Legislature(2003 - 2004)
03/17/2003 01:50 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 #2. 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: 23-LS0101\Q.6 Chenoweth 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 " 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 project. 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: AMENDMENT 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 - 29.45.710; (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 principles: (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 arrangements; (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 circumstances; (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 conditions; (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.