Tax initiative sponsors sue state over ballot summary
The drafters of a voter initiative to increase production taxes on Alaska’s largest oil fields have sued Lt. Gov. Kevin Meyer and the Division of Elections over problems with the summary of the measure meant for printed election materials.
Oil and gas industry attorney Robin Brena wrote in a 12-page complaint filed Nov. 14 in state Superior Court that Meyer and Elections officials misconstrued some of the basic parameters of the initiative in the ballot summary and then refused to correct the errors when they were notified of them.
Brena is a sponsor of the initiative and chairs Vote Yes for Alaska’s Fair Share, the campaign group formed to back the proposal. He has pushed for changing or repealing Alaska’s oft-debated oil production tax system since the current tax rates were passed by the Legislature and former Gov. Sean Parnell in 2013 with the support of industry stakeholders.
Overseeing elections is the primary duty of Alaska lieutenant governors.
Brena and other sponsors submitted the Fair Share Act, a two-page rewrite to the state’s current oil production tax system known as Senate Bill 21, to the Division of Elections in mid-August.
Meyer certified the initiative application Oct. 15 based on a legal opinion from Attorney General Kevin Clarkson.
With the initiative application certified, Vote Yes for Alaska’s Fair Share is now able to collect signatures for its petition. The group has until Jan. 21, the start of the next legislative session, to gather 28,501 signatures collectively from 30 of the 40 state House districts to get it on a 2020 statewide ballot.
The Department of Law memorandum to Meyer states that the initiative meets all of the procedural and constitutional requirements to be on general election ballots in 2020 but also surmised that unclear wording in the statutory language could make implementing the initiative a challenge if voters approve it.
It also contains the 396-word proposed ballot summary for the Fair Share Act that precipitated the sponsor group’s lawsuit.
State law requires the summary be a “true and impartial summary of the proposed law,” but Vote Yes contends it fails on both counts.
The complaint speculates that Meyer and Clarkson may have allowed their personal disagreements with the proposed oil tax change to infiltrate the summary. Meyer is a former ConocoPhillips employee who opposed changing SB 21 as a state senator and Gov. Michael J. Dunleavy formed his administration on the premise of balancing the state’s budget without raising any state taxes.
Clarkson was previously an attorney at the Anchorage law firm owned by Brena, which was named Brena, Bell and Clarkson prior to his attorney general appointment.
The complaint also details discrepancies between the initiative and summary language regarding what oil fields the new tax rates would cover and what exactly those rates would be.
The initiative states that it would apply to North Slope fields that produced “in excess of 40,000 barrels of oil per day in the previous calendar year and in excess of 400,000,000 barrels of total cumulative oil production.” To date, the Alpine, Kuparuk River and Prudhoe Bay fields are the only North Slope fields that meet those production criteria.
Brena has said in interviews with the Journal that the tax increase is focused on the mature fields that currently account for approximately 90 percent of North Slope production as a way to add upwards of $1 billion in annual revenue to the state without deterring exploration and development of new fields.
Opponents of the initiative insist targeting the largest fields, which provide infrastructure and capital needed to support smaller projects, would discourage in-field development but also add more complexity to the state’s already layered oil production tax system.
However, the applicability of the initiative is not as simple as the bill language appears, according to the ballot summary. It states that the Fair Share Act would change the tax for North Slope fields “where the company produced more than 40,000 barrels of oil per day in the prior year and/or more than 400 million barrels total. It is unclear whether the area has to meet both the 40,000 and 400,000 million thresholds or just one of them.”
It additionally notes that the initiative does not define what an oil field or unit is; those terms do not appear in current oil tax code, but are common terms used to define oil and gas developments by the Department of Natural Resources and other regulatory agencies.
“The Fair Share Act expressly states that its terms ‘only apply’ to areas which the annual per barrel production threshold ‘and’ the total cumulative production are met,” the complaint asserts. “To be true and impartial, the Summary’s description should be corrected to use the term ‘and’ and remove the suggestion that ‘and’ may mean its opposite and something quite different.”
It also highlights the “400,000 million” as an apparent typo that would make the cumulative production threshold 1,000 times greater than intended.
Department of Law spokeswoman Cori Mills wrote via email that the department is reviewing the specifics of the complaint and cannot comment on it.
Mills did note, though, that her understanding is that it has historically been up to the lieutenant governor to decide exactly what the summary should be for both the initiative petition and ballot summaries. The summary included in the attorney general’s opinion is a recommendation, according to Mills.
“The process generally does not involve seeking input from the sponsors before creating the summary. Any changes to the summary have generally occurred after litigation has been filed,” she wrote.
Vote Yes also argues that the summary incorrectly characterizes what is intended to be a new, higher net tax rate for the large fields. The initiative would repeal the sliding scale per barrel credit — an oil price-sensitive mechanism used to reduce the 35 percent net tax rate on oil produced from the fields — and also add a 15 percent tax on top of the current 35 percent base for a 50 percent net tax on the oil at market prices of more than $50 per barrel.
On this provision, the summary notes that the initiative uses the term “additional tax” but claims it is unclear what the new 15 percent tax would be in addition to, potentially creating problems with its applicability.
The statutory language of the Fair Share Act does not mention repealing the base 35 percent net tax.
Brena wrote in the complaint that the summary interpretation even contradicts the Clarkson’s opinion on this specific issue.
“To state the obvious, there is only one existing tax on production net value and it is set forth in (production tax code) and as even the Attorney General’s opinion noted, ‘The sponsors likely intended for this to be in addition to the existing tax levied by (Senate Bill 21).”
Finally, the complaint says the Clarkson’s opinion and the summary would render Section 7 of the Fair Share Act that aims to make tax filings on the large fields public records “completely meaningless.”
The initiative would make those filings “a matter of public record” in an attempt to provide more information on how the companies developing the oil, which is a public resource in Alaska, are faring financially in those efforts, according to Brena.
To the contrary, the phrase “a matter of public record” is interpreted in the summary to mean the records would be handled under the Alaska Public Records Act. Currently, tax records and other potentially sensitive business information held by the state are mostly kept confidential, meaning there likely would be little change in the tax documents that would be disclosed, the complaint concludes.
“Sponsors do not often advance initiatives for the purpose of changing nothing,” Brena wrote in the complaint. “The Summary is far from a true and impartial description of Section 7 of the Fair Share Act.”
According to the complaint, an attorney for Vote Yes emailed and called Law Department attorneys several times to correct the summary in the days following the Oct. 15 certification of the initiative. Representatives for the group also sent a “redlined” version of the summary to state officials highlighting the parts of the summary that they felt needed to be changed with an offer to pay for any additional printing costs.
However, Law attorneys told the sponsors on Oct. 21 that they would not further discuss the contents of the ballot summary.
The complaint asks the Superior Court to issue an injunction requiring the Division of Elections to correct inaccuracies in the summary and have the state reimburse the group for applicable costs and attorneys’ fees.
Elwood Brehmer can be reached at [email protected].