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BILL # HB 2003 |
TITLE: coal mining; TPT; repeal |
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SPONSOR: Finchem |
STATUS: House Engrossed |
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PREPARED BY: Hans Olofsson |
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Conditional upon the approval of the transfer of ownership of the Navajo Generating Station (NGS) by the Navajo Nation Council on or before February 1, 2023, the bill would: (1) exempt the sale of coal from the state and municipal Transaction Privilege Tax (TPT) and (2) impose a 0.5% county excise tax on the sale of coal that has been mined or extracted within the county boundaries. The NGS is currently scheduled to close on December 31, 2019.
Estimated Impact
Before December 31, 2019, the fiscal impact depends on whether an approved transfer of ownership of NGS would occur or not. If there is no transfer prior to this date, there is no fiscal impact. However, if a transfer occurs prior to December 31, 2019, there would be a General Fund revenue loss relative to current law. The magnitude of such loss would depend on when the transfer occurred. To provide some perspective, the General Fund revenue loss would be an estimated $(1) million for each month that NGS would be under new ownership prior to this date.
There are at least 3 possible scenarios after December 31, 2019:
1. NGS is transferred to a new owner and the power plant and coal mine remain open without the TPT exemption. In that circumstance, there is an estimated ongoing General Fund revenue loss of $(12.2) million from the bill.
2. NGS and the coal mine permanently close in December 2019. There is still an estimated ongoing General Fund revenue loss of $(12.2) million due to closure, but that impact is not associated with the bill.
3. NGS is transferred to a new owner and the power plant and coal mine remain open only with the TPT exemption. The state still loses $(12.2) million in revenue, but that would have happened in any event because without the bill's TPT exemption, the state would have otherwise collected no TPT revenue.
We have insufficient information to determine whether the TPT exemption would keep the power plant and coal mine open. If the TPT exemption would keep the 2 entities operating (scenario #3 above), the state would forego the potential loss of individual income taxes from the entities’ employees as well as any corporate income taxes paid by the businesses if the operations were to close.
According to the U.S. Energy Information Administration (EIA), there is only 1 active coal mine in Arizona, and this coal mine (Kayenta) ships coal to an electric generating station in the state, the Navajo Generating Station (NGS). Both the power plant and coal mine are in Navajo County. EIA lists the quantity of coal shipped as well as the shipment price by year through 2016. Based on the average quantity of coal shipped and the shipment price in the 5 most recent years, the JLBC Staff estimates that the coal mine currently pays an estimated $20.1 million annually in total state and local TPT. This amount is comprised of $16.5 million for state TPT (rate = 5%), $2.0 million for the education tax under Proposition 301 (rate = 0.6%), and the remaining $1.6 million for the Navajo County excise tax (rate = 0.5%). The General Fund portion of state TPT is $12.2 million and the remaining $4.3 million of state TPT is shared with counties and cities.
(Continued)
The bill's ongoing revenue impact depends on the status of NGS. Based on information by the current owner of NGS (as reported in media outlets), the power plant is scheduled to operate through December 31, 2019 after which date it will close. The coal mine, which sells all its coal to the power plant, will reportedly cease operations after this date unless the power plant finds a new owner. Depending on whether NGS and the coal mine close, we have prepared our estimates for 3 different scenarios, as described below.
Scenario 1: NGS and Coal Mine Remain Open Without the TPT Exemption
Under this scenario, NGS is acquired by a new owner and the coal mine continues to operate in calendar year 2020 and beyond. This occurs irrespective of the bill's TPT exemption. Under this scenario, there is an estimated ongoing General Fund revenue loss of $(12.2) million annually.
Scenario 2: NGS and Coal Mine Close in December 2019
Under this scenario there is still an ongoing General Fund revenue loss of $(12.2) million due to closure. However, this impact is not associated with the bill.
Scenario 3: NGS and Coal Mine Remain Open Only With the TPT Exemption
Under this scenario, the state still loses $(12.2) million in revenue, but that would have happened in any event. Without the TPT exemption, the state would have otherwise collected no TPT revenue.
Other Issues Related to the Potential Closure of the Coal Mine
While this analysis addresses the direct revenue impact associated with the potential closure of the coal mine and NGS, there would also be secondary or indirect impacts owing to the "ripple effect" such closures would have on the local economy. This analysis does not include such indirect impacts.
Local Government Impact
Before December 31, 2019, the local government impact depends on whether an approved transfer of ownership of NGS would occur or not. If there is no transfer prior to this date, there is no impact. However, if a transfer occurs prior to December 31, 2019, there would be a loss of state TPT revenue distributed to cities and counties relative to current law. There would also be a loss of Navajo County excise tax revenue. The magnitude of such losses would depend on when the transfer occurred.
After December 31, 2019, the local government impact would depend on which of the 3 scenarios would apply, as summarized below.
Scenario 1: NGS and Coal Mine Remain Open Without the TPT Exemption
Ongoing state TPT distributions to counties and cities are reduced annually by $(2.7) million and $(1.6) million, respectively. Navajo County excise tax revenue is unaffected.
Scenario 2: NGS and Coal Mine Close in December 2019
The ongoing local government impact from the loss of state-shared TPT revenue is the same as under Scenario 1. The county excise tax would decrease by $(1.6) million annually. However, since the revenue loss is due to closure, this impact is not associated with the bill.
Scenario 3: NGS and Coal Mine Remain Open Only With the TPT Exemption
Counties and cities are still losing the same amount of state-shared TPT revenue as under Scenario 1. However, these losses would have happened in any event. Without the TPT exemption, counties and cities would have otherwise received no state TPT distributions from the sale of coal. Navajo County excise tax revenue is unaffected.
3/12/18