Legislature(1995 - 1996)
01/20/1995 01:32 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 20, 1995
1:30 P.M.
TAPE HFC 95-1, Side 2, #000 - end.
TAPE HFC 95-2, Side 1, #000 - 110.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:32 P.M.
PRESENT
Co-Chair Hanley Representative Kohring
Co-Chair Foster Representative Martin
Representative Mulder Representative Navarre
Representative Brown Representative Parnell
Representative Grussendorf Representative Therriault
Representative Kelly
ALSO PRESENT
Representative Cynthia Toohey; Representative Joe Green;
Representative Alan Austerman; Representative John Davies;
Representative David Finkelstein; Representative Kim Elton;
Mike Greany, Director, Legislative Finance Division; Mike
Greany, Director, Legislative Finance Division; Wilson
Condon, Commissioner, Department of Revenue; Dr. Charles
Logsdon, Chief Petroleum Economist, Department of Revenue;
Fred Fisher, Fiscal Analyst, Legislative Finance Division;
Susan Taylor, Fiscal Analyst, Legislative Finance Division;
Jetta Whittaker, Fiscal Analyst, Legislative Finance
Division; Dana LaTour, Fiscal Analyst, Legislative Finance
Division; Kathryn Daughhetee, Fiscal Analyst, Legislative
Finance Division; Virgina Stonkus, Fiscal Analyst,
Legislative Finance Division.
SUMMARY
LEGISLATIVE FINANCE DIVISION
STAFF INTRODUCTIONS/OVERVIEW OF FY95
REVENUE AND EXPENDITURES
DEPARTMENT OF REVENUE
DISCUSSION FALL FORECAST AND UPDATE
LEGISLATIVE FINANCE DIVISION - FY95 REVENUE AND EXPENDITURES
MIKE GREANY, DIRECTOR, LEGISLATIVE FINANCE DIVISION
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introduced the Legislative Finance Division fiscal analysts.
He reviewed the areas of expertise for each analyst:
* Virgina Stonkus - operating budget & statewide
coordination, Department of Environmental
Conservation and Department of Fish and Game;
* Jetta Whittaker - Department of Revenue,
Department of Commerce and Economic Development
and Permanent Fund;
* Kathryn Daughhetee - Department of Public Safety,
Department of Corrections, Department of Law and
Alaska Court System;
* Dana LaTour - University of Alaska, Department of
Labor, Department of Community and Regional
Affairs and Department of Education;
* Susan Taylor - Department of Administration,
Department of Health & Social Services and Mental
Health Trust Income Account; and
* Fred Fisher - Department of Transportation and
Public Facilities, Department of Natural
Resources, Department of Military and Veterans
Affairs, capital budget, Constitutional Budget
Reserve, and spending plan.
Mr. Greany provided members with a summary of the FY 95
Legislative Spending Plan (Attachment 1). He reviewed
Attachment 1:
* Page 1 of Attachment 1 compares the FY 95
adjournment plan with FY 95 actuarials;
* Page two of Attachment 1 contains a brief
description of the differences between the
adjournment plan and the current spending level;
* Page three contains an analysis of projected
balances for the Constitutional Budget Reserve;
and
* Page four lists state of Alaska fund balances.
Mr. Greany noted that the adjournment plan estimations were
based on the spring revenue forecast which projected the
price of oil to be below $14.00 dollars a barrel. He
observed that the average spot oil price has been $16.40 a
barrel. He concluded that increases in the price of oil,
over last year's spring revenue forecast, will reduced the
amount needed from the Constitutional Budget Reserve to fund
the FY 95 operating budget shortfall. The current projected
draw down from the Constitutional Budget Reserve is $120.0
million dollars. He projected a "healthy" increase in the
balance of the Constitutional Budget Reserve for FY 95.
FRED FISHER, FISCAL ANALYST, LEGISLATIVE DIVISION noted that
updated January numbers, used to calculate the current
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spending level, have not been audited and may change. He
observed that adjustments were made based on settlements
which were received and deposited into the Constitutional
Budget Reserve during FY 95, the latest unrestricted revenue
forecast from the Department of Revenue, actual values
involved in the capitalization of the new Mental Health
Trust Fund and recalculations based on the fall forecast by
the Department of Revenue.
Mr. Greany commented that the amount needed for FY 95
supplementals is unknown. He observed that supplemental
appropriations have averaged $84.0 million dollars over the
past six years. He expounded that potential supplemental
requests total $78.0 million dollars. He pointed out that
Governor Knowles estimated that $80.0 to $90.0 million
dollars will be needed in supplementals for FY 95. He
interjected that slightly under $60.0 million dollars will
be needed to fund supplemental requests for flood disaster,
Department of Corrections, fire suppression and oil and gas
litigation.
Co-Chair Hanley provided members with a memorandum from Mr.
Greany detailing the potential FY 95 supplemental
appropriation requests (Attachment 2).
In response to a question by Representative Brown, Mr.
Fisher explained that the spending plan was based on
expenditures from the General Fund and the Mental Health
Trust Income Account. He observed that capitalization of
the new Mental Health Trust Fund from these sources are
identified. Portions of the capitalization from the
Constitutional Budget Reserve and the amount previously held
in the Trust were not indicated.
Mr. Greany pointed out that the mental health settlement has
resulted in the elimination of the Mental Health Trust
Income Account which was generated from 6 percent of the
state's general fund revenues. Under the settlement, 6
percent of the state's general fund revenues will no longer
be earmarked into the Mental Health Trust Income Account for
mental health programs. State funds for mental health
programs will be appropriated directly from the General
Fund.
Representative Martin expressed concern with supplemental
requests from the Department of Law for oil and gas
litigation and the Department of Natural Resources for fire
suppression. He asked what could be done to monitor
spending for flood relief.
Mr. Greany replied that the Attorney General converted some
of the Department of Law's contractual oil and gas
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litigation effort to 10 in-house attorney positions. He
noted that the Legislature is briefed in executive session
by the Attorney General on matters concerning oil and gas
litigation.
Mr. Greany agreed to supply Representative Martin with the
Department of Law's oil and gas supplemental requests over
the past six years.
Representative Navarre noted that the legislature has
pointedly approved half year appropriations for the
Department of Law, oil and gas litigation. He pointed out
that the $1.3 billion dollar year to date settlement and the
estimated $700.0 million dollar anticipated BP settlement
over the next two years are the result of oil and gas
litigation.
DEPARTMENT OF REVENUE - DISCUSSION FALL FORECAST AND UPDATE
WILSON CONDON, COMMISSIONER, DEPARTMENT OF REVENUE
introduced Dr. Charles Logsdon, Chief Petroleum Economist,
Department of Revenue.
CHARLES LOGSDON, DR., CHIEF PETROLEUM ECONOMIST, DEPARTMENT
OF REVENUE noted that legislators receive the Revenue
Sources Book and the FY 1995 Petroleum Revenue Executive
Update from the Department of Revenue.
Dr. Logsdon referred to a series of charts provided to
members of the Committee, by the Department of Revenue
(Attachment 3). He reviewed charts of the Department of
Revenue's 1994 fall forecast for unrestricted general fund
revenues and Alaska oil production and oil prices. He also
referred to charts which demonstrate the weekly average
Alaska North Slope (ANS) oil production and average daily
spot price. He noted the price difference of West Texas
Intermediate (WTI) oil and ANS oil.
Dr. Logsdon observed that revenue estimations for FY 95 were
based on $16.39 bbl. The actual year-to-date average is
$16.40 bbl. He predicted the state will have approximately
$2.0 billion dollars a year in general fund unrestricted
revenues until the year 2000. He warned that the low
scenario falls below $2.0 billion dollars.
Dr. Logsdon estimated that oil prices will not rise fast
enough to offset the decline of Alaska's oil production. He
observed that the higher the oil price the more likely that
oil companies will invest additional funds in fields that
are not currently economic and put more money into
development.
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Dr. Logsdon pointed out that page 3 of Attachment 3 outlines
the Department's oil price forecasts over time. He noted
that the low case scenario is at a flat $15.00 dollars a
barrel of oil through time. In the mid case scenario the
price of oil would rise modestly from $15.00 dollars a
barrel to reach $20.00 dollars a barrel near the year 2002.
He concluded that the mid case scenario is not unrealistic.
Dr. Logsdon summarized fundamental points of the world oil
market that underline the forecast. He noted that the
demand for oil is strong. He interjected that as the world
economy grows the demand for oil increases. He recalled
that the annual price of oil in 1994 was the worst the state
of Alaska has experienced since 1980. He discussed the
effect of world upheavals and politics on the price of oil.
Dr. Logsdon referred to page 5 of Attachment 3. He noted
that the Department estimated the year's out put of oil at
1.595 million barrels a day. The year to date production is
1.566 million barrels a day. He concluded that some of the
shortfall may be made up. He concluded that the estimates,
based on additional output due to the gas handling expansion
at Prudhoe Bay, may have been overly optimistic.
Dr. Logsdon reiterated that the FY 95 forecast was based on
$16.39 bbl and the actual average price is currently at
$16.40 bbl.
Dr. Logsdon emphasized that "sweet" WTI oil generally
commands a higher price than "sour" ANS oil. He observed
that the demand for "sour" ANS oil has increased as refiners
have made investments to run lower quality crude oils.
Dr. Logsdon reminded members that oil prices have varied
from $15.00 and $18.00 dollars a barrel of oil. He
cautioned that the low price of $15.00 a barrel of oil
should be kept in mind.
In response to a question by Representative Martin, Dr.
Logsdon noted that ANS oil will eventually be targeted
solely for the west coast of the United States. At that
time, ANS oil prices will be based on foreign oil prices.
He expressed support for lifting the export ban. He
observed that if the export ban were lifted the state's oil
production would be more valuable. He estimated that there
would be excess oil available for sale in 1995.
(Tape Change, HFC 95-2, Side 1)
Dr. Logsdon explained the difference in price between WTI
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and ANS oil. He did not think that ANS oil would ever be
transported abroad in foreign ships.
In response to a question by Representative Therriault, Dr.
Logsdon explained that the Department of Revenue bases its
forecasts largely on the oil companies' development plans.
Representative Hanley noted that oil revenues are not
consistent. He emphasized the need for a stable revenue
source in order to develop long range planning.
ADJOURNMENT
The meeting adjourned at 2:22 p.m.
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