Legislature(2005 - 2006)SENATE FINANCE 532

02/25/2006 10:00 AM RESOURCES

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10:16:06 AM Start
10:30:51 AM HB488 || SB305
01:49:47 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Joint w/(H) Resources TELECONFERENCED
Heard & Held
Public Hearings
               HB 488-OIL AND GAS PRODUCTION TAX                                                                            
               SB 305-OIL AND GAS PRODUCTION TAX                                                                            
CHAIR THOMAS WAGONER  called the joint meeting of  the Senate and                                                             
House  Resources Standing  Committees  to order  at 10:16:06  AM.                                                             
Present  at the  call to  order  were Senators  Kim Elton,  Ralph                                                               
Seekins, Bert  Stedman, Albert Kookesh and  Chair Thomas Wagoner;                                                               
Representatives  Jim  Elkins,  Paul Seaton,  Mary  Kapsner,  Kurt                                                               
Olson,  Gabrielle Le  Doux and  Co-Chairs Ralph  Samuels and  Jay                                                               
10:16 at ease 10:17                                                                                                             
CHAIR WAGONER announced that they  would receive testimony on the                                                               
Governor's PPT proposal introduced in the  House as HB 488 and in                                                               
the Senate as SB 305. He asked John Winther to begin.                                                                           
JOHN  WINTHER, Windstar  Petroleum  and  Ultra Star  Exploration,                                                               
said his companies hold over 24,700  acres on the North Slope and                                                               
hoped to become a producer.  He and his partner were instrumental                                                               
in getting decisions  in the charter for development  that was in                                                               
the merger agreement between BP  and Arco. He recounted, "Without                                                               
a doubt, I can say  that without these provisions, there wouldn't                                                               
be an opportunity for independents on the North Slope today."                                                                   
Partly because  of his and  his partner's efforts  in Washington,                                                               
D.C., Arco's  assets in Alaska had  to be sold off,  which led to                                                               
Phillips  Petroleum coming  to Alaska.  He and  his partner  both                                                               
felt that at least three majors had  to be on the Slope to insure                                                               
competition.  They  contracted  with   Arco  to  drill  the  only                                                               
independent Alaskan  oil well on  the North Slope. They  were not                                                               
daunted  when all  they  found  was water  and  have  gone on  to                                                               
negotiate with BP to drill another well at Pt. McIntyre.                                                                        
MR. WINTHER urged  the committee to leave the  oil production tax                                                               
at 20 percent and keep  the $73 million annual deduction. Raising                                                               
the  tax  would discourage  exploration  and  development by  the                                                               
majors. He related  how he didn't know much about  big oil except                                                               
that  they made  big money  and pumped  a lot  of oil,  but after                                                               
dealing  with them,  he has  a better  understanding of  how they                                                               
work and why they do things the way they do. He advised:                                                                        
     I think  the most important  thing to remember  is they                                                                    
     have more  opportunities to drill oil  around the world                                                                    
     than they  have money  for. So, they  have to  pick and                                                                    
     choose  their projects.  It is  a well-known  fact that                                                                    
     Alaska is the most costly  place to do business, but it                                                                    
     is also the most politically  stable oil supply for the                                                                    
     United States and the world.  While we may think Alaska                                                                    
     is the place they must  do business, I doubt they think                                                                    
     that way. This 20 percent is  what they agreed to and I                                                                    
     think it should not be raised.                                                                                             
     We  who were  in Alaska  before oil  knew what  kind of                                                                    
     economy  we  had and  it  wasn't  what you  would  call                                                                    
     robust. I  think that the  state budget in  1967/68 was                                                                    
     $98  million. Our  oil  production  is declining  every                                                                    
     year, so  why discourage development by  increasing the                                                                    
     20 percent tax?                                                                                                            
     The  $73 million  deduction is  something that  heavily                                                                    
     favors the independents and really  doesn't do much for                                                                    
     the majors, because  of their high profits.  So, I urge                                                                    
     you  to  keep this  in  the  bill  along with  the  tax                                                                    
DEBORAH VOGT said  she retired from the Department  of Revenue as                                                               
Deputy  Commissioner  in  1999  and  was  an  assistant  attorney                                                               
general for  many years before  that and  dealt with oil  and gas                                                               
tax matters.  She praised the administration  for recognizing the                                                               
problems  in the  ELF  and that  HB 488  was  a good  fundamental                                                               
approach, but  had a seriously  flawed execution.  While allowing                                                               
producers to recover their sub costs  before they pay taxes was a                                                               
modern and common  approach throughout the world, she  said,  "It                                                               
gives far  too much away  and unnecessarily so."   She contrasted                                                               
that  money  to the  revenues  needed  by communities  in  Alaska                                                               
because of seriously reduced revenue sharing.                                                                                   
She  pointed to  the  deduction in  the  current legislation  for                                                               
capital expenditures  coupled with  the tax  credit for  the same                                                               
expenditures as  being incredibly generous and  surmised that the                                                               
general public would  like to be able to use  something like that                                                               
on their own income tax returns. But, she said:                                                                                 
     If the  bill stopped right  there, I think we'd  have a                                                                    
     generous competitive  piece of legislation, so  long as                                                                    
     the tax rate were appropriate,  but the bill goes on to                                                                    
     grant what,  I believe,  are totally  unnecessary give-                                                                    
     aways to the taxpayer.                                                                                                     
MS.  VOGT  listed  the  $73  million  pre-tax  allowance  to  all                                                               
producers  whether they  need it  or  not, and  whether they  are                                                               
investing  that  money  in  Alaska   or  not,  and  the  clawback                                                               
provisions as  unnecessary. According to Roger  Marks' testimony,                                                               
the  allowance would  cost about  $40 million  a year,  which she                                                               
thought  could  be  better  spent  elsewhere.  And  the  clawback                                                               
provision does  not fit  with incentives as  it is  impossible to                                                               
incent  activities  that  took  place  a  half-decade  ago.  This                                                               
provision would cost  the state $170 million in each  of the next                                                               
six years  if the price  of oil  goes above $40.  "This provision                                                               
should be deleted."                                                                                                             
Repealing the  surcharges of 2  cents and  3 cents a  barrel that                                                               
were  passed  after  the  Exxon  Valdez  oil  spill  was  another                                                               
provision  Ms. Vogt  opposed.  She said  that  the Department  of                                                               
Revenue  projected that  this legislation  only raises  money for                                                               
two years. She opined:                                                                                                          
     Certainly a  tax structure that  plunges to  worse than                                                                    
     what  we have  now at  $25 a-barrel  oil is  absurd. At                                                                    
     $25,  these companies  are making  plenty of  money and                                                                    
     the  DOR numbers  show that  at that  price they  would                                                                    
     clear  about   $1.7  billion  under  the   current  tax                                                                    
     structure.  This  bill  would  take all  of  that,  the                                                                    
     severance tax  component of that,  money away  from the                                                                    
     state  - about  $400 million  if the  price were  to go                                                                    
     back  to  $25 oil,  which  a  couple  of years  ago  we                                                                    
     considered a really decent price for oil.                                                                                  
     What's  the  right  rate?   Certainly  the  25  percent                                                                    
     originally proposed  by the  Governor would  be better.                                                                    
     Dr. Van  Meurs' study is  based on this rate  and shows                                                                    
     that Alaska would be very competitive at this rate.                                                                        
10:30:51 AM                                                                                                                   
JAMES GILBERT,  Sunny River resident,  said this  legislation was                                                               
part  of   an  agreement  between   BP,  Exxon  and   Conoco  and                                                               
represented a balanced package that  would support the producers'                                                               
strategy  to develop  the  oil  and gas  resources  on the  North                                                               
Slope. Any further tax increase  would jeopardize that future. He                                                               
emphasized, "Alaska  fiscal policies should  encourage investment                                                               
and  focus on  growing the  pie rather  than taking  an increased                                                               
share of a shrinking pie."                                                                                                      
He  argued that  while  new developments,  like Oooguruk,  needed                                                               
royalty  relief   to  move  forward,   they  also   required  the                                                               
infrastructure  that is  owned by  the majors.  Existing business                                                               
must be healthy  in order to provide  development opportunity for                                                               
the gas industry.                                                                                                               
10:34:24 AM                                                                                                                   
CO-CHAIR  JAY  RAMRAS   said  he  had  heard   of  Mr.  Gilbert's                                                               
activities with  the Alaska Support  Industry Alliance  and asked                                                               
what he  thought of  Dr. Van  Meurs' comment  that the  25/20 and                                                               
20/20 were similar and that they would both work.                                                                               
MR.  GILBERT  replied  that the  Alliance  hadn't  discussed  the                                                               
percentage amounts  that much and  his testimony was  strictly as                                                               
an individual and  not related to his activities  with the Alaska                                                               
Support Industry  Alliance. He  supported the  20/20 and  the $73                                                               
million allowance in the proposed legislation in particular.                                                                    
JIM SYKES,  Oil and Gas  Advisor for  the Green Party  of Alaska,                                                               
said he  was the founder of  Oil Watch Alaska that  made sure the                                                               
state got  a fair share  of its  resources. He admitted  that Dr.                                                               
Van Meurs  was a very bright  man, but he felt  that people still                                                               
didn't have enough information.                                                                                                 
He said  it was not  clear how well the  state would come  out in                                                               
the big  picture, but oil  companies have been allowed  to deduct                                                               
their transportation fees  up to now, and  if transportation fees                                                               
were allowed  to be deducted as  part of net profits,  that would                                                               
mean billions for the gasline owners  and the state would be left                                                               
only millions - depending on the price.                                                                                         
He said the  tax credit was appealing because it  gave people the                                                               
opportunity to explore and develop  and invited smaller companies                                                               
in, but  the problem was that  it looked like a  complete loss if                                                               
you  didn't  seek  to  recover  it  in  some  way.  It  would  be                                                               
reasonable  to give  a  credit  when people  are  trying to  find                                                               
something and the  credit sticks only if they don't  find it. But                                                               
when they begin to produce what  they found, the credit should be                                                               
treated more as a loan so  that they replace the credit they were                                                               
given. That's the only way it becomes fair.                                                                                     
The other  problem with  the credit was  that a  smaller company,                                                               
like Conoco,  had to  sell out  at Milne  Point before  it merged                                                               
because it was  not an owner of the pipeline  and couldn't afford                                                               
to compete  because it was  at such a tremendous  disadvantage on                                                               
the tariff. That problem would  continue to exist if credits were                                                               
given  to just  the smaller  companies -  a lot  of them  are not                                                               
going to be  owners of the pipeline. He advised,  "So you have to                                                               
ask yourself  what are we doing  here? Are we just  simply paying                                                               
the tariffs for new companies to come in and explore?"                                                                          
A number  of years  ago, a  BP employee told  him that  the state                                                               
could  actually make  a great  deal of  money if  it cut  out the                                                               
middle  man, meaning  BP, Conoco  and Exxon,  and hired  the same                                                               
subcontractors they used to extract the oil and gas.                                                                            
He speculated that at $40 a  barrel, the state would get a little                                                               
more than  $330 million under  the proposed  legislation compared                                                               
to  what it  gets now.  He thought  it would  be simpler  for the                                                               
state to  subtract the federal  take from the economic  rent, but                                                               
when oil  went above $20  a barrel, to  split the price  evenly -                                                               
50/50. He conjectured that at $40  a barrel oil, the state should                                                               
get  somewhere between  $1.2  billion and  $2  billion, not  $330                                                               
MR. SYKES  said the  past four governors  have settled  tax cases                                                               
out of  court when $10 billion  or $12 billion were  at stake and                                                               
they were settled for a nickel or  a dime on the dollar. He urged                                                               
that the legislature to know  exactly what the companies would be                                                               
allowed to write off and  that it consider other proposals before                                                               
making  a  final decision.  The  state  can't  afford to  make  a                                                               
mistake now that will affect it for the next 40 years.                                                                          
JIM  HASELBERGER,   Alaska  Tent  and  Tarp,   said  he  provides                                                               
environmental  products for  the oil  companies. He  trusted that                                                               
Alaska's three-part government worked  and that both the Governor                                                               
and  the producers  negotiated in  good faith.  The bill  assured                                                               
continued  resource development  in  the state  and created  good                                                               
jobs  and a  good lifestyle  for  its people.  He supported  this                                                               
MARRICK PEIRCE, FAIRBANKS, thought this  was the poorest piece of                                                               
legislation the legislature had looked  at in decades. He accused                                                               
that  it was  being  fast-tracked  and the  state  stood to  lose                                                               
billions of dollars and gain  many years of costly litigation. He                                                               
urged them to slow down and thoroughly vet the issues.                                                                          
He absolutely  did not agree with  the effective date of  July 1.                                                               
The state had lost billions of  dollars that could have been used                                                               
for  a  number of  improvements  by  failing  to revise  its  oil                                                               
production taxes  years ago and  he thought an effective  date of                                                               
January 1 would help mitigate some of that loss.                                                                                
MR. PEIRCE  also thought the proposed  20 percent tax rate  was a                                                               
"give-away" of  hundreds of  millions of  dollars and  the reason                                                               
for such  a low rate was  because of administration linked  it to                                                               
the  gas pipeline.  He mentioned  that the  Port Authority  could                                                               
make its proposal work without asking for any such give-aways.                                                                  
ROGER BURGRAFF, Fairbanks, supported both SB  305 and HB 488 as a                                                               
good  step towards  solving the  long-term policy  of taxing  the                                                               
petroleum  industry. Companies  need a  stable tax  policy to  be                                                               
able to invest billions of dollars in Alaska.                                                                                   
JENNIFER  BOWERS   urged  legislators   to  consider   this  plan                                                               
carefully  and  to,  "Please  slow down."  She  feared  that  the                                                               
Governor already agreed to a  plan with the oil companies without                                                               
any public  dialogue. She  urged the legislature  to adopt  a gas                                                               
tax plan that provided the maximum benefit to all Alaskans.                                                                     
10:52:18 AM                                                                                                                   
CO-CHAIR RAMRAS  explained that this  bill was a revision  of oil                                                               
taxes and  not a gas pipeline  contract. He assured her  that the                                                               
legislature was being very deliberate  in its consideration of it                                                               
and that it would get a lot more public scrutiny.                                                                               
10:53:47 AM                                                                                                                   
REPRESENTATIVE PAUL SEATON asked  where she thought the confusion                                                               
about what issues are in SB 305 and HB 488 comes from.                                                                          
MS.  BOWERS  replied  that  her  biggest  concern  was  that  the                                                               
Governor  conferred   with  the  producers  without   any  public                                                               
comment, whatsoever.  She thought the  Governor was not  paying a                                                               
whole  lot  of attention  to  what  the  public was  saying.  She                                                               
thought  there  was  a  lot   of  room  for  improvement  on  the                                                               
legislation. Pressures from lobbyists were  viewed to be so great                                                               
that legislators were almost forced to bend it them.                                                                            
CHAIR WAGONER  reassured her  that the  Senate was  not receiving                                                               
pressure from  anyone and that  more hearings were being  held on                                                               
this bill than any other.                                                                                                       
CO-CHAIR RALPH  SAMUELS said  he has  had no  pressure whatsoever                                                               
from lobbyists and vowed to continue holding many hearings.                                                                     
10:56:40 AM                                                                                                                   
LAKE WILLIAMS,  Fairbanks, said it  seemed like  this legislation                                                               
was being  rushed. He questioned  the Governor's  motives because                                                               
his own  experts recommended a 25  percent tax and he  lowered it                                                               
to  20 percent.  "At this  point, we  had a  jet rammed  down our                                                               
throat  that  the legislature  voted  against  - the  public  was                                                               
against it and it still ended up on his airstrip."                                                                              
CO-CHAIR  RAMRAS remarked  that  he appreciated  it when  anybody                                                               
from District  10 testified early  on a Saturday. He  was mindful                                                               
of  Mr.  Williams'  concerns and  stated  the  legislature  would                                                               
proceed slowly and deliberately through this issue.                                                                             
JIM SAMPSON,  Alaska AFL-CIO,  said that  the oil  production tax                                                               
regime  has  needed  revision  for  a  long  time  and  commended                                                               
Governor Murkowski for his leadership  in bringing it forward. He                                                               
also  appreciated  the  work that  Representative  Gara,  Senator                                                               
French  and others  did on  this issue  over the  last couple  of                                                               
years. He thought  that because the ELF was  not price sensitive,                                                               
it had  never really worked for  the benefit of the  state and he                                                               
cautioned members  of the legislature  that they  must understand                                                               
how this tax system works before they vote on it.                                                                               
11:05:52 AM                                                                                                                   
CO-CHAIR  SAMUELS   agreed  and  explained  how   many  committee                                                               
meetings were cancelled because of  it. He maintained that he had                                                               
felt literally no pressure from lobbyists.                                                                                      
11:07:32 AM                                                                                                                   
REPRESENTATIVE NORM ROKEBERG asked if  he was against any linkage                                                               
of this bill to the gas transaction.                                                                                            
MR. SAMPSON replied yes.                                                                                                        
REPRESENTATIVE  ROKEBERG said  it would  be helpful  if the  AFL-                                                               
CIO's  legal counsel  looked into  long-term  commitments in  the                                                               
Commerce Clause of the U. S. Constitution.                                                                                      
MR. SAMPSON replied that they would  look at the issue within the                                                               
confines  of  their  resources. He  personally  believed  that  a                                                               
linkage would violate the Alaska Constitution, as well.                                                                         
CHAIR WAGONER added those questions  were already being asked and                                                               
that discussion was already taking place.                                                                                       
HUGH  FATE, former  Alaska  State  Representative, supported  the                                                               
20/20  concept.  He  had  three  concerns  -  one  was  that  the                                                               
parameters of  both the 20  and 25 percent  tax on net  should be                                                               
considered,  because since  Dr.  Pedro Van  Meurs recommended  25                                                               
percent  and the  Governor chose  20. That  issue has  caused the                                                               
public to  question what  was going on.  Secondly, using  the $40                                                               
dollar-a-barrel oil  as a reference  price concerned  him because                                                               
the U.S. Department of Energy projected  a range of prices as low                                                               
as $48  - $52  going up  to $60  in 2030.  He suggested  having a                                                               
reopener  or pegging  a number  to the  NYMEX so  that the  state                                                               
received  the maximum  tax on  net that  it should.  Thirdly, the                                                               
process  through which  those taxes  would be  paid, which  is 90                                                               
percent now and 10 percent on  March 31, needs to be reviewed, in                                                               
particular  the  interest  provisions   on  the  10  percent.  He                                                               
encouraged  them saying  this  legislation was  a  good basis  on                                                               
which  to work  and  he  would support  it  with  the caveats  he                                                               
REPRESENTATIVE ROKEBERG clarified that  the $40 figure in section                                                               
21 was a  floor price in the transition provision  that was being                                                               
called the "clawback provision."                                                                                                
11:14:26 AM                                                                                                                   
REPRESENTATIVE  SEATON asked  if he  was talking  about having  a                                                               
sliding scale if the price of  oil goes to $100, for instance, so                                                               
that Alaska's take is a greater percentage.                                                                                     
11:15:07 AM                                                                                                                   
MR.  FATE  replied  that  the  scale would  have  to  somehow  be                                                               
quantified by using the NYMEX or some other means.                                                                              
11:15:40 AM                                                                                                                   
PAUL LAIRD,  General Manager,  Alaska Support  Industry Alliance,                                                               
said he  was encouraged  by the tax  credit and  annual allowance                                                               
because   he  believed   they  would   achieve  their   goals  of                                                               
stimulating  new investments,  developing existing  resources and                                                               
finding new ones.  However, the Alliance was concerned  that a $1                                                               
billion  annual  tax  increase  on the  very  industry  that  was                                                               
already  providing about  90 percent  of Alaska's  state revenues                                                               
would  tarnish  Alaska's  competitiveness   and  its  ability  to                                                               
attract  investments. They  were  also concerned  that the  state                                                               
already had a $1.2 billion budget  surplus and no fiscal plan for                                                               
managing  excess funds  during the  good times  or balancing  the                                                               
budget when times were lean.                                                                                                    
11:19:08 AM                                                                                                                   
DAVE MACDOWELL,  Anchorage, said he  had been working in  the oil                                                               
industry  for 25  years and  couldn't recall  any issue  that was                                                               
more important  to Alaska  than the  one before  them today.   He                                                               
confided  that  this  legislation   left  him  both  hopeful  and                                                               
worried. He thought the new  tax structure would effectively lead                                                               
to a  fiscal contract that  provided clear and durable  rules for                                                               
oil and  gas development. However,  because it hit the  major oil                                                               
producers with a massive tax increase, he cautioned:                                                                            
     These  are the  companies that  have the  technical and                                                                    
     financial strength  to succeed  in the  difficult high-                                                                    
     cost  North  Slope   environment  where  production  is                                                                    
     declining  and new  development  prospects are  getting                                                                    
     smaller and  harder to produce.  Common sense  tells me                                                                    
     that  when taxes  go up,  the  investment climate  gets                                                                    
     worse. Higher taxes  may mean more money  for the state                                                                    
     in the  short term, but  over the longer term,  I worry                                                                    
     that less investment and lower  production would be the                                                                    
He  had faith  and  hope  that the  legislature  would see  these                                                               
issues very clearly and wouldn't  make this legislation worse. He                                                               
urged  them to  do everything  possible to  insure a  healthy oil                                                               
business that enabled a gas pipeline project to move forward.                                                                   
11:23:20 AM                                                                                                                   
DAVID GOTTSTEIN,  Backhome 2, said  he co-chairs that  group with                                                               
former Alaska governor,  Wally Hickel, whose letter  he read that                                                               
exhorted  the  legislature to  not  approve  any new  tax  scheme                                                               
without a thorough understanding of  it and to not be blackmailed                                                               
or  intimidated into  passing flawed  legislation. "If  it's good                                                               
legislation, it will stand up to that scrutiny."                                                                                
MR. GOTTSTEIN urged the members to:                                                                                             
     Open  up  the  process  to  competitive  market  forces                                                                    
     instead  of   agreeing  to   a  sole   source  contract                                                                    
     negotiated  in secret.  Those who  argue  that the  oil                                                                    
     industry needs  a tax  scheme and  rates set  that they                                                                    
     approve of  and that they  need a guarantee that  it is                                                                    
     stable  for the  next 30  years  in order  for them  to                                                                    
     agree to build a pipeline  are negotiating on behalf of                                                                    
     the producers.                                                                                                             
     Those  who represent  Alaska should  respond by  saying                                                                    
     the  oil  industry  is  fraught  with  uncertainty  and                                                                    
     danger all  around the  world as  they deal  often with                                                                    
     unstable  regimes  in  order to  produce  oil  and  gas                                                                    
     reserves  -  even  at  times   being  solved  by  armed                                                                    
     militias, even  as we see  in Saudi Arabia  and Nigeria                                                                    
     in  these last  weeks.  In contrast,  producers on  the                                                                    
     North Slope  of Alaska are completely  protected by the                                                                    
     courageous  men and  women of  the United  States Armed                                                                    
     forces and are blessed to  operate safely in a free and                                                                    
     democratic  society where  they  are  privileged to  be                                                                    
     subject to  the will  of the  democratic society  as it                                                                    
     sees fit over time.                                                                                                        
     Finally,  please  don't  approve  any  new  tax  scheme                                                                    
     without  full knowledge  of  the economic  consequences                                                                    
     over perhaps  a hundred  possible price  and production                                                                    
     scenarios over a  long period of time. Don't  race to a                                                                    
     conclusion prematurely,  even at the risk  of offending                                                                    
     the major North Slope producers....                                                                                        
He said  the Governor had  linked the  tax issue to  the gasline,                                                               
but most Alaskans  want it to be completely  separate. He stated,                                                               
"I personally believe  we should build the  all-Alaska line first                                                               
and now unless a competing bid  proves itself to be better. Let's                                                               
not be puppets, but rather puppet masters."                                                                                     
11:27:04 AM                                                                                                                   
BILL WALKER,  Anchorage, said  he was  speaking as  an individual                                                               
today, but  he disclosed that he  is the general counsel  for the                                                               
Alaska Gasline Port Authority (AGPA).                                                                                           
CHAIR WAGONER asked  him to clarify if he was  speaking on behalf                                                               
of AGPA now.                                                                                                                    
MR.  WALKER reiterated  that he  was speaking  as an  individual.                                                               
He  said this  was potentially  good legislation,  but he  didn't                                                               
know  enough  about  it.  He  urged  them  to  have  more  public                                                               
hearings,  to slow  the process  down and  to make  Department of                                                               
Revenue  information  that  was  used by  the  Governor  for  his                                                               
legislation available  to the  public. He  also exhorted  them to                                                               
keep the tax issue and gasline project separate.                                                                                
SENATOR DYSON invited Mr. Laird back  to have him explain what he                                                               
meant when he said both  the producers and support industry would                                                               
have a $1 billion impact.                                                                                                       
MR. LAIRD explained that the  Alliance has heard the tax increase                                                               
would be as  much as $1 billion annually for  the major producers                                                               
which  would impact  reinvestment by  them, which  in turn  would                                                               
have a direct impact on his members.                                                                                            
CARLA  BEAME,   Anchorage,  said  that  she   works  for  British                                                               
Petroleum  (BP),  but was  speaking  for  herself. She  said  her                                                               
company was  building its strategy  on at least a  50-year future                                                               
in  the  state.  BP  and  other majors  have  hired  and  trained                                                               
Alaskans and brought  in talent and expertise  that has benefited                                                               
not just  the oil industry,  but communities all over  the state.                                                               
She advised:                                                                                                                    
     As you consider  this bill, I trust that  you will keep                                                                    
     your eyes  on what we  have in  common - a  healthy oil                                                                    
     business, a healthy economy and  people who are able to                                                                    
     have the kinds  of opportunities that I  have had.... I                                                                    
     support this bill  as it is, even though it  may not be                                                                    
     completely perfect in the interests  of helping to move                                                                    
     this issue  forward. Let's  not lose  sight of  the big                                                                    
     picture - one that could be very bright for us all.                                                                        
MAYNARD  TAPP, Anchorage,  said  he was  a  small business  owner                                                               
working  in  the  oil  and  gas industry  and  he  supported  the                                                               
legislation.  He asked  them  if they  were to  loan  money to  a                                                               
relative, would  they charge a high  rate of interest or  a small                                                               
amount  of interest  to encourage  them to  become successful  so                                                               
they could  pay you back  and make  the family business  grow. He                                                               
     I would like to reinforce  two principles. The State of                                                                    
     Alaska  cannot tax  its way  to prosperity  and I  want                                                                    
     Alaska to be high if not  highest on the list where our                                                                    
     fellow  citizens, the  oil  companies,  want to  invest                                                                    
     their money.                                                                                                               
11:38:14 AM                                                                                                                   
DARYL  KLEPPIN,  Anchorage, said  he  had  a  family and  was  an                                                               
employee  of BP  and supported  both SB  305 and  HB 488.  He was                                                               
proud of the way BP had  both developed the state's resources and                                                               
remained good  stewards of the  environment. He said  that Alaska                                                               
was  geographically remote  and he  thought the  current proposal                                                               
was balanced and  would keep the state competitive.  A robust oil                                                               
and  gas  industry  means  jobs for  Alaskans.  He  defended  the                                                               
clawback provision saying it's clear  that this legislation was a                                                               
significant tax increase.                                                                                                       
11:40:53 AM                                                                                                                   
SENATOR DYSON asked if he was  implying that raising the tax rate                                                               
above 20 percent would be extreme.                                                                                              
MR. KLEPPIN replied yes.                                                                                                        
SENATOR  DYSON clarified  that  DR. VAN  MEURS'  report says  the                                                               
marginal net profit  tax rates across the world  were varied, but                                                               
many  of them  were  much  higher -  North  Sea  and Denmark,  in                                                               
particular. He  asked how moving  up from  20 percent gets  to be                                                               
extreme  in light  of what  the other  tax rates  are around  the                                                               
MR. KLEPPIN replied that you have  to take the state property and                                                               
corporate taxes  and federal taxes  into account, as  well. "When                                                               
you aggregate those, you will  see that Alaska is pushing towards                                                               
the end, particularly in the United States."                                                                                    
11:42:15 AM                                                                                                                   
JOHN  HOZEY, City  Manager,  Valdez,  endorsed Governor  Hickel's                                                               
letter  and was  encouraged to  hear there  would be  more public                                                               
hearings. He urged  them to slow down and to  not be held hostage                                                               
to the gasline deal.                                                                                                            
11:43:57 AM                                                                                                                   
BERT  COTTLE,  Mayor,  City  of  Valdez,  said  he  had  received                                                               
numerous phone calls  from the residents of Valdez  asking him to                                                               
urge the  legislature to slow  down the process and  allow public                                                               
review and input.                                                                                                               
CHAIR  WAGONER  asked  him  what  he  meant  by  "slow  down  the                                                               
MAYOR COTTLE replied that the public  wants to be allowed to look                                                               
at all  the documents that have  gotten them to this  point. They                                                               
have not  had access  and have  not been able  to figure  out the                                                               
numbers. They  also did not  feel the  next two weeks  was enough                                                               
time for a full review.                                                                                                         
CHAIR WAGONER commented  that he didn't know when  they would get                                                               
to the  end of  these hearings.  "So, your  information is  a lot                                                               
better   than  mine   and  I'm   chairman  of   Senate  Resources                                                               
LOUISE  PARRISH, Valdez  voter, said  the she  needed a  lot more                                                               
time to  understand the  information on this  issue and  to offer                                                               
her opinions to her representatives.                                                                                            
CHAIR WAGONER  responded by announcing,  "All the  documents that                                                               
are being  used in committee or  that we receive are  on line and                                                               
available currently at www.ak.republicans.org/sen.res."                                                                         
11:48:46 AM                                                                                                                   
BILL CORBUS, Commissioner, Department  of Revenue (DOR), said the                                                               
computer model was the only document  that he knew of that hadn't                                                               
been made  available to the public,  yet, and he would  see if he                                                               
could cleanse  the confidential  information from  it and  get it                                                               
out to the public.                                                                                                              
SENATOR  SEEKINS said  he could  hear constitutional  concerns on                                                               
this issue in the Judiciary Committee, which he chaired.                                                                        
SENATOR ALBERT  KOOKESH asked  for an  example of  something that                                                               
would have to be taken out because of confidentiality.                                                                          
COMMISSIONER  CORBUS replied  that some  confidential information                                                               
may have  been derived from income  tax returns filed by  the oil                                                               
REPRESENTATIVE  SEATON  asked  if  he  was  preparing  charts  of                                                               
taxation for public consumption that  would show how gas would be                                                               
taxed  differently from  oil. Right  now they  have just  a joint                                                               
single model based on oil.                                                                                                      
COMMISSIONER   CORBUS  replied   that  yesterday,   Roger  Marks,                                                               
Petroleum  Economist, Department  of Revenue,  converted the  gas                                                               
tax to the equivalent of oil.  To that extent, the difference has                                                               
been  addressed already,  but the  vast  majority of  gas on  the                                                               
North Slope  would be addressed  under the stranded  gas contract                                                               
that   would   be   presented  to   the   legislature   for   its                                                               
consideration.  The  tax  rates  for  oil  and  gas  in  the  PPT                                                               
legislation would  be the  same. They have  tried to  convert the                                                               
price of gas to the equivalent price of oil.                                                                                    
DAVE  COBB, City  Council  member,  Valdez, said  he  was also  a                                                               
member of the  Alaska Gasline Port Authority.  While he supported                                                               
certain aspects of HB 488, he  said, "Slow down. This bill is not                                                               
about  what's right  for the  oil  industry; it's  about what  is                                                               
right for  Alaska." He urged  them to  hold hearings in  the more                                                               
communities around the state.                                                                                                   
RICH LONG, City  Council member, Valdez, said has  worked for the                                                               
oil industry in  the past and supported what it  had done for the                                                               
state. It  seemed that the 20/20  was a wash. He  encouraged them                                                               
to research the  difference in what the 20/20  formula versus the                                                               
25/20 would  do to the industry  and the state. He  urged them to                                                               
slow  down. He  wanted to  support it,  but didn't  understand it                                                               
well enough, yet.                                                                                                               
11:59:53 AM                                                                                                                   
SENATOR  SEEKINS  admitted  that  he  didn't  understand  it  yet                                                               
either.  That's why  they were  still  having Resource  Committee                                                               
hearings on  it. He didn't want  to slow down, because  he needed                                                               
to digest a lot of information.                                                                                                 
12:02:48 PM                                                                                                                   
REPRESENTATIVE MARY KAPSNER  responded to what she  thought was a                                                               
valid concern  saying that  she understood  the 20/20  formula to                                                               
not be a wash.                                                                                                                  
CO-CHAIR  RALPH  SAMUELS agreed  and  added  that they  were  not                                                               
correlated to  be a wash at  all. The credit would  depend on how                                                               
much was spent and how much  was made. The $73 million allowance,                                                               
profit  and current  credit  programs would  factor  into it,  as                                                               
well. He also said they don't want to slow down.                                                                                
REPRESENTATIVE KAPSNER said they  have an energy conference break                                                               
in March and this has to be done by the end of session.                                                                         
CO-CHAIR SAMUELS  reassured the  public that the  legislature was                                                               
going  to  get  as  much   information  as  it  could  and  would                                                               
understand it before making a decision.                                                                                         
12:09:11 PM                                                                                                                   
REPRESENTATIVE BERTA GARDNER said 20/20 was not a wash.                                                                         
12:10:29 PM                                                                                                                   
CO-CHAIR RAMRAS echoed sentiments that it was a go-slow process.                                                                
CHAIR WAGONER said, "Ditto."                                                                                                    
JOHN REEVES,  Fairbanks, said he  was on the Port  Authority, but                                                               
he was speaking as a private citizen.  He did not want to see the                                                               
bill tied  into construction  of the gas  pipeline. He  urged the                                                               
legislature to slow down and to allow more meetings.                                                                            
12:15:26 PM                                                                                                                   
CHAIR WAGONER agreed  and hoped that Alaska's  stability could be                                                               
reflected somewhere in the formula.                                                                                             
NICK STEPOVICH,  Fairbanks constituent,  said he  was not  for or                                                               
against the legislation, but explained  that the slow down was so                                                               
the public could digest the issue.                                                                                              
CHAIR  WAGONER  clarified  that  this  legislation  wasn't  being                                                               
hurried like some people seemed to think.                                                                                       
MR.  STEPOVICH also  strongly urged  that  the tax  issue not  be                                                               
linked  to the  gasline. He  asked why  Alaskan companies  hadn't                                                               
been involved in discovering or the production of oil.                                                                          
CHAIR WAGONER  informed him  that when  he gets  on the  plane in                                                               
Kenai on Monday  morning, he sees more than 40  people heading to                                                               
the North Slope to go to work.                                                                                                  
MR. STEPOVICH  said he  was referring  to Alaskan  companies that                                                               
have  discovered oil  and been  involved in  production that  was                                                               
going down the pipeline.                                                                                                        
12:21:23 PM                                                                                                                   
LORI  BACKES,  Executive  Director, All  Alaska  Alliance,  urged                                                               
getting more  information on this  legislation to the  public and                                                               
scheduling extra  meetings throughout  the state. She  urged them                                                               
to develop  good public policy  and to  keep the tax  and gasline                                                               
issues separate.                                                                                                                
12:26:25 PM                                                                                                                   
CHAIR WAGONER  stated rubberstamping  this proposal  was furthest                                                               
from what  the legislature was going  to do.  He  reminded people                                                               
to keep their comments directed to the tax bill.                                                                                
SENATOR  BERT STEDMAN  commented that  numerous people  have said                                                               
the  current tax  system was  broken and  must be  brought up  to                                                               
date. He assured  the public that legislators had spent  a lot of                                                               
time  preparing even  their staff  for this  issue and  they were                                                               
just in the  early stages of its consideration.  They are talking                                                               
about  a big  tax increase  for the  oil companies  and it  would                                                               
affect the state for many years to come.                                                                                        
CO-CHAIR SAMUELS followed up saying  that this legislation is not                                                               
just about  getting more  money. It asks  how much  risk Alaskans                                                               
can stomach.                                                                                                                    
CHAIR WAGONER clarified that this  legislation dealt with only 25                                                               
percent  of  the  revenues  coming  into the  state  -  just  the                                                               
severance tax from the oil industry.  He also said they needed to                                                               
reflect on  how much  worse off  the state  would be  to continue                                                               
using the current ELF with $20-a-barrel oil than with the PPT.                                                                  
12:34:39 PM                                                                                                                   
RYAN COLGAN,  Fairbanks, said he  respected this process  a great                                                               
deal.  He asked  them to  consider  that the  taxable royalty  in                                                               
section  9  on  page  4,  line 19,  could  be  determined  by  an                                                               
agreement  made after  this legislation  passed. Also,  the gross                                                               
value at point of production, in  section 20 on page 11, could be                                                               
calculated  based on  a formula  adopted  after this  legislation                                                               
passed. Further he said:                                                                                                        
     The  lease expenditures  component  of the  calculation                                                                    
     cannot be  known with  any certainty  at this  point as                                                                    
     the  operative definition  of "lease  expenditures" are                                                                    
     the  direct, ordinary  and necessary  costs, which  are                                                                    
     substantially  determined  based  on  typical  industry                                                                    
     standards   as  proposed   in   AS  43.55.160(c).   The                                                                    
     information  used to  compute the  tax is  confidential                                                                    
     under  this bill  and  the model  used  to craft  these                                                                    
     provisions   is  not   public.  You   may  trust   this                                                                    
     administration or the last  administration to carry out                                                                    
       the ambiguous provisions of this bill, but do you                                                                        
     trust future administrations?                                                                                              
He concluded saying,  "Just because ELF is bad  doesn't make this                                                               
legislation good. Consider the alternatives."                                                                                   
GUY PETERS,  Fairbanks, urged legislators to  continue developing                                                               
the oil industry,  but to proceed with caution  in developing the                                                               
12:40:08 PM                                                                                                                   
CO-CHAIR  RAMRAS explained  that  this legislation  was meant  to                                                               
incent the producers and explorers "to  get back into the dirt in                                                               
Alaska and  find more oil and  fill up that pipeline."  This bill                                                               
incents a  30-year old  revenue stream that  will result  in more                                                               
severance taxes,  more jobs, more  royalty oil, and  the economic                                                               
multiplier of  getting billions of  dollars of new  investment on                                                               
the Slope.                                                                                                                      
12:41:12 PM                                                                                                                   
TODD LARKIN,  Fairbanks, said he  didn't have a solid  opinion on                                                               
the  legislation at  the  moment, but  he  voted for  Republicans                                                               
because  of  their ideals  and  one  of  them  was to  create  an                                                               
inviting  market to  draw in  new  business, large  or small  and                                                               
create economic  opportunity for all Alaskans.  He was interested                                                               
in creating  personal financial independence rather  than a bunch                                                               
of  dependents.  He  hope the  PPT  followed  the  constitutional                                                               
mandate and  that any proceeds  would be heavily invested  in the                                                               
Permanent Fund so  that individual Alaskans could  make their own                                                               
financial decisions.                                                                                                            
CAL SKAUGSTAD,  Fairbanks, supported  the Governor's bill  and he                                                               
encouraged  its   passage  if  the  legislature   determined  its                                                               
provisions were in the state's best interest.                                                                                   
12:44:29 PM                                                                                                                   
KATHY  FONTAINE, Anchorage,  supported the  legislation, but  she                                                               
emphasized that  the state must  be fiscally responsible  and not                                                               
short-sighted in wanting too much.                                                                                              
JERRY MCCUTHCHEON,  Kenai, said  the requests  to slow  down were                                                               
really  a request  for information  and  time for  the public  to                                                               
obtain it.  He urged them to  look at the original  bids on North                                                               
Star  as a  model for  the  percent of  net profit  tax plan.  He                                                               
feared that  the Governor's plan  would have  endless litigation.                                                               
They would  control what would  be net  profits and costs  and he                                                               
used Exxon  as an example. He  accused that they were  here today                                                               
because  they  were promised  a  gasline  contract in  which  the                                                               
producers were not  obligated to build a pipeline,  but rather to                                                               
just consider it.                                                                                                               
SENATOR  STEDMAN  reminded people  that  they  were dealing  with                                                               
changing the ELF tax, not the gasline.                                                                                          
J. R.  HANK LANGMAN,  Anchorage, said  that everybody  where he's                                                               
from  wants the  legislature to  drop the  legislation and  start                                                               
over. He said that people need  more time to understand what they                                                               
are doing.                                                                                                                      
THERESA OBERMEYER, Anchorage, commented on unrelated issues.                                                                    
MIKE PRAX, North Pole, said  he was representing himself. He said                                                               
that Alaska is  in partnership with the oil companies  and has to                                                               
compete in  the world market  with them. The state  shouldn't get                                                               
into an adversarial relationship with them.                                                                                     
RHONDA BOYLES,  Fairbanks, urged the legislature  to move forward                                                               
on  this  issue  and  said  that  she  had  confidence  in  their                                                               
abilities.  She wanted  to see  more oil  production, exploration                                                               
and development saying,  "Taxes are not good, but  jobs are." She                                                               
preferred the 15/15 scenario.                                                                                                   
1:05:50 PM                                                                                                                    
REPRESENTATIVE SEATON  referred her  to Robyn  Wilson's Petroleum                                                               
Tax  overview that  contained the  Department of  Revenue's long-                                                               
term forecast. It  indicated that this bill would  give the state                                                               
more money  for two  years, but after  that it  underperforms the                                                               
ELF  for two  years  and  after that  it  does  exactly what  the                                                               
underperforming  ELF  does.  This  was unacceptable  to  him  and                                                               
others on the House Resources Committee.                                                                                        
1:07:57 PM                                                                                                                    
REPRESENTATIVE  ROKEBERG commented  that the  tax structure  used                                                               
now is dying of its own weight.                                                                                                 
SENATOR STEDMAN  said that  ELF is  a little  bit better  under a                                                               
certain  scenario,  but  above  a  certain  price,  the  proposed                                                               
structure  would be  substantially different  and that  point was                                                               
one of the decisions the legislature has to determine.                                                                          
MS.  BOYLES  read  Buzz  Otis' statement  supporting  a  new  tax                                                               
regime. He  also urged them to  take the time necessary  to fully                                                               
understand  both the  near and  long-term  ramifications of  this                                                               
1:10:52 PM                                                                                                                    
CHRIS  WEST, Anchorage,  said he  has been  employed by  BP since                                                               
1998, and has  four Alaskan boys. He reported  that the resources                                                               
on the  Slope are  very large,  but they  are increasing  hard to                                                               
transport when  competing for investment dollars.  He thought the                                                               
bill was fair and would help move resource development forward.                                                                 
REPRESENTATIVE ROKEBERG  asked if a  higher tax credit  for heavy                                                               
oil specifically would encourage more invest in it.                                                                             
MR. WEST  replied that Alberta,  Canada, has a vibrant  heavy oil                                                               
economy compared  to Alaska's and  he thought the tax  scheme was                                                               
the difference.                                                                                                                 
JIM DECKER, Anchorage oil industry  worker, said he supported the                                                               
PPT legislation and that it would  make the gasline a reality. He                                                               
thought the  PPT should be revenue-neutral  over time. Department                                                               
of Revenue  projections indicate  the new  tax would  provide far                                                               
more revenue to the state  than the existing ELF-based production                                                               
tax and  he didn't think  the state should  use the shift  to the                                                               
PPT as an opportunity to grab  more revenue from an industry that                                                               
already provides  over 80  percent of  state revenues.  The shift                                                               
should be about moving to  a more equitable, less regressive, tax                                                               
structure; the  focus should  be on  creating a  healthy business                                                               
environment  that increases  production,  which  would result  in                                                               
higher revenues for the state.                                                                                                  
MR. DECKER also  favored establishing a mechanism  to insure that                                                               
excess  revenues   received  under   the  PPT  during   times  of                                                               
relatively  high oil  prices would  be placed  into a  reserve to                                                               
cover  revenue  shortfalls during  times  of  relatively low  oil                                                               
price. He explained:                                                                                                            
     My concern  here is that in  my household, expenditures                                                                    
     rise  to  meet   income  and  I  am   asking  that  the                                                                    
     legislature  insure that  the  state's expenditures  do                                                                    
     not rise  to consume the entirety  of revenues received                                                                    
     under   the  PPT   in  our   current  high   oil  price                                                                    
CHAIR  WAGONER emphasized  that  one  of the  key  issues of  the                                                               
legislation was to  increase in oil production and  that is where                                                               
the state would derive the biggest benefit.                                                                                     
ANDREW VAN  CHAU, Anchorage, said he  was a BP employee  and that                                                               
the PPT  was an unprecedented  tax hike that doubles  the overall                                                               
tax rate for  the oil industry. If it  encouraged development, he                                                               
supported  it; if  it  was  just a  grab  for  money, he  didn't.                                                               
Lawmakers should think about shaping  Alaska's fiscal policies to                                                               
encourage investment.  He placed his faith in the legislature.                                                                  
CO-CHAIR RAMRAS asked which percentage he supported.                                                                            
MR. CHAU replied that he would leave that up to the legislature.                                                                
1:24:09 PM                                                                                                                    
MERRICK JOHNSTON,  Anchorage, said she just  started working with                                                               
BP  and thought  this was  a  good time  to set  tax policy.  She                                                               
suggested setting  aside another Permanent Fund  for education so                                                               
it revenues  were not so narrowly  focused on oil and  gas taxes.                                                               
She  questioned  having  a  six-year  transition  period  in  the                                                               
beginning of  the 30-year contract  and not the end.  She thought                                                               
this  was a  good time  to establish  a state  fiscal policy  and                                                               
thought Alaskan  residents should consider paying  an income tax.                                                               
She concluded by  urging them to diversity  Alaska's resources by                                                               
investing in its intellectual properties.                                                                                       
1:27:05 PM                                                                                                                    
RACE G. JONES, Anchorage, said  Alaska's partnership with the oil                                                               
and gas developers has mostly been  good. He had concerns with HB
488,  but  he couldn't  address  them  without understanding  the                                                               
pipeline  contract.  He asked  if  HB  488  could have  a  clause                                                               
allowing  for a  revision if  affected by  the gasline  contract,                                                               
which he thought might help prevent litigation.                                                                                 
CHAIR  WAGONER replied  that the  legislature is  dealing with  a                                                               
stand-alone  bill on  oil  and gas  taxation  and the  Governor's                                                               
gasline  contract would  be addressed  at a  later date  after he                                                               
completes negotiations  and the contract is  ready for signature.                                                               
The legislature would,  then, make the choice of voting  it up or                                                               
down. If it is voted down,  a letter would be attached indicating                                                               
the problems.                                                                                                                   
MR. JONES asked  him if he was saying the  legislature would have                                                               
the ability  to go back and  look at HB  488 if it felt  the need                                                               
after they saw the pipeline contract.                                                                                           
CHAIR WAGONER replied, "Absolutely."                                                                                            
1:30:47 PM                                                                                                                    
CHANCY CROFT, Anchorage, said he has  owned oil and gas leases in                                                               
Alaska, but he  was speaking for himself. He related  that he had                                                               
a  minor role  in the  beginning of  the process  when the  state                                                               
changed  its  severance tax.  He  hoped  the present  legislation                                                               
would involve many weeks and maybe  months on behalf of those who                                                               
worked  on it  then.  He  related how  in  1978, the  legislature                                                               
passed a bill providing for  a net income tax separate accounting                                                               
to  determine  the  basic  income  the  state  would  receive  in                                                               
addition  to  royalty income  from  the  oil industry.  That  was                                                               
repealed in  1981 by tacking  it on to other  legislation without                                                               
much of  a hearing. It  was signed  into law by  Governor Hammond                                                               
and he  regretted having done  that to the  day of his  death. He                                                               
was told the effect was revenue  neutral, but it wasn't. The fact                                                               
of  the  matter was  because  it  didn't  go through  a  thorough                                                               
legislative process, it cost the state billions of dollars.                                                                     
MR. CROFT  exhorted them  to consider all  of the  legislation on                                                               
this topic. He  noted that they had heard  skeptical comments and                                                               
that  was due  to  the fact  that other  bills  dealing with  the                                                               
question of ELF were pending  before the legislature, but none of                                                               
them  received a  hearing and  still do  not. When  this type  of                                                               
legislation was considered  in the past, bills  introduced by the                                                               
legislature  had  the same  status  as  bills introduced  by  the                                                               
governor. He hoped  the legislature would consider  all the bills                                                               
on this subject, not just one.                                                                                                  
He thought  it was important  for the legislature to  address the                                                               
intent with which they were  approaching this legislation because                                                               
the  Supreme  Court, for  years,  has  urged the  legislature  to                                                               
express its intent. It would  be important particularly since the                                                               
question has arisen about whether this  is tied in any way to the                                                               
pipeline contract. and that:                                                                                                    
He urged them to consider  eliminating any tax credit completely,                                                               
because  it  creates  distortion   and  is  terrible  policy.  He                                                               
mentioned  that  Representative  Ramras  also  talked  about  the                                                               
possibility someone  might attempt  to insert these  credits into                                                               
other areas.                                                                                                                    
He said tax policy should  include an almost instantaneous review                                                               
by the  legislature to make  sure it  would not stop  an economic                                                               
operation. But in reality, it's  only belatedly that the question                                                               
of  the  appropriate  tax  arises after  oil  prices  have  risen                                                               
substantially. He concluded:                                                                                                    
     The state and the oil  companies are adversaries in the                                                                    
     sense  that in  the long  run whatever  we take  out in                                                                    
     taxes does  impact their net  income, but  that doesn't                                                                    
     mean we  cannot formulate a reasonable  policy. It only                                                                    
     means that you  can't tax the oil after  it's gone. And                                                                    
     that  it's  important  for  us  to  remember  it's  not                                                                    
     whether the oil companies like  us, but whether we have                                                                    
     a  reasonable policy.  Because  we're  not here  buying                                                                    
     love, we're actually selling oil.                                                                                          
CHAIR WAGONER  noted that the  legislature did have a  hearing on                                                               
Senator French's ELF bill.                                                                                                      
MR.  CROFT responded  that having  all  the bills  on this  issue                                                               
before the committee  is important, because that goes  a long way                                                               
towards  eliminating  the  perception  that this  is  only  being                                                               
addressed because a  gas pipeline contract might follow  or is in                                                               
any way  dependent on  it. It  also puts  all options  before the                                                               
legislature at the same time.                                                                                                   
CHAIR  WAGONER mentioned  that the  committee  had received  many                                                               
letters  from people  on this  issue who  were not  testifying in                                                               
person and those would be entered into the record.                                                                              
BOB BATCH,  Anchorage, said  he was here  today because  he cared                                                               
about  Alaska's  future  and he  supported  this  legislation  as                                                               
drafted.  Passing it makes the  rules clear and lasting and would                                                               
move the gasline project forward.                                                                                               
1:40:53 PM                                                                                                                    
STAN GATES, Anchorage,  said since he had been in  Alaska, he has                                                               
seen  an  enormous  increase  in  the  quality  of  life  and  he                                                               
attributed that  enhancement to the  development of  industry. He                                                               
recommended  that the  legislature  encourage  the oil  companies                                                               
with  incentives to  come to  Alaska to  sustain that  quality of                                                               
life.  He  thought  that  high  oil  prices  would  be  sustained                                                               
indefinitely and that fact needed to be taken into account.                                                                     
CHAIR WAGONER reiterated:                                                                                                       
     This is  a tax bill;  this is not a  long-term contract                                                                    
     and  it  is not  the  intention  at  this time  in  the                                                                    
     legislature for  this to  become a  long-term contract.                                                                    
     That decision  is down the  road and that will  be made                                                                    
     by the whole legislature.                                                                                                  
1:43:20 PM                                                                                                                    
BARBARA  HUFF-TUCKNESS,  Director, Governmental  and  Legislative                                                               
Affairs, Teamsters Local 959, said  they recognize the importance                                                               
of oil development to Alaska's economy.  She said that SB 305 and                                                               
HB 488  were very important  pieces of legislation and  she urged                                                               
the  legislature to  give them  full  consideration saying  there                                                               
would be no room for mistakes.                                                                                                  
From her  initial review, she felt  the 20 percent tax  rate with                                                               
the many  liberal deductions  was not  enough. Knowing  this rate                                                               
will probably  be locked in  over a  20-year period of  time, she                                                               
felt  that fiscal  certainty around  oil has  nothing to  do with                                                               
building  a  gasline,  but  rather it  was  simply  an  industry-                                                               
leveraging tactic to  lock in a long-term tax  rate. The industry                                                               
should be willing to pay  a significant premium for the certainty                                                               
that  they claim  is so  vital and  important to  their continued                                                               
operation in Alaska.                                                                                                            
She assumed the tax policy  behind the proposed deductions was to                                                               
stimulate economic activity and job  creation in the state, which                                                               
she endorsed. However, she said:                                                                                                
     Money  spent  outside  Alaska  should  not  qualify  as                                                                    
     legitimate  deductions.  Allowing  overhead  costs  for                                                                    
     payroll out of India  does little to stimulate Alaska's                                                                    
     economy nor  would engineering firms  that are  paid in                                                                    
     Canada  actually   stimulate  anybody   else's  economy                                                                    
     besides  the Canadians'.  We believe  that the  current                                                                    
     language  surrounding  capital  and  operating  expense                                                                    
     deductions  needs additional  review,  analysis and  be                                                                    
     written in such a manner  to incentify the companies to                                                                    
     hire Alaskans and Alaskan  firms with Alaskan employees                                                                    
     first  and   foremost.  Let's  make  sure   that  these                                                                    
     deductions  stimulate  our  economy and  not  those  of                                                                    
     other  nations.  In  closing,   we  urge  you  to  move                                                                    
     carefully  and deliberatively  as  your decisions  will                                                                    
     impact our  government and quality  of life for  all of                                                                    
     the Alaskans,  not only our  future, but for  years and                                                                    
     years to come.                                                                                                             
     Let  us not  forget  our courageous  leaders that  went                                                                    
     before you.  This is not  a Republican  versus Democrat                                                                    
     issue.  This  should  be  one  of  complete  and  total                                                                    
     bipartisan  support. Your  decisions this  session will                                                                    
     impact your  children's children and the  future of all                                                                    
     of us in the room as well.                                                                                                 
1:48:34 PM                                                                                                                    
TOM  BRICE, District  Council of  Laborers, said  he needed  more                                                               
time  to gauge  impacts  of  the proposal  on  the  state or  his                                                               
membership. He  noted there  should be  a floor  so the  tax rate                                                               
isn't an  effective zero at some  point in time and  opined that,                                                               
"Everybody should be required to pay something if they are going                                                                
to extracting our resources."                                                                                                   
Additionally, he  said the write-offs  needed the  greatest level                                                               
of clarity  possible because  ending up  in litigation  for years                                                               
and years  trying to get  our share of  the taxes, which  was the                                                               
case in  the current  system, was  not what  anybody wanted.   He                                                               
urged the committee to have a very public process.                                                                              
CHAIR WAGONER thanked everyone for their comments and adjourned                                                                 
the meeting at 1:49:47 PM.                                                                                                    

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