Legislature(2015 - 2016)BILL RAY CENTER 230
05/14/2016 01:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB247 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 247 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
2d CS FOR HOUSE BILL NO. 247(RLS) am
"An Act amending the powers of the board of trustees
of the Alaska Retirement Management Board to authorize
purchase and sale of transferable tax credit
certificates issued in conjunction with the production
tax on oil and gas; relating to interest applicable to
delinquent tax; relating to the oil and gas production
tax, tax payments, and credits; relating to
exploration incentive credits; relating to refunds for
the gas storage facility tax credit, the liquefied
natural gas storage facility tax credit, and the
qualified in-state oil refinery infrastructure
expenditures tax credit; relating to the confidential
information status and public record status of
information in the possession of the Department of
Revenue; relating to oil and gas lease expenditures
and production tax credits for municipal entities;
requiring a bond or cash deposit with a business
license application for an oil or gas business;
establishing a legislative working group to study the
fiscal regime and tax structure and rates for oil and
gas produced south of 68 degrees North latitude; and
providing for an effective date."
2:06:50 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
remarked that he had briefed the governor on the components
of the current version of the legislation. He stated that
the governor supported the bill.
2:07:28 PM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
introduced himself. He stated that the current version was
C.A. He shared that his format addressed the basic
provisions of the bill, but the bill was different than
they day before. He stated that the version was based on
what came out of the House Finance Committee substitute.
Mr. Alper discussed the presentation, "Oil and Gas Tax
Credit Reform CS HB247(RLS)\C amended H; Department of
Revenue; Overview of House-passed CS for Senate Finance;
May 14, 2016" (copy on file).
Mr. Alper looked at slide 2, "Introduction":
Thank you for welcoming us back
• This bill is substantially changed from what we
presented yesterday
• The major amendment which rewrote much of the bill,
from Reps. Seaton and Wilson, was largely based on the
House Finance CS
• We're using the same format as yesterday. Changes
from the House Rules version, as we described it in
our prior presentation, are indicated with purple
italics
Major new items are also indicated with a different
form of bullet
Mr. Alper highlighted slide 3, "Major Provisions in House-
Passed Bill":
1. Exploration Credits
• Governor's bill
• Allows existing credits to sunset on 7/1/16
• Keeps "middle earth" extension to 1/1/22
• Repeals older dormant DNR exploration credits
• House bill
• Also keeps the change made in several earlier
versions to extend the "Frontier Basin" credit to
protect ongoing AHTNA investment
• Extends this language one year due to
additional delay in acquiring a rig
Mr. Alper addressed slide 4, "Major Provisions in House-
Passed Bill":
2. Cook Inlet (and Middle Earth) Credits
• Governor's bill
• Eliminated 20 percent QCE and 40 percent
WLE, kept 25 percent NOL
• Kept 2022 "tax cap" sunset
• House bill
• NOL kept at 25 percent in 2017 but only if
producing by end of 2016. To 0 percent in
2018
• QCE repealed 1/1/17
• WLE reduced to 20 percent for 2017 and
repealed in 2018
Moves up 2022 tax cap sunset to 2019.
This imposes the high underlying tax in
2019 with expectation of new system as
proposed by "working group"
• Maintains Middle Earth 25 percent NOL if
under a plan of development, along with 10
percent QCE
2:12:03 PM
Mr. Alper looked at slide 5, "Major Provisions in House-
Passed Bill":
3. North Slope Credits, Limits, Carry-Forwards
• Governor's bill
• Kept 35 percent NOL rate (not current
administration policy)
• Capped repurchase at $25 million / company
/ year, large company exclusion, 10 year
sunset
• House bill
No NOL credit or carry-forwards after 2016 for
companies producing over 15,000 barrels / day
• Smaller producers still eligible for refunded
NOLs with cap of $70 million / company / year.
Must be from a lease from which the state
receives a royalty, under a plan of development,
and in which the producer has a working interest
NOL rate ramps down: 32 percent in 2017; 29
percent in 2019; 26 percent in 2021; 25 percent
in 2023
Mr. Alper remarked that slide 5 reflected the most major
changes to the legislation.
Mr. Alper addressed slide 6, "Major Provisions in House-
Passed Bill":
4. Minimum Tax Changes
• Governor's bill
• Increased "floor" to 5 percent
• "Hardened" minimum tax against NOLs, $5
per-barrel credit for new (GVR) oil, small
producer, and exploration credits
• House bill
Adds a 5 percent "floor" but only if yearly
price is over $70 / bbl. Doesn't harden
against additional credits
• Because NOLs are no longer carried forward
by large producers, floor indirectly
hardened
• Revenue impact delayed to 2020 because pre
effective date NOLs can still be used to go
below floor
Co-Chair MacKinnon queried an example of a high-low
scenario of what "pierces" the floor. Mr. Alper agreed to
provide that information.
Co-Chair MacKinnon requested that the information be as
clear as possible.
Senator Bishop queried the number of producers below 15,000
and the number of producers above 15,000. Mr. Alper agreed
to provide that information.
2:17:43 PM
Mr. Alper highlighted slide 7, "Major Provisions in House-
Passed Bill":
5. New Oil "GVR" Provisions
• Governor's bill
• No changes
• House bill
• 7-year "graduation" of GVR oil to become
legacy oil
If the average price of oil exceeds $70 for
any three years, the GVR sunsets early, with
the production reverting to legacy oil
Co-Chair MacKinnon requested a scenario that outlined Point
Thompson's effect of the five dollar credit, and how it
affected the floor. Mr. Alper replied that the five dollar
a barrel credit for new oil could be used below the floor
to go to zero under current law. He wondered if she wanted
modeling related to how the bill would change Point
Thompson's tax treatment in the future.
Co-Chair MacKinnon requested a detail of Point Thompson's
tax structure under current state statute, and how the
legislation would impact Point Thompson. Mr. Alper agreed
to provide that information.
2:19:53 PM
Mr. Alper looked at slide 8, "Major Provisions in House-
Passed Bill":
6. New Provisions
"Migrating Credits": (Provision from Governor's
original bill.) Prevent per-barrel credits not
usable in one month, due to minimum tax, from
being applied in another month.
No impact unless substantial price volatility
within a year
"ARM Board Alternative Purchase Option":
Authorizes Alaska Retirement Management Board to
repurchase credits at 60 percent of face value.
DOR mandated to repurchase these credits at full
value, notwithstanding any per-company limits,
within 5 years
Senator Hoffman queried the impact of the change require in
additional audit time. Mr. Alper replied that the issue was
only relevant in a year where there was months above and
below the minimum tax. He stated that 2014 was the only
year when that occurred. He asserted that there may be
additional scrutiny, but it was not a retroactive
provision. The bill was only relevant in a future year at a
time of price volatility.
Vice-Chair Micciche wondered why the presentation did not
include the gross value at the point of production. Mr.
Alper replied that he neglected to include that change in
the presentation.
Mr. Alper explained that the ARM Board Alternative had been
empowered before Alaska's Clear and Equitable Share (ACES).
2:26:16 PM
Co-Chair MacKinnon stressed that the option may not have
been vetted enough. She wondered whether the ARM Board had
been consulted about repurchasing credits. Commissioner
Hoffbeck replied that there was no ARM Board meeting at the
time of bill inception. He shared that he had contacted
Gary Vader, and he said that the investment was seen as a
viable investment by the ARM Board.
Co-Chair MacKinnon wondered if there was a "gate" on how
much the ARM Board could put out at a 60 percent buy back
that required the state to pay 100 percent. Commissioner
Hoffbeck replied that it must fall under the ARM Board's
investment criteria.
Co-Chair MacKinnon asked whether the administration
contemplated a possible draw from the general fund, if a
large portion of tax credits purchased at 60 percent were
demanded at one particular time. Commissioner Hoffbeck
wondered if the reference was to the ARM Board investments.
Co-Chair MacKinnon remarked that $770 million was
available, with a limited access of DOR, she queried the
liability in one year should the ARM Board attempt to ask
the state for 100 percent. Commissioner Hoffbeck replied
that the ARM Board would consult with DOR, and DOR would
examine the ability of the state to repay.
Mr. Alper furthered that the ARM Board language was in two
different places in the bill.
2:31:03 PM
Mr. Alper addressed slide 9, "Major Provisions in House-
Passed Bill":
7. Misc. and Technical Provisions
a) Gov: GVR can't be used to increase the size of
an NOL
House: Kept as written
b) Gov: Municipal Utility Lease Expenditure pro-
ration
House: Kept as written
c) Gov: Transparency, can release amount of
credits received and the work done to earn them
House: Limited to refunded credits, and dollar
total only
d) Gov: Interest Rate increase from 3 percent
over Federal Reserve, simple to 7 percent over
Fed, compounding
House: Increase to 5 percent over Fed,
compounding, with simple interest after four
years
Co-Chair MacKinnon queried clarity in the bill for when the
department would implement the tax increases. She wondered
whether the provision was retroactive or prospective. Mr.
Alper replied that the interest rate was tied to the
current time.
Co-Chair MacKinnon surmised that it was retroactive. Mr.
Alper replied that it was only in the time period that the
taxes were delinquent after January 1, 2017.
Co-Chair MacKinnon wondered if it would apply to a tax
return submitted in 2012. Mr. Alper replied in the
affirmative. The 2012 tax return would have different
levels of interest, because the tax was delinquent. He
stressed that the interest was based on the time, not on
the origin of the tax return itself.
2:34:53 PM
Mr. Alper looked at slide 10, "Major Provisions in House-
Passed Bill":
7. Misc and Technical Provisions (con't)
e) Gov: Alaska Hire tied to percentage of credit
that can be refunded
House: Level of Alaska Hire as prioritization for
repurchase given limited funds, including
contractors
f) Gov: Credits can be used to offset other
delinquent obligations to the state such as
royalties
House: Credits can be held back if obligation is
related to company's oil and gas business
2:36:45 PM
Senator Bishop surmised that the Alaska Hire was not tied
to a percentage. He wondered how the credit was paid out.
Mr. Alper remarked that the language was in Section
45(g)(2), which stated that "the department must grant a
preference between two applicants to the applicant with the
higher percentage of resident workers, and the applicant's
workforce, including workers employed by the applicant's
direct contractors in the state in the previous calendar
year."
Senator Bishop surmised that the high percentage could be
51 percent. Mr. Alper replied in the affirmative.
Co-Chair MacKinnon queried the calculation of the
contractors in higher corporations. She wondered if the
calculation would be global. Mr. Alper replied that it was
calculated based on work related to their Alaska
operations.
Co-Chair MacKinnon wondered how that calculation applied to
fishing. Mr. Alper stated that he did not understand the
question.
Co-Chair MacKinnon wondered how to apply resident work
status to fishing. Mr. Alper replied that he did not
understand the question enough to provide a meaningful
answer.
Co-Chair MacKinnon remarked that hundreds of workers were
brought into work in the fishing industry. She wanted to
see how the Department of Labor and Workforce Development
(DOL) quantified Alaska Hire for the fishing industry. Mr.
Alper replied that DOL published an analysis by business
sector in the state, by industry.
Co-Chair MacKinnon requested that DOL present how their
numbers were quantified.
Senator Bishop asserted that the same guidelines for the
Permanent Fund Dividend were used in determining the
percentage of Alaska Hire. Mr. Alper agreed.
2:41:38 PM
Mr. Alper continued to discuss slide 10:
g) Gov: No bonding or other formal means to
protect local vendors from bankruptcy
House: $250k surety bond with local vendor
priority
Mr. Alper discussed slide 11, "Summary of Fiscal Impact;
Summary Analysis of Bill Versions ($millions); (based on
Spring 2016 Forecast)." He stated that the bill had a
somewhat higher dollar value that the House Rules committee
substitute version.
Co-Chair MacKinnon queried the effects of the bill on
production. Mr. Alper wondered if it should be a forecast
in possible changes to production.
Co-Chair MacKinnon wanted to know the impact of production
by the bill. Mr. Alper replied that he did not believe that
the forecast could be done by Monday.
Co-Chair MacKinnon expected that there would be numbers
specific to the bill to provide that information to
Alaskans.
Co-Chair Kelly wondered whether there was an ability to
provide an impact on production. Mr. Alper replied that the
production forecast was developed from information from the
producers.
Co-Chair Kelly asked whether the information from producers
could be obtained. Mr. Alper agreed to provide that
information.
Co-Chair MacKinnon wondered if job loss could be quantified
based on the current scenario.
2:46:31 PM
AT EASE
2:50:11 PM
RECONVENED
2:50:19 PM
Senator Bishop asked for a restatement of the question
related to job loss.
Co-Chair MacKinnon wondered if there was a place within DOL
that would quantify any job loss resulting from the
legislation. Senator Bishop replied that there was the
opportunity for good data on job loss in the state.
Vice-Chair Micciche noted that the industry had recently
made significant reductions in price. He stressed that the
industry had experienced significant reductions in project
work. He felt that asking the industry to incorporate the
impacts would take months to accurately quantify. He
wondered whether the bill would result in greater or less
production; whether it would result in additional jobs or
less jobs; and what other levers should be evaluated as a
state in the general effect of the bill. Mr. Alper replied
that any transfer of wealth between the sovereign and the
lessee would change decision making. He stressed that there
was an examination of whether the marginal benefit was
better than the marginal cost.
Senator Bishop wondered whether it was positive or
negative. Mr. Alper replied that less money and less
certainty would probably be negative.
2:54:53 PM
Vice-Chair Micciche surmised that there would be some job
loss, and some negative production effect. He queried the
philosophy of the administration on the balance. He queried
the larger effect of the bill, and wanted to know how to
minimize the effect on everyone in the state. Commissioner
Hoffbeck shared that all of the actions to close the budget
gap would have large impacts to money in the system. He
remarked that there would be job cuts in many industries.
2:58:47 PM
Co-Chair Kelly stressed that the change in the credit
system impacted the system. He felt that the bill would
reduce production. He remarked that the state should not
reduce oil production. He expressed concern that the
administration would propose changes, without fully
understand the impact on production.
3:03:21 PM
Senator Bishop looked at the FY 17 NOL on the final slide
of the presentation. He noted that $200 million was
included from the previous year's veto. Mr. Alper responded
that the carry forward were the companies that were not
able to receive credit cash because they were the large
producers. The category was new in the Spring Forecast.
Commissioner Hoffbeck furthered that it was in addition to
the cash flow credits.
Mr. Alper stated that the forecasted price of oil would
result in the majors being in possession of $618 million in
un-cashable NOLs. The governor's bill would increase that
number to $773 million. The hardening of the floor required
a full minimum tax payment, instead of carried forward
NOLs.
Senator Bishop remarked that the number could change with
additional changes to the market. Mr. Alper agreed.
3:06:05 PM
AT EASE
3:13:58 PM
RECONVENED
3:14:06 PM
Co-Chair MacKinnon shared that the public testimony would
take place the following day.
Vice-Chair Micciche remarked that there had been
discussions related to the differences in assumptions for
earnings. He requested that information. Mr. Alper shared
that the document had been delivered.
3:16:03 PM
AT EASE
3:16:50 PM
RECONVENED
3:16:58 PM
Co-Chair MacKinnon shared that the document was being
distributed to the committee.
Senator Olson queried the impact to the fiscal gap looking
at the changes in the state's financial liability.
Commissioner Hoffbeck replied that there would be
reductions in production based on $40 a barrel oil. He
remarked that there needed to a balance of the incremental
productions and the needs of Alaska.
Senator Olson surmised that the bill was attempting to
address the fiscal situation, which had more gravity than
the loss of production. Commissioner Hoffbeck replied in
the affirmative.
Co-Chair MacKinnon shared that the governor had provided a
suite of options to address the budget shortfall, including
an income tax. She wanted to understand the impact of
affecting production.
3:24:03 PM
ALEXEI PAINTER, ANALYST, LEGISLATIVE FINANCE DIVISION,
commented that in the three committees there was a fund
capitalization fiscal note that had been prepared, but not
adopted. He remarked that the bill did not address with how
to pay the credit. He stated that, currently in the
operating budget, there was a statutory calculation of the
payment. The language indicated was $73.4 million, which
was the estimate under the Fall Forecast. He stated that
the Spring Forecast showed it closer to $30 million. He
asserted that, without additional capitalization of the oil
and gas tax credit fund, only $30 million would be
available in FY 17 to pay those credits.
Co-Chair MacKinnon wondered if there had been a review of
the interest rate percentage, and any related financial
tabulations. Mr. Painter responded that he had not studied
it in depth.
Co-Chair MacKinnon queried comment on the NOLs as amended.
Mr. Painter replied that he did not have any comment on the
substance of the bill.
2d CSHB 247(RLS)am was HEARD and HELD in committee for
further consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 247 051416 Copy of HB247-SB130 side by side w House 5-14-16.pdf |
SFIN 5/14/2016 1:30:00 PM |
HB 247 SB 130 |
| HB 247 051416 Table 8-4_Final Spring 2016 Forecast_MGM_20160425.pdf |
SFIN 5/14/2016 1:30:00 PM |
HB 247 |
| HB 247 CSHB247 HRLS C and SeatonWilson am_ds_20160513.pdf |
SFIN 5/14/2016 1:30:00 PM |
HB 247 |
| 051416 HB247 passed by House DOR Overview for SFIN 5-14-16 final.pdf |
SFIN 5/14/2016 1:30:00 PM |
HB 247 |
| Hb 247 Copy of 5 14 16 HB247 analysis.pdf |
SFIN 5/14/2016 1:30:00 PM |
HB 247 |
| HB 247 $20-$130_GFUR_spring16FC_ds20160409.pdf |
SFIN 5/14/2016 1:30:00 PM |
HB 247 |