Legislature(2015 - 2016)SENATE FINANCE 532

04/14/2016 01:30 PM FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as
Download Video part 2. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 188 PERSON W/DISABILITY SAVINGS ACCOUNTS TELECONFERENCED
Moved CSHB 188(FIN) Out of Committee
+= HB 222 INCREASE OF APPROPRIATION ITEM TELECONFERENCED
Moved CSHB 222(FIN) Out of Committee
+= SB 130 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
Heard & Held
+ HB 247 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
<Pending Referral>
+ enalytica and Department of Revenue TELECONFERENCED
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 130                                                                                                           
                                                                                                                                
     "An  Act relating  to  confidential information  status                                                                    
     and  public   record  status  of  information   in  the                                                                    
     possession of  the Department  of Revenue;  relating to                                                                    
     interest  applicable  to  delinquent tax;  relating  to                                                                    
     disclosure  of  oil  and   gas  production  tax  credit                                                                    
     information; relating  to refunds  for the  gas storage                                                                    
     facility tax credit, the  liquefied natural gas storage                                                                    
     facility  tax credit,  and the  qualified in-state  oil                                                                    
     refinery   infrastructure   expenditures  tax   credit;                                                                    
     relating to  the minimum  tax for  certain oil  and gas                                                                    
     production;  relating to  the  minimum tax  calculation                                                                    
     for  monthly  installment  payments of  estimated  tax;                                                                    
     relating  to interest  on monthly  installment payments                                                                    
     of  estimated  tax;  relating to  limitations  for  the                                                                    
     application  of tax  credits; relating  to oil  and gas                                                                    
     production   tax  credits   for   certain  losses   and                                                                    
     expenditures;     relating    to     limitations    for                                                                    
     nontransferable  oil  and  gas production  tax  credits                                                                    
     based on oil production  and the alternative tax credit                                                                    
     for oil  and gas  exploration; relating to  purchase of                                                                    
     tax  credit  certificates  from the  oil  and  gas  tax                                                                    
     credit fund; relating  to a minimum for  gross value at                                                                    
     the   point   of    production;   relating   to   lease                                                                    
     expenditures  and tax  credits for  municipal entities;                                                                    
     adding    a   definition    for   "qualified    capital                                                                    
     expenditure";  adding  a  definition  for  "outstanding                                                                    
     liability  to   the  state";  repealing  oil   and  gas                                                                    
     exploration    incentive    credits;   repealing    the                                                                    
     limitation on  the application  of credits  against tax                                                                    
     liability  for   lease  expenditures   incurred  before                                                                    
     January 1,  2011; repealing  provisions related  to the                                                                    
     monthly installment payments for  estimated tax for oil                                                                    
     and gas produced before January  1, 2014; repealing the                                                                    
     oil  and  gas  production   tax  credit  for  qualified                                                                    
     capital  expenditures  and certain  well  expenditures;                                                                    
     repealing   the    calculation   for    certain   lease                                                                    
     expenditures applicable before  January 1, 2011; making                                                                    
     conforming amendments;  and providing for  an effective                                                                    
     date."                                                                                                                     
                                                                                                                                
2:08:01 PM                                                                                                                    
                                                                                                                                
JANAK MAYER, CHAIRMAN AND CHIEF TECHNOLOGIST, ENALYTICA,                                                                        
announced some of his background.                                                                                               
                                                                                                                                
2:09:09 PM                                                                                                                    
                                                                                                                                
Janak Mayer discussed the presentation, "CS SB 130: Key                                                                         
Issues and Assessment" (copy on file).                                                                                          
                                                                                                                                
2:09:15 PM                                                                                                                    
                                                                                                                                
Mr. Mayer looked at Slide 2, "Agenda":                                                                                          
     CS SB 130: Summary of Key Issues                                                                                         
     North Slope: Fiscal Regime Overview                                                                                        
     North Slope: Changes Proposed                                                                                              
     Cook Inlet: key issues and Proposed Changes                                                                                
     CS SB 130: Summary of Key Issues                                                                                           
     Appendix                                                                                                                   
                                                                                                                                
2:10:09 PM                                                                                                                    
                                                                                                                                
Janak Mayer addressed Slide 3, "Summary: Common Proposed                                                                        
Changes":                                                                                                                       
                                                                                                                                
     Issue: Gross value reduction and net operating loss                                                                      
     credit                                                                                                                   
                                                                                                                                
          Status  Quo:  Because   GVR  artificially  reduces                                                                  
          Production  Tax  Value,  35%  NOL  credit  can  be                                                                    
          claimed on amount greater than  actual loss - more                                                                    
          than 35% support for spending.                                                                                        
                                                                                                                                
               CS HB  247 (FIN)  / CS  SB 130  (RES): Assess                                                                  
               NOL  credit  on  actual loss  (not  including                                                                    
               GVR), so NOL  is for 35% of  actual loss, and                                                                    
               all producers have 35% support for spending.                                                                     
                                                                                                                                
                    Impact: Make  North Slope  state support                                                                  
                    for    spending    uniform    at    35%.                                                                    
                    Interaction  is  arguably an  unintended                                                                    
                    consequence  under  SB21, though  fixing                                                                    
                    has negative impact  for current GVR new                                                                    
                    developments.                                                                                               
                                                                                                                                
     Issue: Time limit on gross value reduction                                                                               
                                                                                                                                
          Status Quo: No current time limit on how long new                                                                   
          developments benefit from GVR.                                                                                        
                                                                                                                                
               CS HB 247 (FIN) / CS SB 130 (RES): Allow GVR                                                                   
               benefit only for 5 years from first                                                                              
              production (or until 1/1/2021).                                                                                   
                                                                                                                                
                    Impact:    Short    limit    effectively                                                                  
                    eliminates  much  of  the  GVR  benefit.                                                                    
                    Major   negative   impact  on   recently                                                                    
                    sanctioned eligible developments.                                                                           
                                                                                                                                
     Issue: Refundable credit withholding                                                                                     
          Status Quo: Liabilities against production tax                                                                      
          withheld from refundable credits, but not other                                                                       
          liabilities.                                                                                                          
                                                                                                                                
               CS  HB  247 (FIN)  /  CS  SB 130  (RES):  Any                                                                  
               exploration/development/  production  related                                                                    
               liabilities  to  the  state can  be  withheld                                                                    
               from refundable credit payments.                                                                                 
                                                                                                                                
                    Impact:   Companies   in  dispute   over                                                                  
                    liabilities  will   have  those  amounts                                                                    
                    withheld.  Companies that  wish to  have                                                                    
                    withholding  used  to  settle  liability                                                                    
                    may do so.                                                                                                  
                                                                                                                                
     Issue: .025 'Middle Earth' exploration credit                                                                            
                                                                                                                                
          Status Quo: $25 mm or 80% credit, sunsets July 1                                                                    
          2016.                                                                                                                 
                                                                                                                                
               CS HB 247 (FIN) /  CS SB 130 (RES): Extend to                                                                  
               allow for completion  of wells spudded before                                                                    
               July 1.                                                                                                          
                                                                                                                                
     Issue: Municipal production expense deduction                                                                            
                                                                                                                                
          Status Quo: Munis that own production and only                                                                      
          sell portion can deduct all expenses and claim                                                                        
          credits.                                                                                                              
                                                                                                                                
               CS HB  247 (FIN) /  CS SB 130  (RES): Credits                                                                  
               and  deductions   can  only  be   claimed  in                                                                    
               proportion to taxable production.                                                                                
                                                                                                                                
     Issue: Surety bond                                                                                                       
                                                                                                                                
          Status Quo: No bond requirement.                                                                                    
                                                                                                                                
               CS  HB  247 (FIN)  /  CS  SB 130  (RES):  Add                                                                  
               $250,000 bond as license requirement.                                                                            
                                                                                                                                
2:16:34 PM                                                                                                                    
                                                                                                                                
Mr. Mayer addressed Slide 4, "Summary: Divergent Proposed                                                                       
Changes":                                                                                                                       
                                                                                                                                
     Issue: Cook Inlet Tax credits & fiscal system                                                                            
          Status  Quo: 25%  Net Operating  Loss credit,  20%                                                                  
          Qualified  Capital  Expenditure credit,  40%  Well                                                                    
          Lease Expenditure credit; up  to 65% gov't support                                                                    
          for spending and minimal production tax                                                                               
                                                                                                                                
               CS HB  247 (FIN):  Reduce NOL credit  to 10%,                                                                  
               QCE  to 10%,  WLE  to 20%  by 2018.  Restrict                                                                    
               eligibility  for NOL.  Working group  on Cook                                                                    
               Inlet regime.                                                                                                    
                                                                                                                                
                    CS SB  130 (RES):  Reduce NOL  credit to                                                                  
                    15%, QCE to 10%, WLE  to 20% by 2017. No                                                                    
                    Credits and no  production tax from 2018                                                                    
                    Onward.                                                                                                     
                                                                                                                                
                         Impact:  Cook  Inlet credit  regime                                                                  
                         is    clearly   unsustainable    in                                                                    
                         current   environment;  degree   of                                                                    
                         rampdown /  elimination has fiscal-                                                                    
                         note  impact,  but  also  potential                                                                    
                         impacts on future investment.                                                                          
                                                                                                                                
     Issue: North Slope gross minimum tax                                                                                     
                                                                                                                              
          Status Quo: 4% rate,  binding for legacy output if                                                                  
          net value  is positive. If net  value is negative,                                                                    
          NOL  can   'pierce'  floor.   "New,"  GVR-eligible                                                                    
          production  can take  to zero  due  to $5/bbl  and                                                                    
          small producer credit.                                                                                                
                                                                                                                                
               CS HB 247 (FIN): Introduce additional,                                                                         
               'harder' 2% gross floor; no credits can                                                                          
               reduce tax liability below this.                                                                                 
                                                                                                                                
                    CS SB 130 (RES): Maintain status quo -                                                                    
                    no further floor hardening.                                                                                 
                                                                                                                                
                         Impact: Hardening  has high fiscal-                                                                  
                         note  impact, but  most is  revenue                                                                    
                         brought forward  from future (NOL),                                                                    
                         not    truly   additional.    Makes                                                                    
                         regressive  system   more  so,  and                                                                    
                         adds  strain  to  cashflow-negative                                                                    
                        companies.                                                                                              
                                                                                                                                
     Issue: Refundable credit cap                                                                                             
                                                                                                                                
          Status  Quo: Producers  with  >50 mb/d  production                                                                  
          must carry  NOL forward, others can  be reimbursed                                                                    
          by  the  state.  Major new  NS  development  could                                                                    
          place significant strain on state cashflow.                                                                           
                                                                                                                                
               CS HB 247 (FIN): $100mm per company annual                                                                     
               limit on reimbursement.                                                                                          
                                                                                                                                
                    CS SB 130 (RES): $85mm per company                                                                        
                    annual limit on reimbursement.                                                                              
                                                                                                                                
                         Impact:  Low   limit  substantially                                                                    
                         increases  capital  needs  for  new                                                                    
                         developments   &    raises   hurdle                                                                    
                         rates/break-even   prices.   $100mm                                                                    
                         likely  not  binding  on  companies                                                                    
                         now  given current  spending plans;                                                                    
                         $85mm may  have negative  impact on                                                                    
                         some.                                                                                                  
                                                                                                                                
2:24:05 PM                                                                                                                    
                                                                                                                                
Mr. Mayer highlighted Slide 5, "Summary: Divergent Proposed                                                                     
Changes":                                                                                                                       
                                                                                                                                
     Feature: 'Middle Earth' credits                                                                                          
                                                                                                                                
          Status Quo: 25% Net Operating Loss credit, 20%                                                                      
          Qualified Capital Expenditure credit, 40% Well                                                                        
          Lease Expenditure credit.                                                                                             
                                                                                                                                
               CS HB 247 (FIN): Maintain NOL at 25%, reduce                                                                   
               QCE to 10%, WLE to 30% by 2018. WLE may                                                                          
               sunset in 2019?                                                                                                  
                                                                                                                                
                    CS SB 130 (RES): Reduce NOL credit to                                                                     
                    15%, QCE to 10%, WLE to 20% by 2017.                                                                        
                                                                                                                                
                         Impact:  Fiscal  impact of  'Middle                                                                  
                         Earth'  credits currently  minimal,                                                                    
                         but    questions   about    capital                                                                    
                         credits  may  arise if  significant                                                                    
                         development occurs.                                                                                    
                                                                                                                                
     Feature: Interest due on 'delinquent' taxes                                                                              
                                                                                                                                
          Status Quo: Fed Discount Rate + 3% Simple                                                                           
          Interest on delinquent taxes (up to 6-year audit                                                                      
          statute of limitations).                                                                                              
                                                                                                                                
               CS  HB   247  (FIN):  Fed  +   5%  compounded                                                                  
               quarterly  for 3  yrs, then  Fed +  5% simple                                                                    
               interest  (up  to  6-year  audit  statute  of                                                                    
               limitations)                                                                                                     
                                                                                                                                
                    CS  SB 130  (RES): Fed  + 7%  compounded                                                                  
                    quarterly  for 3  yrs, then  no interest                                                                    
                    (up   to   6-year   audit   statute   of                                                                    
                    limitations)                                                                                                
                                                                                                                                
                         Impact:  Current   simple  interest                                                                  
                         arguably a  drafting oversight from                                                                    
                         SB21   debate.  Core   issues  here                                                                    
                         determine     'fair'    rate     vs                                                                    
                         companies' concerns  over impact of                                                                    
                         long  audit   backlog  on  interest                                                                    
                         bills when interest  rate is higher                                                                    
                         and compounded.                                                                                        
                                                                                                                                
     Feature: Alaska hire                                                                                                     
                                                                                                                              
          Status Quo: Alaska hire not currently given                                                                         
          preferential treatment in tax code (significant                                                                       
          constitutional restrictions).                                                                                         
                                                                                                                                
               CS HB 247 (FIN): No change                                                                                     
                                                                                                                                
                    CS   SB  130   (RES):  No   preferential                                                                  
                    treatment   in    amount   of   refunded                                                                    
                    credits, but companies  with >75% Alaska                                                                    
                    hire   placed   higher  in   queue   for                                                                    
                    refundable credit payments.                                                                                 
                                                                                                                                
2:28:18 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon noted that the house and senate versions                                                                     
of the bill differed considerably.                                                                                              
                                                                                                                                
2:28:40 PM                                                                                                                    
                                                                                                                                
NIKOS TSAFOS, PRESIDENT AND CHIEF ANALYST, ENALYTICA (vis                                                                       
teleconference), introduced himself.                                                                                            
                                                                                                                                
2:29:13 PM                                                                                                                    
                                                                                                                                
Mr.   Mayer  discussed   Slide   6,  "Summary:   Visualizing                                                                    
Credits." He  said that what  both the house and  the senate                                                                    
version  of the  bill hoped  to  address was  the impact  of                                                                    
Alaska's oil and gas tax  credits at the current low prices.                                                                    
He stated that the slide  represented the amount of credits,                                                                    
and where  the credits were  spent. He noted that  the first                                                                    
bar on  the slide  spit the  credits in  to North  Slope and                                                                    
non-North Slope spending. The second  bar split the refunded                                                                    
and non-refunded  credits for the North  Slope and non-North                                                                    
Slope  operations. He  noted that  the  majority of  credits                                                                    
paid out in Cook Inlet  were refunded credits. The third bar                                                                    
broke  down the  credits  involved: North  Slope dollar  per                                                                    
barrel  credit   (introduced  under  SB  21),   North  Slope                                                                    
Operating  Loss,  North  Slope other,  and  non-North  Slope                                                                    
state support. He  noted that the "other"  credits bar would                                                                    
shrink  going into  the  future, most  of  those credits  no                                                                    
longer  exist. He  said that  the only  remaining credit  of                                                                    
substance  on the  North Slope,  other than  the dollar  per                                                                    
barrel  credit,  was  the  net  operating  loss  credit.  He                                                                    
relayed that expenses were deducted  against revenues in any                                                                    
net  profit system,  and in  the  years that  there was  not                                                                    
enough revenue  and companies experienced a  loss, there was                                                                    
a means for costs to somehow be deducted.                                                                                       
                                                                                                                                
2:34:23 PM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon   queried  the  difference   of  revenue                                                                    
generated  as a  result of  the credits,  versus merely  the                                                                    
expense. She queried  a slide that would  relate the credits                                                                    
to the generated revenue.                                                                                                       
                                                                                                                                
Mr. Mayer  stated that there would  be a slide later  in the                                                                    
presentation that  would address the question.  He said that                                                                    
operating loss credits  would have to be  paid; the question                                                                    
was whether they should be paid  now or later as a deduction                                                                    
through the tax system.                                                                                                         
                                                                                                                                
2:36:20 PM                                                                                                                    
                                                                                                                                
Vice-Chair Micciche  asked where the well  lease expenditure                                                                    
(WLE) and QCEs were captured for the North Slope.                                                                               
                                                                                                                                
Mr.  Mayer replied  that the  only remaining  credit on  the                                                                    
North Slope was the net  operating loss credit. He furthered                                                                    
that there used to be a  capital credit, but there was never                                                                    
a WLE.  He said  that the capital  credit had  been repealed                                                                    
under Alaska's  Clear and Equitable  Share (ACES).  He noted                                                                    
that  the  green  section  of  the  third  bar  on  Slide  6                                                                    
reflected the non-North Slope state  support. He stated that                                                                    
there were three big categories  of credits at play: credits                                                                    
that were  a mathematical exercise in  determining the North                                                                    
Slope tax rate,  credits on the North Slope  that were about                                                                    
net operating  losses that  would be  eventually recognized,                                                                    
and the Cook Inlet credits.                                                                                                     
                                                                                                                                
2:37:36 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Micciche  noted the  $595  million  for the  per                                                                    
barrel  credit.  He  asserted that  the  figure  shaped  the                                                                    
overall underlying tax structure.                                                                                               
                                                                                                                                
Mr. Mayer agreed.                                                                                                               
                                                                                                                                
2:38:26 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon explained that  the tax credit system was                                                                    
illustrated  in  three  different  ways on  the  chart.  She                                                                    
stressed  that the  numbers did  not reflect  additional tax                                                                    
credits,  but  broke them  down  in  different was  for  the                                                                    
purpose of highlighting the value and usage of each credit.                                                                     
                                                                                                                                
Mr. Mayer agreed.                                                                                                               
                                                                                                                                
2:38:57 PM                                                                                                                    
                                                                                                                                
Vice-Chair Micciche  asked whether per barrel  credits could                                                                    
be taken  below the minimum,  and if  so, how they  would be                                                                    
incorporated into the refunded credits.                                                                                         
                                                                                                                                
Mr.  Mayer replied  that they  would appear  as non-refunded                                                                    
because they were taken by taxpayers against liabilities.                                                                       
                                                                                                                                
2:39:34 PM                                                                                                                    
                                                                                                                                
Vice-Chair Micciche understood that it  would be part of the                                                                    
$655, in orange, on the second bar.                                                                                             
                                                                                                                                
Mr.  Mayer  agreed.  He  reminded  the  committee  that  the                                                                    
numbers used on Slide 6 were from FY 15.                                                                                        
                                                                                                                                
2:40:59 PM                                                                                                                    
Mr. Mayer  highlighted Slide 7,  Summary: History  of Credit                                                                    
Payouts":                                                                                                                       
                                                                                                                                
     Refunded Credits Reached New High in FY 2015                                                                             
                                                                                                                                
     Refundable credits in FY 2015 reached $628 mm, the                                                                         
     highest point ever                                                                                                         
                                                                                                                                
     In both 2014 and 2015, the majority of these credits                                                                       
     went to non-North Slope producers                                                                                          
                                                                                                                                
     Under DOR's current forecast, credits will exceed $1.3                                                                     
     billion across FY 2016 and FY 2017                                                                                         
                                                                                                                                
Mr. Mayer  pointed out to  the committee  that in FY  15 the                                                                    
credits had  reached an all-time  high of $628  million, and                                                                    
were projected  to be higher in  FY 17. He noted  that there                                                                    
had not  been an increase  on the North Slope,  the increase                                                                    
had been in non-North Slope credits.                                                                                            
                                                                                                                                
2:41:44 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Micciche  understood  that the  following  slide                                                                    
would  address  revenue.  He thought  a  slide  showing  the                                                                    
elimination of non-North Slope  credits, and the application                                                                    
of the production taxes, would  be informative. He said that                                                                    
the public  had a hard  time understanding the value  of the                                                                    
credits as  they related  in production  and revenue  to the                                                                    
state.   He  wanted   a  slide   that  would   provide  that                                                                    
information.  He said  that the  state got  value from  Cook                                                                    
Inlet credits, but very little revenue to the state.                                                                            
                                                                                                                                
2:42:59 PM                                                                                                                    
                                                                                                                                
Senator Dunleavy remarked that  facts could sometimes ruin a                                                                    
good story.  He asserted  that SB 21  had not  affected Cook                                                                    
Inlet.                                                                                                                          
                                                                                                                                
2:44:26 PM                                                                                                                    
                                                                                                                                
Vice-Chair Micciche added that SB  21 was working better for                                                                    
the state than ACES.                                                                                                            
                                                                                                                                
2:45:02 PM                                                                                                                    
                                                                                                                                
Senator  Bishop commented  that looking  at the  numbers, it                                                                    
was clear that SB 21 had spurred production.                                                                                    
2:45:50 PM                                                                                                                    
                                                                                                                                
Senator Dunleavy  thought that  the presenter  could discuss                                                                    
the effects of  more production on tariffs.  He thought that                                                                    
tariffs  could create  lower or  higher  costs for  shipping                                                                    
oil, which he believed was  a North Slope issue. He asserted                                                                    
that the  administration had admitted  that the  state would                                                                    
not be making more money under ACES.                                                                                            
                                                                                                                                
2:46:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon  stressed  that  no  one  was  currently                                                                    
making any  money, given  the current  oil prices,  but that                                                                    
ACES fared worse than SB 21 at $40/bbl.                                                                                         
                                                                                                                                
2:47:24 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  remarked that new production  could reduce costs.                                                                    
He  said that  the more  volumes  of oil  that were  flowing                                                                    
through the  pipe, the more  barrels that could  support the                                                                    
cost  of  the pipeline.  He  expounded  on the  benefits  of                                                                    
tariffs. He  noted that  under ACES there  was a  20 percent                                                                    
capital credit and  a 25 percent net  operating loss credit,                                                                    
which meant  that new producers without  tax liability could                                                                    
put  them  together  and  receive  45  percent  support  for                                                                    
spending. SB  21 offered  a transition  period where  the 45                                                                    
percent support was maintained,  with the understanding that                                                                    
it would be brought down to  35 percent to match the nominal                                                                    
rate of tax under SB 21.                                                                                                        
                                                                                                                                
2:50:58 PM                                                                                                                    
                                                                                                                                
Mr. Mayer addressed Slide 8,  "Summary: North Slope vs. Cook                                                                    
Inlet Credits":                                                                                                                 
                                                                                                                                
     Big difference between North Slope and Cook Inlet                                                                        
                                                                                                                                
     The majority of refundable credits go to Cook Inlet                                                                        
     producers                                                                                                                  
                                                                                                                                
     Cook Inlet production, however, generates limited                                                                          
     direct revenue for the state                                                                                               
                                                                                                                                
     Credits on the North Slope are more limited but also a                                                                     
     far smaller fraction of total value generated                                                                              
                                                                                                                                
Mr. Mayer noted  that the slide charted  where revenues came                                                                    
from and where credit spending  occurred. The stacked bar on                                                                    
the  left  reflected  FY 2105  numbers  for  total  revenues                                                                    
through the oil and gas  fiscal system and total spending on                                                                    
credits.  He stated  that below  the zero  baseline, in  the                                                                    
light grey  bars, was  refunded tax  credits, and  above the                                                                    
baseline  in  dark  grey  was  production  tax,  purple  was                                                                    
corporate  income tax,  green was  property tax,  yellow and                                                                    
orange were  both royalty - restricted  and unrestricted. He                                                                    
relayed  that  the  slide reflected  over  $2.3  billion  in                                                                    
revenues  to the  state in  FY 15,  with substantial  credit                                                                    
expenditures of $628 million. He  related that nearly all of                                                                    
the revenue came from the  North Slope; $2.2 billion between                                                                    
restricted  and unrestricted  revenue, and  $224 million  in                                                                    
outlay  on reimbursed,  refunded  capital  credits. He  said                                                                    
that looking at only that  picture, the question of refunded                                                                    
credit did  not seem out  of proportion to the  revenue that                                                                    
was being  brought in,  if that  was reinvestment  in future                                                                    
production.  He countered  that  the  picture differed  when                                                                    
looking at the Cook Inlet  side of the equation, illustrated                                                                    
in the third bar on the slide.                                                                                                  
                                                                                                                                
2:53:54 PM                                                                                                                    
                                                                                                                                
Senator Dunleavy  noted that  some of  the outcomes  in Cook                                                                    
Inlet could  be due  to additional  incentives for  gas that                                                                    
had been used in the area.                                                                                                      
                                                                                                                                
Mr.  Mayer  agreed that  the  Cook  Inlet credits  had  been                                                                    
established during a  time when there had been  a great deal                                                                    
of  concern   over  the   future  of   the  gas   supply  in                                                                    
Southcentral Alaska,  and also during  a time of  higher oil                                                                    
prices. He  believed that the  time had come to  revisit the                                                                    
equation using current variables.                                                                                               
                                                                                                                                
2:55:07 PM                                                                                                                    
                                                                                                                                
Vice-Chair Micciche turned to Slide  7. He asserted that the                                                                    
Cook  Inlet  credits were  an  exposure  for the  state.  He                                                                    
requested information  about how a sovereign  would quantify                                                                    
the return  to the  state of the  credit investment  in Cook                                                                    
Inlet. He suggested that the  state may have overinvested in                                                                    
Cook Inlet credits. He wondered  how the investment could be                                                                    
defended, and  understood that  the conversation  would take                                                                    
longer than the current meeting would allow.                                                                                    
                                                                                                                                
Mr. Mayer  replied that there  were various ways  to conduct                                                                    
the cost/benefit  analysis. He suggested looking  at royalty                                                                    
revenues  that   were  received  from  current   and  future                                                                    
production, and  at how that  would compare overtime  to the                                                                    
credits involved.                                                                                                               
                                                                                                                                
Mr. Mayer  announced that the  next section of  slides would                                                                    
discuss an overview of the North Slope fiscal regime.                                                                           
                                                                                                                                
2:58:59 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon announced that  the meeting needed to end                                                                    
in 15 minutes. She noted  that the committee could reconvene                                                                    
later in the day to finish the presentation.                                                                                    
                                                                                                                                
2:59:35 PM                                                                                                                    
                                                                                                                                
Mr. Mayer  discussed Slide 10,  "NS Overview: Gross  vs. Net                                                                    
Taxes":                                                                                                                         
                                                                                                                                
     Hard to be both Norway & N. Dakota at Same Time                                                                          
                                                                                                                                
     Gross taxes                                                                                                              
                                                                                                                                
          Less volatile, shift risk to private sector                                                                           
                                                                                                                                
          Simple and easy to administer                                                                                         
                                                                                                                                
          High/low government take at low/high prices                                                                           
                                                                                                                                
          Disadvantages marginal investment                                                                                     
                                                                                                                                
     Net taxes                                                                                                                
                                                                                                                                
          More volatile revenues for government                                                                                 
                                                                                                                                
          Harder to administer                                                                                                  
                                                                                                                                
         Efficient-do not distort decision-making                                                                               
                                                                                                                                
         Enable investment across commodity cycle                                                                               
                                                                                                                                
Mr.  Mayer  noted  that  the   chart  on  the  bottom  right                                                                    
illustrated effective  tax rates. He  said that the  idea of                                                                    
an effective tax  rate was inherently a net  tax concept; of                                                                    
the available profit  generated in a given  system, how much                                                                    
was taken in the form of  tax. He stated that the numbers on                                                                    
the graph  compared a 25  percent net  tax and a  10 percent                                                                    
gross tax.  He relayed that  the green line  represented the                                                                    
net tax  and stayed  at 25  percent all  the way  across the                                                                    
chart from  $40/bbl to  $150/bbl. He  shared that  the gross                                                                    
tax was highly  regressive; when prices were  lowest the tax                                                                    
was high, and  got lower at high prices. He  ran through the                                                                    
numbers in  the lower left  of the slide. He  explained that                                                                    
at  $80/bbl the  production  tax value  of  each barrel  was                                                                    
$34/bbl. He  discussed the gross  versus net  taxes $80/bbl.                                                                    
He said that as prices dropped  the gross taxes took up more                                                                    
and  more of  the profit  available. He  related that  gross                                                                    
taxes  were  less  volatile  and shifted  the  risk  to  the                                                                    
private sector.  He furthered that  administering a  net tax                                                                    
was  more  difficult because  incurred  costs  needed to  be                                                                    
determined,  which contributed  to audit  backlogs. He  said                                                                    
that the  state had made the  decision for over a  decade to                                                                    
have a  net profit tax  system, which required  planning for                                                                    
volatility  of revenue  and maintaining  substantial savings                                                                    
and assets, while  relying more on earnings  from the assets                                                                    
than the direct  revenue from the oil and gas  tax system to                                                                    
run  the state.  He added  that a  more diversified  economy                                                                    
would also be beneficial to the state.                                                                                          
                                                                                                                                
3:07:33 PM                                                                                                                    
                                                                                                                                
Mr.  Mayer  looked at  Slide  11,  "NS Overview:  Cash  Flow                                                                    
Taxes":                                                                                                                         
                                                                                                                                
     Cashflow taxes: More efficient, more volatile                                                                            
                                                                                                                                
          Purpose of net tax is to minimize distorting                                                                          
          impact on investment                                                                                                  
                                                                                                                                
          Best achieved by making the state's fiscal                                                                            
          cost/benefit as close as possible to equity                                                                           
          investor                                                                                                              
                                                                                                                                
          Results in outflows during development, receipts                                                                      
          during production                                                                                                     
                                                                                                                                
He  spoke  to  the  highly simplified  cashflow  and  income                                                                    
example presented  on the slide. He  stressed the importance                                                                    
of distinguishing between cashflow  and net income. He spoke                                                                    
to  the  numbers  reflected  on the  slide  related  to  the                                                                    
hypothetical development of a small oil field.                                                                                  
                                                                                                                                
3:12:56 PM                                                                                                                    
Co-Chair  MacKinnon announced  that  a  continuation of  the                                                                    
presentation would  be scheduled for the  following day. She                                                                    
noted that  the committee  would be  back at  5pm to  hear a                                                                    
different presentation.                                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
SB 130 Johnson 4-14-16 Letter to Senator Anna MacKinnon.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 BREAKING NEWS_ Federal Court Affirms Constitutional Rights and Denies Motions of Govt_Fossil Fuel Industry.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 Middle Earth or Frontier Tax Credits Maloney.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 Alaska Forest Association SB 130 comments.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 public testimony Sanders.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 Public Testimony Hanson.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 enalytica SFIN April 1 2016.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 04 13 16 AOGA Testimony SFIN SB 130 FINAL.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 Oil Tax Credits with bankruptcy Home Run Oil.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 Legislation's Impact on Caelus.pdf SFIN 4/14/2016 1:30:00 PM
SB 130
SB 130 Public Testimony Home Run Oil 2.pdf SFIN 4/14/2016 1:30:00 PM
SB 130