Wednesday, May 22, 2013
Parnell: State Savings Will Aid Tax Reform
Gov. Sean Parnell said Tuesday he would use state savings to cover short-term budget shortfalls if the Legislature approves his plan to reform and cut oil taxes.
JUNEAU - Gov. Sean Parnell said Tuesday he would use state savings to cover short-term budget shortfalls if the Legislature approves his plan to reform and cut oil taxes.
Revenue specialists say the rewrite would chop one-quarter to one-third from the state government's annual income from oil taxes. Parnell told reporters the plan, which would lower tax rates and boost incentives, would more than pay itself back by attracting investment from oil companies.
In the short-run, however, he said the state would need to tap its multibillion-dollar savings accounts to help cover deficits and would "work to live within our means using those savings."
Lawmakers, citing state figures, estimate a $1.5 billion deficit would open following the tax reform.
Parnell also said he would look to cut the budget but declined to identify departments he would look to shrink. He said leaving the current tax system - proposed in 2006 and 2007, prior to a spike in oil prices - untouched would jeopardize the state's long-term economic health.
"I see companies voting with their feet to leave Alaska," Parnell said.
Critics said the state is trying to rush the plan through the public process. Rep. Scott Kawasaki, D-Fairbanks, said Parnell's administration is leaning on "anecdotal evidence" that the tax cuts will work to attract oil companies. He said the plan isn't ready to clear the House Resources Committee, where he serves as a member.
"We need more work and more answers from the administration," he said.
But business groups have strongly backed calls for cutting oil taxes in Alaska, where oil development is one-third as active, by volume, as in the late-1980s.
Richard Schok, chief executive at the Fairbanks-based pipeline service firm Flowline Alaska, wrote to Kawasaki this month saying his company saw a "dramatic decrease" in contracts following a major 2007 state tax hike. He said the company has halved the number of craftsmen on its payroll. Schok said the state's incentive-heavy tax system might be attracting exploration, but he told Kawasaki "I am not seeing the exploration wells translate into new development projects on the horizon."
Rep. Steve Thompson, R-Fairbanks and a co-sponsor of a version in the House, said the long-term need to protect the trans-Alaska oil pipeline from shutting down trumps the short-term concerns regarding budget deficits should the tax cut pass.
"We'd be left further behind" other states and nations without a change this year, Thompson said. He acknowledged the proposal could open two years or more of deficits, saying that's how far ahead oil companies plan major investment projects.
A piece of Parnell's tax plan would reward companies that drill south of the huge Prudhoe Bay and Kuparuk oil fields. While the governor's plan has been subject to numerous hearings in the House, the same version lies dormant in the Senate. Parnell challenged senators to schedule time for debate.
Members of the House committee have challenged state revenue specialists this month after they said they lack the data needed to assess Alaska's current tax laws and their effectiveness. A consultant said two weeks ago that Alaska requires less information sharing from oil companies than do other resource-rich states and nations.
Parnell said Tuesday the information shortage was only recognized recently and that he hopes it can be addressed by regulatory changes. State senators said the problem makes it hard to understand whether the current tax system - laden with incentives - is broken and needs a fix.
Rep. David Guttenberg, D-Fairbanks and a member of the House Finance Committee, said he wants the plan to be fleshed out by the Resources Committee.
He said Parnell's administration appears to be rushing the public process, possibly because the Legislature is working under a 90-day session.
"I don't think we're getting the job done" that voters expect, he said.
Contact staff writer Christopher Eshleman at 459-7582.