The oil industry says I am 'disingenuous' in account of secret tax benefit. Not true.
The Alaska Oil and Gas Association, a public relations and lobbying outfit for some of the biggest oil companies in the land, claims I am being "disingenuous," with my account of a secret tax break championed a year ago by Senate Republicans in Juneau.
There was nothing secret, says Kara Moriarty, the head of AOGA, about the provision to allow the major oil companies to pay back taxes with tax credit certificates purchased from other companies at a discount. The amendment "opened the secondary market for companies to sell credits to companies that had a liability with the state. There is no way you can say it was a secret," she said in a Tweet Saturday.
She's right about part of this. The language in the bill was not secret. It is there for anyone to read. I never said that was secret.
What I said was secret was that just as this provision was taking shape in Juneau, the oil companies were negotiating a deal on back taxes to settle a long-standing dispute before the Federal Energy Regulatory Commission in Washington, D.C. This change was worth millions to the companies and the link to the language in the bill was never revealed to the public.
The negotiations by the teams of lawyers were not open. In December, after the new provision had become law, we learned about the $165 million FERC settlement and how this new provision would create an immediate benefit. Alaska Public Radio had a good story about the "unique payment plan."
The oil companies and their legislative allies had good reason last spring to describe the provision in ways that didn't attract attention. It is true that this was not a major element in the overall tax bill, just a small revision, easy to overlook.
Proponents said over and over it was to create a "secondary market" for tax credits and allow them to be used to pay taxes from prior years. This would help the state clear its debts and get some cash to the small companies, while not reducing oil revenue. Sen. Natasha von Imhof called it a "win-win situation for everybody."
But had the clear connection to the FERC settlement been explained to Alaskans, the provision would have been tightened. There would have been real pressure to negotiate a better deal for the state. Or at least something that resembled a deal.
The state Department of Revenue now estimates that $100 million of back taxes from the big companies will be paid in the next fiscal year using the cash certificates that have been falsely labeled "tax credits."
The state started years ago to subsidize the entrance of new companies into the oil business with cash payments. (The idea was a good one. One of its fatal flaws in implementation was that the state, wary of crossing the big companies, refused to demand enough information to become an intelligent investor or seek real returns on its so-called "investment.")
With the collapse in state oil revenue since 2014, a backlog of hundreds of millions of those unpaid cash certificates has piled up. The main point of the tax bill last year was to end the cash-back system. Meanwhile, the state has slowed down repayments under the Walker administration as the deficit in running state government climbed into the billions.
The small companies that hold these unpaid certificates want to get paid. They have long been able to sell them to other oil companies who have to pay current taxes. The new provision allows them to be sold to companies that want to use them to pay back taxes. Enter the FERC settlement and a chance for the major oil companies to get a discount.
To find buyers for these cash certificates, they have to be sold by the holders at a marked down price. The exact numbers are unknown, but some state officials have speculated in the past that the certificates went for 80 percent or 90 percent of face value.
So instead of holding onto certificates and getting 100 percent of nothing from the state for an indefinite period, the small companies can sell them at a marked down price.
And the big companies that buy the certificates can pay back taxes at full face value, saving the difference between face value and the marked down price. The state clears the debt from its books, the big companies get 100 percent of the value, while the small companies get a portion of what they had coming. Without this provision, the state would collect about $100 million more in taxes in the next fiscal year, though it would still have $100 million in debt on its books.
The relationship of the change in tax law to the impending FERC settlement was kept secret. It is not disingenuous to point that out.
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