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 rich.sewell@alaska.gov. 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.

Jon Iversen Discusses Alaska Supreme Court Decision Overturning Tax Credit Bond Program

In previous columns for State Tax Notes, I have discussed H.B. 331, which was passed by the Alaska State Legislature to remedy the state’s failure to pay off outstanding rebatable oil and gas production tax credits. However, the Bill faced numerous lawsuits, culminating in a Sept. 2020 Alaska Supreme Court ruling that the financing structure created by the Bill violates the Alaska Constitution.

H.B. 331 established the Alaska Tax Credit Bond Corp. as a public corporation to finance the purchase of tax credits designated in certain sections of the Alaska Statutes, including all rebatable oil and gas production tax credit certificates for specific credits. Provisions included in the bill were meant to address possible attacks on its constitutionality regarding violations of the statutory requirement to not dedicate future revenue for a specific purpose or the limitations on contracting for state debt.

A lawsuit challenged the bill on those two bases, and a judge of the Juneau Superior Court dismissed the complaint based on a failure to state a claim on which relief can be granted. On appeal to the Alaska Supreme Court, the court made its ruling that the Bill is unconstitutional — in part because it contracts state debt in violation of Alaska Constitution Article IX, section 8.22, and because it did not meet one of the limited exceptions in section 11 to the prohibition against the state contracting for debt.

My next column will include updates on potential options for holders of tax credits, the Fair Share Act initiative, and the upcoming legislative session that starts in mid-January.

Read the article here.

Originally published as “Alaska Supreme Court Overturns Tax Credit Bond Program” on November 9, 2020, by State Tax Notes.

Alaska Faces Challenges of COVID-19, Low Oil Prices and Increase in Production Tax

In my latest column for State Tax Notes, I look at the challenges that Alaska, and particularly the state’s oil and gas industry, has faced in 2020 thanks to the COVID-19 pandemic, low oil prices and the threat of a major increase to Alaska’s oil and gas production tax.

The state of Alaska is highly dependent on its oil and gas industry for tax revenues. The state’s budget has taken a hit from the combination of the increase in fuel supply caused by the Saudi-Russian price war and the reduction in demand due to the pandemic, which has led to a drop in oil prices as well as forcing oil and gas producers to cut production and lay off workers.

The Alaska Department of Revenue estimated in late 2019 that its unrestricted general fund revenue would be $2.1 billion in fiscal 2020 and $2 billion in fiscal 2021, which starts July 1. In April, DOR issued a revenue forecast in which it revised the earlier forecasts downward to $1.6 billion for fiscal 2020 and $1.2 billion for fiscal 2021, largely due to the drop in oil prices.

As well as the challenges resulting from the pandemic and price war, a group has proposed the Fair Share Act initiative, which if passed would change existing laws to significantly increase production taxes on oil produced from Alaska’s largest fields. “The initiative is a substantial threat to the Alaska oil and gas industry and would be detrimental to the economics of large oil fields in Alaska,” according to Iversen.

The next article will include a status report on the Alaska Supreme Court appeal concerning the constitutionality of the tax credit bond program and a more in-depth discussion about the initiative.

Read the article here.

Originally published as “Alaska’s Perfect Storm” on June 29, 2020, by State Tax Notes.

 

Alaska DNR Issues One Year Extension for Certain Mining Payments

The Commissioner of the Department of Natural Resources has issued an Order granting a one year extension for mining payments due under Alaska Statute 38.05.210 (Annual Labor) and Alaska Statute 38.05.211 (Annual Rental).

In response to COVID-19, and in an attempt to stop the spread of the virus, the Alaska Department of Health and Social Services imposed restrictions on travel both to and within the state of Alaska. Those travel restrictions limited the ability of mining claimants to travel to and access remote mining locations, affecting their ability to generate revenue and perform necessary activities to maintain their mining claims. Pursuant to Alaska Statute 38.05.020(b)(5), the Commissioner’s Order finds that the inability of miners to access their claims is through no fault of their own, but rather through an act of God.

To qualify for the extension, miners are required to submit a written request to the Division of Mining, Land & Water on or before November 30, 2020, stating how the COVID-19 pandemic prevented them from timely performing annual labor, paying cash-in-lieu of labor, or paying rent on their mining interest. The Order does not change the requirement to file an affidavit of annual labor for the current assessment work year. If a miner has requested an extension for payment of cash-in-lieu of labor, they must still file an affidavit on or before November 30, 2020, detailing that a payment for cash-in-lieu of labor is expected to be paid in accordance with an extension requested under the Commissioner’s Order.

U.S. Fish & Wildlife Proposes Revisions to Section 4 of the Endangered Species Act

Of interest to mineral projects, the U.S. Fish and Wildlife Service (USFWS) continues to attempt to revise some of its Endangered Species Act (ESA) implementing regulations to align with the relatively recent decision from the Supreme Court in Weyerhaeuser Co. v. U.S. Fish & Wildlife Serv. (139 S. Ct. 361 (2018)). Today, it proposed new regulations that would establish a process and standards for how the USFWS will conduct exclusion analyses under Section 4(b)(2) of the ESA. Before the Weyerhaeuser decision, the USFWS took the position that a decision not to exclude an area was entirely discretionary to the point that it could not be reviewed under the Administrative Procedure Act (the Supreme Court held to the contrary). The proposed regulations acknowledge that decisions not to exclude critical habitat under Section 4(b)(2) are reviewable, but make sure to reserve as much discretion as possible for the USFWS in making such decisions.

Public comments from interested parties on the proposed rule will be accepted until October 8, 2020. Additional information can be found on the Federal Register’s website.

Alaska Oil & Gas Conservation Commission Proposes Changes to Bond Regulation

The Alaska Oil and Gas Conservation Commission (“AOGCC”) is considering revisions to 20 AAC 25.025 of the Alaska Administrative Code.  One revision would “allow a reduction in the requisite bond amount if an operator demonstrates that it has a bond in place with the landowner dedicated exclusively to the plugging and abandonment of a well or wells.”

For those operators that were authorized to increase their bond amount in four annual installments, the proposed change would give those operators additional time to reach the higher bonding amount by increasing the number of annual installment payments from four to seven.  Installment payments began on August 16, 2019, and currently are due on August 16 of 2020, 2021, and 2022.

Comments to the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, can be submitted in writing and sent to the following by not later than 4:30 p.m. on September 10, 2020:

By mail:
Jody Colombie
333 West 7th Avenue
Anchorage, Alaska 99501

By facsimile:
(907) 276-7542

By email:
aogcc.customer.svc@alaska.gov

A hearing on the proposed regulation changes is scheduled for September 1, 2020 at 10:00 a.m. at 333 West 7th Avenue, Anchorage, Alaska.  Those desiring to participate or be present at the hearing should check with the AOGCC after August 25, 2020 to ascertain if the hearing will be telephonic.  Additional information is available regarding the hearing and the proposal on the AOGCC’s website.

Changes to Alaska’s Mining Laws – Annual Labor

When Alaska amended its mineral tenure statutes, it significantly changed the statement of labor that must be filed annually to maintain state mining claims. We previously provided an overview of the changes and now explain them in more detail. Neither the amount of labor required nor the deadline for filing the annual statement has changed. Rather, the amendments clarify what counts as labor and what must be reported on the annual statement.

The law now clearly recognizes that labor that occurs on adjacent federal or private mineral interests held in common with state claims can be credited toward the claims so long as the claims benefit from the labor. While most miners believed the prior statutory language—providing that all work benefiting the state claims counted toward the labor requirement—allowed work on non-state lands to satisfy the labor requirement, the new language removes any room to question this long-standing practice.

The information that must be included in the annual statement of labor—commonly referred to as an affidavit of labor, or AOL—is now set forth in the statute, rather than the regulations. There are a few significant changes from the prior requirements. Continue Reading

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