Legislature(2005 - 2006)
04/25/2005 08:39 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HJR1 | |
| HJR2 | |
| HB223 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 2-CONST. AM: GAS REVENUE ENDOWMENT FUND 9:27:32 AM CHAIR WEYHRAUCH announced that the next order of business would be SPONSOR SUBSTITUTE FOR HOUSE JOINT RESOLUTION NO. 2 Proposing amendments to the Constitution of the State of Alaska creating and relating to the gas revenue endowment fund, relating to deposits to the fund, limiting appropriations from the fund based on an averaged percent of the fund market value, relating to deposits to the permanent fund, and relating to deposits to the budget reserve fund. CHAIR WEYHRAUCH thanked Representative Hawker for all his past work with the House Special Committee on Ways and Means. 9:28:24 AM REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, sponsor, opined that this resolution is one of three critical structural framework elements needed to craft long-term sustainable fiscal policy. He said: This bill would propose a constitutional amendment to address one of those critical issues and that's the long-term sustainability of having ... the liquid capital cash available to meet our ongoing state needs, not only for this generation but for future generations. I draw your attention to the sponsor statement ... I think all Alaskans, at one time or another, have heard what is referred to as the "Great Alaska Prayer" and that is: "Lord please grant me another Prudhoe Bay, I promise not to fritter this one away." I don't think anything could be more accurate in its conception. This state has had an incredible amount of wealth. Our wealth is natural resource based; these are extractive resources, that once we have severed the resource and sold it, it is gone forever. These are not renewable resources particularly our oil and gas, which makes the foundation of the state's revenue base .... We've certainly got fisheries, timber, [and] other resources that are clearly in the renewable category, but the physical financial magnitude of those resources pales in comparison to our oil and gas resources. What this specific constitutional amendment proposes to do is it makes the statement that when we start developing our natural gas, that great resource on the North Slope, that this time instead of spending the money we take from that gas as we sever disposable non-renewable resource we take all the proceeds from that severance, that sale, and place it into its own permanent fund. ... if you allow me the latitude to call it a gas permanent fund, [the] idea [is] to model it exactly on our existing permanent fund but the difference being that this time instead of just taking constitutionally 25 percent of the revenues generated, we take all of it. And we make the commitment that says we will convert this money that we receive into an endowment that will meet the state's needs for generations. [A] critical element of this bill is that the endowment I propose to have managed in the format of the [percent of market value] POMV mechanism .... The one differential in this amendment is that it makes it very clear that in this gas permanent fund ... that the money available in the future under the POMV may be used for any public purpose, taking care of our state, except paying dividends to individual Alaskans; I think it's a critical distinction we need to make here. This is the fund that will take care of our public needs in the future. REPRESENTATIVE HAWKER turned attention to the chart entitled "Gas Revenue Endowment Fund (GREF)", which details the projected benchmark of production and tax estimates provided by the Department of Revenue. He highlighted that in year 2030 operating under the POMV mechanism, the money coming from a POMV is the same amount as is being received from the severance of resources. Every year beyond 2030, there is actually more revenue available to the state under the POMV mechanism, when the earnings on reinvestment of the principal are included than is being taken from the extractive process itself. The point of this resolution is to [implement mechanisms] to provide a sustainable, stable, and predictable economic base for the state, he reiterated. He offered that it is appropriate and correct for the legislature to put before Alaska a constitutional framework for a fiscal plan. He noted that HJR 1, HJR 2, and passing a POMV methodology for the existing permanent fund are material sources of bridging the gap between today and the 10 to 15 years before gas comes online. The aforementioned components are essential to the constitutional framework that is being demanded by the citizens of Alaska, he surmised. 9:36:36 AM CHAIR WEYHRAUCH asked if the GREF was for gas from the Alaska North Slope (ANS) gas. REPRESENTATIVE HAWKER replied yes, it specifically excludes existing producing reserves elsewhere in the state. 9:36:56 AM CHAIR WEYHRAUCH asked if today the state obtains any revenue from ANS gas. REPRESENTATIVE HAWKER responded that there is a very small amount of gas produced on the North Slope from a small 4-inch line that is feeding some of the pump stations and providing basic utility fuel. He explained that natural gas is methane, butane, ethane, propane, and the difference lies in the number of carbon atoms in the molecule. Currently, the industry is moving natural gas liquids (NGLs) through the Trans-Alaska Pipeline System (TAPS) as part of the oil flow. As a result of a processing activity, the molecules can be liquefied, run through the pipeline, and separated for use later. He clarified that references to a gasline refer to moving only methanes and liquefied propane gas (LPGs). He specified his intent to only grab the methane and LPGs not the heavier NGLs in order to have a separate accounting, which is easier for the industries involved. 9:39:36 AM REPRESENTATIVE HAWKER, in response to Representative Wilson, clarified that C, which is butane, is in both NGLs and LPGs. He 4 recalled that the oil industry attempted to put butanes down the TAPS pipeline, but as production volume slowed it is no longer safe or technically feasible to do so. This constitutional mechanism provides no incentive for an industry to choose [what natural gas to obtain], the industry will simply opt for what is best technically. Furthermore, this resolution is not a tax or revenue mechanism that has any effect on the industry, but rather is a mechanism for the state to do something with the royalties it receives, he said. 9:41:07 AM REPRESENTATIVE WILSON alluded to her belief that what HJR 2 proposes is what the original framers of the permanent fund dividend had in mind, although it was changed. She indicated that originally the intent [with the permanent fund] was to use it to run the state when the revenues from the pipeline slowed down. Therefore, she noted her agreement with the provision in HJR 2 that [specifies any appropriation from the proposed fund can't be used to provide dividends or other payments to all residents]. Representative Wilson concluded by lauding the concept of HJR 2 and the hope that this resolution is passed and no future legislature changes it. REPRESENTATIVE HAWKER said that HJR 2 is about the current legislature having the vision to ensure fiscal discipline and a sustainable economic base for Alaska. 9:44:21 AM REPRESENTATIVE HAWKER, in response to Chair Weyhrauch, related that the POMV mechanism specifically states that the "look-back" period would be five fiscal years and it would be the first five of six years pre-dating. The purpose of the six years is to allow the legislature to "know exactly how much money is on the deck, available to spend that year," at the beginning of session. Therefore, the legislature won't be guessing the oil prices, which is one of the great fallacies of the current system, he stated. He highlighted that the look-back period shall be implemented by law. The provision addressing the look- back period read as follows: Appropriations from the gas revenue endowment fund for a fiscal year may not exceed five percent of the average of the market values of the fund on June 30 for a number of previous fiscal years as provided by law. However, for purposes of calculating the amount that may be appropriated from the fund for a fiscal year, the market value of the fund for the fiscal year immediately preceding that fiscal year shall not be included. REPRESENTATIVE HAWKER explained that under the aforementioned provision future legislatures can decide how wide a look-back window should be, which he said provides him greater comfort in proposing the fixed 5 percent POMV. 9:47:02 AM REPRESENTATIVE GRUENBERG asked if the committee wanted to adopt the amendment in the bill packet in order to have a committee substitute (CS) for the next meeting on HJR 2. CHAIR WEYHRAUCH responded that he wanted to postpone adoption of the amendment because there may be more to come. REPRESENTATIVE HAWKER concurred, and said he would be happy to accommodate any further concerns. He noted that the amendment in the bill packet makes it clear that any incidental gas products going down TAPS don't get included in this calculation. 9:48:23 AM REPRESENTATIVE HAWKER, in response to Representative Wilson, related his belief that the only massive gas deliveries that will make a significant economic impact on long-range planning will come from the North Slope, which is why the resolution is restricted to that. He relayed that other areas of the state with existing gas production have small potential and thus he said he didn't want to create conflicts with existing activities. Moreover, he said that he didn't want to create a fund that doesn't have enough to manage the state in the long run, he noted. CHAIR WEYHRAUCH announced that HJR 2 would be set aside.
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