Legislature(2017 - 2018)BARNES 124

04/06/2018 01:00 PM RESOURCES

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Audio Topic
01:03:00 PM Start
01:03:28 PM HB331
01:41:38 PM Presentation: Alaska Industrial Development and Export Authority
03:14:59 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 4/7/18 at 2:00 pm --
+= HB 331 TAX CREDIT CERT. BOND CORP; ROYALTIES TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Presentation: AIDEA & Ambler Road TELECONFERENCED
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 331-TAX CREDIT CERT. BOND CORP; ROYALTIES                                                                     
                                                                                                                                
1:03:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON announced  that the  first order  of business                                                               
would be HOUSE BILL NO. 331,  "An Act establishing the Alaska Tax                                                               
Credit  Certificate Bond  Corporation; relating  to purchases  of                                                               
tax credit certificates; relating  to overriding royalty interest                                                               
agreements; and providing for an effective date."                                                                               
                                                                                                                                
1:04:25 PM                                                                                                                    
                                                                                                                                
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
continued  his presentation  from  the  previous House  Resources                                                               
Standing Committee  hearing of HB  331 on 3/30/18,  and explained                                                               
the language of HB 331 incorporates the following:                                                                              
                                                                                                                                
   •  a structure    creating   the   bond    corporation   and                                                                 
      authorization to sell bonds                                                                                               
   •  a structure containing conforming changes to existing                                                                     
      language to ensure the existing process to purchase tax                                                                   
      credits is not overwritten, but is supplemented through the                                                               
      bonding method                                                                                                            
   •  a structure containing a series of new sections describing                                                                
      the mechanisms by which DOR values the tax credits and                                                                    
      other factors                                                                                                             
   •  a Department of Natural Resources (DNR) statute related to                                                                
      how DNR would negotiate and authorize overriding royalty                                                                  
      interests offered by companies                                                                                            
                                                                                                                                
MR. ALPER directed  attention to a sectional analysis  of HB 331,                                                               
provided   in  the   committee  packet,   which  read   [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Section 1:                                                                                                                 
     Exempts the bond corporation created in Sec. 2, and                                                                        
     any overriding royalty interests negotiated under Sec.                                                                     
     11, from the procurement code.                                                                                             
                                                                                                                                
     Section 2:                                                                                                                 
     Establishes the Alaska Tax Credit Certificate Bond                                                                         
     Corporation within DOR. [Largely patterned after                                                                           
     Alaska Pension Obligation Bond Corporation, AS 37.16]                                                                      
                                                                                                                                
          37.18.010 Creates the corporation.                                                                                    
          37.18.020 Establishes the  board of directors, all                                                                    
     of whom are state department commissioners.                                                                                
          37.18.030  Authorizes  the  corporation  to  issue                                                                    
     bonds  up to  $1  billion and  contract for  associated                                                                    
     services.                                                                                                                  
          37.18.040  Authorizes the  corporation  to have  a                                                                    
     reserve  fund which  will  hold funds  to  be used  for                                                                    
     repurchase,  as  well  as funds  appropriated  for  the                                                                    
     purpose  of interest  and  principal  payments to  bond                                                                    
     holders.                                                                                                                   
          37.18.050  Authorizes the  corporation to  set the                                                                    
     terms of bonds to be issued.                                                                                               
          37.18.060 Corporation  must adopt a  resolution to                                                                    
     approve the issuance of bonds.                                                                                             
          37.18.070  Gives  certain  enforcement  rights  to                                                                    
     certain bond holders.                                                                                                      
          37.18.080  Bonds  may  not be  issued  unless  the                                                                    
     discount rate by which tax  credits are purchased is at                                                                    
     least 1.5% greater than the  total interest cost of the                                                                    
     bonds.                                                                                                                     
          37.18.090  Corporation may  refund bonds  prior to                                                                    
     the maturity date.                                                                                                         
          37.18.100 Bonds are legal instruments.                                                                                
          37.18.800   This   chapter  shall   be   liberally                                                                    
     construed to carry out its purposes.                                                                                       
          37.18.810   Corporation   may  adopt   regulations                                                                    
     necessary to implement this chapter.                                                                                       
          37.18.900 Definitions.                                                                                                
                                                                                                                                
     Section 3:    Amends  the Gas Storage Credit  to enable                                                                    
     repurchase of any credits via the bond program.                                                                            
                                                                                                                                
     Section 4:    Amends  the LNG Storage Credit  to enable                                                                    
     repurchase of any credits via the bond program.                                                                            
                                                                                                                                
     Section 5:   Amends  the Refinery Infrastructure Credit                                                                    
     to  enable  repurchase  of any  credits  via  the  bond                                                                    
     program.                                                                                                                   
                                                                                                                                
     Section 6:  Amends  various provisions of AS 43.55.028,                                                                    
     the tax credit repurchase  fund. .028(e) The department                                                                    
     may  either use  the tax  credit fund  money, or  money                                                                    
     disbursed  from  the  bond  program,  to  purchase  tax                                                                    
     credits.  Written to  maximize  flexibility and  retain                                                                    
     the existing program and procedures.                                                                                       
                                                                                                                                
     Section  7:  .028(g)  Clarifies that  the  current  $70                                                                    
     million per  company per year cap,  with the associated                                                                    
     "haircut", does  not apply to repurchases  via the bond                                                                    
     program.                                                                                                                   
                                                                                                                                
     Section   8:  .028(i)   Adds  definitions   for  "money                                                                    
     disbursed  to the  commissioner,"  and "total  interest                                                                    
     cost."                                                                                                                     
                                                                                                                                
     Section 9: .028(j)  Clarifies that if a  company has an                                                                    
     outstanding liability to the  state, this can be offset                                                                    
     against a payment  via the bond program as  well as via                                                                    
     traditional repurchase.                                                                                                    
                                                                                                                                
     Section 10:                                                                                                                
                                                                                                                                
     .028(k)  New  section  authorizing  the  department  to                                                                    
     negotiate  a  repurchase  of  all  credits  held  by  a                                                                    
     company,  and  describing  how the  holder  of  credits                                                                    
     indicates their  desire to participate in  the program.                                                                    
     This section  contemplates that if a  holder of credits                                                                    
     existing at  the time  of a  bond issuance  declines to                                                                    
     participate in  the program,  such holder  is precluded                                                                    
     from submitting  such existing credits for  purchase in                                                                    
     connection with future bond  issuances.  This provision                                                                    
     does not  preclude such holder from  submitting credits                                                                    
     claimed  after   a  bond   issuance  for   purchase  in                                                                    
     connection with a future bond issuance.                                                                                    
                                                                                                                                
     .028(l) New  section describes  the mechanism  by which                                                                    
     the department  estimates the expected  cash flow  to a                                                                    
     company   via  the   current  repurchase   process  and                                                                    
     expected  schedule.  From  this  estimate,  a  purchase                                                                    
     offer  can be  calculated  based on  the discount  rate                                                                    
     determined in (m).                                                                                                         
                                                                                                                                
     .028(m) New  section establishing a base  discount rate                                                                    
     of 10%,  with four methods  to reduce this to  a number                                                                    
     equal to total interest cost + 1.5%.                                                                                       
           1. For  a seismic credit, the  company has waived                                                                    
     the  10-year confidentiality  period for  the data  and                                                                    
     allowed it to become public;                                                                                               
          2.  The  company  has   agreed  to  an  overriding                                                                    
     royalty interest  (ORRI) accepted by the  Department of                                                                    
     Natural Resources;                                                                                                         
          3. The  company has committed reinvest  the entire                                                                    
     amount received  within an Alaska  oil and  gas project                                                                    
     within 24 months;                                                                                                          
           or 4. The credit  is against the corporate income                                                                    
     tax,   primarily   impacting  refinery   infrastructure                                                                    
     credits.                                                                                                                   
                                                                                                                                
     .028(n)  New section  clarifying that  the amount  of a                                                                    
     credit  in excess  of the  discounted amount  purchased                                                                    
     retains no  value and cannot  be used against  taxes or                                                                    
     sold.                                                                                                                      
                                                                                                                                
     Section  11:    Authorizes the  Department  of  Natural                                                                    
     Resources  to  negotiate Overriding  Royalty  Interests                                                                    
     (ORRI). These  are then valued, and  a determination is                                                                    
     made  whether the  incremental  value  received by  the                                                                    
     state warrants the approval of  the lower discount rate                                                                    
     for purposes of credit repurchase.                                                                                         
                                                                                                                                
     Section  12:      Authorizes   DNR  and  DOR  to  adopt                                                                    
     regulations to implement this act                                                                                          
                                                                                                                                
     Section  13:    Authorizes  retroactive application  of                                                                    
     regulations.                                                                                                               
                                                                                                                                
     Section 14:   Immediate effective date.                                                                                    
                                                                                                                                
1:06:02 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  further  explained   Section  1  contains  conforming                                                               
language  exempting the  bond  corporation  and royalty  interest                                                               
from the Alaska Procurement Code.   Section 2 is similar to other                                                               
Alaska   state   statutes   creating  special   purpose   bonding                                                               
mechanisms  such as  the pension  obligation bond  authority, and                                                               
other authorities that are delegated  to the commissioner of DOR.                                                               
Also included  in Section 2  is the provision that  the structure                                                               
of the  bond is  left to  the discretion  of the  commissioner of                                                               
DOR.                                                                                                                            
                                                                                                                                
REPRESENTATIVE  PARISH  expressed   his  understanding  that  the                                                               
Alaska  Pension  Obligation  Bond Corporation  has  never  issued                                                               
bonds.                                                                                                                          
                                                                                                                                
MR. ALPER said correct.                                                                                                         
                                                                                                                                
REPRESENTATIVE PARISH asked whether  any other state corporations                                                               
- that  would acquire debt  in a  similar manner to  the proposed                                                               
bond  corporation -  have been  created "without  revenue streams                                                               
internal to them."                                                                                                              
                                                                                                                                
1:08:38 PM                                                                                                                    
                                                                                                                                
MIKE BARNHILL,  Deputy Commissioner, Office of  the Commissioner,                                                               
DOR, before  responding to Representative Parish,  made the point                                                               
of  correction:    the  commissioner  of DOR  does  not  set  the                                                               
structure  of the  bond debt  service under  the statute  but the                                                               
board  of directors  of the  Alaska Tax  Credit Bond  Corporation                                                               
would  perform  that function.    The  board of  directors  would                                                               
include  the commissioners  of DOR,  the Department  of Commerce,                                                               
Community &  Economic Development (DCCED), and  the Department of                                                               
Administration (DOA).                                                                                                           
                                                                                                                                
REPRESENTATIVE PARISH restated his question.                                                                                    
                                                                                                                                
MR. BARNHILL  advised there  are many  state entities  that issue                                                               
bonds and deferred to Devin Mitchell.                                                                                           
                                                                                                                                
1:10:19 PM                                                                                                                    
                                                                                                                                
DEVEN MITCHELL,  Executive Director,  Alaska Municipal  Bond Bank                                                               
Authority, DOR,  explained a similar  entity would be  the Alaska                                                               
Housing  Finance   Corporation  (AHFC)  which  entered   into  an                                                               
agreement with  the state to  purchase what  is now known  as the                                                               
[Robert  B.  Atwood Building];  there  were  no revenues  in  the                                                               
agreement except for  the state's pledge to pay on  a "subject to                                                               
appropriation" basis, as allowed by  standalone law, and which is                                                               
exactly  as proposed  in  HB 331.   Further,  the  proposal is  a                                                               
familiar structure  to the state  as well as to  municipal market                                                               
participants.                                                                                                                   
                                                                                                                                
REPRESENTATIVE PARISH commented the  aforementioned example was a                                                               
lease purchase agreement;  however, HB 331 proposes a  debt of up                                                               
to $1 billion for the state  with no lease directly involved.  He                                                               
asked how HB 331 resembles a lease purchase agreement.                                                                          
                                                                                                                                
MR. MITCHELL  answered a lease  purchase agreement is based  on a                                                               
lease  which is  subject  to appropriation;  HB  331 [bond]  debt                                                               
would be based on a contract,  also subject to appropriation.  He                                                               
remarked:                                                                                                                       
                                                                                                                                
     In the case of the  lease, [should the state choose not                                                                    
     to  appropriate], the  negative  ramification would  be                                                                    
     you  would  not only  get  downgraded,  you would  lose                                                                    
     access to the  building for a period of time.   Not the                                                                    
     entire life of the building,  but just a period of time                                                                    
     as  established  in the  lease.    And, that  could  be                                                                    
     negotiated down  to as  short as a  year, and  then the                                                                    
     state  would again  have right  to occupy  the facility                                                                    
     even though there'd been a  failure.  So, again, it's a                                                                    
     familiar  structure to  the state  and it's  a familiar                                                                    
     structure to the capital markets.                                                                                          
                                                                                                                                
REPRESENTATIVE PARISH  referred to the Constitution  of the State                                                               
of Alaska,  Article IX,  Section 8. State  Debt., which  read [in                                                               
part, original punctuation provided]:                                                                                           
                                                                                                                                
     No state debt shall  be contracted unless authorized by                                                                    
     law for  capital improvements  or unless  authorized by                                                                    
     law for housing  loans for veterans, and  ratified by a                                                                    
     majority of the qualified voters  of the State who vote                                                                    
     on the question.                                                                                                           
                                                                                                                                
REPRESENTATIVE  PARISH  continued  to  Section  11.  Exceptions.,                                                               
which read [in part]:                                                                                                           
                                                                                                                                
     The restrictions  on contracting  debt do not  apply to                                                                    
     debt  incurred through  the issuance  of revenue  bonds                                                                    
     ....                                                                                                                       
                                                                                                                                
REPRESENTATIVE  PARISH  asked  whether  the  proposed  bonds  are                                                               
revenue bonds.                                                                                                                  
                                                                                                                                
1:12:57 PM                                                                                                                    
                                                                                                                                
MR. MITCHELL  said they are not.    He clarified  the bonds would                                                               
be revenue bonds of the  corporation; the corporation would issue                                                               
either  revenue   bonds  or  general  obligation   bonds  of  the                                                               
corporation,   however,  the   final  structure   has  not   been                                                               
determined.  Mr. Mitchell continued:                                                                                            
                                                                                                                                
     I  work with  another  public  corporation, the  Alaska                                                                    
     Municipal Bond  Bank [Authority (AMBBA)], [and]  we, we                                                                    
     borrow money  based on underlying communities'  need of                                                                    
     borrowing  money.   So,  when we  borrow  money in  the                                                                    
     capital markets,  we issue general obligation  bonds of                                                                    
     the Alaska Municipal Bond Bank,  which [are] secured by                                                                    
     that cross-collateralized underlying  borrowing pool as                                                                    
     well as the State  of Alaska's moral obligation pledge.                                                                    
     And,  in the  instance of  the ...  bond bank,  we sell                                                                    
     general  obligation bonds  for  both  revenue bonds  of                                                                    
     underlying  communities as  well as  general obligation                                                                    
     bonds  of   underlying  communities.     And   so,  the                                                                    
     corporation,  ...   the  separately   legally  existing                                                                    
     corporation  we're  talking  about, would  be  able  to                                                                    
     potentially  sell  general  obligation bonds,  but  the                                                                    
     only thing  that would be  securing those would  be the                                                                    
     revenues  that it  would derive  from this  contract it                                                                    
     would  enter into  with the  state.   And so,  it could                                                                    
     also be structured ... potentially as a revenue bond.                                                                      
                                                                                                                                
REPRESENTATIVE  PARISH  questioned   whether  the  proposed  bond                                                               
corporation's  issuance of  a general  obligation  bond would  be                                                               
subject to a majority vote of the qualified voters.                                                                             
                                                                                                                                
MR. MITCHELL restated  such a bond would be  a general obligation                                                               
bond  of  the   corporation  and  not  of  the   state.    Public                                                               
corporations,  such  as  the   Alaska  Student  Loan  Corporation                                                               
[Postsecondary  Education  Commission], Department  of  Education                                                               
and  Early Development,  the  Alaska  Industrial Development  and                                                               
Export  Authority (AIDEA),  Department of  Commerce, Community  &                                                               
Economic  Development,   AMBBA,  and  AHFC,  can   issue  general                                                               
obligation bonds  of the corporation.   He  characterized general                                                               
obligation bonds as  "a more limited pledge,  obviously, than the                                                               
State of Alaska's general obligation  pledge, but could be a full                                                               
faith  and  credit  pledge  of  that  legal  existence,  of  that                                                               
entity."                                                                                                                        
                                                                                                                                
1:15:11 PM                                                                                                                    
                                                                                                                                
WILLIAM  MILKS,  Senior  Assistant Attorney  General,  Labor  and                                                               
State Affairs Section, Civil  Division(Juneau), Department of Law                                                               
(DOL),  directed  attention  to  a letter  addressed  to  Senator                                                               
Giessel, dated  3/2/18, from Mr. Mitchell,  representing DOR, and                                                               
himself,  representing DOL,  that was  included in  the committee                                                               
packet.   Mr. Milks informed  the committee the  letter addresses                                                               
the  constitutionality  issue,  opining the  proposed  bonds  are                                                               
constitutional  because  they   are  "subject  to  appropriation"                                                               
bonds.   He returned  attention to Article  IX, Section  8, [text                                                               
previously  provided,  in  part],  commonly  known  as  the  debt                                                               
provision, and further advised Section  8 applies specifically to                                                               
a general  obligation bond, backed  by the full faith  and credit                                                               
of the State of Alaska, and  thereby not a subject to appropriate                                                               
bond.   General obligation bonds  must be paid regardless  of the                                                               
state's   financial  circumstances,   are   issued  for   capital                                                               
improvements,  and are  usually subject  to voter  approval.   As                                                               
noted  in the  letter,  a key  case was  reviewed  by the  Alaska                                                               
Supreme Court, Carr-Gottstein Properties  v. State, 899 P.2d 136,                                                             
142-44 (Alaska 1995), and the  court decided the issue is whether                                                               
a bond  is subject to  appropriation, and the special  meaning of                                                               
debt under the constitution.  Mr.  Milks concluded if a bond does                                                               
not hold  the full faith  and credit of  the State of  Alaska for                                                               
repayment, it is  subject to appropriation, which  is a procedure                                                               
the courts have permitted in Alaska and elsewhere.                                                                              
                                                                                                                                
REPRESENTATIVE PARISH  recalled previous  testimony that  if [the                                                               
legislature]  failed to  appropriate [funds  for repayment],  the                                                               
state's bond rating  could be downgraded two or  three times, and                                                               
surmised the state's faith and  credit is "on the line," although                                                               
creating a shell corporation would  "dodge" the narrowest reading                                                               
of the  law.   He asked,  "How is  this really  substantively and                                                               
significantly not state  debt if our credit rating  could take an                                                               
enormous hit for failure to pay?"                                                                                               
                                                                                                                                
1:17:52 PM                                                                                                                    
                                                                                                                                
MR.  MILKS  pointed  out  the  bill on  page  2,  [lines  19-22],                                                               
specifically  states   the  bonds   do  not   constitute  general                                                               
obligations to  the State  of Alaska.   He reiterated  the Alaska                                                               
Supreme  Court  has interpreted  this  provision  to be  a  moral                                                               
authority  bonding,  which  is  subject  to  appropriation.    He                                                               
deferred to Mr. Mitchell for a further response.                                                                                
                                                                                                                                
MR.  MITCHELL acknowledged  the state  could choose  not to  pay,                                                               
have  its  credit  rating  downgraded, and  lose  access  to  the                                                               
capital  markets with  the subject  to appropriation  commitment;                                                               
with a general  obligation commitment, the state  would be forced                                                               
and compelled  to pay.   In fact,  the Alaska Statute  provides a                                                               
standing appropriation  that does not require  annual legislative                                                               
action  to pay  general  obligation bond  debt service;  however,                                                               
there is  no similar provision  for any subject  to appropriation                                                               
obligation.                                                                                                                     
                                                                                                                                
CO-CHAIR  JOSEPHSON,   in  response  to   Representative  Parish,                                                               
advised  testimony by  the  department  representatives would  be                                                               
ending; however,  the representatives may be  available to answer                                                               
additional questions [following the hearing].                                                                                   
                                                                                                                                
1:19:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH stressed  HB 331  provides for  a debt  of                                                               
possibly $1 billion;  therefore, he would like  all his questions                                                               
exhausted  on  the  record  at this  hearing.    The  fundamental                                                               
question is  whether the state  can create a corporation  to take                                                               
on  debt  which  is  neither revenue  debt,  revenue  bonds,  nor                                                               
general obligation bonds,  but is "a sort  of nebulous additional                                                               
...  category," and  if so,  whether there  is any  limit to  the                                                               
amount of debt.  He  questioned whether a state corporation could                                                               
accrue $5 billion in loans  so [the legislature] could follow the                                                               
statutory dividend  formula to pay  the Permanent  Fund Dividend,                                                               
and   observed   the   Alaska  Supreme   Court   decision   [Bill                                                               
Wielechowski, Rick Halford,  and Clem Tillion v.  State of Alaska                                                               
and Alaska  Permanent Fund Corporation]  found that the  power of                                                               
appropriation rests  with the legislature  and thus,  the statute                                                               
cited earlier becomes murky.                                                                                                    
                                                                                                                                
1:21:32 PM                                                                                                                    
                                                                                                                                
MR.  MITCHELL disagreed  that  the  aforementioned legal  opinion                                                               
relates to general obligation bonds  and the state's commitments,                                                               
which are  embedded in  the state constitution.   He  deferred to                                                               
Mr.  Milks  for further  discussion  in  this  regard.   He  said                                                               
Representative  Parish's questions  have been  asked "many  times                                                               
before"; however,  [the proposal  within HB  331] is  legal under                                                               
Alaska  law  and  is  accepted  as a  common  form  of  financing                                                               
utilized by Alaska and other states.                                                                                            
                                                                                                                                
REPRESENTATIVE JOSEPHSON,  in response to  Representative Birch's                                                               
suggestion to end testimony on  HB 331, advised further review of                                                               
constitutional  questions  may  be  necessary  prior  to  hearing                                                               
amendments to the bill, which is scheduled for 4/9/18.                                                                          
                                                                                                                                
REPRESENTATIVE PARISH remarked:                                                                                                 
                                                                                                                                
     On  this specific  question, the  difference has  been,                                                                    
     been clearly  established as to  whether or not  a, the                                                                    
     state should be allowed  to contract state debt without                                                                    
     a general vote  of the people, without  a revenue bond,                                                                    
     and  without  any  of  the  other  specific  exceptions                                                                    
     listed in  the constitution.  And  on the counterpoint,                                                                    
     there's,  there's  the  assertion  that  because  lease                                                                    
     purchase  agreements  in  the past  have  gone  forward                                                                    
     because  the Pension  Obligation  Bond Corporation  was                                                                    
     established, and  because, the bill  says, " ...  it is                                                                    
     constitutional," I  guess, I guess that's,  that's just                                                                    
     a disagreement  which may have  to get resolved  in the                                                                    
     courts.                                                                                                                    
                                                                                                                                
1:25:03 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR  stated  under current  Alaska  statute  there  is                                                               
already a  formula -  subject to appropriation  - for  paying the                                                               
[tax] credits; HB  331 is an alternative proposal to  pay the tax                                                               
credits  which  would also  be  subject  to appropriation.    She                                                               
cautioned the  reason for the  current debate is because  "no one                                                               
read  the  statute" before  making  business  decisions to  spend                                                               
money and  obtain bank financing  based on the  state's repayment                                                               
of  tax credit  certificates.   Co-Chair  Tarr  suggested if  the                                                               
statute  had  been  read, beneficiaries  would  have  acted  more                                                               
cautiously and  would not  be defaulting  on loans  while waiting                                                               
for the  state to repay  tax certificates.  Although  the funding                                                               
provision within HB 331 is  subject to appropriation, there would                                                               
be every expectation  that the money would be  appropriated.  She                                                               
concluded  HB  331  does  not  resolve  the  current  fundamental                                                               
problem,  which is  having sufficient  funds to  pay the  credits                                                               
that are due.                                                                                                                   
                                                                                                                                
MR.  MITCHELL  did not  respond  to  the  policy aspects  of  the                                                               
question.  From  a debt perspective, he said HB  331 differs from                                                               
the sort  of subject to  appropriation commitment  that currently                                                               
exists  in financing  markets.   He expressed  his concern  about                                                               
maintaining  the state's  credit  rating, its  access to  capital                                                               
markets, and  its ability to  accomplish needed  capital projects                                                               
through the use of financing  tools.  Within all capital markets,                                                               
an entity's ability to borrow is only  as good as how its word is                                                               
perceived.  In  the event an entity fails to  pay its bills, that                                                               
entity  will  experience  higher  interest  rates  or  diminished                                                               
access.    Also related  to  financing  in capital  markets,  the                                                               
current diminished  payments that have  been made on  the credits                                                               
currently due have  a lesser impact on the  state's credit rating                                                               
than if  the state  defaults -  a non-payment -  on a  subject to                                                               
appropriation bond issue of a public corporation.                                                                               
                                                                                                                                
There  followed a  short discussion  regarding  the deadline  for                                                               
amendments to HB 331.                                                                                                           
                                                                                                                                
1:29:36 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 1:29 p.m. to 1:32 p.m.                                                                       
                                                                                                                                
1:31:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON posed a scenario  in which credit holders, who                                                               
may or may  not have transferred their credits, would  be able to                                                               
decline to have provisions of  the bill applied and would instead                                                               
proceed under  the normal  payment schedule.   He  asked whether,                                                               
under the  aforementioned circumstances, the state  would need to                                                               
pay  [tax  credit  certificates]   under  two  different  payment                                                               
streams.                                                                                                                        
                                                                                                                                
MR. ALPER returned  to the sectional analysis of HB  331 and said                                                               
Sections 3, 4,  and 5 are similar in structure  and relate to the                                                               
existing  tax  credits  that  are in  the  corporate  income  tax                                                               
statute,  AS 43.20.   Existing  corporate  income tax  provisions                                                               
include a gas storage credit  for the Kenai Gas Storage Facility,                                                               
a  liquefied  natural  gas  (LNG) storage  credit  for  the  main                                                               
storage  tanks  in  Fairbanks,  a credit  for  the  Interior  Gas                                                               
Utility,  and a  refinery  infrastructure credit.   As  currently                                                               
written, the  aforementioned credits can be  purchased with money                                                               
from the  tax credit  [repurchase] fund.   However,  the existing                                                               
language would  be amended by HB  331, so the credits  could also                                                               
be purchased with proceeds of the [tax credit] bonds.                                                                           
                                                                                                                                
MR. ALPER explained Sections 6-9  amend portions of AS 43.55.028,                                                               
the tax credit [repurchase] fund,  as follows:  Section 6 relates                                                               
to the use  of tax credit fund money or  money disbursed from the                                                               
bond program  to purchase tax  credits; Section 7  clarifies that                                                               
there  is  no   $70  million  [per  company  per   year]  cap  on                                                               
repurchases  via the  bond program;  Section 8  adds definitions,                                                               
notably,  "money   disbursed  to  the  commissioner"   means  the                                                               
proceeds of the bond; Section 9  clarifies that a right to offset                                                               
a credit  payment held by a  company would be extended  to a bond                                                               
purchase.    Section  10  is   a  new  section  adding  four  new                                                               
subsections to  AS 43.55.028.  Subsection  (k) requires companies                                                               
to offer  their credits to the  program, and all credits  must be                                                               
offered.    Further, companies  that  choose  not to  participate                                                               
cannot offer  credits in a  subsequent bond offering.   Mr. Alper                                                               
characterized the  provisions in subsection (k)  as language that                                                               
is intended to prevent parties from "gaming the system."                                                                        
                                                                                                                                
1:37:07 PM                                                                                                                    
                                                                                                                                
MR.  ALPER   said  subsection  (l)  provides   the  mechanism  to                                                               
determine a  company's expected cash  flow under  the traditional                                                               
credit repurchase  structure using new definitions  affected by a                                                               
company's  pro rata  share of  the annual  appropriation per  the                                                               
formula within  [AS 43.55.028(c)].   The existing  language would                                                               
be clarified by subsection (l), and he remarked:                                                                                
                                                                                                                                
     We're  going to  presume we  are appropriating  for the                                                                    
     next five, six  years at "x" dollars per  year based on                                                                    
     the  fact  that you  have  this  much credit  in  2016,                                                                    
     they're going  to get paid  first pro rata  for however                                                                    
     many  years it  takes, and  then all  the 2017  credits                                                                    
     will be paid pro rata  for however many years it takes.                                                                    
     So, every company will be  given a unique expected cash                                                                    
     flow  under  the  traditional  system,  which  is  then                                                                    
     discounted at  a discount rate.   The discount  rate is                                                                    
     covered  in subsection  (m),  and  what subsection  (m)                                                                    
     says is that  the base discount rate is  10 percent per                                                                    
     year, and then  there are four different  ways by which                                                                    
     a company could buy that  down to the lower rate, which                                                                    
     is written  in as, as  the true interest cost  plus 1.5                                                                    
     percent, which  we currently forecast  to be  about 5.1                                                                    
     percent interest.  But that  would be determined closer                                                                    
     to  the date  of final  issuing  of the  bonds.   We've                                                                    
     talked  about  what  those four  methods  are,  they're                                                                    
     clearly  written  out in  (m).    Either you  have  the                                                                    
     overriding   royalty   interest;  the   commitment   to                                                                    
     reinvest  all of  the proceeds.   If  you have  seismic                                                                    
     credits,  ...  you  have  to waive  your  10  years  of                                                                    
     confidentiality on the  seismic data.  Or,  if you have                                                                    
     one of  those corporate income tax  credits - primarily                                                                    
     the    refinery    credit   -    outstanding,    you're                                                                    
     automatically bought in at the lower interest rate.                                                                        
                                                                                                                                
MR.  ALPER  continued to  subsection  (n)  which clarifies  if  a                                                               
credit  is sold  at less  than  face value,  the remaining  value                                                               
cannot be  cashed, sold,  or used  to offset  taxes.   Section 11                                                               
authorizes the  Overriding Royalty Interests (ORRI)  and provides                                                               
the mechanisms and rules for  negotiations between DNR and credit                                                               
holders related  to the  value of fields  offered for  credit and                                                               
factors affecting  said value.   For example,  calculations would                                                               
include  cash flow,  royalty  interest, and  present  value.   In                                                               
fact,  the mandate  is:    the present  value  of the  overriding                                                               
royalty  interest must  be at  least  equal or  greater than  the                                                               
incremental  value  the  company  would receive  from  the  lower                                                               
discount rate  versus the higher  discount rate.   Sections 12-14                                                               
are:   authority  to  write regulations;  the  ability for  those                                                               
regulations  to  take  effect   retroactively  if  they  are  not                                                               
finalized before  the effective  date; the  effective date.   Mr.                                                               
Alper concluded, noting  HB 331 has an  immediate effective date,                                                               
thus after  its expected passage  in May, [2018], the  process of                                                               
underwriting  and preparing  bonds would  be completed  and bonds                                                               
would be issued in August or September [2018].                                                                                  
                                                                                                                                
1:41:10 PM                                                                                                                    
                                                                                                                                
[HB 331 was held over.]                                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
HB331 Transmittal Letter.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Version A.PDF HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Fiscal Note -DNR-DOG 1.29.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Fiscal Note-DOR-TAX 2.5.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Supporting Document - Presentation Credit Bonds for HRES 3.30.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Supporting Document - DOR.LAW 3.2.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Sectional Analysis 3.29.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HRES 4/10/2018 8:00:00 AM
HB 331
HB331 Supporting Document - Letter of Support 3.29.18.pdf HRES 3/30/2018 1:00:00 PM
HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HB 331
HB331 Credit Bonds for HRES 4-2-18.pdf HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/9/2018 1:00:00 PM
HB 331
AOGA Testimony - HB 331 - 4.4.2018.pdf HRES 4/4/2018 1:00:00 PM
HRES 4/6/2018 1:00:00 PM
HRES 4/7/2018 2:00:00 PM
HRES 4/9/2018 1:00:00 PM
HB 331
Ambler_APRN article 1.30.18.pdf HRES 4/6/2018 1:00:00 PM
HRES 4/9/2018 1:00:00 PM
Ambler
AMDIAR
Ambler_AIDEA PPT.pdf HRES 4/6/2018 1:00:00 PM
Ambler_AIDEA statutes re Regional Resource Advisory Council review.pdf HRES 4/6/2018 1:00:00 PM
Ambler_Cardno econ analysis excerpts.pdf HRES 4/6/2018 1:00:00 PM
Ambler_DOT May 2012 Report, Excerpt.pdf HRES 4/6/2018 1:00:00 PM
Ambler_DOWL AIDEA Cost Estims 2.26.18.pdf HRES 4/6/2018 1:00:00 PM
Ambler CSPP PPT.pdf HRES 4/6/2018 1:00:00 PM
Ambler CSPP invited testimony.pdf HRES 4/6/2018 1:00:00 PM
Ambler_Clarke PPT.pdf HRES 4/6/2018 1:00:00 PM
Ambler_Clarke invited testimony.pdf HRES 4/6/2018 1:00:00 PM
Ambler_Trilogy Metals PPT.pdf HRES 4/6/2018 1:00:00 PM
Ambler_Doyon ltr to BLM 1.24.18.pdf HRES 4/6/2018 1:00:00 PM
Ambler_Trustees' Follow-up Letter to BLM re Leg Hearing.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Allakaket Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Ambler Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Bettles Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Evansville Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Huslia Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Kobuk Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Kotzebue Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Koyukuk Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Louden Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Rampart Opposition Resolution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_v_Ruby Opposition Resoulution.pdf HRES 4/6/2018 1:00:00 PM
Ambler_WIRAC 2017 Letter.pdf HRES 4/6/2018 1:00:00 PM