Alaska Governor Proposes Cuts to Oil Tax Credits

Gov. Bill Walker's says it's time to curtail the state's $600 million oil and gas tax credit program, saying it has worked and is no longer necessary.
by | September 9, 2015 AT 2:00 PM

By Nathaniel Herz

Alaska Gov. Bill Walker's administration plans to propose reducing the state's $600 million oil and gas tax credit program, cutting back on breaks to industry that are no longer needed, Revenue Commissioner Randy Hoffbeck said Tuesday.

In a meeting in Anchorage of a state Senate working group on tax credits, Hoffbeck told assembled lawmakers and industry representatives that state payments aimed at reviving a flagging natural gas industry in Cook Inlet had worked. There are no longer fears of a shortage in Anchorage and elsewhere in Southcentral Alaska, he said.

"At some point in time is the time to declare victory and move on," Hoffbeck said.

Hoffbeck's remarks came during a two-hour legislative meeting convened by Sen. Cathy Giessel, R-Anchorage, a member of Alaska's Republican-led Senate majority and an oil and gas industry booster.

She and other majority lawmakers Tuesday said they also are open to changes to the state's tax credit regime. But it's not clear their vision for the program is the same as the administration of Gov. Bill Walker.

"For the best outcome, working together is the optimal. Can that happen? We'll see," Giessel said in an interview after the meeting. "At the end, we are separate but equal parts of government. So there will no doubt be some friction, certainly different opinions. That's OK."

The big spending associated with Alaska's tax credit program has come under increasing scrutiny this year, especially from minority Democrats, due to a drop in oil prices that's blown a multibillion-dollar hole in the state budget.

Last year's $7 billion general fund budget included some $628 million for credits -- that's cash payments by the state, not foregone tax revenue. More than $400 million went to companies operating in Cook Inlet; lawmakers authorized incentives there several years ago during fears of a natural gas shortage.

Walker vetoed $200 million of credits from the Legislature's budget passed this year, capping payments at $500 million instead of $700 million. He said he wanted to start a discussion about an "unsustainable" system.

Hoffbeck said Tuesday the Walker administration's reform proposal would likely include three parts. One would be to close loopholes and stop uses of credits that were "probably not envisioned," he said.

A second piece is to make sure the credit program is aimed at areas where the state will get the most return for its investment. And a third is to make sure the scale of the program is sustainable for the state's budget, Hoffbeck said.

"We need to be able to land on something that people can count on long-term," he said.

The state's tax director, Ken Alper, also told the group he would like to see fewer legal restrictions on the information the state can disclose about payments to individual tax credit recipients.

Tuesday's presentations from Hoffbeck and other administration officials were met with some skepticism from the assembled industry representatives and downright hostility from Sen. Bill Stoltze, R-Chugiak, who sharply questioned the provenance of some of the Walker administration's ideas for potential reforms.

One House member, meanwhile, sat at the table but was barred from participating: Giessel interrupted Rep. Liz Vazquez, R-Anchorage, as she tried to make a comment, saying that Vazquez could speak with Walker administration officials after the meeting.

During the discussion, Kara Moriarty, president of the Alaska Oil and Gas Association, defended some of the state's payments to Cook Inlet producers, noting there are no longer fears about natural gas shortages in Southcentral Alaska.

In an interview after the meeting, Moriarty said she doesn't see changes to the tax credit regime as a foregone conclusion.

"This still has to go through the Legislature," she said. "It's clear that the administration's going to put something out there. What that looks like and if there's support in the Legislature -- there's a lot of days between now and the end of the next legislative session. So, it's way too early to predict."

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