Legislature(2015 - 2016)HOUSE FINANCE 519

04/02/2016 02:00 PM FINANCE


Download Mp3. <- Right click and save file as

Audio Topic
02:03:45 PM Start
02:04:11 PM HB247
02:05:43 PM Public Testimony
03:40:14 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 247 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
-- Public Testimony --
HOUSE BILL NO. 247                                                                                                            
                                                                                                                                
     "An  Act relating  to  confidential information  status                                                                    
     and  public   record  status  of  information   in  the                                                                    
     possession of  the Department  of Revenue;  relating to                                                                    
     interest  applicable  to  delinquent tax;  relating  to                                                                    
     disclosure  of  oil  and   gas  production  tax  credit                                                                    
     information; 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 minimum  tax for  certain oil  and gas                                                                    
     production;  relating to  the  minimum tax  calculation                                                                    
     for  monthly  installment  payments of  estimated  tax;                                                                    
     relating  to interest  on monthly  installment payments                                                                    
     of  estimated  tax;  relating to  limitations  for  the                                                                    
     application  of tax  credits; relating  to oil  and gas                                                                    
     production   tax  credits   for   certain  losses   and                                                                    
     expenditures;     relating    to     limitations    for                                                                    
     nontransferable  oil  and  gas production  tax  credits                                                                    
     based on oil production  and the alternative tax credit                                                                    
     for oil  and gas  exploration; relating to  purchase of                                                                    
     tax  credit  certificates  from the  oil  and  gas  tax                                                                    
     credit fund; relating  to a minimum for  gross value at                                                                    
     the   point   of    production;   relating   to   lease                                                                    
     expenditures  and tax  credits for  municipal entities;                                                                    
     adding    a   definition    for   "qualified    capital                                                                    
     expenditure";  adding  a  definition  for  "outstanding                                                                    
     liability  to   the  state";  repealing  oil   and  gas                                                                    
     exploration    incentive    credits;   repealing    the                                                                    
     limitation on  the application  of credits  against tax                                                                    
     liability  for   lease  expenditures   incurred  before                                                                    
     January 1,  2011; repealing  provisions related  to the                                                                    
     monthly installment payments for  estimated tax for oil                                                                    
     and gas produced before January  1, 2014; repealing the                                                                    
     oil  and  gas  production   tax  credit  for  qualified                                                                    
     capital  expenditures  and certain  well  expenditures;                                                                    
     repealing   the    calculation   for    certain   lease                                                                    
     expenditures applicable before  January 1, 2011; making                                                                    
     conforming amendments;  and providing for  an effective                                                                    
     date."                                                                                                                     
                                                                                                                                
2:04:37 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:05:25 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
2:05:30 PM                                                                                                                    
                                                                                                                                
^PUBLIC TESTIMONY                                                                                                             
                                                                                                                                
2:05:43 PM                                                                                                                    
                                                                                                                                
JIM PLAQUET, SELF, FAIRBANKS  (via teleconference), spoke in                                                                    
opposition  of  HB 247.  He  favored  a stable  tax  system.                                                                    
Alaska  needed  continued  throughput in  the  pipeline.  He                                                                    
believed  that   SB  21  had   helped  to   keep  production                                                                    
occurring.   He  advised   keeping  Alaska   competitive  by                                                                    
maintaining  a stable  and balanced  tax policy.  He thanked                                                                    
the committee.                                                                                                                  
                                                                                                                                
2:07:58 PM                                                                                                                    
                                                                                                                                
JAMES MCMILON  TEAMSTERS    LOCAL   959,    FAIRBANKS   (via                                                                    
teleconference),  testified  in  opposition of  HB  247.  He                                                                    
spoke to the  wide variety of industries  represented in the                                                                    
union's  membership. He  listed  a number  of companies  the                                                                    
union   represented.  The   union   understood  the   fiscal                                                                    
challenges the state faced and  the difficult decisions that                                                                    
would have to be made.  He reported that the union supported                                                                    
cuts to the operating budget,  the use of the Permanent Fund                                                                    
(PF) earnings  reserves, and new  taxes. However,  the union                                                                    
was concerned  with the  governor's plan  to change  the oil                                                                    
and gas tax  structure. Since the passage of SB  21 [Oil tax                                                                    
legislation passed  in 2013] the  oil industry  had invested                                                                    
in  Alaska projects  including CD5  and Shark  Tooth putting                                                                    
hundreds of Alaskans to work,  more oil in the pipeline, and                                                                    
billions of dollars into the  economy. He expressed concerns                                                                    
with increasing  oil taxes  and discouraging  investment. He                                                                    
mentioned     Repsol/Armstrong    potentially     increasing                                                                    
production  which  was  important  to  Alaska's  future.  He                                                                    
thanked the committee for the opportunity to testify.                                                                           
                                                                                                                                
2:10:43 PM                                                                                                                    
                                                                                                                                
THOMAS FAGNANI, SELF,  ANCHORAGE (via teleconference), spoke                                                                    
in  opposition  to HB  247.  He  talked about  his  previous                                                                    
summer employment on  the North Slope. He  had recently been                                                                    
informed that he  would not have work in  the coming summer.                                                                    
He  indicated   the  tax  changes  would   have  significant                                                                    
implications to  oil production. He asked  committee members                                                                    
to carefully consider their decisions  in the matter, as his                                                                    
future would be greatly affected.                                                                                               
                                                                                                                                
(2:12:50 PM)                                                                                                                    
                                                                                                                                
PETE STOKES, SELF, ANCHORAGE  (via teleconference), spoke in                                                                    
opposition of  HB 247 and  changing Alaska's  fiscal regime.                                                                    
He was  a petroleum engineer  with 35  years of oil  and gas                                                                    
experience. He relayed that oil  producers were producing at                                                                    
a loss  with low oil  prices. New developers were  unable to                                                                    
finance  developments  because  of the  uncertainty  of  the                                                                    
state's position  on credits  and taxes.  He noted  that the                                                                    
state was collecting more revenue  at low oil prices than if                                                                    
Alaska's  Clear  and Equitable  Share  (ACES)  was still  in                                                                    
effect. Cook  Inlet production had  doubled in  the previous                                                                    
five  years.   He  expressed  concerns  with   driving  away                                                                    
investments  in the  state. Increasing  taxes, he  believed,                                                                    
would have  a similar  effect as  it did  in 2008.  He asked                                                                    
members to refrain from changing the tax regime.                                                                                
                                                                                                                                
2:15:35 PM                                                                                                                    
                                                                                                                                
PAUL   KENDALL,   SELF,  ANCHORAGE   (via   teleconference),                                                                    
expressed concerns with the process  occurring in Juneau. He                                                                    
had several suggestions  on how to solve  the state's fiscal                                                                    
woes. He continued to provide  feedback unrelated to HB 247.                                                                    
He thought  it was imperative  to have a $2  million budget.                                                                    
He commented that  anything having to do with  oil needed to                                                                    
be treated like  an overlay similar to  an old encyclopedia.                                                                    
He spoke against having the  Capital in Juneau. He continued                                                                    
to provide testimony  unrelated to the bill.  He thanked the                                                                    
committee for its work.                                                                                                         
                                                                                                                                
2:19:48 PM                                                                                                                    
                                                                                                                                
RC   CROMWELL,    AK   INSTRUMENT   CO.,    ANCHORAGE   (via                                                                    
teleconference),  opposed   HB247.  He  reported   that  his                                                                    
business was  drastically affected,  as it  provided support                                                                    
to the  oil industry. He  opined that the state  had learned                                                                    
to turn  to oil tax  changes as  the cure for  its financial                                                                    
shortsightedness. He  thought that  an additional  change in                                                                    
the tax regime  would have a negative impact  on the state's                                                                    
fiscal  situation. He  thought the  changes proposed  by the                                                                    
governor in HB 247 would  generate instability in the Alaska                                                                    
oil and gas  market. The proposed changes to  the tax credit                                                                    
structure could stifle investments  planned by potential and                                                                    
existing  producers. He  supposed that  an increase  of a  5                                                                    
percent  gross tax  while not  allowing earned  or allowable                                                                    
tax credits  could result in  a full 5 percent  tax increase                                                                    
for producers  that were  not in  a taxable  situation under                                                                    
current  law. A  retroactive  tax change  imposed after  the                                                                    
first quarter  would have a  negative impact on  the state's                                                                    
financial reputation. The oil  and gas industry was Alaska's                                                                    
largest  economic   multiplier.  His  business  and   his  4                                                                    
employees were  part of  the equation. He  did not  think HB                                                                    
247 was  the right solution.  He encouraged members  to vote                                                                    
in opposition to the bill as  it was written. He thanked the                                                                    
committee for its time.                                                                                                         
                                                                                                                                
2:22:42 PM                                                                                                                    
                                                                                                                                
SCOTT   HAWKINS,   Advanced  Supply   Chain   International,                                                                    
ANCHORAGE  (via  teleconference),  opposed  HB  247  in  its                                                                    
current form.  He thought raising  taxes on the  largest and                                                                    
most financially  important industry at  a time when  it was                                                                    
losing substantial  amounts of  money in  the state  was bad                                                                    
economic  policy.  He also  thought  changing  the tax  code                                                                    
frequently  on  the  same industry  was  also  bad  economic                                                                    
policy. He  believed the  current tax  code ratified  at the                                                                    
ballot  box was  working. He  discussed the  investment that                                                                    
had  occurred  since the  newest  tax  regime was  put  into                                                                    
place.  He  reported  that  his company  had  lost  over  10                                                                    
percent of  its workforce since  the oil price  downturn. He                                                                    
anticipated  a 30  percent reduction  in total  revenues for                                                                    
the  current  year.  He  claimed   that  the  industry  made                                                                    
responsible  decisions to  operate in  a way  that would  be                                                                    
sustainable  in the  current  price  environment. He  opined                                                                    
that the operating  budget that was passed out  of the House                                                                    
Finance  Committee a  few weeks  prior did  not reflect  the                                                                    
same sense of economic reality.  He pointed out that raising                                                                    
taxes  was  not  the  right conversation  to  be  having  at                                                                    
present. He  realized that  the tax  credits in  the current                                                                    
tax  code  attracted  attention   in  light  of  the  budget                                                                    
deficit. He noted  that the credits had an  actual return on                                                                    
investment in  the form  of a true  financial return  to the                                                                    
state. Curtailing  them as  the administration  proposed was                                                                    
penny-wise   and   pound-foolish.   There   were   new   oil                                                                    
developments -  proven reserves because of  the curtailment.                                                                    
He concluded that  HB 247 needed to be  revised to eliminate                                                                    
the tax hikes  or put on the back burner.  He requested that                                                                    
the legislature  refrain from  increasing taxes.  He thanked                                                                    
committee members for their attention.                                                                                          
                                                                                                                                
2:26:10 PM                                                                                                                    
                                                                                                                                
MAYNARD TAPP, HAWK,  ANCHORAGE (via teleconference), opposed                                                                    
HB 247.  He was  a small business  owner supporting  the oil                                                                    
industry. He  thought additional  taxes to the  oil industry                                                                    
would  not encourage  investment. He  believed the  only way                                                                    
the state to  address its problems was  to stop overspending                                                                    
and over  promising. Since 2014, the  companies his business                                                                    
worked  with had  asked him  to cut  his costs.  Due to  the                                                                    
market,  his  business had  cut  its  cost headcount  by  15                                                                    
percent  and his  billing  revenue was  down  by 15  percent                                                                    
totaling a 30  percent loss in overall  billing revenues. At                                                                    
the same  time the oil and  gas industry had lost  about 250                                                                    
percent of  its revenues with  the price changes of  oil. He                                                                    
thought the  state should decrease  its headcount by  50 and                                                                    
reduce wages by 15 percent.  He suggested that it would even                                                                    
the playing  field. He offered  that instituting  a furlough                                                                    
program might  be helpful. The  goal should be  to encourage                                                                    
increasing oil production, the lifeblood of the state.                                                                          
                                                                                                                                
2:28:47 PM                                                                                                                    
                                                                                                                                
MARLEANNA  HALL,  RESOURCE  DEVELOPMENT  COUNCIL,  ANCHORAGE                                                                    
(via  teleconference), spoke  in opposition  to HB  247. She                                                                    
reported  that the  council members  were  the lifeblood  of                                                                    
Alaska's  economy.  The  council   believed  that  the  best                                                                    
approach  to expand  the economy  and generate  new revenues                                                                    
was  to produce  more  oil, attract  more tourists,  harvest                                                                    
more  fish,  and  mine  more   minerals.  Raising  taxes  on                                                                    
companies that  were reporting record  losses and were  in a                                                                    
negative cash  flow was not  sound fiscal policy.  She noted                                                                    
the  investment  that  resulted from  the  legislation  from                                                                    
2013.  She   concluded  that  HB   247  did   not  encourage                                                                    
investment. She  thanked the  committee for  the opportunity                                                                    
to testify.                                                                                                                     
                                                                                                                                
2:32:06 PM                                                                                                                    
                                                                                                                                
DAVE HANSEN, SELF, ANCHORAGE  (via teleconference), spoke in                                                                    
favor of HB  247. He did not believe the  state could afford                                                                    
the  oil  production tax  program.  He  relayed the  various                                                                    
costs of the  current tax regime. He thought  low oil prices                                                                    
rather than oil production  taxes, were why companies having                                                                    
financial difficulties. Also, the  credit program was not an                                                                    
effective way to increase oil  production. Some credit money                                                                    
might help produce  oil, but some of the money  was used for                                                                    
companies that would  never produce oil to bail  them out of                                                                    
bankruptcy.  He  continued  that   oil  industry  jobs  were                                                                    
important but  so was  the $400  million of  capital project                                                                    
jobs which were eliminated  from the previous year's budget.                                                                    
He argued  that tax credits  only related to  oil production                                                                    
taxes, not royalties and property  taxes. There had been tax                                                                    
system changes some of which  were strongly supported by the                                                                    
oil industry. He respected people  from the oil industry. He                                                                    
suggested  that carrying  the oil  industry  at the  state's                                                                    
expense was  not the state's  job when oil prices  were low.                                                                    
He wondered  if Alaskans  were willing to  give up  $1000 of                                                                    
their dividends to pay for  oil tax credits. He implored the                                                                    
committee  to   right-size  the  oil  industry   tax  credit                                                                    
program.                                                                                                                        
                                                                                                                                
2:34:46 PM                                                                                                                    
                                                                                                                                
PHYLLIS KRUGER, SELF,  ANCHORAGE (via teleconference), spoke                                                                    
in opposition to HB 247. She  noted all of the benefits that                                                                    
the  oil industry  had brought  to the  state. She  spoke in                                                                    
support of  the large  producers and the  contributions they                                                                    
made. She thought it was  unacceptable to fire the producers                                                                    
that had been  supporting the state for more  than 40 years.                                                                    
She believed the state needed  new revenue and new projects.                                                                    
She suggested taxing fishermen from out of state.                                                                               
                                                                                                                                
2:38:13 PM                                                                                                                    
                                                                                                                                
CARL PORTMAN,  SELF,    ANCHORAGE   (via    teleconference),                                                                    
expressed his  concern with the  fiscal situation.  He spoke                                                                    
in opposition  of HB 247.  He believed that the  current the                                                                    
tax   regime  encouraged   investment  and   production.  He                                                                    
mentioned the  industry currently losing money  based on low                                                                    
oil  prices.  He  encouraged  the  legislature  to  continue                                                                    
making additional  cuts. He  also suggested  using Permanent                                                                    
Funds earnings to fill the  fiscal gap. He recalled Governor                                                                    
Jay Hammond's  vision for the  PF included the  eventual use                                                                    
of  fund  earnings  to help  pay  for  essential  government                                                                    
services. He  did not support  HB 247 given low  oil prices,                                                                    
low throughput  in the Trans-Alaska Pipeline  System (TAPS),                                                                    
and the  need for  new industry  investment. He  thought the                                                                    
committee substitute was an  improvement over the governor's                                                                    
bill.  However,  it  still represented  a  tax  increase  on                                                                    
industry  increasing the  cost of  doing business  in Alaska                                                                    
during the most  serious downturn in oil  prices in decades.                                                                    
He thanked the committee.                                                                                                       
                                                                                                                                
2:41:11 PM                                                                                                                    
                                                                                                                                
CATHY   DUXBURY,  SELF,   ANCHORAGE  (via   teleconference),                                                                    
opposed HB  247. She  believed the state  could not  tax its                                                                    
way  out of  the budget  deficit. She  opposed changing  the                                                                    
current  tax regime  because increasing  production was  the                                                                    
key to  solving the state's  financial woes. She  asked what                                                                    
increasing taxes  did for the  state's economy.  She thought                                                                    
it  would  be hurtful.  She  had  taken  a  pay cut  in  her                                                                    
business and wondered if the  legislature would also like to                                                                    
take  a pay  cut.  She  wanted to  see  the state  encourage                                                                    
production.  She  added  that legislators  needed  to  think                                                                    
about what was actually happening  in the private sector and                                                                    
to private  sector employees. She  did not believe  that the                                                                    
legislature had really cut anything to-date.                                                                                    
                                                                                                                                
2:43:49 PM                                                                                                                    
                                                                                                                                
GRETCHEN  STODDARDM, SELF,  ANCHORAGE (via  teleconference),                                                                    
worked  in  the  petroleum   industry  and  understood  that                                                                    
changes were  coming. She had personally  benefited from tax                                                                    
credits.  She  opposed  HB  247 in  its  current  form.  She                                                                    
believed the credits did exactly  what they were designed to                                                                    
do. She encouraged legislators to  do something with the tax                                                                    
credits  rather  than  the tax  structure.  She  hoped  that                                                                    
changes would apply  to more than one  industry. She thanked                                                                    
the committee.                                                                                                                  
                                                                                                                                
2:46:34 PM                                                                                                                    
                                                                                                                                
BOB FRENCH, SELF,  ANCHORAGE (via teleconference), supported                                                                    
HB  247. He  asserted that  all  of the  economists who  had                                                                    
testified  before the  legislature  agreed that  it was  not                                                                    
possible to balance  the budget using cuts  alone. There was                                                                    
a need  for new revenue  as well.  He suggested that  one of                                                                    
the  largest cuts  that had  not been  made was  to oil  tax                                                                    
credits. He  believed it  amounted to  welfare for  the most                                                                    
profitable corporations  in existence. He added  that Alaska                                                                    
could not afford  to keep paying $825 million  in tax credit                                                                    
cash   payments  while   only  receiving   $54  million   in                                                                    
production  taxes.  He  supported   raising  the  4  percent                                                                    
minimum to  all fields  to raise  new revenue.  He suggested                                                                    
the 4 percent  minimum needed to gradually  rise with higher                                                                    
oil  prices   replacing  the  flat  rate.   He  thought  the                                                                    
legislature had  the opportunity to  claw back on  four mega                                                                    
projects:  Knik  Arm Bridge,  the  Juneau  Access Road,  The                                                                    
Susitna Road, and  the Ambler Road. Alaska did  not have the                                                                    
$7.83 billion estimated to complete  these mega projects. He                                                                    
also  recommended  that  the   legislature  claw  back  $263                                                                    
million in  unspent allocated  funds for  the 4  projects he                                                                    
mentioned. He supported a statewide  sales tax. He suggested                                                                    
that the tax could  be structured progressively by excluding                                                                    
groceries,  medicine,  and  clothing.   He  thought  it  was                                                                    
possible to for  low income households to  receive sales tax                                                                    
refunds at  the end of  each year. He thanked  the committee                                                                    
for hearing his testimony.                                                                                                      
                                                                                                                                
2:49:25 PM                                                                                                                    
                                                                                                                                
MICHAEL  JESPERSON  SELF,  ANCHORAGE  (via  teleconference),                                                                    
spoke in  opposition to HB 247.  He thought it was  crazy to                                                                    
change  the  current  tax  regime.  He  spoke  of  the  2008                                                                    
economic downturn and indicated he  lost his job during that                                                                    
time.  He thought  the  current  committee substitute  would                                                                    
discourage development of the  oil industry. He thought that                                                                    
additional cuts needed  to be implemented. He  added that if                                                                    
the state had  to increase taxes they  should be implemented                                                                    
on a statewide basis such as  a sales tax. He also suggested                                                                    
increasing   the  statewide   corporate   tax  rather   than                                                                    
targeting specific industries.                                                                                                  
                                                                                                                                
2:52:49 PM                                                                                                                    
                                                                                                                                
MIKE HEIRING, VOSS,  ANCHORAGE (via teleconference), opposed                                                                    
HB 247  as written. He  had over  30 years of  experience in                                                                    
the  oil   and  gas   industry.  He   specifically  provided                                                                    
engineering   and   construction  services   for   Udelhoven                                                                    
Oilfield System Services, an  Alaska based company employing                                                                    
Alaska residence  for over 40  years. He spoke  of extensive                                                                    
research  being  done  by Alaska  Oil  and  Gas  Association                                                                    
(AOGA)  and other  organizations projecting  the impacts  to                                                                    
future investment in  the oil and gas industry  in the state                                                                    
of  Alaska. More  recently he  had had  direct conversations                                                                    
with  current and  future  oil and  gas  companies that  had                                                                    
indicated  that  the  passage of  HB  247  would  discourage                                                                    
additional  investment.  He  opined   that  the  attempt  by                                                                    
Governor Walker to  raise taxes and repeal  credits when the                                                                    
oil and  gas companies were struggling  to remain profitable                                                                    
would dramatically affect  the State of Alaska  in the short                                                                    
and  long   term.  He   requested  that   members  carefully                                                                    
reconsider the legislation before  the committee. He thanked                                                                    
the committee members for their time.                                                                                           
                                                                                                                                
2:54:58 PM                                                                                                                    
                                                                                                                                
JEANINE  ST. JOHN,  LYNDEN, ANCHORAGE  (via teleconference),                                                                    
opposed HB  247. She  expressed her  concerns about  her job                                                                    
and  her  husband's  job  as  well as  her  son's  job.  She                                                                    
supported  broad-based  taxes.   She  relayed  her  personal                                                                    
experience. She  urged members to  consider the  future when                                                                    
contemplating the current  legislation before the committee.                                                                    
She thanked members for their service.                                                                                          
                                                                                                                                
2:58:14 PM                                                                                                                    
                                                                                                                                
RAY METCALFE, SELF, ANCHORAGE, supported  HB 247. He relayed                                                                    
his work  on the North Slope.  He indicated that he  had sat                                                                    
as  the committee  chair of  House Finance  in 1982.  At the                                                                    
time the legislature  was considering a giant  tax break for                                                                    
the oil  companies. He recalled  listening to  the testimony                                                                    
of  Mr. Whitehouse,  the chairman  of Standard  Oil of  Ohio                                                                    
(SOHIO).  Standard  Oil of  Ohio  was  52 percent  owned  by                                                                    
British Petroleum  (BP) and  the face of  BP in  Alaska. Mr.                                                                    
Whitehouse  had  told the  committee  that  the company  was                                                                    
suffering from poverty stricken  oil problems because of the                                                                    
expense  of  the  pipeline. The  legislature  gave  the  oil                                                                    
companies a giant tax break  at that time. Shortly after the                                                                    
tax break he  was in Washington D.C. and was  told about the                                                                    
windfall profits tax and documents  that had been subpoenaed                                                                    
from SOHIO. He tracked down  some of the documents including                                                                    
a lengthy letter to the SOHIO  board. It was the same person                                                                    
that had testified  to the legislature that  the company was                                                                    
suffering from poverty. The letter  explained that there was                                                                    
so much  money coming out of  the North Slope that  they did                                                                    
not know  what to do  with it all.  He fast forwarded  to SB                                                                    
21.  He relayed  that  he had  been the  one  to initiate  a                                                                    
campaign  against the  legislation.  He  continued that  the                                                                    
message  given by  the  oil companies  was  that there  were                                                                    
greener  pastures  in  North Dakota  and  other  places.  He                                                                    
asserted that  those places were shutting  down whereas they                                                                    
were  still producing  in  Alaska. He  opined  that the  oil                                                                    
industry was still around Alaska  because the companies were                                                                    
making money. He suggested that  Alaska had less to show for                                                                    
its 18  billion barrels than  any country in the  world that                                                                    
had  ever produced  that many.  He spoke  to the  example of                                                                    
Norway.                                                                                                                         
                                                                                                                                
3:01:29 PM                                                                                                                    
                                                                                                                                
KATE BLAIR,  SELF, ANCHORAGE (via teleconference),  spoke in                                                                    
support of HB  247. She relayed her  personal experience and                                                                    
currently worked in  the oil industry. She had  seen the oil                                                                    
industry  having  to  make some  tough  decisions  including                                                                    
having to implement  layoffs. She stated that  for more than                                                                    
40 years  the oil  industry had provided  85 percent  of the                                                                    
state's revenue.  She relayed  several benefits  provided by                                                                    
the  oil  industry  to  the state.  She  believed  that  the                                                                    
credits  to  the  oil  companies  were  not  subsidies.  She                                                                    
supported the  use of  the PF earnings  and having  a broad-                                                                    
based tax. However, she could  not support going back to one                                                                    
single  industry year  after year.  She  requested that  the                                                                    
committee  listen to  the will  of the  people who  voted to                                                                    
keep SB  21 in  place less  than 2  years prior.  She wanted                                                                    
companies to spend their investment  dollars in Alaska, hire                                                                    
Alaskans,  and  to provide  a  future  for her  family.  She                                                                    
thanked the committee.                                                                                                          
                                                                                                                                
3:05:12 PM                                                                                                                    
                                                                                                                                
JAN WRENTMORE, SELF, SKAGWAY  (via teleconference), spoke in                                                                    
favor of  HB 247.  She thought the  tax credit  regime might                                                                    
have been  a good strategy in  the past but, at  present the                                                                    
state  could simply  not afford  it.  She supported  calling                                                                    
back  the  money  for  the   mega  projects  and  favored  a                                                                    
statewide income tax. She thanked the committee.                                                                                
                                                                                                                                
3:05:56 PM                                                                                                                    
                                                                                                                                
TOM LAKOSH,  SELF, ANCHORAGE (via teleconference),  spoke in                                                                    
favor of the original bill.   He felt  that the  state could                                                                    
not afford to subsidize the  oil industry. He thought it was                                                                    
unconstitutional for  the state  to pay  for others  to take                                                                    
the  state's natural  resources. He  referred to  Article 8,                                                                    
Section 2 and Section 16. He  was not opposed to the idea of                                                                    
subsidizing  production  but it  had  to  be viewed  in  the                                                                    
context  of  a  corporate   income  tax  and  royalties.  He                                                                    
advocated suspending  production well  before having  to pay                                                                    
for people  to take  Alaska's oil. He  advocated for  a fair                                                                    
and just  compensation for  Alaska's oil.  He felt  that the                                                                    
oil companies should demonstrate  their need for tax breaks.                                                                    
He thanked the committee.                                                                                                       
                                                                                                                                
3:09:46 PM                                                                                                                    
                                                                                                                                
SUSAN  KAY, SELF,  WASILLA  (via  teleconference), spoke  in                                                                    
support  of  keeping  the tax  structure  but  changing  the                                                                    
direction of  the credits.  She felt  that the  credits were                                                                    
unfair and the money should be shared with non-profits.                                                                         
                                                                                                                                
3:13:33 PM                                                                                                                    
                                                                                                                                
MATTHEW   JOY,   SELF,   ANCHORAGE   (via   teleconference),                                                                    
supported the legislation. He felt  that it was fair for the                                                                    
state  to  receive a  percentage  of  revenue from  resource                                                                    
extraction.  He thought  that if  it was  not economical  to                                                                    
extract  a resource,  then it  would be  better to  keep the                                                                    
resource  until  prices   increased.  He  mentioned  hearing                                                                    
concerns  about jobs.  He  thought it  was  important to  be                                                                    
aware  that many  of  the  jobs created  by  the state  were                                                                    
filled by people who lived  outside of Alaska. He thought it                                                                    
was  unfair to  the  citizens  of Alaska  not  to tax  those                                                                    
people that  worked in the  state but lived  elsewhere. They                                                                    
should pay an income tax.                                                                                                       
                                                                                                                                
3:16:24 PM                                                                                                                    
                                                                                                                                
LARRY BURGESS, SELF, WASILLA  (via teleconference), spoke in                                                                    
opposition  of HB  247. He  believed that  the promises  the                                                                    
state made should be kept. He  believed there was a new rule                                                                    
in place  that 90 percent of  the jobs had to  be filled via                                                                    
local hire for any state  funded project. He noted that when                                                                    
tax  credits were  involved,  there should  be  a return  on                                                                    
investment to the state. He thanked the committee.                                                                              
                                                                                                                                
3:18:21 PM                                                                                                                    
                                                                                                                                
MERRICK PIERCE, SELF,  FAIRBANKS (via teleconference), spoke                                                                    
in favor  of HB 247. If  the state did not  continually give                                                                    
away its  resources it  could be  similar to  Norway. Norway                                                                    
had  about 20  times the  wealth of  Alaska. Alaska  was not                                                                    
doing nearly as  well because the state was  giving away its                                                                    
resources as  it did under  the Economic Limit  Factor (ELF)                                                                    
system, the Petroleum Production  Tax (PPT) system, or under                                                                    
SB 21.  He noted that when  the bill was in  House Resources                                                                    
the  most  fundamental reforms  were  scrapped  such as  the                                                                    
requirement  that Alaska  charge compound  interest on  past                                                                    
due  taxes. The  provision would  not make  a difference  in                                                                    
whether a  company chose to  invest in Alaska.  However, the                                                                    
provision  incentivized companies  not  to  pay their  taxes                                                                    
with a  4 percent simple  interest penalty. He  continued to                                                                    
discuss  various  rates of  return.  He  opined that  SB  21                                                                    
guaranteed that taxes  would not be paid. The  issue came up                                                                    
25  years prior  when Hugh  Malone fought  to establish  the                                                                    
compound  interest  penalty  on  past due  taxes.  He  never                                                                    
thought   the  state   would  return   to  simple   interest                                                                    
penalties. He continued that the  actions by House Resources                                                                    
were  inexcusable in  the prior  week  where key  provisions                                                                    
were stripped  from the bill.  He noted  that Representative                                                                    
Hawker  was   allowed  to  debate  and   argue  against  the                                                                    
legislation even  though he had  a conflict of  interest. He                                                                    
spoke  of  Representative  Wilson  serving  on  the  borough                                                                    
assembly. He  mentioned the illegal  bribes that  were taken                                                                    
in  past   years.  He  concluded  that   under  the  current                                                                    
unconstitutional tax regime, if  unchanged and the price and                                                                    
throughput stayed the  same, about $70 billion  worth of oil                                                                    
would be taken  from Alaska over the following  10 years. He                                                                    
thanked members for their time.                                                                                                 
                                                                                                                                
3:21:35 PM                                                                                                                    
                                                                                                                                
WILLIAM  SCHNEIDER,  SELF, ANCHORAGE  (via  teleconference),                                                                    
opposed  HB  247.  He  thought the  state  needed  to  raise                                                                    
revenue  through an  income  tax program  and  by using  the                                                                    
earnings from  the PF. He  thought basic services  needed to                                                                    
continue being provided. He opined  that the state needed to                                                                    
pay its  own way in  order to support  a quality of  life in                                                                    
Alaska. He  encouraged members  to get the  job done  in the                                                                    
current legislative session. He thanked the committee.                                                                          
                                                                                                                                
3:22:19 PM                                                                                                                    
                                                                                                                                
KEVIN  DURLING,  PETROLEUM   EQUIPMENT  AND  SERVICES  INC.,                                                                    
ANCHORAGE, testified in opposition of  HB 247. He also was a                                                                    
past  president for  the Alaska  Support Industry  Alliance.                                                                    
The  Alliance and  its members  were the  front line  of the                                                                    
industry. He  suggested that  when oil  prices were  low his                                                                    
company  was  the first  to  go.  He  spoke of  his  company                                                                    
cutting benefits, salaries, and  laying off Alaskan workers.                                                                    
His company  had made adjustments  knowing it  was necessary                                                                    
to weather the storm. He  anticipated his company would ramp                                                                    
up   again  when   commodity  prices   changed  because   of                                                                    
tremendous  resources  that   still  existed.  However,  his                                                                    
company could  not ramp up  if the state continued  with the                                                                    
instability  that would  prevent investment  from returning.                                                                    
He felt  that HB 247  was being used as  a tool to  fill the                                                                    
budget  gap  with  no  regard for  the  long  term  effects.                                                                    
Incentives  lead to  investments while  increased taxes  did                                                                    
not. Consequences  would result with changes  in the current                                                                    
tax system.  He posed a  question about the  market reaction                                                                    
if HB 257 made the problem worse.                                                                                               
                                                                                                                                
3:25:16 PM                                                                                                                    
                                                                                                                                
BRYAN CLEMENZ,  SENIOR VP BRISTOL BAY  INDUSTRIAL, ANCHORAGE                                                                    
(IN JNU), spoke in opposition of  HB 247. He spoke about his                                                                    
company which touched all markets  in Alaska and beyond with                                                                    
a  number   of  business  activities  related   to  the  oil                                                                    
industry.  He mentioned  that Bristol  Bay Industrial  was a                                                                    
subsidy of  Bristol Bay Native Association.  He continued to                                                                    
relay  the   services  his  company  provided   to  the  oil                                                                    
industry. He  noted that the  current tax policy  worked. He                                                                    
stated that  the change  jeopardized the  company's baseline                                                                    
business and  further investment.  Near term  prospects were                                                                    
with developers and operators who  had invested based on the                                                                    
current tax  policy. New  operators in  the Cook  Inlet area                                                                    
and  Middle  Earth were  included.  He  emphasized that  the                                                                    
change proposed in HB 247  jeopardized the success of future                                                                    
development  and the  viability  of  the company's  baseline                                                                    
business.  Stability  in the  tax  structure  was vital.  He                                                                    
asked members to reject HB 247.                                                                                                 
                                                                                                                                
3:29:08 PM                                                                                                                    
                                                                                                                                
STEVEN  SAMUELSON, SELF,  PETERSBURG (IN  JUNEAU), spoke  in                                                                    
support of  HB 247.  He believed that  Alaska needed  to pay                                                                    
its own  way. He thought it  should start on a  local level.                                                                    
He talked  about generating new  revenue aside from  oil. He                                                                    
spoke of the benefits of  the oil industry. He mentioned the                                                                    
benefits of the  Permanent Fund program and  opined that the                                                                    
Permanent Fund  Dividend (PFD) was  a bonus check.  He noted                                                                    
that  in Petersburg  had a  city sales  tax. He  supported a                                                                    
sales tax. He hoped for a better future.                                                                                        
                                                                                                                                
3:32:50 PM                                                                                                                    
                                                                                                                                
LOUIE FLORA, SELF, HOMER (IN JNU),  spoke in favor of HB 247                                                                    
but did  not support  the committee substitute  generated in                                                                    
House Resources  - CSHB  247 (RES). He  read from  the poem,                                                                    
"The Red Wheel Barrel" by  Dr. William Carlos Williams. Like                                                                    
the red wheel barrel the issue  of oil tax credit reform was                                                                    
simple and complex  at the same time. So  much depended upon                                                                    
the legislature passing  oil tax credit reform as  part of a                                                                    
sustainable fiscal  plan. It  was critical  to fix  the $800                                                                    
million problem.  If the  tax system was  left in  place and                                                                    
the state ended up paying more  for oil tax credits than the                                                                    
state received  in oil revenues, Alaskan  residents would be                                                                    
paying companies and corporations  their PFD's. A reasonable                                                                    
give-and-take  was essential  for industry.  He opined  that                                                                    
Alaska's economy could not withstand  an $800 million in tax                                                                    
credit payments  each year.  So much  depended on  a vibrant                                                                    
economy in Alaska  and a healthy oil  industry. He suggested                                                                    
meeting  in  the  middle  and  coming up  with  a  plan.  He                                                                    
continued that  Alaska could not  afford the  current fiscal                                                                    
regime. Alaska needed  to act in the coming  spring. Part of                                                                    
the action  needed to include  a reasonable  modification of                                                                    
the oil tax credit system.  He thanked committee members for                                                                    
their bravery and hard work.                                                                                                    
                                                                                                                                
3:35:38 PM                                                                                                                    
                                                                                                                                
ERIC  TREIDER, SELF,  KENAI (via  teleconference), spoke  in                                                                    
favor of HB  247. He believed there should be  a base tax of                                                                    
5 percent  on oil  produced from all  wells. He  thought the                                                                    
rate should  grow as oil  prices increased to 10  percent at                                                                    
$80 per barrel  and 25 percent at $125 per  barrel. He added                                                                    
that the  system of tax credits  needed to be replaced  by a                                                                    
loan program  unless producers wanted  to give the  state an                                                                    
equity  interest in  the wells  it was  helping them  drill.                                                                    
Presently, the state  was taking nearly all of  the risk and                                                                    
receiving   very  little   in  return.   He  reported   that                                                                    
historically  the  legislature  had   done  a  poor  job  of                                                                    
managing the  state's oil income. Norway  had produced about                                                                    
twice as  much oil as  Alaska had, yet its  sovereign wealth                                                                    
fund contained 20  times more than Alaska's PF.  He spoke of                                                                    
promises made for a 'yes' vote  on Proposition 1 [SB 21]. He                                                                    
suggested ending  corporate welfare and adopting  an oil tax                                                                    
law befitting  a proud owner  state such as  Walter Hickel's                                                                    
Alaska.                                                                                                                         
                                                                                                                                
3:37:39 PM                                                                                                                    
                                                                                                                                
NELMA TREIDER,  SELF, KENAI  (via teleconference),  spoke in                                                                    
favor  of  HB  247.  She  thought it  was  a  sad  day  when                                                                    
education,  senior benefits,  and  other  services were  cut                                                                    
while  the  state  payed  oil   tax  credits.  She  did  not                                                                    
understand the  legislature's approach and asked  members to                                                                    
explain themselves. She thanked the committee.                                                                                  
                                                                                                                                
3:39:40 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson CLOSED public testimony.                                                                                      
                                                                                                                                
HB 247 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Thompson reviewed the agenda for the day.                                                                              
                                                                                                                                

Document Name Date/Time Subjects