Legislature(2007 - 2008)HOUSE FINANCE 519
02/14/2007 02:00 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB51 | |
| HB48 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 48 | TELECONFERENCED | |
| + | HB 51 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
February 14, 2007
2:09 p.m.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 2:09:41 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Harry Crawford
Representative Les Gara
Representative Mike Hawker
Representative Mike Kelly
Representative Mary Nelson
Representative Bill Thomas, Jr.
MEMBERS ABSENT
Representative Reggie Joule
Representative Richard Foster
ALSO PRESENT
Representative Jay Ramras; Emily Stancliff, Staff,
Representative Jay Ramras; Representative Paul Seaton;
Representative Bob Roses; Jerry Burnett, Director, Division
of Administrative Services, Department of Revenue
PRESENT VIA TELECONFERENCE
Douglas Griffin, Director, Alcoholic Control Board,
Department of Public Safety
SUMMARY
HB 51 "An Act relating to recorking, sealing, or
packaging of wine served with a meal and removal
of recorked, sealed, or packaged wine from
licensed premises."
HB 51 was REPORTED out of Committee with a "do
pass" recommendation and with fiscal note #1 by
the Department of Public Safety.
HB 48 "An Act amending the powers of the board of
trustees of the Alaska Retirement Management Board
to authorize purchase and sale of transferable tax
credit certificates issued in conjunction with the
production tax on oil and gas; and providing for
an effective date."
CSHB 48 (FIN) was heard and HELD in Committee for
further consideration.
2:11:20 PM
HOUSE BILL NO. 51
"An Act relating to recorking, sealing, or packaging of
wine served with a meal and removal of recorked,
sealed, or packaged wine from licensed premises."
REPRESENTATIVE JAY RAMRAS, sponsor, introduced HB 51 by
stating that the current version of the bill omits beer
sampling, which was included in last year's bill, because
the bill is about drinking less, rather than more. He
explained that the purpose of the bill is to give consumers
an opportunity to drink less because they can bring home the
unconsumed portion of a bottle of wine.
2:14:46 PM
DOUGLAS GRIFFIN, DIRECTOR, ALCOHOLIC CONTROL BOARD,
DEPARTMENT OF PUBLIC SAFETY noted that the Alcohol Beverage
Control (ABC) Board has not taken a position on the bill and
he is speaking on behalf of himself. He endorsed the
comments that Representative Ramras made. There are two
public policy issues: over-consumption vs. open container.
This bill would allow patrons of restaurants to enjoy a
bottle of wine without the need to consume the entire bottle
and therefore not worry so much about being over the .08
level of intoxication. The bill would also allow for
recorking the bottle to avoid open container problems.
Thirty-four states have legislation to deal with open
containers. He termed the bill a worthy effort to make the
roads safer by reducing over-consumption and driving while
impaired. He offered to answer questions.
2:18:39 PM
Representative Thomas asked how the bottle would be
resealed.
EMILY STANCLIFF, STAFF, REPRESENTATIVE JAY RAMRAS replied
that recorking the bottle is one method, tamper-proof bags
another. The ABC Board would determine the methods to be
used.
Co-Chair Meyer noted the zero fiscal note from the
Department of Public Safety.
Representative Hawker MOVED to REPORT HB 52 out of committee
with individual recommendations and the accompanying zero
fiscal note. There being NO OBJECTION, it was so ordered.
2:20:47 PM
HOUSE BILL NO. 48
"An Act amending the powers of the board of trustees of
the Alaska Retirement Management Board to authorize
purchase and sale of transferable tax credit
certificates issued in conjunction with the production
tax on oil and gas; and providing for an effective
date."
REPRESENTATIVE PAUL SEATON, sponsor, explained that HB 48 is
a mechanism that was discussed last session during the
development of the Petroleum Profits Tax (PPT). Under PPT
transferable credits for net operation losses, capital
credits, and exploration tax credits were created. For
small oil and gas companies, the PPT created a direct refund
of up to $25 million in transferable tax credit per company
each year. The credits are transferable to companies that
can write those credits off against their PPT tax liability.
The incentive was to return funds to the investors.
Currently, those eligible to buy the credits are oil
companies that have PPT liability so that there is not a
negative impact on the state. HB 48 allows the ARM Board to
purchase those credits at a fixed 92 percent of the face
value and then refund the full face value to the state. The
Commissioner of Revenue has to determine that the economic
conditions of the state are sufficient so that the credits
could be refunded without a negative impact.
2:23:10 PM
Representative Seaton said the purpose of the bill is so
that the ARM Board can apply the return on their investment
against the state's unfunded liability. He explained that
the bill also establishes a floor for small explorers. The
bill allows the ARM Board to act like a small oil company
and apply for the credits pending the Commissioner's
approval. The return on the investment to the overall
portfolio could be significantly increased if many credits
are made.
2:25:47 PM
Representative Seaton referred to pages 42 and 43 from the
State of Alaska Public Employees' Retirement System manual
(copy on file.) He explained that the table 1.5(e)
"Actuarial Projections - Projections a Calculated Rate
Effect of Economic Scenarios" demonstrates the effect of an
increased return on the ARM Board investment. Raising the
investment return by 0.75 percent over a ten-year period
will change the annual contribution from $630 million to
$550 million. He opined that there could be many credits
available, which would yield a significant amount to the ARM
Board investment.
2:27:15 PM
Co-Chair Meyer declared a potential conflict of interest due
to his work with an oil company.
Representative Crawford stated support for the bill and the
idea of creating a floor. He wondered if it might be
beneficial to say "at least 92 percent".
Representative Seaton explained that the reason that was not
done was to prevent the ARM Board from having to engage in a
bidding war. The idea was that 92 percent would make a very
good return for the ARM Board. The Commissioner of Revenue
is a member of the ARM Board and would be able to make a
determination whether it is economically sound to proceed
with the refund.
2:30:47 PM
Representative Crawford restated a concern to watch and see
how it goes and possibly make changes if needed. He thought
the larger companies would bid the minimum amount to get
credit. Representative Seaton shared the history of how
companies bought credits in the high 80s and 90s. There is
an internal marker of 10 percent historically.
2:33:00 PM
Representative Gara expressed confusion as to how this would
work. He summarized that the ARM Board would purchase the
credits as a means to fund the pension system.
Representative Seaton agreed. He asked if the state already
has the ability to purchase these credits. Representative
Seaton replied that no one is prevented from purchasing the
credits; however, the only companies that can apply are
those that have PPT liability. He gave an example how an
individual company might use the tax credit.
Representative Gara suggested that more competition is
better. He opined that other state entities might benefit
from this option. Representative Seaton pointed to the
large liability of the retirement system. The numbers are
so high that if the University and others were allowed to
bid, not as much money would be made. This process yields
92 percent. It is a reasonable way to go.
2:38:31 PM
Representative Gara thought there might be an incentive for
oil producers and explorers to sell the credits among
themselves. He suggested a provision that if the ARM
Board's offer is the highest, it must be accepted.
Representative Seaton thought restriction of the credits
would not work. There is no public reporting requirement
for purchasing. He maintained that making this an allowable
vehicle helps those doing the investing because of the
floor. It adds no layers of regulation or disclosure. He
suggested keeping it simple.
2:40:55 PM
Co-Chair Meyer favored the free market idea, but agreed that
92 percent is an acceptable number in order to protect the
small explorers. He summarized that the Department of
Revenue buys credit from the ARM Board and then the money is
made available by the legislature. Representative Seaton
reiterated that a company applies for a credit because they
had a net operating loss or qualified capital or operating
expenses. The company applies for a certificate, which DOR
issues, and which has a 20 percent face value of that
expenditure. Whoever turns the certificate in gets the face
value. The buying and selling of the credits is a simple
operation - an overnight transaction - to get reimbursed 100
percent.
2:43:30 PM
Representative Hawker voiced a concern that 92 percent is
too low. He asked if there were any trades of the
certificates on record. Representative Seaton recalled
testimony about tradable credits during PPT hearings. He
recalled the highest being 91 or 91.5. Representative
Hawker summarized that a "buy order" is being put into this
bill. He opined that the state could be "leaving money on
the table" if the market is lower. He asked if an amendment
to say "no more than 92 percent" would be acceptable.
2:46:38 PM
Representative Seaton thought that would be complicated and
the Board would have to meet to verify each trade. He
explained some of the problems with that idea. He pointed
out the 20 percent annual limit criteria. Part of the
reasoning behind the bill is to make sure that the small
explorers are going to get 92 percent of their net operating
loss. He explained that changing 92 percent would
complicate the matter. Representative Hawker asked if the
ARM Board would have to meet. He questioned the state's
dictating market prices.
2:49:19 PM
Representative Seaton thought the ARM Board would not have
to meet with a fixed rate of 92 percent because of immediate
reimbursements and because the Commissioner is a member of
the Board.
Representative Kelly concurred with the method. He
suggested the ARM Board have the ability to authorize up to
100 percent or stay with the default number.
Co-Chair Meyer thought the objective was to protect the
small explorers. Representative Seaton said that is
correct. He explained that it would also help the ARM
Board.
Representative Hawker concurred with Representative Kelly's
ideas.
2:54:13 PM
Representative Gara asked what cost it is to the state at 92
percent. Representative Seaton repeated that the state is
going to pay 100 percent of the face value of the
certificate. The ARM Board would harvest the 8 percent
difference. The ARM Board will be able to reimburse the
credit. No explorer will go to the ARM Board if they have
not used the $25 million direct cash because that is 100
percent. The ARM Board will act like one of the producers
with tax liability and purchase the credit.
2:57:09 PM
Representative Gara gave a hypothetical investment example.
Representative Seaton corrected that the state has not lost
anything in Representative Gara's example. It does not
matter if a company buys the credit for 98 percent, the
state will pay for the face value at 100 percent of the
credit certificate. The ARM Board would get 8 percent.
Representative Gara reiterated his conclusions. He wondered
if it would be a good investment for BP at 92.1 percent so
the ARM Board could not make a purchase. He suggested
letting the ARM Board into the bidding process.
3:01:45 PM
Representative Seaton thought that if oil companies do bid
at 92.1 percent, then the bill would have to be revisited.
He could not expound further. Small explorer companies have
expressed concern that there will be no floor.
3:03:25 PM
Representative Kelly concluded that HB 48 will cost the oil
industry, not the state or the small explorer. He asked if
the ARM Board is in agreement. Representative Seaton
related that the ARM Board supports the bill. He did not
know if they would be interested in a bidding system.
Representative Kelly suggested that Representative Seaton
ask the ARM Board that question. Representative Seaton
offered to contact the executive director. He pointed out
that the bill establishes a floor and this suits the small
explorers. Representative Kelly said it is a balance of a
benefit to the state and to the small producers.
Representative Seaton questioned if the intent is to make as
much from the explorers as possible.
3:08:21 PM
Representative Kelly stated that he would prefer zero to 100
percent, but that he was not sure what the ARM Board would
prefer. He pointed out that he would support flexibility.
Representative Seaton asked if the Committee's intent would
be to give up a defined floor for the explorers and retain
the ability of the ARM Board to make money.
Representative Kelly didn't think the small explorers would
be hurt since a new player would be involved.
3:11:41 PM
Representative Seaton asked for clarification of the
Committee's intent regarding 0 - 100 or 92 - 100. He
pointed out that the small producers would opt out at 0 -
100 percent.
3:12:53 PM
JERRY BURNETT, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF REVENUE, spoke in support of the
legislation. He noted that the Commissioner believes there
should be a floor, but has not settled on the figure. How
credits are allocated might affect the market.
In response to a question by Representative Kelly, Mr.
Burnett did not know if the ARM Board has spoken to the
level of percentage.
3:15:37 PM
Representative Hawker referred to (B) on page 2, lines 17 -
19 of the bill, and noted that the language provides broad
authority. The policy decision would be the responsibility
of the ARM Board. Mr. Burnett observed that the ARM Board
does not have authority to shift funding between the
systems. Representative Hawker stressed the need for
further direction to the ARM Board.
3:19:13 PM
Representative Crawford spoke in support of the concept and
noted that the "big three" oil companies are currently the
only bidders. The addition of the ARM Board would increase
the "free" market. He spoke in support of additional
flexibility for the beneficiaries of the retirement system.
3:21:05 PM
Representative Thomas felt there should be a resolution from
the ARM Board supporting the concept. He spoke in support
of language allowing zero to 100 percent of the credit to be
purchased.
3:24:02 PM
Representative Gara noted that the ARM Board would not have
a high transaction cost and suggested that the ARM Board
would make money at higher levels. Representative Seaton
responded that there is a huge percentage of return on
investment. The change in portfolio performance affects the
overall fund and return. Historically, they have been
traded at the high 80's and low 90's.
3:27:09 PM
Representative Gara summarized that the intent is to both
give money to the ARM Board and provide a floor for
producers. He suggested not limiting it to 92 percent.
Representative Seaton suggested that bids will come in at
the highest amount inserted. The idea is to make it simple.
Representative Seaton related that the history is that to
establish the floor allows for security. He said he will
find the information requested.
3:31:13 PM
Representative Kelly pointed out that there is not perfect
information in the market.
ADJOURNMENT
The meeting was adjourned at 3:31 PM.
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