Legislature(2005 - 2006)HOUSE FINANCE 519
04/01/2006 10:00 AM House FINANCE
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 488 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 1, 2006
10:08 a.m.
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 10:08:27 AM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Mike Kelly
Representative Beth Kerttula
MEMBERS ABSENT
Representative Jim Holm
Representative Carl Moses
Representative Bruce Weyhrauch
ALSO PRESENT
Paul Laird, The Alliance, Anchorage; Bob Stinson, Conam
Construction, Anchorage; Chris Johansen, Flowline Alaska,
Anchorage; Representative Paul Seaton, Representative Les
Gara; Representative Vic Kohring; Kevin Ritchie, Executive
Director, Alaska Municipal League, Juneau.
PRESENT VIA TELECONFERENCE
ANCHORAGE
Dr. Paul B. Simons, Anchorage; Mike Koy, Anchorage; Shirley
Nelson, Anchorage; James Gilbert, Anchorage; Jananna
Caselli, Anchorage; Hillary McIntosh, Anchorage; Tadd Owens,
Executive Director, Resource Development Council, Anchorage;
Eric Badger, Anchorage; Scott Thorson, Anchorage; Lori
Backes, Anchorage; Mary Shields, General Manager, Tech
Services, Anchorage; Maynard Tapp, Business Owner Anchorage
Lynn Johnson, Anchorage; Karl Hoenack, Carlile
Transportation Anchorage; Randy Payne, Carlile
Transportation Anchorage; Dave Miller, Anchorage; Judy
Brady, Alaska Oil and Gas; Paul Laird, The Alliance;
Bob Stinson, President, Conam Construction; Tom Lakosh,
Anchorage.
FAIRBANKS
Chris Johansen, Flowline Alaska, Fairbanks; David Gottstein,
Backbone II; Mark Sharp, Fairbanks; Nicholas Van Wyck,
Fairbanks; Rebecca Kyle, Fairbanks; Luke Hopkins, Assembly,
Fairbanks; Mark Ames, Fairbanks; Greg Thies, Fairbanks;
Steve Hovenden, Fairbanks; Merrick Peirce, North Pole;
OTHER AREAS:
Joey Crum, MatSu, Northern Industrial Training; William
Phillips, Kenai; Scott Hamann, Nikiski; Bruce Passe,
Soldotna; Jim Pfeiffer, Seward-Lowell Point; Joe Hegna, MWH
Globa, MatSu; Bill Warren, Kenai; Ed Martin, Soldotna; Jim
Sykes, Palmer
GENERAL SUBJECT(S):
HB 488-OIL AND GAS PRODUCTION TAX
Public Testimony
HB 488 was held in Committee for further discussion
The following overview was taken in log note format.
Handouts will be on file with the House Finance Committee
through the 24th Legislative Session, contact 465-6814.
After the 24th Legislative Session they will be available
through the Legislative Library at 465-3808.
HB 488-OIL AND GAS PRODUCTION TAX
STATEWIDE TESTIMONY
TIME SPEAKER DISCUSSION
10:08:52 AM Co-Chair Convened the House Finance Committee
Chenault meeting to take statewide testimony on
HB 488, the oil and gas production tax.
10:09:52 AM Dr. Paul B. Expressed concern with "secret"
Simons, discussions in the Governor's Office.
Anchorage He noted other investments in Norway,
which would increase oil production by
85%. He maintained that similar
techniques could be used in Alaska. He
observed that a petrol-chemical
industry could be built in Alaska. He
asked that caution be maintained in
regards to book keeping on the tax and
pointed to plants in Edmonton, Canada.
10:14:13 AM Mike Koy, He observed that most oil companies use
Anchorage a fixed price of $20 - $30 a barrel
when making development decisions. He
felt that HB 488 would lose the state
money in its current tax structure. He
maintained that oil fiscal terms have
no impact on the viability of the gas
pipeline.
10:17:51 AM Shirley Maintained that higher taxes will
Nelson, reduce investments on the North Slope.
Anchorage She urged that there be reinvestment in
Alaska. She emphasized that the
outcome of the tax bill will affect
every community in the State.
10:19:01 AM James Gilbert, Felt that the changes proposed by the
Anchorage Governor would jeopardize small
business statewide. He urged that the
Committee enact the highest tax
structure possible. He noted concern
with the lack of a state fiscal plan
and how that will affect the taxation
consideration.
10:21:12 AM Jananna She noted that her family's livelihood
Caselli, is directly related to the oil and gas
Anchorage industry in the State. She addressed
work opportunities available in the
State. She urged the Committee to
"play their cards right".
10:22:37 AM Hillary Addressed how the oil and gas industry
McIntosh, affects her family structure. She
Anchorage noted how much funding the oil
companies donate to nonprofits
statewide. She urged passage of the
Governor's bill.
10:25:16 AM Tadd Owens, He questioned what provisions were
Executive being made for lower costs. He
Director, questioned decisions being made and if
Resource they will contribute to budget
Development stability. He urged that Alaska
Council, drilling not be placed at a
Anchorage disadvantage. He observed that the
original version of HB 488 doubles
taxation to the Industry.
10:28:01 AM Eric Badger, Testified in support of the Governor's
Anchorage proposed bill. He acknowledged that
the oil producers need to pay their
fair share, but cautioned that the
State not become too greedy.
10:29:22 AM Scott Thorson, Voiced concern regarding raising oil
Anchorage taxes too high. He stressed that the
current rate & future investments are
directly linked and emphasized that
petroleum companies are required to
make large investments in initial set-
up.
10:30:41 AM Lori Backes, Applauded members for the work done on
Anchorage the legislation. She voiced concern
that the bill will become part of the
gas line contract. She warned about a
situation that will end with a 30-year
lock-in set up with no back line. She
pointed out that the Administration
plans to build in Canada before Alaska
and maintained that if the Canadian
line is built first, the one in Alaska
would be less certain. She maintained
that Alaskans deserve certainty.
10:33:26 AM Mary Shields, Voiced concern that passage of the
General legislation amended in Committee would
Manager, Tech adversely affect the state's workforce.
Services, She worried about the "fall-out" that
Anchorage might happen with greater taxation.
She stated that the gas line is the
future of the State.
10:36:01 AM Maynard Tapp, Encouraged more investment in the
Business Owner State. He noted the donations given by
Anchorage the industry toward education. He
thought that the bills should be viewed
as resource development rather than
taxation. He addressed the PPT number.
The technologies are not guaranteed or
cheap. He stressed that the state must
invest by building the gas pipeline.
10:39:14 AM Lynn Johnson, He noted that he employs 28 people
Anchorage year-round. The bulk of his business
originates in the North Slope and Cook
Inlet. He cautioned that the original
Governor's bill not be changed and
maintained that an increase in taxes
would reduce investment capital. He
maintained that Alaska needs to
encourage development through
stability.
10:43:00 AM Karl Hoenack, Cautioned that Alaska not tax itself
Carlile out of the market.
Transportation
Anchorage
10:43:50 AM Randy Payne, Stressed the importance of the oil
Carlile industry.
Transportation
Anchorage
10:45:16 AM Dave Miller, Stressed the need to look out for the
Anchorage stakeholders of the state of Alaska. He
maintained that Alaska is a good place
to do business with one of the lowest
tax rates in the world.
10:46:31 AM Judy Brady, Observed that the industry is worried
Alaska Oil and about the decline and the balance
Gas between increasing taxes and
investments. She observed that
questions must be asked every time the
Legislature changes the balance. She
urged the Legislature to continue
asking the questions regarding who is
the competition. She acknowledged that
the stakes are high.
10:49:54 AM Paul Laird, Noted discussions regarding finding the
The Alliance right rate. He observed that the 20/20
tax rate would result in $1 billion [in
additional revenues] to the state. He
maintained that every dollar paid to
the additional tax will be a dollar
that will not be used for investment.
He maintained that the citizens of the
state would pay the cost if the
investment were not made. He stressed
development will continue if the right
balance is struck. He spoke against an
increase in taxes beyond the rate in
the original legislation.
10:52:47 AM Bob Stinson, He spoke in support of the Governor's
President, original proposal. The $20 percent
Conam credit would encourage large and small
Construction, producers to invest. He maintained that
the 20 percent tax would be a large
increase, but observed that industry
has agreed to it in order to encourage
stability. He asserted that overtaxing
would drive investment dollars out of
the state. Producers have agreed to the
20/20 proposal, but might be driven out
with increases.
10:55:40 AM Chris Observed that millions of dollars are
Johansen, being invested in the Tourism Industry,
Flowline which doesn't pay any taxes to the
Alaska, state of Alaska. He spoke against
Fairbanks increases in taxes to the oil industry.
10:57:10 AM David Acknowledged the daunting task before
Gottstein, the Legislature. He stressed that the
Backbone II state must increase incentives for
exploration without sacrificing the
values of economic production. He spoke
in support of an enforceable severance
tax, based upon a progressive
structured on the wellhead value of the
resource. He encouraged an audit be
conducted to verify oil company
reports. He spoke in support of a
severe penalty if companies are not
honest. He referred to "fair-share". He
maintained that taxes are the state
revenue base and fair-share. He
provided members with information
regarding ConocoPhillips annual reports
for 2003 - 2005. He concluded that
incremental tax is more than offset by
the higher than anticipated increase in
oil prices. The before tax margin has
increased from 50 - 80 percent. The
after tax margin has increased from 37
- 57 percent. ConocoPhillips' share of
the revenue ranges form 340 - 950
percent. He urged that the state pass
HB 71, retrieve Pt. Thomson and put its
gas out to bid. He spoke in support of
a fair and rational oil and gas tax
structure irrespective of whether a gas
line is built. He urged a progressive
structure.
11:06:58 AM At ease.
12:08:01 PM FAIRBANKS
12:09:08 PM Mark Sharp, Observed that the major oil producers
Fairbanks have maintained that the future of oil
exploration is only second to the moon.
He indicated that he did not believe
the testimony provided by the
companies.
12:14:44 PM Nicholas Van Agreed that the oil tax structure is
Wyck, broken and must be fixed. He spoke in
Fairbanks support of a sliding scale, which would
recoup benefit when profits are up. He
suggested a sliding scale between 20 -
25 percent. He felt that there should
be more discussion regarding the $73
million deduction. He stressed that
there needs to be someway to encourage
small independent companies. He did not
understand the need for secrecy and
felt that gas negotiations should be
public. He spoke in support of
rewarding companies that have been
spending money in the state. He asked
what happened to the gas to liquid
proposal. He suggested that liquefied
gas resources could alleviate the need
for an additional line.
12:19:35 PM Rebecca Kyle, Observed that Alaska is a free and
Fairbanks independent state and has the ability
to develop its own resources.
12:20:59 PM Luke Hopkins, Urged the Legislature to listen to
Assembly, their legislative consultants. He spoke
Fairbanks in support of progressivity, which
would increase the tax when prices are
above $50 a barrel. He asked
consideration of an earlier effective
date, such as January 1 or April 1,
2006. He acknowledged arguments that
there are no guarantees for a gas line.
He expressed concern that if the price
of oil falls below $20 a barrel that
there would be no tax revenue for the
state of Alaska. He expressed concern
for the effects of a drop on the
state's budget. He emphasized the need
for a community dividend program.
12:25:32 PM Mark Ames, Stressed that the maximum use of
Fairbanks resources needs to be in line with
public use. He felt that the state's
ownership interest was not being
maintained. He referred to Article XIII
Section 1 and 2. He emphasized the
Legislature's role in protecting the
public interest.
12:33:38 PM Greg Thies, He spoke against the direction the PPT
Fairbanks legislation had taken, which he argued
was not logical. He emphasized that
existing fields need new investment or
reinvestment. He acknowledged that the
ELF needs to be changed, but stressed
the high cost of doing business in
Alaska. He maintained that independents
are the key, and that the committee
substitute may scare them off. He noted
that 85 percent of the state's revenue
comes from oil and gas.
12:38:29 PM Steve Observed the high cost of gas and oil.
Hovenden, He expressed concern that petrol-
Fairbanks chemical development is going to
Canada. He spoke against a 30-year lock
on the tax. He spoke in support of an
in-state gas line.
12:42:34 PM Merrick He asked for a summary of the loss in
Peirce, North oil revenue the state has settled for
Pole in regards to a gas pipeline. He
maintained that oil and gas taxes
should be structured so that the state
does not lose revenues in the future.
He spoke in support of the addition of
progressivity. He encouraged the
Committee to look at the loss of state
revenue when the price falls below $20
a barrel. He felt that more work needed
to be done on the effective date. He
stressed that auditors not be put into
compromising positions.
12:47:39 PM At ease:
1:25:01 PM Kevin Ritchie, Thanked the committee for their work on
Executive this important issue. The Alaska
Director, Municipal League supports this bill to
Alaska ensure a firm economic base in Alaska.
Municipal
League
1:27:50 PM Joey Crum, Noted that the oil industry provides
MatSu, many jobs for his industry. He voiced
Northern concern that raising taxes on oil would
Industrial result in unemployment in Alaska.
Training
1:29:30 PM William Noted that the primary goal of oil
Phillips, companies is to make money for their
Kenai stockholders. He maintained that
ConocoPhillips is not sincere in their
intentions to build a gas pipeline. He
suggested that many companies are being
forced out of other companies and need
Alaska for new exploration.
1:32:37 PM Scott Hamann, Believed that the Administration
Nikiski negotiated with the oil companies in
good faith. He voiced concern about
the large budget.
1:34:15 PM Bruce Passe, Stated that Cook Inlet should be left
Soldotna under the ELF agreement because it is
different than the other fields. He
maintained that Cook Inlet's
infrastructure could not survive such a
high new tax. He said that PPT
misaligns joint ventures in Cook Inlet.
1:36:49 PM Jim Pfeiffer, Testified as an employee of BP. He
Seward-Lowell said there are no more Prudhoe Bays.
Point He urged the Committee to accept the
amount of tax included in the
governor's bill.
1:38:16 PM Joe Hegna, MWH Spoke as owner of MWH and stressed the
Globa, MatSu need for oil companies to invest in his
company's projects. Higher tax means
less investment and fewer jobs.
1:39:49 PM Tom Lakosh, Agreed with the testimony of Mr.
Anchorage Gottstein and Mr. Phillips. He related
that the current bill fails to relate
IRS tax to a specific date. He spoke
of Alberta as Alaska's closest
competition and stressed that it should
be used in comparisons. He noted that
the more complicated the deductions and
provisions are, the more likely
litigation will take place. He
suggested Alaska get the full benefit
from its oil. He spoke against the
claw back provision.
1:48:54 PM Bill Warren, Spoke of his long work history with oil
Kenai and gas. He urged the committee to
take its time on PPT and look at the
gas contract before finalizing the oil
tax. He warned the Committee not to
sign a 35-year contract. He maintained
that Alaska needs to take the reins,
not the oil companies.
1:51:15 PM Ed Martin, Felt that ELF was once a fair tax, but
Soldotna emphasized that another tax is needed.
He maintained that Alaska should share
in the windfall profits. He proposed
that the Committee keep the 25/20 tax
and modify it so that at $40 per
barrel, Alaska would get a fair share.
1:55:15 PM Jim Sykes, Noted that he testified previously on
Palmer HB 488. He suggested a 50/50 split.
He discussed balancing the take. He
mentioned ways of dealing with
incentives. He suggested that the
legislature dictate the definition of
profits and put in a funding provision.
He urged the Committee to seek a fair
share.
HB 488 was held in committee for
further discussion.
ADJOURNMENT The meeting was adjourned at 2:00 PM
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