AKLEG Day 113: 'Baubles and trinkets'
A look at a change to the carbon storage bill to close a "loophole" that has long frustrated critics of the state's oil and gas industry.
Good morning, Alaska! It’s Day 113 of the legislative session.
In this edition: Time is fast running out on the legislative session, collapsing all the early-session hopes of what’s possible into the reality of what’s feasible. Education, energy, budgets and a long list of personal legislation are all still out in the ether, but let’s zero in on a change made to the governor’s carbon storage bill that seeks to close a loophole in the state’s tax system. Also, legislators have firmly rejected the appointment of right-winger Bob Griffin to the Board of Education.
Current mood: 💸
‘Baubles and trinkets’
“Festooned with baubles and trinkets of all sorts and stripes.”
That’s how Department of Natural Resources Commissioner John Boyle described the many amendments that legislators have made to House Bill 50, legislation by the governor to create a carbon storage program that would permit companies to collect carbon dioxide and inject it deep underground, during a Senate Finance hearing on Monday. The legislation comes amid increased attention to combating pollution and greenhouse gases but has also served as a convenient vehicle for pretty much anything and everything related to oil and gas issues in Alaska.
As of Friday, that includes a provision addressing a long-standing gripe on how Alaska collects income taxes from some oil and gas companies, which backers say could raise as much as $175 million in additional revenue. Here’s how it works.
Alaska’s oil and gas industry contributes to state coffers through several tax streams, including production taxes, royalties, property taxes and corporate income taxes. However, corporate income taxes only apply to those with corporate income, which isn’t the case for one of the state’s largest oil field operators, Hilcorp Energy. The Texas-based Hilcorp Energy, which acquired much of BP’s North Slope assets in 2020, operates as an S-Corporation. This means its profits are taxed through individual income taxes rather than corporate income taxes. For Alaska, this translates to the company’s profits going untaxed because Alaska doesn’t have a personal income tax.
That would change if an amendment approved by the Senate Resources Committee on Friday becomes law. Anchorage Democratic Sen. Bill Wielechowski, one of the leading proponents of higher taxes on the industry, proposed the change, which would levy a tax on S-Corporations with more than $4 million in annual revenue.
“The intent of this amendment is to get what we assume will be over $100 million, perhaps $175 million, per year going forward, have that money go to desperately needed renewable energy projects, electrical grid projects and upgrades across the state and make our tax code a little more fair,” he said during the hearing, noting that the money would be set aside for renewable energy and grid upgrade projects.
Republican Sens. James Kaufman and Click Bishop opposed the amendment, saying they needed more time to review the measure. Kaufman said it should stand as its own legislation. Anchorage Democratic Sen. Matt Claman also opposed the measure but said the solution should be to tax all S-Corporations rather than just the high-earners.
The measure passed 4-3 with the support of Sens. Wielechowski, Cathy Giessel, Scott Kawasaki and Forrest Dunbar.
The measure still needs to survive Senate Finance, the Senate floor, a concurrence vote with the House and the governor’s veto pen, which is admittedly a long shot.
When asked if the governor still supported the bill with all its addons, Commissioner Boyle hinted that a veto pen could be in its future.
“No, the governor does not support this bill with all the amendments that are included,” he said. “Most problematic, obviously, is the provision that relates to S-Corp taxes. We believe that goes beyond the fairway, so to speak, in terms of the issues that are now incorporated into the bill.”
Setting aside the issue of S-Corp taxes, the underlying legislation faces an uphill battle, with senators very skeptical of the administration’s claims that it could be a windfall for the state. The carbon storage provisions envision a system where locally captured carbon emissions from a power plant or shipped carbon from Outside or foreign sources would be pumped deep underground in Alaska. What’s important to remember—as senators have regularly pointed out in hearings—is that it relies on federal tax credits that expire in 2033 and technology that doesn’t exist on a commercial scale.
The anticipated state revenue is also minimal. Officials presented a hypothetical example of an energy plant in the Interior pumping its emissions into the ground. It would take more than $20 million in annual federal tax credits on the front end while paying the state about $600,000 in yearly revenue.
“What you’re telling me is it’s uneconomic,” Sen. Bert Stedman remarked during the presentation.
The Senate Finance Committee is set to continue its hearing on HB 50 later today.
Follow the thread: Senate Finance hears HB 50
21-39
I’ve been working on this newsletter while watching the joint legislative session on the governor’s appointments. While I’ll have a more thorough write-up once it’s all done, it’s worth noting that legislators have soundly rejected the appointment of Alaska Policy Forum “researcher” Bob Griffin to the Board of Education. Griffin has faced immense pushback for many reasons, such as his role in the current home-school debacle and a tendency to blur the line between official and personal business. Still, chief among them is his efforts to lobby legislators to uphold the governor’s veto of Senate Bill 140.
It’s an effort that reportedly included explicit promises of campaign consequences.
The failure to override the governor’s veto has been a continued headache for legislators. Senate leadership has openly blamed House Republicans for killing what had been a hard-fought compromise, arguing they need to take the lead on a new version of the bill. Those efforts have come across as unserious and half-hearted, with Republicans loading the bill with right-wing priorities aimed at pleasing the governor but that have no real shot at passing. It’s a difficult situation that has created an immense political liability for several Republicans, who will now have to spend the campaign season explaining why they torpedoed the education bill.
Follow the thread: The joint legislative session on the governor’s appointments
Stay tuned.