Legislature(2017 - 2018)ADAMS ROOM 519
04/27/2018 09:00 AM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB331 | |
| Amendments | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 331 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 27, 2018
9:06 a.m.
9:06:33 AM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 9:06 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Louise Stutes (alternate)
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Mike Barnhill, Deputy Commissioner, Department of Revenue;
Ken Alper, Director, Tax Division, Department of Revenue;
Bill Milks, Department of Law; Mary Gramling, Assistant
Attorney General, Department of Law; Representative
Charisse Millett.
PRESENT VIA TELECONFERENCE
Jim Beckham, Deputy Director, Division of Oil and Gas,
Department of Natural Resources
SUMMARY
HB 331 TAX CREDIT CERT. BOND CORP; ROYALTIES
HB 331 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster reviewed the agenda for the meeting.
[Note: Representative Grenn was absent for a portion of the
morning segment of the meeting. During that time
Representative Louise Stutes served as alternate.]
HOUSE BILL NO. 331
"An Act establishing the Alaska Tax Credit Certificate
Bond Corporation; relating to purchases of tax credit
certificates; relating to overriding royalty interest
agreements; and providing for an effective date."
9:07:22 AM
^AMENDMENTS
9:08:11 AM
Co-Chair Seaton MOVED to ADOPT Amendment 30-GH2863\A.11
(Nauman, 4/24/18) (copy on file):
Page 9, following line 14:
Insert a new bill section to read:
"*Sec. 6. AS 43.55.028(b) is amended to read:
(b) The oil and gas tax credit fund consists of
(1) money appropriated to the fund,
including any appropriation of the
percentage provided under (c) of this
section of all revenue from taxes levied by
AS 43.55.011 that is not required to be
deposited in the constitutional budget
reserve fund established in art. IX, sec.
17(a), Constitution of the State of Alaska,
less the amount described in (o) in this
section; and
(2) earnings on the fund."
Renumber the following bill sections accordingly.
Page 14, following line 26:
Insert a new subsection to read:
"(o) The legislature may reduce an appropriation made
under (b)(l) of this section by an amount equal to the
amount appropriated to the Alaska Tax Credit
Certificate Bond Corporation for maintenance of the
required debt service reserve in the Alaska Tax Credit
Certificate Bond Corporation reserve fund, as
calculated under AS 37.18.040(g)."
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton explained the amendment with a prepared
statement. He explained the amendment would prevent a
double appropriation. He shared that currently, if the bill
were to pass, the statutory formula for appropriation to
the Oil and Gas Tax Credit Fund remained unchanged.
Therefore, the legislature would be directed by statute to
make a statutory appropriation to the fund, and the debt
service obligation payment to the new Bond Corporation
Reserve Fund. He stated that the amendment would change the
current Oil and Gas Tax Credit Fund statute, so any
payments made under debt service to the newly created
Alaska Tax Credit Certificate Bond Corporation would be
subtracted from an appropriation made to the Oil and Gas
Tax Credit Fund.
Co-Chair Foster invited the Department of Revenue (DOR) to
the table for questions.
MIKE BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
introduced himself.
Representative Wilson spoke to her objection. She felt that
they did not know who would be taking advantage of the
program. She maintained her objection.
Representative Pruitt wondered whether the language
prevented the state from at least paying those individuals
who may not participate in the program.
Co-Chair Seaton replied that he believed those payments
would be made. He explained that there would only be a
subtraction of the amount that was made to the bond.
Co-Chair Foster asked to hear from the department.
9:12:31 AM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
agreed the amendment was meant to be subtractive. He
explained that one must examine the statutory
appropriation. The guidance from the legislature would be
to take the statutory appropriation number, and subtract
the number that was, per the actuarial chart, directed to
the debt service and bond payback formula. Therefore, only
the difference should be appropriated to the Tax Credit
Fund. He noted that it would be a smaller number, but still
a positive number, and used for those who may choose not to
participate in the program.
Representative Pruitt wondered whether the amount required
for the bonds be larger than one of the two calculations,
should there be a change in the out years.
Mr. Barnhill responded that there were multiple meetings,
and an attempt to provide assurance of preserving the
option to not participate. He stated that if one chose not
to participate, they would be able to present for payment
their tax credits under the statutory schedule as
interpreted by DOR. He stressed that, no matter what
occurred in the bill and to be consistent with the
optionality, the administration would present the numbers
in the budget for those tax credit holders that did not
participate in the program. He restated that the
legislature had the appropriation option. He stressed that,
because of the way that the bill was constructed, he had
not heard from any tax credit holder that they intended not
to participate.
Co-Chair Foster wished Mr. Alper happy birthday. He
recognized Representative Charisse Millett in the audience.
Representative Pruitt stated that he had received an answer
to his question.
9:17:31 AM
Mr. Alper believed there was another amendment later in the
packet, but stated that DOR was comfortable with the
amendment language.
Representative Wilson asked if the program was supposed to
be voluntary.
Mr. Barnhill replied in the affirmative.
Representative Wilson wondered whether a company would
still consider a program "voluntary" if the legislature was
still finding ways to "screw" them.
Mr. Barnhill would not speak for the companies'
perspective. The goal was getting to a balanced and fair
situation. He stressed that the intent was to administer
for the opt-out as if the bill had never passed.
Representative Wilson remarked that currently, there was a
schedule on when a company could anticipate payment. She
wondered whether an increase in oil price would allow for
everyone to be paid sooner, because people would be removed
from the formula.
Mr. Alper answered that if the appropriation was higher
than the statutory formula, everyone would receive more for
the pro-rata, and receive a higher percentage of their
credit paid. He stated that the number built into the bill
itself would not change, because it was tied to the formula
change and forecasted numbers.
Representative Wilson stressed that she wanted to
understand how the bill would currently function. She
remarked that there was not a set time for credit payment,
because it still depended on the amount of money that was
given. She stressed that it was a voluntary program, and
the state would not want to make people to be forced into
the program. She felt that the company could not make the
final decision until the program was functioning properly.
Vice-Chair Gara asked about the anticipation if the bill
passed and the bond sale was successful. He asked how
quickly the companies applying for funds would have their
debts paid.
Mr. Barnhill answered that it would be as immediate as
possible.
Vice-Chair Gara stated that if everything went smoothly and
$600 million in credits were bonded and paid to companies.
He stressed that if the amendment passed, the legislature
would appropriate $600 million in the first year to the
bond payment .
Mr. Alper answered the intent of the amendment was not
about the $600 million, but about the $200 million. He
stressed that DOR was not looking to screw anyone, because
their pro rata share would increase. He explained that the
amendment would reduce the statutory appropriation for the
amount going to the bond debt service.
9:24:13 AM
Vice-Chair Gara surmised it was not the full amount paid on
the bonds, rather the debt service reduced the amount owed
under the statutory formula.
Mr. Alper replied in the affirmative. He explained that the
amount going to the debt service was defined, and could not
be changed once there was a bond obligation. He stated that
the amount would be subtracted from the statutory formula
to reduce the amount that would go to the non-participating
companies.
Vice-Chair Gara did not think anyone was being screwed. He
felt that paying $600 million in tax credits, and paying in
addition the remaining portion of the statutory obligation
would make it seem it was in excess of the direction from
the many years prior. He felt that there would be more tax
credit payments than under the status quo.
Representative Guttenberg appreciated hearing from an
employee of ING in a recent meeting because there was a
unique conversation about the situation. He remarked that
ING supported the program, because it "answered the
problem." He queried the influence of ING on the companies
that owed them money.
Mr. Barnhill believed ING had testified to the exact
question. His recollection was they had answered that it
would be a joint decision. He could not speak to other
creditors.
Representative Wilson stated it was her understanding that
the bill had been put before the legislature to provide an
option for companies to get their tax credits sooner. She
believed the bill was supposed to hold harmless companies
that chose not to participate. She thought the amendment
appeared to penalize companies that decided not to
participate. She focused on the original intent of the
bill.
9:30:46 AM
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Stutes, Guttenberg, Kawasaki, Ortiz,
Foster, Seaton
OPPOSED: Wilson, Pruitt, Thompson, Tilton
The MOTION PASSED (7/4). There being NO further OBJECTION,
Amendment 1 was ADOPTED.
Co-Chair Foster moved Amendment 2 to the bottom of the
list.
Co-Chair Seaton MOVED to ADOPT Amendment 3, 30-GH2863\A.25
(Nauman, 4/25/18) (copy on file):
Page 1, line 2, following "certificates;":
Insert "relating to the oil and gas tax credit fund;"
3
4 Page 9, line 24, following "year.":
5 Insert "The total amount of purchases made by the
department with money from
6 the oil and gas tax credit fund from a person in a
year may not exceed the assumed
7 payment amount for each year, as calculated under CD
of this section without the
8 discount provided in (m) of this section."
9
10 Page 13, line 17, following the first occurrence of
"in":
11 Insert "the"
12
13 Page 13, line 24:
14 Delete "a year applies"
15 Insert "applies each year after the first year"
16
17 Page 13, line 30, following "year":
18 Insert "after the first year"
19
20 Page 14, line 4, following "year":
21 Insert "after the first year"
22
23 Page 14, line 6:
L -1- Drafted by legal Services
30-GH2863\A.25
Delete "was required to submit"
2 Insert "submitted"
3
4 Page 14, line 14, following "incur":
5 Insert ".n
6
7 Page 14, line 15:
8 Delete "or?
9 Insert"."
10
I I Page 14, line 16:
12 Delete "provided"
13 Insert", and"
14
15 Page 14, following line 26:
16 Insert a new subsection to read:
17 "(o) After bonds are first issued by the Alaska Tax
Credit Certificate Bond
18 Corporation established under AS 37.18.010, the
legislature may determine the
19 amount of an appropriation under (b)(l) of this
section by multiplying the percentage
20 under (c) of this section by the net revenue from
taxes levied by AS 43.55.011 ."
Representative Wilson OBJECTED for discussion.
9:32:04 AM
AT EASE
9:33:02 AM
RECONVENED
Co-Chair Seaton explained that the intent of the amendment
was that if a company decided not to take advantage of the
bonding corporation, the company would not benefit from
other companies taking the pay out from the bond company.
The language was suggested by the department, and included
language was that after the first issuance of bonds, the
statutory formula for determining the calculation of
appropriation to the Oil and Gas Tax Credit Fund would be
based on net revenue. He stated that the action was
included in the House-approved budget, which was based on
the Fall forecast number.
Co-Chair Foster asked for comments by the department.
Mr. Barnhill explained that there was an intent to take
care of the tax credit holders who did not participate, as
if the bill did not exist - therefore receiving the payment
that that would have otherwise. He furthered that, for
those that did not participate, the statutory formula would
be on a net basis. He stated that he was concerned with
that aspect of the amendment. He recalled conversations
with the tax credit holders about the attempt to preserve
the optionality. The optionality represented to the tax
credit holders would be a calculation of their payments
under the gross formula. The amendment would change the
optionality going forward to a net formula, and expressed
concerns with that change. He recommended the number that
preserves the gross optionality.
9:35:59 AM
Representative Wilson spoke to her objection. She surmised
that the amendment would "break everything done thus far."
She expressed concern about holding more money out, which
resulted in more liability for a longer period of time. She
felt that it was a precedence going with the net revenue as
a new norm. She felt that it sent the wrong message.
Representative Pruitt remarked that there would still be an
opportunity for those who chose to not participate in the
program to result in certain people taking a discount to
receive their credits earlier. He felt that the program
would only work if it were "all or nothing." He felt that
there may be a compromise to achieve the goal. He felt that
payments should be based on growth revenue. He restated
that everyone should participate in the program.
9:39:34 AM
Mr. Alper pointed that there were a number of small
technical edits located by the drafter, which may clean up
some minor points and concerns. He stressed that those
middle sections were materially important.
Representative Wilson MOVED to ADOPT conceptual Amendment
1. She explained that the conceptual amendment would not
set precedence, should the bill fail to pass.
Co-Chair Seaton OBJECTED. He stated that the amendment was
consistent with the House's passed budget. He would not be
in favor of saying its interpretation of drafting the
budget.
Vice-Chair Gara understood the intent of the conceptual
amendment, but did not believe it would work.
9:43:50 AM
AT EASE
9:50:13 AM
RECONVENED
Co-Chair Foster noted that Representative Grenn had joined
the meeting online.
Co-Chair Seaton MAINTAINED his OBJECTION to conceptual
Amendment 1.
A roll call vote was taken on the motion.
IN FAVOR: Pruitt, Thompson, Tilton, Wilson
OPPOSED: Guttenberg, Kawasaki, Ortiz, Gara, Grenn, Foster,
Seaton
The MOTION to adopt conceptual Amendment 1 FAILED (4/7).
Representative Wilson MAINTAINED her OBJECTION to Amendment
3.
A roll call vote was taken on the motion.
IN FAVOR: Ortiz, Pruitt, Thompson, Gara, Grenn, Guttenberg,
Kawasaki, Foster, Seaton
OPPOSED: Tilton, Wilson
The MOTION PASSED (9/2).
Representative Guttenberg MOVED to ADOPT Amendment 4, 30-
GH2863\A.32 (Nauman, 4/26/18) (copy on file):
Page 14, lines 14 ~ 20:
Delete all material and insert:
"(3) that the applicant commits to incur, not later
than 24 months after
the purchase of the certificate, qualified capital
expenditures in an amount greater than
or equal to the purchase amount, and
(A) the applicant provides to the department evidence
of the
commitment and a plan to
(i) use the qualified capital expenditures for the
purpose
of increasing production of oil or gas from leases or
properties in the
state; and
(ii) maximize the hiring of state residents and use of
state business related to qualified capital
expenditures;
(B) the applicant agrees in writing to pay the
department the
difference between the rate paid and the rate the
applicant would have paid had
this subsection not applied. plus interest on the
amount that is consistent with
the interest rate provided for a delinquent tax under
AS 43.05.225, if the
applicant does not incur qualified capital
expenditures in an amount greater
than or equal to the purchase amount within 24 months
after the purchase of
the certificate; and
(C) after reviewing documents submitted under (A) and
(B) of
this paragraph, the commissioner approves the lower
discount rate for the
purchase."
Representative Wilson OBJECTED for discussion.
Representative Guttenberg explained the amendment.
9:55:25 AM
Representative Kawasaki asked to hear from the Department
of Natural Resources (DNR).
JIM BECKHAM, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES (via teleconference),
introduced himself.
Representative Kawasaki understood that the intent was to
ensure that the money be spent in the state. He felt that
the language in the current bill was fairly vague, and only
talked about providing evidence of the commitment to the
department. He remarked that there was an amendment that
addressed qualified capital expenditures for purposes of
increasing production. He wondered whether that also
included building a rig, but not building the rig in state,
but still obtaining through the qualified capital
expenditures.
Mr. Beckham deferred the capital expenditure question to
Mr. Alper.
Mr. Alper asked to hear the question again.
Representative Kawasaki pointed to page 1, subsection (i)
of the amendment, which stated that the qualified capital
expenditure (QCE) would be for increasing oil production on
leases or properties in the state. He wondered whether a
person could use a QCE to build something in Washington,
bring it to Alaska, and use it for increasing production of
oil and gas leases.
Mr. Alper replied in the affirmative. He stated that the
expenditure must be upstream, and on the lease itself. He
remarked that it was not unusual to have something built
out of state, shipped to Alaska, and used as part of the
oil production operations on the field.
Representative Kawasaki wondered how DNR would establish
the focus on hiring among the state businesses related to
the QCE.
Mr. Beckham replied that, currently, there was similar
language in leases involving pipelines, land leases, and
other endeavors related to oil and gas. He shared that
several companies provided an internal policy guide for
employees to show that they were actively recruiting
Alaskans.
9:59:25 AM
Representative Kawasaki wondered whether there was an audit
whether those efforts were followed through.
Mr. Beckham replied that he was not aware of a time when
there was an audit of a company's hiring program.
Representative Kawasaki asked for verification the answer
was no.
Mr. Beckham affirmed. He stated that most companies felt
that it was good business to hire Alaskans.
Representative Kawasaki wanted to ensure that the amendment
was constructed narrowly to ensure that Alaskan workers got
back tot work.
Representative Wilson asked if all the companies under
discussion were within two years of production.
Mr. Beckham answered it would be difficult to say, because
were and some were not.
Representative Wilson asked if Mr. Beckham had the
amendment.
Mr. Beckham answered in the affirmative.
Representative Wilson how else they would measure for the
production of oil and gas aside from the amount of oil in
the pipe.
Mr. Beckham answered that he did not know. He would have to
follow up with the commercial section chief.
Representative Thompson asked if the amendment would impact
refineries or other non-producer companies.
Mr. Alper replied no. He stated that there were four
different ways to obtain the better discount rate. He
explained that the refineries had a different method; the
seismic credit holders also had a different method. He
stated that it was limited to the option of reinvestment,
rather the idea of reinvestment in an oil field to attempt
to obtain the lower rate. He stressed that the existing
bill required that there be proof that the money be spent
within three years. He remarked that the maker of the
amendment placed three conditions to ensure that the money
be used toward progressing a field toward actual
development and increased production.
10:03:50 AM
Representative Pruitt felt that a follow thru for ensuring
hiring Alaskans may be difficult, because there would be an
attempt to find qualified individuals; and passing drug and
alcohol tests. He stressed that the companies would need to
focus on the best to fill the position. He supported a
"plan", but felt that there should not be actions beyond a
plan. He asserted that there would be a movement to another
rate plus interest on the whole amount.
Mr. Barnhill answered that the department had similar
questions. He directed members to a slide from a prior DOR
presentation [State of Alaska Department of Revenue HB 331:
Oil and Gas Tax Credit Bond Proposal dated April 21, 2018
(copy on file)]. He looked at page 11, which had a tax
credit holder with $100 million in credits. He noted that,
under the 10 percent option, with a plan of qualified
capital expenditures to expend $91.5 million over the next
two year, then they would receive the lower discount rate.
Otherwise, they would receive the higher discount rate,
with $84.7 million.
Mr. Alper elaborated that the company would need to
payback, and remarked that there could be a conceptual
amendment to "square that circle."
Representative Pruitt did not want to penalize the entire
amount, so he supported the idea of a conceptual amendment.
He stressed that delays would occur.
10:09:30 AM
AT EASE
10:10:54 AM
RECONVENED
Co-Chair Foster moved Amendment 4 to the bottom of the list
to rewrite the amendment.
10:11:28 AM
RECESSED
12:44:50 PM
RECONVENED
Co-Chair Foster called the meeting back to order.
Representative Guttenberg reported that the new Amendment 4
was not available yet. He WITHDREW Amendment 4.
Co-Chair Seaton MOVED to ADOPT Amendment 5, 30-GH2863\A.29
(Nauman, 4/25/18) (copy on file):
Page 16, lines 26 - 27:
2 Delete all material and insert:
3 "(h) The department shall separately account for the
revenue collected from an
4 overriding royalty interest agreement that the
department deposits in the general fund.
5 The legislature may appropriate the annual estimated
balance in the account to the
6 Alaska tax credit certificate bond corporation
reserve fund established under
7 AS 37.18.040."
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton explained the amendment. He stated that the
amendment would address the overriding royalties. He stated
that overriding royalty interest, coming from the
agreements of the section, may be appropriated to the bond
council reserve fund to have a revenue stream to help pay
off the bond.
Representative Wilson asked for a better understanding of
the overriding royalty interest agreements.
Mr. Barnhill responded that the amendment would require the
revenue collected be deposited in the general fund and
separately accounted, if the state went into an agreement
with a tax credit holder through which they would access
the lower discount rate through proving an overriding
royalty interest
Representative Wilson queried the source of the money.
Mr. Alper replied that the overriding royalty agreement was
signed between the producer and DNR, and would be an extra
payment. He stated that, because it was a state lease on
state land, there would be an agreement to pay some
additional amount. He furthered that the money would be an
additional revenue source.
Representative Wilson asked about the constitutional
concerns being addressed in the amendment.
Mr. Barnhill responded that it was not clear to what degree
it addressed the constitutional concerns expressed to the
committee from Legislative Legal Services. He stated that t
Representative Wilson suggested the committee hear from the
Legislative Legal Services.
Co-Chair Foster asked his staff to see if someone from
Legislative Legal Services could get online.
12:50:30 PM
Representative Guttenberg wondered whether there were any
situations where the overriding royalty interest would be
lower in the negotiation.
Mr. Alper responded in the negative. He stated that the
concept of overriding royalty was separate from the concept
of royalty. He explained that royalty was a land owner
share, and was a part of the lease. The royalty was part of
the underlying rules around producing oil on land that
belonged to somebody else. He stated that the overriding
royalty was a side deal unrelated to the land ownership
interest. The overriding royalty was an agreement to pay a
third party a fraction of the value, for whatever reason.
He stated that, in this case, the state would also be the
third party. He remarked that there may be circumstances
where DNR might agree to a royalty relief for the existing
statute, it would be separate from any overriding royalty
or additional payment associated with the bond program.
Co-Chair Seaton looked at line 5 of the amendment, which
showed that the legislature "may appropriate", which was
like many of the designated funds. He noted that the direct
question of the constitutionality problem was not solved,
but established a separate revenue source that would be
generated from the bonds. The overriding royalty was the
side deal, which made up for the 5 percent drop.
Representative Wilson had her question answered.
Representative Wilson WITHDREW her OBJECTION. There being
NO OBJECTION, it was so ordered. Amendment 5 was ADOPTED.
Representative Kawasaki MOVED to ADOPT Amendment 6, 30-
GH2863\A.27 (Nauman, 4/25/18) (copy on file):
Page 2, line 12, following "administration.":
2 Insert "The Corporation may issue bonds under this
section only if it makes a finding
3 that, both before and after the issuance of the
bonds, the state bond rating will be the
4 equivalent of AA- or better."
5
6 Page 6, line 31, following "inhabitants":
7 Insert "and the state bond rating, both before and
after the issuance of refunding
8 bonds, will be the equivalent of AA- or better"
Representative Wilson OBJECTED for discussion.
Representative Kawasaki explained the amendment. He
remarked that the discussion of the bill was related to the
construction of the Alaska Pension Obligation Bond
Corporation formation. He stated that he had looked at
Section 37.16, and compared it to the discussion in the Oil
and Gas Tax Credit Corporation bond scheme. He felt that
there were some differences related to the bond
authorization. He noted that, in the pension obligation
bond corporation, the bond authorization could only occur
if the bond rating was an equivalent of AA- or better. He
felt that the amendment was in line with the pension
obligation bond. He wondered why it was removed.
12:54:50 PM
Mr. Barnhill did not know why it was removed. He felt that
it was intended to replicate the pension obligation bond
corporation statute to the fullest extent possible.
Currently, the state's credit rating could go down further
over the next 10 year. The anticipation was that the bond
issuance would not have a problem with the credit rating.
However, the state might not be able to maintain bonding
capacity for 10 years.
Representative Kawasaki summarized that the credit rating
would remain in place, and recalled that Devon Mitchell
asserted that the bond capacity would be lower. He wondered
why that would represent a lowering of the credit rating.
Mr. Barnhill did not testify that there would be an impact
to the state's credit rating.
Representative Kawasaki restated his question.
Mr. Barnhill clarified that, prior to the issuance of the
bonds, it would be difficult for DOR to make a finding that
the state would maintain the credit rating for the entirety
of the life of the bonds. He noted that the Department of
Law may have comments related to the topic.
12:59:41 PM
BILL MILKS, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
looked at AS 37.16.030, and felt that the representation
regarding the state bond rating did not have a
representation regarding after the issuance of the bond. He
stressed that it was a representation that the bonds would
only be issued if the equivalent of AA- or better at the
time of the issuance of the bonds.
Representative Kawasaki recalled the reason for the
language at AA- was put in statute.
Mr. Barnhill was with the state of the time but did not
recall the reason for the language.
Representative Kawasaki asked if there was a reason to be
worries about jeopardizing the state's bonding.
Mr. Barnhill reiterated that it would impact the state's
debt capacity but not its rating. The department
anticipated that the state's credit rating would remain the
same after the bonds were issued.
Representative Kawasaki queried the opposition to language
that required a AA- or higher subsequent to the time of the
issuance of the bond and afterward.
Mr. Barnhill replied he could never make the bond
statement.
Representative Wilson queried what would occur, should
there be a sudden drop.
1:04:04 PM
Representative Kawasaki replied that the amendment was the
protection. He stressed that there was a hope to keep the
bond rating at least AA- now and immediately following the
issuance of the bond. He stated that, over that life span,
the state would also like to maintain at least that rating.
He also wanted validation from the bank and administration
that those goals would be accomplished.
Representative Wilson remarked that there would be
inability to go after the bonds without any substance. She
did not support the amendment.
Co-Chair Seaton felt that, looking into the future, there
were no guarantees. He did not feel that the amendment
would work within the bill.
Vice-Chair Gara would have to oppose the amendment. He
thought the temperature would be raised with the adoption
of the amendment.
1:08:41 PM
Representative Kawasaki clarified that the focus was
related to a subject to annual appropriation bond, and the
administration stated that it was not debt pledging the
full faith and credit of the state. He disagreed with that
assertion. He felt that the amendment would allow the
corporation to issue the bonds, only with finding that,
both before and after issuance, the state would be
protected at AA- or higher. He felt that it was prudent
investment to a bond authorization that could be $1
billion. He stressed that he was looking to support and
protect future legislatures.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Kawasaki, Ortiz
OPPOSED: Pruitt, Thompson, Tilton, Wilson, Gara, Grenn,
Guttenberg, Seaton, Foster
The MOTION MOVED to ADOPT Amendment 6 FAILED (2/9).
1:11:00 PM
Representative Kawasaki MOVED to ADOPT Amendment 7 30-Gl-
12863 A.22 (Nauman, 4/25/18) (copy on file):
Page 5, line 12, following "variable":
Insert "A bond issued under this chapter must state on
its face that
(I) the legislature is not required to appropriate
money to the
corporation for any purpose;
(2) the state is not liable if the legislature does
not appropriate to the
corporation the amount necessary) to maintain the
required debt service reserve; and
(3) an appropriation of money to the corporation for
maintenance of
the required debt service reserve docs not obligate
the legislature to make a subsequent
appropriation to the corporation."
Representative Wilson OBJECTED for discussion.
Representative Kawasaki shared that the amendment showed
the intent of how HB 331 was introduced by the governor. He
stated that it said that a bond issued under the chapter
did not require the legislature to appropriate money to the
corporation for any purposes; the state was not liable if
the legislature did not appropriate the amount necessary to
maintain the service; and it did not obligate the
legislature to make a subsequent appropriation to the
corporation. The testimony on HB 331 surrounding the legal
aspect and whether the bill incumbered future legislatures
was an important issue with no resolution. He understood
that there may never be an agreement about the bill's
constitutionality before there would be a vote on the
legislation. He stressed that he did not want to bind the
legislature to make subsequent appropriations in the
future.
Vice-Chair Gara felt that he trusted the administration's
perspective on the constitutionality. He supposed that an
investor would know that it would be a subject to
appropriation bond. He wondered whether an investor would
know that without the amendment.
Mr. Barnhill replied in the affirmative.
1:15:20 PM
Vice-Chair Gara indicated that there was a number of
statements that may denigrate the reputation of the state.
He felt that everyone would honor the obligation to pay
back the bonds, even though the may be subject to
appropriation.
Representative Wilson would not be supporting the amendment
because of the Department of Law stated in its letter dated
April 27, 2018 on page 2, that there would be a clear
statement. She read, "bonds were not state debt, and did
not constitute a general obligation of the state, and that
payment was subject to appropriation."
Representative Kawasaki thought the discussion was about
what the state was going to do and perhaps obligating
future legislatures without the vote of the public. He
remarked that the legislature must pay its debt in order to
maintain its credit rating. He stressed that he wanted the
legislature to consider the future.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Kawasaki, Ortiz, Guttenberg
OPPOSED: Pruitt, Thompson, Tilton, Wilson, Gara, Grenn,
Seaton, Foster
The MOTION FAILED (3/8).
Representative Kawasaki would not be offering Amendment 8.
1:19:49 PM
Representative Kawasaki MOVED to ADOPT Amendment 9, 30-
GH2863\A.l8 (Nauman, 4/25/18) (copy on file):
Page 2. lines 19 - 22:
2 Delete "The bonds do not constitute a general
obligation of the state and are not state
3 debt within the meaning of art. IX. sec. 8.
Constitution of the State of Alaska. Authorization
4 by the voters of the state or the legislature is not
required."
5 Insert "The bonds
6 (I) do not constitute a general obligation of the
state and are not state
7 debt within the meaning of art. IX. sec. 8.
Constitution of the State of Alaska:
8 authorization by the voters of the state or the
legislature is not required; and
9 (2) are not revenue bonds of a public corporation
within the meaning of art. IX, sec. II, Constitution
of the State of Alaska."
Representative Wilson OBJECTED for discussion.
Representative Kawasaki explained the amendment. He stated
that the amendment did not constitute the general
obligation to the state, and was not state debt within
Article 9, Section 8 of the constitution. He stated that
the intent of the use of a public corporation to issue
bonds within HB 331 and SB 176 was not to fall into the
exception clause of the Alaska constitution, Article 9,
Section 11. Further, item 2 discussed the idea that was
also not a revenue bond. He shared that a revenue bond was
a specific type of instrumentality for financing. A revenue
bond was a bond in which the principal and interest were to
be paid solely from the project they finance. He stressed
that they were common instruments. He explained that it was
a different instrument planned to be used under HB 331. He
stated that it was in line with the other amendments that
he had sponsored that evening.
Co-Chair Foster invited comments from the department.
Mr. Barnhill felt that the language was already in the
bill. He stressed that the Department of Law had advised
that the revenue bonds were subject to appropriation bonds.
There was not an attempt to seek an exemption under Article
9, Section 11 of the constitution by constructing a
corporation and receiving revenue. He noted that the
committee adopted Amendment 5, which segregated the
revenue, which was an attempt to provide revenue back to
the corporation in an attempt to preserve the argument that
the structure fell within Section 11 of Article 9 of the
constitution.
Vice-Chair Gara understood Mr. Barnhill's argument. He
remarked that the court could see that it was a
constitutional issue.
Mr. Barnhill did not want to say it was a tiny argument. He
believed that through advice and decades of practice that
it would not be an issue. He remarked that it was now an
issue, and he felt that it was an issue that should be
resolved by the Alaska Supreme Court, so there was not a
lack of clarity. He remarked that there would be multiple
opportunities for the legislature to consider similar ideas
on how to advance state interest through the issuance of
debt.
1:25:28 PM
Mr. Milks thought Mr. Barnhill and Vice-Chair Gara had
described the Department of Law's viewpoint accurately. He
stated that the issue was addressed on page 4 of the bill,
and the alternative. He noted that there was a possible
notion that it would be considered a revenue bond. He
remarked that Article 9, Section 11 critical condition was
that a public corporation issuing those bonds provided the
security from the corporation, not from the state.
Representative Guttenberg remarked that the amendment's
concerns were tied to Amendment 5. He queried the
percentage of a bond revenue would make it a "revenue
bond." He remarked that Amendment 9 would delete that
concern.
Mr. Milks responded that the primary position was related
to the subject of appropriation bonds. He could not respond
to the question of how much revenue. He remarked that there
was a memorandum that identified some other states that had
tackled that issue. He remarked that the New Jersey Supreme
Court had explicitly stated that they would not assess how
much revenue was behind a revenue bond, because there was
the critical factor of whether the state's full faith in
credit was pledged. He remarked that under Article 9,
Section 11, the requirement was when the only security was
from the corporation not the state.
1:30:02 PM
Co-Chair Seaton expressed concern regarding the statement
about lines 9 and 10, and whether they meant that it did
not fall into any exception in Section 11. He remarked that
Section 11 had subsections that did not apply to refunding
indebtedness of the state or its potential subdivisions. He
felt that the exceptions within Section 11 did not relate
to the amendment.
Representative Wilson wondered whether the language
resulted in the state more likely to lose in a lawsuit
versus the current language.
Mr. Milks indicated that the amendment did not provide
helpful language for the purpose in the bill. He remarked
that there were some who felt that the issues should be
analyzed under Article 9, Section 11.
Representative Kawasaki wondered whether a public
corporation could be created designed to bond revenue to
help fund education in the future.
Mr. Barnhill replied that he believed the answer was "yes."
He explained that the difficulty with using debt
instruments to fund operating expenses was that the debt
purchasing market did not look upon those instruments in
very favorable terms. He stated that there would probably
be a substantial premium added to the coupon in order to
attract interest in purchasing those bonds. He noted that
multiple states had issued debt instruments to be used for
current year revenues. He remarked that those states were
roundly criticized for using those mechanisms, and they
payed for that activity with additional debt service and
potential impacts to the credit rating.
Representative Kawasaki argued that there were states with
different constitutions than Alaska. He felt that the
framers of the constitution wanted to ensure that debt was
used very sparingly in all cases.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Guttenberg, Kawasaki
OPPOSED: Ortiz, Pruitt, Thompson, Tilton, Wilson, Gara,
Grenn, Foster, Seaton
The MOTION FAILED (2/9).
1:35:47 PM
Co-Chair Seaton did not offer Amendment 10.
Co-Chair Foster asked Co-Chair Seaton if he wanted to offer
Amendment 2.
Co-Chair Seaton responded that Legislative Legal Services
were considering the language of the amendments.
Co-Chair Foster asked if corrected language for Amendment 4
had been submitted by Legislative Legal Services.
Representative Guttenberg replied that did not believe so.
1:37:31 PM
AT EASE
2:10:06 PM
RECONVENED
Co-Chair Foster indicated there were 3 amendments to finish
with.
Representative Guttenberg MOVED to ADOPT NEW Amendment 4,
30-GH2863\A.33 (Nauman, 4/27/18) (copy on file):
Page 14, lines 14- 20:
Delete all material and insert:
"(3) that the applicant commits to incur, not
later than 24 months after the purchase of the
certificate, qualified capital expenditures in an
amount greater than or equal to the purchase
amount, and
(A) the applicant provides to the department
evidence of the commitment and a plan to
(i) use the qualified capital expenditures
for the purpose of increasing production of
oil or gas from leases or properties in the
state; and
(ii) maximize the hiring of state
residents and use of state businesses
related to qualified capital expenditures;
(B) the applicant agrees in writing that, if the
applicant does not incur qualified capital
expenditures in an amount greater than or equal
to the purchase amount within 24 months after
the purchase of the certificate, the applicant
shall pay the department the lesser of
(i) the difference between the purchase
amount and the amount the applicant would
have been paid had this subsection not
applied; or
(ii) the difference between the purchase
amount and the actual amount of
qualified capital expenditures incurred by
the applicant in the 24-month period; and
(C) after reviewing documents submitted under (A)
and (B) of this paragraph, the commissioner
approves the lower discount rate for the
purchase."
Page 14, following line 26:
Insert a new subsection to read:
"(o) An agreement under (m)(3)(8) of this
section may require the applicant to pay the
department interest on the amount due under
(m)(3)_(B) of this section. The interest
rate must be consistent with the interest
rate provided for a delinquent tax under AS
43.05.225."
Representative Wilson OBJECTED.
Representative Guttenberg asked Mr. Alper to explain the
amendment.
Mr. Alper remarked that there may be conceptual amendments
required to move forward with an explanation of the
amendment.
Representative Guttenberg indicated the changes were in the
new amendment.
Mr. Alper requested a copy of the amendment.
Co-Chair Foster asked Representative Guttenberg to explain
the changes.
Representative Guttenberg stated that the amendment would
ensure that the capital expenditures would be for the
purpose of increased production.
Representative Wilson asked if a point system would be
applied. She indicated that with the amendment there would
be additional conditions. She was wondering how the
companies would measure progress.
2:15:51 PM
Mr. Alper responded that the original amendment required a
plan to spend the money. He looked at the final clause,
which said that the commissioner of DOR would approve the
plan. He stated that there had been added language to put
some "meat" into the plan. The plan must state that the
company would spend the money, but would be spent on things
that would move closer to production.
Representative Wilson asked if the commissioner was online.
Commissioner Fisher was available online.
Representative Wilson wondered if tangible items would be
required.
Commissioner Fisher explained that it needed to be a
capital expenditure. It was appropriate to capitalize the
project which included the labor necessary to bring
production online.
Representative Wilson asked how the state would measure
hiring Alaskans. He queried the detail requirements of the
reports.
Commissioner Fisher replied that there was a conversation
with DNR, because they had similar requirements in place.
He stated that it was the intent to follow the lead of DNR.
He explained that DNR would examine how the companies
hired, where the ads were posted, and the recruitment
policies.
2:20:55 PM
Representative Wilson referred to the 2-year requirement.
She asked when the 2-year period would begin.
Commissioner Fisher indicated that the department would be
looking at mid to late August It would likely take 90 to
120 days to issue the bonds. The companies were motivated
to provide the plans in a timely matter.
Representative Wilson asked the commissioner had any
concerns with the amendment.
Commissioner Fisher responded in the negative.
Mr. Alper wanted to further clarify the timeline. He stated
that the amendment discussed application for the lower
discount rate. He looked at the subsection (k) of the bill,
which was the location where companies would say that they
would offer their certificates in the bond program. He
noted that there was an examination of whether the company
sought the better discount rate. He remarked that there
would be a process of application before the company went
into production.
Representative Guttenberg added that the 24 months was
outlined in the bill already.
Representative Kawasaki thanked the maker of the amendment.
He thought it did what the committee wanted. He wondered
about the use of the QCEs.
2:25:36 PM
Mr. Alper replied that the department had written the bill
somewhat broadly, which showed the indication of the intent
to commit the funds. He remarked that there was a desire
ensure knowing the exact commitment. He stressed that the
language seemed to meet the goal. He did not have a problem
with implementation.
Representative Kawasaki wondered whether there was enough
ability to provide production.
Mr. Alper relayed that the primary commitment that the
company would reinvest the money.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, NEW Amendment 4 was ADOPTED.
2:28:27 PM
Co-Chair Seaton MOVED to ADOPT Amendment 2, 30-GH2863\A.31
(Nauman, 4/27/18) (copy on file):
Page 6, line 12. following "them.":
Insert "The corporation shall publish a notice of
the adopted resolution."
Page 7. following line 29:
Insert a new section to read:
"Sec. 37.18.110. Limitation on judicial action. A
person may not bring a judicial action to contest
the constitutionality or validity of this chapter
or the constitutionality or validity of a bond
issued and sold under this chapter unless the
action is commenced in a court of the state of
competent jurisdiction within 45 days after the
corporation adopts a resolution under
AS 37.18.060 authorizing the issuance of bonds. A
person that fails to commence an action in the
time provided under this section is barred from
commencing an action to contest the
constitutionality or validity of a bond issued
and sold under this chapter."
Representative Wilson OBJECTED.
Co-Chair Seaton reviewed the amendment.
Representative Wilson asked the attorney from the
Department of Law to the table.
2:30:05 PM
MARY GRAMLING, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, introduced herself.
Representative Wilson wondered whether the state could
legally tell people that they could not sue.
Mr. Milks replied that, under Article 2, Section 21, of the
constitution, referred to suits against the state. He
deferred to Ms. Gramling.
Ms. Gramling furthered that she had not found anything that
would show that it was not constitutional. She shared that
other states had similar structures with dates ranging from
30 to 60 days, so she felt that 45 days was fairly
reasonable. She remarked that there were other places in
Alaska Statutes that limited actions on the legislature in
the same manner.
Representative Wilson WITHDREW her OBJECTION.
Vice-Chair Gara OBJECTED. He wondered whether the other
states had rulings by the highest court that determined
that it was a valid exercise of state power.
Ms. Gramling replied that she had not researched the extent
of other state law, but stated that a number of other
states had similar statutes called "bond validation
statutes."
Vice-Chair Gara did not hear Ms. Gramling say that there
was a court precedent.
Ms. Gramling agreed, and stated that she had not researched
it extensively.
Vice-Chair Gara wanted the amendment to work. He did not
want to double up the concern that bonding costs may have
increased. He wondered whether there would be a problem.
Ms. Gramling had not personally read anything that would
give her pause on the issue.
2:35:17 PM
Vice-Chair Gara asked for a commitment to alert the
legislators of an increased bond cost.
Ms. Gramling responded that it was part of her job, and
would let the sponsors know of an issue.
Vice-Chair Gara wondered whether she would research the
issue.
Ms. Gramling indicated that she would research the issue
and report if she saw a problem.
Vice-Chair Gara WITHDREW his OBJECTION.
Representative Guttenberg asked if the courts had heard the
justification for waiting an extra 5 days.
Ms. Gramling responded that it varied by case. She remarked
that, if someone missed the deadline, there would be
normally be an argument with justification.
Mr. Milks added that in the context was that another issue
of the question of prospective rulings in a court decision.
There being NO OBJECTION, Amendment 2 was ADOPTED.
Co-Chair Foster indicated a conceptual amendment that would
be forthcoming.
2:40:17 PM
AT EASE
5:27:55 PM
RECONVENED
Co-Chair Seaton MOVED to ADOPT Conceptual Amendment 11:
The intent of the amendment is that:
The Corporation will sunset on the final payment on
any bond or refunded bond. We are going to allow
Legislative Legal Services to determine where it best
fits in the bill.
Representative Guttenberg queried the sunset time.
Representative Wilson replied that it was at the time when
all the bonds were paid.
Co-Chair Seaton stated that they would sunset after the
final payment on any bond or refunded bond.
There being NO OBJECTION, Conceptual Amendment 11 was
ADOPTED.
Co-Chair Seaton MOVED to allow Legislative Legal Services
to make technical and conforming adjustments to HB 331.
There being NO OBJECTION, it was so ordered.
Representative Wilson asked when the committee would
convene to address the bill.
Co-Chair Foster replied that he believed the committee
would meet possibly on the upcoming Tuesday.
5:30:05 PM
AT EASE
5:30:27 PM
RECONVENED
Co-Chair Foster stated that the bill would be drafted, so
the earliest meeting would be Monday or Tuesday.
HB 331 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster acknowledged Representative Dan Sadler in
the audience. He indicated he would be leaving the meeting
open. He recessed the meeting to a call of the chair [note:
the meeting never reconvened].
ADJOURNMENT
5:31:31 PM
The meeting was adjourned at 5:31 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 331 Amendment Packet.pdf |
HFIN 4/27/2018 9:00:00 AM |
HB 331 |
| HB 331 Letter re Alaska Tax Credit Certificate Bond Corporation Legislation.pdf |
HFIN 4/27/2018 9:00:00 AM |
HB 331 |
| HB 331 New Amendment.4.pdf |
HFIN 4/27/2018 9:00:00 AM |
HB 331 |