Legislature(2003 - 2004)

03/17/2003 01:50 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 16                                                                                                             
     "An   Act   amending   the   standards   applicable   to                                                                   
     determining   whether,  for   purposes  of  the   Alaska                                                                   
     Stranded Gas Development  Act, a proposed new investment                                                                   
     constitutes  a  qualified  project,  and  repealing  the                                                                   
     deadline  for applications  relating to the  development                                                                   
     of  contracts for  payments  in lieu  of  taxes and  for                                                                   
     royalty   adjustments   that   may  be   submitted   for                                                                   
     consideration  under  that  Act; and  providing  for  an                                                                   
     effective date."                                                                                                           
Co-Chair Williams   began   discussion  on   the  bill,   and                                                                   
introduced  the Sponsor.   He indicated  that discussion  had                                                                   
previously occurred on Amendment  #2, 23LS0101/Q3, introduced                                                                   
by Representative Whitaker on 10/10/03.                                                                                         
REPRESENTATIVE  HUGH  FATE,  SPONSOR,   indicated  that,  per                                                                   
discussions   through   Representative    Whitaker's   staff,                                                                   
Representative   Whitaker  had  conveyed   that  he   had  no                                                                   
objection to  withdrawing Amendment #2.   Representative Fate                                                                   
referred  to  changes  proposed  in  a  subsequent  amendment                                                                   
(Amendment #3 -- 23 LS0101/Q.6).                                                                                                
Co-Chair Harris noted  that the MOTION to adopt  Amendment #2                                                                   
was still pending.                                                                                                              
A roll call vote was taken on the motion to adopt Amendment                                                                     
IN FAVOR: Croft                                                                                                                 
OPPOSED: Chenault, Hawker, Meyer, Stoltze, Harris, Williams                                                                     
Representatives Foster, Moses, Joule and Whitaker were not                                                                      
present for the vote.                                                                                                           
The motion FAILED on a vote of 6-1                                                                                              
Co-Chair Harris MOVED to ADOPT Amendment #3:                                                                                    
                     A M E N D M E N T                                                                                      
OFFERED IN THE HOUSE                                                                                                            
     TO:  CSHB 16(RES)                                                                                                          
Page 1, line 8, following "terms;":                                                                                           
    Insert "providing a statement of intent for the Act                                                                       
     relating to reopening of contracts;"                                                                                     
Page 1, following line 9:                                                                                                       
     Insert a new bill section to read:                                                                                         
     "* Section 1.  The uncodified law of the State of                                                                        
     Alaska is amended by adding a new section to read:                                                                         
          LEGISLATIVE INTENT.  It is the intent of the                                                                          
          legislature that each contract for payments in                                                                        
          lieu of taxes and for royalty adjustments entered                                                                     
          into under the Alaska Stranded Gas Development Act                                                                    
          contain a provision by which the contract may be                                                                      
          reopened by any party to the contract.  The                                                                           
          subject matter of the reopening may be dealt with                                                                     
          through the use of arbitration proceedings agreed                                                                     
          on by the parties."                                                                                                   
Page 1, line 10:                                                                                                                
     Delete  "Section 1"                                                                                                      
     Insert "Sec. 2"                                                                                                          
Renumber the following bill sections accordingly.                                                                               
Page 2, line 29:                                                                                                                
     Delete "15"                                                                                                            
     Insert "10"                                                                                                            
Page 2, line 31:                                                                                                                
     Delete "25"                                                                                                                
     Insert "15 [25]"                                                                                                       
Representative Croft OBJECTED.                                                                                                  
Representative Fate  addressed the amendment.   He summarized                                                                   
that it intended to accomplish  three things:  change the net                                                                   
worth requirement for qualified  sponsors from fifteen to ten                                                                   
percent [of  the project cost],  change the available  credit                                                                   
requirement  from  twenty-five  to fifteen  percent  [of  the                                                                   
project  cost], and  add intent  language allowing  reopening                                                                   
provisions for payment contracts.                                                                                               
Responding   to  a   question   from  Representative   Croft,                                                                   
Representative  Fate stated  that the  current cost  estimate                                                                   
for  the project  cost  was $9  billion,  and explained  that                                                                   
changing   the  net   worth  requirement   would  allow   the                                                                   
commissioner to  qualify more sponsors to participate  in the                                                                   
Representative  Croft  clarified   that  sponsors  previously                                                                   
needed $1.5  billion to  participate.   With the amendment  a                                                                   
sponsor    would   need    slightly    under   $1    billion.                                                                   
Representative  Fate confirmed  that  this  was true,  adding                                                                   
that the  figure might  vary depending  on how many  sponsors                                                                   
the commissioner qualified.                                                                                                     
There being no Objection, Amendment #3 was ADOPTED.                                                                             
Representative Croft MOVED to ADOPT Amendment #4:                                                                               
     OFFERED IN THE HOUSE FINANCE COMMITTEE                                                                                     
     BY REPRESENTATIVE CROFT                                                                                                    
     TO: CS HB 16 (RES)                                                                                                         
     Page 3, line 7, insert:                                                                                                    
     "Sec. 4. AS 43.82.210 is amended to read:                                                                                
    AS 43.82.210. Contract Terms Relating to Payment in                                                                       
     Lieu of One or More Taxes.                                                                                               
    (a) If the commissioner approves an application and                                                                         
     proposed project plan under AS 43.82.140 , the                                                                             
     commissioner may develop proposed terms for inclusion                                                                      
     in a contract under AS 43.82.020 for periodic payment                                                                      
     in lieu of one or more of the following taxes that                                                                         
     otherwise would be imposed by the state or a                                                                               
     municipality on the qualified sponsor or member of a                                                                       
     qualified sponsor group as a consequence of                                                                                
     participating in an approved qualified project:                                                                            
    (1) oil and gas production taxes and oil surcharges                                                                         
     under AS 43.55;                                                                                                            
     (2) oil and gas exploration, production, and pipeline                                                                      
     transportation property taxes under AS 43.56;                                                                              
     (3) [Repealed, Sec. 6 ch 34 SLA 1999].                                                                                     
     (4) Alaska net income tax under AS 43.20;                                                                                  
     (5) municipal sales and use tax under AS 29.45.650 -                                                                       
     (6) municipal property tax under AS 29.45.010 -                                                                            
     29.45.250 or 29.45.550 - 29.45.600;                                                                                        
     (7) municipal special assessments under AS 29.46;                                                                          
     (8) a comparable tax or levy imposed by the state or a                                                                     
     municipality after June 18, 1998;                                                                                          
     (9) other state or municipal  taxes or categories of                                                                       
     taxes identified by the commissioner.                                                                                      
     (b) If the commissioner chooses  to develop proposed                                                                       
     terms under (a) of this section, the commissioner                                                                          
     shall, if practicable and consistent with the long-term                                                                    
     fiscal interests of the state, develop the terms in a                                                                      
     manner that attempts to balance the following                                                                              
     (1) the terms should, in conjunction with other factors                                                                    
     such as cost reduction of  the project, cost overrun                                                                       
     risk reduction of the project, increased fiscal                                                                            
     certainty, and successful marketing, improve the                                                                           
     competitiveness of the approved qualified project in                                                                       
     relation to other development efforts aimed at                                                                             
     supplying the same market;                                                                                                 
     (2) the terms should accommodate the interests of the                                                                      
     state, affected municipalities, and the project                                                                            
     sponsors under a wide range  of economic conditions,                                                                       
     potential project structures, and marketing                                                                                
     (3) the state's and affected municipalities' combined                                                                      
     share of the economic rent of the approved qualified                                                                       
     project under the contract should be relatively                                                                            
     progressive; that is, the state's and affected                                                                             
     municipalities' combined annual share of the economic                                                                      
     rent of the approved qualified project generally should                                                                    
     not increase when there are decreases in project                                                                           
     profitability, or decrease when there are increases in                                                                     
     project profitability;                                                                                                     
     (4) the state's and affected municipalities' combined                                                                      
     share of the economic rent of the approved qualified                                                                       
     project under the contract should be relatively lower                                                                      
     in the earlier years than  in the later years of the                                                                       
     approved qualified project;                                                                                                
     (5) the terms should allow the project sponsors to                                                                         
     retain a share of the economic  rent of the approved                                                                       
     qualified project that is sufficient to compensate the                                                                     
     sponsors for risks under a range of economic                                                                               
     (6) the terms should provide  the state and affected                                                                       
     municipalities with a significant share of the economic                                                                    
     rent of the approved qualified project, when discounted                                                                    
     to present value, under favorable price and cost                                                                           
     (7) the method for calculating the periodic payment in                                                                     
     lieu of certain taxes under the contract should be                                                                         
     clear and unambiguous; and                                                                                                 
     (8) while cost calculations for the approved qualified                                                                     
     project under the contract should be based on amounts                                                                      
     that closely approximate actual costs, agreed-upon                                                                         
    formulas reflecting reasonable economic assumptions                                                                         
     should be used if possible to promote administrative                                                                       
     certainty and efficiency.                                                                                                  
     (c) Except as provided in (b) of this section, the                                                                         
     commissioner's discretion under this section in                                                                            
     developing proposed terms for a contract under AS                                                                          
     43.82.020 is not limited to consideration of the                                                                           
     economic rent of the approved qualified project.                                                                           
        (d) Nothing in this chapter shall be construed to                                                                   
     permit the state to suspend or contract away the power                                                                 
     of taxation.                                                                                                           
     Renumber accordingly.                                                                                                      
     The amendment is designed to increase certainty by                                                                       
     forestalling any argument or court challenges based on                                                                   
     the claim that there is some hidden escape hatch to the                                                                  
     sovereignty provision of the Alaska Constitution. If                                                                     
     the supporters of this legislation believe it really                                                                     
     requires a constitutional amendment, then they should                                                                    
     go that route, rather than creating all sorts of                                                                         
     uncertainty for future legislatures                                                                                      
Co-Chair Williams OBJECTED.                                                                                                     
Representative  Croft   explained  that  the   amendment  was                                                                   
intended to support a clear prohibition  against signing away                                                                   
the State's  power of  taxation.  He  maintained the  need to                                                                   
clarify this constitutional mandate.                                                                                            
Co-Chair Williams  asked if the  intent of the  amendment was                                                                   
to restate constitutional mandates.   He speculated that this                                                                   
might  be cumbersome  with other  legislation, and  disagreed                                                                   
with the need for the amendment.                                                                                                
Representative Croft  maintained that rarely  did legislation                                                                   
play so close to the constitutional line.                                                                                       
Co-Chair Harris concurred  with  Co-Chair Williams'  question                                                                   
of  the need  for the  amendment.   He  asked former  Senator                                                                   
Parnell to address the question.                                                                                                
SEAN  PARNELL,  DIRECTOR,  STATE  AND  GOVERNMENT  RELATIONS,                                                                   
CONOCOPHILLIPS  ALASKA,  INC.,  spoke in  opposition  to  the                                                                   
amendment.   He expressed  his company's  desire for  a clean                                                                   
bill.    He   also  noted  the  need  for   legislation  that                                                                   
contributed  to certainty  in  the negotiation  process.   He                                                                   
contended  that  nothing  appeared in  the  legislation  that                                                                   
would surrender the  powers of taxation.  He  argued that the                                                                   
legislation merely  determines the amount of  taxation at the                                                                   
project's inception.                                                                                                            
Co-Chair  Williams requested  that the  Department of  Law be                                                                   
consulted to address the issue.                                                                                                 
RANDY RUARO, STAFF, REPRESENTATIVE  WILLIAMS, responding to a                                                                   
question  by  Co-Chair  Williams,   observed  the  difference                                                                   
between designating  the amount of  tax and the  actual power                                                                   
to tax.  He maintained  that no authority  was given  away by                                                                   
the legislation.                                                                                                                
Representative  Croft noted the  importance of discussion  on                                                                   
this matter, and  suggested that industry's objection  to the                                                                   
amendment  indicated   the  need  for  the   amendment.    He                                                                   
suggested that  the goal of  fiscal certainty  approximated a                                                                   
state agreement never to change  tax policy.   He cited vague                                                                   
commitments  on   the  part  of   industry  such   as  "moral                                                                   
obligation".   He maintained the imperative not  to negotiate                                                                   
away the power of future legislatures to change tax policy.                                                                     
Co-Chair   Williams  agreed  that   clarity  was   necessary.                                                                   
However, he  expressed the desire  to show support  for those                                                                   
negotiating  the project  contracts, and  to trust that  they                                                                   
would adhere to the constitution at all times.                                                                                  
Representative Croft  WITHDREW the amendment.   He noted that                                                                   
he  would submit  the  amendment  to the  Attorney  General's                                                                   
office to receive further feedback.                                                                                             
Representative Foster MOVED to  report HB 16 out of Committee                                                                   
with the accompanying fiscal notes.                                                                                             
There being no OBJECTION, it was so ordered.                                                                                    
CS  HB 16  (FIN) was  REPORTED out  of Committee  with a  "do                                                                   
pass"  recommendation and  with  previously published  fiscal                                                                   
impact note  (CED #1), and  a new fiscal  impact note  by the                                                                   
Department of Revenue.                                                                                                          

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