Legislature(2011 - 2012)BARNES 124
02/21/2011 05:15 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 110-PRODUCTION TAX ON OIL AND GAS
5:22:32 PM
CO-CHAIR FEIGE announced that the only order of business is
HOUSE BILL NO. 110, "An Act relating to the interest rate
applicable to certain amounts due for fees, taxes, and payments
made and property delivered to the Department of Revenue;
relating to the oil and gas production tax rate; relating to
monthly installment payments of estimated oil and gas production
tax; relating to oil and gas production tax credits for certain
expenditures, including qualified capital credits for
exploration, development, and production; relating to the
limitation on assessment of oil and gas production taxes;
relating to the determination of oil and gas production tax
values; making conforming amendments; and providing for an
effective date."
5:23:07 PM
RACHEL PETRO, President and CEO, Alaska State Chamber of
Commerce, began by informing the committee that the Alaska State
Chamber of Commerce represents over 400 businesses and
organizations throughout Alaska. The mission of the chamber is
to promote a positive business environment in the state.
Therefore, the Alaska State Chamber of Commerce strongly
supports HB 110. She then informed the committee that a year
ago Alaska ranked 117th out of 129 in fiscal terms, which she
opined is unacceptable. The state is competing in a global
world, and thus she encouraged the [House] to move quickly this
session to reform tax policy, the chamber's top priority this
session. Ms. Petro pointed out that tax policy impacts
investment, as illustrated with the recent tax credits to the
film industry.
5:24:44 PM
REPRESENTATIVE GARDNER recalled that another report, from
Frazier, ranked Alaska 68th out of 133 in overall [fiscal
terms].
MS. PETRO said that she has not seen that report.
REPRESENTATIVE GARDNER remarked that the legislature receives
reports from various organizations that have different resources
and goals.
MS. PETRO commented that whether Alaska is ranked 50th or 100th,
the Alaska State Chamber of Commerce remains concerned because
it believes Alaska should be ranked in the top 10.
5:26:14 PM
CO-CHAIR SEATON noted that the committee received the
accumulated fiscal note and if HB 110 passed, there would be a
reduction in revenue to the state in the amount of $1.7-$2.2
billion per year. Such a reduction would result in the state
being in a deficit situation with fewer funds for capital
budgets. He asked if the Alaska State Chamber of Commerce is
concerned about a situation in which there is a significant
reduction in capital budget expenditures throughout the state,
rather than funds only going to the North Slope.
5:27:00 PM
MS. PETRO related that the Alaska State Chamber of Commerce is
concerned with the overall fiscal and economic climate in
Alaska. However, if exploration doesn't begin and Alaska's
pipeline isn't filled, there won't be anything to spend in the
future. Therefore, the chamber believes the legislature should
act soon to incentivize exploration in order to fill the
pipeline because without doing so there won't be resources to
appropriate. Ms. Petro clarified that the Alaska State Chamber
of Commerce shares the concern, but also supports fiscal
restraint.
5:28:33 PM
VINCE BELTRAMI, President, Alaska AFL-CIO, informed the
committee that the Alaska AFL-CIO is comprised of about 55
unions and 60,000 union members in Alaska. He then recalled a
statement by Commissioner Sullivan, Department of Natural
Resources (DNR), during the meeting earlier in the day. The
statement related that no matter the position of the state with
regard to exploration, the governor's legislation doesn't really
provide a way to obtain commitments from the producers to
actually explore, which is cause for concern. The state is
reliant on oil that flows through the pipeline as it funds 90
percent of the state. He informed the committee that the Alaska
AFL-CIO and several other union leaders have been working with
Shell on its offshore development. A recent report discusses
the amount of jobs it would produce, which is all the AFL-CIO
cares about in terms of making Alaska's economy viable. A
commitment to jobs and to Alaska hire are what the AFL-CIO wants
to see happen, although currently there's no such commitments.
He then related that for the most recent development to come on
line, the Nikiachuk Field, he received a report that related
that over 60 percent of the people working on the site were not
residents of Alaska. Mr. Beltrami pointed out that although
reports from the producers relate improvements in resident hire,
there isn't information with regard to what's happening in the
fields. He recalled that last week during a committee hearing
there was a question regarding the $4 billion in tax credits
given to the company since Alaska's Clear and Equitable Share
(ACES) went into effect and for which no one has been able to
relate for what the credits were used. Before the AFL-CIO can
support reforming oil taxes, there has to be [a commitment] to
developing, drilling, and exploring in Alaska and knowledge that
the jobs will go to Alaskans not to out-of-state people. Mr.
Beltrami emphasized that thus far he hasn't seen evidence that
HB 110 will produce jobs for Alaskans. In the meantime, the
state has had large capital budgets due to the tax revenue from
ACES and those jobs can be identified via the larger capital
construction budgets. "Are we ready to give up ... $1.7 billion
a year in ... revenue to the state, at this point, on a tradeoff
for the hope that we're going to get those jobs," he questioned.
He opined that the state should have a better expectation than
to hope there will be more jobs; he suggested that there should
be a commitment for such and that the jobs will go to Alaskans.
If and when such commitments are made, he said that the state
should definitely consider supporting those. In conclusion, Mr.
Beltrami encouraged being shown [the commitment] to more
exploration and Alaskan jobs.
5:33:46 PM
CO-CHAIR FEIGE inquired as to the percentage of union jobs for
road projects, building, construction, and carpentry that are
included in the capital budget.
MR. BELTRAMI related that the union density in the state is 25
percent, which is the second highest in the country. However,
that includes the public sector as well. He told the committee
that about 85 percent of the heavy and highway construction is
performed by union contractors. With regard to regular
commercial construction, one could make a case that about 40-50
percent of that is union whereas almost none of residential
construction is performed by union workers. Mr. Beltrami
emphasized that capital construction projects put Alaskans to
work whether they're union members or not. He further
emphasized that while he would like to see more union jobs on
the North Slope, he would like to see more Alaskans working on
the North Slope. In further response to Co-Chair Feige, Mr.
Beltrami said that very little of the work on the North Slope is
accomplished by union members. Other than the Trans-Alaska
Pipeline System (TAPS) for which there is a maintenance contract
and 400-500 [union] employees work, he estimated that maybe only
a few hundred more are union employees in the [North Slope]
workforce of about 13,000.
5:35:34 PM
CO-CHAIR FEIGE inquired as to how Mr. Beltrami would amend this
proposed legislation, were he able to do so.
MR. BELTRAMI said that it's hard to force the hand of the
companies with regard to exploration. Therefore, he suggested
that the tax credits or any credits should be given based on
exploration that the companies are going to undertake. He
suggested giving the credit after the exploration. In further
response to Co-Chair Feige, Mr. Beltrami opined that compared to
zero exploration it wouldn't be difficult to measure
[exploration], new drilling activity.
5:37:01 PM
JERRY MCCUTCHEON, provided the following testimony:
The Parnell Administration is demanding that ACES be
revised so that when the oil companies make more
money, the oil companies pay the State of Alaska less
money. How profound. Only in Alaska would such a
crackpot scheme be proffered. Alaska does not have an
ACES problem, it has a Parnell problem. The failure
to enforce the lease, case law, and Alaska's
Constitution; that's all you need, you don't need
anything else. You shouldn't be offering carrots to
people to do what they're already obligated to do.
Representative Gardner, the Parnell Administration
lied to you when the Parnell Administration said and
showed that the oil companies are paying federal
taxes. Not only do the major oil companies not pay
federal taxes, but also the oil companies are
subsidized by the federal government. That's kind of
different than what you've got on that piece of paper
that they handed you. The Parnell Administration
testifying and showing there on their graphs that Mr.
Parnell had submitted it to the legislature that shows
the oil companies pay taxes when, in fact, the oil
companies do not pay (indisc.) taxes is false
testimony and should be referred to the appropriate
committee for investigation as well as the federal
grand jury investigating political corruption.
5:39:00 PM
MR. MCCUTCHEON continued:
Alaska's taxes should be compared to that of other
nations and more deliberate misdirection ... on the
part of Parnell to favor Parnell's former employer.
As for enticing Exxon, BP, and Conoco to look for more
oil, Exxon, BP, and Conoco are reservoir elephant
hunters. There are no more elephant oil reservoirs to
be found on the North Slope. Such large structures as
there were on the Slope were drilled over two decades
ago. All the Slope has left are rabbits, maybe a few
moose will be found and some caribou found in the next
50 years. But Exxon, BP, and Conoco should join
Chevron, sell out and get out. Alaska's future lays
with the small oil companies and the legislature needs
to address the major obstruction of the smaller oil
companies trying to produce their leases; that really,
really needs to be addressed. This claptrap that the
oil companies are going to abandon the oil line if the
oil line flow gets much lower reminds me of the oil
companies were arguing with the attorney general's
office over the life of the pipeline before the
pipeline was actually finished. The oil companies
were saying that the life of the pipeline was only 20
years. What the oil companies did not say is the life
was only 20 years because they were going to gut and
run Prudhoe Bay. At only a 100,000 barrels a day at
$80 a barrel, that's $3 billion a year. Are any of
you legislators really that gullible to think that the
oil companies would abandon $3 billion a year. For
those of you that are new to the legislature, here are
some jewels from the legislative gasline hearings in
2007. Testimony from the AOGCC, Alaska Oil and Gas
Conservation Commission, to the legislature during the
hearings in Anchorage that Prudhoe Bay had produced an
additional 6 billion barrels more oil as of 2006 than
would not have been produced had the oil companies
constructed the 2 bcf/d gasline in the 1980s.
Further, the AOGCC testified that the State of Alaska
would be broke today, 2007, had the oil companies
constructed the gasline in the 1980s.
5:42:31 PM
MAYNARD TAPP, Hawk Consultants, LLC; Member, Alaska Support
Industry Alliance, noted that he provided the committee with
information regarding a January 2011 API [American Petroleum
Institute] study that shows the amount of profit the oil
companies make in comparison with other industries. Though oil
companies make a lot of money, their net income over sales of
about 6 percent is pretty standard and even below the national
all-manufacturing average. He noted that it's difficult and
expensive for the oil companies to do business in Alaska. Mr.
Tapp characterized TAPS as Alaska's lifeline and the oil as its
blood. The state can help provide the nation's energy needs
from one of the best monitored and maintained facilities in the
world. He then guaranteed that not one dollar in taxes under
ACES will ever go to exploration for Alaskans to develop its
oil. The only change Mr. Tapp said he would make to HB 110 is
to make it retroactive and return some of the money to the oil
companies to put it back in the ground.
5:44:48 PM
REPRESENTATIVE GARDNER asked if Mr. Tapp was aware the state has
spent $3 billion in credits to the oil industry. Therefore, the
state is either participating in their exploration and
development or paying the oil companies to perform maintenance
and other work on their existing systems.
MR. TAPP acknowledged that he is aware of that and the fact that
the oil companies are constantly trying to maintain and upgrade
their facilities in the likelihood they will be able to use
those facilities to put more oil through the pipeline. After
the pipeline runs out there won't be any money to tax and the
permanent fund would have to fund the state. Therefore, he
suggested that the only solution for the next 20 years is to
fill TAPS again.
5:46:13 PM
REPRESENTATIVE GARDNER asked then if Mr. Tapp would agree that
the incentives under ACES have worked, at least to the extent of
a $3 billion investment to the system.
MR. TAPP replied no. He clarified that the oil companies are
trying to maintain the facilities in a safe and environmentally
conscious manner, for their best interest and that of the state.
If there's a 6-7 percent decline over the next 10 years, oil
production drops as does taxes. Therefore, the loss of
production doesn't help the tax base. Mr. Tapp said that he
agrees with Representative Gardner to the extent that the oil
companies have used the credit to maintain the facilities, but
he questioned how much the oil companies paid in taxes to
maintain the facilities.
5:47:57 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association,
provided the following testimony:
I'm here today to testify on behalf of the [Alaska]
Trucking Association and its nearly 200 member
companies in support of HB 110, the governor's
production tax on oil and gas bill. Given today's
investment climate and Alaska's competitive position
in the world's search for additional oil and gas
supplies, now is the time to reevaluate our current
oil and gas production tax structure. With an annual
production decline of about 7 percent, which the state
incurred last year, TAPS could very well be
nonfunctional within 5-10 years. How will the state
pay for essential public services and meet long-term
obligations if this were to happen. There's no
denying that lower taxes ... could result in reduced
revenue flowing into state coffers in the short term.
But it is clear that Alaska is competing in a global
market and in the long term, this reduction will make
the state a more desirable place to invest, which
ultimately will lead to higher revenue. Specific
examples presented in this current tax regime have
included the tax rate is allowed to rise too steeply
when oil prices are high, and also has been called an
unfair tax that stifles jobs and needed oil
production. Replacing or revising the oil tax was an
issue during the campaigns. We believe that close
examination has found that in order for Alaska to
continue to be a leader in U.S. domestic oil
production, we need to create a more favorable
investment climate to clearly demonstrate that Alaska
is open for business. Just look around us today, in
today's world political climate, the cable news will
make you crazy. Future oil and gas supplies for
Alaska and the U.S. are not guaranteed. We Alaskans
need to do all we can to provide energy supplies for
Alaska and the United States. With future 6 to 7
percent declines projected, we need to take dramatic
action today.
5:50:36 PM
JASON BRUNE, Executive Director, Resource Development Council
(RDC), provided the following testimony:
My testimony today is given in support of HB 110. RDC
is an Alaskan business association comprised of
individuals and companies from Alaska's oil and gas,
mining, forest products, tourism, and fisheries
industries. Our membership also includes all of the
Alaska Native regional corporations, local
communities, organized labor, and industry support
firms. Based on a survey we just completed, I
recently learned that we have members in virtually
every legislative district statewide. Our mission is
to expand the state's economic base through the
responsible development of our natural resources.
RDC's top legislative priority this year is to
"advocate for tax policy and incentives that enhance
the State of Alaska's competiveness for all industry."
HB 110 does this. During the past election for
governor, we learned that fixing ACES was not a
Democratic issue, it wasn't a Republican issue, it was
an Alaskan issue. Both Governor Parnell and former
Representative Ethan Berkowitz agreed ACES needed to
be revised. Another of our top five priorities this
year is to "support legislation to encourage new
exploration and development of Alaska's oil and gas
deposits as well as enhance production from existing
fields." Again, HB 110 does this. No project that
I've ever heard of has ever been taxed into existence.
Indeed, Alaska cannot tax its way into prosperity.
We've seen this first hand, since the passage of ACES.
This year only one exploration well is projected to be
drilled. With a continued TAPS throughput decline of
6 to 8 percent per year, as we've seen over the last
several years, TAPS could be nonfunctional in less
than a decade. How will the state pay for essential
public services and meet long-term obligations or even
pay for the large capital budgets we continue to hear
about if TAPS goes away. We couldn't. HB 110 must be
passed to provide for a future that includes any
capital budgets. This leads to another one of RDC's
top five priorities and that is the implementation of
a comprehensive, responsible, and long-term fiscal
plan. Ninety percent of our state budget comes from
the oil industry, without a pipeline we have no fiscal
plan. My non oil and gas members will then bear the
brunt of new taxes; the fishing industry, mining
industry, tourism, and others will likely be who we
look to scare out of the state next. The political
will to tap the permanent fund or implement a broad-
based tax does not exist in Alaska. The only option
to make sure the options that I just mentioned don't
come to fruition is to do our best to encourage new
investments in Alaska. HB 110 does this.
Finally, I ... served as the co-chair for Governor
Parnell's Resources, Energy and Environment Transition
team. The nearly 30 members of this team came from
every corner of this state and every resource
industry. Much of our discussion revolved around
coming up with ideas for the governor to reverse the
dramatic production decline we've seen; specific
emphasis was placed by this group on addressing the
negative investment climate caused by progressivity.
In conclusion, I'd like to urge you to pass HB 110 out
of committee.
5:55:03 PM
LAURA MAKETA, offered her strong support for HB 110 and urged
the legislature to continue to create a pro business, pro job
growth environment. The aforementioned requires planning for
decades ahead rather than short-term gains for current supplies.
She then informed the committee that she and her husband are
entrepreneurs who started a family construction business with
little but have been able, in part, because of the oil and gas
in Alaska, to own their own home and cars, send her son to a
private school that addresses his special learning challenges,
and pay cash for her nursing school. She related that the
family construction business now employs up to 40 Alaskans on
the North Slope and their consulting business places her husband
in various oil and gas, marine, and stakeholders' sphere of
influence. Ms. Maketa said:
The consensus of the current federal regulatory
barriers and state tax structure is really a doom and
gloom atmosphere regarding future prospects in Alaska.
The statistics indicate a decline in exploration,
investment, and morale. The opposition I've heard is
generally touting the oil and gas industry record
profits this year. These global profits are not
because of Alaska ... say it should be, both offshore
and onshore. I've observed the many excellent
industry presentations that discuss how Alaska ranks
extremely low compared to the rest of the U.S. in
global structures .... I feel it is imperative that
you understand that the oil and gas industry, which is
85 percent of Alaska's economy, is made up of ordinary
people -- guys like my amazing, competent, hard-
working husband, myself, countless moms and dads that
live in this great state; they work here, they have
families here, they love Alaska, and they want to be
here for the long haul. So, I do support Governor
Parnell and Lieutenant Governor Treadwell and
Representative Hawker.
MS. MAKETA concluded by relating that this is the first time
she's gotten involved in politics, but she did so because she
refused to remain complacent. She further related her respect
for the members and their efforts and service. She urged the
committee to consider addressing ACES and creating a better
environment for her family's small business while incentivizing
investment in the state.
5:59:32 PM
DAVID OTNESS informed the committee that over the course of his
60 years as a third generation Alaskan, he has been involved in
the oil industry off and on over the years. He opined, "As of
late, I'm just not seeing this stacking up to the realities,
especially compared to what's going on in the Middle East right
now." He discussed the unpredictability of the Middle East
environment in terms of the potential for interruption of the
oil supply versus the stable environment Alaska offers. He
highlighted, "We don't expropriate oil company assets, we don't
nationalize them like happened in Libya, ... Sakhalin Island a
number of years ago, ... Venezuela." Mr. Otness related that he
was disturbed when Governor Parnell highlighted Alaska's rating,
in terms of a business friendly environment, from the Frazier
Institute. The Frazier Institute is funded by Exxon and the
Koch brothers. He charged that statistics can be "ginned up"
however one wants, which oil companies are masters at, he
further charged. To counter Ms. Maketa's testimony, Mr. Otness
related that ConocoPhillips made the majority of its world
profits in Alaska over the last several years. He acknowledged
that the oil companies are needed, but he emphasized that oil is
a "one-time" resource that's running out and this may be one of
the last times the state has a chance at this type of wealth.
Mr. Otness encouraged the state to stand its ground against the
oil industry, which he characterized as the "big dog on the
block." In conclusion, Mr. Otness expressed his desire to leave
[Alaska's tax regime on oil] as is.
6:03:29 PM
PAUL D. KENDALL began by stating that it's difficult to
participate in energy discussions because new energy designs are
moving so quickly. He then noted that the committee should have
received a Letter of Understanding that was drafted by the
world's seven largest automobile dealers, which he considered a
historical document. The aforementioned letter calls for the
hydrogen highway to be of sufficient density by 2015. This, he
opined, is really the launch of the hydrogen economy. Although
he hadn't foreseen the simultaneous launch of the electric
automobile platform and the hydrogen fuel cell. He attributed
the aforementioned to the fact that many small companies are
preparing to take on the electric automobile platform, which
will experience major expansion in the production of electric
vehicles in the next four years. Mr. Kendall then expressed
concern with lowering any tax revenues from TAPS because of
various indicators, such as the 23 percent reduction in Japan's
largest refinery and then opened the world's largest solar cell
production plant. The evidence he's seen indicates that TAPS
will be closed within two to four years. He opined that the
reason for the aforementioned is that the legislature's realm of
influence no longer impacts [the oil companies]. For [the oil
companies] it's about maintaining control. He suggested that
the electric automobile, the hydrogen fuel cell, and new
technologies could be launched very quickly. If the
aforementioned occurred within the next 4-10 years, he opined
that there would be huge amounts of retraction in the oil and
gas uses. Concurrently, the oil companies will lose revenue and
thus raise their prices. If the state misses that accelerated
price, the state will miss lots of money. However, if the
pipeline goes down, the state won't receive the increased
revenue as well as any additional flow. Furthermore, if the
economy shifts on the dollar, the state will lose the permanent
fund. The aforementioned, he emphasized, could result in Alaska
being in one of the darkest places overnight. Therefore, he
encouraged the committee to have these discussions such that
folks can be involved in a slower, unhurried manner. Mr.
Kendall told the committee that Alaska is no longer a player,
and therefore he urged the committee to prepare for a worst-case
scenario and look to develop renewable energies because the rest
of the world is trying to create new economies to generate
revenue. Alaska has the opportunity to lead the charge in
creating new economies.
6:09:01 PM
RICHARD SCHOCK, Owner/Operator, Flowline Alaska, Inc., related
his support for HB 110. He informed the committee that Flowline
Alaska, Inc., supplies products and services to the firms doing
business on the North Slope. The products are built in
Fairbanks and sent to the North Slope. Flowline Alaska, Inc.,
employs local union labor at its facility. Since 2008 the firm
has experienced a dramatic decrease in project work from the
firms up North. In 2008, the company employed roughly 70 full-
time equivalent union craft employees which decreased to just 30
full-time equivalents in 2010. The 2011 employment levels look
worse than the 2010 level, which he mostly attributed to the
taxation from ACES. As taxes increase, investment in new
projects decrease, he opined. In fact, the only new projects he
foresees in the near future are projects that have been in the
planning stages for some time, such as Point Thomson. He
informed the committee that typically Flowline Alaska, Inc., is
involved with studies, pre-engineering, and engineering on the
front-end with new projects. He said that there aren't a lot of
new projects for the future. He attributed the Department of
Labor & Workforce Development's (DLWD) statistics that there has
been an increase in oil field employment since 2006 to the
increased scrutiny brought about by the spills and the increased
maintenance since 2006. Although the increase in maintenance
jobs is great, Alaska requires an increase in the amount of oil
flowing down the pipeline. "The only way Alaska can stem the
decline is to get more investment dollars into new and
additional projects," he opined. Mr. Schock characterized the
tax credits for drilling as great, but pointed out that as a
supplier he isn't seeing these exploration wells translate into
new development projects. Therefore, the tax system would seem
to work to initiate exploration drilling, but not development or
production. Furthermore, exploration wells alone don't add to
the production. Exploration wells only add to production when
they're coupled with a reasonable tax structure for production.
In conclusion, Mr. Schock said until the production tax is
revised, the decline will continue and much of the oil will
remain in the ground.
6:13:06 PM
DEBORAH BROUILETTE(PH), speaking as a 35-year Alaskan, related
her support for HB 110. She expressed concern for her
children's future. She then informed the committee that she was
laid off by ARCO back in 1986. After Alaska's economy crashed,
she spent five years foreclosing on homes. In fact, she closed
on 20 homes per week. Ms. Brouilette predicted that Alaska is
headed for that same "economic cliff." Although what the
legislature decides impacts her and her family, she opined that
she will be fine because she will have a job foreclosing on
homes.
6:15:09 PM
CO-CHAIR FEIGE, upon ascertaining no one else wished to testify,
closed public testimony on HB 110.
[HB 110 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES 2.21.11 HB 110 Walkthrough - Dept. of Revenue.pdf |
HRES 2/21/2011 5:15:00 PM |
HB 110 |