Alaska senators unveil oil tax hikes as part of revenue measures to address growing deficit

JUNEAU — Measures to raise new state revenue were introduced in the Alaska Senate on Wednesday, including one that would substantially increase taxes on oil companies.

Legislators are facing a widening deficit this year and a worsening fiscal outlook due to declining oil revenue. The Republican-led Congress is also expected to make deep cuts to programs such as Medicaid, adding to lawmakers’ concerns that costs will be shifted to the state.

The nonpartisan Legislative Finance Division projected last week that the state faces a $536 million deficit over two fiscal years.

That assumes legislators approve a $1,420 Permanent Fund dividend, using the same formula as last year, and the same $174 million school funding boost.

Some legislators have supported a larger school funding increase this year, alongside other spending priorities, that would balloon the deficit further.

Anchorage Democratic Sen. Bill Wielechowski, a longtime supporter of raising taxes on the oil industry, stressed Wednesday that new revenue measures need to be considered.

“Unfortunately, there are not a whole lot of other options at this point,” he said.

Oil industry groups came out strongly Wednesday against the proposed tax hikes.

Kara Moriarty, CEO and president of the Alaska Oil and Gas Association, said industry members would be adamantly opposed to changing per-barrel tax credits, which she said are an “integral part” of Alaska’s tax system.

Moriarty said Alaska’s oil industry has been “a bright spot” in the state’s economy, and that raising taxes would hinder future development.

“I think it’s a bit delusional to expect an increase in taxes of hundreds of millions of dollars won’t impact investment,” she said.

Senators in recent weeks have introduced several new revenue measures, which are expected to collectively raise over $500 million per year:

• Senate Bill 112 would reduce the maximum tax credits paid to oil companies from $8 to $5 per barrel. Similar measures have previously been anticipated to raise around $400 million annually.

• Senate Bill 92 would apply corporate income taxes on privately held oil companies. Hilcorp, which operates the Prudhoe Bay oil field, does not pay corporate income tax as an “S corporation.” The measure is estimated to raise over $100 million per year through the end of the decade.

• Senate Bill 113 would impose corporate income tax on some out-of-state businesses that operate online. The Alaska Department of Revenue previously estimated the measure could raise between $25 million and $65 million per year.

Debates about adjusting the state’s oil tax structure are notoriously complicated and contentious. Advocates of higher taxes argue Alaska is missing out on revenue from its resources, while critics say a higher financial burden on the industry would lead to job losses and dissuade investment.

The Legislature’s oil and gas analyst in 2023 said a previous tax hike proposal would likely have limited impacts on current or planned projects. But there could be downside risk on major new developments, according to an analysis by GaffneyCline.

“We’ll see if that still holds true,” said Anchorage Republican Sen. Cathy Giessel, chair of the Senate Resources Committee.

Giessel said another analysis would be needed on the economic impacts of the proposed tax changes. But she also stressed the dire fiscal outlook facing legislators.

“It’s a huge challenge we’ve talked about — the approaching fiscal cliff. Well, now we’re standing at the edge,” she said.

The last major rewrite of state oil taxes took place in 2013 with Senate Bill 21 that slashed taxes paid by oil companies.

Since then, legislators have introduced measures to raise taxes on the industry.

In 2020, Alaska voters soundly defeated a ballot initiative that would have increased taxes on companies producing on legacy fields.

Rebecca Boys, a spokeswoman for ConocoPhillips Alaska, said the state’s tax regime has fostered the company’s “continued investments” in Alaska. Raising taxes would make the state less competitive for existing and future investments, she said.

”Alaska is already an expensive place to explore, develop, and operate. A stable fiscal regime is an important consideration for long-term investments in our state,” she said.

Several Republican lawmakers on Wednesday expressed similar concerns.

Palmer GOP Sen. Shelley Hughes, who serves on the Senate Resources Committee, said there are opportunities for new oil developments in Alaska under President Donald Trump’s administration. Hughes said raising taxes on the industry would send a “bad message” to potential investors.

“I think we should be increasing our tax base rather than increasing taxes,” she said.

Brad Keithley, a longtime oil and gas analyst and managing director of Alaskans for Sustainable Budgets, said the state’s oil tax structure should be reexamined.

Oil production is expected to increase from 466,000 barrels per day this fiscal year to 643,000 barrels per day nine years from now. But state revenue will not rise as much because of the deductions and credits available to oil companies, Keithley said.

“Even as the volumes go up dramatically over the next 10 years, production tax goes down,” he added.

Gov. Mike Dunleavy has largely been absent from recent revenue debates. He committed to introducing a state sales tax measure in 2023, but it never materialized.

“The Governor’s position on taxes has always been consistent,” said Jeff Turner, a Dunleavy spokesperson, by email. “He is not favorably disposed to taxes. He believes we work for the people and not special interests.”

“The governor’s policy is not to comment on specific bills until they pass the legislature and are transmitted to him for consideration,” Turner said in a later email.

The Senate’s revenue measures face an uncertain future if they advance to the House.

While the Democrat-dominated Senate majority controls 14 of 20 seats in the Alaska Senate, the bipartisan House majority only has a one-seat margin, making approval of any tax increases challenging, lawmakers said.

House Speaker Bryce Edgmon, a Dillingham independent, said Wednesday that the House majority would discuss revenue measures when they are approved by the Senate.

But he also acknowledged Alaska’s bleak fiscal outlook and the difficult choices facing legislators as they write the budget.

“Something has to give. Something simply has to give,” Edgmon said.

Senate committee hearings have not yet been scheduled for the per-barrel tax credit bill, or the measure to impose taxes on Outside companies operating online.

Last week, the Senate Resources Committee heard Senate Bill 92 that would impose corporate income taxes on Hilcorp Alaska — similar to those paid by publicly owned oil companies.

A similar proposal was introduced last year in the Senate. After a behind-the-scenes lobbying campaign by Hilcorp Alaska, the provisions were hastily withdrawn.

Freshman Wasilla Sen. Rob Yundt, a member of the Republican Senate minority, introduced SB 92 earlier in the month.

“I’m not out trying to attack any one company,” Yundt told the Senate Resources Committee on Feb. 19. “I believe everybody should be treated the same. That is all this is for me.”

Matt Shuckerow, a spokesperson for Hilcorp Alaska, said Friday that the measure would undermine Alaska’s stable tax system.

“With so much optimism for new growth and opportunity on the horizon, now is not the time to target independent companies with stifling new taxes that would hinder progress and investment,” he said.