Bracing for Another Budget Debate

In my most recent column for State Tax Notes, I look at the numbers in the Alaska Department of Revenue’s (DOR) 2022 Fall Revenue Sources Book, which tabulates historical revenues and provides the revenue forecast that the governor and Legislature will rely on for budget discussions during the legislative session. I also discuss the status of the refundable/rebatable tax credits that have been available for more than a decade in Alaska to companies that invested in oil and gas exploration and development and in refinery infrastructure in the state.

Unrestricted revenues in Alaska, which fund government operations, are driven by royalties for oil produced from state leases and by three categories of taxes—oil and gas production taxes, petroleum property taxes, and corporate income taxes. As a result of lower predicted oil prices and reduced production, DOR lowered its 2022 fall forecast for unrestricted general fund revenue from that of its official spring 2022 forecast to $3.9 billion ($1.1 billion decrease) for fiscal 2023 and $3.4 billion ($0.7 billion decrease) for fiscal 2024.

The government’s slackening progress in paying the refundable/rebatable tax credits started in 2015 and 2016, thanks to falling oil prices, culminating with lawmakers and policymakers authorizing no appropriations for payments for fiscal years 2020 and 2021. Rebounding oil prices may yield the government enough revenue to pay for, and clear the queue of, tax credits, good news for companies that have been holding the credits for many years.

Read “Bracing for Another Budget Debate,” published on January 16, 2023, by State Tax Notes.

Tax Actions by the Alaska Legislature in 2022

In my most recent column for State Tax Notes, I look at several bills that did and didn’t pass in the latest session of the Alaska State Legislature, which adjourned in May, and at what may be on the horizon.

Legislators introduced several bills that would have increased taxes on individuals or businesses in Alaska, none of which passed. Several bills did pass or were nearly passed:

  • H.B. 104, which would have increased state motor fuel tax rates, was approved in the House but failed to clear the Senate.
  • S.B. 33, which expands the seafood product development tax credit, was passed in the House and Senate, and the governor signed it into law on July 8.
  • H.B. 411, which amended current law to allow municipalities to tax exemptions or deferrals, or economic incentives inside a service area, with the goal of promoting growth within the service area, was signed into law by the governor on October 9.
  • H.B. 281, the state budget bill, was approved with appropriations for payment to companies that earned rebatable production tax credits or corporate income tax credits.

Read “Jon Iversen: Tax Actions by the Alaska Legislature in 2022,” published on August 22, 2022, by State Tax Notes.

MSHA Announces New Initiative to Enforce Silica Dust Standards

Last week, the U.S. Department of Labor’s Mine Safety and Health Administration (MSHA) announced a new initiative to strengthen enforcement of its current respirable crystalline silica standards.  Crystalline silica is a common mineral found in sand, stone, concrete, and other materials.  When disturbed by cutting, grinding, or crushing, it becomes airborne and respirable, capable of posing increased risk of diseases like silicosis, coal workers’ pneumoconiosis, or “black lung,” and certain cancers.

The enforcement initiative goes into effect immediately and serves as interim measure as MSHA continues work to develop a new rule addressing silica dust exposure limits. But rulemaking progress has been slow and, with the proposed rule not expected until later this summer, a final silica rule is unlikely to be issued before 2023.  This enforcement initiative serves as a stop gap that MSHA “can take now while [it] continue[s] the rulemaking process toward the development” of the new standard, Assistant Secretary Chris Williamson explained.

Details about how exactly the initiative will unfold or how consistently or stringently it will be applied remain to be seen.  Based on information in MSHA’s press release, enforcement may be focused on increased oversight at mines with a history of prior silica exceedances and other non-compliance with existing rules. But the Agency left open the possibility of increased enforcement activity at silica-intensive operations at compliant sites, too. The measures include:

  • Spot inspections at coal and metal nonmetal mines with a history of repeated silica overexposures;
  • Increased oversight and enforcement of known silica hazards at mines with previous citations for exposing miners to silica dust levels over the existing 100μg permissible exposure limit (PEL).
    • When a metal/nonmetal operator has not timely abated a silica overexposure hazard, MSHA will issue a §104(b) withdrawal order until the hazard is abated. For coal mines, MSHA will urge “changes to dust control and ventilation plans to address known health hazards.”
  • Expanded silica sampling at metal and nonmetal mines to ensure inspectors’ samples represent mines, commodities, and jobs known to have the highest risk for overexposure.
  • An emphasis on sampling during mining processes presenting the highest risk of silica exposure: for coal mines, shaft and slope sinking, extended cuts and developing crosscuts; for metal and nonmetal, overburden removal.
  • MSHA will “remind[] miners about their rights to report hazardous health conditions, including any attempt to tamper with the sampling process.”  It’s unclear, however, how exactly that outreach will occur.

Key Takeaways

Rollout of this new initiative comes on the heels of newly proposed requirements under MSHA’s mobile power haulage proposed rule and just months after appointment of a new Assistant Secretary.  With the change in administration and new MSHA leadership aboard, this may be just the latest shift in enforcement and regulatory approach, with more to come.

In any event, those operating in silica-intensive environments—and certainly those with silica-related enforcement histories—should dedicate particular attention to silica dust compliance at their sites. If compliance programs need updating, or training is overdue, now is the time.

Alaska Gets a Boost from Oil

In my latest column for State Tax Notes, I outline the impacts rising oil prices are having on the Alaska economy and the state’s citizens, the accomplishments and tasks ahead of the Legislature as it passes the midway point in its regular session, and the fall prognostication by the Department of Revenue for revenue in the state.

Read “Alaska Gets a Boost from Oil,” published on March 28, 2022, by State Tax Notes.

Alaska Proposes New Surface Coal Mining Regulations

The Alaska Department of Natural Resources (DNR) has issued a notice of proposed amendments to the regulations regarding surface coal mining in Title 11 of the Alaska Administrative Code (AAC).

The DNR proposes to implement program amendments from the federal Office of Surface Mining Reclamation and Enforcement required to maintain the state’s primacy over the coal program pursuant to the Alaska Surface Coal Mining Control and Reclamation Act. The DNR will readopt all sections within 11 AAC 90.02 – 11 AAC 90.911 into the AAC. These regulations will no longer be adopted by reference in 11 AAC 90.01(a) as a separate document, but will instead be printed in full within the AAC. Most sections are proposed to be adopted without change outside of technical amendments after the public comment period or resulting from Alaska Department of Law review.

Substantive amendments include: (i) changes to information required from an applicant regarding ownership and control of a mining operation; (ii) a process to determine whether an applicant is eligible for a permit; (iii) updates to the process for determining valid existing rights to coal resources on certain state and federal lands; (iv) requirements for remining of areas that have already been mined; (v) adjustments to provisions which govern exploration that substantially disturbs natural land surface or occurs in an area designated unsuitable for surface coal mining to minimize interference; and (vi) repealing and readopting 11 AAC 90.625 to include new methods for penalty assessment and computation.

The public comment period runs until 5:00 p.m. on March 11, 2022. Comments must be in writing, and may be mailed, faxed, or emailed to the contact information below:

Attn: Angie Fraker
Division of Mining, Land and Water
550 W 7th Ave., Suite 1070
Anchorage, Alaska 99501-3579
Fax: (907) 269-8904

Written questions may also be submitted and must be received at least 10 days before the end of the public comment period.

2021 Alaska Legislative Sessions Run From ‘Frenzy to Fizzle’

In my latest column for State Tax Notes, I outline several bills to increase taxes introduced during the 2021 sessions of the Legislature, and discuss the status of the government’s repayment of rebatable tax credits, two packets of regulations promulgated by the DOR, and a preliminary revenue forecast issued by the DOR for 2022.

The Alaska Legislature broke a record for days in session in 2021, with a 120-day regular session followed by four special sessions. Of the numerous tax bills considered, none passed, but bills that were introduced in the 2021 regular session carry over for consideration in the next regular session, which started in January 2022.

Rebatable tax credits were a key topic during the 2021 sessions. For two years, the state has not made any payment to companies for the credits, which were offered to them as an incentive to invest in Alaska oil and gas exploration, development, and production. H.B. 3003, introduced during the third session, included $114 million for repayment of rebatable tax credits. Though the bill passed the House, $60 million that was to be funded through the Constitutional Budget Reserve didn’t receive the three-fourths supermajority vote required for its approval, and the Senate passed the bill with $54 million appropriated for repayment of the credits.

Based on forecast increases in the price of North Slope crude oil, DOR is predicting that Alaska will take in an additional $1.2 billion revenue for 2022 and, if the forecast holds true, $1 billion per year of revenue into the future over the DOR’s spring 2021 forecast. I note: “The increase in oil prices and concomitant increase in oil and gas production taxes would also yield larger appropriations for payment of the pending rebatable tax credits if the governor and Legislature follow the statutory formula [that dictates amounts of the appropriations].”

In conclusion: “Although the increase in oil prices signals relief for Alaska’s budget dilemma, much is still at stake. Taxpayers have an uneasy respite while holders of Alaska tax credits anxiously hope for additional appropriations for them. It will be important to regroup and recharge through the rest of 2021 because 2022 will likely be another tumultuous year.”

Read “2021 Runs From Frenzy to Fizzle,” published on December 20, 2021, by State Tax Notes.

Recent Alaska Legislative Sessions Leave Future Unclear for State’s Taxpayers

In my latest column for State Tax Notes, I provide an update on the status of the Alaska Permanent Fund and on actions taken during the regular legislative session and three special sessions to attempt to clarify the many questions that exist surrounding Alaska’s fiscal structure.

The Permanent Fund was created in 1976 through an amendment to the Alaska constitution as a mechanism to ensure that a portion — at least 25% — of the state’s oil wealth would be saved to benefit current and future generations of Alaska citizens. Much of the fund cannot be spent by the Legislature without approval from the voters. Total Permanent Fund returns for 2021 reached 30%, raising the fund’s value to $81 billion from approximately $65 billion in 2020.

Activity in the regular and special legislative sessions revolved in part around questions of whether and how much of fund earnings should be preserved versus being spent for purposes such as balancing the budget or paying oil and gas companies that earned rebatable oil and gas production tax credits. The state has not purchased any portion of the credits, which were offered as an incentive for companies to invest in Alaska oil and gas exploration, development, and production, for more than two years. The operating budget bill introduced by Gov. Mike Dunleavy (R) included a proposed appropriation of $60 million for tax credit purchases in fiscal 2022.

The regular and special sessions also saw the introduction of several tax bills, none of which passed. During the second special session, the Legislature was able pass a budget large enough to avoid a government shutdown, though it did not provide appropriations for several items, among them payment for the outstanding tax credits. H.B. 3003, the only measure passed during the third special session, earmarked $54 million as the payment for rebatable tax credits for fiscal 2022.

In conclusion: “The governor called a fourth special session just hours after the Legislature — set to convene on October 1 — and the subject broadly includes any acts related to a fiscal plan. Alaska taxpayers are rightfully on edge about potential tax increases, while holders of rebatable tax credits anxiously await the anticipated payment and hope for an additional appropriation. What lies ahead is unclear, but we do know that debates about taxes and payments for credits will continue. My next article will include an update on the Legislature’s progress (or lack thereof), perhaps with some reflection that is a little less muddy.”

Read the article here.

Originally published as “An Unclear Future for Alaska Taxpayers” on October 4, 2021, by State Tax Notes.

Alaska Department of Transportation and Public Facilities Proposes Regulation Changes

The Alaska Department of Transportation and Public Facilities (DOTPF) issued notice of proposed regulation amendments to Title 17 of the Alaska Administrative Code dealing with rural airport rental and fees.

The existing rental rate regulation applicable to rural airports in Alaska, 17 AAC 45.127, includes a schedule which provides an annual 10% increase to the rental rate at each airport. The proposed amendments will delay the annual increases of rural airport lease, rental, and fees until January 1, 2023. DOTPF amended the regulations earlier this year to delay the annual increases through December 31, 2021. Under the new proposed amendments, the 10% annual increases will resume for the 2023 rental year.

Public comments may be submitted to DOTPF in writing until 5:00 p.m. on November 17, 2021. Written questions may be submitted to Questions must be received at least 10 days before the end of the public comment period. The Division of Statewide Aviation will make responses to questions available on the Alaska Online Public Notice System.

Mandatory Vaccination Policies for Employees: What Can (and Should) We Do?

Just a few short months ago, we would have thought that COVID-19 was almost behind us and that it was only a matter of time before mine operators would no longer have to worry about the spread of the disease at their worksites.  It looked like face masks and vaccinations had done their jobs, and that we had turned the corner on the pandemic.

It turns out we may have been just a tad over-optimistic.  Like every other sector, the mining industry is looking at growing numbers of positive cases.  In an environment where employees cannot work remotely; often live in small, tight-knit communities; and (particularly at underground mines) must work in close quarters, mine operators need to consider whether it makes sense to require miners to get the COVID-19 shot.

The mining industry is not alone.  While many employers initially were hesitant to institute mandatory COVID-19 vaccination policies, the recent surge driven by the Delta variant and announcements from large organizations—including the U.S. military, United Airlines, and major health care systems across the country—have caused many employers to revisit mandatory vaccination policies. Continue Reading

Jon Iversen: Trials of the Season

In my latest column for State Tax Notes, I provide an update on Alaska’s budget woes, on possible tax hikes and fiscal uncertainty still faced by the state’s taxpayers, and on the state’s ongoing inability to make payment to holders of over $700 million in rebatable oil and gas production tax credits.

In 2020, Alaska’s state budget was hurt by the combination of the increase in fuel supply caused by the Saudi-Russian price war and the reduction in demand due to the pandemic, leading to a drop in oil prices as well as forcing oil and gas producers to cut production and lay off workers.

The state appears to be making progress in climbing out of its budget crisis. The Alaska Department of Revenue forecast higher oil prices in spring 2021 compared to fall 2020, which, combined with anticipated production increases, will lead to an expected increase in unrestricted general fund revenue of $332 million for fiscal year 2021. DOR predicts an even greater increase in anticipated unrestricted general fund revenue for fiscal year 2022 — $460 million.

In November 2020, Alaska voters rejected the Fair Share Act initiative, which if it had passed would have change existing laws to significantly increase production taxes on oil produced from Alaska’s largest fields. The rejection not withstanding, I look at some of the bills legislators continue to try to pass to increase taxes on the oil and gas industry, taxpayers in general and Alaska corporations.

Regarding the rebatable oil and gas production tax credits, I wrote: “Fiscal 2020 and 2021 saw no appropriation from the Legislature for purchase of the credits from the oil and gas tax credit fund. As of March 15, $744 million in tax credits awaits purchase, and almost half this queue dates to credits earned before 2017.”

Read the article here.

Originally published as “Trials of the Season” on April 26, 2021, by State Tax Notes.