Bipartisan fuel tax bill turned on its head

The one broad-based tax that appeared poised to pass the Legislature after years of debate has died at the hands of high oil prices.

The House Finance Committee gutted the key provisions from Anchorage Democrat Rep. Andy Josephson’s motor fuel tax bill March 9 before it sent the legislation on its way to a likely vote on the House floor without objection from Josephson, who sits on the committee, and little other discussion.

House Finance co-chair Rep. Kelly Merrick, R-Eagle River, introduced the pared-down version of House Bill 104, which now includes a single provision increasing Alaska’s refined fuels surcharge from 0.95 cents per gallon to 1.5 cents per gallon, amid the first calls for lawmakers to suspend Alaska’s current gas taxes, which are the lowest in the country.

HB 104 was stripped of language raising the highway fuel tax from 8 cents to 16 cents per gallon, doubling the rate for marine fuel from 5 cents to 10 cents per gallon and enacting new registration fees on electric vehicles. The bill did not increase aviation fuel taxes and provided refunds for motor fuels used off the road system and some commercial fishing vessels. Overall, it was expected to raise approximately $30 million per year.

Gov. Mike Dunleavy publicly urged legislators to suspend the state’s motor fuel taxes in a statement from his office March 11. He also sent a letter to House members in which he noted the actions taken by the House Finance Committee but also urged them to add an amendment to HB 104 that would suspend taxes on highway, aviation, jet and marine fuels through June 30, 2023, the last day of the 2023 state fiscal year.

“It is my sincere desire that this action, if approved, would spur a trend of relief to our fellow Alaskans from both government and private actions,” Dunleavy wrote. “In that spirit, I would hope the private firms that distribute fuel would ensure these savings are passed on to the end user, the Alaskan, as effectively as possible.”

The Senate unanimously passed a nonbinding Sense of the Senate affirming the body’s collective commitment to providing relief to Alaskans from current energy costs March 11 as well.

It’s unclear at this point when HB 104 will be up for a vote on the House Floor, where the governor’s amendment or something similar could be added.

Suspending the fuel tax would save the average Alaskan driver $40.24 per year, according to legislative figures.

Oil prices have somewhat stabilized at a little more than $100 per barrel after the sharp spike in prices following Russia’s invasion of Ukraine and President Joe Biden’s ban on Russian crude imports, though there is little indication that oil prices will fall any time soon given the current geopolitical situation.

Those high oil prices have also added nearly $2 billion in likely state revenue this year based on unofficial estimates. Revenue officials are expected to update their annual state revenue forecast in the coming days.

Support for increasing Alaska’s fuel taxes, some of which have not been updated since the 1970s, had been slowly growing since former Gov. Bill Walker first introduced legislation to do so in 2016. Revenue from presumptive fuel taxes was worked into both House and Senate budget bills before fuel tax legislation passed at various times since.

The Republican-led Senate passed a fuel tax bill in 2019 but it got lost in tense debates over the governor’s proposed budget cuts and died in the House. Josephson’s bill was based on Fairbanks Republican Sen. Click Bishop’s bill that the Senate passed.

“What we see is that unless you’re in a fiscal crisis, you just can’t raise revenue, and we’re no longer in a fiscal crisis,” Josephson said in in interview, though he noted the state is still living in a structural deficit.

“What’s disappointing is how quickly legislators get amnesia,” he added.

The refined fuel surcharge that remained in HB 104 applies to any fuel refined or sold in the state. It partially funds the Alaska Department of Environmental Conservation’s Spill Prevention and Response Division, commonly known as SPAR.

The increase of just more than a half-cent per gallon would raise between $3.4 million and $3.7 million per year to SPAR’s oil and hazardous substance release prevention account, according to figures provided by Josephson’s office. That works out to a little more than $3 per year for the average urban-area Alaska driver, he said.

The .95 cents-per-gallon surcharge gained bipartisan support when it passed in 2015 as a means to stem declining revenue in SPAR’s accounts, which previously had relied on a 4 cents per barrel surcharge on oil produced in the state along with fee-for-service payments. However, declining production has again put SPAR in a money bind based on some projections. On its current trajectory, the prevention account will likely be depleted some time in 2026.

Past revenue totals indicate the current surcharge is generating about $1 million less per year than projected when it passed mostly due to lower oil production, according to Josephson.

Elwood Brehmer can be reached at [email protected].