A new report from the Alaska Department of Revenue shows a substantial negative effect on the finances of the State of Alaska from large oil and gas tax credits. The report concludes that North Slope oil and gas production tax credits may be an inferior investment for Alaska compared to investing in the Constitutional Budget Reserve Fund.
Several members of the Alaska Independent Democratic Coalition have questioned the effectiveness of oil and gas tax credits for the North Slope. Currently, the state is paying out more in tax credits than what is taken in from production taxes. In an effort to balance the state budget, the Alaska Independent Democratic Coalition supported a deferment of hundreds of millions in tax credits in FY 2016. That proposal was rejected by members of the Alaska House and Senate Majority. However, Alaska Governor Bill Walker recently vetoed $200 million in oil and gas tax credit payments from the FY 2016 budget.
“The oil and gas industry is vital to our state and should be supported. But at what cost? This new report shows the stark reality that our current tax credit program is not working,” said House Finance Committee member Rep. Scott Kawasaki (D-Fairbanks). “We are losing money on the credits and, as this report shows, our money could be invested in better ways.”
The new Department of Revenue report outlines, in detail, the fiscal return on the $4 billion in oil and gas tax credits from 2009-2014 compared to similar investments in the Constitutional Budget Reserve Fund. The report’s authors suggest the wealth lost due to credits is at least $900 million but could be as high as $4.9 billion depending on whether or not oil production is attributed to the tax credits.
“This new report shows a continued net loss of revenue to the state over the next decade or so from our decision to invest in North Slope oil and gas tax credits compared to what we could take in from a similar investment in the Constitutional Budget Reserve,” said House Resources Committee member Rep. Andy Josephson (D-Anchorage). “I would speculate that every member of the legislature supports a strong and thriving oil and gas industry. However, in these troubling financial times we must invest our money wisely and this report seems to question the wisdom of our current strategy.”
The new Department of Revenue report concludes by labeling oil and gas production tax credits for the North Slope as an inferior and riskier investment compared to a similar investment in the Constitutional Budget Reserve Fund.
The Alaska Department of Revenue report on the Effect of Oil and Gas Credits can be read here (PDF)