Senator Berta Gardner

July 27, 2015

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Serving Midtown, Spenard, and UMed

716 W. 4th Ave Suite 411.
Anchorage, AK 99501
Phone: 907-269-0174
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Governor Bill Walker
Anchorage Office
550 W. 7th Ave, Ste 1700
Anchorage, AK 99501
(907) 269-7450

Lt. Governor Byron Mallott
Anchorage Office
550 W. 7th Ave, Ste 1700
Anchorage, AK 99501
(907) 269-7460

A look behind the Oil Tax Credit Veto

Dear Friends and Neighbors,

Senator Gardner meets with Governor Walker.
Senator Gardner meets with Governor Walker.

Earlier this month the Governor vetoed $200 million of tax credits to the oil industry, delaying those  payments until FY 2016. Last session Senate Democrats proposed delaying $400 million in tax credits to help reduce the burden of the current fiscal situation. We wanted to bring attention to a broken tax credit system that costs us more than we gain in production taxes without producing measurable results. I’m glad the Governor shares the same concern, and I'm hopeful that his action will spur a full discussion of the system.  

Tax credits are an economic tool to encourage desired behaviors from industry – in this case, increased production. They are also helpful to smaller companies (like oil explorers) that don’t have large amounts of capital on hand. If the desired effects aren’t happening, we have to revisit our tax structure.

Citing tax payer confidentiality, the oil companies don’t disclose how they’re using tax credits. I believe Alaskans need to know what they’re buying with these hundreds of millions of dollars and I have twice introduced legislation to require such accountability.  Of course we respect a company’s confidentiality, but such a large investment of Alaskans’ revenue needs to come with assurances and evidence that it is being spent to produce the results we want. It’s not unreasonable to ask if our investment is being spent on infrastructure or equipment that will actually lead to increased production – in fact, it’s the responsible thing to do.

Recently, I met with folks from Brooks Range Petroleum, one of our "new" oil companies which hopes to be a producer in just a few months. They told us that their lender responded to the veto by pulling the funding they need to continue their development plan.  We know the Governor is willing to meet with any oil company representative (and their bankers?) so we hope this hiccup can be swiftly resolved, but it does show us unintended consequences of trying to fix a bigger problem.

Brooks Range Petroleum is a smaller company that doesn’t have the deep pockets of the three majors. It is more difficult for them and other smaller players to do start up projects to get new oil in the pipe. The exploration companies are doing critical work in our maturing fields, but it is risky, and they don’t have the cash on hand that British Petroleum, Conoco-Phillips and Exxon-Mobil have.

It is reasonable to help this smaller companies with continued tax credits, but if we are offering credits to the majors for performance of   required maintenance or to do any work they would have done without state incentives, we need to revisit the system to produce real results for Alaskans.

I’m Berta and I’m still listening,

If you have any questions, please feel free to contact my office.

signed: Berta

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