REPRESENTATIVE LES GARA

(907) 465-2647 | State Capitol Building, Room 400 | WEBSITE
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Sponsor    Statement

House Bill 133: Fair Share for Alaska Oil Act

This legislation aims to craft a balance between fairness for Alaskans and their Alaskan constitutional right to the maximum benefit for their resources, and oil industry fairness. There is no intention to reinstate the law SB 21 replaced (ACES), but instead the intent is to apply what we have learned about the benefits and flaws of our existing and prior oil tax systems. It’s an effort to do what legislators should do - apply what we have learned rather than an effort to cheer for any prior oil tax law or current law.

The current law, as we have learned, includes some unanticipated flaws that were not obvious when it was passed at $100+/barrel oil prices. This legislation fixes those errors in a careful way, and the sponsor is open to discussion about how to make the bill better and fairer to all- especially at forecasted near term prices in the $50 - $80/barrel range over the next decade. It would result in additional projected revenue under a Department of Revenue draft analysis of $50 million in FY18, and $170-$180 million in FY19.

Current law also unfortunately imposes no oil production tax at all on any post 2003 field that is allowed a low tax under the law’s “Gross Value Reduction” provisions. Those fields pay no oil production tax at all (0%) for seven years up to $70/barrel prices. Those are some of a field’s most productive years. Low taxes when companies are not profitable are understandable. Non-existent production taxes when they are profitable shortchanges Alaskans.

Current law also imposes a scant 4% gross value tax on older and larger fields, no matter how profitable, up until prices of roughly $74/barrel. Alaska cannot prosper at these exceptionally low tax rates on profitable oil.

HB 133 fixes these things in a way that is fair to both industry and Alaskans. It keeps the current rule that a company pays the “greater of” the gross minimum tax or the law’s profits tax. While SB 21 was advertised as having a 35% base profits tax, ACES had a 25% base profits tax, and the prior PPT law had a 22.5% base tax, current law profits tax rates are, at prices never anticipated during the debate on the existing law, far lower than legislators and the public knew. Under current law the “greater of” rule results in a very low profits tax on profitable GVR fields of .3% at $70/barrel; 7.9% at $80/barrel, and 12% at $90/barrel.

For older fields (which tend to be more profitable- like Prudhoe Bay) those profit tax rates, also very low, are 12%, 9%, and 13% at rising prices of $70, $80, and $90 per barrel respectively.

HB 133 makes the following material fixes:

Price and Profits Sensitive Gross Minimum Tax: When the gross minimum tax is greater than the profits tax, the bill makes the rate price and profits sensitive, and raises the 4% minimum tax to 5% at $50/barrel, 6% at $58/barrel, and for every $8 dollar increase in the price of oil, 1% higher until it reaches a cap of 10% at $90/barrel. For example, North Dakota law (as it read in February 2017), charges a flat 10% gross tax at all prices- no matter how low or unprofitable a field is. An additional percent is also added at about $85-$90/barrel. This in part explains why Alaska traditionally, as in 2016, is ConocoPhillips’ highest profit region in North America. The minimum tax floor is made real under this bill (companies have to pay the minimum tax, and can’t use credits to take their taxes down to 0% or effectively lower as under current law). The North Dakota high flat tax likely guarantees company losses at prices in the current price range and below for most companies’ disincentives.

Heavy Oil: The gross minimum tax rate is half that amount above 4% for more challenging heavy oil.

Reasonable Minimum Profits Tax Rate and Windfall Profits Share: The law also says when the profits tax is “greater than” the gross minimum tax, it can be no lower than 22.5%. It contains a more conservative windfall profits tax surcharge when companies make profits in excess of $40/barrel on a barrel of oil at high prices so that Alaskans can share in company windfall profits.

The bill changes the GVR tax reduction from 7 years, or 3 years at $70/barrel, to 5 years or 3 years of $70/barrel, a generous and more reasonable tax break. It also eliminates a special additional tax reduction for fields that bidders saw as so profitable that they agreed to a contractual royalty with the state of more than the normal 12.5% rate. Those higher profit fields should not have been given an additional tax break.

Tax credits are not altered in this bill, leaving that discussion for House Bill 111. Please feel free to let us know if you have any questions.


 
[signed]
REPRESENTATIVE LES GARA

SPONSOR STATEMENTS from Alaska House Majority Coalition

House Bill 1: Election Registration and Voting

From the office of Representative Tuck


House Bill 2: Employment Preference for Veterans

From the office of Representative Tuck


House Bill 3: National Guard Leave/Reemployment Rights

From the office of Representative Tuck


House Bill 7: Ballot Selfies

From the office of Representative Kreiss-Tomkins


House Bill 8: Protection Orders from Other Jurisdictions

From the office of Representative Edgmon


House Bill 11: RIP for Public Employees/Teachers

From the office of Representative Kawasaki


House Bill 13: No State/Municipal Funds: Federal Immigration Registry

From the office of Representative Josephson


House Bill 14: Legislative Approval for Bristol Bay Sulfide Mine

From the office of Representative Josephson


House Bill 20: Solemnize Marriage: Elected Officials

From the office of Representative Claman


House Bill 23: Survivors’ Medical Benefits – Background

From the office of Representative Josephson


House Bill 26: Nursing Mothers in Workplace

From the office of Representative Tarr


House Bill 29: Ban Sale of Genetically Modified Fish

From the office of Representative Tarr


House Bill 30: Paid Sick Leave

From the office of Representative Tarr


House Bill 31: Sexual Assault Examination Kits

From the office of Representative Tarr


House Bill 32: GMO Labeling

From the office of Representative Tarr


House Bill 37: PERS Credit for Injured Peace Officers and Firefighters

From the office of Representative Josephson


House Bill 38: Benefits for Workplace Death and Permanent Impairment

From the office of Representative Josephson


House Bill 40: Trapping Near Public Trails

From the office of Representative Josephson


House Bill 43: The Right to Try: New Drugs for the Terminally Ill

From the office of Representative Grenn


House Bill 44: Legislative Ethics: Voting & Conflicts

From the office of Representative Grenn


House Bill 47: PERS Contributions By Municipalities

From the office of Representative Foster


House Bill 49: Extend Board of Direct-Entry Midwives

From the office of Representative Kito III


House Bill 52: Alaska Voluntary Pre-Elementary Education Act

From the office of Representative Kawasaki


House Bill 54: Voluntary Termination of Life

From the office of Representative Drummond


House Bill 78: Indigenous Peoples Day

From the office of Representative Westlake


House Bill 80: Property Assessed Clean Energy (PACE) Financing

From the office of Representative Wool


House Bill 81: More Energy Efficient Buildings Act

From the office of Representative Kreiss-Tomkins


House Bill 82: Off-Highway Driver's Licenses

From the office of Representative Kreiss-Tomkins


House Bill 84: Municipal Property Tax Exemption

From the office of Representative Kreiss-Tomkins


House Bill 85: Petersburg Lands Bill

From the office of Representative Kreiss-Tomkins


House Bill 87: Conflict of Interest: Board of Fisheries/Game

From the office of Representative Stutes


House Bill 88: Board of Fisheries Membership

From the office of Representative Stutes


House Bill 89: Licensing Radiologic Technicians

From the office of Representative Tuck


House Bill 99: Oil & Gas Tax Credit Disclosures

From the office of Representative Josephson


House Bill 102: Limited Teacher Certificates

From the office of Representative Kreiss-Tomkins


House Bill 103: Optometry & Optometrists

From the office of Representative Spohnholz


House Bill 105: Gordon Haber Denali Wolf Special Management Area

From the office of Representative Josephson


House Bill 108: Fiduciary Access to Digital Assets

From the office of Representative Claman


House Bill 111: Oil and Gas Production Tax; Payments; Credits

From the office of Representative Tarr


House Bill 115: State Revenue Restructure Act

From the office of Representative Seaton


House Bill 123: Disclosure of Health Care Costs

From the office of Representative Spohnholz


House Bill 126: Organized Militia: Workers Compensation

From the office of Representative Tuck


House Bill 127: Criminal Conviction Overturned: Receive Past PFD

From the office of Representative Kawasaki


House Bill 128: Shellfish Enhancement Projects; Hatcheries

From the office of Representative Ortiz


House Bill 131: Relocation Assistance for Federal Projects/Programs

From the office of Representative Wool


House Bill 132: Transportation Network Companies

From the office of Representative Wool


House Bill 133: Fair Share for Alaska Oil Act

From the office of Representative Gara


House Bill 134: Board of Game Composition

From the office of Representative Josephson


House Bill 141: AK Workforce Investment Board; Funds

From the office of Representative Fansler


House Bill 151: Children Deserve a Loving Home Act

From the office of Representative Gara


House Bill 166: Museum Construction Grant Program

From the office of Representative Parish


House Bill 167: Repeal of Performance Reviews

From the office of Representative LeDoux


House Bill 172: Cultivation of Industrial Hemp

From the office of Representative Drummond


House Bill 173: Climate Change Response Commission

From the office of Representative Josephson


House Bill 177: Aquatic Invasive Species

From the office of Representative Tarr


House Bill 181: Legislature Per Diem and Travel Allowance

From the office of Representative Kreiss-Tomkins


House Bill 184: Prohibiting discrimination based on sexual orientation

From the office of Representative Josephson


House Bill 188: Regional Fisheries Trusts

From the office of Representative Kreiss-Tomkins


House Bill 199: Fish / Wildife Habitat Protection; Permits

From the office of Representative Stutes


House Bill 200: Top Two Non-Partisan Primary Election

From the office of Representative LeDoux


House Bill 201: Municipal Regulation of Trapping

From the office of Representative Josephson


House Bill 203: Remote Recreational Cabin Site Staking Sales

From the office of Representative Kawasaki


House Bill 204: Overtaking / Passing DOT Vehicles

From the office of Representative Kawasaki


House Bill 213: Public School Trust Fund

From the office of Representative Parish


House Bill 217: Raw Milk Sales; Food Exempt From Regulations

From the office of Representative Tarr


House Bill 218: State Veterinarian; Animals; Products

From the office of Representative Tarr


House Bill 234: Extend Alaska Health Care Commission

From the office of Representative Guttenberg


House Bill 236: Extend Senior Benefits Payment Program

From the office of Representative Kawasaki


House Concurrent Resolution 1: Legislative Ethics: Voting & Conflicts

From the office of Representative Grenn


House Concurrent Resolution 2: Respond to Adverse Childhood Experiences

From the office of Representative Tarr


House Concurrent Resolution 3: APRIL 2017: Child Abuse Prevention Month

From the office of Representative Tarr


House Joint Resolution 5: Endorsing ANWR Leasing; Related Issues

From the office of Representative Westlake


House Joint Resolution 12: Opposing Genetically Engineered Salmon

From the office of Representative Tarr


House Joint Resolution 21: Feds Respect State Reg of Marijuana

From the office of Representative Guttenberg