Legislature(2005 - 2006)HOUSE FINANCE 519
05/02/2006 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB381 | |
| SB171 | |
| SB315 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 381 | TELECONFERENCED | |
| + | SB 171 | TELECONFERENCED | |
| + | SB 315 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SENATE BILL NO. 171(FIN)(efd fld)
An Act amending the National Petroleum Reserve - Alaska
special revenue fund; and establishing the Special
Legislative Oil and Gas NPR-A Development Impact Review
Committee and defining its powers and duties.
SENATOR GARY WILKEN, SPONSOR, explained that HCS CS SB 171
(CRA) centers on the National Petroleum Reserve - Alaska
(NPR-A), a well-known federal reserve, rich in gas and oil.
The State of Alaska is poised to receive a significant
amount of money from lease sales, exploration and production
of oil and gas, which is the focus of the bill.
Senator Wilken continued, the bounty of NPR-A is thought to
match or exceed the oil and gas deposits found at Prudhoe
Bay or Kuparuk. All Alaskans look forward to the time, they
can enjoy the benefits of reasonable and responsible
development of these natural resources.
When members of the U.S. Congress authorized competitive
leases in NPR-A in 1980, they recognized that development in
the petroleum reserve might severely impact communities in
or near that area. The federal legislation directed that
the revenue generated through NPR-A development be used
first to mitigate direct impacts, if any, to municipalities,
and then by the rest of the State of Alaska. Senator Wilken
maintained that federal dictate is in direct conflict to the
Alaska State Constitution. The State of Alaska receives 50%
royalties and lease payments from the oil and gas
development in NPR-A from the federal government. As
required by federal law, those funds are available before
consideration of any other public purpose, to communities
that demonstrate impact from resource development in NPR-A.
Unfortunately, the directive is at odds with Article IX,
Section 15 of the Alaska State constitution.
Senator Wilken pointed out that since 1983, the State has
received $167.6 million dollars from development within NPR-
A & $122 million dollars since 2000. But only 6% of NPR-A
receipts have been deposited into the Alaska Permanent Fund
since the turn of the century.
HCS CS SB 171 (CRA) recognizes the conflict and puts in
place a mechanism to help ensure that the Alaska Permanent
Fund receives, to the extent allowed under federal law, 25%
of all oil and gas lease rentals and royalties as directed
by the Alaska State Constitution. In addition, the bill
requires that appropriations made as NPR-A funded grants, be
identified and the amounts of each grant be specified in an
appropriation bill as other capital appropriations.
Senator Wilken maintained that it is important to address
the conflict between the State Constitution and federal law
and to determine how the federal NPR-A payments will be
distributed to Alaskan communities that may be impacted by
oil and gas development within the National Petroleum
Reserve. He commented that in the "spirit of compromise",
the issue was set-aside for another time.
9:01:39 AM
Senator Wilken provided a slide presentation from the
handout: SB 171 - HCS CS SB 171 (CRA). (Copy on File).
Every Alaskan citizen obtained a newsletter from the Alaska
Permanent Fund Corporation, providing an "impact fund"
statement. The fund was created in 1980 through federal
legislation. The Alaska State Constitution requires that
25% be deposited into the Permanent Fund. Since 1980,
Alaska has received $167.6 million dollars from oil and gas
development in National Petroleum Reserve-Alaska (NPR-A);
however, to date, only 15% of that money has been deposited
into the fund.
9:03:16 AM
Senator Wilken continued, Page 2 highlights the total
program distribution of $167.6 million dollars:
· NPR-A Community Grants receiving 59% @ $100 million
dollars;
· The Permanent Fund received 15% @ $25.7 million
dollars;
· Power Cost Equalization (PCE) was funded at 13% @ $21.4
million dollars;
· General Fund received 12% @ $202 million dollars.
A following graph highlights distribution of funds from 2000
to 2006 of the $112.4 million dollars:
· NPR-A community grants of $83 million dollars @
75%;
· Permanent Fund amount of $7.2 million dollars @
6%;
· Power Cost Equalization (PCE) amount of $12.4
million dollars @ 19%.
Senator Wilken pointed out that through Alaska's NPR-A
receipts received since 1983, a total of $104.2 million
dollars was awarded to four communities statewide.
9:06:15 AM
Senator Wilken continued, Page 3 identifies the NPR-A,
consisting of 23.5 million acres of petroleum reserves. It
is located in the Northwest third of Alaska's arctic between
the Brooks Range and the Arctic Ocean and contains the new
oil lease sale proposed for Fall 2006.
He observed the NPR-A oil and gas activity areas:
· Wainwright 220 miles
· Barrow 160 miles
· Nuiqsut 8 miles
· Atqasuk 160 miles
9:07:50 AM
Senator Wilken provided a brief history of NPR-A:
· 1923 - President Warren Harding established the Naval
Petroleum Reserve, which was renamed the National
Petroleum Reserve-Alaska in 1976.
· 1980 - Congress authorized competitive leases in NPR-A.
· 1980 - The State of Alaska to receive 50% of the total
revenue from NPR-A leases; impacted communities
were given a priority to the revenue.
9:08:20 AM
Senator Wilken continued, Page 5 outlines conflicting laws.
Under the federal law, the priority use for NPR-A funds by
communities most directly or severely impacted by the
development of oil and gas within their area.
Without a State law on the books, the Legislature deposited
half of the State's share into the Permanent Fund and .5% to
the School Trust. The Legislature deposited the remainder
of the funds into the General Fund.
A Court suit followed and in 1985, the North Slope Borough
and NPR-A communities sued the State. In 1986, Superior
Court Judge Carpeneti ruled that:
· Automatic deposits into the Permanent Fund violate
federal law;
· The State of Alaska has a mandatory duty to address
NPR-A development related impact needs; and
· The duty imposed by the federal government ultimately
falls upon the Alaska Legislature.
9:09:45 AM
Senator Wilken pointed out the three levels of law that the
State works under - federal law (42 USC 6508), Alaska State
law (AS 37.05.530) and Alaska regulations (3 AAC 150.050).
9:11:04 AM
Senator Wilken explained how the bill process works. Last
year, there was $30 million dollars coming from the NPR-A.
In that process, the $30 million dollars removes the grants,
which last year totaled $24 million dollars leaving $6
million and takes 25% of that amount & places it into the
Permanent Fund. The 25% calculation comes from the bottom
number, but SB 171 would move that calculation to the top
amount.
9:12:30 AM
Senator Wilken emphasized that "now is the time" to consider
SB 171 and recognize the obligation that the Legislature has
to Alaska's constitution by insuring that at least 25% of
the bounty received from development in NPR-A be deposited
into the Permanent Fund as directed by Article 9, Section
15.
9:13:12 AM
Co-Chair Chenault inquired if there would be a grant
mechanism change. Senator Wilken noted in hopes of seeking
"middle ground", that portion of the bill had been removed
in the House Community & Regional Affairs Committee. He
added that the allocation information will be available and
addressed next year. He pointed out that the proposed bill
"is not just another grant program".
9:15:19 AM
Representative Kelly inquired about possible constitutional
challenges. Senator Wilken stated he was comfortable with
the proposed program and that the federal and state law
regulations would remain in place. The basic structure has
not changed, only the obligated amount.
Representative Kelly was surprised with the amount of
grants; he asked the definition of "impact". Senator Wilken
acknowledged that the definition had been a point of
contention. There is more to the legislation than that and
urged consideration of such items as free gas from the gas
pipeline, a positive bed tax, and economic development.
Senator Wilken indicated that the North Slope Borough
receives a tremendous amount of impact monies. In 2005, the
State of Alaska agreed that rather than each municipality
taxing the oil companies, instead, they would pay 20 mils
into all investments in Alaska. Last year, that amount
yielded $260 million dollars into the General Fund. The
communities can also "grab" some of those dollars depending
on how they tax themselves. Fairbanks received about $4
million dollars of that money; the North Slope Borough last
year received $189 million dollars; Valdez got $13 million
dollars; Kenai received $7 million dollars leaving about $45
million dollars placed into the General Fund. There are
many items that are the direct result of oil and gas
development. He submitted that each person in the North
Slope Borough received approximately $32,500 dollars
indirectly from these funds.
Senator Wilken emphasized that there is an area of the State
receiving an unfair amount of money from the General Fund.
He thought that was payment for "impact" deserved honest
discussion regarding those impacts.
9:20:44 AM
Representative Holm understood that in the House Regional
Affairs (CRA) Committee, there was an attempted compromise
discussion. Senator Wilken acknowledged the concerns and
explained that the Committee attempted to reach middle
ground and that there was discussion regarding the
definition of "impact".
9:22:20 AM
Co-Chair Meyer inquired if the North Slope Borough did not
receive the funds, would they be requesting greater General
Funds to cover area costs. Senator Wilken disagreed that
funds should "just slide through" pointing out that every
community is included in the capital budget. He
acknowledged that their general fund capital project
requests had been in the lower percentages; however, last
year, $183 million dollars of General Fund monies
automatically went to them.
9:24:09 AM
Representative Holm questioned other alternatives, which had
been offered during the Committee process. Senator Wilken
noted he had been working on the bill for two years and that
his office had made requests from both the communities and
the various departments affected for recommendation. That
effort produced no results.
9:25:22 AM
Representative Kelly thought it would be good to pass the
legislation before the pipeline goes in. Senator Wilken
surmised that money is now starting to flow and the concern
should be addressed. Doing it right means changing federal
law.
9:26:34 AM
Co-Chair Meyer understood that a temporary compromise had
been reached.
9:27:07 AM
MIKE BLACK, (TESTIFIED VIA TELECONFERENCE), DIRECTOR,
DIVISION OF COMMUNITY ADVOCACY, DEPARTMENT OF COMMERCE,
COMMUNITY & ECONOMIC DEVELOPMENT, ANCHORAGE, offered to
answer questions of the Committee.
PUBLIC TESTIMONY WAS CLOSED.
9:28:06 AM
Co-Chair Meyer pointed out the zero notes.
Representative Joule acknowledged the "journey" of the
legislation. He addressed the huge impacts of development
to the people living on the North Slope. Such impacts are
not always apparent; however, being a part of a hunting
society, there are many concerns with encroaching
development. The legislation does not take into
consideration the core beliefs and spiritual issues of the
people most affected. That population experiences a strong
tie to the land and the resources. The legislation would
detrimentally impact those people. He emphasized that the
concept is spiritual and a highly emotional issue for these
people. The North Slope has the ability to do the tax, as
they should, which was the initial agreement with the State
of Alaska. He noted he represents the entire North Slope
area.
9:32:34 AM
Representative Joule pointed out that over the years, the
people of the North Slope have been vocal partners in the
development of the oil and gas resources. He said he was
concerned about passage of the legislation.
9:33:55 AM
Co-Chair Meyer understood that and knew it was important to
keep good relations with the North Slope as the area impacts
90% of State revenues. He emphasized the many concerns that
will fall upon the State to provide, if the money is taken.
One such area would be search and rescue provisions.
Representative Joule agreed there have been accidents in
which the North Slope Borough provided the first response -
a direct result of the use of the NPR-A monies. He added
that there are many good things that have come as a result
of using these funds. The new Mayor and his Administration
are paying close attention to requests to make the program
better and stronger. He urged reconsideration of the bill.
Co-Chair Meyer stated that the bill brings further attention
to the Petroleum Production Tax (PPT) concerns.
9:37:53 AM
Representative Weyhrauch understood that the intention of
the bill was a priority change, moving 25% off the top to
the Permanent Fund. Senator Wilken replied that the
obligation of the Permanent Fund under current law is 25% of
the net; SB 171 makes the obligation 25% of the gross and
before grants.
Representative Weyhrauch noted that it would impact federal
law, "trumping" the State law and would still be available
for litigation. He understood that the bill attempts to
craft the State's obligation with what the federal
government has dictated. Senator Wilken agreed, suggesting
that it is another "subsistence" issue.
Representative Weyhrauch pointed out the distinction of
addressing NPR-A impacts to communities closest to the NPR-A
resource.
9:41:00 AM
Vice Chair Stoltze MOVED to REPORT HCS CS SB 171 (CRA) out
of Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
HCS CS SB 171(CRA) was reported out of Committee with a "no
recommendation" and with a new indeterminate note by the
Alaska Permanent Fund Corporation and new zero notes by the
Legislative Affairs Agency and the Department of Commerce,
Community & Economic Development.
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