Legislature(2005 - 2006)HOUSE FINANCE 519

04/26/2006 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 375 RETIREMENT BENEFIT LIABILITY ACCT. TELECONFERENCED
Moved CSHB 375(FIN) Out of Committee
+ HB 306 CONVEY HATCHER PASS TO MAT-SU BOROUGH TELECONFERENCED
<Bill Hearing Rescheduled to 8:30 AM>
+ SB 305 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 29 HEALTH CARE INSUR./COMP HEALTH INS. ASSN TELECONFERENCED
Moved CSHB 29(L&C) Out of Committee
+= SB 237 ADDITIONAL JUDGES FOR THIRD DISTRICT TELECONFERENCED
Moved Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 26, 2006                                                                                           
                         1:50 P.M.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Chenault called the House  Finance Committee meeting                                                                   
to order at 1:50:30 PM.                                                                                                       
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Jim Holm                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Beth Kerttula                                                                                                    
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative    Ethan   Berkowitz;   Representative    Norm                                                                   
Rokeberg;  Susan  Parks, Deputy  Attorney  General,  Criminal                                                                   
Division,  Department   of  Law;  Chris   Christensen,  Staff                                                                   
Counsel,  Alaska  Court  System;   Robynn  Wilson,  Director,                                                                   
Division  of  Tax, Department  of  Revenue;  William  Corbus,                                                                   
Commissioner,   Department   of   Revenue;   Dan   Dickinson,                                                                   
Consultant, Tax Division, Department of Revenue                                                                                 
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Larry  Cohn,  Executive Director,  Alaska  Judicial  Council,                                                                   
Alaska Court System                                                                                                             
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
CS SB 237(FIN)                                                                                                                  
          An  Act relating  to the  compensation of  justices                                                                   
          and  judges,  and  to   increasing  the  number  of                                                                   
          superior court judges  designated for the third and                                                                   
          fourth  judicial districts;  and  providing for  an                                                                   
          effective date.                                                                                                       
                                                                                                                                
          CS SB  237(FIN) was REPORTED out of  Committee with                                                                   
          a "no  recommendation" and  with fiscal note  #2 by                                                                   
          the Alaska Judicial  Council, fiscal note #4 by the                                                                   
          Office of  the Governor, and with new  fiscal notes                                                                   
          by the Alaska Court  System, the Department of Law,                                                                   
          the Department of Public  Safety, the Department of                                                                   
          Administration, and  the Department of Corrections.                                                                   
                                                                                                                                
HB 29     An Act relating to health care insurance and to                                                                       
          the  Comprehensive  Health  Insurance  Association;                                                                   
          and providing for an effective date.                                                                                  
                                                                                                                                
          CSHB 29 (L&C) was REPORTED out of Committee with a                                                                    
          "no  recommendation" and with  zero fiscal  note #1                                                                   
          by   the  Department   of  Commerce  and   Economic                                                                   
          Development.                                                                                                          
                                                                                                                                
HB 375    "An Act relating to the retirement benefit                                                                            
          liability  account  and  appropriations  from  that                                                                   
          account;  relating to  deposits  of certain  income                                                                   
          earned  on money received as  a result of  State v.                                                                   
          Amerada  Hess, et  al.,  1JU-77-847 Civ.  (Superior                                                                   
          Court, First Judicial  District); and providing for                                                                   
          an effective date."                                                                                                   
                                                                                                                                
          CSHB 375 (FIN) was REPORTED out of Committee with                                                                     
          a  "do pass"  recommendation  and with  a new  zero                                                                   
          fiscal note by the Department  of Revenue, and with                                                                   
          a  new  zero  fiscal  note  by  the  Department  of                                                                   
          Administration.                                                                                                       
                                                                                                                                
CS SB 305(FIN) am                                                                                                               
          An  Act repealing  the oil  production tax  and the                                                                   
          gas production  tax and providing for  a production                                                                   
          tax on oil and gas;  relating to the calculation of                                                                   
          the gross  value at the point of production  of oil                                                                   
          and gas  and to the  determination of the  value of                                                                   
          oil and  gas for purposes of the production  tax on                                                                   
          oil and gas; providing  for tax credits against the                                                                   
          production  tax on  oil  and gas;  relating to  the                                                                   
          relationship  of the production tax on  oil and gas                                                                   
          to  other taxes,  to the dates  those tax  payments                                                                   
          and   surcharges   are    due,   to   interest   on                                                                   
          overpayments  of the tax,  and to the  treatment of                                                                   
          the  tax  in  a  producer's   settlement  with  the                                                                   
          royalty owners; relating  to flared gas, and to oil                                                                   
          and  gas  used  in  the operation  of  a  lease  or                                                                   
          property under the production  tax; relating to the                                                                   
          prevailing   value  of  oil   and  gas   under  the                                                                   
          production  tax;  relating  to surcharges  on  oil;                                                                   
          relating   to  statements   or  other   information                                                                   
          required  to  be filed  with  or furnished  to  the                                                                   
          Department  of Revenue, to the penalty  for failure                                                                   
          to file certain reports  for the tax, to the powers                                                                   
          of   the  Department   of  Revenue,   and  to   the                                                                   
          disclosure  of certain  information required  to be                                                                   
          furnished   to  the   Department   of  Revenue   as                                                                   
          applicable  to  the   administration  of  the  tax;                                                                   
          relating   to  criminal  penalties   for  violating                                                                   
          conditions   governing   access  to   and  use   of                                                                   
          confidential  information relating to the  tax, and                                                                   
          to  the  deposit  of  tax money  collected  by  the                                                                   
          Department of Revenue;  amending the definitions of                                                                   
          'gas,' 'oil,' and certain  other terms for purposes                                                                   
          of  the production  tax, and  as the definition  of                                                                   
          the term  'gas' applies in the Alaska  Stranded Gas                                                                   
          Development  Act, and  adding further  definitions;                                                                   
          making conforming amendments;  and providing for an                                                                   
          effective date.                                                                                                       
                                                                                                                                
          CS SB  305(FIN) am was HEARD and HELD  in Committee                                                                   
          for further consideration.                                                                                            
                                                                                                                                
1:50:45 PM                                                                                                                    
                                                                                                                                
CS FOR SENATE BILL NO. 237(FIN)                                                                                               
                                                                                                                                
     An  Act relating  to the  compensation  of justices  and                                                                   
     judges, and  to increasing the number of  superior court                                                                   
     judges  designated  for the  third  and fourth  judicial                                                                   
     districts; and providing for an effective date.                                                                            
                                                                                                                                
CHRIS  CHRISTENSEN,  STAFF  COUNSEL,   ALASKA  COURT  SYSTEM,                                                                   
addressed the pay raise for judges.   Over the last 15 years,                                                                   
judges'  salaries  have been  reduced  by  42 percent.    The                                                                   
problem is  made worse by the  way judicial salaries  are set                                                                   
in statute.   Salaries have not  kept up with inflation.   In                                                                   
rural Alaska  the situation is  even worse due  to geographic                                                                   
differentials in salaries.  Judges  are often not the highest                                                                   
paid state  employees  in the community.   Bethel's  position                                                                   
has been vacant for 11 months.                                                                                                  
                                                                                                                                
Mr.  Christensen  spoke about  the  published  list of  state                                                                   
salaries.   Superior Court Judges'  salaries have  dropped to                                                                   
185th.  Salaries  have dropped relative to  other judiciaries                                                                   
and relative  to state  employees.  He  spoke about  the high                                                                   
number of citizens  that come before the court.   A judge has                                                                   
the  power to  destroy  someone's life  and  must make  major                                                                   
decisions.    He  argued  for   employing  the  best  lawyers                                                                   
possible as judges.                                                                                                             
                                                                                                                                
Mr. Christensen related qualifications  for being a judge and                                                                   
common attributes.   He addressed income and  salary decline,                                                                   
which  may cause  lawyers  not to  apply  to be  judges.   He                                                                   
mentioned  judicial  positions that  remain  vacant.   It  is                                                                   
important to have judges with private sector experience.                                                                        
                                                                                                                                
Mr. Christensen noted  that the bill would provide  for a new                                                                   
salary structure, but would remain  below the previous salary                                                                   
structure.   Under the  new salary  structure, Alaska  judges                                                                   
                            th                                                                                                  
that  standards  may  need  to   be  lowered  to  fill  judge                                                                   
positions.  He urged support of the bill.                                                                                       
                                                                                                                                
Mr. Christensen  addressed the perception that  the increased                                                                   
pay raise  in the  bill is 50  percent.   It seems  that high                                                                   
because existing law depicts judges'  salaries ten years ago.                                                                   
He  stated  that  the  increase  is  actually  less  than  30                                                                   
percent.                                                                                                                        
                                                                                                                                
2:01:58 PM                                                                                                                    
                                                                                                                                
Vice Chair Stoltze asked if there  is any component of public                                                                   
service with value,  such as a retirement system  for judges.                                                                   
He also  wondered if  the state is  losing judges  to federal                                                                   
judgeships.  Mr.  Christensen replied that there  is a strong                                                                   
component of  public service to being  a judge.  He  spoke of                                                                   
social  restrictions experienced  by judges.   The Bureau  of                                                                   
Labor  Standards  publishes  a survey  that  has  determined,                                                                   
nationwide, the  public service  discount is 20  percent less                                                                   
than a  lawyer of similar  experience in the  private sector.                                                                   
In  Alaska,  judges  are  working for  a  40  percent  public                                                                   
service  discount.   Before Judges  receive  a paycheck  they                                                                   
have to sign a sworn affidavit  that says nothing has been on                                                                   
their desk for  longer than 6 months.  He gave  an example of                                                                   
a  case that  lasted  6 months  and  a judge's  paycheck  was                                                                   
withheld because  cases were backlogged.   There is  a strong                                                                   
public service  component to being  a judge.  He  stated that                                                                   
several state judges have taken federal jobs.                                                                                   
                                                                                                                                
2:07:05 PM                                                                                                                    
                                                                                                                                
SUSAN  PARKS,  DEPUTY ATTORNEY  GENERAL,  CRIMINAL  DIVISION,                                                                   
DEPARTMENT OF LAW,  offered to address the Department  of Law                                                                   
fiscal notes.                                                                                                                   
                                                                                                                                
Representative Hawker inquired  about the Alaska Court System                                                                   
fiscal  note,  which  addresses  a  capital  expenditure  for                                                                   
improvements in the  Kenai facility.  He did  not debate that                                                                   
improvements were  needed, but  wondered why the  expense was                                                                   
not  included  in  the capital  budget.    Co-Chair  Chenault                                                                   
agreed that was odd.                                                                                                            
                                                                                                                                
Mr. Christensen said they were  advised to put all costs into                                                                   
the fiscal note, including capital  costs.  He commented that                                                                   
the costs in Kenai are the same  as the cost for the facility                                                                   
in Palmer and are accurate.                                                                                                     
                                                                                                                                
2:10:17 PM                                                                                                                    
                                                                                                                                
Co-Chair Chenault  asked how  many judgeship vacancies  there                                                                   
are.   He wondered if  the judicial council  has ever  made a                                                                   
recommendation to not accept a judicial candidate.                                                                              
                                                                                                                                
LARRY  COHN,  EXECUTIVE DIRECTOR,  ALASKA  JUDICIAL  COUNCIL,                                                                   
ALASKA  COURT  SYSTEM,  replied  that  in  the  80's  several                                                                   
applications for retention were rejected.                                                                                       
                                                                                                                                
Co-Chair  Chenault  listed  all  of  the  fiscal  notes  that                                                                   
accompany  SB 237:  fiscal  note #2  by  the Alaska  Judicial                                                                   
Council, fiscal  note #4 by the  Office of the  Governor, and                                                                   
with  new  fiscal  notes  by the  Alaska  Court  System,  the                                                                   
Department  of  Law, the  Department  of Public  Safety,  the                                                                   
Department   of  Administration,   and   the  Department   of                                                                   
Corrections.                                                                                                                    
                                                                                                                                
2:14:50 PM                                                                                                                    
                                                                                                                                
Representative Hawker  MOVED to REPORT CSSB 237  (FIN) out of                                                                   
Committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal notes.  Vice Chair Stoltze OBJECTED.                                                                        
                                                                                                                                
Vice Chair  Stoltze said  he has  a concern  with all  of the                                                                   
issues  being tied  together.   He wished  that the  Judicial                                                                   
Council was more receptive to  some of the ideas put forth by                                                                   
the legislature  and by  the public  regarding enhancing  the                                                                   
recruitment process for judges.   Vice Chair Stoltze WITHDREW                                                                   
his OBJECTION.                                                                                                                  
                                                                                                                                
2:16:18 PM                                                                                                                    
                                                                                                                                
Representative Joule noted that  a number of crime bills were                                                                   
passed this  session.  This bill  is the connecting  piece to                                                                   
hold people accountable  for appropriate behavior.   He spoke                                                                   
in support of SB 237.                                                                                                           
                                                                                                                                
Representative Kelly OBJECTED  to the motion to adopt SB 237.                                                                   
He questioned  whether  there is actually  more crime  today.                                                                   
He  admitted to  having difficulty  passing the  bill out  of                                                                   
Committee.                                                                                                                      
                                                                                                                                
2:18:45 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  noted  that  this  is  a  significant                                                                   
policy decision and financial  commitment.  He said he has no                                                                   
reservations  about  passing   SB  237.    He  spoke  to  the                                                                   
"deferred maintenance"  issue in  the judicial system,  where                                                                   
the community has  grown and crime has increased.   He called                                                                   
it the number  one priority legislation in his  district.  He                                                                   
spoke strongly in support of the bill.                                                                                          
                                                                                                                                
Representative Kelly REMOVED his OBJECTION.                                                                                     
                                                                                                                                
Vice  Chair  Stoltze  agreed   with  Representative  Hawker's                                                                   
comments.                                                                                                                       
                                                                                                                                
There being NO further OBJECTION, it was so ordered.                                                                            
                                                                                                                                
CS  SB 237(FIN)  was REPORTED  out  of Committee  with a  "no                                                                   
recommendation"  and  with  fiscal  note  #2  by  the  Alaska                                                                   
Judicial  Council,  fiscal  note  #4  by the  Office  of  the                                                                   
Governor,  and with  new  fiscal notes  by  the Alaska  Court                                                                   
System,  the Department  of  Law,  the Department  of  Public                                                                   
Safety, the Department of Administration,  and the Department                                                                   
of Corrections.                                                                                                                 
                                                                                                                                
2:22:52 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 29                                                                                                             
                                                                                                                                
     An Act relating to health care insurance and to the                                                                        
     Comprehensive   Health    Insurance   Association;   and                                                                   
     providing for an effective date.                                                                                           
                                                                                                                                
REPRESENTATIVE  NORM ROKEBERG,  commented  that  in the  last                                                                   
hearing  a graph  was  submitted  regarding what  would  have                                                                   
happened if  the state  had not  become self-insured  and had                                                                   
remained  in the  high-risk pool.   The  bill authorizes  the                                                                   
state  to grant  a tax  credit  from the  $46 million  income                                                                   
received from  insurance company  premium taxes annually.  It                                                                   
grants a 50 percent annual assessment  to pick up the cost of                                                                   
insuring the  high-risk pool  premiums.   This will  help the                                                                   
health insurance crisis in the state.                                                                                           
                                                                                                                                
Co-Chair  Chenault   noted  a  zero  fiscal   note  from  the                                                                   
Department  of   Commerce  and  Economic  Development.     He                                                                   
inquired what  "all funding sources"  means.  He  asked about                                                                   
the date, "2005 legislative session".                                                                                           
                                                                                                                                
Representative Rokeberg  explained that the  Administration's                                                                   
fiscal note  was for a prior  version of the bill.   Co-Chair                                                                   
Chenault was referring  to old fiscal notes.   Fiscal note #1                                                                   
by   Department   of   Commerce,   Community   and   Economic                                                                   
Development is  a zero note for  FY 07 and  $1,750,000 credit                                                                   
for FY 08.                                                                                                                      
                                                                                                                                
Representative  Foster MOVED  to REPORT  HB 29  (L&C) out  of                                                                   
Committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal  note.  There being NO  OBJECTION, it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
CSHB  29 (L&C)  was  REPORTED  out of  Committee  with a  "no                                                                   
recommendation"  and   with  zero  fiscal  note   #1  by  the                                                                   
Department of Commerce and Economic Development.                                                                                
                                                                                                                                
2:28:56 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 375                                                                                                            
                                                                                                                                
     "An  Act relating  to the  retirement benefit  liability                                                                   
     account and  appropriations from that  account; relating                                                                   
     to deposits  of certain income earned on  money received                                                                   
     as a  result of State v.  Amerada Hess, et  al., 1JU-77-                                                                   
     847 Civ. (Superior Court,  First Judicial District); and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
Representative  Holm  reported that  he  spoke  to people  in                                                                   
Fairbanks and they  are in agreement with Amendment  2, which                                                                   
was adopted at a previous meeting.                                                                                              
                                                                                                                                
Co-Chair  Chenault noted  a  new zero  fiscal  note from  the                                                                   
Department of Administration.   He stated that the Department                                                                   
of Revenue  needs to revise  the fiscal note  analysis, which                                                                   
currently  lists Amerada Hess  as the  source of funding  for                                                                   
the account.                                                                                                                    
                                                                                                                                
Representative  Hawker voiced  concern about  the attempt  to                                                                   
create  a universal  mechanism,  when  each community  has  a                                                                   
unique need.   He said  he would not  oppose the  bill today,                                                                   
but would when it is read across the floor.                                                                                     
                                                                                                                                
2:32:44 PM                                                                                                                    
                                                                                                                                
Representative Joule also shared  reservations about the bill                                                                   
because  it does  not address  concerns  in all  communities.                                                                   
All communities  should be  treated fairly.   He spoke  about                                                                   
the needs in his district.                                                                                                      
                                                                                                                                
2:34:14 PM                                                                                                                    
                                                                                                                                
Representative Foster  MOVED to REPORT CSHB 375  (FIN) out of                                                                   
committee,  as amended, with  individual recommendations  and                                                                   
the accompanying fiscal notes.   There being NO OBJECTION, it                                                                   
was so ordered.                                                                                                                 
                                                                                                                                
CSHB  375 (FIN)  was REPORTED  out  of Committee  with a  "do                                                                   
pass" recommendation  and with a new zero fiscal  note by the                                                                   
Department of  Revenue, and  with a new  zero fiscal  note by                                                                   
the Department of Administration.                                                                                               
                                                                                                                                
AT EASE: 2:35:05 PM                                                                                                           
RECONVENE:2:45:33 PM                                                                                                          
CS FOR SENATE BILL NO. 305(FIN) am                                                                                            
                                                                                                                                
     An  Act repealing  the oil  production tax  and the  gas                                                                   
     production  tax and  providing for  a production  tax on                                                                   
     oil and  gas; relating to  the calculation of  the gross                                                                   
     value at the  point of production of oil and  gas and to                                                                   
     the  determination  of the  value  of  oil and  gas  for                                                                   
     purposes  of   the  production  tax  on   oil  and  gas;                                                                   
     providing for tax credits  against the production tax on                                                                   
     oil  and  gas;  relating  to  the  relationship  of  the                                                                   
     production  tax on oil  and gas to  other taxes,  to the                                                                   
     dates  those tax  payments  and surcharges  are due,  to                                                                   
     interest  on  overpayments   of  the  tax,  and  to  the                                                                   
     treatment  of the  tax in a  producer's settlement  with                                                                   
     the royalty  owners; relating to flared gas,  and to oil                                                                   
     and gas  used in  the operation of  a lease  or property                                                                   
     under  the production  tax; relating  to the  prevailing                                                                   
     value of oil and gas under  the production tax; relating                                                                   
     to surcharges  on oil; relating  to statements  or other                                                                   
     information  required to be  filed with or  furnished to                                                                   
     the Department  of Revenue,  to the penalty  for failure                                                                   
     to file  certain reports for  the tax, to the  powers of                                                                   
     the  Department of  Revenue,  and to  the disclosure  of                                                                   
     certain  information  required to  be  furnished to  the                                                                   
     Department   of    Revenue   as   applicable    to   the                                                                   
     administration   of  the   tax;  relating  to   criminal                                                                   
     penalties for  violating conditions governing  access to                                                                   
     and  use of  confidential  information  relating to  the                                                                   
     tax, and  to the deposit  of tax money collected  by the                                                                   
     Department  of  Revenue;  amending  the  definitions  of                                                                   
     'gas,' 'oil,'  and certain  other terms for  purposes of                                                                   
     the production  tax, and as  the definition of  the term                                                                   
     'gas'  applies in  the Alaska  Stranded Gas  Development                                                                   
     Act, and  adding further definitions;  making conforming                                                                   
     amendments; and providing for an effective date.                                                                           
                                                                                                                                
2:47:05 PM                                                                                                                    
                                                                                                                                
WILLIAM CORBUS,  COMMISSIONER, DEPARTMENT OF  REVENUE, stated                                                                   
that HB 488/SB 305 is historic legislation.  It will:                                                                           
                                                                                                                                
   · Replace a broken Economic Limit Factor (ELF) based                                                                         
     production tax system                                                                                                      
   · Provide incentives for badly needed investment                                                                             
   · Provide special incentives for small sized companies to                                                                    
     explore Alaska                                                                                                             
   · Provide higher State revenues, particularly at higher                                                                      
     prices                                                                                                                     
                                                                                                                                
Commissioner  Corbus pointed out  that the Governor  strongly                                                                   
supports  the  Petroleum  Profit   Tax  (PPT)  as  originally                                                                   
proposed as it provides a:                                                                                                      
                                                                                                                                
   ·    20% tax/20% investment tax credit                                                                                       
   ·    Includes no add-on progressivity factor                                                                                 
                                                                                                                                
Commissioner Corbus  noted that the House  Resource Committee                                                                   
(HRC) version  includes the Governor's proposed  20% tax rate                                                                   
combined  with  a  progressive  factor.   The  Department  of                                                                   
Revenue  does  not  support  the   progressive  factor.    He                                                                   
commented  that high  taxes  discourage  investment.   Alaska                                                                   
should not be  mesmerized by the current high  prices of oil,                                                                   
as  it is  important  to encourage  oil  production that  has                                                                   
dropped, overtime.                                                                                                              
                                                                                                                                
Commissioner  Corbus   pointed  out  that   the  Trans-Alaska                                                                   
Pipeline  System (TAPS)  is now  operating at  less than  50%                                                                   
capacity.   He stated that  recent investment  in development                                                                   
and production has been inadequate  and that higher tax rates                                                                   
would further  discourage new investments.  The  State should                                                                   
not  emphasize  short-term  revenues,  but  instead  maximize                                                                   
wealth over the long run.  He urged that:                                                                                       
   ·    The 20/20 is the appropriate tax and tax credit rate                                                                    
        to arrest the trend It is important to keep an eye                                                                      
        on the prize, the gas pipeline                                                                                          
                                                                                                                                
Although PPT includes investment  incentives, a stronger link                                                                   
for  effecting investment  would  be the  tax rate.   As  tax                                                                   
rates go up, investment goes down.                                                                                              
                                                                                                                                
Commissioner  Corbus stated  that  the Senate  version  (SFC)                                                                   
made  several  changes  from the  Governor's  proposal.    He                                                                   
recommended that any alternative be carefully scrutinized.                                                                      
                                                                                                                                
     · 22.5% tax rate                                                                                                           
     · 25% tax credit rate                                                                                                      
     · Progressivity factor                                                                                                     
     · The effective date                                                                                                       
                                                                                                                                
2:52:02 PM                                                                                                                    
                                                                                                                                
Commissioner Corbus addressed  the 25% tax credit noting that                                                                   
the SFC version  includes a 25% tax credit rate.   The higher                                                                   
a tax credit rate, the more risk  for the State.  Most of the                                                                   
new oil development on the North  Slope relates to heavy oil,                                                                   
which  can  involve   an  investment  of  billions   for  new                                                                   
facilities  and  wells  and  take  many  years  to  plan  and                                                                   
execute.                                                                                                                        
                                                                                                                                
Commissioner  Corbus  continued, considerable  investment  in                                                                   
heavy  oil development  during years  of low  oil prices  can                                                                   
result in  low Petroleum Production  Tax (PPT) for  the State                                                                   
during such  years until the tax  credits are absorbed.   The                                                                   
State  must be careful  with high  tax credits,  as they  are                                                                   
high-risk strategy; adopting high  tax credit rates of 25% to                                                                   
justify high tax  rates of 22.5%, is the wrong  strategy.  It                                                                   
is a strategy that gambles too  much on oil prices being high                                                                   
for too  many years  into the  future.  It  could be  a great                                                                   
detriment to the State, which  is why the Governor limited in                                                                   
his  proposal to  a 20%  maximum incentive,  which the  State                                                                   
could safely provide.                                                                                                           
                                                                                                                                
2:53:03 PM                                                                                                                    
                                                                                                                                
The Administration  strongly supports the original  HB 488/SB
305.  He commended the House for  all their hard work on such                                                                   
a  complex  issue;  however,   the  Administration  does  not                                                                   
support the  22.5% tax/25%  credit as  passed by the  Senate.                                                                   
The Administration  believes that  the 20/20  recommendation,                                                                   
not  including  the progressive  factor,  is  an  appropriate                                                                   
level to:                                                                                                                       
                                                                                                                                
   · Attract investment,                                                                                                        
   · Bring the gas line on, and                                                                                                 
   · Maximize the State's wealth over the long term.                                                                            
                                                                                                                                
2:54:57 PM                                                                                                                    
                                                                                                                                
ROBYNN  WILSON,  DIRECTOR,  DIVISION OF  TAX,  DEPARTMENT  OF                                                                   
REVENUE, provided a handout to  Committee members: "Comparing                                                                   
CS HB  488(RES) to  SB 305 (CSSB  305 (FIN)  am)".   (Copy on                                                                   
File).                                                                                                                          
                                                                                                                                
2:57:28 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page  2, noting  that the bottom  line                                                                   
for the  State, the cumulative  severance tax  ($B) 2006-2030                                                                   
low volume  scenario.   She pointed  out that the  Governor's                                                                   
bill is  highlighted in  red and indicates  "a middle  of the                                                                   
road" approach  and provides a  balanced package  that brings                                                                   
in adequate  new revenues  but  does not place  the State  at                                                                   
risk with credits too high.                                                                                                     
                                                                                                                                
The green line  indicates the House Resource  Committee (HRC)                                                                   
version; the graphed black line  indicates the Senate Finance                                                                   
Committee (SFC) version.  The  chart highlights the different                                                                   
oil prices  and default  scenarios.   A crossover happens  at                                                                   
about $60 dollars per barrel.                                                                                                   
                                                                                                                                
3:00:31 PM                                                                                                                    
                                                                                                                                
Representative Hawker asked the  parameters in the low volume                                                                   
scenario  database  used.   Ms.  Wilson  responded  that  low                                                                   
volume does not assume a gas line.                                                                                              
                                                                                                                                
3:00:59 PM                                                                                                                    
                                                                                                                                
DAN  DICKINSON,  CONSULTANT,   TAX  DIVISION,  DEPARTMENT  OF                                                                   
REVENUE,  added, that  the low  volume does  not include  the                                                                   
development  of Pt.  Thompson.   He emphasized  that the  low                                                                   
volume scenario is  based on a rate of decline  and assumes a                                                                   
significant amount of reinvesting.   The assumptions are that                                                                   
there is  sufficient investment  being  made to generate  the                                                                   
volumes.   They  are  volumes  based on  a  historic rate  of                                                                   
decline.   Representative  Hawker  asked  if  the low  volume                                                                   
scenario  excluded the  differentiation of  adding an  alpine                                                                   
size field every few years.  Mr. Dickinson affirmed.                                                                            
                                                                                                                                
3:02:53 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 3, the  tax rate.  Under  the SFC                                                                   
version, the general  rate offered was 22.5%  compared to the                                                                   
HRC  version at  20%,  the same  as the  Governor's  original                                                                   
bill.  That rate was based on net value production.                                                                             
                                                                                                                                
The private royalty  lease rates under the SFC  version offer                                                                   
the  rates,  5% for  oil  and  1.67% for  gas.   In  the  HRC                                                                   
version, the  private royalty rate is  5% on oil &  gas.  The                                                                   
amount of  magnitude on  the private  royalty leases  is less                                                                   
than 1% of the total production.                                                                                                
                                                                                                                                
Under  the SFC version,  there  is a separate  rate for  Cook                                                                   
Inlet oil @ 5%, based on the net  value.  In the HRC version,                                                                   
there is no special provision for Cook Inlet.                                                                                   
                                                                                                                                
The  SFC version  treats  gas differently.    There has  been                                                                   
discussion for a  lower rate for gas.  When  dealing with tax                                                                   
on the  net, questions on allocation  costs arise.   There is                                                                   
no special gas treatment in the HRC version of the bill.                                                                        
                                                                                                                                
3:05:41 PM                                                                                                                    
                                                                                                                                
Ms. Wilson referenced  Page 4, gas revenue  (value) exclusion                                                                   
(GRE) found in  the SFC version on Page 19.   The gross value                                                                   
excludes 2/3 of the value of gas:                                                                                               
                                                                                                                                
   · Yields an effective rate (before deductions) of 7.5%                                                                       
   · On a net value basis, yields an effective tax rate of                                                                      
     nearly 5%                                                                                                                  
   · Obviates the need to allocate expenses                                                                                     
                                                                                                                                
3:07:46 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 5,  indicating the effect  of the                                                                   
tax rate, the cumulative severance  tax revenues under SB 305                                                                   
with a  20%, 22.5%  and 25% tax  rate.   She pointed  out the                                                                   
large differences.                                                                                                              
                                                                                                                                
Co-Chair  Chenault  inquired  why  no  20/20  rate  had  been                                                                   
indicated.   Ms. Wilson  explained it  indicates a  change to                                                                   
the tax rate based on the SFC version.                                                                                          
                                                                                                                                
Representative Weyhrauch questioned  if the representation of                                                                   
the bar was correct.  Ms. Wilson  apologized that it had been                                                                   
mislabeled.                                                                                                                     
                                                                                                                                
3:11:17 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson  referenced  Page  6,  which  provides  the  same                                                                   
information offered  on Page 5,  on year-by-year bases.   The                                                                   
graph indicates  the effect  of the tax  rate and  the annual                                                                   
severance   tax  under   the  SFC   version,  using   various                                                                   
percentages into 2030.                                                                                                          
                                                                                                                                
In response  to a query  by Representative Kelly,  Ms. Wilson                                                                   
explained that the graph isolates only the tax effect.                                                                          
                                                                                                                                
3:13:31 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson addressed  the progressivity  listed  on Page  7.                                                                   
The chart  shows a  separate progressivity  for oil  and gas.                                                                   
For  oil, it  is  triggered at  $50 West  Texas  Intermediate                                                                   
(WTI) with  a slope factor of  .3%.  In the HRC  version, the                                                                   
rate is triggered to 37.5% at $110 dollars.                                                                                     
                                                                                                                                
Ms. Wilson compared the SFC version,  referencing Page 8, oil                                                                   
only, triggered at $50 dollars  Alaska North Slope (ANS) West                                                                   
Coast with  a slope factor  of .00155.   She viewed WTI  as a                                                                   
better marker; it is used as the standard.                                                                                      
                                                                                                                                
3:16:21 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson referenced  Page  9,  providing the  SFC  version                                                                   
progressivity  formula.   She  explained  the three  combined                                                                   
standard  numbers.   She suggested  that if  the SFC  version                                                                   
were  adopted,  the formula  would  be condensed  tp  .00155,                                                                   
which is actually the same result.                                                                                              
                                                                                                                                
Representative  Holm  asked  what  "wh" meant.    Ms.  Wilson                                                                   
replied  that would  be the  wellhead price.   Mr.  Dickinson                                                                   
added that  in statute,  it is defined  that the  wellhead is                                                                   
the prevailing  value; in  regulations, the prevailing  value                                                                   
is that which prevails when the oil is sold.                                                                                    
                                                                                                                                
3:18:37 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 10,  which graphs the  effects of                                                                   
progressivity.   The  HRC version  moves at  a steeper  slope                                                                   
than the SFC version and jumps up at $110 dollars.                                                                              
                                                                                                                                
3:19:48 PM                                                                                                                    
                                                                                                                                
Ms. Wilson referenced Page 11,  the capital investment credit                                                                   
rate of 20% (HRC) versus 25% (SFC).                                                                                             
                                                                                                                                
3:20:15 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  continued Page 12,  highlights the effect  of the                                                                   
credit rate, cumulative  severance tax revenues  under SB 305                                                                   
with the  various proposed credit  rates.  The  inherent risk                                                                   
is not reflected.  The Administration  opposes the 25% credit                                                                   
rate as it poses too much risk to the State.                                                                                    
                                                                                                                                
Representative  Joule inquired  who would  benefit the  most.                                                                   
Mr.  Dickinson  replied  that  generally,  it  would  be  the                                                                   
investors.  Presently, on the  North Slope, the three largest                                                                   
companies  are  making about  80%  of the  investment,  which                                                                   
gives them 80% of the benefit.                                                                                                  
                                                                                                                                
Representative  Joule said there  would be no  difference for                                                                   
credits for  new exploration.   Mr. Dickinson  responded that                                                                   
in the base credit, there would  be no difference.  There are                                                                   
other  provisions, which  would  be different,  and would  be                                                                   
addressed later during testimony.                                                                                               
                                                                                                                                
3:22:24 PM                                                                                                                    
                                                                                                                                
Ms. Wilson continued, Page 13,  the capital investment credit                                                                   
under both versions, applies to  the PPT general tax only and                                                                   
not  against  the  progressivity  tax  or  spill  surcharges.                                                                   
Under both bills, the credits are transferable.                                                                                 
                                                                                                                                
3:23:36 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced  Page 14, refundable  credits.   Under                                                                   
the HRC  version, up to $10  million credit dollars  could be                                                                   
refundable depending on the current  investments; there is no                                                                   
such provision in the Senate version.                                                                                           
                                                                                                                                
3:24:17 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page  15, the  carry forward  of loss.                                                                   
In the event  of net calculation, with a producer  loss, that                                                                   
loss could be carried forward  to the next month.  At the end                                                                   
of that  calendar year,  any remaining  loss is converted  to                                                                   
credit  at  that rate  of  tax.    In the  HRC  version,  the                                                                   
conversion  rate is  20%; in the  SFC version,  22.5% of  the                                                                   
loss is carried forward into the credit.                                                                                        
                                                                                                                                
Co-Chair Chenault  asked about the exploration  graph credits                                                                   
and if there  were models for exploration  versus development                                                                   
versus credit.   Mr. Dickinson responded that  there has been                                                                   
modeling provided:  an investment  credit in the  exploration                                                                   
stage provides more  leveraging as it covers dry  holes.  The                                                                   
bill does extend  the credit for rank exploration.   There is                                                                   
no  modeling   regarding  the   change  of  rates,   changing                                                                   
behaviors.                                                                                                                      
                                                                                                                                
3:26:48 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson   referenced  Page   16,  the  handling   of  the                                                                   
progressivity  tax.     In  the  HRC  version,   the  tax  is                                                                   
deductible like  lease expenditures; in the  SFC version, the                                                                   
progressivity tax  is not deductible.   The progressivity  is                                                                   
calculated on the gross in both versions.                                                                                       
                                                                                                                                
Mr. Dickinson observed the complexity of the formula.                                                                           
                                                                                                                                
Ms.  Wilson pointed  out that  the Governor's  bill does  not                                                                   
have a  progressivity element  in it.   If the House  Finance                                                                   
Committee chooses  to include  that element, the  language in                                                                   
the HRC version is "cleaner".                                                                                                   
                                                                                                                                
Representative  Hawker  remembered  that the  Senate's  first                                                                   
draft version provided  a very different option  than the end                                                                   
product.   He concluded  that there were  more benefits  to a                                                                   
net structure versus a gross structure.   Ms. Wilson observed                                                                   
that  there are  both advantages  and  disadvantages to  both                                                                   
approaches.  In the net, progressivity  does recognize costs,                                                                   
which  is beneficial.   On  the  other hand,  looking at  the                                                                   
progressivity on gas, making it  on net could be problematic.                                                                   
She thought that the SFC version was the equivalent.                                                                            
                                                                                                                                
Mr. Dickinson  added, the SFC  version returned to  the gross                                                                   
as it  reflects the math  of combining  the oil and  the gas.                                                                   
To do it  on the net creates  problems, as there should  be a                                                                   
constructing to make the impact  of the oil and gas the same.                                                                   
Six to one is a figure used because  of BCU equivalents.  The                                                                   
danger is the unexpected effects  for producers that have oil                                                                   
and gas and that combination.                                                                                                   
                                                                                                                                
Representative  Hawker  believed  such  complexity  could  be                                                                   
handled.                                                                                                                        
                                                                                                                                
3:33:28 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson referenced  Page 17,  the transition  provisions.                                                                   
In the Governor's  bill, there is a 5-year look  back and the                                                                   
expenses are  allowed over  a 6-year period.   Under  the HRC                                                                   
version,  the  5-year look  back  was  changed to  a  3-month                                                                   
period.   Under  the Governor's  version,  the only  expenses                                                                   
dealt  with are  capital  investments,  but  the HRC  version                                                                   
looks at capital and operating  expenditures, deductible over                                                                   
9 months.  Under the HRC version, there is no sunset.                                                                           
                                                                                                                                
3:35:15 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 18  of the Senate  version, where                                                                   
the  look  back  is  5  years   and  applied  to  capitalized                                                                   
investments  only.   It could  be a  benefit up  to 7  years,                                                                   
                                                    st                                                                          
moving  forward.   There was  a  sunset of  March 31,   2013,                                                                   
pointing out the credit of 20%.                                                                                                 
                                                                                                                                
3:36:07 PM                                                                                                                    
                                                                                                                                
Ms. Wilson referenced  Page 19, which provides  two recouping                                                                   
scenarios for 5  years and 7 years.  The graph  indicates the                                                                   
total possible credits  that could be recouped  and that must                                                                   
be recouped with the 7-year limit.   Mr. Dickinson added that                                                                   
if  a producer  was  investing  at the  same  level they  did                                                                   
during the look back period, they  would not be able to claim                                                                   
the full amount of the transition  investments.  To claim the                                                                   
full amount,  they would have  to increase the amount  of the                                                                   
investment during the recouping period.                                                                                         
                                                                                                                                
3:39:37 PM                                                                                                                    
                                                                                                                                
Ms. Wilson referenced  Page 20, which illustrates  the effect                                                                   
of the transition.                                                                                                              
                                                                                                                                
Representative Hawker discussed  the rate of recovery for the                                                                   
individual  beneficiary  that   would  depend  on  their  own                                                                   
investment.  He asked if it would  all be in the assumptions.                                                                   
Mr. Dickinson  acknowledged it is  in the assumptions  and is                                                                   
shown  the differences  between  the two  bills.   Under  the                                                                   
Governor's  bill, the  Industry would  be able  to recoup  if                                                                   
they had  expenditures and revenue.   Ms. Wilson  added, that                                                                   
under  the Governor's  bill,  there is  a  provision that  it                                                                   
could be  taken only if  oil was over  $40 dollars  a barrel;                                                                   
that provision  was not included  in either of the  other two                                                                   
versions.                                                                                                                       
                                                                                                                                
3:43:41 PM                                                                                                                    
                                                                                                                                
Ms. Wilson referenced Page 21,  the base allowance in the two                                                                   
proposed versions  from the House and Senate.   The credit of                                                                   
$12  million   dollars  per  year  per   company,  sunsetting                                                                   
3/31/2016.                                                                                                                      
                                                                                                                                
3:44:47 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page  22, the  base allowance.   Under                                                                   
the  Governor's   bill,  there   is  a  $73  million   dollar                                                                   
deduction; the HRC  version changed that from  a deduction to                                                                   
a credit  and the  effective amount  was pared  down.   A $12                                                                   
million dollar  credit per company  would be worth  about $60                                                                   
million dollars compared to that  proposed in the Governor's.                                                                   
                                                                                                                                
Ms. Wilson  explained how  the base  allowance works  on Page                                                                   
23.   If it  were less than  5000 barrel  per day (bpd),  the                                                                   
credit would  be equal to 100%  of the tax being offset.   If                                                                   
production were  over 5000 bpd,  there would be  a percentage                                                                   
of tax offset, provided by formula.   All producers will have                                                                   
some  amount  of  tax  offset.    Mr.  Dickinson  added  that                                                                   
everyone receives the 5000 bpd exclusion at average value.                                                                      
                                                                                                                                
3:46:23 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced the new  Page 24, which  indicates the                                                                   
allowance difference  from 2006  to 2030, highlighting  three                                                                   
different price scenarios from the three bill versions.                                                                         
                                                                                                                                
Mr. Dickinson  observed that the  Governor's version  did not                                                                   
sunset.  Both the  HRC and the SFC elected to  have a sunset.                                                                   
The Department  believes that if  the State is  attempting to                                                                   
affect investment behavior, there  should be no sunset.  When                                                                   
prices  are low,  the price  allowance does  not account  for                                                                   
much  but  as  prices  rise,  the  effect  of  the  allowance                                                                   
increases under the  SFC version.  In the HRC  and Governor's                                                                   
version, the effect is small.                                                                                                   
                                                                                                                                
3:49:10 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 25,  the safe harbor  provisions.                                                                   
Those  provisions were  brought  forward with  the idea  that                                                                   
many of  the calculations  would be  done using estimates  of                                                                   
annual expenditures.  In the spirit  of fairness, there was a                                                                   
provision established that determined  as along as 90% of the                                                                   
due tax  was paid  each month,  there would  be no  interest.                                                                   
The annual "true-up"  would be due in March  of the following                                                                   
year,  at which  time,  the remainder  of  the  tax would  be                                                                   
collected.  That is called the  "safe harbor".  Under the HRC                                                                   
version,  the safe  harbor is  90% and  if it  is not met  on                                                                   
time, there  is an interest  & a penalty  charge of 5%.   The                                                                   
penalty  was not  in  the Governor's  version.    In the  SFC                                                                   
version,  the  safe harbor  amount  was  increased  to 95%  &                                                                   
requires  more  accurate  estimating   on  the  part  of  the                                                                   
producer; if not  met, there would be interest  placed on the                                                                   
amount up to 95%.                                                                                                               
                                                                                                                                
Representative  Joule asked if  there was a similar  function                                                                   
under the  current Economic Limit  Factor (ELF).   Ms. Wilson                                                                   
explained that under the ELF,  100% of the tax is due monthly                                                                   
and if  it is not paid,  there is a  charge of 5%  per month.                                                                   
Mr.  Dickinson  interjected  that falls  within  the  general                                                                   
interest  provision @  11% interest  annually.   The  penalty                                                                   
provision under current law is not automatic.                                                                                   
                                                                                                                                
3:52:06 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 26  - safe harbors,  pointing out                                                                   
the differences  in drafting language.   In the  HRC version,                                                                   
the language indicates what is  due would be 100% with a safe                                                                   
harbor of 90%.  In the SFC version,  the amount is due at the                                                                   
95%  level.   The  difference  in  the language  indicates  a                                                                   
change between the SFC and HRC version.                                                                                         
                                                                                                                                
3:53:11 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 27,  the effective date.   In the                                                                   
                                        st                                                                                      
Governor's version  that date is  July 1,  2006; in  both the                                                                   
SFC and  the HRC versions, it  would be retroactive  to April                                                                   
 st                                                                                                                             
1,  2006.   Ms.  Wilson advised  it is not  a good  policy to                                                                   
make taxes retroactive.                                                                                                         
                                                                                                                                
Both bills provide for a transition  rule that payments could                                                                   
be made under the old ELF system  for 6 months with pay-up in                                                                   
     th                                                                                                                         
the 7 month.                                                                                                                    
                                                                                                                                
Representative   Hawker   asked   for  assurance   that   the                                                                   
Department  would   have  time  during  the   six  months  to                                                                   
promulgate  all the  regulations necessary  to implement  the                                                                   
tax  with  adequate time  for  the  Industry to  respond  and                                                                   
prepare their accounting  system.  Ms. Wilson  said she could                                                                   
not guarantee that.  There is  an accompanying fiscal note to                                                                   
cover  costs for  contracting  for additional  legal help  to                                                                   
draft regulations during those  six months.  She added, it is                                                                   
not an unreasonable time to do that but is a consideration.                                                                     
                                                                                                                                
Mr. Dickinson  pointed  out that the  proposed versions  have                                                                   
not  made the  task  simpler;  they are  very  complex &  the                                                                   
fiscal note reflects that complexity.                                                                                           
                                                                                                                                
In response to Representative  Kelly, Mr. Dickinson commented                                                                   
that  it   is  not   a  common   practice  to  charge   taxes                                                                   
retroactively.  Representative  Kelly thought that harm could                                                                   
be mitigated by not addressing  the penalties.  Mr. Dickinson                                                                   
advised that  the current bill  gives 6 months from  the date                                                                   
it was  enacted.   The general  principles are  understanding                                                                   
what the obligations are for tax planning.                                                                                      
                                                                                                                                
Ms.  Wilson  was not  looking  forward  to the  first  audit,                                                                   
including the seven-month tax return.                                                                                           
                                                                                                                                
3:58:29 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson   referenced  Page   28,  addressing   the  spill                                                                   
surcharges  (split nickel).   Currently, there  is a  5 cents                                                                   
surcharge.  The  amount suspended is based on  the balance of                                                                   
the spill  fund.  In the HRC  version, there is no  change to                                                                   
the surcharge  @ 5 cents  but the amount collected  increases                                                                   
from 3  cents to 4  cents with no  credit & no  deduction for                                                                   
that tax.   In  the SFC  version, the  total was increased  1                                                                   
cent for a total  of 6 cents; the amount  collected increased                                                                   
2  cents from  3 cents  to 5  cents;  there is  no credit  or                                                                   
deduction for that tax.                                                                                                         
                                                                                                                                
Representative  Hawker asked for  more information  about the                                                                   
proposed  surcharge.   Mr. Dickinson  observed  that the  SFC                                                                   
version offered  intent language on  Page 2, Section  1, item                                                                   
#B.   Representative Hawker  noted that  the intent  language                                                                   
was what raised his question.                                                                                                   
                                                                                                                                
4:01:05 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referred  to Page  29, the use  of Department  of                                                                   
Natural Resources  (DNR) royalty  values.  In  the Governor's                                                                   
bill, it  was thought that some  of the royalty  values could                                                                   
be used  in calculating  real value.   They thought  it could                                                                   
simplify the tax and audit process.   The SFC version removed                                                                   
that provision by an amendment.                                                                                                 
                                                                                                                                
Mr. Dickinson  related that  Page 30 depicts  the use  of the                                                                   
Department's values in the SFC version.                                                                                         
                                                                                                                                
Representative  Holm did  not  understand  the Department  of                                                                   
Revenue's position regarding the applications.                                                                                  
                                                                                                                                
4:05:47 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson   replied  that  the  Commissioner   would  be                                                                   
balancing the efficiency of the  Tax Division, determining if                                                                   
the  calculations  reflect  value  and  reasonable  costs  of                                                                   
transportation in an unbiased way.                                                                                              
                                                                                                                                
Representative  Hawker pointed out  that is a  "large issue".                                                                   
He  opined that  some of  the House  Finance Committee  (HFC)                                                                   
members do  not agree with the  allowance.  He  mentioned the                                                                   
RSA agreements  submitted by the  three large  oil companies.                                                                   
The   RSA's  from   ConocoPhillips  and   BP  contain   small                                                                   
differences;  however, the  Exxon  RSA agreement  has a  huge                                                                   
difference.  Mr.  Dickinson said given the data,  it would be                                                                   
inappropriate  to identify the  information.   Representative                                                                   
Hawker advised  that he  had taken  his information  from the                                                                   
Department   of  Revenue's   web   site,   which  is   public                                                                   
information.                                                                                                                    
                                                                                                                                
In  response  to  a  query  by   Representative  Hawker,  Mr.                                                                   
Dickinson  said  the  Department's  analysis  indicates  that                                                                   
there  are different  values  between  the tax  and  royalty.                                                                   
Representative  Hawker suggested  that the Department  should                                                                   
provide a convincing argument  regarding that, as it is vital                                                                   
it become public discussion.                                                                                                    
                                                                                                                                
4:11:08 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  pointed to a  couple of differences  indicated on                                                                   
Page  31 regarding  abandonment.    The  HRC version  has  no                                                                   
credit  for abandonment;  in  the SFC  version,  there is  no                                                                   
credit or  deduction for abandonment  of old production.   It                                                                   
requires  the allocation  of expense based  on production  be                                                                   
allowed.                                                                                                                        
                                                                                                                                
Co-Chair Chenault asked if abandonment  refers only to wells.                                                                   
Mr. Dickinson  referenced a list including well,  unit, right                                                                   
of  way and/or  platform, listed  on  Page 22,  Line 17,  SFC                                                                   
version.                                                                                                                        
                                                                                                                                
4:13:53 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson  addressed  other   provisions  included  in  SFC                                                                   
version listed on  Page 32, not included in  the HRC version.                                                                   
For any credits  taken under that provision,  the exploration                                                                   
date must be provided to the Department  of Natural Resources                                                                   
if  claimed.    That  language  mimics  current  language  in                                                                   
statute.   Co-Chair Chenault asked  if language  applied only                                                                   
to existing fields or new exploration.   Mr. Dickinson stated                                                                   
that it is automatic  on State land and that  new drilling on                                                                   
a private lease would not meet the requirement.                                                                                 
                                                                                                                                
Ms. Wilson  continued,  Page 32 addresses  transfer  of goods                                                                   
and services from a foreign to  a domestic market.  She noted                                                                   
discussion in the  Senate about having tools  for the future,                                                                   
pointing out  that IRC Sec. 482  for transfer pricing  in the                                                                   
federal  arena  between a  domestic  company  and a  foreign-                                                                   
sister  company.   There has  been  discussion regarding  the                                                                   
need for that provision.  The  Department does not believe it                                                                   
is necessary and  that "ordinary & necessary"  is standard to                                                                   
the bill;  she heard  discussion  it could  be useful in  the                                                                   
future.                                                                                                                         
                                                                                                                                
4:18:10 PM                                                                                                                    
                                                                                                                                
Representative Hawker  asked about the permissiveness  of the                                                                   
IRC  482 language.    He questioned  if  the Department  felt                                                                   
"mandated" to  incorporate those  provisions.  Mr.  Dickinson                                                                   
referred to language  elsewhere in the bill,  which clarifies                                                                   
transactions such as an internal  transfer, not allowed.  The                                                                   
Department's concern rests with such internal transfers.                                                                        
                                                                                                                                
Ms. Wilson pointed out, that language  was taken from the SFC                                                                   
version and was  not included in the HRC version.   She noted                                                                   
that the  Department  would like  to see it  included in  the                                                                   
final bill.                                                                                                                     
                                                                                                                                
4:20:49 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson noted  clarifying language  added in  160©(1)(B).                                                                   
Mr. Dickinson said that language  develops cost standards and                                                                   
places the ranks in order.   A  balance could be sought.  The                                                                   
SFC  version amended  support  of  credit for  any  preferred                                                                   
facility.  He urged support for the Governor's version.                                                                         
                                                                                                                                
Co-Chair Chenault  asked about credits on  anything regulated                                                                   
or  dealing with  tariffs.   Mr.  Dickinson  stated that  the                                                                   
types  of facilities  listed in  the bill  are not  currently                                                                   
being regulated;  if they  were, the  credits would  be taken                                                                   
into account.                                                                                                                   
                                                                                                                                
4:23:43 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced  Page 33, the  catastrophic oil  spill                                                                   
expenditures  for clean-up are  not deductible.   In  the SFC                                                                   
version, they  would not be  deductible; in the  SFC version,                                                                   
they  could be  deductible if  leased,  but not  specifically                                                                   
addressed.                                                                                                                      
                                                                                                                                
Ms.  Wilson   advised  that  catastrophic  oil   spills  have                                                                   
specific meaning  in Alaska's  history to the  environment in                                                                   
spills in  excess of  100,000 barrels.   The most  recent oil                                                                   
spill  was  approximately  6,000  barrels  and  clearly,  not                                                                   
within the meaning of "catastrophic oil spill".                                                                                 
                                                                                                                                
Co-Chair Chenault  asked if there had ever been  an oil spill                                                                   
in Alaska,  where fault  was not  determined.  Mr.  Dickinson                                                                   
said that he would look to see  if that was standard practice                                                                   
or not.   Co-Chair  Chenault believed  most likely,  it would                                                                   
never come into effect, as fault is always found.                                                                               
                                                                                                                                
Representative Joule  pointed out that with  that language, a                                                                   
spill ½ the size of the Exxon  Valdez would not be considered                                                                   
catastrophic.  Ms. Wilson acknowledged  that the Valdez spill                                                                   
was "a  lot of oil".   Representative Joule stressed  that it                                                                   
was much less than 5 million gallons  and that the damage was                                                                   
"horrific".   Mr. Dickinson  interjected that  "catastrophic"                                                                   
should be considered a quantum  qualification that presents a                                                                   
grave and economic threat to the  environment and economy.  A                                                                   
smaller spill, in a sensitive  area, could qualify under that                                                                   
language.                                                                                                                       
                                                                                                                                
Representative Hawker  questioned an oil discharge  in excess                                                                   
of 100,000 barrels.   He asked how that could  be interpreted                                                                   
from wells  producing  that much  water & oil  mixture.   Ms.                                                                   
Wilson  stated  that given  the  limited statutory  site,  it                                                                   
would  meet  the   second  criteria,  which   is  "any  other                                                                   
discharge,  which the  Governor determines  presents a  grave                                                                   
and substantial threat to the economy or environment".                                                                          
                                                                                                                                
Co-Chair Chenault  asked about a situation for  a gas station                                                                   
crack and  if clean-up  expenses would  be deductible  on any                                                                   
tax the State  issues.  Mr. Dickinson advised  that there are                                                                   
diesel  filling stations  on  the North  Slope  and in  those                                                                   
facilities, catastrophic would be deductible.                                                                                   
                                                                                                                                
4:32:52 PM                                                                                                                    
                                                                                                                                
Ms.  Wilson  referenced  the  language  in  the  HRC  version                                                                   
regarding catastrophic  oil discharge  into marine  or inland                                                                   
waters of the State.  That language  is specific to water and                                                                   
also  covers  incremental  expenses of  transportation.    It                                                                   
focuses on oil  spills affecting water.  Mr.  Dickinson added                                                                   
that  the language  appears  in statute  and  deals with  the                                                                   
downstream, reference  tankers.   The language was  moved and                                                                   
crafted to deal with tankers and lease expenditures.                                                                            
                                                                                                                                
Vice Chair Stoltze  asked if the delivery system  was part of                                                                   
Trans-Alaska   Pipeline  System   (TAPS).     Mr.   Dickinson                                                                   
explained  that  the  end  of   TAPS  is  where  the  tankers                                                                   
responsibility  begins.   There is nothing  between  TAPS and                                                                   
the ship.                                                                                                                       
                                                                                                                                
4:35:33 PM                                                                                                                    
                                                                                                                                
Ms. Wilson  referenced Page 34,  the effective  severance tax                                                                   
rate  compared to  the wellhead  (less  royalty), low  volume                                                                   
scenario.   She urged  the Committee  to consider a  moderate                                                                   
approach.                                                                                                                       
                                                                                                                                
4:36:59 PM                                                                                                                    
                                                                                                                                
Representative  Kelly asked about  the credit listed  on Page                                                                   
12.  Ms.  Wilson explained the comparison  difference between                                                                   
the  three credit  rates, noting  that the  $20 dollar  level                                                                   
moves and could have a net increase  of 100%.  The intent was                                                                   
to isolate  the credit  rate.   Mr. Dickinson voiced  concern                                                                   
when  prices are  high,  with large  investments  and then  a                                                                   
severe  price correction  occurs.   That could  make a  large                                                                   
difference, creating a situation of long recovery time.                                                                         
                                                                                                                                
SB 305 was HELD in Committee for further consideration.                                                                         
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 4:38 P.M.                                                                                          

Document Name Date/Time Subjects