Dunleavy administration wins billion-dollar revenue dispute against Alaska Legislature

The legislative branch and executive branch have disagreed about legal settlement income related to the trans-Alaska Pipeline System since 2018

By: - May 2, 2023 4:00 am

The Alaska State Capitol is illuminated by the sun on the morning of Jan. 9, 2023. (Photo by James Brooks/Alaska Beacon)

A billion-dollar financial issue flagged since 2018 by the Alaska Legislature’s auditor is not a problem, an Anchorage Superior Court judge ruled Friday.

In a five-page decision, Judge Andrew Guidi said the state is not required to deposit the the money it received as a result of an oil pipeline tariff decision into the state’s Constitutional Budget Reserve, its primary savings account. 

Unless appealed and overturned on appeal, the decision preserves existing practice and avoids an alternative interpretation that could have reduced the amount of money available annually for spending on services, construction projects or dividends.

Legislative auditor Kris Kurtis had argued that the language of the constitutional amendment establishing the reserve requires that proceeds from the decision to go into the reserve rather than the general-purpose section of the state treasury. 

The administration of independent former Gov. Bill Walker and the administration of Republican Gov. Mike Dunleavy said the state’s general fund was the proper destination.

In December, the Legislature filed a “friendly lawsuit” to resolve the dispute, and attorneys presented courtroom arguments last week.

At issue was the proper handling of money earned from disputes over the value of oil shipped through the trans-Alaska pipeline.

Alaska allows oil producers to deduct shipping costs from the amount they pay the state in taxes, and federal courts have ruled that companies were judging their costs to be too high.

That caused the Federal Energy Regulatory Commission, or FERC, to issue new rules that resulted in more revenue for the state. That agency regulates pipelines in the United States.

In 1990, when Alaska voters approved the creation of the Constitutional Budget Reserve, the voter pamphlet said that “legal settlements involving mineral or oil and gas revenues received after July 1, 1990, will be deposited into the reserve.”

The Legislature argued that the language in the pamphlet covers the FERC changes. The executive branch, across two governors, argued otherwise.

Writing on Friday, Guidi said the executive branch had the right view.

“At oral argument, the (Legislature) argued repeatedly that Article IX, § 17(a) was always understood and intended to be broadly applied. History, however, stubbornly contradicts this narrative,” wrote Guidi, an appointee of former Gov. Sean Parnell.

He concluded that a dispute needs to involve oil royalties or oil taxes directly.

“FERC proceedings are not about royalties or taxes, and they are not about payments that producers will pay to the State. FERC has no jurisdiction over state royalties or taxes, and cannot issue a decision resolving royalty or tax disputes,” he said.

In a written statement, Attorney General Treg Taylor praised the ruling.

“Simply knowing the answer in a case like this, whichever way it turns out, gives the executive branch comfort about how to correctly understand the constitution’s directives. Nevertheless, it is gratifying that the court agreed with the analysis and advice given by Attorneys General over the last several administrations. I am glad that advice was vindicated,” he said.

The Legislature, participating in the case as directed by the Legislative Budget and Audit Committee, was represented by Kevin Cuddy, an outside attorney hired on contract.

Cuddy did not return a call or email seeking comment Monday.


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James Brooks
James Brooks

James Brooks is a longtime Alaska reporter, having previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. A graduate of Virginia Tech, he is married to Caitlyn Ellis, owns a house in Juneau and has a small sled dog named Barley. He can be contacted at [email protected].