Minor oil tax changes could help state balance budget

The state House, which is tied up in budget knots as I write this Wednesday, is struggling to approve a budget with a deficit of a half-billion dollars or more.

Three of the provisions in SB 114, the oil tax bill sponsored by Sen. Bill Wielechowski, would cover most or all of that shortfall, anywhere from $400 million to $600 million. These are minor oil tax changes and they are not getting enough attention.

The provisions are: closing the Hilcorp loophole, about $100 million a year; reducing tax credits to $5 a barrel, about $200 million to $300 million a year: and requiring that tax credits not exceed capital expenditures by a company, about $100 million a year.

The exact amounts can’t be determined because the estimates are based on the state’s best guesses about future oil prices. Oil prices are up more than $10 a barrel in the last two weeks.

The fiscal note from the state is worth a review.

The fourth major provision in the bill, the institution of so-called “ring fencing,” is likely to be removed because it is far more complicated than the other two elements and is more contentious.

The key numbers in the chart below are for fiscal year 2025 and beyond, as the fiscal year 2024 numbers appear to include $437 million of retroactive increases to Jan. 1, 2023. The retroactive amounts are excluded from the bar chart below.

The fiscal impacts increase at higher prices because the state pays higher credits when oil is at $80 per barrel and the companies are more profitable at higher prices. Raising oil taxes has to be part of a fiscal plan to win public support.

Two years ago, Gov. Mike Dunleavy said he would support a reduction in tax credits and closing the Hilcorp loophole if the Legislature approved.