Gov. Bill Walker released the state budget on December 15. Tucked in there is a proposal to pay off nearly $900 million in tax credits owed to oil companies.
Currently, the state is making minimum payments on those cashable oil and gas tax credits. It’s not scheduled to pay them off fully until 2025.
Walker and the Department of Revenue are proposing to speed up that process.
“What we’re proposing is to find a way to pay them all off in the very near term, using bonds,” Department of Revenue Tax Division Director Ken Alper said.
The details of the proposal are not fully fleshed out, but essentially the state would offer oil and gas companies the opportunity to get reimbursed for credits by 2019, at a discount.
That discounted rate could be somewhere between 90 to 94 cents for every dollar owed.
“We don’t want to lose money on the deal and that’s where the discount rate comes in,” Alper said. “It’s going to cost us money to issue these bonds and borrow this money. We want the amount of discount we get from industry to at least pay the state’s cost and risk associated with the state borrowing money.”
Before the deal can move forward, the Legislature has to vote to allow the state to negotiate the deals and sell the bonds.
And a deal might be attractive to companies — not just because they get their money sooner. Right now, their options are to wait for the state to pay these cash credits off, or sell them to one of the major producers in the state.
But, it’s a buyer’s market.
“The problem is, the major producers don’t have that much demand,” Alper said. “Because, the price of oil is lower, they don’t have as much tax obligation as they used to. To the extent that they’re willing to purchase them, they’re going to pay a pretty steep discount.”
Alper says the most important goal is to free the state of that $900 million debt and increase the industry’s confidence that the state will pay what it owes.