Days left in legislative session; key issues loom

There’s about a week left in the 2023 legislative session, and there are typically a few important matters left to the final hours, certain budget items and the Permanent Fund Dividend among them.

This is the first session of a two-year Legislature, so bills that don’t make it to passage by May 17, the constitutionally-designated adjournment date, will see work resume next January.

Right now most efforts are focused on the few bills that have a chance of passing but also on pushing the legislation along as far as possible to be in a good position next spring.

Among the Legislature’s priorities are increases in state financial aid to schools, which has not changed since 2017. The Republican-led state House has offered up one-time extra funding of $175 million in its operating budget which has been matched by the Senate, led by a coalition of Republicans and Democrats, in its budget.

The Senate is also pushing, however, for an increase in ongoing funding through the Base Student Allocation, the basic formula that guides state school funding. Senate Bill 58, sponsored by the Senate Education Committee, had asked for a $1,000 increase in the BSA, currently at $5,960 per student. This was pared back in the Senate Finance Committee to a $680 increase in the formula. The committee then voted SB 52 out of committee Monday, May 8.

This matches the $175 million one-time increase but would make it permanent. School officials say one-time money isn’t really a big help since they can’t plan for ongoing improvements like raising teachers’ salaries. It’s uncertain whether the House, with its conservative leadership will go along with this, however.

A big priority for Gov. Mike Dunleavy is his proposed carbon legislation, which comes in two bills, HB 49, sales of carbon offsets from forests, and HB 50, underground injection of carbon dioxide, or CO2, on state lands. The Senate versions of these are SB 48, carbon offset sales, and SB 49, underground injection.

These bills are complex, although simple in concept, and extensive House and Senate hearings have been held on both. It’s typical that, absent an emergency, complicated legislation often takes two years to pass because legislators face many other pressing issues.

Carbon offset sales involves private companies paying a forest owner, in this case the state of Alaska, to ensure that carbon stored in trees stays there and increases the longer a forest is protected. Some harvesting is allowed in offset sale contracts, however.

Carbon injection involves the carbon dioxide being pumped down special wells to be stored permanently in secure underground reservoirs. Since the state owns the unused portions of reservoirs, this can be source of revenue.

There are no real technical challenges in this because natural gas has been injected and stored in unused reservoirs in Cook Inlet for years.

The bills are making slow progress. Both HB 49 and HB 50 are in the House Finance Committee, while SB 48, on carbon offset credits, recently moved from the Senate Resources Committee to the Senate Finance Committee, which is now working on the bill. SB 49, the underground inhection bill, is still in the Senate Resources Committee.

In the first Senate Finance hearing on SB 48 on Monday, May 8, state natural resources commissioner John Boyle said such a program could provide a modest stream of revenue that could help pay for forest enhancement to improve forest quality or for protective measures to reduce losses due to fire or insects.

If the legislation passes the state would consider demonstration projects in three state forests but the bill allow for state lands that are forested to be leased for the sale of offset credits, with lease fees being paid to the state.

Alaska Native corporations have had carbon offset sales underway on their private lands since 2015, Rena Miller, a special assistant to Boyle, the resources commissioner, told the Senate committee on May 8.

One of the more contentious issues, as the Legislature approaches its adjournment, is likely to be a significant increase in oil and gas taxes. The Senate Finance Committee is working on SB 114, which would reduced a per-barrel production tax credit given North Slope producers and also require oil producers organized as “S” corporations to pay the state corporate income tax that is paid by other producers organized as “C” corporations.

S corporations do not pay the state 9.4 percent corporate income tax. That liability is passed to shareholders in the S corporations. C corporations do pay the corporate income tax, however.

S corporations are common for practitioners in the medical community and many other people in business in Alaska and elsewhere but it is uncommon for a large oil producer, like Hilcorp Energy, to be organized that way.

But Hilcorp is organized that way in all the states where it does business including Alaska, where it has been active since 2012.

SB 114 would have the effect of raising taxes on all producers including Hilcorp by $1.01 billion next year, according to an estimate by the state Department of Revenue.

In hearings last week the companies told senators that the higher tax would cut into their ability to develop new oil projects on the North Slope and continue the momentum in oil work that is now underway on the slope.

There is even more concern for Cook Inlet where Hilcorp is the major operator and producer of natural gas. Hilcorp is now gearing up to find and develop new to offset a shortfall in supply predicted to begin in 2027. Imposing new taxes now would take money for the state that Hilcorp could use in developing new gas.

The oil tax bills may pass the Senate but they are likely to meet stiff resistance in the state House. However, what doesn’t pass in the 2023 session will continue to be an issue in 2024.