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Oil Tax Overhaul May Cost As Much As $5 Billion Over Next 6 Years

By | April 3, 2013 - 5:31 pm

The most recent version of oil tax overhaul has a new price tag: almost $5 billion over the next six years.

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But as Mike Pawlowski with the Department of Revenue explains, that’s, “If the bill passed, and nothing changed from the way the Department currently forecasts the next five years, this would be the fiscal impact that we would see.”

Oil prices could end up being different from the state forecast, and that analysis doesn’t take into account any changes to oil production whether they be good or bad.

The version of the bill offered by the House Resources committee has a lot of moving parts, and a couple of them have indeterminate impacts on the state treasury. The way this version works is that it would set a 35 percent ceiling on what oil companies could be charged. When dealing with new oil, the state would let a fifth of the new oil go tax free and then give a $5 per barrel credit for the rest. With old oil, it would offer per barrel credit based on a sliding scale. At high prices, companies wouldn’t get the credit at all, with the idea being that the state should benefit from the rise in profits. But at prices as low as $80, the state would give companies an $8 credit. The argument for including that provision is to spur oil companies to invest in the state.

But that policy has Rep. Paul Seaton, a Homer Republican, worried about what happens to the state treasury if the price of oil crashes. He thinks it might not leave the state with enough protection at the low end.

“I’m concerned that $8 isn’t just at $80 a barrel. It’s everything below $80 a barrel. So, that it becomes a much higher and higher proportion of the profitable income that’s going to be excluded if we reach a time where we have low oil prices,” Seaton said.

The House Resources has spent Wednesday afternoon reviewing changes to the bill. More than two dozen amendments have been offered.

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