Oct. 6 (Bloomberg) -- Alaska Governor Sean Parnell’s proposal to reduce oil taxes to spur production may cost the state its top credit rating, the Legislature’s nonpartisan research office said.
The Republican governor has said his plan would shrink revenue by as much as $2 billion a year, though the gap would narrow as the incentives encourage companies to increase exploration and output. Chuck Burnham, a legislative analyst, said less revenue may force the state to balance its budget with reserves in lean years.
“To the extent that oil-tax reductions increase the state’s reliance on cash reserves, such reductions may be viewed as a negative factor by credit rating agencies,” Burnham said in a report.
Alaska, which has the second-largest U.S. crude reserves after Texas, gets more than 80 percent of its operating budget from oil-production taxes and royalties. Alaska has no state tax on personal income, property or sales. Its general-obligation bonds carry a rating of Aaa from Moody’s Investors Service and are graded one step lower, at AA+, by Standard & Poor’s.
Burnham said revenue is only one factor that rating companies would consider when reviewing the state.
Parnell wants to reduce the current 25 percent base-tax rate to 15 percent and cap surcharges that now increase along with the per-barrel price of oil.
‘Climate for Investment’
“We are working to improve Alaska’s climate for investment,” Parnell said in a Sept. 29 speech to the Energy Council in Anchorage. “We plan to incentivize exploration and development in areas outside of existing units.”
Parnell’s office referred a request for comment to Revenue Commissioner Bryan Butcher, who didn’t respond.
The analysis was produced at the request of state Senator Bill Wielechowski, a Democrat who opposes Parnell’s plan. It was previously reported by the The Anchorage Daily News.
“Alaska should take this threat seriously,” Wielechowski said in a statement. “Our triple-A credit rating enables us to build roads, bridges, schools and other public facilities at a lower cost than would otherwise be the case. Our credit rating is the envy of many states and we shouldn’t squander it.”
Parnell was lieutenant governor under Sarah Palin and took the top office when she resigned in 2009. He is a former deputy director of the state agency that manages oil and gas leases, and was a lawyer for the Washington-based law firm Patton Boggs LLC, whose clients at the time included oil producers such as ConocoPhillips and Exxon Mobil Corp.
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