Legislature(2017 - 2018)BUTROVICH 205

04/24/2017 02:00 PM RESOURCES

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Audio Topic
02:00:13 PM Start
02:00:45 PM HB111
02:41:30 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time --
+= HB 111 OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS TELECONFERENCED
Moved SCS CSHB 111(RES) Out of Committee
-- Testimony <Invitation Only> --
        HB 111-OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS                                                                    
                                                                                                                                
2:00:45 PM                                                                                                                    
CHAIR   GIESSEL  announced   consideration   of   HB  111   [CSHB                                                               
111(FIN)(efd)(fld) was before the committee].  It was first heard                                                               
on  April 14;  it  had two  hearings  on April  15  and two  more                                                               
hearings on  April 17. They  had a hearing  on April 18  with the                                                               
Department  of  Revenue  (DOR) and  follow  up  with  legislative                                                               
consultants; and on  April 19 another meeting  with a legislative                                                               
consultant. They now have a proposed committee substitute (CS).                                                                 
                                                                                                                                
SENATOR COGHILL  moved to adopt  SCS CSHB 111 (RES),  version 30-                                                               
LS0450\P as the working document.                                                                                               
                                                                                                                                
CHAIR GIESSEL objected for discussion purposes.                                                                                 
                                                                                                                                
2:01:36 PM                                                                                                                    
AKIS  GIALOPSOS,   staff  to  Senator  Giessel   and  the  Senate                                                               
Resources  Committee, Alaska  State Legislature,  Juneau, Alaska,                                                               
explained the  changes in the CS.  He said the three  elements in                                                               
this CS are:                                                                                                                    
                                                                                                                                
1. Elimination  of the  refundable tax credits  (Oil and  Gas Tax                                                               
Credit Fund established in AS 43.55.028) as of January 1, 2018.                                                                 
2. Transition to  carried forward (CF) losses  with the statewide                                                               
repeal  of  the   net  operating  loss  credit   (NOL)  under  AS                                                               
43.55.023(b).  This   CS  transition   the  loss   carry  forward                                                               
mechanism to a deduction, allowing  the taxpayer to recover their                                                               
full losses.                                                                                                                    
3.  Expansion  of  the  timeframe   for  the  interest  rate  for                                                               
delinquent taxes  under AS 43.55  to six years while  lowering it                                                               
to 3  percent compounded quarterly, and  combining the assessment                                                               
for delinquent  taxes under  AS 43.55  with all  other delinquent                                                               
taxes under AS 43.05 statutes.                                                                                                  
                                                                                                                                
2:03:15 PM                                                                                                                    
MR.  GIALOPSOS  presented the  sectional  analysis  for SCS  CSHB                                                               
111(RES), version \P, as follows:                                                                                               
                                                                                                                                
Section  1 amends  AS.05.2225,  Administration  of Revenue  Laws,                                                               
Interest  on page  1, line  7-page 2,  line 20,  by changing  the                                                               
interest rate  to 3 percent  compounded quarterly  for delinquent                                                               
taxes; effective January 1, 2018.                                                                                               
                                                                                                                                
Section  2  amends  AS  43.20.044(a),   Alaska  Net  Income  Act,                                                               
Exploration incentive credit  on page 2, lines  21-25 that states                                                               
the credit accrued under AS  43.55.025, the Middle Earth credits,                                                               
can  be used  as a  deduction against  that taxpayer's  corporate                                                               
income taxes. That function is not transferable.                                                                                
                                                                                                                                
Section  3 amends  AS 43.20.046(e),  Alaska Net  Income Act,  Gas                                                               
storage facility tax  credit, on page 2, line 26-page  3, line 1.                                                               
Sections  4, 5,  and 6  do the  same thing  for those  respective                                                               
three  credits  that are  cashable  and  found in  the  corporate                                                               
income tax credit  system: the LNG storage  facility, the natural                                                               
gas storage  facility, and  the oil  refinery. Those  will remain                                                               
cashable until their natural expiration  and they are going to be                                                               
available in their cash-ability through general appropriation.                                                                  
                                                                                                                                
Sections 4 and 5 conform to that.                                                                                               
                                                                                                                                
2:04:38 PM                                                                                                                    
Section 6 adds a new section  to AS 43.20, Alaska Net Income Tax,                                                               
by taking  the language that had  previously been in the  oil and                                                               
gas tax  credit fund in AS  43.55.028 and put it  into the income                                                               
tax statutes for those three  credits to have the same provisions                                                               
of making them applicable through general appropriation.                                                                        
                                                                                                                                
2:04:53 PM                                                                                                                    
Section 7 amends AS 43.55.023(c),  Oil and Gas Production Tax, on                                                               
Tax credits for  certain losses and expenditures on  page 4, line                                                               
16-page  4, line  20. This  enables a  taxpayer to  apply credits                                                               
issued   under  .023   against  prior   year  taxes,   interests,                                                               
penalties, and  fees related to  the oil and gas  production tax.                                                               
This  includes amended  oil and  gas  production taxes,  provided                                                               
that  the  assessment  was  not   subject  to  an  administrative                                                               
procedural appeal or litigation.                                                                                                
                                                                                                                                
Section 8  amends AS  43.55.023(d), Oil  and Gas  Production Tax,                                                               
Tax credits for certain losses  and expenditures, on page 4, line                                                               
27-page 5, line 13. It conforms to  the repeal of the oil and gas                                                               
tax credit fund later in this bill (in Section 25).                                                                             
                                                                                                                                
2:05:33 PM                                                                                                                    
Section 9  amends AS  43.55.023(e), Oil  and Gas  Production Tax,                                                               
Tax credits for certain losses  and expenditures, on page 5, line                                                               
14-page 6, line  1. Like section 7, this also  enables a taxpayer                                                               
to  use a  transferable  credit  that had  been  issued under  AS                                                               
43.55.023  against   those  prior   year  taxes  with   the  same                                                               
limitations.                                                                                                                    
                                                                                                                                
Section 10  adds a new  subsection to  AS 43.55.024, Oil  and Gas                                                               
Production Tax,  Additional nontransferable tax credits,  on page                                                               
6, lines 2-8.  It states that tax credits  under AS 43.55.024(c),                                                               
the small  producer credit, and  AS 43.55.024(i),  the per-barrel                                                               
credit  for new  oil,  could  be used  to  reduce the  taxpayer's                                                               
liability  below the  minimum, but  not below  zero, including  a                                                               
year in which the sliding-scale  credit (AS 43.55.024(j)) is used                                                               
and the  taxpayer can decide  the ordering of those  credits when                                                               
calculating their tax liability.                                                                                                
                                                                                                                                
2:06:30 PM                                                                                                                    
Section 11  amends AS 43.55.025(a),  Oil and Gas  Production Tax,                                                               
Alternative tax  credit for oil  and gas exploration, on  page 6,                                                               
lines  9-31.  The  tax  credit  in  AS  43.55.025  (Middle  Earth                                                               
statutes) conforming  to their  ability to  use a  credit accrued                                                               
under those  statutes against production tax  or corporate income                                                               
taxes.                                                                                                                          
                                                                                                                                
Section 12  amends AS 43.55.025(f),  Oil and Gas  Production Tax,                                                               
Alternative tax  credit for oil  and gas exploration, on  page 7,                                                               
line 1-page  9, line 16.   This  allows those same  provisions of                                                               
deductibility against  corporate income  tax for a  taxpayer that                                                               
has  earned  it  under  AS  43.55.025 and  it  also  directs  the                                                               
Department  of Revenue  to  grant or  deny  a credit  application                                                               
under .025 within 120 days of receipt of that application.                                                                      
                                                                                                                                
2:07:16 PM                                                                                                                    
Section 13  amends AS 43.55.025(h),  Oil and Gas  Production Tax,                                                               
Alternative tax  credit for  oil and gas  exploration, on  page 9                                                               
lines 17-31. This  is the explicit provision that  a taxpayer may                                                               
apply  credits  issued  under AS  43.55.025  against  prior  year                                                               
taxes,  interest,  penalties,  and  fees,  similar  to  the  same                                                               
language  allowed  for  a transferable  credit  issued  under  AS                                                               
43.55.023  and  subject  to  the  same  limitations,  litigation,                                                               
appeal, etc.                                                                                                                    
                                                                                                                                
2:07:44 PM                                                                                                                    
Section 14  amends AS 43.55.025(i),  Oil and Gas  Production Tax,                                                               
Alternative tax credit  for oil and gas exploration,  on page 10,                                                               
lines 1-9.  It states that  credits under AS 43.55.025(i)  can be                                                               
applied against both  the production tax or  the corporate income                                                               
tax, but cannot be used to reduce taxes below zero.                                                                             
                                                                                                                                
Section 15  Amends As 43.55.028(e),  Oil and Gas  Production Tax,                                                               
Oil and  gas tax credit  fund established; cash purchases  of tax                                                               
credit  certificates, on  page 10,  line 10-page  11, line  4. It                                                               
established  that  pursuant to  Section  25,  this fund  will  be                                                               
appealed as  of January 1,  2018. Any funds that  are outstanding                                                               
can  be refunded  through general  appropriation. It  removes the                                                               
maximum  amount per  year a  company can  receive in  refunds and                                                               
makes  conforming changes.  It maintains  requirements that  only                                                               
companies producing less than 50,000  barrels per day can receive                                                               
cash payments.                                                                                                                  
                                                                                                                                
2:08:39 PM                                                                                                                    
Section 16  amends AS 43.55.028(g),  Oil and Gas  Production Tax,                                                               
Oil and  gas tax credit  fund established; cash purchases  of tax                                                               
credit certificates, on  page 11, line 5-page 12, line  2.  It is                                                               
another conforming  to the repeal of  the Oil and Gas  Tax Credit                                                               
Fund in Section  25, and carves out the language  for the credits                                                               
that are  used against  a corporate income  tax liability  for an                                                               
LNG  storage and  gas  storage  facility, or  a  oil refinery  to                                                               
conform to the changes found in Section 6.                                                                                      
                                                                                                                                
2:09:06 PM                                                                                                                    
Section 17  amends AS 43.55.028(j)  and AS 43.55.028(g),  Oil and                                                               
Gas  Production Tax,  Oil and  gas tax  credit fund  established;                                                               
cash purchases of  tax credit certificates, on page  12, lines 3-                                                               
19.  This  conforms to the repeal  of the Oil and  Gas Tax Credit                                                               
Fund in Section 25.                                                                                                             
                                                                                                                                
Section 18  amends AS 43.55.029(a),  Oil and Gas  Production Tax,                                                               
Assignment of  tax credit certificate,  on page 12,  line 20-page                                                               
13, line 1.  This conforms as well to the  Section 25, the repeal                                                               
of AS 43.55.023(b), net operating loss (NOL) credit.                                                                            
                                                                                                                                
Section 19  amends AS 43.55.160(d),  Oil and Gas  Production Tax,                                                               
Determination of  production tax  value of oil  and gas,  on page                                                               
13, line 2-page  13, line 13.  This also  conforms to the section                                                               
25 repeal of AS 43.55.023(b), net operating loss credit.                                                                        
                                                                                                                                
Section 20  amends AS 43.55.160(e),  Oil and Gas  Production Tax,                                                               
Determination of  production tax  value of oil  and gas,  on page                                                               
13, line 14- page 14, line 5.  This conforms to the repeal of the                                                               
NOL  credit in  Section 25  as  well as  to the  change to  lease                                                               
expenditures in section 21.                                                                                                     
                                                                                                                                
Section 21  amends AS 43.55.165(a),  Oil and Gas  Production Tax,                                                               
Lease expenditures  (as amended  by Sec. 29,  ch.4, 4SSLA  2016 -                                                               
House Bill 247), on  page 14, line 6-page 15, line  7.  It states                                                               
that for the  North Slope only, lease  expenditures include those                                                               
incurred  in   a  previous  year   that  were  not   deducted  in                                                               
determining  production tax  value and  were not  the basis  of a                                                               
credit.                                                                                                                         
                                                                                                                                
2:10:06 PM                                                                                                                    
Section 22  amends AS 43.55.165(f),  Oil and Gas  Production Tax,                                                               
Lease expenditures, on page 15,  lines 8-12. This conforms to the                                                               
Section 25 repeal of AS 43.55.023(b), net operating loss credit.                                                                
                                                                                                                                
2:10:35 PM                                                                                                                    
Section  23 adds  new subsections  to AS  43.55.165, Oil  and Gas                                                               
Production Tax, Lease expenditures, on  page 15, line 13-page 16,                                                               
line 17. These  subsections respectively create an  uplift in the                                                               
amount of 10  percent compounded annually, for  seven years. Only                                                               
companies  without  commercial  production when  the  expenditure                                                               
occurred  are  eligible  for  the  uplift.  The  increased  value                                                               
(uplift) can  be applied generally  providing the  producer holds                                                               
interest in  the leases on  which the expenditure  generating the                                                               
uplift occurred and the leases entered production.                                                                              
                                                                                                                                
That same section specifies that  current year lease expenditures                                                               
are  to be  applied before  carryforward lease  expenditures when                                                               
calculating  tax  liability.   In  applying  carry-forward  lease                                                               
expenditures,  a producer  only needs  to apply  the amount  that                                                               
would reduce  taxes to  the equal amount  under the  minimum tax,                                                               
and not  to zero. Carry-forward  lease expenditures in  excess of                                                               
the amount  applied to reduce taxes  to the equal of  the minimum                                                               
tax are carried forward to a future year.                                                                                       
                                                                                                                                
Section 24  amends AS 43.55.170(c),  Oil and Gas  Production Tax,                                                               
Adjustments to lease expenditures, on  page 16, lines 18-22. This                                                               
conforms  to  the  section  25 repeal  of  AS  43.55.023(b),  net                                                               
operating loss credit.                                                                                                          
                                                                                                                                
2:11:59 PM                                                                                                                    
Section  25 repeals  multiple  sections of  statute  on page  16,                                                               
lines 23-24.  It repeals the NOL  credit as well as  all relevant                                                               
sections pursuant to the oil and  gas tax credit fund, as well as                                                               
the  assignment  of  tax credit  certificates,  which  have  been                                                               
constricted to third-party access before certification.                                                                         
                                                                                                                                
     [AS 43.55.023(b) Net operating loss credit                                                                                 
     AS  43.55.028(a)  Oil and  gas  tax  credit fund,  fund                                                                    
     established                                                                                                                
     AS  43.55.028(b)  Oil and  gas  tax  credit fund,  fund                                                                    
     consists of money to the fund and earnings on the fund                                                                     
     AS 43.55.028(c) Oil and gas  tax credit fund, statutory                                                                    
     minimum calculation                                                                                                        
     AS  43.55.028(d)  Oil and  gas  tax  credit fund,  fund                                                                    
     management                                                                                                                 
     AS 43.55.028(f) Oil  and gas tax credit  fund, money in                                                                    
     fund does not lapse                                                                                                        
     AS  43.55.028(h) Oil  and gas  tax credit  fund, not  a                                                                    
     dedicated fund AS                                                                                                          
     43.55.028(i)  Oil and  gas tax  credit fund,  qualified                                                                    
     capital expenditure definition in  relation to the fund                                                                    
     section of statute                                                                                                         
     AS   43.55.029(b)(4)    Assignment   of    tax   credit                                                                    
     certificate, assignment must contain  an account with a                                                                    
     bank   with  which   to  receive   funds  when   credit                                                                    
     certificate is repurchased]                                                                                                
                                                                                                                                
Section 26,  on page 16,  lines 25-30, is  applicability language                                                               
related  to the  new ability  to  apply AS  43.55.025 credits  to                                                               
corporate income tax liability.                                                                                                 
                                                                                                                                
Section  27,   on  page   16,  line  31-page   17,  line   7,  is                                                               
applicability language  related to  the new timelines  in section                                                               
12 for  the Department of  Revenue to grant or  deny applications                                                               
for credits under AS 43.55.025.                                                                                                 
                                                                                                                                
Section 28,  on page  17, lines  8-14, is  applicability language                                                               
related  to  credits used  against  prior  years' production  tax                                                               
liability.                                                                                                                      
                                                                                                                                
Section  29,  page 17,  lines  15-19,  is applicability  language                                                               
related to lease expenditures.                                                                                                  
                                                                                                                                
2:13:09 PM                                                                                                                    
Section  30, on  page  17, lines  20-25,  is transition  language                                                               
related to the changes in  the interest rate on delinquent taxes,                                                               
insuring  that the  effective  date  is January  1,  2018 and  no                                                               
retroactivity is applied to those.                                                                                              
                                                                                                                                
Section 31,  on page 17, line  26-page 18, line 8,  is transition                                                               
language related to carry-forward annual losses.                                                                                
                                                                                                                                
Section  32,  on page  18,  lines  9-16, is  transition  language                                                               
related to transferrable tax credit certificates.                                                                               
                                                                                                                                
Section  33, on  page  18, lines  17-21,  is transition  language                                                               
related to the repeal of the Oil and Gas Tax Credit Fund.                                                                       
                                                                                                                                
2:13:55 PM                                                                                                                    
Section 34, on page 18,  lines 22-23, sets an immediate effective                                                               
date for Secs. 2, 7, 9, 11-14, and 26-28.                                                                                       
                                                                                                                                
Section 35, on  page 18, lines 24-25, sets an  effective date for                                                               
section 21 based on the effective  date of changes made in HB 247                                                               
of 2016 (effectively January 1, 2018).                                                                                          
                                                                                                                                
Section  36,  page 18,  lines  26-27,  sets  a January  1,  2018,                                                               
effective date for all other sections.                                                                                          
                                                                                                                                
2:14:35 PM                                                                                                                    
CHAIR  GIESSEL  removed her  objection,  and  finding no  further                                                               
objection  announced  that  SCS   CSHB  111  (RES),  version  30-                                                               
LS0450\P,  was before  the  committee. She  noted  that it  would                                                               
remove  all  cashable  credits,   clarifies  the  hard  4-percent                                                               
minimum tax floor, and fixes an interest rate.                                                                                  
                                                                                                                                
She  said  the  committee  had heard  from  the  two  legislative                                                               
consultants and many  of their recommendations are  in this bill.                                                               
The Senate has  consensus around the issue of the  need to remove                                                               
the  cashable  credit  option, because  the  state  simply  can't                                                               
afford them.                                                                                                                    
                                                                                                                                
2:15:29 PM                                                                                                                    
SENATOR  MEYER commented  that the  legislature and  the Governor                                                               
have acknowledged  that the state's refundable  credit program is                                                               
very unusual and makes its  tax program problematic to implement.                                                               
The refundable credits have become  the third-largest line in the                                                               
general  fund budget.  When  oil was  $100/barrel,  it wasn't  so                                                               
noticeable, but when  oil is at $45/barrel, it  is noticeable and                                                               
a  problem to  the  budget.   The  key  is  remembering that  the                                                               
cashable  credits have  worked exactly  the way  lawmakers wanted                                                               
them to.   For example, four or five years  ago they were looking                                                               
at how to import gas  to Southcentral Alaska, and small companies                                                               
were  attracted  to  Cook  Inlet  that has  gone  from  having  a                                                               
shortage of gas to having  a surplus with those cashable credits.                                                               
The  same can  be  said for  the North  Slope:  Alaska wanted  to                                                               
attract smaller companies to an area  that is probably one of the                                                               
most  expensive  areas   to  do  oil  and   gas  exploration  and                                                               
production. Some  smaller companies  have been  enabled to  go up                                                               
there  by  those   cashable  credits  and  have   had  some  huge                                                               
successes.                                                                                                                      
                                                                                                                                
SENATOR MEYER said  Alaska just can't afford to  do this anymore.                                                               
This SCS puts  Alaska on a stable path going  forward without the                                                               
fear  of  incurring  greater  liability.  The  whole  tax  policy                                                               
doesn't need to  be rewritten, and HB 111  refocuses attention on                                                               
where it needs to be.                                                                                                           
                                                                                                                                
2:19:49 PM                                                                                                                    
SENATOR HUGHES  supported Senator  Meyer's remarks  regarding the                                                               
cashable  credits. They  listened to  their consultants  for many                                                               
hours about the specifics and levers  of our tax system, and some                                                               
good recommendations.                                                                                                           
                                                                                                                                
She thanked the House for its  focus on cashable credits, but she                                                               
was concerned  about the tax  rewrite, because SB 21  is working.                                                               
Trying to tax Alaska into prosperity  is like a man standing in a                                                               
bucket trying  to lift himself  up by  a handle. Since  the state                                                               
has been faced  with this fiscal crisis, there has  been a lot of                                                               
talk about spending and revenue,  and in many ways this committee                                                               
has been good about understanding  the issues. This version of HB                                                               
111 represents  that their focus  at this point really  should be                                                               
about getting more oil in TAPS.                                                                                                 
                                                                                                                                
This  bill  strikes a  balance.  The  oil industry  has  provided                                                               
"billions upon billions of dollars  of revenue" to Alaska, and it                                                               
doesn't make sense to tax oil  more when its price is down. Doing                                                               
that would  risk having less  oil in  the pipe and  job decreases                                                               
for already struggling companies.                                                                                               
                                                                                                                                
As   policy   makers,   Senator   Hughes  said,   it   is   their                                                               
responsibility to stick with what they  know, and they know SB 21                                                               
is working.  She looks forward  to continuing focusing on  how to                                                               
get more oil  into the pipeline. She wants  explorers to continue                                                               
exploring and producers to continue producing.                                                                                  
                                                                                                                                
SENATOR  HUGHES  said  the  balance  SCS  CSHB  111(RES)  strikes                                                               
addresses  the cashable  credits, but  also respects  the voters'                                                               
will when it  comes to SB 21.  They are doing the  right thing by                                                               
not focusing  on the short term,  which might mean a  little more                                                               
revenue now,  but rather  focusing on the  long term,  because if                                                               
exploration continues,  production will continue, and  that means                                                               
revenue will continue.                                                                                                          
                                                                                                                                
2:25:56 PM                                                                                                                    
SENATOR VON  IMHOF said  one of  the big  takeaways from  all the                                                               
testimony they heard  last week is that small  producers who have                                                               
generated millions  of dollars in  tax credits are  left hanging,                                                               
and they have bills  to pay; there are jobs on the  line.  HB 111                                                               
tries to  create additional options  for those tax  credits where                                                               
the state  is not  the only entity  paying for  them. Legislators                                                               
are looking for a way so  that these small companies can get cash                                                               
sooner rather  than later while  not reducing oil  taxes expected                                                               
to be paid to the state,  and therefore not affecting the revenue                                                               
forecast. It creates a win/win situation for everybody.                                                                         
                                                                                                                                
She said  right now, companies can  buy tax credits and  use them                                                               
for current  or future  years and that  has not  changed. Instead                                                               
the SCS is opening up the market  so that tax credits can be used                                                               
for prior years if a company  must amend a previous tax return or                                                               
pay  an assessment  issued after  an  audit is  complete. It  was                                                               
never money  the state  could have predicted  to receive  or have                                                               
created a budget from, or ever really counted on.                                                                               
                                                                                                                                
SENATOR VON  IMHOF said this  means that small producers  can get                                                               
money   now  with   third-party  transferability,   and  continue                                                               
operating  and  continue to  secure  future  oil production.  The                                                               
companies  who purchase  the tax  credits  can use  them on  past                                                               
taxes  that they  might unexpectedly  owe during  an audit  or an                                                               
amended return  with the  stipulation that  they don't  appeal or                                                               
litigate the tax  decision. They must accept the  ruling, use the                                                               
tax credit, and move on.                                                                                                        
                                                                                                                                
The  state  benefits  because  of   reducing  the  likelihood  of                                                               
expensive and time-consuming  disputes and it gets  a second wind                                                               
by  reducing the  backlog of  tax credits  waiting to  get cashed                                                               
out.                                                                                                                            
                                                                                                                                
SENATOR  VON IMHOF  said  she  believes SCS  CSHB  111(RES) is  a                                                               
reasonable  compromise  to  address  the  over  $200  million  in                                                               
cashable tax  credits that  have been earned  and are  sitting in                                                               
limbo.                                                                                                                          
                                                                                                                                
2:28:40 PM                                                                                                                    
SENATOR COGHILL said it looks  like the SCS CSHB 111(RES) answers                                                               
the question  of how to retain  value the best you  can for those                                                               
who have already invested in Alaska. It finds a way in a cash-                                                                  
strapped world  to retain  that value  that the  state set  up an                                                               
expectation  for.  The bill  doesn't  address  the complexity  of                                                               
Alaska's tax system, but that conversation  will go on for a long                                                               
time.                                                                                                                           
                                                                                                                                
2:29:55 PM                                                                                                                    
SENATOR STEDMAN  said one of  the concerns  he has is  removal of                                                               
the  tax  credit fund  and  the  requirement  for state  to  make                                                               
minimum  payments. The  state has  an outstanding  backlog of  $1                                                               
billion; so, how will that work?  Currently, the state must pay a                                                               
minimum requirement,  so a  lender will always  know he  will get                                                               
some funds back. He didn't want  to go into the Permanent Fund to                                                               
pay off  that liability and he  wanted to hear how  removing that                                                               
minimum payment might affect the lenders.                                                                                       
                                                                                                                                
CHAIR GIESSEL  said this  bill provides  an opportunity  to begin                                                               
the  process of  taking that  liability off  the books.  It won't                                                               
solve the problem tomorrow or next year, but it is a beginning.                                                                 
                                                                                                                                
SENATOR STEDMAN  said they  need to  have some  conversation with                                                               
the  people who  have the  outstanding  debts on  how this  might                                                               
impact  them,  because  getting a  guaranteed  small  payment  if                                                               
you're a  lender is better  than no guarantee at  all, especially                                                               
if it's subject to a veto.                                                                                                      
                                                                                                                                
2:32:58 PM                                                                                                                    
He  said the  complexity of  the GVR  issue along  with the  per-                                                               
barrel deduction  is best left  for a later date.  Clearly, there                                                               
are  mechanical  irregularities  within the  structure  that  are                                                               
disadvantageous to the state in  its ability to have transparency                                                               
and predictability. He  also noted that only  one other sovereign                                                               
has a  cashable credit, and that  is why they are  here today; it                                                               
doesn't work.                                                                                                                   
                                                                                                                                
SENATOR STEDMAN  said he was hesitant  to say SB 21  is a success                                                               
when one of its major components is structurally flawed.                                                                        
                                                                                                                                
2:34:47 PM                                                                                                                    
SENATOR COGHILL moved  to report SCS CSHB 111  (RES), version \P,                                                               
from   committee   with   individual  recommendations   and   the                                                               
forthcoming fiscal notes. There were  no objections and it was so                                                               
ordered.                                                                                                                        
                                                                                                                                
CHAIR  GIESSEL commented  that SCS  CSHB 111  (RES), version  \P,                                                               
focuses on the  important issues around which  there is consensus                                                               
in the Senate.  The Senate began work on the  tax credit issue in                                                               
2015  when a  bi-partisan  Senate Tax  Credit  Working Group  was                                                               
convened. It had  members of Resources and  Finance Committees on                                                               
it,  one of  which was  a  member of  this committee  as well  as                                                               
herself.  Industry, Native  corporations, and  labor unions  were                                                               
part  of the  group.  The outcome  were  recommendations, one  of                                                               
which was  fixing the cash-ability  of the cashable  tax credits.                                                               
Today implements the next step in that.                                                                                         
                                                                                                                                
The  work began  last  year in  HB  247 and  a  countdown to  the                                                               
elimination of the Cook Inlet  credits. They recognized that Cook                                                               
Inlet was  a constrained market  and that having cash  credits by                                                               
government was  distorting the  competition. The  Governor's veto                                                               
of the  earned cashable credits  in 2015/16 amplified  the issue.                                                               
Today,   this  committee   substitute  completes   the  work   of                                                               
addressing the  cash exposure by  eliminating cash  credits going                                                               
forward.                                                                                                                        
                                                                                                                                
CHAIR GIESSEL said  the Senate has looked at this  whole topic in                                                               
three buckets, and this bill:                                                                                                   
                                                                                                                                
     1. Allows a more flexible  use of those unpaid cashable                                                                    
     credits  at  no present  cost  to  the state's  general                                                                    
     fund. It  will open the  door to  a variety of  uses of                                                                    
     those to reduce the backlog.                                                                                               
                                                                                                                                
     2. Protects the state from future cash calls by:                                                                           
     -Repealing the  Cash credit fund completely  so that no                                                                    
     legislator can come up with  a new idea of the cashable                                                                    
     credit.                                                                                                                    
     -Moving the  NOL from  being a  credit to  a deduction,                                                                    
     which changes the tax liability,  but it takes away the                                                                    
     cash exposure for the state.                                                                                               
     -Preserving 100  percent of the  value of  the carried-                                                                    
     forward   losses,  which   both  consultants   said  is                                                                    
     critical,  because  removing  that  ability  would  put                                                                    
     Alaska at the bottom of the competitiveness ladder.                                                                        
     -Incorporating a  non-cash uplift for new  companies to                                                                    
     respect the time value of money in their investments.                                                                      
     -Preserves  Middle  Earth  giving  those  companies  an                                                                    
     opportunity to use their credits  in a valuable way for                                                                    
     them.                                                                                                                      
     -Allowing the  natural expiration  of the  refinery and                                                                    
     gas storage related credits. They  will be credited and                                                                    
     paid by appropriation only.                                                                                                
                                                                                                                                
     3. Allowing  the current tax  policy to  continue being                                                                    
     implemented.  A  dramatic  increase in  production  has                                                                    
     been seen, which means more  royalty to the state. This                                                                    
     bill hardens the  floor, one of the  policies set forth                                                                    
     in  SB 21  that needed  clarification. The  minimum tax                                                                    
     floor is  still flexible  for new and  small producers.                                                                    
     The  sliding-scale,   per-barrel  reduction   is  still                                                                    
     preserved recognizing Alaska's high royalty structure.                                                                     
                                                                                                                                
This SCS  is balanced  in terms  of all areas  of the  state, she                                                               
said;  it  doesn't  carve out  special  recognition  for  certain                                                               
companies; and it is a path forward without cashable credits.                                                                   
                                                                                                                                
2:40:54 PM                                                                                                                    
CHAIR GIESSEL emphasized  that this new policy  does increase the                                                               
total tax  that will  be paid  by the oil  industry, but  it also                                                               
protects their  businesses by allowing 100  percent deductibility                                                               
of their losses, and it  provides that other important piece: the                                                               
process  and eventual  payment of  the unpaid  cash credits.  She                                                               
thanked committee members for their input and work on the bill.                                                                 
                                                                                                                                
[SCS CSHB 111 (RES) moved from committee.]                                                                                      

Document Name Date/Time Subjects
AGENDA - 4 - 24 - 17.pdf SRES 4/24/2017 2:00:00 PM
HB 111 - SRES CS Version P - 4 - 24 - 17.pdf SRES 4/24/2017 2:00:00 PM
HB 111
HB 111 - SRES CS Summary Sheet - 4 - 24 - 17.pdf SRES 4/24/2017 2:00:00 PM
HB 111
HB 111 - SRES CS Sectional Analysis - 4 - 24 - 17.pdf SRES 4/24/2017 2:00:00 PM
HB 111