Legislative panel OKs ‘friendly’ lawsuit against the administration over oil tax accounting

The Legislature’s Budget and Audit Committee last Thursday approved a “friendly lawsuit” against the Dunleavy administration, seeking to settle a long-running dispute between the Legislature and executive branch over where the money from a decision on how oil taxes are calculated should be deposited.

It’s an issue that pre-dates the Dunleavy administration—something that legislators were sure to reiterate throughout the discussion on the lawsuit, which was approved for up to $100,000—and deals with Federal Energy Regulatory Commission decisions that limited how much of the expenses from the trans-Alaska Pipeline System oil companies can deduct against their tax bills (therefore increasing their taxes).

“This is a friendly lawsuit,” said committee chair Sen. Natasha von Imhof. “It is just trying to determine interpretation of an accounting process. This is not antagonistic. That’s not the sense of this committee.”

The issue centers around whether the additional revenue—which so far totals about $1.5 billion—should have been deposited into the Constitutional Budget Reserve, as the Legislature and its auditor believes is the case, or whether the Walker and Dunleavy administrations were right to deposit them into the state’s general fund. The practice started in the last years of the Walker administration and has continued under the Dunleavy administration.

It has resulted in several years where the audits from the Legislature’s auditor have been delivered with the “qualified” status, which von Imhof said could scare away potential investors.

The difference in accounting not only impacts the amount of money available for each year’s budget because the general fund is much easier to spend than the Constitutional Budget Reserve, but how much money is owed to the Constitutional Budget Reserve.

That last bit is important because the Constitutional Budget Reserve—which takes a 3/4 majority in both the House and Senate to spend—has a provision that requires the any withdrawals be eventually paid back. That figure is north of $12 billion thanks to the decline of oil prices through most of the 2010s, and legislators are concerned that this $1.5 billion could add to that figure even more.

“The Legislature feels that we owe the $1.5 billion roughly to the CBR,” said Sen. Bert Stedman, R-Sitka. “It will have an impact at some point in the future when and if we ever pay back the CBR. We would have to actually pay back more, and we need to clarify the issue.”

When the Constitutional Budget Reserve is owed money, the Alaska Constitution calls for most funds left over at the end of the year to be swept up for the repayment. It became a source of several not-so-friendly lawsuits with the Dunleavy administration, which unilaterally expanded the scope of the sweep to liquidate funds that fueled programs like the Power Cost Equalization program, the state’s scholarship program, Alaska Marine Highway System’s vessel replacement funds and several others. (The courts eventually found Dunleavy was technically right to liquidate some but wrong to liquidate the PCE fund.)

While issues with the sweep have largely been settled with the courts, who ruled that the funds could be spared from the sweep by the Legislature essentially passing legislation that says they’re exempt from the sweep, it’s now up to the courts to play referee on the state’s savings accounts.

“This is not a political spat between the two branches of government at all,” Stedman said. “It’s a technical discussion and technical disagreement on the balance of the Constitutional Budget Reserve that goes back to the previous administration. We just need to move forward, and have it settled by the third branch of government so we can have an agreed-upon set of books.”