Brinksmanship and compromise emerge in Alaska’s Capitol as legislative session nears an end

Members of the Alaska Senate have killed, at least temporarily, a plan to end a tax policy worth more than $100 million for one of the state’s largest oil companies. 

The move came after Hilcorp Alaska and members of the state House of Representatives warned that there would be consequences if the Senate moved forward with plans to end a tax policy that benefits Hilcorp more than many other corporations.

The Alaska Legislature is scheduled to adjourn its regular session by the end of the day on Wednesday, and because any unpassed bills will die upon adjournment, these last days have featured a frenzy of activity as lawmakers seek to attach their priorities to bills that appear to have enough support to pass. 

“We really are running out of time. We don’t have the time to talk about everything to the extent we would like,” said Rep. DeLena Johnson, R-Palmer, during floor debates on Thursday.

Within the Capitol, the last-days maneuvering is creating an atmosphere of brinksmanship and grudging compromise mostly opaque to outsiders. 

The Hilcorp amendment and the Senate’s work on the underlying bill gave an unusually public glimpse at what’s happening behind closed doors.

Governor’s bill turns into policies opposed by him

Last year, Gov. Mike Dunleavy asked lawmakers to pass a bill that would set rules for a potential new state industry involving the injection of carbon dioxide deep underground in order to prevent the effects of human-caused climate change.

The House passed a modified version of Dunleavy’s proposal, amending it to make it more favorable to oil, gas and coal interests. 

When the bill reached the Senate, members of the Senate Resources Committee cut it apart and inserted several other bills. There were new provisions dealing with gas storage facilities, loans that could use in-ground natural gas as collateral, free access to seismic survey data in Cook Inlet, and most controversially, the tax change for Hilcorp.

Even before Hilcorp bought BP’s Alaska holdings in 2020, legislators were warned that the state’s corporate income tax applies to larger firms like BP, not companies like Hilcorp, and the result of the sale would be a loss of income. 

Hilcorp is organized under federal tax law so that its income passes through to its owners. The owners might pay state income taxes in states that have them; in Alaska, they go untaxed.

The difference is now costing the state at least $100 million annually in foregone revenue, and legislators have not changed the law to address the issue. 

Sen. Bill Wielechowski, D-Anchorage, has written several bills on the topic and successfully inserted the latest one into the carbon bill.

When the revised bill reached the Senate Finance Committee, Department of Natural Resources Commissioner John Boyle said it had been “​​festooned with baubles and trinkets of all sorts and stripes.”

He told lawmakers that the governor opposed the new version of the bill, indicating that if the Legislature passes it, Dunleavy might issue a veto.

Members of the majority caucus in the Alaska House of Representatives also told senators that they opposed the bill.

Rep. George Rauscher, R-Sutton, told the Anchorage Daily News that he thinks the caucus considers the governor part of their team, and so his opinion carries a great deal of weight.

Soon after Boyle’s testimony, the House Rules Committee scheduled a meeting and listed 13 Senate-sponsored bills on its agenda.

That agenda carried an implicit threat: If the Senate didn’t reverse course on the carbon bill, members of the House would stuff Senate bills full of things that senators opposed.

Rep. Craig Johnson, R-Anchorage and chair of the House Rules Committee, said there was a “very clear” message to the Senate.

“We will not allow good policy to die on the last day of session,” he said. 

Hilcorp also had a message. 

The company produces approximately 90% of the natural gas sold out of Cook Inlet, and the company has said that it intends to spend money on new infrastructure to ramp up production in response to an anticipated gas shortage in Southcentral Alaska. 

In an email to Southcentral electric utilities on May 5, Hilcorp Senior Vice President Luke Saugier said it might change its plans if the tax exemption is removed.

“As a company, all we can do is respond, which, unfortunately, would likely mean significantly shifting our capital investment,” his email said in part.

One day later, Wielechowski blasted the messaging from Texas-based Hilcorp. 

“The livelihoods of Alaskans, people in industry, people in business, we cannot be put in a position where an outside person is threatening to turn off our gas unless he keeps his tax breaks. We just can’t be in that position. And unfortunately, that’s the position that we’re in,” he told reporters.

Over Wielechowski’s opposition, the Senate Finance Committee removed the Hilcorp item — and all the other bills inserted into the carbon bill.

“The industry obviously didn’t want it in there and they worked real hard to get it out,” Wielechowski said of the tax provision.

A Hilcorp spokesperson declined a request for comment on Wielechowski’s statements.

Other late-changing bills face scrutiny

While the carbon bill has garnered a large amount of attention, other bills are undergoing similar negotiations.

Last week, Sen. Matt Claman, D-Anchorage and chair of the Senate Judiciary Committee, folded several crime-related bills into House Bill 66, a Dunleavy-proposed measure that would allow prosecutors to charge someone with murder if that person sells drugs that result in a fatal overdose.

The Alaska chapter of the American Civil Liberties Union raised issues with the resulting bill and mobilized supporters to testify against it.

The Senate Finance Committee stripped out the additional bills and reduced HB 66 to its original subject. 

A similar act took place with a bill that promises to reform the rules used by electrical utilities when sending electrical power to other utilities. 

Sen. Donny Olson, D-Golovin and co-chair of the Senate Finance Committee, said that with all the late-session maneuvering, the committee’s approach has changed.

Starting Thursday, the committee will start from the original bill and then bring up each of the add-on pieces as individual amendments, voting them up or down.

Each vote could mean the survival or end of an individual proposal. While it’s possible for a merged bill to resurface on the House or Senate floor, it’s much easier to make a change in committee. 

“Some of these bills are getting so big that it’s hard to go ahead and go piece by piece through them all. So the simplest way to do it is to strip it down to the original bill, and then add onward from there. So that’s what we’ve been doing,” he said.

Meanwhile, lawmakers are continuing to combine bills under legislative rules that allow the maneuver if the merged bills have similar subjects.

In the first hours of the House’s floor session on Thursday, for example, legislators inserted a proposal that creates a central source for aid to military families and veterans inside a bill written to give veterans a preference when they bid for public projects. 

Language from a bill that allows retired teachers to serve as substitutes was inserted into a bill dealing with the pay of experienced teachers hired from out of state.

“When you’re looking at consolidating bills late in the session, you’re trying to look at not only different interests, but niches that have been addressed and also things that have broad support,” Claman said. “Some of those pieces of legislation that make sense, might not have the time to get through this session.”

There’s a potential problem with that idea, said Rep. Neal Foster, D-Nome. If you add too much, he said, “you could end up killing something with the best of intentions.”