority of my legislative colleagues, the producers, and Alaskans, I agree that the state could no longer afford to pay out the “Cashable Tax Credits.” But that is not all the bill does.
A fellow legislature referred to the rush to pass this bill as being similar to the famous quote about the passage of federal legislation, “we have to pass the bill so that we can find out what is in it.”
We were asked to return to the Capital as the Senate and the House majorities had negotiated a deal on the final passage of HB 111. But as I read the 24-page document, distributed to legislatures just minutes before we were required to vote, I realized it was against everything I believed in about the State of Alaska being open for business.
Additionally, the bill up for a vote was accompanied by a fiscal note that the administration admitted was about a previous bill version, and partly rushed to get something before legislators. So it is unclear what the fiscal impact of changes made to policy in the bill would have on the current “budget crisis” Alaska is facing, and into the future.
Cashable credits needed to go away, the state couldn’t afford them, and the producers were not getting paid. However, the incentive plan was working and brought new large oil field discoveries, not to mention the two years of increased production and throughput in the Trans Alaska Pipeline.
Eliminating this incentive was a tough call, but the right one. To replace this incentive the bill included a new provision allowing a percentage of Net Operating Losses (NOLs), money spent exploring and building infrastructure, to move forward and be written off once production begins.
The deal established a “hardened floor” which ensures that Alaska receives at least 4 percent of a producer’s gross revenue in Alaska. “Ring fencing” was added to keep the losses claimed isolated to the oil that field alone.
After all that, the bill fell apart for me.
The bill calls for holding the producers to an unattainable time table for recovering the NOLs. The bill will also reduce the value of the NOL by 10 percent annually if the field is not in production within seven years. History shows that it takes an average of 9-12 years to bring a field to production. Plus this reduction in NOLs is contrary to the federal tax structure, further complicating things for the private sector.
New discoveries on the North Slope are the future of the Alaska oil and gas industry (Horseshoe is over 25 miles away from TAPS, and Smith Bay is 100 miles away.) The required permitting alone for the pipelines to connect these fields to TAPS could take seven years to complete.
HB 111 goes on to calculate NOLs for Green Fields (new undeveloped fields) and Brown Fields (developed fields) differently, using separate timetables and rates of decline for both, further complicating our tax system.
The bill establishes a working group to evaluate our oil taxes. When I ran for office I committed to support “stable and predictable taxes” for sustainable resource development. This marks the 7th time in the last 12 years we’ve changed oil and gas tax policy, and then we state that we plan to come up with more changes.
If we want to see investment on the North Slope, then fiscal stability must be established. Moving of the goalposts makes our chances of attracting investment worse with each passing year, and with each new tax structure we adopt.
Remember, the neighbors are already being laid off. The Department of Labor reports that more than 3,100 jobs in the oil industry had been eliminated since 2015.
The future of Alaska lies in new fields producing oil and gas, it is hard for them to find investors because of the ever changing tax regime. I fully supported the elimination of the cashable credits, but it’s the baggage added to the bill that bothered me.
It appears some in government can’t wait to fleece the private sector on every turn. Not me, business needs reasonable, stable and predictable taxes in order flourish and create jobs. This bill does none of these, and I voted no on HB 111 because of that.
Representative George Rauscher represents House District 9, Sutton, Chickaloon, Glacierview, Glennallen, Fort Greely, Delta Junction, Valdez and Whittier.