Legislature(2001 - 2002)

04/26/2002 09:25 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 26, 2002                                                                                           
                          9:25 AM                                                                                               
                                                                                                                                
TAPE HFC 02 - 95, Side A                                                                                                        
TAPE HFC 02 - 95, Side B                                                                                                        
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House Finance Committee meeting                                                                    
to order at 9:25 AM.                                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Eldon Mulder, Co-Chair                                                                                           
Representative Con Bunde, Vice-Chair                                                                                            
Representative Eric Croft                                                                                                       
Representative John Davies                                                                                                      
Representative Richard Foster                                                                                                   
Representative John Harris                                                                                                      
Representative Bill Hudson                                                                                                      
Representative Ken Lancaster                                                                                                    
Representative Carl Moses                                                                                                       
Representative Jim Whitaker                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bill Williams, Co-Chair                                                                                          
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Drew Scalzi; Pat Pourchot, Commissioner,                                                                         
Department of Natural Resources; Michael Hurley, Phillips                                                                       
Petroleum Company, Alaska;                                                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
There were no teleconference testifiers.                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 519    "An Act authorizing priority treatment under the                                                                      
          Right-of-Way Leasing  Act for an Alaska North Slope                                                                   
          natural  gas project; expanding  the scope  for the                                                                   
          kinds of  gas development projects that  may become                                                                   
          qualified  projects under  the Alaska Stranded  Gas                                                                   
          Development   Act;  extending   the  deadline   for                                                                   
          submitting  applications under the  Alaska Stranded                                                                   
          Gas  Development  Act;  exempting an  Alaska  North                                                                   
          Slope natural  gas project from state  property tax                                                                   
          and  all municipal taxes  during construction;  and                                                                   
          providing for an effective date."                                                                                     
HOUSE BILL NO. 519                                                                                                            
                                                                                                                                
     "An Act authorizing priority  treatment under the Right-                                                                   
     of-Way  Leasing Act  for an Alaska  North Slope  natural                                                                   
     gas project;  expanding the scope  for the kinds  of gas                                                                   
     development projects that  may become qualified projects                                                                   
     under   the  Alaska   Stranded   Gas  Development   Act;                                                                   
     extending  the  deadline   for  submitting  applications                                                                   
     under   the  Alaska   Stranded   Gas  Development   Act;                                                                   
     exempting  an Alaska  North  Slope  natural gas  project                                                                   
     from state  property tax and all municipal  taxes during                                                                   
    construction; and providing for an effective date."                                                                         
                                                                                                                                
Representative Mulder observed  that committee substitute 22-                                                                   
LS1651\W was adopted on 4/25/02(copy on file).                                                                                  
                                                                                                                                
Representative  John Davies MOVED  to ADOPT Amendment  1, 22-                                                                   
LS1651\R.2, which was drafted  to the previous R version. Co-                                                                   
Chair  Mulder   OBJECTED  for  the  purpose   of  discussion.                                                                   
Representative  John  Davies  explained  that  the  amendment                                                                   
would allow  the municipalities  to apply for  grants through                                                                   
the Department of Community and  Economic Development to deal                                                                   
with  the impact  of the  pipeline  construction. The  grants                                                                   
would  be  subject to  legislative  appropriation  and  would                                                                   
separate the  issue of  impacts to  communities from  the tax                                                                   
holiday. The state  would front the funds through  the normal                                                                   
appropriation   process.  The   amendment   was  modeled   on                                                                   
provisions,  which  applied  to   the  Trans-Alaska  Pipeline                                                                   
System construction.                                                                                                            
                                                                                                                                
Co-Chair  Mulder  spoke  in  support  of  the  amendment.  He                                                                   
stressed that it  would be appropriate for the  state to take                                                                   
responsibility  and offer  support to  communities since  the                                                                   
state  is  providing  the  exemption.  He  acknowledged  that                                                                   
roads, schools,  police and fire  protection would  be direct                                                                   
costs, which should be assisted by the state.                                                                                   
                                                                                                                                
Representative  Lancaster questioned  if  an emergency  would                                                                   
have to be  declared to receive funding.  Representative John                                                                   
Davies  understood that  "emergency" had  been used  in prior                                                                   
provisions without difficulty.  Co-Chair Mulder noted that it                                                                   
would  be  his  intent that  any  [future]  legislature  step                                                                   
forward to help the communities.                                                                                                
                                                                                                                                
Representative Harris spoke in  support of the amendment. The                                                                   
amendment would  help communities and give some  oversight to                                                                   
the state legislature.                                                                                                          
                                                                                                                                
Representative  Whitaker clarified  that  state general  fund                                                                   
dollars  would  be  made  available   for  emergency  impact.                                                                   
Representative John  Davies explained that  "emergency" would                                                                   
be extra ordinary impact.                                                                                                       
                                                                                                                                
There being NO  OBJECTION, it was so ordered  and Amendment 1                                                                   
was adopted.                                                                                                                    
                                                                                                                                
Co-Chair Mulder MOVED to ADOPT Amendment 2:                                                                                     
                                                                                                                                
     (c)   Before  issuing  bonds  to provide  the  financing                                                                   
     described in   AS 42.40.250(31), whether  for a facility                                                                   
     to be owned  by the corporation or for a  facility to be                                                                   
     owned  as   described  in  (b)  of  this   section,  the                                                                   
     corporation  shall  obtain  the prior  approval  of  the                                                                   
     governor.                                                                                                                  
                                                                                                                                
Co-Chair Mulder explained that  the amendment would relate to                                                                   
the railroad provisions and issuance  of bonds. The amendment                                                                   
clarifies that the governor would be in charge.                                                                                 
                                                                                                                                
Representatives  Whitaker and  Davies  expressed support  for                                                                   
the amendment.                                                                                                                  
                                                                                                                                
There being NO  OBJECTION, it was so ordered  and Amendment 2                                                                   
was adopted.                                                                                                                    
                                                                                                                                
Representative John Davies MOVED to ADOPT Amendment 3:                                                                          
                                                                                                                                
   (9) requires that its agents and contractors, the agents                                                                     
        and contractors  of a person  acting under  contract,                                                                   
        or the agents and  contractors of a  project sponsor,                                                                   
        negotiate to  obtain, a project  labor agreement  for                                                                   
        the employment  of  laborers  and mechanics  for  the                                                                   
        construction,  operation,  and  maintenance   of  the                                                                   
        project.                                                                                                                
                                                                                                                                
Co-Chair   Mulder   OBJECTED.  Representative   John   Davies                                                                   
explained that the  amendment would speak to  the Alaska hire                                                                   
issue. The  amendment would require  those that  contract for                                                                   
labor to obtain labor agreements for employment.                                                                                
                                                                                                                                
Co-Chair  Mulder noted  that producers  acknowledge the  need                                                                   
for project labor agreements.  The amendment was offered, but                                                                   
not adopted,  in federal  legislation.  He spoke against  the                                                                   
amendment and  pointed out that  oil companies would  like to                                                                   
negotiate  any Project  Labor  Agreement  (PLA). He  stressed                                                                   
that it is a legitimate tool and  a good way to ensure Alaska                                                                   
hire, but  that he  would like  to see  the producers  do the                                                                   
negotiations, as opposed to a legislative mandate.                                                                              
                                                                                                                                
Representative  Croft  pointed out  that  the  intent of  the                                                                   
legislation  is to  take some  items out  of negotiation.  He                                                                   
acknowledged that  it is appropriate to have  a "tax holiday"                                                                   
but  emphasized   that  the  state  could  require   a  labor                                                                   
negotiation  contract.   He  noted  that,  under   the  state                                                                   
Constitution, the  state cannot require that  Alaskan workers                                                                   
and contractors be hired, but  the state can influence Alaska                                                                   
hires through  negotiations. The  best way to  assure Alaskan                                                                   
hiring  is through  a PLA. He  emphasized that  as the  state                                                                   
gives  away  a  substantial amount  of  state  and  municipal                                                                   
property  tax that  there  should be  a  requirement to  hire                                                                   
Alaskans by the most effective manner [a PLA].                                                                                  
                                                                                                                                
Representative  Hudson summarized  that  the amendment  would                                                                   
require  a  PLA  as  opposed   to  requiring  an  attempt  to                                                                   
negotiate  where   possible.  He  noted  the   difficulty  of                                                                   
reaching agreements  in all  cases and  stated that  he would                                                                   
support the amendment with the  addition of "where possible".                                                                   
                                                                                                                                
Representative  John  Davies  clarified  that  the  amendment                                                                   
would only require a negotiation.                                                                                               
                                                                                                                                
Representative Whitaker  questioned what would  happen if the                                                                   
negotiations   were   unsuccessful.   Representative   Davies                                                                   
indicated  that   the  project  would  continue   unhindered.                                                                   
Representative  Hudson reiterated  his desire  to see  "where                                                                   
possible" added to the amendment.                                                                                               
                                                                                                                                
Representative  John Davies MOVED  to AMEND Amendment  3: add                                                                   
"where possible"  after "obtain"  on line  5. There  being NO                                                                   
OBJECTION, it was so ordered.  Amendment 3 was adopted.                                                                         
                                                                                                                                
Co-Chair  Mulder  WITHDREW  his  OBJECTION.  There  being  NO                                                                   
OBJECTION, it was so ordered and Amendment 3 was adopted.                                                                       
                                                                                                                                
Representative Whitaker MOVED  to ADOPT Amendment 4. Co-Chair                                                                   
Mulder OBJECTED.                                                                                                                
                                                                                                                                
Representative  Whitaker explained  that the amendment  would                                                                   
change  the tax  holiday  to a  tax deferral.  The  potential                                                                   
revenues would  be deferred  until they  could be paid  back.                                                                   
Sometime in the future the tax  repayment would be negotiated                                                                   
if the project were successful.  Section 4 would clarify that                                                                   
there is no new tax referral on  the existing infrastructure.                                                                   
He  observed that  the intent  is  to help  with the  upfront                                                                   
costs to the producers while protecting  the interests of the                                                                   
citizens.                                                                                                                       
                                                                                                                                
Vice-Chair  Bunde spoke  against the  amendment. He  stressed                                                                   
that  producers   would  be  content  to  go   elsewhere.  He                                                                   
emphasized  that "100  percent  of something  is better  than                                                                   
100 percent of nothing."                                                                                                        
                                                                                                                                
Representative  Hudson clarified that  the cutoff  date would                                                                   
be 2015.                                                                                                                        
                                                                                                                                
Co-Chair  Mulder  spoke against  the  amendment.  He did  not                                                                   
characterize the  legislation as  a "give away".  He observed                                                                   
that  this  is  the  first  time  that  producers  have  been                                                                   
interested  [in developing  an Alaskan  natural gas  project]                                                                   
due to  positive changes  in federal  legislation. He  stated                                                                   
that  he is  willing to  make a  $500 -  $700 million  dollar                                                                   
investment in order  to get 50 years at $250  million dollars                                                                   
a year. When the gas pipeline  comes on line the state should                                                                   
negotiate  to recover  costs. It is  a legitimate  negotiated                                                                   
item, which  should occur under  HB 393. He pointed  out that                                                                   
the tax holiday is tied to the  Stranded Gas Act. The holiday                                                                   
would only occur if there were negotiations.                                                                                    
                                                                                                                                
PAT POURCHOT, COMMISSIONER, DEPARTMENT  OF NATURAL RESOURCES,                                                                   
provided information  on the legislation.  He noted  that the                                                                   
department prefers  the overall negotiation structure  of the                                                                   
Stranded Gas Act to address the  issues involved. He observed                                                                   
that  once specifics  are  separated, difficulties  occur  in                                                                   
backtracking.  He stated  that  how municipalities  would  be                                                                   
compensated for  very real impacts during  construction, when                                                                   
there  is  a statutory  exemption  from  property tax,  is  a                                                                   
legitimate   concern.  He  acknowledged   that  adoption   of                                                                   
Amendment  1 would help  to mitigate  concerns, but  stressed                                                                   
that it is complicated  to negotiate after the  fact. He felt                                                                   
that  it   was  conceivable  that   there  would  not   be  a                                                                   
resolution.  He  argued  that  it  would  be  appropriate  to                                                                   
[negotiate  repayment]  up front.  He acknowledged  that  the                                                                   
Administration  would  try  to negotiate  further  under  the                                                                   
terms of the Stranded Gas Act,  but emphasized that something                                                                   
would have to be  given up in the negotiations  if taxes have                                                                   
already been taken off.                                                                                                         
                                                                                                                                
Representative   Hudson  asked  if   the  intention   of  the                                                                   
amendment would  be to allow some forgiveness.  He questioned                                                                   
if a  new subsection  could be  added: "When  in the  state's                                                                   
best  interest  the deferral  could  be made  permanent."  He                                                                   
observed  that  there  might   be  occasions  when  the  best                                                                   
interest would be to make a deferral permanent.                                                                                 
                                                                                                                                
Representative  Whitaker stressed  that the current  language                                                                   
would allow the option of a permanent deferral.                                                                                 
                                                                                                                                
Co-Chair  Mulder  interpreted  the  amendment  to  mandate  a                                                                   
deferral.  Representative  Whitaker   pointed  out  that  the                                                                   
amendment states  that: the commissioner shall  negotiate the                                                                   
amount of  and the period of  repayment of tax  deferred". He                                                                   
stated that  he would accept  a friendly amendment  to change                                                                   
the amendment to "may".                                                                                                         
                                                                                                                                
Co-Chair Mulder referred to section  4: deferral of state tax                                                                   
collections. Section  4 notes that the collection  of the tax                                                                   
imposed  by the  amendment  is  deferred for  collection.  He                                                                   
concluded that the amendment is a mandate.                                                                                      
                                                                                                                                
Representative Whitaker interpreted  "negotiate" to mean that                                                                   
the range of  possibilities is not limited.  He stressed that                                                                   
if there is no  money to pay back, then the  conclusion would                                                                   
be  that the  negotiation  would not  allow  for a  repayment                                                                   
schedule.                                                                                                                       
                                                                                                                                
Representative  John  Davies  questioned  what would  be  the                                                                   
hammer that closes  the negotiation. He noted  that a company                                                                   
could  continue  negotiations   indefinitely.  Representative                                                                   
Whitaker responded  that the court  system would  determine a                                                                   
negotiation impasse.                                                                                                            
                                                                                                                                
Vice-Chair  Bunde   asked  if   there  is  anything   in  the                                                                   
legislation that would prevent an increase.                                                                                     
                                                                                                                                
Representative Croft observed  that taxpayer and commissioner                                                                   
would negotiate  the amount  of and  period of repayment.  He                                                                   
concluded that the addition of  "amount" indicates that there                                                                   
could be a holiday, but that it  would need to be proved that                                                                   
a  holiday  is   necessary.  He  felt  that   the  state  was                                                                   
negotiating poorly  on the issue  [by giving a  tax holiday].                                                                   
Producers  have  provisions in  federal  legislation  pending                                                                   
that would set  a minimum price on the gas,  which would take                                                                   
the risk out  of the project. The only question  becomes: How                                                                   
much money can be made at that  price. The risk is taken out.                                                                   
There  is  a  structure  under   the  Stranded  Gas  Act  for                                                                   
producers to  demonstrate to the  state of Alaska that  it is                                                                   
not enough. He questioned why  the state is circumventing the                                                                   
Stranded Gas  Act to  give away something  that is  no longer                                                                   
needed with  the federal  floor for  the project to  proceed.                                                                   
The amendment would presume deferral  but ask to be shown the                                                                   
necessity.                                                                                                                      
                                                                                                                                
Representative Croft  referred to the method  of negotiation.                                                                   
He stressed  that the main  negotiation point is  being given                                                                   
away before the necessity is demonstrated.  There should be a                                                                   
presumed deferral  unless they show  a holiday is  needed. He                                                                   
compared  state employee  negotiations and  questioned  if it                                                                   
would  make  sense  to pass  a  pay  raise  and then  try  to                                                                   
negotiate working  conditions. The main issue  would be given                                                                   
away before anything was conceded.                                                                                              
                                                                                                                                
Representative   Whitaker  maintained   that   it  would   be                                                                   
unreasonable to  try to tax the  industry if the  state finds                                                                   
that  the project  is  not profitable.  The  intention is  to                                                                   
further  a project  in  a  reasonable manner  that  precludes                                                                   
unreasonable  action  in the  future.  He observed  that  the                                                                   
Stranded   Gas  Act   allows   negotiation  if   a  need   is                                                                   
established.                                                                                                                    
                                                                                                                                
Co-Chair   Mulder  questioned   what   is  "reasonable".   He                                                                   
maintained  that  a  $700  million  dollar  "kick  start"  is                                                                   
reasonable  when the return  to the  state is considered.  He                                                                   
observed that  no one has negotiated  to this point  in time.                                                                   
No one  has come to  the table; no  one has negotiated  under                                                                   
the Stranded  Gas Act.  The intent is  to bring producers  to                                                                   
the table and to get them to put  an application in if HB 393                                                                   
takes  place.  He did  not  think  the project  would  happen                                                                   
without [the tax holiday].                                                                                                      
                                                                                                                                
TAPE HFC 02 - 95, Side B                                                                                                      
                                                                                                                                
Co-Chair  Mulder  noted  that   the  federal  delegation  has                                                                   
indicated   its  desire   to  see  a   state  effort   toward                                                                   
encouragement of the project.                                                                                                   
                                                                                                                                
Representative Hudson  summarized that the choice  is between                                                                   
an out  right holiday  or a deferral.  He suggested  that the                                                                   
amendment be  amended: to insert  "terms of" and  "forgiven".                                                                   
Representative  Whitaker  stated that  he  would welcome  the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Representative Hudson  emphasized that the deferral  would be                                                                   
subject to negotiation, which  is a holiday, depending on the                                                                   
contractual   relationship   with   the  state   of   Alaska.                                                                   
Representative Whitaker spoke  in support of the amendment to                                                                   
Amendment  4.  Representative  Croft felt  that  the  federal                                                                   
provisions, which  provide a floor  and tax credits  (to make                                                                   
the floor  of $3.25)  should be mirrored.  He noted  that the                                                                   
federal  government does  not just  give without  a quid  pro                                                                   
quo. There would still be a significant advantage.                                                                              
                                                                                                                                
Representative Hudson  MOVED to Amend Amendment  4: to insert                                                                   
"terms  of" and  "forgiven". Representative  Whitaker  stated                                                                   
that  he  would   welcome  the  amendment.  There   being  NO                                                                   
OBJECTION, Amendment 4 was amended.                                                                                             
                                                                                                                                
RECESSED                                                                                                                      
                                                                                                                                
The meeting was recessed at 10:13 A.M.                                                                                          
                                                                                                                                
RECONVENED                                                                                                                    
                                                                                                                                
The meeting was reconvened at 2:35 P.M.                                                                                         
                                                                                                                                
Representative  Hudson observed  that the  references to  the                                                                   
Stranded  Gas Act  in Amendment  4 amended  would need  to be                                                                   
added. He MOVED to AMEND Amendment 4 by adding:                                                                                 
                                                                                                                                
     *5ec --. AS 43.82.210(a)(2) is amended to read:                                                                            
                (2) oil and gas exploration, production, and                                                                    
     pipeline transportation  property taxes under  AS 43.56;                                                                   
     a periodic payment in lieu  of the tax described in this                                                               
     paragraph  shall  include  an  amount  that  takes  into                                                                 
     consideration   amounts   of   the   tax   that,   after                                                                 
     negotiation,   are  deferred   or   forgiven  under   AS                                                                 
     43.56.035(c)                                                                                                             
                                                                                                                                
                                                                                                                                
     *Sec -- . AS 43.82.210(a)(6) is amended to read:                                                                           
     (6)  municipal  property  taxes  under  AS  29.45.010  -                                                                   
     29.45.250 or  29.45.550 - 29.45.600; to  the extent that                                                                 
     taxes described  in this  paragraph include oil  and gas                                                                 
     exploration,  production,  and  pipeline  transportation                                                                 
     property  taxes under  AS 43.56  on a qualified  project                                                                 
     that are subject  to limitation of municipal  levy by AS                                                               
     29.45.080,  a  periodic  payment  in  lieu  of  the  tax                                                               
     described  in this  paragraph  shall  include an  amount                                                                 
     that takes  into consideration amounts of  the tax that,                                                               
     after  negotiation, are  deferred or  forgiven under  AS                                                                 
     43.56.035(c)                                                                                                             
                                                                                                                                
There being NO OBJECTION, Amendment 4 was amended.                                                                              
                                                                                                                                
Representative Lancaster questioned  what would happen with a                                                                   
change  of ownership.  Representative  Whitaker thought  that                                                                   
liabilities,   responsibilities   and   opportunities   would                                                                   
transfer with the ownership.                                                                                                    
                                                                                                                                
Co-Chair  Mulder  noted  that  in addition  to  changing  the                                                                   
"exemption" legislation to a "loan"  bill that the loan would                                                                   
expire   when  the  project   is  placed   in  service.   The                                                                   
legislation  currently  allows 24  months  after the  project                                                                   
comes on line to allow for ramp up.                                                                                             
                                                                                                                                
Representative Whitaker  noted that Amendment 5  would not be                                                                   
offered, which  would have addressed  the issue.  Amendment 4                                                                   
would  end the  deferral period  when the  project is  placed                                                                   
into operation, or no later than December 31, 2015.                                                                             
                                                                                                                                
Co-Chair Mulder  spoke against  the amendment. He  pointed to                                                                   
the  size of  the  project and  emphasized  that the  project                                                                   
would not be operating at peak  capacity for a period of time                                                                   
while the details of operation are worked out.                                                                                  
                                                                                                                                
Vice-Chair Bunde  envisioned that the project  would occur in                                                                   
stages. He questioned  when the pipeline would  be considered                                                                   
to be  in operation. Co-Chair  Mulder responded that  as soon                                                                   
as the first molecule goes through.                                                                                             
                                                                                                                                
Representative Croft  noted that the automatic  deferral ends                                                                   
when the project  is placed in service, but  that there would                                                                   
be an opportunity  to negotiate a longer period;  there is no                                                                   
mandate.                                                                                                                        
                                                                                                                                
Representative  Whitaker stated that  he would not  object to                                                                   
reinstituting the two-year deferral from the project date.                                                                      
                                                                                                                                
MICHAEL HURLEY,  PHILLIPS PETROLEUM  COMPANY, ALASKA,  stated                                                                   
that  the amendment  would  change  the legislation  from  an                                                                   
exemption  to a loan.  The payback  would be unspecified.  He                                                                   
stressed that the assumption would  be that the loan would be                                                                   
repaid as  soon as possible.  The deferral sends  a different                                                                   
message. The  value of the bill  would be in how  the project                                                                   
is negotiated, but it would not  provide a tool that he could                                                                   
take  to  his management.  He  would  assume  a  conservative                                                                   
position in regards to the project.                                                                                             
                                                                                                                                
Representative Harris noted that  the producers are receiving                                                                   
a boost from Congress and questioned  how much difference the                                                                   
change in the legislation would  make. Mr. Hurley stated that                                                                   
it would make  a difference. Sub-economic projects  would not                                                                   
become  economic through  the  adoption  of the  legislation.                                                                   
The size  of the exemption with  the impact of  lower tariffs                                                                   
on increased  royalty and severance  taxes to the state  is a                                                                   
lot  smaller. The  exemption  would reduce  the  tariff by  a                                                                   
nickel;  that nickel  flows through  the oil  head value  and                                                                   
generates additional  value in  severance and royalty  to the                                                                   
state.                                                                                                                          
                                                                                                                                
Representative Croft  asked if the federal  legislation would                                                                   
be in the form  of a tax deferral. Mr. Hurley  explained that                                                                   
the floor is setup  to score zero. He did not  anticipate the                                                                   
floor to be  used and it has  no impact on the  economics; it                                                                   
changes the  risk profile  of the project.  The intent  is to                                                                   
reduce the risk with market volatility.                                                                                         
                                                                                                                                
Representative  Croft questioned if  there are provisions  to                                                                   
payback  the tax credit.  Mr. Hurley  affirmed and  explained                                                                   
that the  repayment would occur  at 150 percent of  the floor                                                                   
value.                                                                                                                          
                                                                                                                                
Representative Whitaker summarized  that the legislation with                                                                   
the  addition of  Amendment 4  amended would  be an  interest                                                                   
free loan that would not be paid  back until 2017, subject to                                                                   
negotiations in 2017;  and as result of the  negotiations the                                                                   
loan could never be paid back.                                                                                                  
                                                                                                                                
Representative Hudson  explained that he added  a negotiation                                                                   
for  deferral  and  forgiveness  to  provide  something  more                                                                   
substantial to  take to the  investors. Mr. Hurley  noted the                                                                   
value of clarity and certainty  regarding the tax status, but                                                                   
emphasized  that  oil  companies  do  not want  to  be  in  a                                                                   
position  to pay a  lot in  lawyer fees  in order to  achieve                                                                   
clarity.                                                                                                                        
                                                                                                                                
Vice-Chair Bunde  asked if  the state would  be more  or less                                                                   
likely to see the construction  of a gas pipeline in the next                                                                   
five years  [with adoption  of Amendment  4 as amended].  Mr.                                                                   
Hurley responded that it would be less likely.                                                                                  
                                                                                                                                
Representative  Whitaker noted that  it would be  more likely                                                                   
if all  taxes were taken off  forever. He observed  that over                                                                   
the term  of its life the  project would be worth  $1 billion                                                                   
dollars.  He emphasized  that the Legislature  must refer  to                                                                   
the  Constitution  and  maximize   the  public  interest  and                                                                   
benefit.  He concluded  that  Amendment  4 as  amended  would                                                                   
allow  the  possibility  to achieve  maximum  benefit,  while                                                                   
providing incentive.  He observed  that the gas  pipeline has                                                                   
been in  consideration for a long  time. He stressed  that it                                                                   
is the  duty of the Legislature  to uphold the  provisions of                                                                   
section 8 of the Constitution.                                                                                                  
                                                                                                                                
Co-Chair  Mulder stressed  that  there is  little benefit  if                                                                   
resources stay in the ground.                                                                                                   
                                                                                                                                
A roll  call vote was  taken on the  motion to adopt  Amended                                                                   
Amendment 4.                                                                                                                    
                                                                                                                                
IN FAVOR: Davies, Hudson, Lancaster, Moses, Whitaker, Croft                                                                     
OPPOSED: Foster, Harris, Bunde, Mulder                                                                                          
                                                                                                                                
Co-Chair Williams was absent from the vote.                                                                                     
                                                                                                                                
The MOTION PASSED (6-4).                                                                                                        
                                                                                                                                
Representative Whitaker WITHDREW Amendment 5.                                                                                   
                                                                                                                                
Representative Whitaker MOVED to ADOPT Amendment 6:                                                                             
                                                                                                                                
     "deferral is not allowed as to taxable property used                                                                       
     by the taxpayer                                                                                                            
          (A) that, on the effective date of this section                                                                       
             or at any time before that date, is subject to                                                                     
             tax under this chapter;                                                                                            
          (B) to inject natural gas into a reservoir in the                                                                     
             course    of   operations   for    purposes   of                                                                   
             repressuring    or    conservation,    including                                                                   
             enhanced recovery; or                                                                                              
          (C) in conjunction with gas consumed for                                                                              
             production operations for the lease or property                                                                    
             from which it is recovered.                                                                                        
                                                                                                                                
Co-Chair Mulder OBJECTED.                                                                                                       
                                                                                                                                
Representative  Whitaker explained  that the amendment  would                                                                   
clarify exemptions and leave no  gray area in regards to what                                                                   
is covered.                                                                                                                     
                                                                                                                                
Co-Chair Mulder  summarized that the thrust of  the amendment                                                                   
is to assure  that only those things associated  with the gas                                                                   
pipeline be exempted. He observed  that Commissioner Pourchot                                                                   
is working on an amendment to  implement the intent. He noted                                                                   
that he did  not disagree with the concept  but questioned if                                                                   
the amendment would succeed. The issue is complex.                                                                              
                                                                                                                                
Representative   Croft  noted   that   the  pipeline   should                                                                   
automatically be  exempted. Other items might be  part of the                                                                   
negotiations.                                                                                                                   
                                                                                                                                
Representative Whitaker WITHDREW Amendment 6.                                                                                   
                                                                                                                                
Representative  John Davies MOVED  to ADOPT Amendment  7. Co-                                                                   
Chair  Mulder  OBJECTED. Representative  John  Davies  stated                                                                   
that the  intent is to  draw the line  with the  pipeline and                                                                   
take  other conditions  out  of  the exemption.  He  WITHDREW                                                                   
Amendment 7.                                                                                                                    
                                                                                                                                
Representative John Davies WITHDREW Amendments 8 and 9.                                                                         
                                                                                                                                
Co-Chair Mulder MOVED to ADOPT Amendment 10:                                                                                    
                                                                                                                                
     Page 7, lines 21 - 22:                                                                                                     
     Delete "until December 31 of the second calendar year after                                                              
     the calendar year in                                                                                                     
     which the project is placed in service"                                                                                  
     Insert "until 24 full calendar months after the project is                                                               
     placed in service"                                                                                                       
                                                                                                                                
     Page 7, line 23:                                                                                                           
     Delete "December 31, 2015"                                                                                               
     Insert "December 31, 2012, but the cc                                                                                    
          project   construction  has   commenced   if   that                                                               
     construction is delayed due to litigation or to                                                                          
          shortages of supplies for construction that are not                                                                 
     due to or under the control of a                                                                                         
          taxpayer who is a producer, as that term is defined in                                                              
     AS 31.05.170, or not due to or                                                                                           
     under the control of a project sponsor"                                                                                
                                                                                                                                
Co-Chair Mulder  explained that  the amendment would  provide                                                                   
certainty   and  allow   the  commissioner   to  extend   the                                                                   
exemption.                                                                                                                      
                                                                                                                                
Representative  Croft questioned if  [the deferral]  could go                                                                   
past the year 2015. Co-Chair Mulder  stated that it could. He                                                                   
explained that  it is difficult  to determine  the reasonable                                                                   
point. The  three biggest  issues are permitting,  litigation                                                                   
and type  of availability. If  the permitting  and litigation                                                                   
aspects  are extended  the timeline could  be continued.  The                                                                   
amendment encourages  prompt development but  recognizes that                                                                   
there  may  be  some  circumstances   beyond  the  producer's                                                                   
control.                                                                                                                        
                                                                                                                                
Representative  John  Davies  MOVED to  AMEND  Amendment  10:                                                                   
delete "24" and insert "12".                                                                                                    
                                                                                                                                
Representative Hudson  thought that testimony  indicated that                                                                   
it would  take at least a  year and perhaps another  6 months                                                                   
to  come into  full production.  He  spoke in  support of  24                                                                   
months.                                                                                                                         
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Croft, Davies, Moses                                                                                                  
OPPOSED:  Bunde,    Foster,   Harris,   Hudson,    Lancaster,                                                                   
          Whitaker, Williams, Mulder                                                                                            
                                                                                                                                
Co-Chair Williams was absent from the vote.                                                                                     
                                                                                                                                
The MOTION FAILED (3-7).                                                                                                        
                                                                                                                                
There being NO OBJECTION, Amendment 10 was adopted without                                                                      
amendment.                                                                                                                      
                                                                                                                                
HB 519 was heard and HELD in Committee for further                                                                              
consideration.                                                                                                                  
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:28 PM                                                                                            
                                                                                                                                

Document Name Date/Time Subjects