Even Dunleavy found two proposed oil tax changes, up for a hearing Friday, palatable in 2021

The Dunleavy administration has in the past declared its support for two of the key provisions in the oil tax bill introduced by Anchorage Sen. Bill Wielechowski.

Not once, but twice.

Holding Dunleavy to this pledge should simplify the politics of the matter somewhat for the modest changes offered by Wielechowski.

The administration said that ending the Hilcorp loophole and reducing the per-barrel tax credit from $8 to $5 for North Slope oil operations would be acceptable if the Legislature agreed.

That even Dunleavy found these ideas palatable should temper the robotic claims of right-wing legislators that any change in oil taxes is going to destroy the Alaska economy.

The combination of the two changes could mean about $240 million more a year in state revenue, based on the oil price guesses of summer 2021, the department said. With the current higher guesses, the revenue impact could be double that amount.

Wielechowski is proposing those two tax changes, along with “ring fencing,” in SB 114.

The bill is up for its first hearing Friday at 9 a.m. before the Senate Finance Committee.

The Legislature didn’t approve these changes after Dunleavy’s declaration of support and he was happy to withdraw into the background and act as if he hadn’t taken a position on the record. But he did.

The Dunleavy revenue department analyzed the impact of these two ideas, now in Wielechowski’s bill, and drafted legislation two years ago.

On Aug. 5, 2021 and again on Aug. 10, 2021, former Revenue Commissioner Lucinda Mahoney testified that Dunleavy would support ending the Hilcorp loophole and reducing the tax credit reduction if the Legislature approved them first.

She mentioned these two changes as among 10 revenue options “the governor would support as long as there was support from the Legislature,” Mahoney told lawmakers on Aug. 5, 2021.

A week later, she repeated the promise: “If the Legislature supports these measures, these are revenue measures that the governor would support as well.”

She said that in selecting $5 as the maximum per-barrel oil tax credit, the state had already analyzed what it would mean to the state at different oil price levels.

“Additionally we evaluated the ‘government take’ component and the impact to profitability,” she said.

She said the administration wasn’t talking about a “full production tax change,” just a reduction in the tax credits.

“This was presented as a revenue option that would generate some revenue and would be a minor change. Granted, there will be a lot of discussion about this, we certainly understand that, but this was the only change we considered,” Mahoney said.

About ending the Hilcorp loophole, Mahoney acknowledged the disparity in how the state treated the giant oil companies. ConocoPhillips and ExxonMobil pay an oil company corporate income tax. Hilcorp does not because its owner uses a different business framework never envisioned for the Alaska oil industry giants.

“Some of our oil and gas producing companies are not paying corporate income tax due to the way that their legal structure is set up. We are proposing that those entities begin to pay the corporate income tax and establish parity between the oil industry,” Mahoney said two years ago.

Closing the Hilcorp loophole is long overdue to establish parity, while reducing the per-barrel tax credit is a minor change, as Mahoney said.

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This slide, prepared by the Dunleavy administration two years ago, shows that cutting the per barrel tax credit to $5 from $8 would have the biggest positive impact for the state when oil prices are at least $80 per barrel and higher.

This slide, prepared two years ago by the Dunleavy administration, shows that applying the corporate petroleum income tax to Hilcorp would increase tax revenue by $47 million to $61 million a year. With higher profits in the past few years, however, the state could gain far more than that by establishing parity in oil income taxes.