Legislature(2013 - 2014)BARNES 124

04/01/2014 04:30 PM RESOURCES


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04:36:23 PM Start
04:37:02 PM SB138
07:00:29 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Presentation: "Gas Pipeline Issues - Mayor TELECONFERENCED
Concerns" by LB&A Consultants: Manley &
Brautigam - Baker & Miller
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                     
                                                                                                                                
4:37:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  announced that the  only order of business  is CS                                                               
FOR  SENATE  BILL  NO.  138(FIN)  am, "An  Act  relating  to  the                                                               
purposes, powers,  and duties of  the Alaska  Gasline Development                                                               
Corporation;  relating to  an in-state  natural gas  pipeline, an                                                               
Alaska  liquefied  natural  gas project,  and  associated  funds;                                                               
requiring state  agencies and other entities  to expedite reviews                                                               
and  actions  related  to natural  gas  pipelines  and  projects;                                                               
relating to  the authorities  and duties  of the  commissioner of                                                               
natural resources relating to a  North Slope natural gas project,                                                               
oil and  gas and gas only  leases, and royalty gas  and other gas                                                               
received by the  state including gas received as  payment for the                                                               
production  tax on  gas;  relating  to the  tax  on  oil and  gas                                                               
production, on  oil production, and  on gas  production; relating                                                               
to the duties of the commissioner  of revenue relating to a North                                                               
Slope natural  gas project and  gas received as payment  for tax;                                                               
relating to confidential information  and public record status of                                                               
information provided  to or in  the custody of the  Department of                                                               
Natural  Resources and  the Department  of  Revenue; relating  to                                                               
apportionment factors of the Alaska  Net Income Tax Act; amending                                                               
the definition  of gross value  at the 'point of  production' for                                                               
gas for  purposes of the  oil and gas production  tax; clarifying                                                               
that the  exploration incentive credit,  the oil or  gas producer                                                               
education credit, and  the film production tax credit  may not be                                                               
taken against  the gas  production tax paid  in gas;  relating to                                                               
the  oil  or  gas  producer   education  credit;  requesting  the                                                               
governor to  establish an  interim advisory  board to  advise the                                                               
governor on  municipal involvement in  a North Slope  natural gas                                                               
project;  relating to  the development  of a  plan by  the Alaska                                                               
Energy  Authority   for  developing  infrastructure   to  deliver                                                               
affordable  energy to  areas  of  the state  that  will not  have                                                               
direct  access  to a  North  Slope  natural  gas pipeline  and  a                                                               
recommendation  of a  funding  source  for energy  infrastructure                                                               
development;  establishing  the  Alaska affordable  energy  fund;                                                               
requiring  the commissioner  of  revenue to  develop  a plan  and                                                               
suggest  legislation for  municipalities, regional  corporations,                                                               
and residents  of the state  to acquire ownership interests  in a                                                               
North  Slope  natural  gas pipeline  project;  making  conforming                                                               
amendments; and providing for an effective date."                                                                               
                                                                                                                                
4:37:27 PM                                                                                                                    
                                                                                                                                
MIKE  NAVARRE,   Mayor,  Kenai  Peninsula  Borough,   stated  his                                                               
commitment  to work  with  the governor  and  the legislature  to                                                               
advance a successful natural gas  project that protected the long                                                               
term interest of  the state, the communities,  and the residents.                                                               
He expressed concern  for the potential impacts  to municipal and                                                               
state revenues,  both local and  state tax bases,  resulting from                                                               
the confidential negotiations only  broadly outlined in the Heads                                                               
of Agreement  (HOA) and  the proposed  enabling legislation.   He                                                               
pointed out  that municipal governments  relied on  state revenue                                                               
for education, roads, and revenue  sharing programs.  He declared                                                               
that,  although the  proposed bill  was  a significant  departure                                                               
from existing  tax policy  and structure,  the borough  wanted to                                                               
avoid  any  adversarial  position   with  the  administration  on                                                               
legislation  resulting   from  confidential  negotiations.     He                                                               
expressed  support for  the newly  created  advisory board,  even                                                               
though  the community  role, specifically  for negotiations,  was                                                               
unclear.   He referenced the  criteria in the HOA  which detailed                                                               
that  the  administration  and  the signers  for  the  HOA  would                                                               
support legislation resulting from  the negotiations, even though                                                               
the advisory board had made no  commitments for support.  He said                                                               
that the Kenai Peninsula Borough  had promoted limits for changes                                                               
to the existing tax structure on  oil.  He stated that the vision                                                               
was  complex  and  very  different  from  the  status  quo,  with                                                               
accompanying  pressure to  advance  a natural  gas  project.   He                                                               
acknowledged the  difficulty for understanding complex  issues in                                                               
a short  period of time.   He  expressed his desire  to highlight                                                               
the areas  of concern for his  borough, and to ensure  these were                                                               
addressed.                                                                                                                      
                                                                                                                                
4:40:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  stated that the  committee would value  the input                                                               
from the municipalities.                                                                                                        
                                                                                                                                
REPRESENTATIVE  SEATON asked  about the  principles and  policies                                                               
supported by the Kenai Peninsula Borough.                                                                                       
                                                                                                                                
MAYOR  NAVARRE replied  that  he  was waiting  to  meet with  the                                                               
advisory committee in order to  see what structure was envisioned                                                               
by  the  administration and  the  producers.   He  referenced  an                                                               
earlier  advisory  group for  the  Stranded  Gas Development  Act                                                               
(SGDA) which  had compiled recommendations.   He declared support                                                               
as long as there were no  negative impacts compared to the taxing                                                               
structure under  existing oil  and gas  legislation.   He allowed                                                               
that  part of  the structure  had to  recognize where  the assets                                                               
were sited,  with an  allocation plan  based in  part on  this to                                                               
recognize  the impacts  to specific  areas.   He noted  there was                                                               
also an overriding concern for state revenues.                                                                                  
                                                                                                                                
REPRESENTATIVE SEATON asked if there  was concern for the effects                                                               
of  a big  project, including  an  increase in  taxes, after  the                                                               
borough   had  already   absorbed  the   impacts  of   industrial                                                               
development.                                                                                                                    
                                                                                                                                
MAYOR NAVARRE acknowledged that this  was an even greater concern                                                               
for  areas  that  would  not  have  the  assets  sited  in  their                                                               
communities, and cited the need for  impact payments in lieu of a                                                               
short term tax structure.                                                                                                       
                                                                                                                                
REPRESENTATIVE  TARR directed  attention to  the creation  of the                                                               
interim  advisory  board in  the  proposed  bill, and  asked  for                                                               
suggestions  to  language  that   "would  make  the  mayors  more                                                               
comfortable."                                                                                                                   
                                                                                                                                
MAYOR  NAVARRE   replied  that  an  alignment   of  interest  and                                                               
consensus  for  the  relationship   between  the  state  and  the                                                               
municipalities  was  as important  as  an  alignment between  the                                                               
producers and  the state.   He expressed  concern for  a conflict                                                               
between  a business  relationship  and  a sovereign  relationship                                                               
that favored the state over  the local governments.  He suggested                                                               
a  possible need  for  a Memorandum  of  Understanding among  the                                                               
heads of  municipal governments  to further  define its  role and                                                               
ways to advance its recommendations.                                                                                            
                                                                                                                                
CO-CHAIR  SADDLER  asked  about the  comparative  importance  for                                                               
money  the municipalities  could  use  as they  see  fit, or  for                                                               
specific needs funded directly.                                                                                                 
                                                                                                                                
MAYOR  NAVARRE  replied  that,  as  all  the  municipalities  had                                                               
different  taxing  structures,  it   could  lead  to  unnecessary                                                               
details when  specific needs  were identified  and detailed.   He                                                               
suggested it  was of greater  importance to identify  the overall                                                               
general  impacts,   and  allow   the  communities  to   make  the                                                               
determinations.                                                                                                                 
                                                                                                                                
CO-CHAIR  SADDLER  asked for  a  listing  of the  largest  needs,                                                               
including   infrastructure,   social  services,   or   government                                                               
services.                                                                                                                       
                                                                                                                                
MAYOR NAVARRE replied that this  would differ between the ramp up                                                               
for  construction,   and  then   the  impact  during   and  after                                                               
construction.   He  declared there  would  be a  need for  roads,                                                               
harbors,  and  social  services,  including  fire  and  emergency                                                               
services.  He relayed that  the Kenai Peninsula Borough currently                                                               
had  some  capacity  in  the schools,  which  would  be  impacted                                                               
depending on the population increase.                                                                                           
                                                                                                                                
4:48:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked  to follow up on  an earlier question                                                               
by  Representative  Tarr, specific  to  the  proposed bill.    He                                                               
pointed out that  the proposed bill offered  the only opportunity                                                               
for the committee to put limits  on the amount of discretion.  He                                                               
opined that  waiting until after  further negotiations  would not                                                               
allow for any changes.   He suggested that any general provisions                                                               
for essential  structure be submitted immediately  while the bill                                                               
was still under consideration.                                                                                                  
                                                                                                                                
MAYOR NAVARRE  responded that  the municipalities  had difficulty                                                               
writing its own  amendments to the proposed  legislation, as they                                                               
did not have access to  Legislative Legal Services.  He suggested                                                               
that Payment  in Lieu of Taxes  (PILT) could address some  of the                                                               
municipal concerns,  although its  implementation could  still be                                                               
subject to  legislation.  He  opined that the  advisory committee                                                               
or an MOU could better define the structure of a PILT.                                                                          
                                                                                                                                
CO-CHAIR SADDLER  asked about the current  property tax structure                                                               
in the Kenai Peninsula Borough.                                                                                                 
                                                                                                                                
MAYOR NAVARRE  replied that  the tax value  for the  current year                                                               
was approximately $7.6  billion for the entire borough.   He said                                                               
that a  $20 million facility  sited on the Kenai  Peninsula would                                                               
have a significant  impact.  In response to  Co-Chair Saddler, he                                                               
said  that  the  general  government mill  rate  was  4.5  mills,                                                               
however there  were service areas  that had a separate  tax base.                                                               
He offered an example for Nikiski  which he opined to be about 12                                                               
mills, with a bit higher rate in Homer.                                                                                         
                                                                                                                                
4:52:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON asked about the borough sales tax.                                                                     
                                                                                                                                
MAYOR NAVARRE replied  that the sales tax was 3  percent with a 9                                                               
month holiday  for taxes on  non-prepared foods.  He  stated that                                                               
this revenue was dedicated to the schools.                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON  asked for clarification that  this was the                                                               
mill rate  for the borough, with  an additional sales tax  in the                                                               
cities, about 7.5 percent.                                                                                                      
                                                                                                                                
MAYOR NAVARRE  reported that Homer  had a 7.5 percent  sales tax,                                                               
while Soldotna and Kenai had a 6 percent sales tax.                                                                             
                                                                                                                                
REPRESENTATIVE OLSON pointed out that there was a $500 cap.                                                                     
                                                                                                                                
REPRESENTATIVE SEATON reported that this was per sale.                                                                          
                                                                                                                                
MAYOR  NAVARRE commented  that  this  discussion highlighted  the                                                               
differences between  local tax bases in  various communities, and                                                               
the difficulty for fitting them together.                                                                                       
                                                                                                                                
CO-CHAIR FEIGE reported  that there was no property  tax in Delta                                                               
Junction.                                                                                                                       
                                                                                                                                
REPRESENTATIVE TARR  asked for comments  on the development  of a                                                               
plan for municipalities, regional  corporations, and residents to                                                               
participate in the ownership, included in the proposed bill.                                                                    
                                                                                                                                
MAYOR NAVARRE  suggested that, as  the proposed bill  was already                                                               
complex  enough,  he  was  not   sure  of  the  security  for  an                                                               
investment.                                                                                                                     
                                                                                                                                
4:56:19 PM                                                                                                                    
                                                                                                                                
CHARLOTTE  BROWER, Mayor,  North Slope  Borough, said  that large                                                               
projects  similar to  this could  set a  positive course  for the                                                               
future, but that it was necessary  to be prepared for the impact.                                                               
She  offered  an  example of  the  Trans-Alaska  Pipeline  System                                                               
(TAPS), which brought billions of  dollars in revenue, as well as                                                               
a  demand for  public  and social  services, infrastructure,  and                                                               
education.   She  declared that  the  proposed bill  and the  HOA                                                               
needed  to  define "consultation."    She  pointed out  that  the                                                               
process for  enabling contracts would  be a ratification  vote by                                                               
the legislature.  If the  local municipal taxing authority was to                                                               
be  modified  to  provide fiscal  certainty,  then  the  boroughs                                                               
needed to  have a meaningful  part in  the initial process.   She                                                               
questioned whether  the enabling  contract would  be used  to re-                                                               
classify current taxable properties under  AS 43.56.  She allowed                                                               
that it  was unclear whether  this was a  concern, as it  was not                                                               
defined  in  the  proposed  bill.    She  declared  that  it  was                                                               
necessary  for municipal  governments to  defend the  current tax                                                               
status.   She  reminded  the committee  that  she had  previously                                                               
spoken  in  support  of  a fair  and  equitable  revenue  sharing                                                               
program  for the  proceeds from  oil and  gas development  on the                                                               
outer continental shelf.  She  declared the need for resources to                                                               
"keep  up  with  infrastructure  requirements,  expand  emergency                                                               
response  and  search  and  rescue   capabilities,  and  work  to                                                               
maintain  healthy communities  and  a healthy  eco-system."   The                                                               
basic discussion  for impacts  from oil  and gas  development was                                                               
similar for  on-shore and  off-shore.  She  pointed out  that the                                                               
local governments were responsible  for providing basic essential                                                               
services,  schools, emergency  response,  public safety,  health,                                                               
and social  services.  She  reported that, as  municipal boroughs                                                               
relied on  the authority to  levy property taxes to  generate the                                                               
necessary revenue  for these public  services, there  was concern                                                               
when there was  discussion for exemption from  property taxes for                                                               
a  project  of this  magnitude.    She  offered her  belief  that                                                               
municipal   taxes  were   not  an   issue  for   the  margin   of                                                               
profitability  to  these  large  projects.    She  expressed  her                                                               
support  for a  natural  gas pipeline  when  the local  municipal                                                               
governments  had  the authority  to  levy  taxes to  provide  the                                                               
necessary services.                                                                                                             
                                                                                                                                
5:03:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked for clarification that  Mayor Brower                                                               
wanted existing  oil and gas  facilities and  infrastructure left                                                               
in  its  current method  of  taxation  and  not included  in  the                                                               
proposed bill.                                                                                                                  
                                                                                                                                
MAYOR BROWER expressed her agreement.                                                                                           
                                                                                                                                
CO-CHAIR SADDLER  asked about the current  property tax structure                                                               
and valuations in the North Slope Borough.                                                                                      
                                                                                                                                
MAYOR BROWER  replied that  95 percent  of the  current valuation                                                               
for $19.7 billion  was state assessed.  There was  a current 18.5                                                               
mill  rate for  operations and  maintenance.   In  response to  a                                                               
further question from Co-Chair Saddler,  she added that each city                                                               
government was  allowed to  have taxation,  although there  was a                                                               
PILT of  about $5 million every  5 years for each  village in the                                                               
North  Slope Borough  on behalf  of  the city  governments.   She                                                               
reported that  the North  Slope Borough  was responsible  for all                                                               
the  services with  the exception  of recreation  and cemeteries.                                                               
She reported that  the PILT was for sales and  use taxes, as only                                                               
the borough had property tax, and not the cities.                                                                               
                                                                                                                                
5:07:32 PM                                                                                                                    
                                                                                                                                
DAVID COBB,  Mayor, City  of Valdez, reported  that the  HOA laid                                                               
the framework for  the future negotiation of fiscal  terms for an                                                               
LNG project, and included enactment  of the enabling legislation.                                                               
It stated that the State of  Alaska and the North Slope producers                                                               
would negotiate  a payment in  lieu of taxes (PILT),  which would                                                               
eliminate  property  taxes  during  the  operating  life  of  the                                                               
project.  The  agreement would also provide for  the producers to                                                               
pay pre-negotiated  impact fees  during construction  rather than                                                               
property  taxes as  required  by Alaska  law,  stating that  this                                                               
would reduce  valuation disputes between the  parties, and ensure                                                               
a healthy,  long term  oil business.   He expressed  concern that                                                               
the yet  to be negotiated  gas line  terms might expand  to alter                                                               
property  taxes paid  on existing  infrastructure.   He expressed                                                               
support for  the inclusion of  municipalities on  the commission,                                                               
and  shared  that,  although  he  had  been  told  there  was  no                                                               
intention  to   change  the  taxation  regime   on  the  existing                                                               
infrastructure,  these  non-binding  assurances  were  "something                                                               
less  than  comforting."    He  relayed  that  the  Stranded  Gas                                                               
Development Act  contract was  the only  time that  producers had                                                               
reached consensus for fiscal terms on  a gas line, and he pointed                                                               
out that it had required  PILT payments on new gas infrastructure                                                               
and  existing oil  infrastructure.   He noted  that the  HOA only                                                               
pursued another study,  and he opined that it  was unrealistic to                                                               
not believe  that history would  repeat itself and  the producers                                                               
would  ask  for changes  to  the  existing  tax structures.    He                                                               
reported  that it  was  appropriate  for the  City  of Valdez  to                                                               
receive more  than 90 percent  of its operating revenue  from the                                                               
existing  property  tax structure,  due  to  the demands  on  the                                                               
infrastructure  and  services.    He  declared  that  significant                                                               
reductions to  this revenue would  have a catastrophic  impact on                                                               
its  ability to  meet those  service needs  and to  meet existing                                                               
bond obligations.   He listed the goals of the  city:  protection                                                               
of  property  taxes  on  existing   oil  and  gas  property  with                                                               
legislation  declaring this  clear intent;  Alaska municipalities                                                               
must  be able  to analyze  all the  details of  the project  plan                                                               
before proper  measurement to the  impact of construction  on the                                                               
community, and  each municipality  needed to  discuss, negotiate,                                                               
and  agree  to  terms  that  directly  affect  these  impacts  on                                                               
municipal budgets;   and, although  property tax  concessions for                                                               
new  infrastructure  may  be appropriate  to  facilitate  project                                                               
development,  it  is  necessary  for the  local  municipality  to                                                               
assess  and  define  the  local   impacts  and  economics  for  a                                                               
determination to  the extent an  LNG project should  pay property                                                               
taxes less than other property owners,  so a PILT can be properly                                                               
analyzed.   He  declared  that it  was  necessary for  meaningful                                                               
participation   by  the   municipalities.      He  expressed   an                                                               
understanding  for   the  complexity   of  any  task   with  more                                                               
involvement,   but  it   was   important   to  have   meaningful,                                                               
participatory  government.     He  offered  his   belief  that  a                                                               
confidential, open ended process by  the producers similar to the                                                               
Stranded Gas  Development Act would  result in  extreme financial                                                               
consequences to the municipalities, and  that it was necessary to                                                               
address these concerns immediately.                                                                                             
                                                                                                                                
REPRESENTATIVE SEATON asked about  any amendments proposed by the                                                               
municipalities.                                                                                                                 
                                                                                                                                
MAYOR  COBB  offered his  understanding  that  Mayor Navarre  had                                                               
these amendments.                                                                                                               
                                                                                                                                
CO-CHAIR  SADDLER asked  for  clarification  that project  fiscal                                                               
terms needed to be analyzed  before the PILT could be determined.                                                               
He  asked if  the  local  impact needs  were  independent of  the                                                               
project fiscal  terms, or  should the PILT  be determined  by the                                                               
amount available from the project.                                                                                              
                                                                                                                                
MAYOR COBB  responded that they  were independent of  the project                                                               
and the communities'  needs would be for new  roads, new schools,                                                               
new water  and sewer, and  other things directly impacted  by the                                                               
project.                                                                                                                        
                                                                                                                                
CO-CHAIR SADDLER asked for  clarification that the municipalities                                                               
would  have to  understand the  project fiscals  or the  physical                                                               
impact on  the community, before  an appropriate PILT  rate could                                                               
be negotiated.                                                                                                                  
                                                                                                                                
MAYOR  COBB replied  that it  was  necessary to  know the  fiscal                                                               
impact on the communities.                                                                                                      
                                                                                                                                
REPRESENTATIVE  P.   WILSON  asked  Mayor  Cobb   if  the  cities                                                               
themselves would prefer to do the negotiations.                                                                                 
                                                                                                                                
MAYOR COBB clarified  that the cities had to have  a role, and be                                                               
a  participant  along  with  the  State  of  Alaska,  during  the                                                               
negotiations, instead of  the state negotiating on  behalf of the                                                               
municipalities.                                                                                                                 
                                                                                                                                
CO-CHAIR  FEIGE asked  for Mayor  Cobb's  reaction regarding  the                                                               
administrative order for an interim advisory board.                                                                             
                                                                                                                                
MAYOR COBB replied that this order  should be expanded, as it was                                                               
vague and did not clarify what would happen.                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked about the current  property tax structure                                                               
and valuations in the City of Valdez.                                                                                           
                                                                                                                                
MAYOR COBB, in  response, explained that the property  tax was 20                                                               
mils,  and it  was  almost all  from the  Oil  and Gas  industry,                                                               
except for a small residual.   He declared that the valuation was                                                               
about $3 billion in Valdez, and  that there was not any sales tax                                                               
or other source of income.                                                                                                      
                                                                                                                                
CO-CHAIR SADDLER asked if there was a residential property tax.                                                                 
                                                                                                                                
MAYOR COBB  confirmed that homeowners  did pay a property  tax of                                                               
20 mills.                                                                                                                       
                                                                                                                                
5:20:39 PM                                                                                                                    
                                                                                                                                
LUKE HOPKINS,  Mayor, Fairbanks North Star  Borough, relayed that                                                               
one concern was for the existing  taxes on oil and gas structure,                                                               
noting that he did not  have complete assurance from the comments                                                               
by the  governor that  the existing  oil and  taxes would  not be                                                               
modified.  He  stated that he did not receive  a clear definition                                                               
and understanding  for fiscal  certainty during  discussions with                                                               
the  producers.   He reflected  on participation  as part  of the                                                               
municipal advisory  group for the  Stranded Gas  Development Act,                                                               
and that  most of this resulted  in a statement of  concerns, and                                                               
not in legislation.  He  declared that fiscal certainty was based                                                               
on standards  of flow  and not on  the municipality  property tax                                                               
structure in  AS 43.56.  He  expressed his concern with  the PILT                                                               
structure, as it  had been described in  the administrative order                                                               
and  other information  presented by  the governor.   He  said he                                                               
dealt  with  PILT  agreements,  and that  the  structure  of  the                                                               
financing was always  discussed.  He offered his  concern that it                                                               
was necessary to  agree on a PILT, instead of  just advising, and                                                               
that  agreement for  the  amount of  the PILT  should  be put  in                                                               
proposed SB 138.  He  declared that "it was incredibly important"                                                               
for the parties  to agree on the  PILT.  He stated  that a verbal                                                               
assurance was not strong enough.   He referenced the earlier bond                                                               
commitments and  the ability  to re-pay  them as  revenue streams                                                               
decreased,  which could  transfer  a heavy  burden  onto the  tax                                                               
payers with  changes to the existing  oil and gas structure.   He                                                               
pointed  out that,  as  the municipal  advisory  group under  the                                                               
Stranded  Gas  Development Act  had  developed  the impacts  from                                                               
construction  of a  gas line,  it  was necessary  to discuss  the                                                               
projected  construction  and  impacts information  prior  to  any                                                               
determinations for aid.   He urged the committee to  amend SB 138                                                               
and insert language that addresses consent to a PILT.                                                                           
                                                                                                                                
5:29:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER asked  how Mayor  Hopkins would  like to  see a                                                               
PILT and impact aid structured.                                                                                                 
                                                                                                                                
MAYOR HOPKINS  asked if he was  referencing a dollar amount  or a                                                               
structure to arrive at a value.                                                                                                 
                                                                                                                                
CO-CHAIR SADDLER replied "both."                                                                                                
                                                                                                                                
MAYOR HOPKINS  explained that  the impact aid  should be  a value                                                               
determined by the  impact to schools and other  services from the                                                               
amount of construction.   He opined that it would  be possible to                                                               
get a  rough estimate  for this, and  also recognize  the ongoing                                                               
impacts.   He reported that going  to a PILT required  a property                                                               
tax value,  or some value assessed  by a neutral party,  and then                                                               
work on an agreement which was  less than this.  He expressed his                                                               
understanding for  the opportunities presented by  a gas pipeline                                                               
for the  state.  He suggested  that a structure for  a PILT would                                                               
begin with  a financial value  however, it would be  necessary to                                                               
share the internal information.  He  stated that this had to be a                                                               
negotiated and consented to value.                                                                                              
                                                                                                                                
CO-CHAIR SADDLER  asked if there was  any limit to the  life of a                                                               
PILT.                                                                                                                           
                                                                                                                                
MAYOR  HOPKINS explained  that the  PILT agreements  that he  had                                                               
negotiated had  a "reopener"  where it was  possible to  sit down                                                               
and  review  the numbers.    This  allowed  them to  address  any                                                               
changes  and  consider changes  to  property  taxes and  cost  of                                                               
living adjustments.                                                                                                             
                                                                                                                                
REPRESENTATIVE P. WILSON asked about the mill rate.                                                                             
                                                                                                                                
MAYOR  HOPKINS, in  response to  Representative  P. Wilson,  said                                                               
that  the  borough  had  an  11.2 mill  rate,  with  no  personal                                                               
property or sales tax.                                                                                                          
                                                                                                                                
REPRESENTATIVE  P. WILSON  asked  for clarification  to what  the                                                               
mill rate was applied.                                                                                                          
                                                                                                                                
MAYOR HOPKINS  replied that it was  on real property, but  not on                                                               
cars, boats, or airplanes.                                                                                                      
                                                                                                                                
5:35:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked for the  total assessed valuation  of the                                                               
Fairbanks North Star Borough.                                                                                                   
                                                                                                                                
MAYOR HOPKINS replied  that the net taxable value  was about $7.8                                                               
billion.                                                                                                                        
                                                                                                                                
CO-CHAIR SADDLER  asked about  the value of  the Alaska  gas line                                                               
project  to the  borough, exclusive  of property  taxes and  PILT                                                               
impact aid.                                                                                                                     
                                                                                                                                
MAYOR HOPKINS  replied that the  project was  incredibly valuable                                                               
for its  overarching economic benefits.   He noted that  it would                                                               
bring lower  cost energy  to the community,  as a  large diameter                                                               
gas line had  been shown to bring the lowest  cost of natural gas                                                               
to Alaskans.   For  Fairbanks, he opined  that it  would recharge                                                               
the  economic structure  and it  would offer  businesses a  lower                                                               
cost  to help  spur economic  growth.   He stated  that it  was a                                                               
complicated issue for the economic return to the state.                                                                         
                                                                                                                                
5:38:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked if  the mill  rate was  combined for                                                               
the city and the borough.                                                                                                       
                                                                                                                                
MAYOR  HOPKINS  replied that  the  11.2  mill  rate was  for  the                                                               
borough, which had  to fund local contributions  for the schools,                                                               
and  did  not include  either  the  mill  rate  for the  City  of                                                               
Fairbanks or  the City of  North Pole.  He  noted that 6.5  - 6.8                                                               
mills was  directed to the  schools, with the  remainder directed                                                               
to general government.                                                                                                          
                                                                                                                                
REPRESENTATIVE SEATON asked  about the mill rate for  the City of                                                               
Fairbanks.                                                                                                                      
                                                                                                                                
MAYOR  HOPKINS explained  that the  City of  Fairbanks had  a 4.9                                                               
mill cap,  in addition to  the borough  taxes, and that  the city                                                               
had had  several failed proposals for  a sales tax.   He reported                                                               
that the City of North Pole had  a 3 percent sales tax on certain                                                               
items, with caps, and a 2 or 3 mill rate on real property.                                                                      
                                                                                                                                
5:40:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  asked Mayor  Cobb  for  clarification                                                               
about the 20 mill rate on oil and gas.                                                                                          
                                                                                                                                
MAYOR COBB  explained that 90 percent  of the City of  Valdez tax                                                               
base revenue  was generated  through that  tax, although  a small                                                               
percentage was  paid by  non-oil and gas  property.   He declared                                                               
that everyone paid the 20 mill rate.                                                                                            
                                                                                                                                
5:42:04 PM                                                                                                                    
                                                                                                                                
MAYOR  NAVARRE  stated  that  an earlier  problem  had  been  for                                                               
defining the  placement of  the proposed  amendments in  order to                                                               
accomplish  the goals.    He reported  that  the amendments  were                                                               
currently being drafted by Legislative  Legal Services, and would                                                               
be  introduced  to the  committee  as  soon  as possible  by  the                                                               
legislator  sponsoring those  amendments.   He  pointed out  that                                                               
municipalities  preferred  to   advocate  for  themselves  during                                                               
negotiations,  as there  would be  natural  conflicts during  any                                                               
negotiations by  the state on  behalf of the municipalities.   He                                                               
noted  that these  conflicts could  affect bonding  abilities and                                                               
future state funding for the municipalities.                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  reflected on  an earlier statement  by the                                                               
administration which had compared the  upcoming project to a road                                                               
into the Red Dog Mine, which was  paying a mid-20s mill rate.  He                                                               
asked Mayor Navarre for his reflections on this PILT.                                                                           
                                                                                                                                
MAYOR NAVARRE opined that there  were benefits for this structure                                                               
over a  long period of  time, as it  was a stable  revenue source                                                               
with gradual inflation proofing,  along with other tax components                                                               
necessary for the tax base to meet the needs of the community.                                                                  
                                                                                                                                
REPRESENTATIVE SEATON asked whether  the PILT structure, although                                                               
not  necessarily  cheaper  than  the   20  mill  rate,  would  be                                                               
constructed in a less volatile manner.                                                                                          
                                                                                                                                
MAYOR NAVARRE agreed that this  "would be something that we would                                                               
embrace" as it could offer the  impact money up front, as well as                                                               
a stable  tax payment over the  life of the project.   He pointed                                                               
out  that not  all  the  communities favored  a  PILT, but  would                                                               
instead prefer  a valuation  to be  taxed at the  mill rate.   He                                                               
offered his belief that a PILT  structure could work, as it would                                                               
quadruple  the  overall tax  base,  without  a similar  level  of                                                               
impact to the community.                                                                                                        
                                                                                                                                
CO-CHAIR SADDLER  asked for a  description to the  optimal impact                                                               
aid system.                                                                                                                     
                                                                                                                                
MAYOR NAVARRE offered  that his preference would be  based on the                                                               
value of the asset over time, and  not see any erosion of the tax                                                               
base, which  would be more  beneficial for his community  and the                                                               
borough.                                                                                                                        
                                                                                                                                
CO-CHAIR  SADDLER asked  if he  would also  prefer the  re-opener                                                               
clauses.                                                                                                                        
                                                                                                                                
MAYOR  NAVARRE expressed  his  agreement,  opining that  everyone                                                               
would benefit from those clauses,  as both the government and the                                                               
businesses wanted fiscal certainty.                                                                                             
                                                                                                                                
5:48:54 PM                                                                                                                    
                                                                                                                                
W. TODD MILLER,  Baker & Miller, PLLC, directed  attention to his                                                               
letter addressing  the antitrust  issues for  the LNG  project in                                                               
the  proposed bill.  [Included  in members'  packets]   He  noted                                                               
that,  although  an  anti-trust analysis  could  often  be  quite                                                               
complicated, in  this case, it  was not because the  creation and                                                               
operation of joint ventures was  now common and this was designed                                                               
and intended  to be pro-competitive with  substantial benefits to                                                               
consumers.  He opined that there  was not much risk with creation                                                               
of  this joint  venture.    He suggested  that  any issues  would                                                               
center on the operation of  the venture, which was also addressed                                                               
in the enclosed letter.  He  directed attention to the HOA, which                                                               
discussed  the  pro-expansion principles.    He  noted that  this                                                               
venture, with  a pro-competitive approach,  contained substantial                                                               
protection for the consumer, as  it avoided the "hold-up" problem                                                               
created  by  a group  wanting  to  lessen capacity  and  restrict                                                               
output.  He directed attention  to prior litigation in Canada for                                                               
operational issues between commercial  entities, noting on page 6                                                               
the Alaska  Gasline Port  Authority v.  ExxonMobil Corp  case, in                                                             
which  there  was concern  that  the  producers were  failing  to                                                               
supply gas.  He opined that  the assumption was for the state and                                                               
producer interests to  be aligned for the  creation and operation                                                               
of  this venture.   He  directed  attention to  the state  action                                                               
doctrine which  provided additional protection for  any action by                                                               
the   state  should   there  be   concerns  from   an  anti-trust                                                               
perspective,  as  the  legislature   was  taking  action  in  the                                                               
interest  of the  citizens  of  Alaska.   This  was a  judicially                                                               
created doctrine  which allowed the  state to create  immunity as                                                               
it  was allowed  to  legislate and  displace  anti-trust laws  in                                                               
instances  similar  to this.    He  noted  that the  state  could                                                               
clarify that it intends for  the operation to supersede any anti-                                                               
trust  remedies, as  it would  add additional  protection to  the                                                               
state.                                                                                                                          
                                                                                                                                
CO-CHAIR SADDLER asked  for any cases regarding  the state action                                                               
doctrine, whereby  a state wished they  had this and did  not, so                                                               
he could get a sense for its importance.                                                                                        
                                                                                                                                
MR.  MILLER  replied  that there  were  instances  where  private                                                               
actions  had been  brought against  municipalities, but  he could                                                               
not point to any specifics.                                                                                                     
                                                                                                                                
5:56:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER, referring  to the bottom of page  5 of the                                                               
aforementioned letter,  read:   "The State  of Alaska  could make                                                               
clear that whatever  its other goals and the  anti-trust risks of                                                               
Alaska LNG venture  may be, that it intends  that its legislation                                                               
and the  subsequent operation of  AGDC and AGDCS to  displace the                                                               
role of competition in the  development and marketing of Alaska's                                                               
North Slope  natural gas."  He  asked if this had  identified the                                                               
nature of the proposed project.   He pointed to the generic anti-                                                               
trust rules  concerning operations and  the formation of  a joint                                                               
venture, and expressed  his agreement that this  had already been                                                               
widely examined by the courts.   He directed attention to the top                                                               
of  page 4,  and the  specifics  of the  proposed joint  venture,                                                               
"Reviewing  the terms  of the  proposed joint  venture among  the                                                               
state and  producers."   He asked about  the supposition  for the                                                               
joint venture "as  we understand it, will be the  producer of the                                                               
LNG  gas for  export and  the seller  of the  natural gas  to the                                                               
utilities serving  customers in Alaska."   He asked  whether this                                                               
referenced  the joint  venture between  the State  of Alaska  and                                                               
TransCanada, or  in the  context of  the overall  venture between                                                               
the  producers, the  State of  Alaska, TransCanada,  and all  the                                                               
involved parties.                                                                                                               
                                                                                                                                
MR. MILLER  explained that  the proposed bill  did not  include a                                                               
lot of  discussion about  operations for any  venture.   He noted                                                               
that  those  ideas relied  on  the  MOU  and  HOA.   He  directed                                                               
attention  to  the  aforementioned  letter, and  in  response  to                                                               
Representative  Hawker,  he stated  that  "from  a joint  venture                                                               
stand  point,  I think  it's  fairest  to  say it's  the  broader                                                               
venture, that we're  not sort of parsing it, and  there's no real                                                               
need to parse it down to  the level of small venture versus large                                                               
venture."   He declared  that this was  a broader,  joint venture                                                               
concept, and  the individual  specific responsibilities  were not                                                               
quite as important.                                                                                                             
                                                                                                                                
REPRESENTATIVE   HAWKER   expressed   his  agreement   with   the                                                               
interpretation.  He  directed attention to the  reference for the                                                               
joint venture as  "it" which amalgamated the parties:   the three                                                               
producers, and  the smaller  joint venture  between the  State of                                                               
Alaska and  TransCanada.  He  offered his belief for  the concept                                                               
of the larger venture, "the pipe  within a pipe," which was not a                                                               
single  venture, but  instead  allowed each  of  the partners  to                                                               
establish its own prices, terms  for operation, and shipping.  He                                                               
asked if this altered the perception of this venture.                                                                           
                                                                                                                                
MR. MILLER replied that the  information was helpful; however, it                                                               
would not change the basic  conclusion that the venture agreement                                                               
did not create  substantial anti-trust risk.  To  the extent that                                                               
each party  retained a certain  freedom for pricing, it  would be                                                               
necessary  to  recognize  the  joint  venture  with  elements  of                                                               
competition.   He warned that the  individual competition element                                                               
could not be artificially restrained.                                                                                           
                                                                                                                                
6:04:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER directed  attention to  the next  sentence                                                               
regarding  prices  of  delivery  for  the  gas,  which  would  be                                                               
submitted to FERC  for review and approval.  He  pointed out that                                                               
the pipe within a pipe concept  allowed that each of the producer                                                               
parties would not  be subject to price regulations,  as they were                                                               
an  NGA  Section  3  activity   which  removed  them  from  these                                                               
regulations.   He  offered  his  belief that  there  was not  any                                                               
intent  from   the  State  of   Alaska  to  limit   or  constrict                                                               
competition among anyone in this process.                                                                                       
                                                                                                                                
MR.  MILLER expressed  his agreement  and noted  that it  did not                                                               
change the basic  conclusion.  He noted that it  was important to                                                               
continue  to  compete in  "your  pipe  within  the pipe  kind  of                                                               
world."                                                                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER   moved  on  to  the   conclusion  of  the                                                               
aforementioned letter,  which talked "about things  we could do."                                                               
He  acknowledged the  state action  doctrine, which  specifically                                                               
allowed a  state to  withdraw a  sector of  the economy  from the                                                               
competitive forces of  the market place.  He  offered his opinion                                                               
as a  legislator that they  were not  attempting to do  this, but                                                               
were  crafting the  venture in  such a  manner to  facilitate the                                                               
continuation of  the competition,  with the  same outcome  for no                                                               
anti-trust consideration as they were  not operating as one or in                                                               
collusion.  He  declared that this legislation did  not intend to                                                               
displace  the   role  of  competition  in   the  development  and                                                               
marketing  of the  North Slope  gas.   He  directed attention  to                                                               
footnote  4, page  5,  which  clarified that  there  was not  the                                                               
intent to displace  competition.  He noted that the  role of AGDC                                                               
was to promote  and assist the State of Alaska  in maximizing the                                                               
benefit  to Alaskans;  whereas, the  producers had  the different                                                               
mission to  maximize profit  to its  shareholders.   He expressed                                                               
his agreement  that, as there was  not a lot of  anti-trust risk,                                                               
it would  not be necessary for  the follow up suggestions  by Mr.                                                               
Miller.                                                                                                                         
                                                                                                                                
MR.  MILLER commented  that the  idea was  embodied in  the first                                                               
sentence, which stated that there  was not significant anti-trust                                                               
risk generated  by the joint  venture creation or operation.   He                                                               
noted that they  had only offered some  practical guidance should                                                               
the legislature feel  that need, but he acknowledged  that it may                                                               
not be necessary with the explanations by Representative Hawker.                                                                
                                                                                                                                
6:11:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR relayed that  a consultant had suggested that                                                               
one way  to strengthen the  state's position was to  require that                                                               
the  agreement  to market  gas  include  that  the state  gas  be                                                               
marketed at the  same price as the producer's gas.   She asked if                                                               
the State  of Alaska could  include this language  without facing                                                               
an anti-trust situation.                                                                                                        
                                                                                                                                
MR. MILLER  replied that  it was  not clear  that having  such an                                                               
agreement would be an anti-trust  violation, although it would be                                                               
good to have more information  for the language of the provision.                                                               
He offered his  belief that there was not an  issue for the state                                                               
to  have a  "most  favored nation"  provision  for marketing  the                                                               
state's gas,  as there was  not any  discussion for the  price of                                                               
the  gas.    He  suggested  that this  would  be  a  distribution                                                               
contract.                                                                                                                       
                                                                                                                                
6:14:16 PM                                                                                                                    
                                                                                                                                
CHUCK  SCHUETZE,  Manley  & Brautigam,  referred  to  his  letter                                                               
[included  in  members' packets]  which  focused  on SB  138  and                                                               
listed   three  qualifying   grounds  for   federal  income   tax                                                               
exemption.   He  offered his  belief that  the least  restrictive                                                               
qualification  was  as  a   political  subdivision  with  implied                                                               
statutory immunity  for tax purposes.   He relayed that  the test                                                               
looked primarily  for substantial sovereign powers  that, in this                                                               
case, AGDC  would have.  He  offered an anecdote for  a tax court                                                               
case  in  1944 which  was  often  cited by  the  IRS  to set  the                                                               
standard  for  necessary  qualification.   He  listed  the  three                                                               
necessary  sovereign  powers: the  power  to  tax, the  power  of                                                               
eminent  domain, and  the power  to police,  which he  defined as                                                               
broader than  perceived, as  it included  regulatory powers.   He                                                               
cited a similarity to provisions in  AS 31.25 and in the proposed                                                               
bill,  which offered  AGDC the  power of  eminent domain  and the                                                               
power to  adopt regulations for  carrying out the purposes  of AS                                                               
31.25.    He  noted  that these  would  include  regulations  for                                                               
governing  the  operation  of  the   project.    Referencing  the                                                               
aforementioned tax  court case, he  pointed out that it  was only                                                               
necessary  to  have  two  of  the three  sovereign  powers.    He                                                               
directed attention  to another revenue  ruling, AS  73.563, which                                                               
required state agencies to assist  in an enterprise by exercising                                                               
sovereign powers  on behalf of  that enterprise.  He  pointed out                                                               
that  the proposed  bill  contained a  clause  which allowed  the                                                               
Department  of  Revenue  (DOR)  and  the  Department  of  Natural                                                               
Resources  (DNR) to  adopt  regulations, on  behalf  of AGDC,  to                                                               
implement  the  proposed  bill.    He noted  that  DNR  was  also                                                               
authorized  to adopt  reasonable regulations  necessary to  carry                                                               
out the chapter, and  to grant AGDC a right of  way lease for the                                                               
gas pipeline corridor at no appraisal  or rental cost.  He opined                                                               
that these buttressed the power of eminent domain.                                                                              
                                                                                                                                
6:20:51 PM                                                                                                                    
                                                                                                                                
MR. SCHUETZE  moved on  to discuss  the issues  of qualifications                                                               
for  the power.   He  directed attention  to AS  31.25.240, which                                                               
implied  that  AGDC  was  not  a  political  subdivision  as  its                                                               
obligations  were  not   debts  of  the  state   or  a  political                                                               
subdivision.  Reflecting on AS  31.25.010, he noted that AGDC was                                                               
an  instrumentality  for  tax purposes  other  than  a  political                                                               
subdivision,  which  he  had   discussed  in  the  aforementioned                                                               
letter.  He  strongly recommended a ruling  request before moving                                                               
forward for an assurance from the  IRS that the project would not                                                               
be  subject  to  federal  taxation.    He  recommended  statutory                                                               
changes  and suggested  organizing AGDC  as a  public corporation                                                               
under AS 31.25.010.  He stated  that the next most useful grounds                                                               
for tax  exemption qualification were  to be an integral  part of                                                               
the state,  with a  key test  for whether  the state  had control                                                               
over AGDC.   He reported that the state had  control of its board                                                               
of directors,  as those  members were  appointed by  the governor                                                               
and subject to  confirmation by the legislature.   He pointed out                                                               
that  the state  also made  substantial financial  commitments to                                                               
AGDC.  He added that managing  the finances, the revenue, and the                                                               
rulings  was  also  an  important  determination.    He  directed                                                               
attention to  the term sheet for  the MOU, which listed  that the                                                               
obligations were supported  by "the full faith and  credit of the                                                               
state."                                                                                                                         
                                                                                                                                
6:24:23 PM                                                                                                                    
                                                                                                                                
MR.  SCHUETZE expressed  concern that  there was  some discretion                                                               
for  the IRS  to  either ignore  corporate  separation under  the                                                               
structure of AS 31.25.010, which  stated that AGDC was a separate                                                               
corporate entity,  or require qualification under  Section 115 of                                                               
the  Internal Revenue  Code.   He  said that  the statutory  test                                                               
Section 115 to  qualify for exemption was  straightforward and it                                                               
was necessary  to show that the  income of AGDC was  derived from                                                               
the  exercise  of  an essential  government  function,  and  that                                                               
income was accrued  to the state, or  its political subdivisions.                                                               
He summed  up the first two  categories:  AGDC appeared  to be an                                                               
essential governmental function  as it made money  for the state,                                                               
according to  the sense of  the private letter  rulings, although                                                               
it had  been suggested that  it was  almost impossible to  find a                                                               
reasoned  description   for  essential   governmental  functions;                                                               
accrual to the  state seemed to be satisfied,  although there was                                                               
some  lack  of clarity  in  the  language  of the  statute  which                                                               
described  how  money  would  be  distributed  from  AGDC  to  an                                                               
appropriate fund.  He suggested  that further defining this to be                                                               
a state  fund would be  helpful.   He relayed that  an additional                                                               
standard declared  that there could  not be any  private benefit,                                                               
noting that  the AGDC funds  went to the  state.  He  opined that                                                               
the  state  investment in  the  pipeline  made the  project  more                                                               
feasible  for private  parties,  which could  be considered  more                                                               
than an incidental  benefit.  He reported that  the rulings which                                                               
denied exemption had found the  benefits to be directed primarily                                                               
to private parties.                                                                                                             
                                                                                                                                
6:28:59 PM                                                                                                                    
                                                                                                                                
MR. SCHUETZE discussed  the difference between the  house and the                                                               
senate versions of  the bills.  He noted that  the proposed house                                                               
bill  contemplated that  the  interest in  the  project would  be                                                               
owned  through  a subsidiary  of  AGDC,  which could  direct  the                                                               
interest in  the pipeline to  be examined under Section  115, and                                                               
he opined that  it would be a cleaner ruling  request for AGDC to                                                               
own  the interest  in the  pipeline  directly as  it had  eminent                                                               
domain power  and substantial police  powers.  This would  give a                                                               
stronger argument for implied statutory immunity.                                                                               
                                                                                                                                
6:30:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether,  if the state  conducted an                                                               
expansion  and the  volume times  the  cost went  down, then  the                                                               
private benefit  would accrue  to all the  parties.   However, if                                                               
the price  was higher, and  no expense accrues to  the producers,                                                               
would this become a private benefit upon expansion.                                                                             
                                                                                                                                
MR. SCHUETZE  replied that  he could not  give a  definite answer                                                               
because of  the relative lack of  authority to the question.   He                                                               
stated that a private letter  ruling was seldom negative, as they                                                               
were usually withdrawn  if the tax payer was told  a ruling would                                                               
not be issued.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  SEATON opined  that this  was the  only issue  in                                                               
which there was  a direction of potential private  benefit in the                                                               
project.                                                                                                                        
                                                                                                                                
6:33:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked for  clarification to  one statement                                                               
which  he suggested  was inaccurate.   He  directed attention  to                                                               
Section 61  of the proposed  bill, which described  the authority                                                               
of  the  transition   regulations  for  DOR  and   DNR  to  adopt                                                               
regulations implementing  the proposed  act.   He noted  that Mr.                                                               
Schuetze  referenced that  this was  a collaborative  effort with                                                               
AGDC,  while, in  fact, AGDC  had  completely separate  statutory                                                               
regulatory  authority.   He  said this  drafting  language was  a                                                               
convention  used   at  the  state  which   gave  departments  the                                                               
authority  to draft  regulations today  that involve  legislation                                                               
that will  take effect in  the future.   He declared that  it had                                                               
nothing  to do  with a  directed collaborative  relationship with                                                               
AGDC.  He  stated that, although there was  a current requirement                                                               
in  statute, along  with  an  intent for  the  state agencies  to                                                               
collaborate with  the AGDC needs  and activities, this  issue for                                                               
the regulations was not relevant to this.                                                                                       
                                                                                                                                
MR.  SCHUETZE  offered  his  belief   that  Section  61  was  not                                                               
significant for a ruling.                                                                                                       
                                                                                                                                
REPRESENTATIVE  HAWKER  directed  attention  to  page  6  of  the                                                               
aforementioned  letter  from  Mr.  Schuetze,  and  addressed  the                                                               
suggestion  that AGDC  was  not a  political  subdivision of  the                                                               
state.  He  said that the record of testimony  in the creation of                                                               
AGDC would show  that it was contemplated that AGDC  would not be                                                               
issuing general obligation  debt, as its only  debt authority was                                                               
to issue revenue debt.  He  pointed out that revenue debt was not                                                               
a debt  of the  state, but  instead a  debt of  the project.   He                                                               
asked if this  necessitated a change of wording  for the proposed                                                               
bill.                                                                                                                           
                                                                                                                                
6:38:13 PM                                                                                                                    
                                                                                                                                
MR.  SCHUETZE  explained that  he  tried  to  make the  facts  as                                                               
compelling  as possible  to  the  extent of  his  control of  the                                                               
situation.  He stated that it  would be best if the proposed bill                                                               
stated that AGDC was regarded  as a political subdivision for tax                                                               
purposes,  as any  statement that  suggested  that it  was not  a                                                               
political subdivision did raise an issue.                                                                                       
                                                                                                                                
REPRESENTATIVE   HAWKER   referenced   earlier   testimony   from                                                               
Department of  Law regarding terms used  in drafting legislation,                                                               
and he pointed  to language in the letter from  Mr. Schuetze that                                                               
used language almost inherently prefaced  "for tax purposes."  He                                                               
stated  that,  although  the state  drafting  language  could  be                                                               
interpreted differently  than the  language used by  the Internal                                                               
Revenue Service, it  could have the same final results  for a tax                                                               
exempt entity.                                                                                                                  
                                                                                                                                
MR. SCHUETZE offered his belief that this was correct.                                                                          
                                                                                                                                
REPRESENTATIVE HAWKER  asked for clarification that  Mr. Schuetze                                                               
suggested securing a  private letter ruling as  soon as possible.                                                               
He  asked if  it would  be  better to  know the  exact facts  and                                                               
circumstances for  that ruling, specifically whether  or not AGDC                                                               
would participate in this large  venture project or would operate                                                               
as  a back-up  project,  rather than  pursuing  a private  letter                                                               
ruling which may not apply to the final role of AGDC.                                                                           
                                                                                                                                
MR. SCHUETZE expressed  his agreement to file  the private letter                                                               
ruling request after there were definitive documents.                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER  stated that there was  an appropriate time                                                               
and  place, which  may not  be immediate  upon reflection  of the                                                               
whole project.                                                                                                                  
                                                                                                                                
MR. SCHUETZE  said that the  letter had primarily focused  on the                                                               
ruling  request being  made  much  later into  the  project.   He                                                               
pointed out that the IRS could  change its ruling position at any                                                               
time.   He noted  that the  IRS would  issue guidelines  in their                                                               
first revenue  procedure of the  year for what they  would accept                                                               
and rule on.                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  expressed his  agreement that  the request                                                               
for a  private letter ruling  did not necessarily mean  one would                                                               
be forthcoming.                                                                                                                 
                                                                                                                                
6:44:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR asked if it  mattered whether AGDC had a role                                                               
in two different projects, when a  request was made for a private                                                               
letter ruling for one project.                                                                                                  
                                                                                                                                
MR.  SCHUETZE replied  that  he had  focused  on this  particular                                                               
project for the large natural gas  pipeline, and he did not focus                                                               
on any separate project.  He pointed  out that it was never a bad                                                               
idea to get multiple rulings on specific items.                                                                                 
                                                                                                                                
6:45:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  asked about  the removal of  the requirement                                                               
that any subsidiary  corporation for AGDC had to  be a non-profit                                                               
corporation, which  the administration had explained  would allow                                                               
the  best  possible  corporate  structure for  its  role  in  the                                                               
project.  She asked if it would  be a "cleaner way to go" just to                                                               
use  AGDC.   She  asked  if  this  more permissive  language  for                                                               
subsidiary  structure   in  the  proposed  bill   would  be  more                                                               
threatening in any consideration of AGDC for tax purposes.                                                                      
                                                                                                                                
MR. SCHUETZE  explained that both  published rulings  and private                                                               
letter rulings  had "check  the box"  regulations which  both tax                                                               
payers  and  business  transactions  relied  on  for  structuring                                                               
Limited   Liability   Corporations   (LLC)   with   certain   tax                                                               
characteristics such  as partnerships and wholly  owned entities.                                                               
He offered his  belief that a wholly owned  AGDC subsidiary would                                                               
most  likely be  treated  as part  of AGDC,  per  AS 77.01,  even                                                               
though  recent  private letter  rulings  had  not addressed  this                                                               
section   of  the   code,  but   had  instead   focused  on   the                                                               
aforementioned three tests.   He opined that  the extra authority                                                               
was not a detraction.                                                                                                           
                                                                                                                                
REPRESENTATIVE  TARR asked  if  benefits  to individual  Alaskans                                                               
would be a violation to the private benefit restriction.                                                                        
                                                                                                                                
MR. SCHUETZE asked for clarification.                                                                                           
                                                                                                                                
REPRESENTATIVE  TARR asked  if there  was  a corporate  structure                                                               
that would  allow a  private benefit and  not disqualify  it from                                                               
the standard of a public corporation.                                                                                           
                                                                                                                                
MR.  SCHUETZE explained  that "conceivably  you could  set up  an                                                               
entity  where AGDC  is in-part  owned  by the  state and  in-part                                                               
owned  by private  parties.    That would  clearly  be a  private                                                               
benefit."   Some of the revenue  generated would go to  the state                                                               
and  some to  the  private  parties, although  that  was not  the                                                               
intent of  the proposed bill or  the current statute.   He stated                                                               
that the  language of the  proposed bill was designed  to benefit                                                               
all  Alaskans, in  various ways,  with  no impermissible  private                                                               
benefit for  Internal Revenue Code  Section 115  ruling purposes.                                                               
He  said the  key  to  qualification under  this  section was  to                                                               
document  and show  that there  was  not a  more than  incidental                                                               
private  benefit,  and  was primarily  designed  to  benefit  the                                                               
state.                                                                                                                          
                                                                                                                                
6:51:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  referred  to  Section  6  of  the  Alaska                                                               
Statehood Act, which directed the  state to develop its resources                                                               
to  the  benefit   of  the  expansion  and   development  of  its                                                               
communities.    He  asked  if   this  would  have  an  overriding                                                               
influence on any questions regarding taxation.                                                                                  
                                                                                                                                
MR. SCHUETZE  replied that this  section of the  Alaska Statehood                                                               
Act "would  very much help  in seeking  a ruling request  to help                                                               
document that this was intended to be for a public purpose."                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER stated that there  was a very clear purpose                                                               
outlined in this section of the Alaska Statehood Act.                                                                           
                                                                                                                                
6:53:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  referenced  private  investment  and  the                                                               
ability to  develop a fund to  finance an investment.   He opined                                                               
that there  would not be  any problem with a  municipality making                                                               
this  investment,  but  he  asked  if  investment  by  individual                                                               
Alaskans would also be allowed.                                                                                                 
                                                                                                                                
MR. SCHUETZE offered his  understanding that individual Alaskans,                                                               
as well as municipalities, could  invest in the project, although                                                               
they would not be investing in  AGDC itself.  He suggested that a                                                               
subsidiary could create possible issues.                                                                                        
                                                                                                                                
REPRESENTATIVE SEATON asked if this  investment could simply be a                                                               
funding source.                                                                                                                 
                                                                                                                                
MR.  SCHUETZE replied  that the  IRS had  determined that  income                                                               
from a company which owned the  interest in the project could not                                                               
go  to  private  parties.   He  suggested  clarification  in  the                                                               
proposed  bill.   He  did  not see  ownership  by  others in  the                                                               
overall project  as problematic, as  long as the  individuals had                                                               
their own direct interest in the project.                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON opined  that a return on  investment in the                                                               
project did not create any problems.                                                                                            
                                                                                                                                
MR. SCHUETZE replied  that an investment by  AGDC, the producers,                                                               
and  the pool  of  individual investors  into  the project  would                                                               
enhance the case by the  state for no incidental private benefit,                                                               
as the investment came from outside AGDC.                                                                                       
                                                                                                                                
6:57:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  referred  to  page  54,  line  26,  of  the                                                               
proposed bill, and replied that  the language read participate in                                                               
the ownership of a North  Slope natural gas pipeline, rather than                                                               
an investor of  a joint venture.  She asked  if that language was                                                               
problematic, and whether  the purchase of stock  for an ownership                                                               
interest in a North Slope natural  gas pipeline was still part of                                                               
the overall benefit to all Alaskans.                                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER  explained that the referenced  section was                                                               
a  direction to  the state  to develop  a report  that considered                                                               
those  options, and  was not  based on  the premise  that such  a                                                               
condition was viable or practical.                                                                                              
                                                                                                                                
[CSSB 138(FIN) am was held over.]                                                                                               

Document Name Date/Time Subjects
HRES AKLNG Antitrust Analysis 4.1.14.pdf HRES 4/1/2014 4:30:00 PM
SB 138
HRES AKLNG Corporate Tax Implications 4.1.14.pdf HRES 4/1/2014 4:30:00 PM
SB 138
HRES Persily comments on Roger Marks Questions 3.31.14.pdf HRES 4/1/2014 4:30:00 PM
SB 138
HRES NSB SB138 testimony 4.1.14 - HRES.pdf HRES 4/1/2014 4:30:00 PM
SB 138
HRES Mayor Dave Cobb - Valdez SB 138 4.1.14.pdf HRES 4/1/2014 4:30:00 PM
SB 138