The fight over tax credits: governor and legislature at odds.

• Author: White, Rindi
• Position: SPECIAL SECTION: Oil & Gas

"One of the things we're frustrated with is., we're looking at tax policy as a way to fill a budget gap, instead of looking at tax policy as a tool for ensuring that we have a strong oil and gas industry now and in the future."

--Rebecca Logan

General Manager, Alaska Support Industry Alliance

It's no secret Alaska is facing a fiscal crisis of epic proportions. Midway through the legislative session, the proposed state budget was a lofty $4 billion, while revenue was estimated at around $1 billion this year.

Oil prices are at historic lows, and while forecasters believe they will recover somewhat in the coming years, budgeting with enough revenue to cover only one-quarter state operating budget is not sustainable. Budgeting in that fashion while cutting checks to oil producers to the tune of $775 million is even less sustainable, state Department of Revenue Tax Division Director Ken Alper says.

Next year, the state estimates it will distribute $775 million in credits and bring in about $690 million in unrestricted petroleum revenue, an imbalance of $85 million.

Enter Governor Bill Walker's House Bill 247. When introduced in January, the bill aimed at putting a damper on oil tax credits and increasing the minimum production tax (collected when oil prices are low) from 4 to 5 percent, while also "hardening" the floor, making it more difficult for companies to offset their taxes with production credits. The goal was to staunch the outflow of tax credit spending and put a little more money into the state general fund, part of Walker's New Sustainable Alaska Plan to "provide a balanced and sustainable budget for Alaska's long-term fiscal stability," he wrote in the bill's sponsor statement.

It was estimated to bring in $500 million to the state, $400 million of that in reduced and deferred tax credit spending and $100 million in additional oil production taxes. It didn't get a warm reception at the Legislature, however. By mid-March, the House Resources Committee had passed a much-changed version that eliminated the tax increase and softened the blow of the tax credit reduction, knocking the savings down to about $50 million in oil tax credit spending. It cut credits in Cook Inlet and Middle Earth--the region outside Cook Inlet and the North Slope--by more than one third, the largest credit reduction to date in the oil tax credit program's history.

At press time the bill had a long road ahead: It had been passed to the House Finance Committee and was likely to be before the Senate in April.

Alper says he believes some version of the bill will pass, either in a late-session push or during an extended or special...