Legislature(2005 - 2006)HOUSE FINANCE 519
01/17/2006 01:30 PM House FINANCE
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| HB 22 | |||
HOUSE FINANCE COMMITTEE
January 17, 2006
1:37 p.m.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 1:39:47 PM
.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Mike Kelly
Representative Beth Kerttula
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
Representative Reggie Joule
ALSO PRESENT
William Corbus, Commissioner, Department of Revenue; Michael
Williams, Chief Petroleum Economist, Department of Revenue;
Robynn Wilson, Tax Division, Department of Revenue; Tom
Boutin, Deputy Commissioner, Department of Revenue; Dan
Stickel, Economist, Department of Revenue; Representative
Norm Rokeberg; Representative Ralph Samuels; Representative
Jay Ramas
PRESENT VIA TELECONFERENCE
Dudley Platt, Contract Petroleum Geologist, Anchorage
SUMMARY
HB 22 "An Act relating to the terms of legislators, to a
90-day regular session of the legislature, to the
date of convening a regular session, and to
procedures of legislative committees during the
interim; and providing for an effective date."
HB 22 was heard and HELD in Committee for further
consideration.
GENERAL SUBJECT(S):
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OVERVIEW: DEPARTMENT OF REVENUE 2005 FALL FORECAST
TIME SPEAKER DISCUSSION
1:38:54 PM WILLIAM Related that the price of North Slope
CORBUS, oil on the West Coast is currently
COMMISSIONER, $61.22 per barrel. The spot price of
DEPARTMENT OF natural gas is $8.54. Commissioner
REVENUE Corbus reviewed highlights of the fall
forecast from the Fall 2000 Revenue
Sources Book (copy on file.) He drew
attention to page 10, table 2-6, oil
price projections.
1:42:49 PM Commissioner Shared a December press release from
Corbus OPEC, which stated that the oil market
was well supplied and inventory levels
were building. He referred to the
world supply demand synopsis on pages
33-38. He stated that the Department
of Revenue believes that there has not
been a structural change in the world
supply/demand relationship. He
addressed the price volatility of crude
oil and the factors that contribute to
it. The price differential between
West Texas Intermediate (WTI) oil and
Alaska North Slope (ANS) oil delivered
to the West Coast has stabilized to
about $2.00 per barrel.
1:45:59 PM Commissioner Spoke to the ANS forecast on page 12
Corbus and about new oil development on page
13. He pointed out the unrestricted
and restricted revenues on page 6.
1:47:56 PM Commissioner Directed attention to page 14, the
Corbus dwindling Economic Limit Factor (ELF),
which adversely impacts production
taxes. Page 16 shows that the state
still faces a structural deficit. The
State of Alaska is starting to predict
the price of natural gas, which is also
a volatile commodity.
1:50:22 PM Commissioner Noted that Chapter 3, page 19, deals
Corbus with natural gas price forecasts, but
includes no production estimates.
Commissioner Corbus concluded that
current and projected oil prices are
very favorable for FY 06 and FY 07, but
will become a financial problem in the
long run. The next forecast update
will be in April.
1:52:15 PM Co-Chair Meyer Referred to page 10, table 2-6, and
inquired about the projection that the
price will return to $27.50 by 2009.
1:53:03 PM MICHAEL Referred to the handout Fall 2005
WILLIAMS, Forecast Rationale For Prices (copy on
CHIEF file.) The graph on the cover shows
PETROLEUM that the forecast price is above
ECONOMIST, average. Page 2 lists six points
DEPARTMENT OF explaining why prices will decrease.
REVENUE He related how prices will retard
demand, will stimulate additional
supplies, and are cyclical.
1:57:20 PM Mr. Williams Discussed perceptions in the market
today, page 3, and explained the graph
on accelerating demand and declining
spare capacity.
1:58:58 PM Mr. Williams Highlighted page 4, the economic
outlook and changes in U.S. gasoline
demand after the Iranian crisis.
When oil prices increased, demand
decreased.
2:00:49 PM Mr. Williams Explained the supply side of the oil
cost curve on page 5. The graph
details the availability of oil as a
function of crude oil price per barrel.
The quote from the Saudi oil minister
shows that his country is on track with
production.
2:03:18 PM Mr. Williams Highlighted page 6, cyclical crude oil
prices, and the effects when
perceptions change.
2:04:22 PM Mr. Williams Summarized the conclusions on page 7.
2:04:49 PM Commissioner Added that the price of oil drops off
Corbus to $27.00 in 2009 because demand will
go down. Mr. Williams said there is a
specific Department of Revenue policy
in place, which determines the long-
range forecast every other year.
2:05:54 PM Co-Chair Meyer Voiced concern that the production
level is decreasing. He requested more
information about the amount of revenue
obtained from the National Petroleum
Reserve-Alaska (NPR-A), versus the east
side of the North Slope. He also
requested information on exploration
credits.
2:06:48 PM Commissioner Pointed out that NPR-A is mostly
Corbus federal land and the state treasury
receives very little royalty share.
Most of those revenues are in the form
of severance taxes and income taxes.
2:07:21 PM DUDLEY PLATT, Added that the three positive effects
CONTRACT of NPR-A production are corporate
PETROLEUM income tax, the possibility of no
GEOLOGIST, severance tax, and firmer wellhead
ANCHORAGE prices. He related that he makes
production forecasts using confidential
information provided by the Department
of Revenue and by the oil industry. He
pointed out forecast limitations. He
noted that he has provided forecasts
twice a year since 1989.
2:10:11 PM Mr. Platt Explained that the largest impact on
oil forecasts is the timing of new
developments. For example, the delay
in the timing of Port Townsend until FY
2016 is a delay of 100,000 barrels per
day. He gave other examples of timing
delays.
2:15:17 PM Co-Chair Meyer Asked how many exploratory wells are
being drilled this year and whether
exploration credits helped. Mr. Platt
replied that the investment tax credit
worked in several situations.
2:17:12 PM Representative Inquired about the increasingly steeper
Hawker production decline curve. He wondered
what proactive steps could be taken to
change this decline.
2:19:06 PM Commissioner Pointed out that the governor's office
Corbus and the Department of Revenue are
working on that problem and a
presentation will be made soon.
2:20:02 PM Representative Noted that he was troubled by the
Hawker solution of increasing tax rates on a
declining production.
2:20:57 PM Representative Referred to the current oil price
Hawker forecast and estimated that it is now
larger than $57.30 per barrel.
Commissioner Corbus replied that to
date the price is averaging just over
$60 per barrel. Representative Hawker
concluded that the state may be looking
at another $150-$200 million surplus.
Commissioner Corbus countered that
production is down a bit from the
estimation.
2:22:56 PM Co-Chair Asked for more information about the
Chenault biggest reason for production loss. He
wondered what affect the BP well shut-
in had on production.
2:23:52 PM Mr. Platt Termed the BP announcement of their
well shut-in a special situation. It
had a large impact on production
decline. He said he assumes that this
type of situation is not a one-time
deal and it is factored into the
forecast.
2:25:29 PM Co-Chair Requested more information regarding
Chenault page 34, the perception of a lack of
crude oil production capacity and
refining capacity.
2:26:30 PM Mr. Williams Explained that the number of refineries
has been cut, but capacity has
increased and upgrading units have been
added.
2:28:00 PM Representative Asked for more information about the
Stoltze business tax.
2:28:52 PM DAN STICKEL, Directed Representative Stoltze
ECONOMIST, to page 51, table 5-3. Representative
DEPARTMENT OF Stoltze rephrased the question to refer
REVENUE to business license fees.
2:30:17 PM Dan Stickel Pointed out that page 52 shows the
business license fees. Representative
Stoltze requested a clearer way to
track this tax.
2:31:52 PM Commissioner Referred to page 85, appendix A-3, for
Corbus a further breakdown of licenses and
permits.
2:32:54 PM Representative Asked for an explanation of the
Stoltze different earnings rates shown in the
footnote on page 67.
2:33:38 PM TOM BOUTIN, Clarified that the subaccount was set
DEPUTY up as a separate part of the
COMMISSIONER, Constitutional Budget Review Fund
DEPARTMENT OF (CBRF), invested for a time horizon of
REVENUE five years or longer, in a more
volatile asset allocation, but
projected to bring in a higher return.
The timing was unfortunate, but it is
now in the black. Commissioner Corbus
added that that information is part of
the PFD report.
2:36:17 PM Representative Noted that Robynn Wilson, who replaces
Hawker Dan Dickinson, is a qualified,
competent professional
2:38:01 PM Representative Reported that the spring forecast of
Hawker the CBRF general fund appropriation of
$2.6 billion is now up to $3 billion in
the fall forecast. He inquired if the
legislature should take this shift
increase of general fund obligations
into account.
2:39:18 PM Commissioner Replied no. He referred to table 2-15,
Corbus on page 18, a matrix of CBRF options.
He suggested that the table could be
expanded to include higher spending
levels. Representative Hawker asked if
the increase in general fund
appropriations is a fundamental shift
in philosophy. He inquired if it would
have been more appropriate to show a
spike in general fund appropriations
and then a retrenchment back to a
sustainable level.
2:41:03 PM Commissioner Explained that the Department of
Corbus Revenue does projections and not
budgets. He suggested not reading
anything into the footnote to table 2-
13. Representative Hawker asked if the
$3 billion number came from the Office
of Budget and Management.
2:41:54 PM Mr. Williams Responded that OMB did provide the
number.
2:47:20 PM.
HOUSE BILL NO. 22
"An Act relating to the terms of legislators, to a 90-
day regular session of the legislature, to the date of
convening a regular session, and to procedures of
legislative committees during the interim; and
providing for an effective date."
2:48:18 PM
REPRESENTATIVE RALPH SAMUELS, CO-SPONSOR, introduced HB 22.
He explained that the most important reason to pass the bill
from the House Finance Committee would be to get more people
involved in the political process. He claimed that the
current amount of time - 120 days - was a difficult amount
of time for committee members to meet due to other job
obligations. A shorter session would make for a better
public process. He believed that the timing would allow
internal changing of the rules and better participation of
the public. The change would make legislators more
responsive to constituents.
Representative Samuels referenced the fiscal note and the
savings to the state. He mentioned the 'branches of power'
opposition, the argument that power would go to the
executive branch if there were a shorter session. He
pointed out that legislators could call a session at any
time.
Representative Samuels referred to the "Length of
Legislative Session in 27 Other States" (copy on file.) He
maintained that it is possible for the legislature to finish
its work in 90 days. He pointed out that the "rule changes"
had been discussed in the House State Affairs Committee.
2:52:36 PM
REPRESENTATIVE NORMAN ROKEBERG, CO-SPONSOR, added that he
has introduced the bill five different times. The
separation of powers issue is one of the key arguments
against the legislation. He maintained that a minor
revision of the uniform rules, which would allow interim
committees to move legislation between committees, would
overcome that concern. The legislators would be able to
stay in their communities longer. Many legislatures
throughout the country have shorter sessions and allow for
interim committee hearings. He explained how that process
might be possible in Alaska.
Representative Rokeberg stated that the legislature is the
voice of the people. Any money savings would be minimal,
and any restriction of legislative power would be minimal
with a statutory change and a rules change.
Co-Chair Meyer pointed out a savings of $650,000 indicated
in the latest fiscal note.
Representative Stoltze asked if the location of the
legislature was a bigger factor for most people deciding to
run.
2:57:12 PM
Representative Samuels thought if the legislature were held
in his area, more folks would run. Location plays a large
part, but he recommended getting more done in the interim
and during a shorter session.
Representative Rokeberg noted that he has a bill that would
address the concerns of Representative Stoltze.
Representative Stoltze asked if a shorter session would
require an adjustment of the uniform rules.
Representative Rokeberg noted that the matter has been
considered. There would be a companion House concurrent
resolution added to the bill, which would adopt changes in
the uniform rules. If the bill moves forward in the current
state, he would recommend adopting a companion bill. That
would be a judgment call. He did not think it was necessary
for the public to testify.
Representative Stoltze said he did not support changing the
public notice requirements. He asked if hearings might
affect the capital move issue.
3:02:00 PM
Representative Rokeberg recommended that the Juneau
legislation support the bill because it would help to keep
the capital in Juneau.
Representative Samuels pointed out that the 30-days' notice
of a meeting held during the interim was discussed in the
original bill, as was the ability to vote telephonically
during the interim.
Representative Stoltze commented that if a bill passes
through the initiative process, the legislature would have
the ability to act to make the necessary changes. He
thought there was merit to taking this issue to the ballot
box. He wondered if a statutory change was constitutional.
Representative Rokeberg responded that the initiative system
does not take all those considerations into account.
Representative Stoltze mentioned that there are separation-
of-power issues, but he stated support for the bill.
Representative Holm pointed out that the system used in
Alaska to determine appropriations to the various
departments uses the Budget Review Unit (BRU) process. He
questioned if a line item process might be better used to
determine appropriations in a 90-day session.
Representative Rokeberg stated that he did not have a
position on that. He suggested it might be better suited
for a biannual budget process. He noted concern however,
with oil price volatility.
Representative Samuels agreed with Representative Rokeberg.
3:08:06 PM
Representative Holm asked if state employees would have more
power in controlling information presented to the
legislature in the shortened 90-day cycle.
Representative Rokeberg thought they could and he expressed
opposition to the idea. He pointed out that the interim
meeting is an extension of the power of the committee chairs
to conduct their business. He reiterated the concern about
location.
3:09:43 PM
Representative Foster pointed out that in eighteen years he
has experienced seventeen special sessions, and 120 days is
not enough time to complete business. He commented on not
having enough time to get the votes in a shorter session.
He spoke against extending the session. He emphasized the
importance of representing the people and not running one's
own business.
Representative Samuels agreed, but referred to the internal
politics of waiting until the last minute and special
sessions, which won't change.
3:13:12 PM
Representative Joule noted that for 120 days the 60
legislators are available to the public, and a shorter
session would limit this accessibility.
Representative Samuels related that there are only about six
or seven constituents that choose to have access to him
during session. He did agree that those who do come to
Juneau do have access to all of the members at one time.
Representative Joule pointed out that his constituents get
to see all of the legislators during the session, and he
gets to see other legislators' constituents.
Co-Chair Chenault predicted that a lot less legislation
would be passed during a shorter session. He opined that it
might be difficult to pass a budget within a 90-day session.
Representative Rokeberg debated the idea that fewer bills
would be passed during a shorter session.
Representative Samuels noted an exception during an election
year.
3:21:27 PM
Representative Kerttula spoke to the personal sacrifice made
by legislators and the need to focus on making life easier
for them. She spoke against a shorter session. She offered
that, "No good business gets done after 10:00 p.m." She
encouraged continued efforts to make life easier for the
members.
3:24:46 PM
REPRESENTATIVE JAY RAMRAS, CO-SPONSOR, explained the graph
entitled "Qualification Status" (copy on file.) He reported
that this issue has been introduced 24 times. He shared the
valuable experience of traveling across Alaska to collect
45,300 signatures for the ballot initiative. He offered to
answer questions.
Co-Chair Meyer attended to housekeeping issues.
Co-Chair Meyer spoke to the conflict of interest ruling from
last year. The committee's policy is that members are not
required to bring up conflict of interest until on the House
Floor.
HB 22 was heard and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 3:35 PM.
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