How to Read Alaska Indirect Expenditure Report for FY 2015 - FY 2019 RTF

IntroductionAn indirect expenditure is a provision of state law that results in foregone revenue to the state to serve a certain public policy purpose. Department of Revenue’s (DOR’s)Indirect Expenditure Reportis submitted in accordance with AS 43.05.095 as a biennial report to the Chairs of the Alaska State House and Senate Finance Committees and the Legislative Finance Division. This requirement was enacted as part of House Bill 306, passed by the Alaska Legislature in 2014. DOR’s Indirect Expenditure Report was first published in 2014 and has been updated every two years since then. The 2014 enacting legislationof this report, House Bill 306, established two different reports: DOR’sIndirect Expenditure Report, and the Legislative Finance Division’s Indirect Expenditure Report. While the reports share the same name, they have two different purposes. DOR’s Indirect Expenditure Reportcompiles and reports indirect expenditure data and information for all departments, agencies, and state public corporations. Legislative Finance’s Indirect Expenditure Report provides analysis of the effectiveness of the state’s indirect expenditures using the information from DOR’s Report and provides policy recommendations to the Legislature.Summary This 2020 report contains 266 indirect expenditures from 11 state departments and agencies, with total revenue impacts of approximately $1.4 billion in Fiscal Year (FY) 2018 and at least $1.3 billion in FY 2019. FY 2019 data was not yet complete for certain tax types, including Corporate Income Tax, Corporate Oil and Gas, and Mining License Tax at the time this report was published. Therefore, FY 2019 actual indirect expenditure revenue impacts are likely greater than $1.3 billion. Oil and Gas Production Tax Credits have had less of an impact year over year. This, in part, is due to legislative action limiting or repealing these credits. DOR administers 78 indirect expenditures; by farthe greatest number of provisions of any one department or agency. The revenue impacts of indirect expenditures administered by DOR accounted for about 91%of total statewide revenue impact in both FY 2018 and 2019. The largest indirect expenditures by revenue impact are Oil and Gas Production Tax Credits which totaled approximately $1.1 billion in FY 2019. Other notable indirect expenditures with large revenue impacts in FY 2019 include sport fishing and hunting licenses for resident seniors(DFG) with a revenue impact of $15.3million, discounted interest rates on loans to municipalities (DEC) with a revenue impact of $12.2 million, a tax reduction for local levies on commercialpassenger vessels (DOR) with a revenue impact of $12.0million, motor fuel tax exemption on foreign flights (DOR) with a revenue impact of $9.7 million, a royalty modification for Oooguruk Unit (DNR) with a revenue impact of $8.5 million, the Alaska Pioneer Home Payment Assistance Program (DHSS) with a revenue impact of $6.9 million, permanent registration for 8-year-old vehicles (DOA) with a revenue impact of $4.8 million, and a reduced alcoholic beverages tax rate for small breweries(DOR) with a revenue impact of $2.9 million. Over the next two years, two indirect expenditures are currently scheduled to change or end (sometimes referred to as “sunset”). A list of these indirect expenditures is included later in this report.