Tax rules, not politics, delay state revenue forecast, Alaska official says

JUNEAU — Gov. Bill Walker's administration says the publication of the annual spring forecast of government revenue has stalled, fueling Republican speculation that the state's budget situation may not be as dire as it once was.

But Walker administration officials said complications over new tax guidance for oil companies, not politics or strategy, are responsible for the delay in the forecast — one of two key state financial reports behind schedule this year.

The state released an early version of the spring revenue forecast last year on March 21, saying that its serious news — that the state's deficit had grown by $300 million — would help guide debate as Walker pressed the Legislature for budget reforms.

The forecasts are typically released in the first week of April. But this year's document isn't expected until April 14, according to Ken Alper, the state tax director.

At a news conference Thursday, one House Republican, Anchorage Rep. Lance Pruitt, accused Walker's administration of hiding information about higher oil revenues that could undermine its push for new state revenue through taxes.

"Something tells me that the revenue outlook is not as dire-painted as it was last year," said Pruitt, a member of the GOP minority. "Meaning some of the things that they're pushing — the scare tactics that are being used to try to force Alaskans into bad policy, whether it's on oil taxes or on an income tax — are not maybe as necessary as they need to be."

But the holdup, Alper said, is the result of the new oil tax guidance that the tax division formally released last week. The guidance will likely net the state some extra cash, though not more than $100 million when applied retroactively to the past three years, he said.

[Read the new guidance from the state tax division]

The extra revenue would be tiny compared to the state's current deficit, estimated at nearly $3 billion. Alper said the new forecast "is not going to move the fundamentals dramatically."

The new tax guidance limits a specific, sliding-scale tax credit — one that ranges from $0 to $8 a barrel, depending on oil prices — by saying it can't be combined with other credits to reduce companies' taxes below a 4 percent minimum.

That minimum tax was established in Senate Bill 21, the 2013 legislation setting the state's current oil tax framework. But the law also said companies could use other types of credits to drop their tax bills below the 4 percent minimum.

Since the law went into effect, some oil companies have been paying less than 4 percent with the help of the sliding-scale credits by calculating their taxes in steps — using the sliding-scale credits to reduce their bills to not less than 4 percent, then, in subsequent steps, using the other types of credits to go below that floor.

The tax division issued rules putting SB 21 into place in 2013. And though one section had the effect of barring the step-by-step tax calculation, Alper said, it went unnoticed by tax division leadership until late 2016, after a crash in oil prices focused attention on credits and the 4 percent minimum.

Now, the tax division is asking "some companies" to refile their taxes for the past three years. Alper, citing taxpayer confidentiality, wouldn't say how many companies, nor which ones.

The new interpretation could affect both small and large oil producers, Alper said. That's because smaller companies with no oil production — and therefore, no tax bills — sometimes sell their tax credits to larger companies for cash.

If the large companies can't combine the sliding-scale credits with other tax credits sold by the small companies, then the smaller companies would have a smaller market for their credits.

Small companies can also exchange their credits for state cash, but only if there's money in the budget — and Walker has vetoed hundreds of millions of dollars in credit payments in the past two years.

Representatives of Alaska's big three oil companies — ConocoPhillips, BP and ExxonMobil — said the new guidance is under review but provided no additional information about how they were affected.

Kara Moriarty, president of the state's oil industry lobby, the Alaska Oil and Gas Association, said in an email that the new guidelines will likely produce a "substantial, unexpected tax liability with interest for several years for certain taxpayers," as well as fewer credit exchanges between companies.

Alper said the refiled taxes from past years would net the state "well less than $100 million."

The recalculated revenue forecast will show roughly $100 million in additional state revenue because of fewer credits used by large companies, he said. But that will come alongside an additional $100 million in cash payments owed to smaller companies, because of the more limited market for their credits.

Meanwhile, lawmakers are still awaiting a separate, audited report on the state's financial position for the fiscal year that ended June 30. The "comprehensive annual financial report," or CAFR — an exhaustive, 300-page accounting of state revenue, expenses and savings — was due Dec. 15.

Its publication has been delayed by the launch of a new state financial system, the Integrated Resource Information System, or IRIS, said Scot Arehart, the state finance director.

The CAFR is currently under review by legislative auditors, Arehart said, though he wouldn't predict when it would be finished.

"We're hoping that it will be completed soon," he said.