Measures to raise new state revenue were introduced in the Alaska Senate on Feb. 26, 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 Alaska legislators’ concerns that costs will be shifted to the state.
The nonpartisan Legislative Finance Division has projected that the state faces a $536 million deficit over two fiscal years if lawmakers approve the same $1,420 Permanent Fund dividend and the same school funding as last year.
A $1,000 PFD this fall would reduce the deficit to about $300 million — still a substantial gap.
Some legislators have supported a larger school funding increase this year, alongside other spending priorities, which would balloon the deficit back up over half-a-billion dollars.
Anchorage Democratic Sen. Bill Wielechowski, a longtime supporter of raising taxes on the oil industry, stressed on Feb. 26 that new revenue measures need to be considered. “Unfortunately, there are not a whole lot of other options at this point.”
Oil industry groups came out strongly against the proposed tax hikes.
Kara Moriarty, president of the Alaska Oil and Gas Association, said industry members would be adamantly opposed to the proposed change in oil taxes.
“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 could collectively raise over $500 million per year.
Senate Bill 112 would reduce the maximum tax credits that companies could apply to their oil production taxes. Similar measures have previously been anticipated to raise around $400 million a year.
Senate Bill 92 would expand the state’s corporate income tax code to apply to privately held oil companies. Hilcorp, which operates the Prudhoe Bay oil field, would be the only company affected by the change.
The legislation would not apply to thousands of privately held corporations in Alaska, all much smaller than Hilcorp, though all fall under the same non-taxable status in state law. 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 and sell into Alaska. 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.
Anchorage Sen. Cathy Giessel, chair of the Senate Resources Committee, 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.
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.”
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.
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