Bill proposes taking out bonds to pay off $800 million in outstanding oil & gas tax credits

Alaska State Capitol

ANCHORAGE, Alaska (KTUU) - A bill recently introduced by Governor Walker would use bond money to pay off a large sum of cashable tax credits still owed to smaller oil and gas companies operating Alaska.

The state ended its oil and gas tax credit program in July of 2017, and has since been trying to pay off an estimated $800 million in outstanding credits that were originally handed out to spur exploration and development in Cook Inlet and the North Slope.

Rather than paying off the credits in full over the course of several years, the Governor’s proposal would take out bonds to give the credit holders a single payout now, and extinguish the credits permanently. The catch is that the credit holders would have to accept a discount on what they are owed so that the state has money left over to pay any interest on the bonds. That way, the state avoids incurring additional cost.

“Instead of stringing these payments out over an extended period of time, we want to offer the industry an ability to get paid out today at a discounted rate,” explained Department of Revenue commissioner Sheldon Fisher. “So we’re taking one obligation and swapping it for another obligation and that’s how we finance it but the credit holders themselves will be paying for that interest cost through their discount.”

While the proposal would mean less money overall for the oil and gas companies, Fisher said many of them have been very receptive to the idea. That’s because a lot of these companies are in desperate need of a quick, large supply of cash to pay off their own loans and fund numerous projects that have stagnated due to a lack of funding.

The Department of Revenue estimates that the tax credit payout would result in a $600 million cash infusion into the state economy, something that could potentially bring thousands of jobs back to the industry.

“The goal of this bill is actually to put Alaskans back to work. The oil industry as a whole has suffered about a 30 percent reduction in employment in this state and this is an opportunity in a fiscally responsible manner to put some money back into that sector of the industry,” Fisher said.

But what does the industry itself have to say about the governor’s bill? Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, says its good start because it will finally allow the state to fulfill its financial obligation to these companies. However, the discount rate is a concern and Moriarty says the bill needs to be thoroughly vetted by the legislature.

“There are some concerns because it is a discount, but at least the governor is getting the conversation started,” Moriarty said. “We just now need to get the legislature to hear the bill so that different viewpoints can get out and different considerations can be made to see if this really is going to be a plan that works for the industry.”

The bill is still in its infancy, but it has already attracted at least some support from republicans in the House minority caucus. Rep. Lance Pruitt (R-Anchorage) said he thinks the bill could help rebuild the state’s reputation when it comes to conducting business and paying off debt. It could also bring an end to the cumbersome debate over tax credits in the legislature.

“Since we’ve essentially gotten rid of the majority of the credits, we wouldn’t be adding to it. So the tax credit debate wouldn’t be over but it’s for the most part something that’s now behind us, and it’s not something we’ll have to continually wonder, what do we do next year?” Pruitt said.

Other republican lawmakers are concerned about taking on new bond obligations during a time of uncertainty over the state’s revenue and budget.

“We’re kind of worried about that idea of kicking things down the road, obligations and putting them on future legislatures and we don’t know what the budget’s going to be,” Rep. Paul Seaton (R-Homer) told reporters at a press conference Tuesday.

“If the senate isn’t going to pass any diversification of our revenues, it means that we’re going to be really tight in the future when these larger obligations and firm obligations would come online.”



 
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