Fiscal reform: reducing budget growth and lowering oil taxes critical.

AuthorBradner, Mike
PositionOIL & GAS

The Alaska State Legislature is back in Juneau this month for the 2013 session. There are new faces in the Capitol following the elections, but critical issues facing the Legislature--reforming the state's petroleum tax laws and restraining the growth in the state budget--haven't changed. The last Legislature wasn't able to dent these problems, but new leaders in Juneau hope things will be different this year.

The thorniest question legislators face is changing the state's oil production tax in light of continuing declines in oil production and stagnant industry investment, at least in onshore development where new production would result in revenues to the treasury.

Yet another challenge is containing growth in the state budget, which is difficult even as oil production and revenues decline. The main problem is the operating budget where health and education spending face huge pressures to increase. Operating budget spending has increased steadily in recent years despite the efforts of governors and legislators to institute controls. The state capital budget, spent on projects, is easier to manage because it can be throttled down if revenues are not available.

The State of Alaska will spend about $12 billion total in the current budget year, Fiscal Year 2013, including the operating budget, the capital budget and other expenses. Revenues are expected to total about $15.3 billion in the current fiscal year, including federal funds administered by the state. Oil revenues are expected to total $8.04 billion in the current year. For this year a surplus is expected, which could be added to the state's reserves at the end of the fiscal year.

Future Not So Bright

The revenue and budget picture for the upcoming FY 2014, which begins July 1, isn't a lot different than FY 2013 except that oil revenues are expected to be down about $700 million, a result mainly of production decline. Oil production is expected to continue to decline at rates of about 5.5 percent a year over the next five years, according to the Alaska Department of Revenue.

The bulk of the state's oil income is from the state production tax, plus there is additional income from royalties (the landowner share on oil produced from state lands) and other special taxes on oil.

In the Legislature, attention on the tax change is focused on the production tax. The production tax was rewritten in 2006 and again in 2007 and the most significant change, which had the effect of really...

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