Legislature(2013 - 2014)HOUSE FINANCE 519

04/07/2013 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 4:00 p.m. Today --
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
+= HB 129 OIL & GAS EXPLORATION/DEVELOPMENT AREAS TELECONFERENCED
Moved CSHB 129(FIN) Out of Committee
+ HB 76 UNEMPLOYMENT; ELEC. FILING OF LABOR INFO TELECONFERENCED
Heard & Held
+ HB 193 MUNICIPAL TAXATION OF TOBACCO PRODUCTS TELECONFERENCED
Moved CSHB 193(FIN) Out of Committee
+= SB 18 BUDGET: CAPITAL TELECONFERENCED
Scheduled But Not Heard
<Pending Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 7, 2013                                                                                            
                         1:34 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:34:16 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 1:34 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative David Guttenberg                                                                                                 
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Michael  Pawlowski,   Advisor,  Petroleum   Fiscal  Systems,                                                                    
Department   of  Revenue;   Dan  Stickel,   Assistant  Chief                                                                    
Economist,  Department of  Revenue;  Bruce Tangeman,  Deputy                                                                    
Commissioner,   Tax   Division,   Department   of   Revenue;                                                                    
Representative Lance Pruitt,  Sponsor; Johanna Bales, Deputy                                                                    
Director,  Tax  Division,   Department  of  Revenue;  Daniel                                                                    
Moore,  City  Treasurer,  Municipality of  Anchorage;  Diane                                                                    
Blumer,  Commissioner,  Department  of Labor  and  Workforce                                                                    
Development;  Paul Dick,  Director,  Division of  Employment                                                                    
Security,  Department of  Labor  and Workforce  Development;                                                                    
Cathie Roemmich,  CEO, Juneau  Chamber of  Commerce; Barbara                                                                    
Huff  Tuckness,   Director,  Legislative   and  Governmental                                                                    
Affiars,  Teamsters  Local  959; Paul  Grossi,  Alaska  Pipe                                                                    
Trades and  Iron Workers of  Alaska, Juneau;  Dennis Dewitt,                                                                    
National Federation  of Independent Businesses,  Juneau; Don                                                                    
Etheridge, Alaska AFL-CIO, Juneau; Joe Balash, Deputy                                                                           
Commissioner, Department of Natural Resources.                                                                                  
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Andy Rogers, Self, Anchorage; Rachel Petro, CEO, Alaska                                                                         
State Chamber of Commerce.                                                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 76     UNEMPLOYMENT; ELEC. FILING OF LABOR INFO                                                                              
                                                                                                                                
          HB 76 was HEARD and  HELD in committee for further                                                                    
          consideration.                                                                                                        
                                                                                                                                
HB 129    OIL & GAS EXPLORATION/DEVELOPMENT AREAS                                                                               
                                                                                                                                
          CSHB 129(FIN)  was REPORTED out of  committee with                                                                    
          a  "do  pass"  recommendation  and  with  one  new                                                                    
          fiscal impact note from  the Department of Natural                                                                    
          Resources.                                                                                                            
                                                                                                                                
HB 193    MUNICIPAL TAXATION OF TOBACCO PRODUCTS                                                                                
                                                                                                                                
          CSHB 193(FIN)  was REPORTED out of  committee with                                                                    
          a  "do  pass"  recommendation  and  with  one  new                                                                    
          fiscal impact note from  Department of Revenue and                                                                    
          one previously published zero note: FN1 (CED).                                                                        
                                                                                                                                
CSSB  18(FIN) am                                                                                                                
          BUDGET: CAPITAL                                                                                                       
                                                                                                                                
          CSSB 18(FIN) am was SCHEDULED but not HEARD.                                                                          
                                                                                                                                
CSSB  21(FIN) am(efd fld)                                                                                                       
          OIL AND GAS PRODUCTION TAX                                                                                            
                                                                                                                                
          CSSB  21(FIN) am(efd  fld) was  HEARD and  HELD in                                                                    
          committee for further consideration.                                                                                  
                                                                                                                                
CS FOR SENATE BILL NO. 21(FIN) am(efd fld)                                                                                    
                                                                                                                                
     "An  Act relating  to the  interest rate  applicable to                                                                    
     certain amounts due for fees,  taxes, and payments made                                                                    
     and property  delivered to  the Department  of Revenue;                                                                    
     providing a  tax credit against the  corporation income                                                                    
     tax  for   qualified  oil  and  gas   service  industry                                                                    
     expenditures; relating  to the  oil and  gas production                                                                    
     tax rate; relating  to gas used in  the state; relating                                                                    
     to  monthly installment  payments  of the  oil and  gas                                                                    
     production tax; relating to oil  and gas production tax                                                                    
     credits for  certain losses and  expenditures; relating                                                                    
     to  oil and  gas  production  tax credit  certificates;                                                                    
     relating  to  nontransferable   tax  credits  based  on                                                                    
     production;  relating to  the  oil and  gas tax  credit                                                                    
     fund; relating  to annual  statements by  producers and                                                                    
     explorers;    establishing    the     Oil    and    Gas                                                                    
     Competitiveness  Review  Board; and  making  conforming                                                                    
     amendments."                                                                                                               
                                                                                                                                
1:34:26 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze discussed the meeting agenda.                                                                                  
                                                                                                                                
MICHAEL  PAWLOWSKI,   ADVISOR,  PETROLEUM   FISCAL  SYSTEMS,                                                                    
DEPARTMENT    OF   REVENUE,    presented   the    PowerPoint                                                                    
presentation: "Fiscal  Impact HCS  CSSB 21(RES)."   He noted                                                                    
that  the analysis  focused on  a long-term  policy goal  to                                                                    
increase oil production in Alaska  in the near-term and into                                                                    
the future.                                                                                                                     
                                                                                                                                
DAN  STICKEL,  ASSISTANT   CHIEF  ECONOMIST,  DEPARTMENT  OF                                                                    
REVENUE, communicated that the  department had identified 15                                                                    
areas included in its fiscal  analysis. The department would                                                                    
provide  information  about  each  of the  areas  and  would                                                                    
conclude  with  a summary  table  showing  the total  fiscal                                                                    
impact of  the bill  over the upcoming  6 years  compared to                                                                    
the fall  2012 forecast. He  added that the fiscal  note did                                                                    
not consider  potential additional production that  could be                                                                    
incentivized  by  the  legislation. The  presentation  would                                                                    
also look  at revenue  sensitivity under Alaska's  Clear and                                                                    
Equitable  Share  (ACES)  and  various  versions  of  SB  21                                                                    
specifically for FY 15.                                                                                                         
                                                                                                                                
Mr.  Stickel pointed  to slide  3:  "1. Repeals  Progressive                                                                    
Surcharge."   Under  the current  ACES system  the surcharge                                                                    
was the additional tax that  applied when the production tax                                                                    
value was in excess of $30  per barrel. The fiscal impact of                                                                    
the repeal ranged up to $1.8 billion per year.                                                                                  
                                                                                                                                
1:40:26 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze asked  what the price of oil  had been when                                                                    
ACES  was implemented.  Mr. Stickel  believed the  price had                                                                    
been in the $60 range.                                                                                                          
                                                                                                                                
Representative  Gara   asked  Mr.  Stickel  to   repeat  his                                                                    
comments   about   the   impact  of   the   elimination   of                                                                    
progressivity.  Mr.  Stickel  replied  that  the  repeal  of                                                                    
progressivity would  have an  impact of  up to  $1.8 billion                                                                    
per year.                                                                                                                       
                                                                                                                                
Mr.  Stickel  moved  to  slide  4:  "Impact  of  Progressive                                                                    
Surcharge."  The  slide showed  revenues  from  the ACES  25                                                                    
percent base tax and on  the progressive tax portion from FY                                                                    
08  to  FY  19.  He  pointed  out  that  going  forward  the                                                                    
progressivity  revenue  was  in  the $1.8  billion  to  $1.5                                                                    
billion range between  FY 13 and FY 19. He  noted that under                                                                    
the current rates the  department forecasted larger revenues                                                                    
from the base tax than from the progressive tax.                                                                                
                                                                                                                                
Mr. Stickel  turned slide 5: "Increases  Base Production Tax                                                                    
Rate."  He explained  that under  the  legislation the  base                                                                    
rate  would  increase  from  25 percent  to  33  percent  (a                                                                    
decrease  from 35  percent was  included in  the prior  bill                                                                    
version CSSB 21). He elaborated  that the change would bring                                                                    
a revenue  increase to the state  of up to $875  million per                                                                    
year. He  noted that the  difference between the  33 percent                                                                    
and 35 percent  base rates would be between  $200 million to                                                                    
$250 million annually.                                                                                                          
                                                                                                                                
1:42:21 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Neuman   wondered   how  the   elimination   of                                                                    
progressivity would  mean that  oil and  gas would  be taxed                                                                    
separately.   He  had   been  told   that  removing   a  BTU                                                                    
equivalency  section  of  the current  law  and  eliminating                                                                    
progressivity  would have  a  decoupling  effect. He  stated                                                                    
that progressivity was a multiplication  function on the tax                                                                    
and  the BTU  equivalency functioned  to ensure  that a  tax                                                                    
rate  was  followed  for   the  producer's  average  monthly                                                                    
production tax.                                                                                                                 
                                                                                                                                
Mr.  Stickel  responded  that  under  the  ACES  system  the                                                                    
progressivity  surcharge factored  in  oil and  gas and  was                                                                    
brought down by the lower  gas value. He expounded that when                                                                    
a  producer  had  different   commodity  values  there  were                                                                    
varying  impacts  on the  surcharge.  He  explained that  by                                                                    
eliminating  progressivity and  taxing at  a flat  rate, gas                                                                    
production would  no longer change  the tax rate.  Under HCS                                                                    
CSSB 21(RES)  the base  production tax  would be  33 percent                                                                    
for gas and 33 percent for oil.                                                                                                 
                                                                                                                                
1:44:56 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  stated  that  under  ACES  there  was  a                                                                    
standard  allowable  deduction   on  capital  and  operating                                                                    
expenses at the  wellhead value. He clarified  that the flat                                                                    
rate   under  the   legislation  would   include  the   same                                                                    
components.  Mr.   Stickel  agreed   and  stated   that  the                                                                    
underlying calculation  of the production tax  value was not                                                                    
changed in the legislation.                                                                                                     
                                                                                                                                
Co-Chair  Austerman  asked  the  department  to  review  the                                                                    
material as clearly  and simply as possible  for the benefit                                                                    
of  the  committee  and  the   public.  He  pointed  to  the                                                                    
information on slide 3 stating  that the fiscal impact would                                                                    
be  up to  $1.8 billion.  He  asked what  the fiscal  impact                                                                    
pertained to.                                                                                                                   
                                                                                                                                
Co-Chair Stoltze  requested simplicity  and asked  for other                                                                    
department staff to augment with detail on slides as well.                                                                      
                                                                                                                                
1:47:29 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski explained  that  the progressivity  surcharge                                                                    
was a  tax that was added  to the 25 percent  base tax rate;                                                                    
its elimination  would have a  revenue impact on  the state.                                                                    
The  department endeavored  to look  at  each revenue  piece                                                                    
separately given  that some provisions had  fiscal impact to                                                                    
the state whereas others did  not. He referenced slide 4 and                                                                    
stated  that  while  progressivity  was  a  large  piece  of                                                                    
revenue  generated  under  ACES,  the  base  tax  rate  also                                                                    
generated significant revenue. For  example, under the FY 14                                                                    
forecast the base tax rate  was estimated to generate $2.775                                                                    
billion and  progressivity was  estimated at  $1.55 billion.                                                                    
He clarified  that the  slide showed  the impact  of revenue                                                                    
raised prior to the application of credits.                                                                                     
                                                                                                                                
Representative Wilson  asked whether  $1.8 billion  would be                                                                    
subtracted  [potential loss  related to  the elimination  of                                                                    
progressivity] and $875  million would be added  as a result                                                                    
of  the base  tax rate  increase from  25 percent  up to  33                                                                    
percent (slide 5).                                                                                                              
                                                                                                                                
Mr. Pawlowski answered in the affirmative.                                                                                      
                                                                                                                                
Mr.  Stickel  expounded  that the  presentation  included  a                                                                    
summary table  showing the collective  fiscal impact  of the                                                                    
provisions.                                                                                                                     
                                                                                                                                
1:50:31 PM                                                                                                                    
                                                                                                                                
Representative  Gara looked  at high  revenues earned  under                                                                    
ACES in FY 08 and FY 12 (slide  4). He wondered if FY 12 was                                                                    
the  year   that  oil  reached   $140  per  barrel   and  if                                                                    
retroactive taxes had caused the high number in FY 08.                                                                          
                                                                                                                                
Mr. Stickel  replied that  oil prices  had reached  $140 per                                                                    
barrel in  FY 08. He  detailed that  the state had  taken in                                                                    
close to $1 billion in a specific month in FY 08.                                                                               
                                                                                                                                
Co-Chair  Stoltze  believed  the retroactive  provision  had                                                                    
expired after two or three years.                                                                                               
                                                                                                                                
Representative Gara asked  if the high revenue in  FY 12 was                                                                    
a result of high oil prices  as well. Mr. Stickel replied in                                                                    
the  affirmative; prices  had consistently  been above  $100                                                                    
per barrel throughout FY 12.                                                                                                    
                                                                                                                                
Co-Chair  Austerman  pointed  to   slide  5  and  asked  for                                                                    
verification that  the state's revenue would  increase up to                                                                    
$875 million annually [due to  an increase in the production                                                                    
tax rate].                                                                                                                      
                                                                                                                                
Mr. Stickel  responded that the $875  million revenue growth                                                                    
referred to  an increase in  the base production  tax (based                                                                    
on the  fall 2012  forecast), which would  vary by  year. He                                                                    
elaborated that the  $875 million reflected a  change in the                                                                    
FY 16  forecast due to an  increase in the base  tax from 25                                                                    
percent up to 33 percent.                                                                                                       
                                                                                                                                
1:52:55 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski moved forward to  slide 21: "Provisions in HCS                                                                    
CSSB 21(RES)  and Their Estimated Fiscal  Impact as Compared                                                                    
to Fall 2012 Forecast ($millions)."  He noted that the slide                                                                    
showed  revenue  impacts  without a  change  in  production.                                                                    
Provisions in HCS CSSB 21(RES)  were numbered on the left of                                                                    
the slide.  He believed it was  pertinent to focus on  FY 15                                                                    
as it  would be the first  full fiscal year impacted  by the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Co-Chair Austerman  noted that  slide 21 showed  a reduction                                                                    
in $875 million; whereas slide  5 showed an increase in $875                                                                    
million. He assumed the numbers were not the same.                                                                              
                                                                                                                                
Mr.  Pawlowski  replied  that  the number  on  slide  5  was                                                                    
related to  the upper maximum in  the table on slide  21. He                                                                    
elaborated that the elimination  of progressivity would mean                                                                    
a maximum  loss in revenue  per year of $1.8  billion (shown                                                                    
in  the  FY  17  forecast); the  revenue  increase  of  $875                                                                    
million was shown on line 2 in FY 16 (slide 21).                                                                                
                                                                                                                                
Co-Chair  Austerman  asked  for clarification  on  the  $1.8                                                                    
billion impact shown  on slide 3. He wondered  if the impact                                                                    
was a  gain or loss in  revenue to the state.  He reiterated                                                                    
his earlier comment about providing clarity for the public.                                                                     
                                                                                                                                
1:55:28 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski answered that the  overall fiscal impact would                                                                    
be best described by the  FY 15 analysis (tax was determined                                                                    
in a calendar year). He pointed  to slide 21, line 1 showing                                                                    
that  the elimination  of progressivity  would  result in  a                                                                    
loss  of $1.5  billion  in  FY 15  based  on  the fall  2012                                                                    
forecast. Line  2 showed  that an increase  in the  base tax                                                                    
rate to 33 percent would  increase income by $850 million in                                                                    
FY  15. Line  3  included  an increase  of  $700 million  in                                                                    
revenue  as  a  result  of the  limitation  on  credits  for                                                                    
qualified  capital  expenditures  for the  North  Slope  (20                                                                    
percent  spending  credit).  He   noted  that  line  3  only                                                                    
pertained to  taxpayers who directly took  credits to offset                                                                    
their  production tax  liability.  Line 4  showed a  minimal                                                                    
revenue  impact  for the  net  operating  loss (NOL)  credit                                                                    
increase from  25 percent  to 33  percent. He  detailed that                                                                    
the NOL  credit was  available to  small explorers  who were                                                                    
spending  more than  they were  earning through  production;                                                                    
the change  would impact the operating  budget where credits                                                                    
would go through the credit fund.                                                                                               
                                                                                                                                
Mr.  Pawlowski moved  to line  5 that  showed a  $25 million                                                                    
decrease  in FY  15  revenue related  to  the gross  revenue                                                                    
exclusion  for  oil  production  in new  units  and  new  or                                                                    
expanded participating areas.  The provision eliminating the                                                                    
requirement for  credits to  be taken  over two  years would                                                                    
only have a  fiscal impact in FY 14, which  was projected at                                                                    
an  increased $250  million (reflecting  credits that  would                                                                    
have normally  been taken in  FY 15). He explained  that the                                                                    
fiscal impact was  limited to FY 14  because the obligations                                                                    
created by companies spending in  calendar year 2013 were an                                                                    
obligation to  the state. He  furthered that when  a company                                                                    
made  a qualified  capital expenditure  it  earned a  credit                                                                    
based on  20 percent of  the expenditure; under  current law                                                                    
the  company  had  to  divide the  credit  over  a  two-year                                                                    
period. He expounded that the  intent of the legislation was                                                                    
to close out the fiscal obligation to the state.                                                                                
                                                                                                                                
Mr.  Pawlowski continued  on  slide 21,  line  7 showing  no                                                                    
fiscal  impact  of an  amendment  to  the community  revenue                                                                    
sharing fund.  He detailed that  the item was linked  to the                                                                    
corporate income tax receipts  under the legislation, but it                                                                    
did  not  change  the  functioning of  the  program  or  the                                                                    
legislature's authority to appropriate.  Line 8 pertained to                                                                    
a  $5 per  taxable barrel  sliding scale  credit, which  was                                                                    
based on  the price  of oil.  The change  would result  in a                                                                    
reduction in  state revenue of up  to $825 million in  FY 15                                                                    
based  on   the  forecast  production.  He   noted  that  if                                                                    
production was  higher the credit rate  would increase. Line                                                                    
9  showed the  qualified  oil and  gas industry  expenditure                                                                    
credit,  which  was  a  corporate   income  tax  credit  for                                                                    
manufacturing or modification  of tangible personal property                                                                    
(e.g. modules, truck and pipe  improvements, and other). The                                                                    
impact of  the credit  was indeterminate,  but had  an upper                                                                    
range  of $25  million  per year  in  decreased revenue.  He                                                                    
detailed that the credit was  limited to a company that paid                                                                    
tax  and  could  only  be   used  to  reduce  the  company's                                                                    
individual tax liability.                                                                                                       
                                                                                                                                
Mr. Pawlowski addressed slide 21,  line 10 pertaining to the                                                                    
reduced interest  rate for late payments  and assessments on                                                                    
most taxes; it showed an  indeterminate fiscal impact with a                                                                    
possible  $25 million  loss  in revenue  per  year. Line  11                                                                    
showed zero fiscal impact resulting  from the removal of the                                                                    
3-mile requirement  for the Frontier  Basin tax  credit (the                                                                    
change had been  made in the House  Resources Committee). He                                                                    
communicated  that  the  change   showed  no  fiscal  impact                                                                    
because  the  Middle  Earth  [Interior  Alaska]  exploration                                                                    
credit was  included in the department's  current production                                                                    
forecast. Line 12  addressed the extension of  the fixed $12                                                                    
million small  producer credit to  2022; the  credit applied                                                                    
to  companies  producing  less   than  100,000  barrels  BTU                                                                    
equivalent  per  day. He  noted  that  there was  no  fiscal                                                                    
impact in the near-term; in FY  17 through FY 19 there was a                                                                    
loss  in revenue  projected as  a result  of new  production                                                                    
from new qualifying  entities. Line 13 referred  to the 2016                                                                    
required report  to the legislature from  the department. He                                                                    
remarked  that the  report requirement  was in  lieu of  the                                                                    
competitive review board. The  report requirement cost would                                                                    
be  absorbed  by  the department  and  would  generate  zero                                                                    
additional cost to the state.                                                                                                   
                                                                                                                                
Mr. Pawlowski moved  to line 14 related to  a requirement to                                                                    
consider joint  interest billings in the  audit process. The                                                                    
fiscal impact  of the requirement was  indeterminate; it was                                                                    
challenging  for   the  department  to  determine   how  the                                                                    
requirement worked  through the current audit  process. Line                                                                    
15  showed   zero  fiscal   impact  for   Alaska  Industrial                                                                    
Development and  Export Authority (AIDEA)  bonding authority                                                                    
to   finance  oil   and   gas   processing  facilities.   He                                                                    
communicated  that the  total revenue  impact  to the  state                                                                    
including  all 15  items was  projected  at a  loss of  $800                                                                    
million to $850 million per year.                                                                                               
                                                                                                                                
2:04:06 PM                                                                                                                    
                                                                                                                                
Representative Costello  referred to prior testimony  that a                                                                    
tremendous  amount of  revenue  was brought  in through  the                                                                    
progressivity  feature under  ACES  and  that a  significant                                                                    
portion of  the revenue was distributed  in capital credits.                                                                    
She  had  been  told   the  number  was  approximately  $850                                                                    
million.  She wondered  where the  amount  was reflected  on                                                                    
slide 21 and noted the numbers seemed lower on the slide.                                                                       
                                                                                                                                
Mr. Pawlowski replied that there  were two tiers in relation                                                                    
to companies eligible for  the qualified capital expenditure                                                                    
credit.  One tier  included companies  with a  tax liability                                                                    
that used  the credit to  reduce their liability.  The other                                                                    
tier included  companies without  a tax liability  that were                                                                    
issued  a  credit;  the  credit  came  through  the  state's                                                                    
operating  budget  via the  oil  and  gas credit  fund.  The                                                                    
impact on  the operating budget  was $150 million in  FY 15;                                                                    
whereas the  combination of the  two tiers equaled  the $850                                                                    
million.                                                                                                                        
                                                                                                                                
2:05:37 PM                                                                                                                    
                                                                                                                                
Representative  Gara stated  that the  base tax  rate of  33                                                                    
percent  was misleading.  He pointed  to lines  2 and  8 and                                                                    
surmised  that a  33 percent  tax rate  would generate  $450                                                                    
million more  than a 25  percent tax  rate, but with  the $5                                                                    
sliding deduction $425  million out of the  $450 million was                                                                    
lost.                                                                                                                           
                                                                                                                                
Mr. Pawlowski  pointed out  that the  state would  also gain                                                                    
$300 million  from the capital credit  elimination. He noted                                                                    
the numbers pertained to FY  14 (slide 21). He detailed that                                                                    
when  comparing  the  progressivity  between  the  two,  the                                                                    
number would be a negative $525 million.                                                                                        
                                                                                                                                
Representative Gara  asked if  the department  could provide                                                                    
different  variations  of  the  data on  slide  21  assuming                                                                    
various oil  prices. Mr. Pawlowski  directed attention  to a                                                                    
chart  on  slide 30:  "Production  Tax  Revenue, Less  North                                                                    
Slope  Refunded  and   Carried-Forward  Credits."  The  data                                                                    
pertained to  FY 15 only, given  that it would be  the first                                                                    
full  year  the legislation  would  impact.  The impact  was                                                                    
shown  across  a range  of  prices  ($50  to $150)  and  for                                                                    
various  versions of  the legislation  (from left  to right:                                                                    
ACES  was shown  in  blue,  SB 21  was  shown  in red,  CSSB                                                                    
21(FIN) was shown in yellow,  and HCS CSSB 21(RES) was shown                                                                    
in purple).                                                                                                                     
                                                                                                                                
Representative  Gara  spoke  to a  ConocoPhillips  projected                                                                    
production decline of 3 percent  for legacy fields beginning                                                                    
in FY  17. He stated  that the  DOR forecast used  a steeper                                                                    
rate  of  decline  and  requested data  using  a  3  percent                                                                    
decline from  FY 17 going  forward. Mr. Pawlowski  was happy                                                                    
to work with  the committee on forecasted  decline. He noted                                                                    
that Conoco's 3  percent decline rate was  limited to legacy                                                                    
fields under  its operation (the Colville  River and Kuparuk                                                                    
River units).                                                                                                                   
                                                                                                                                
Representative Gara  responded that  an article using  the 3                                                                    
percent  decline beginning  in  FY 17  included  all of  the                                                                    
legacy fields  operated by Conoco,  BP, and Exxon.  He noted                                                                    
that Conoco  estimated that its  decline rate would  be less                                                                    
than  3 percent  beginning  in  FY 17  given  its other  oil                                                                    
fields.                                                                                                                         
                                                                                                                                
Co-Chair Stoltze  relayed that  ConocoPhillips would  have a                                                                    
chance to present to the committee in the future.                                                                               
                                                                                                                                
2:10:35 PM                                                                                                                    
                                                                                                                                
Co-Chair Austerman looked at slide  21, line 2, which showed                                                                    
the 33  percent base tax. He  pointed to FY 15  and asked if                                                                    
the $850  million was representative  of the 33  percent tax                                                                    
and what  the number would  be under the current  25 percent                                                                    
rate.                                                                                                                           
                                                                                                                                
Mr.  Pawlowski  replied  that  the   $850  million  was  the                                                                    
difference  between a  25 percent  and 33  percent base  tax                                                                    
rates.                                                                                                                          
                                                                                                                                
Representative   Munoz  followed   up  on   a  question   by                                                                    
Representative  Costello related  to how  companies received                                                                    
the capital expenditure credit.  She wondered why the entire                                                                    
amount was not reflected on slide 21.                                                                                           
                                                                                                                                
Mr. Pawlowski replied that only  looking at revenues brought                                                                    
in by tax  payers would have ignored  the obligation created                                                                    
by credits paid through  the operating budget; therefore the                                                                    
items had been broken out  to clarify the expenditure by the                                                                    
state. The total revenue impact  (only factoring in revenue)                                                                    
would be  underestimating the bill's  fiscal impact  by $150                                                                    
million. He remarked that it  was difficult to represent the                                                                    
two items in the fiscal note.                                                                                                   
                                                                                                                                
2:13:01 PM                                                                                                                    
                                                                                                                                
Representative Munoz  asked for verification that  there was                                                                    
an additional $400 million or  $450 million not reflected in                                                                    
bill's  bottom  line  impact to  the  state.  Mr.  Pawlowski                                                                    
replied that the  total revenue impact was  shown below line                                                                    
15  on slide  21. The  impact  on the  operating budget  was                                                                    
shown below  and included  in the  bottom line  total fiscal                                                                    
impact on slide 21.                                                                                                             
                                                                                                                                
Representative  Gara  pointed  to   slide  21,  line  8  and                                                                    
observed that the tax rate  would not reach 33 percent until                                                                    
oil  reached  a  price  of  $150 to  $160  per  barrel.  Mr.                                                                    
Pawlowski agreed  that the impact  on line 8 did  reflect an                                                                    
offset against the increase.                                                                                                    
                                                                                                                                
Vice-Chair Neuman asked  what the cost of  the gross revenue                                                                    
exclusion (GRE) would be to  the state. He wondered what the                                                                    
cost  to  the state  would  be  under the  current  standard                                                                    
allowable deduction system.                                                                                                     
                                                                                                                                
Mr. Pawlowski  replied that the  GRE impact  was represented                                                                    
on  slide 21,  line 5.  The estimated  impact in  FY 15  was                                                                    
approximately   $25  million.   He  noted   that  qualifying                                                                    
production had  been strictly  limited to  new oil  that had                                                                    
not been forecasted at present.                                                                                                 
                                                                                                                                
Representative Costello  observed that the fiscal  impact of                                                                    
the GRE was  projected at $50 million, but that  it was also                                                                    
listed  as indeterminate.  She wondered  how the  department                                                                    
had  approached   the  estimate  and  the   unknown  factors                                                                    
involved. She assumed the worst  case scenario had been used                                                                    
in the assumption.                                                                                                              
                                                                                                                                
2:16:58 PM                                                                                                                    
                                                                                                                                
Mr.  Stickel  replied  that  the  GRE  took  the  forecasted                                                                    
production from  the barrels and  fields that  would qualify                                                                    
for  the  new  unit  and expanded  participating  areas.  He                                                                    
believed the number was 2 percent  to 3 percent of the total                                                                    
production  for FY  15. The  department also  looked at  the                                                                    
forecasted production  tax revenue with and  without the GRE                                                                    
applied to the barrels for  the qualifying fields, which was                                                                    
how the $25  million cost had been determined for  FY 15. He                                                                    
believed $25  million for  the HCS  CSSB 21(RES)  version of                                                                    
the bill was  a good estimate; there  was little uncertainty                                                                    
about which barrels  would qualify. He noted  that the prior                                                                    
version had  included a more  liberal definition  about what                                                                    
qualified as new oil. The  uncertainty had been higher under                                                                    
the prior  version and the  department had provided  a range                                                                    
of revenue estimate.                                                                                                            
                                                                                                                                
2:18:45 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  pointed  to  slide 21,  line  7  and                                                                    
surmised that it was unlikely  the community revenue sharing                                                                    
fund would  exceed $60  million given  its tie  to corporate                                                                    
income tax unless a large uptick in activity occurred.                                                                          
                                                                                                                                
Mr.  Stickel replied  that the  total  corporate income  tax                                                                    
collections from  oil, gas, and other  corporations had been                                                                    
over  $500 million  in  each  of the  past  eight years  and                                                                    
collections  were continued  to be  forecasted at  over $500                                                                    
million  per year  for the  length  of the  fiscal note.  He                                                                    
added  that  the  $60  million  threshold  would  easily  be                                                                    
reached.                                                                                                                        
                                                                                                                                
Representative Edgmon  questioned whether  there would  be a                                                                    
decrease  to  the  current  $60   million.  He  believed  an                                                                    
additional $20 million  to $25 million added  to the revenue                                                                    
sharing  program  in  the  last  couple  of  years.  He  was                                                                    
interested in  the impact  of tying  revenue sharing  to the                                                                    
corporate income tax provision of the bill.                                                                                     
                                                                                                                                
Mr. Pawlowski  believed it was  illustrative to look  at the                                                                    
progressivity  piece  (slide  4)   because  that  was  where                                                                    
community revenue  sharing dollars were softly  dedicated to                                                                    
the revenue sharing fund. He  discussed language that was up                                                                    
to 20 percent  of the progressive portion or  $60 million to                                                                    
$180  million.  He furthered  that  given  the $500  million                                                                    
annual  corporate  income  tax revenue  the  department  was                                                                    
comfortable that  plenty of revenue  would be  available for                                                                    
the   revenue  sharing   program.  He   stressed  that   the                                                                    
legislation  did not  attempt to  change how  much would  be                                                                    
appropriated  to  the  fund.  The intent  was  to  locate  a                                                                    
revenue  stream that  would  meet the  $60  million to  $180                                                                    
million to meet the obligation under the statute.                                                                               
                                                                                                                                
2:21:38 PM                                                                                                                    
                                                                                                                                
Representative   Edgmon   relayed    that   an   interactive                                                                    
presentation  demonstrating  how   changing  numbers  around                                                                    
would  impact  the  data.  He  wanted  to  be  prepared  for                                                                    
unexpected events such as decreases  or increases in various                                                                    
areas. He referred to the importance of stress testing.                                                                         
                                                                                                                                
Co-Chair Austerman referred to  his earlier question related                                                                    
to  $850  million.  He clarified  that  the  spring  revenue                                                                    
forecast was  based on the  ACES 25 percent  production tax.                                                                    
Mr.  Stickel replied  in the  affirmative. He  detailed that                                                                    
the spring forecast  was based entirely on  the current ACES                                                                    
production  tax. He  noted that  slide 21  was based  on the                                                                    
fall forecast.                                                                                                                  
                                                                                                                                
Co-Chair  Stoltze  made  a  remark  about  tying  government                                                                    
growth to production.                                                                                                           
                                                                                                                                
Mr. Pawlowski relayed  that slide 21 was included  on page 4                                                                    
of  a  department  fiscal note  [FN10  (DOR),  4/8/13].  The                                                                    
department felt  the slide integrated the  bill's provisions                                                                    
without factoring in any changes  to production or price. He                                                                    
referred to  a presentation  by Econ  One from  the previous                                                                    
day and to the importance  of long-term decisions beyond the                                                                    
timeline shown on the fiscal note.                                                                                              
                                                                                                                                
Co-Chair Austerman  asked whether the fiscal  note reflected                                                                    
the  fall   2012  or  spring  2013   revenue  forecast.  Mr.                                                                    
Pawlowski  replied that  the note  reflected fall  data; the                                                                    
department  was  currently  working  to update  it  for  the                                                                    
spring forecast.                                                                                                                
                                                                                                                                
2:24:35 PM                                                                                                                    
                                                                                                                                
Representative Edgmon referred to  a news article discussing                                                                    
that the reduction  of oil taxes should be thought  of as an                                                                    
investment  to   increase  production.  He  wondered   if  a                                                                    
projection   of  the   potential   increase  in   production                                                                    
resulting  from the  legislation  would be  provided to  the                                                                    
committee. Mr.  Pawlowski pointed  to slide  22: "Production                                                                    
Scenarios."  He cautioned  that any  methodology looking  at                                                                    
increased   production  had   flaws.   The  department   had                                                                    
attempted  to  provide  a   scenario  method  that  examined                                                                    
different production increase profiles.                                                                                         
                                                                                                                                
     Scenario A:                                                                                                                
                                                                                                                                
        · New 50 Million barrel field developed by small                                                                        
          producer without tax liability                                                                                        
        · Peak production = 10 thousand bbls/day                                                                                
        · Development costs = $500,000,000                                                                                      
        · Qualified for GRE and NOL                                                                                             
                                                                                                                                
Mr. Pawlowski relayed  that ACES and the  legislation used a                                                                    
net  tax.  He  expounded  that  it  was  important  to  also                                                                    
consider the  cost of reaching  the production,  which would                                                                    
have a  fiscal impact.  Scenario A represented  the addition                                                                    
of one new 50 million barrel field.                                                                                             
                                                                                                                                
2:27:25 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski discussed Scenario  B on slide 23: "Production                                                                    
Scenarios." He  communicated that the scenario  provided the                                                                    
most   reasonable   expectation   for  the   near-term.   He                                                                    
emphasized  that   the  scenarios  were  not   meant  to  be                                                                    
predictive.                                                                                                                     
                                                                                                                                
     Scenario B:                                                                                                                
                                                                                                                                
        · Operators of existing units add 4 drill rigs to                                                                       
          current plans                                                                                                         
        · Each rig adds 4,000 bbls/day in new production                                                                        
          each year                                                                                                             
             o Which each then decline at 15% per year                                                                          
        · Does not qualify for GRE                                                                                              
                                                                                                                                
Mr. Pawlowski elaborated that it  was important to factor in                                                                    
a decline rate when looking  at oil production. He looked at                                                                    
Scenario C on slide 24: "Production Scenarios."                                                                                 
                                                                                                                                
     Scenario C:                                                                                                                
                                                                                                                                
        · Operator of existing legacy unit builds new drill                                                                     
          pad                                                                                                                   
        · Development cost = $5 billion                                                                                         
        · Adds 15,000 bbls/day in 2014 increasing to peak                                                                       
          rate of 90,000 bbls/day in 2018                                                                                       
        · Does not qualify for GRE                                                                                              
                                                                                                                                
Representative  Holmes  wondered   about  development  costs                                                                    
associated with Scenario B. Mr.  Pawlowski pointed to page 5                                                                    
of the  fiscal note  [FN10 (DOR),  4/8/13] and  relayed that                                                                    
the  development cost  for each  well was  estimated at  $20                                                                    
million. The figure was on the  high side of current cost on                                                                    
the  North  Slope, but  he  believed  it was  indicative  of                                                                    
future development costs.                                                                                                       
                                                                                                                                
Representative Gara expressed a  concern related to Scenario                                                                    
A  (slide  22).  He  agreed  that  incentivizing  new  field                                                                    
production  was necessary.  He asked  for verification  that                                                                    
the  GRE or  the reduction  in tax  for a  new field  was 20                                                                    
percent. Mr. Pawlowski replied in the affirmative.                                                                              
                                                                                                                                
Representative Gara  asked whether the 20  percent GRE would                                                                    
reduce  the base  tax  rate  by more  than  20 percent.  Mr.                                                                    
Stickel replied  that the  20 percent GRE  was based  on the                                                                    
gross oil  value and was  subtracted from the net  value. He                                                                    
agreed that  the impact of  subtracting 20 percent  of gross                                                                    
would be a  reduction of greater than 20 percent  of net. He                                                                    
explained  that the  exact percentage  would  depend on  the                                                                    
price of oil.                                                                                                                   
                                                                                                                                
Representative  Gara  addressed  tax  rates  of  future  new                                                                    
fields.  He stated  that at  $110 per  barrel oil  companies                                                                    
would not pay  a 33 percent tax due to  the $5 sliding scale                                                                    
[slide  21, provision  8]. He  asked  for a  rough tax  rate                                                                    
estimate for FY 15 before the GRE.                                                                                              
                                                                                                                                
Mr. Pawlowski asked for  clarification on which presentation                                                                    
Representative Gara was referencing.                                                                                            
                                                                                                                                
2:32:55 PM                                                                                                                    
                                                                                                                                
Representative  Gara   pointed  to  slide  21   of  the  DOR                                                                    
presentation. He noted that line  2 assumed a 33 percent tax                                                                    
rate,  but  the $5  per  taxable  barrel credit  meant  that                                                                    
companies would  pay less  than 33  percent. He  stated that                                                                    
based on the  chart the $5 credit would mean  a reduction of                                                                    
$825  million  from  the  $850  million  in  gained  revenue                                                                    
resulting from the base tax  rate increase to 33 percent. He                                                                    
assumed that the actual tax  rate on companies was closer to                                                                    
26 percent  or 27 percent with  the inclusion of the  $5 per                                                                    
barrel credit. He wondered if the assumption was fair.                                                                          
                                                                                                                                
Mr. Stickel replied that at  the forecast price the base tax                                                                    
increase from  25 percent to  33 percent was  roughly offset                                                                    
by  the  per  taxable  barrel credit.  He  stated  that  the                                                                    
effective  tax rate  factoring in  only  the two  provisions                                                                    
would  be  approximately 25  percent.  He  offered that  the                                                                    
department  could provide  more  specific calculations  that                                                                    
encompassed all of the components.                                                                                              
                                                                                                                                
Representative  Gara pointed  to the  GRE, which  subtracted                                                                    
roughly  35  percent  from  the  25  percent  tax  rate.  He                                                                    
surmised  that  the  tax  rate  would  be  approximately  17                                                                    
percent  when factoring  in the  GRE.  Mr. Stickel  answered                                                                    
that the amount was roughly in the ball park.                                                                                   
                                                                                                                                
Representative  Gara  understood  that companies  needed  to                                                                    
make up  for sunk  costs in the  development of  new fields,                                                                    
but he wondered  if the department had thought  about a time                                                                    
limit for the  GRE. He did not know what  the state would be                                                                    
able to  fund if  it had  to live  off of  a 17  percent tax                                                                    
rate.                                                                                                                           
                                                                                                                                
Mr. Pawlowski  responded that  a time limit  on the  GRE had                                                                    
been discussed  in multiple  committees; the  department was                                                                    
concerned  that  it  could   create  distorting  effects  on                                                                    
behavior.  Specifically,   how  investment   behavior  would                                                                    
change  if  taxes  were  increased at  the  end  or  partway                                                                    
through the useful  life of a well. The  department was more                                                                    
comfortable  with the  more narrowly  defined definition  of                                                                    
new oil in the current bill.  He elaborated that DOR did not                                                                    
see  all of  the new  oil in  the foreseeable  future coming                                                                    
from GRE  eligible barrels because  it did not apply  to the                                                                    
basic legacy  production. He relayed that  Mr. Stickel would                                                                    
speak   to  the   forecast  related   to  non-GRE   eligible                                                                    
production.                                                                                                                     
                                                                                                                                
Representative Gara  understood that  the GRE did  not apply                                                                    
to  everything. He  discussed areas  that would  qualify for                                                                    
the  GRE including  new geological  units in  legacy fields,                                                                    
Umiat, Nakiachuk, Oooguruk, CD5,  and other oil. He stressed                                                                    
that the  provision would apply  to a significant  amount of                                                                    
oil. He  wondered if the  state could fiscally sustain  a 17                                                                    
percent tax rate on the oil that would be included.                                                                             
                                                                                                                                
Mr.  Pawlowski replied  that the  department  had looked  at                                                                    
what   the  state   could  afford   to   offer  in   credits                                                                    
particularly when  it would not  receive equal  royalty into                                                                    
the future. He  believed CD5 was largely  on non-state land;                                                                    
the  state paid  through the  credits and  the deduction  in                                                                    
ACES.  He furthered  that the  state invested,  but did  not                                                                    
have  the other  components to  provide the  revenue to  pay                                                                    
back.  The  department was  concerned  about  the state  not                                                                    
receiving the  full royalty from  the production  and paying                                                                    
for  it upfront.  The  administration  was more  comfortable                                                                    
with inspiring  increased production in  a way that  did not                                                                    
have  the  state as  invested  in  the upfront  development,                                                                    
particularly  when there  was not  the full  balance of  the                                                                    
royalty to support the state.                                                                                                   
                                                                                                                                
2:38:40 PM                                                                                                                    
                                                                                                                                
Representative Gara believed that  the ACES tax system would                                                                    
be eliminated  in the near  future. He asked about  the pros                                                                    
and cons of  a significant amount of new oil  being taxed at                                                                    
a  rate of  approximately  17 percent  and approximately  25                                                                    
percent. He wondered  why a 7-year to 10-year  time limit on                                                                    
the lower tax should not be imposed.                                                                                            
                                                                                                                                
Mr.   Pawlowski  answered   that  when   incentives  changed                                                                    
behavior  also  changed.  He stated  that  the  concern  was                                                                    
related  to   how  tax  increases  would   impact  declining                                                                    
production; costs  would rise and increased  taxes may cause                                                                    
incentive to shut  in the production. The fear  was that the                                                                    
change would discourage production in the future.                                                                               
                                                                                                                                
Representative  Kawasaki asked  if the  production scenarios                                                                    
provided were likely and how  they were developed (slides 22                                                                    
through 24).                                                                                                                    
                                                                                                                                
Mr. Pawlowski replied that the  scenarios had initially been                                                                    
developed based on how something  works without trying to be                                                                    
predictive. He  stated that predicting the  magnitude of the                                                                    
change was  very difficult. He furthered  that each scenario                                                                    
was  a  realistic concept,  but  they  were intended  to  be                                                                    
illustrative.  He pointed  to Scenario  B  and relayed  that                                                                    
[operators of  existing units] adding  4 new drill  rigs was                                                                    
not necessarily  realistic. The  department wanted  to avoid                                                                    
doing  a direct  correlation between  increases in  spending                                                                    
and a direct percentage  increase in production. He remarked                                                                    
that it cost money to  develop oil, production happened, and                                                                    
then production declined; the items  needed to be built into                                                                    
a model given  a net system in order to  provide a realistic                                                                    
picture for policy makers.                                                                                                      
                                                                                                                                
Representative Kawasaki  believed there would be  more value                                                                    
to the scenarios if they  were in a current development plan                                                                    
under the Division of Oil and Gas.                                                                                              
                                                                                                                                
2:42:53 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski  replied that the  department had  worked with                                                                    
its economic research  group to go through  current DOR data                                                                    
to  get ideas  on cost,  development, and  projects and  had                                                                    
built the data  into the models. He relayed  that the models                                                                    
were not based on any individual opportunities.                                                                                 
                                                                                                                                
Representative  Kawasaki wanted  to ensure  that the  public                                                                    
understood that the scenarios were illustrative in nature.                                                                      
                                                                                                                                
Mr. Pawlowski stressed  that DOR had attempted  to move away                                                                    
from  anything  that  was  not  indicative  of  what  actual                                                                    
developments and  projects would  look like. The  intent was                                                                    
to produce  something reasonable to show  the public related                                                                    
to the types of production.                                                                                                     
                                                                                                                                
Representative  Holmes referred  to the  CD5 oil  field. She                                                                    
pointed  to the  department's  concern that  under ACES  the                                                                    
state  may  not collect  royalties  on  developments off  of                                                                    
state  land; therefore,  production  tax would  make up  the                                                                    
entire revenue for  the state on those  areas. She furthered                                                                    
that  in the  existing  system there  was  interplay of  the                                                                    
state paying credits and the way  the tax ran; she noted the                                                                    
state could end up under  water. She asked how the situation                                                                    
would look  under the proposed  legislation and  whether the                                                                    
state would be on safer ground.                                                                                                 
                                                                                                                                
Mr.  Pawlowski  replied that  the  removal  of the  buy-down                                                                    
effect had the largest impact.  He elaborated that under the                                                                    
net system  the state  support for  company spending  was at                                                                    
the 25  percent rate plus  the buy-down effect.  He remarked                                                                    
that PFC Energy and Econ  One had talked about state support                                                                    
for  a project  in the  80 percent  range. The  spending was                                                                    
different under  the current system  because it  was limited                                                                    
to the basic tax rate (33  percent in the current bill); for                                                                    
an existing company developing a  field, the state supported                                                                    
at  33  percent.  The  state would  take  a  production  tax                                                                    
equivalent to the tax rate minus  the GRE effect and the per                                                                    
barrel  future credit.  He furthered  that the  scenario was                                                                    
different than  the buy-down effect and  the capital credits                                                                    
that came out up front in  the current tax system. He stated                                                                    
that  there would  be less  potential  for the  state to  go                                                                    
negative  in the  situation than  there was  under ACES.  He                                                                    
referred to the decoupling effect  and a previous PFC Energy                                                                    
presentation.  He  detailed that  the  impact  to the  state                                                                    
could  be  negative  if  a   high  value  resource  such  as                                                                    
conventional  oil was  combined  with a  low value  resource                                                                    
like viscous  or high  cost oil;  the proposed  system would                                                                    
not create the  same effect, but it was  primarily linked to                                                                    
the buy-down effect and not  the credit structure. Under the                                                                    
current system moving  into the field, a  company would have                                                                    
the ability to write off  expenditures against its taxes and                                                                    
to receive 33  percent support. The company  would receive a                                                                    
per barrel  production credit  and the  GRE for  new fields.                                                                    
The department saw the  royalty being dramatically different                                                                    
in comparison to the current system.                                                                                            
                                                                                                                                
2:48:25 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked if the state  could continue to                                                                    
fund its budget with oil  as the main resource. She observed                                                                    
that oil is  not a renewable resource and  believed a change                                                                    
needed to be made to  stretch its production lifespan out in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Mr.  Pawlowski  focused  on  the  power  of  production.  He                                                                    
referred  to various  presentations  by departments  showing                                                                    
that  Alaska was  resource rich;  approximately 3.5  billion                                                                    
barrels  of  oil  remained  in  the  legacy  fields  and  an                                                                    
additional 3 billion barrels were  waiting to be discovered.                                                                    
He explained that roughly 10  percent of the resource needed                                                                    
to  be developed  to  continue to  drive  the revenues  seen                                                                    
under ACES with  forecasted declines. He stated  that in the                                                                    
long-term  the  issue was  about  production  being able  to                                                                    
sustain  vital   revenues  to  the   state.  He   noted  the                                                                    
importance of discussing the  relationship of state revenues                                                                    
and the value  being created. He pointed out  that the state                                                                    
received  revenues  in  multiple  ways in  addition  to  the                                                                    
production tax.  The scenarios provided in  the presentation                                                                    
looked  at production  compared  to the  current system.  He                                                                    
suggested  looking at  the scenarios  as underestimates.  He                                                                    
wanted to  focus on  what the production  could do  to drive                                                                    
the  long-term  sustainability  of   Alaska  as  opposed  to                                                                    
looking at other revenue sources.                                                                                               
                                                                                                                                
Representative Wilson  understood that Alberta  had recently                                                                    
changed its  tax structure. She  wondered if the  change had                                                                    
made  a difference.  Mr. Pawlowski  replied  that DOR  would                                                                    
provide  the committee  with  benchmarking  data from  prior                                                                    
presentations that showed a  dramatic increase in investment                                                                    
and  production  in  Alberta.  He  noted  that  Alberta  was                                                                    
currently  experiencing some  significant challenges  due to                                                                    
low oil prices caused by stranded production.                                                                                   
                                                                                                                                
Representative  Wilson remarked  that Alaska  could look  to                                                                    
other locations that had experienced  similar issues to gain                                                                    
information about outcomes.                                                                                                     
                                                                                                                                
2:51:54 PM                                                                                                                    
                                                                                                                                
Representative  Gara referred  to the  possibility that  the                                                                    
Alberta  tax  cut  had  raised the  value  to  equalize  the                                                                    
offset. He relayed  that the province was  facing $2 billion                                                                    
to $3 billion budget deficits.  He stated that when too much                                                                    
was spent on tax breaks it was possible to lose money.                                                                          
                                                                                                                                
Mr.  Pawlowski referred  to a  Wall  Street Journal  article                                                                    
from the past  December that indicated there was  oil at $50                                                                    
per barrel  if tankers  were available  to transport  it. He                                                                    
stated that there  was a significant amount  of oil produced                                                                    
in Alberta with very  little infrastructure to transport it.                                                                    
He discussed various pipeline  proposals. He understood that                                                                    
the increased production  was largely due to  the decline in                                                                    
price. He agreed that Alberta was facing a fiscal deficit.                                                                      
                                                                                                                                
Mr. Pawlowski continued  to discuss Scenario C  on slide 24:                                                                    
"Production Scenarios." The scenario  included a large drill                                                                    
pad development  with multiple wells,  increased production,                                                                    
and billions of  dollars in spending. He  furthered that the                                                                    
scenario was an aggregate of  the small field, the rigs, and                                                                    
the  addition  of the  large  pad.  He  moved to  slide  25:                                                                    
"Production  Profiles of  Production  Scenarios." The  slide                                                                    
illustrated production  numbers associated with  Scenarios A                                                                    
through C. He  pointed to FY 14 and noted  that the blue bar                                                                    
to the  left represented  forecasted production;  Scenario A                                                                    
did not  add new oil,  Scenario B increased  production from                                                                    
539 to  555 thousand  BoPD, Scenario C  increased production                                                                    
to  570 thousand  BoPD. The  chart provided  data for  FY 14                                                                    
through  FY  19  including decline  curves  with  production                                                                    
layered on top.                                                                                                                 
                                                                                                                                
Representative Gara  asked whether actual projects  had been                                                                    
identified  under  Scenario C  that  would  go online  as  a                                                                    
result  of  the  bill.  Mr.   Pawlowski  answered  that  the                                                                    
scenarios  were  hypothetical   based  on  the  department's                                                                    
understanding of the type of  spending that would occur. The                                                                    
information  was intended  to be  illustrative of  realistic                                                                    
elements that could occur.                                                                                                      
                                                                                                                                
2:55:46 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski discussed slide  26: "Projected Revenues under                                                                    
Production Scenarios  at $90/Barrel  ANS." The  slide showed                                                                    
rounded unrestricted general fund  revenue at various prices                                                                    
for  the different  production scenarios.  The  goal was  to                                                                    
present the  sensitivity level  of a  new revenue  system on                                                                    
production.  The  chart  provided  a  time  limited  (FY  14                                                                    
through  FY 19)  illustrative scenario  based on  production                                                                    
figures shown on slide 25.                                                                                                      
                                                                                                                                
Mr. Pawlowski turned to slide  27: "Projected Revenues under                                                                    
Production  Scenarios  - at  $100/Barrel  ANS."  The bar  in                                                                    
black  on  the  far  right   showed  ACES  at  the  forecast                                                                    
production (other  scenarios were shown for  comparison). He                                                                    
pointed  to  Scenario B  in  FY  16,  which showed  that  $5                                                                    
billion would be raised under  the proposal and $5.2 billion                                                                    
would be raised under ACES.                                                                                                     
                                                                                                                                
Representative Gara  recalled testimony  that it  would take                                                                    
roughly seven years  from the start to  bring new production                                                                    
online.  He wondered  why the  chart  showed new  production                                                                    
coming online within three and four years.                                                                                      
                                                                                                                                
Mr. Pawlowski  replied that adding  a new rig to  the legacy                                                                    
fields  could  offer  near-term opportunity  and  provide  a                                                                    
quick  turnaround  in  production. He  reiterated  that  the                                                                    
slides  were illustrative.  He furthered  that adding  a new                                                                    
rig  could  be  done  quickly; therefore,  it  was  not  GRE                                                                    
eligible under the analysis.                                                                                                    
                                                                                                                                
Representative Gara  asked for verification that  there were                                                                    
no  commitments from  any  company  that developments  would                                                                    
occur as a result of  the bill. Mr. Pawlowski responded that                                                                    
the  oil   industry  was  better  equipped   to  answer  the                                                                    
question.                                                                                                                       
                                                                                                                                
2:58:43 PM                                                                                                                    
                                                                                                                                
Representative Costello  observed that Scenario  C preformed                                                                    
the best.  She asked  the department  to carry  the analysis                                                                    
beyond  FY 19.  She stated  that the  bill had  a short-term                                                                    
cost  with  the hope  of  a  long-term gain.  Mr.  Pawlowski                                                                    
replied   that  there   were  various   requests  that   the                                                                    
department could work with committee  members on in order to                                                                    
provide the desired information.                                                                                                
                                                                                                                                
Mr. Pawlowski  moved to slide 29:  "Projected Revenues under                                                                    
Production  Scenarios -  at Forecast  ANS Price."  The slide                                                                    
showed how  sensitive the scenarios  were to  moderations of                                                                    
the decline curve to potentially  create revenues that could                                                                    
offset the revenue reduction under ACES.                                                                                        
                                                                                                                                
Representative  Edgmon  discussed department  comments  that                                                                    
U.S. oil  production was at  historic high levels.  He noted                                                                    
that  production   was  increasing  globally  as   well.  He                                                                    
wondered  if  a  lack  of  infrastructure  would  provide  a                                                                    
limitation on the production scenarios.                                                                                         
                                                                                                                                
Mr. Pawlowski replied with a  reference to work done by Econ                                                                    
One  related to  how much  resource needed  to be  developed                                                                    
over  the  long-term. Econ  One  had  looked at  what  would                                                                    
happen  if   Alaska  trended  along  with   its  peer  group                                                                    
following 2006; it had examined  what spending would be like                                                                    
at present  and how much  resource there would be.  Econ One                                                                    
had also looked at  the relationship between government take                                                                    
and potential drilling  and how many wells would  need to be                                                                    
developed  over what  period of  time. He  stated that  when                                                                    
considering  the longer-term,  it was  necessary to  look at                                                                    
the opportunity to exceed the  break even. He furthered that                                                                    
the  availability of  capital as  opposed to  infrastructure                                                                    
was the  bigger question; whether companies  had the capital                                                                    
to  reallocate quickly  to develop  resources in  Alaska. He                                                                    
encouraged members  to ask the industry  questions about its                                                                    
ability to reallocate capital. He  expounded that the change                                                                    
would not happen immediately, but  the attractiveness of the                                                                    
tax  system  would  make   companies  decide  to  reallocate                                                                    
capital to Alaska to be competitive.                                                                                            
                                                                                                                                
3:04:17 PM                                                                                                                    
                                                                                                                                
Representative Holmes discussed slide  21 and the difference                                                                    
between an  impact on revenue  and on the  operating budget.                                                                    
She pointed  to slides 26  through 29 that  showed projected                                                                    
revenues  under various  scenarios.  She  asked whether  the                                                                    
slides also considered the impact  of credits paid out under                                                                    
the existing system on the state's operating budget.                                                                            
                                                                                                                                
Mr. Pawlowski  believed the revenue projections  factored in                                                                    
the credits that would be paid out.                                                                                             
                                                                                                                                
Representative  Gara queried  what 5.5  stood for  in FY  19                                                                    
(slide 29). Mr. Pawlowski answered  that the figure was $5.5                                                                    
billion  in GFUR  [General Fund  Unrestricted Revenue];  the                                                                    
bars  represented   revenue  forecasts  under   the  various                                                                    
scenarios.                                                                                                                      
                                                                                                                                
Representative Gara  referred to testimony by  the major oil                                                                    
companies that  technology was preventing the  production of                                                                    
massive amounts  of heavy  oil in Alaska.  He recalled  a BP                                                                    
testifier who had said that  the issue was technological and                                                                    
not fiscal.  He stated  that Conoco had  said it  planned to                                                                    
increase  production,  which  would  decrease  its  rate  of                                                                    
decline to  approximately 3 percent.  He was  concerned that                                                                    
the department  was applying  a 17 percent  tax rate  to new                                                                    
oil, which was likely to  be produced under the current ACES                                                                    
system anyway. He was worried  the state would unnecessarily                                                                    
incentivize some items.                                                                                                         
                                                                                                                                
3:07:16 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski replied that it  was related to what the state                                                                    
assumed  would  happen.  He  agreed  that  Conoco  had  made                                                                    
comments about its specific production  and decline rate. He                                                                    
addressed the question  about new oil and  what would happen                                                                    
and looked  at projects  that were on  the horizon,  but did                                                                    
not  happen  (e.g.  Liberty).  He  surmised  that  the  root                                                                    
question  was  about  relying on  the  revenue  forecast  to                                                                    
determine  what  would actually  happen  in  the future  and                                                                    
using that to define new  versus old oil. The department was                                                                    
concerned that  much of  what was  projected to  occur under                                                                    
ACES  would not  occur.  He pointed  to  testimony from  Ken                                                                    
Thompson (of  Brooks Range Petroleum)  that the  company had                                                                    
been  to  over  200  potential investors  to  pitch  its  40                                                                    
million  barrel project  under the  current  system; it  had                                                                    
been unsuccessful  and had  asked the  state to  finance the                                                                    
project.                                                                                                                        
                                                                                                                                
BRUCE   TANGEMAN,   DEPUTY   COMMISSIONER,   TAX   DIVISION,                                                                    
DEPARTMENT  OF  REVENUE,  relayed that  the  department  had                                                                    
incorporated  information it  learned  from producers  about                                                                    
expected decline rates into its  fall revenue forecast (2012                                                                    
Fall Revenue Forecast, page 43).                                                                                                
                                                                                                                                
Co-Chair Stoltze referred  to a phrase "we're  not fine with                                                                    
decline."                                                                                                                       
                                                                                                                                
Mr.  Pawlowski agreed.  He could  provide committee  members                                                                    
with  a transcript  of the  Conoco analyst  presentation. He                                                                    
added  that  the  company  had   included  that  it  saw  an                                                                    
opportunity to  reverse the decline if  tax reform occurred.                                                                    
He pointed  to the  opportunity of  production to  provide a                                                                    
long-term sustainable base for the state.                                                                                       
                                                                                                                                
3:10:29 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman  referred to slide 29  and the committee's                                                                    
discussion  the prior  day on  well amortization  running at                                                                    
about five  years. He wondered  whether the  value resulting                                                                    
from  the potential  addition  of four  wells  per year  was                                                                    
included in FY 19.                                                                                                              
                                                                                                                                
Mr. Pawlowski  replied in the affirmative.  The rig drilling                                                                    
under Scenario B would cost  $20 million per year; the money                                                                    
would be  spent up  front and the  production would  come on                                                                    
and decline  within the model.  He added that  1,000 barrels                                                                    
per  day  had  been  used   based  on  the  current  average                                                                    
productivity of a well in the Prudhoe Bay unit.                                                                                 
                                                                                                                                
Mr. Pawlowski pointed to slide  30: "Production Tax Revenue,                                                                    
Less North Slope Refunded  and Carried-Forward Credits." The                                                                    
slide showed the fiscal impact  of ACES and various versions                                                                    
of the legislation on production revenue for FY 15.                                                                             
                                                                                                                                
Mr. Stickel  explained that slide  30 illustrated  the total                                                                    
impact of  ACES and various  versions of the  legislation on                                                                    
production  revenue for  FY 15  including credits  paid out.                                                                    
The amount of expected credit  refund payments for the North                                                                    
Slope  under each  of the  tax systems  had been  subtracted                                                                    
from  the total  production  tax number.  There were  carry-                                                                    
forward  credits at  $50 per  barrel  in excess  of the  tax                                                                    
liability for major producers. He  noted that the slide only                                                                    
looked at  major provisions of  the bill; an  assumption for                                                                    
the corporate income  tax and the reduced  interest rate for                                                                    
late payments  or assessments had  not been  included, which                                                                    
represented an impact ranging from $0.00 to $50 million.                                                                        
                                                                                                                                
3:13:46 PM                                                                                                                    
                                                                                                                                
Representative  Gara  asked  which   fiscal  year  slide  30                                                                    
pertained  to.   Mr.  Stickel   responded  that   the  chart                                                                    
pertained to FY 15.                                                                                                             
                                                                                                                                
Mr. Pawlowski moved to slide  31: "General Fund Unrestricted                                                                    
Revenue,  Less  North  Slope  Refunded  and  Carried-Forward                                                                    
Credits."  The  slide related  to  FY  15 and  attempted  to                                                                    
incorporate other  sources of state  revenue outside  of the                                                                    
production   tax  including   royalty,  property   tax,  and                                                                    
corporate income tax;  it included the impact  on revenue at                                                                    
oil prices ranging from $50 to $150 per barrel.                                                                                 
                                                                                                                                
3:15:16 PM                                                                                                                    
                                                                                                                                
Representative  Gara hoped  to see  the state  to receive  a                                                                    
more substantial share  of the revenue when  oil prices were                                                                    
high and  oil companies were  making record profits.  He did                                                                    
not  believe the  state would  have  sufficient revenues  to                                                                    
fund schools and  other projects over the next  10 years. He                                                                    
wondered about  an option that  would allow the  state share                                                                    
in the benefits  when oil prices were high. He  asked if DOR                                                                    
had modeled a  scenario that would provide the  state with a                                                                    
more  substantial   share  as   oil  prices   increased.  He                                                                    
suggested  an   increase  in  revenue  to   the  state  when                                                                    
companies made $50-plus per barrel  profit. He referred to a                                                                    
proposal  the   prior  year   to  include   a  stair-stepped                                                                    
progressivity  feature and  wondered  if the  administration                                                                    
had considered it as a possibility.                                                                                             
                                                                                                                                
Mr.  Pawlowski  replied  that   under  the  legislation  the                                                                    
effective tax  rate and government take  increased as prices                                                                    
rose.  He  stated  that  whether   the  bill  increased  the                                                                    
government  take to  levels preferred  by committee  members                                                                    
was a policy call the  administration was willing to work on                                                                    
with the  legislature. He furthered  that the  state's share                                                                    
increased   with   higher   prices  without   the   problems                                                                    
associated with the progressivity mechanism.                                                                                    
                                                                                                                                
Mr.  Tangeman  stated  that  if  the  current  decline  path                                                                    
continued the state would be  limited in its ability to fund                                                                    
basic services  5 to 10 years  in the future. He  pointed to                                                                    
page  43  of  the  2012  Fall  Revenue  Source  Book,  which                                                                    
projected production of 250,000 barrels  per day in 2022. He                                                                    
stressed  that  it  was  critical  to  show  an  upside  and                                                                    
potential in the  state in order to layer on  new oil to the                                                                    
legacy fields.  The department believed  it was  critical to                                                                    
turn  the  decline  rate  around  in  order  to  fund  basic                                                                    
services in 10 years.                                                                                                           
                                                                                                                                
3:20:06 PM                                                                                                                    
                                                                                                                                
Representative  Gara   communicated  that   every  committee                                                                    
member wished  to reverse  the decline  rate; he  noted that                                                                    
there  were  varying views  on  how  to  meet the  goal.  He                                                                    
understood  the  department wanted  to  move  away from  the                                                                    
current  progressivity mechanism.  He stated  that the  bill                                                                    
would  reduce  tax rates  down  between  17 percent  and  25                                                                    
percent  and would  cap out  at  33 percent  even if  prices                                                                    
reached  $200   per  barrel.  He  wondered   if  there  were                                                                    
proposals  that  would  allow  the state  to  share  in  the                                                                    
profits in  a way that  would not damage oil  production. He                                                                    
believed a 17 percent tax on new oil was low.                                                                                   
                                                                                                                                
Mr. Pawlowski  believed the administration had  been open to                                                                    
all  input from  each committee  throughout the  process. He                                                                    
agreed  that government  take was  an important  concept; at                                                                    
what point  production and economics  would not be  hurt was                                                                    
taken into  account. He stated  that the  administration was                                                                    
willing to work with the committee and its members.                                                                             
                                                                                                                                
Representative  Gara  replied  that   he  would  schedule  a                                                                    
meeting with the department.                                                                                                    
                                                                                                                                
Representative Costello  commented that she  received emails                                                                    
from constituents  who did  not want  changes made  to ACES.                                                                    
She  believed there  was  a compelling  reason  and need  to                                                                    
explain what would  happen if nothing was  done [to decrease                                                                    
the current decline rate].  She appreciated the department's                                                                    
offer to work with committee members on the bill.                                                                               
                                                                                                                                
Co-Chair Austerman pointed to slide  21. He discussed that a                                                                    
prior version of the bill  passed by the Senate had included                                                                    
a  35 percent  tax  rate. He  wondered  if the  department's                                                                    
model could insert the 35 percent  tax to show what it would                                                                    
look like. He  requested a breakout between the  flat $5 per                                                                    
barrel  and  the sliding  scale  based  on the  department's                                                                    
projections related to volume and dollar value.                                                                                 
                                                                                                                                
Mr.  Pawlowski  agreed.  He noted  that  Mr.  Stickel  could                                                                    
provide a  verbal answer related  to the  difference between                                                                    
the 33 percent and 35 percent tax rates.                                                                                        
                                                                                                                                
Co-Chair Austerman requested the  information in writing for                                                                    
all committee members.                                                                                                          
                                                                                                                                
3:24:21 PM                                                                                                                    
                                                                                                                                
Representative  Gara pointed  to  a provision  added in  the                                                                    
prior committee [House Resources  Committee] that would mean                                                                    
the  state   would  rely  on   company  and   joint  billing                                                                    
statements in  auditing companies.  He recalled that  in the                                                                    
past most  Democrats had wanted  a gross tax because  it was                                                                    
relatively  straight forward.  He  pointed  to concern  that                                                                    
under the  profits tax some companies  could overstate their                                                                    
costs, understate  revenue, or  qualify something for  a tax                                                                    
credit that  should not qualify.  He wanted DOR to  have the                                                                    
most power possible  to ensure that the  state was receiving                                                                    
its  intended  return  under the  legislation.  He  wondered                                                                    
whether  the  department  was   more  comfortable  with  the                                                                    
current  auditing  system  than  it was  with  the  proposed                                                                    
auditing provision.                                                                                                             
                                                                                                                                
Mr. Tangeman replied  that the department had  access to and                                                                    
used the  joint interest  billings; many other  "tools" were                                                                    
also available to the department.  He furthered that from an                                                                    
audit perspective it was necessary  to rely on all available                                                                    
tools in order to get a job done.                                                                                               
                                                                                                                                
Representative Gara asked whether  Mr. Tangeman would prefer                                                                    
the current  auditing system or  the one included  under the                                                                    
legislation that  was limiting.  Mr. Tangeman  answered that                                                                    
the provision had  not been in the  governor's original bill                                                                    
and had been added by the previous committee.                                                                                   
                                                                                                                                
3:27:49 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman looked  at a  provision related  to lease                                                                    
expenditures  and  a  change  on pages  26  through  28.  He                                                                    
discussed past  concern related to "gold  plating" and items                                                                    
allowable under  lease expenditures. He observed  that there                                                                    
were considerable  changes in the legislation  and asked for                                                                    
an analysis from the department.                                                                                                
                                                                                                                                
Mr. Tangeman  replied that joint interest  billings could be                                                                    
very  lengthy  and were  shared  between  two companies.  He                                                                    
expounded  that  the  department  did  have  access  to  the                                                                    
billings, but they were not  used by all companies. He asked                                                                    
for clarification on the request.                                                                                               
                                                                                                                                
Vice-Chair  Neuman referred  to a  subsection (B)(3)  in the                                                                    
legislation, which  stated that  costs must be  direct costs                                                                    
for  exploring, developing,  and producing.  He stated  that                                                                    
each  producer  was   different;  current  statute  included                                                                    
direct   cost   per   individual  for   standard   allowable                                                                    
deductions  for  production  value.  He stated  that  a  new                                                                    
section  included   an  arms-length  clause  that   made  it                                                                    
possible to be owner of  the pipeline. He wondered about the                                                                    
best way to get the actual  cost to the state. He understood                                                                    
the  department  had  become  fairly  comfortable  with  the                                                                    
current system;  he wondered  how all  of the  changes would                                                                    
impact the department.                                                                                                          
                                                                                                                                
Mr.   Tangeman   answered   that    it   was   the   state's                                                                    
responsibility to have a relationship  with every tax payer;                                                                    
any  insights  provided  through the  documents  helped  the                                                                    
department do  its job. He relayed  that relying exclusively                                                                    
on   a   document   between  two   companies   limited   the                                                                    
department's  insight   into  the  information   needed.  He                                                                    
stressed  the  importance  of  the  one-to-one  relationship                                                                    
between the state and individual tax payers.                                                                                    
                                                                                                                                
3:31:54 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman  surmised that Mr. Tangeman  preferred the                                                                    
existing system.  Mr. Tangeman answered that  the department                                                                    
had  developed  the  existing  system  over  years  and  was                                                                    
comfortable where  it was and  where it was going  under the                                                                    
net tax system.                                                                                                                 
                                                                                                                                
Co-Chair Stoltze  remarked that the related  thought process                                                                    
and conversation would be ongoing.                                                                                              
                                                                                                                                
Representative Edgmon  looked at  slide 21  and asked  for a                                                                    
ballpark sketch on  how a base tax increase  from 33 percent                                                                    
to 35  percent would  impact the  data. Mr.  Stickel replied                                                                    
that once the  tax was put in place the  difference would be                                                                    
in the $200 million to $250 million per year range.                                                                             
                                                                                                                                
Representative  Edgmon noted  he  had misunderstood  earlier                                                                    
comments and  had thought  the difference  in the  base rate                                                                    
from  25 percent  to 33  percent  was $200  million to  $250                                                                    
million.                                                                                                                        
                                                                                                                                
Co-Chair  Stoltze  asked  the   department  to  clarify  the                                                                    
information. Mr.  Stickel answered that  line 2 of  slide 21                                                                    
showed the  increase in revenue  to the state from  the base                                                                    
tax. He detailed that moving from  a base rate of 25 percent                                                                    
up to  33 percent would  increase revenue  in FY 15  by $850                                                                    
million. He furthered that moving  from a rate of 33 percent                                                                    
up  to 35  percent would  increase revenue  by approximately                                                                    
$200 million  to $250  million on top  of the  $850 million.                                                                    
The impact  of moving from a  base rate of 25  percent up to                                                                    
33 percent  would be slightly  over $1 billion  in increased                                                                    
revenue.                                                                                                                        
                                                                                                                                
Representative  Munoz understood  that a  close relationship                                                                    
existed between changes  to the base rate tax and  the $5 to                                                                    
$8 per  barrel credit. She  asked for the per  barrel credit                                                                    
impact to  be included in  the department's modeling  of the                                                                    
change between a 33 percent and 35 percent base rate.                                                                           
                                                                                                                                
SB  21  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
3:35:41 PM                                                                                                                    
RECESSED                                                                                                                        
                                                                                                                                
4:08:05 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 193                                                                                                            
                                                                                                                                
     "An Act relating to the joint administration of                                                                            
     tobacco taxes by the state and a municipality."                                                                            
                                                                                                                                
4:09:50 PM                                                                                                                    
                                                                                                                                
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
committee  substitute for  HB  193,  Work Draft  28-LS0714\U                                                                    
(Bullock, 4/5/13).                                                                                                              
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
REPRESENTATIVE LANCE  PRUITT, SPONSOR, shared that  the bill                                                                    
had  come to  him  at  the request  of  the municipality  of                                                                    
Anchorage.  He  clarified that  the  bill  did not  increase                                                                    
taxes; it  was about communication and  potentially lowering                                                                    
property taxes.  He stated that the  legislation would allow                                                                    
communication   between   municipalities   and   the   state                                                                    
regarding  tax  returns,  audits,   etc.  He  detailed  that                                                                    
currently  the state  could share  the information  with the                                                                    
federal   government,  other   states,   and  the   Canadian                                                                    
government, but  not with  municipalities within  the state.                                                                    
He  noted  that  the  City of  Anchorage  treasurer  [Daniel                                                                    
Moore]  was  available  via teleconference  to  discuss  the                                                                    
issue.                                                                                                                          
                                                                                                                                
Representative Pruitt  relayed that the second  piece of the                                                                    
legislation  allowed  the  Department of  Revenue  (DOR)  to                                                                    
partner with  cities to  create a stamp  tax on  tobacco. He                                                                    
explained  that currently  the  state  received tobacco  tax                                                                    
from   wholesalers  and   cities  received   the  tax   from                                                                    
retailers. The  bill would enable  the city to  partner with                                                                    
the  state  and  the  tax   would  be  administered  at  the                                                                    
wholesale  level, which  would eliminate  the potential  for                                                                    
tax  evasion  at  the  retail  level.  The  bill's  language                                                                    
assured that the  money would be provided  by a municipality                                                                    
to  cover the  costs. He  shared that  if 5  percent of  tax                                                                    
evasion could  be recovered it would  equal approximately $1                                                                    
million for the City of Anchorage.                                                                                              
                                                                                                                                
4:13:37 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Work Draft 28-LS0714\U was ADOPTED.                                                                          
                                                                                                                                
Representative  Wilson   asked  whether  people   could  buy                                                                    
cigarettes online  to avoid  the tax.  Representative Pruitt                                                                    
deferred the question to DOR.                                                                                                   
                                                                                                                                
JOHANNA BALES, DEPUTY DIRECTOR,  TAX DIVISION, DEPARTMENT OF                                                                    
REVENUE, replied  that the state  currently had  a cigarette                                                                    
tax stamp  that was purchased by  distributors. She detailed                                                                    
that  individuals  who   purchased  cigarettes  online  were                                                                    
required to pay  tax to the department;  individuals had the                                                                    
same tax liability as distributors.                                                                                             
                                                                                                                                
Co-Chair  Stoltze  noted  that DOR  had  provided  testimony                                                                    
related to the  tracking of cigarette taxes in  the past. He                                                                    
asked how the department tracked  the tax and about measures                                                                    
it had  used. Ms.  Bales relayed  that federal  law required                                                                    
internet sellers to provide  the department with information                                                                    
when  individuals purchased  cigarettes  online. She  stated                                                                    
that over  2,000 Alaskans  had purchased  cigarettes online;                                                                    
the department had sent the  individuals tax bills that they                                                                    
were required to pay.                                                                                                           
                                                                                                                                
Co-Chair Stoltze  asked whether  the process had  been under                                                                    
an amnesty  program. Ms. Bales  replied that  the department                                                                    
had waived all penalties and had generous payment plans.                                                                        
                                                                                                                                
DANIEL  MOORE, CITY  TREASURER,  MUNICIPALITY OF  ANCHORAGE,                                                                    
spoke in  support of  the legislation.  He relayed  that the                                                                    
city's  tobacco tax  was currently  collected without  a tax                                                                    
stamp. He  stated that  in the  future the  city may  want a                                                                    
tobacco tax stamp. The city  was aware the state already had                                                                    
a tobacco  stamp. The private tobacco  distribution industry                                                                    
had  strongly recommended  that if  Anchorage had  a tobacco                                                                    
stamp that  it should  be a  joint single  combination stamp                                                                    
that would  require the  city to work  through the  state to                                                                    
distribute and sell the stamps to distributors.                                                                                 
                                                                                                                                
4:18:43 PM                                                                                                                    
                                                                                                                                
Representative  Munoz asked  for  an  explanation about  the                                                                    
meaning of stamp relating to cigarettes.                                                                                        
                                                                                                                                
Co-Chair  Stoltze asked  Representative Thompson  to provide                                                                    
an  example. Representative  Thompson  read a  tax stamp  on                                                                    
pack of cigarettes to the committee.                                                                                            
                                                                                                                                
Representative Thompson asked whether  the bill would change                                                                    
the City  of Anchorage's  retail tax  system to  a wholesale                                                                    
level. Mr. Moore replied that  currently the tax was done at                                                                    
a  wholesale level;  it was  an  excise tax  applied to  any                                                                    
volume  of cigarette  product that  came into  Anchorage for                                                                    
sale. He stated that the retailers  were at the other end of                                                                    
the  distribution  chain;  Anchorage did  not  directly  tax                                                                    
retailers.   The  tobacco   stamp   would   create  a   more                                                                    
identifiable trail showing  that the tax had  been paid; the                                                                    
stamp would  eliminate situations  where an entity  bought a                                                                    
product in  Anchorage, claimed it  would be sold  outside of                                                                    
the city,  and then brought  the product back into  the city                                                                    
for  sale  to retailers.  The  goal  was to  discourage  the                                                                    
potential for tax evasion.                                                                                                      
                                                                                                                                
Representative  Thompson   had  been  concerned   about  the                                                                    
possibility of  sales outside  of Anchorage.  He appreciated                                                                    
Mr. Moore's explanation.                                                                                                        
                                                                                                                                
4:21:15 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  wondered about examples  of similar                                                                    
tax  collections  that  involved  municipal  and  state  tax                                                                    
collections. Ms. Bales answered  that the department did not                                                                    
currently collect taxes for  other localities. She explained                                                                    
that  taxes  were  collected through  revenue  sharing.  She                                                                    
pointed to fish tax as an  example; a portion of the tax was                                                                    
shared  with the  location where  the fish  was caught.  She                                                                    
stated  that the  form  of taxation  was  utilized in  other                                                                    
states, specifically for sales tax.                                                                                             
                                                                                                                                
Representative Kawasaki asked whether  the bill would impact                                                                    
revenue sharing or  caps on local tax or  revenue. Ms. Bales                                                                    
replied  that  cigarette tax  was  not  included in  revenue                                                                    
sharing.  The  Municipality  of Anchorage  and  seven  other                                                                    
localities within  the state had their  own cigarette taxes.                                                                    
She did  not believe the  cigarette tax would work  into the                                                                    
tax  cap for  Anchorage. She  deferred the  question to  Mr.                                                                    
Moore for additional detail.                                                                                                    
                                                                                                                                
Co-Chair  Stoltze clarified  that  the bill  related to  the                                                                    
broader category  of tobacco  taxes and  was not  limited to                                                                    
cigarette taxes.  He detailed that cigarette  taxes provided                                                                    
$31.4 million  in unrestricted  general fund  (UGF) revenue;                                                                    
whereas non-cigarette tobacco  taxes provided $14.4 million.                                                                    
He noted  that the  taxes brought in  more UGF  revenue than                                                                    
the commercial fishing industry.                                                                                                
                                                                                                                                
Mr. Moore  relayed that tobacco  tax fell under the  tax cap                                                                    
in Anchorage. He stated that  any type of additional revenue                                                                    
received as  a result of  tightening enforcement would  be a                                                                    
dollar  for dollar  tradeoff with  property taxes;  a dollar                                                                    
more in  tobacco tax  would mean a  dollar less  in property                                                                    
tax.                                                                                                                            
                                                                                                                                
Representative Holmes asked for  clarification on the fiscal                                                                    
note from  DOR. She  pointed to the  total cost  of $135,100                                                                    
coming from  statutory designated  funds. She  observed that                                                                    
because the state could be  reimbursed by municipalities the                                                                    
total  cost to  the  state  would be  $0.00.  She asked  for                                                                    
verification  that  the funds  would  be  reimbursed to  the                                                                    
state.                                                                                                                          
                                                                                                                                
Representative Pruitt replied  that the CS would  have a new                                                                    
fiscal note showing program receipts.                                                                                           
                                                                                                                                
Representative  Holmes  asked  for confirmation  that  there                                                                    
would be  no fiscal impact  to the state. Ms.  Bales replied                                                                    
that  the forthcoming  fiscal note  would show  that revenue                                                                    
would  come from  program receipts.  The  fiscal note  would                                                                    
show  an  increase  related  to  the  creation  of  one  new                                                                    
position,  but the  total state  expenditure would  be zero;                                                                    
the additional  fees would  be collected  from participating                                                                    
municipalities.                                                                                                                 
                                                                                                                                
4:27:35 PM                                                                                                                    
                                                                                                                                
Co-Chair Austerman  asked whether  the $135,000  would cover                                                                    
all municipalities  with a cigarette  sales tax  that wanted                                                                    
to  participate. Ms.  Bales answered  that  the state  would                                                                    
continue to issue same number  of cigarette tax stamps as it                                                                    
did  currently;  there  would be  additional  fees  and  new                                                                    
designs  if all  municipalities  chose  to participate.  She                                                                    
furthered that most of the  costs would be associated with a                                                                    
position  tasked  with tracking  all  of  the cigarette  tax                                                                    
stamps. The  goal was to have  a limit of one  tax stamp per                                                                    
pack of  cigarettes to prevent additional  costs incurred by                                                                    
distributors. The  department expected  that the  total cost                                                                    
would not exceed $135,000.                                                                                                      
                                                                                                                                
Co-Chair Austerman  asked for verification that  there would                                                                    
be  one   state/municipal  stamp   given  to  each   of  the                                                                    
participating   communities.  Ms.   Bales  replied   in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Co-Chair  Austerman asked  for confirmation  that DOR  would                                                                    
collect   the    fees   and   distribute   them    back   to                                                                    
municipalities. Ms.  Bales answered in the  affirmative. She                                                                    
elaborated that revenue was collected  when stamps were sold                                                                    
to  distributors; there  would be  different inventories  of                                                                    
stamps for  sale and  DOR would track  which portion  of the                                                                    
sale was for either state or municipal revenue.                                                                                 
                                                                                                                                
Co-Chair Austerman looked  at page 2 of the  CS and observed                                                                    
that the  bill indicated  that the department  "may" collect                                                                    
funds  from municipalities;  there was  nothing in  the bill                                                                    
that required  the department to  collect funds.  He assumed                                                                    
the intent was for DOR to collect the funds.                                                                                    
                                                                                                                                
Representative Pruitt  replied that  he had worked  with the                                                                    
department on  the bill language  and it was the  intent for                                                                    
the state to have no financial burden.                                                                                          
                                                                                                                                
Co-Chair Austerman  asked whether  the sponsor  would object                                                                    
if  the word  "may" was  changed to  "shall." Representative                                                                    
Pruitt  was  agreeable  to  the   change  if  no  unintended                                                                    
consequences were identified by DOR.                                                                                            
                                                                                                                                
Co-Chair  Stoltze did  not see  a problem  with the  current                                                                    
language.   He  furthered   that   participation  would   be                                                                    
initiated by  municipalities and it  would be in  their best                                                                    
interest to  work with  the state.  He wondered  if changing                                                                    
the language to  "shall" would create a burden.  He was more                                                                    
comfortable with the word "may."                                                                                                
                                                                                                                                
4:31:58 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  asked the  department to weigh  in on                                                                    
the issue. Ms. Bales replied  that the department would have                                                                    
no problem  with the change  to shall and saw  no unintended                                                                    
consequences  that   would  result  from  the   change.  The                                                                    
department would  ensure that costs to  municipalities would                                                                    
be predicated on the number of stamps sold in the area.                                                                         
                                                                                                                                
Co-Chair  Stoltze asked  whether  the change  would force  a                                                                    
municipality into a relationship with the state.                                                                                
                                                                                                                                
Co-Chair Austerman looked  at line 4 on page 2  of the bill,                                                                    
which  included language  related to  the agreement  between                                                                    
DOR and a municipality. He  was more concerned about line 12                                                                    
related to  reimbursement. He  did not  have a  problem with                                                                    
"may" in line 4.                                                                                                                
                                                                                                                                
Representative  Pruitt  confirmed  that the  intent  was  to                                                                    
ensure that  a municipality willingly and  knowingly took on                                                                    
the cost burden.                                                                                                                
                                                                                                                                
Co-Chair Stoltze  communicated that  the amendment  would be                                                                    
offered at a later portion of the meeting.                                                                                      
                                                                                                                                
Representative Kawasaki referred to  testimony from the city                                                                    
and municipality  [of Anchorage]  about lost revenue  due to                                                                    
tax evasion. He asked  about the department's record related                                                                    
to tax  collection. Ms.  Bales answered  that the  state did                                                                    
not have a  tax stamp until 2004. She shared  that there had                                                                    
been a 24  percent increase in cigarette tax  revenue in the                                                                    
first full  year after the  stamp's enactment.  She referred                                                                    
to discussions  with the  Municipality of  Anchorage related                                                                    
to  dealing  with  tax  evasion;   following  the  trail  of                                                                    
cigarette tax sales through  invoices had been unsuccessful.                                                                    
She relayed  that the tax  stamp had allowed  for successful                                                                    
enforcement.                                                                                                                    
                                                                                                                                
4:35:01 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked what would happen  if Anchorage                                                                    
was the  only municipality interested in  participating. Ms.                                                                    
Bales replied that the department  would continue to issue a                                                                    
state-only cigarette  tax stamp for cigarettes  sold outside                                                                    
of  the  municipality  and  would have  a  joint  stamp  for                                                                    
cigarettes  sold within  the  municipality.  She added  that                                                                    
there would be  no problem if a municipality did  or did not                                                                    
want to have the tax stamp.                                                                                                     
                                                                                                                                
Representative Wilson  wanted to  make sure the  state would                                                                    
not need  to hire a  position if only one  community decided                                                                    
to participate.                                                                                                                 
                                                                                                                                
Co-Chair Stoltze  asked Mr.  Moore about  conversations with                                                                    
other   jurisdictions.   He   noted  that   Mat-Su   had   a                                                                    
cigarette/tobacco  tax. Mr.  Moore replied  that he  had not                                                                    
had  recent conversations  with other  jurisdictions on  the                                                                    
subject;  conversations  had  been  primarily  with  private                                                                    
sector wholesalers.  He surmised  that if Anchorage  was the                                                                    
only entity in the state  pursuing a joint tobacco tax stamp                                                                    
it would receive  a disproportionate share of  the costs. He                                                                    
furthered that  the municipality  would work with  the state                                                                    
to determine  whether a full-time or  part-time person would                                                                    
be  needed.  He  continued  that  there  would  be  a  joint                                                                    
agreement  between   the  state  and  the   municipality  to                                                                    
determine the  terms. He  elaborated that  the state  was in                                                                    
the driver's seat  and would tell the  jurisdiction what the                                                                    
cost would  be; the  municipality would then  decide whether                                                                    
it agreed to  the terms. The municipality would  look at the                                                                    
cost and potential revenue that  would be generated from the                                                                    
stamps prior to a decision.                                                                                                     
                                                                                                                                
Co-Chair Stoltze  commented that Anchorage should  hope that                                                                    
other cities  would choose to participate  because DOR would                                                                    
hire a person if authorized by the legislature.                                                                                 
                                                                                                                                
Representative  Thompson  discussed  that  Fairbanks  had  a                                                                    
former  similar  tax;  there  had been  no  tax  charged  on                                                                    
cigarettes  shipped  out  of  the city.  He  wondered  if  a                                                                    
municipal stamp  would be  required on  the packets  sold in                                                                    
stores such  as Costco.  He thought  the issue  could become                                                                    
confusing.                                                                                                                      
                                                                                                                                
Mr.  Moore answered  that the  municipality had  asked major                                                                    
tobacco distributors including  Sam's Club, Costco, Northern                                                                    
Sales,  and others  about how  the change  would impact  the                                                                    
stores. The entities had responded  that a joint stamp would                                                                    
be  necessary.   He  furthered  that  some   of  the  member                                                                    
wholesalers (e.g. Costco) would  need to have two separately                                                                    
managed  secured inventories  for the  state-only stamp  and                                                                    
the joint state/city stamp.                                                                                                     
                                                                                                                                
4:39:20 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki stated  that  there were  currently                                                                    
six municipalities  that taxed  tobacco. He wondered  if the                                                                    
bill would  encourage other  municipalities to  tax tobacco,                                                                    
given  that  the state  would  take  on the  most  expensive                                                                    
aspect of administering the tax.                                                                                                
                                                                                                                                
Representative Pruitt  replied that some  municipalities may                                                                    
make the decision to begin  taxing tobacco. He noted that in                                                                    
Anchorage  there was  currently substantial  revenue set  in                                                                    
place that  was not obtained, which  meant others throughout                                                                    
the city  had to pick up  the costs through property  tax or                                                                    
other methods.  He acknowledged  that the  bill may  make it                                                                    
easier  for   other  municipalities   to  tax   tobacco  and                                                                    
recognized  that many  people would  benefit in  communities                                                                    
currently levying tobacco tax as well.                                                                                          
                                                                                                                                
Representative  Thompson could  see where  the change  would                                                                    
work for Anchorage, but he did  not know if it would work in                                                                    
Fairbanks.  He  explained  that  the  Fairbanks  North  Star                                                                    
Borough had a cigarette tax,  within city limits there was a                                                                    
separate sales tax, and there was also a state tax.                                                                             
                                                                                                                                
Ms. Bales commented  on the concerns. She  stated that there                                                                    
was  nothing currently  that would  preclude a  municipality                                                                    
from enacting  a cigarette  tax or  from having  a cigarette                                                                    
tax  stamp.  She  pointed  to the  concern  that  without  a                                                                    
cooperative  agreement  with  the state  every  municipality                                                                    
could enact its own stamp,  which would put a requirement on                                                                    
distributors. The bill would provide  a mechanism to make it                                                                    
easier    (particularly    for   distributors)    if    more                                                                    
municipalities decided to tax tobacco.                                                                                          
                                                                                                                                
4:42:20 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze CLOSED the public testimony.                                                                                   
                                                                                                                                
Co-Chair Austerman MOVED to ADOPT  a conceptual amendment on                                                                    
page  2,  line  12  that  would change  the  word  "may"  to                                                                    
"shall." There being NO OBJECTION, it was so ordered.                                                                           
                                                                                                                                
Representative Costello  requested to amend  the replacement                                                                    
fiscal note.  She discussed  that page 2  of the  DOR fiscal                                                                    
note  specified  that  $50,000 would  be  used  annually  to                                                                    
purchase cigarette  stamps. She  pointed to a  services line                                                                    
of $54,700  and believed that  $50,000 of the  amount should                                                                    
be moved to the commodities section of the note.                                                                                
                                                                                                                                
Co-Chair  Stoltze   clarified  that  general   fund  program                                                                    
receipts   should  be   changed   to  statutory   designated                                                                    
receipts.                                                                                                                       
                                                                                                                                
Representative Costello responded that  the updated note did                                                                    
reflect  the  change  to  statutory  program  receipts.  She                                                                    
discussed  the zero  note from  the Department  of Commerce,                                                                    
Community  and Economic  Development and  the Department  of                                                                    
Revenue replacement  note [FN3],  which showed  $135,100 for                                                                    
FY 14 through FY 19 in statutorily designated funds.                                                                            
                                                                                                                                
Representative  Costello MOVED  to REPORT  CSHB 193(FIN)  as                                                                    
amended  out of  committee  with individual  recommendations                                                                    
and   the  accompanying   fiscal  notes.   There  being   NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
CSHB  193(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass"  recommendation and  with one  new fiscal  impact note                                                                    
from  Department of  Revenue  and  one previously  published                                                                    
zero note: FN1 (CED).                                                                                                           
                                                                                                                                
4:46:25 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:03:54 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 76                                                                                                             
                                                                                                                                
     "An  Act  relating  to  electronic  filing  of  certain                                                                    
     information with the Department  of Labor and Workforce                                                                    
     Development;  relating  to  surcharges,  rate  increase                                                                    
     reduction,  prohibition   on  the  relief   of  certain                                                                    
     charges, the  unemployment trust fund account,  and the                                                                    
     offset of certain  unemployment compensation debt under                                                                    
     the  Alaska Employment  Security Act;  relating to  the                                                                    
     definition of 'covered  unemployment compensation debt'                                                                    
     in the  Alaska Employment  Security Act;  and providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
DIANE   BLUMER,  COMMISSIONER,   DEPARTMENT  OF   LABOR  AND                                                                    
WORKFORCE DEVELOPMENT  (DLWD), introduced  department staff.                                                                    
She explained  that the  bill did  four things:  (1) allowed                                                                    
for  electronic   filing  of  reports  and   documents,  (2)                                                                    
improved  the  ability  to  recoup  fraudulent  unemployment                                                                    
insurance (UI) payments, (3)  adopted minor changes bringing                                                                    
the department  into compliance  with federal  law governing                                                                    
the UI  program, and (4) changed  how UI tax rates  were set                                                                    
in  order  to  keep  more  money in  the  hands  of  Alaskan                                                                    
employers  and employees.  The bill  would  keep more  money                                                                    
circulating  in the  state's  economy  while protecting  the                                                                    
integrity of the trust fund.                                                                                                    
                                                                                                                                
PAUL  DICK,  DIRECTOR,   DIVISION  OF  EMPLOYMENT  SECURITY,                                                                    
DEPARTMENT OF  LABOR AND  WORKFORCE DEVELOPMENT,  provided a                                                                    
sectional analysis of the bill.                                                                                                 
                                                                                                                                
     Section   1  adds   a   new   section,  AS   23.05.055,                                                                    
     authorizing  the  commissioner  to  allow  the  use  of                                                                    
    electronic filing methods in place of paper filing.                                                                         
                                                                                                                                
     Section   2  adds   a   new   section,  AS   23.20.021,                                                                    
     authorizing the  legislature to appropriate  money into                                                                    
     the unemployment trust fund account.                                                                                       
                                                                                                                                
     Section 3  adds a new  section, AS 23.20.279,  to bring                                                                    
     the state into conformity  with federal law, Public Law                                                                    
     112-40,  by  prohibiting  the   relief  of  charges  to                                                                    
     employers  when an  erroneous  payment of  unemployment                                                                    
     insurance  benefits  is  made  due  to  an  established                                                                    
     pattern of the  employer, or an agent  of the employer,                                                                    
     for  failing  to  respond timely  or  adequately  to  a                                                                    
     documented request for information  relating to a claim                                                                    
     for  unemployment  compensation. This  section  defines                                                                    
     "erroneous payment"  as a payment  made that  would not                                                                    
     have otherwise  been paid, but  was due to  the failure                                                                    
     of the  employer to respond timely  or adequately. This                                                                    
     section  also defines  "pattern of  failing" as  two or                                                                    
     more times or 2% or  more of all requests, whichever is                                                                    
     greater, during the prior year.                                                                                            
                                                                                                                                
     Section  4 amends  AS 23.20.290(c)  by adding  the word                                                                    
     "surcharge"   following   the  words   "fund   solvency                                                                    
     adjustment".                                                                                                               
                                                                                                                                
     Section  5   repeals  and  reenacts   AS  23.20.290(f),                                                                    
     replacing a table method  for determining fund solvency                                                                    
     adjustment surcharges  with a more  precise calculation                                                                    
     method. It  also eliminates the 0.3  limitation on fund                                                                    
     solvency  adjustment surcharge  decreases  in a  single                                                                    
     year.                                                                                                                      
                                                                                                                                
     Section   6  adds   a   new   section,  AS   23.20.291,                                                                    
     authorizing the  commissioner to  suspend, in  whole or                                                                    
     in part,  increases in unemployment tax  rates when the                                                                    
     "average  high cost  multiple," a  measure of  solvency                                                                    
     calculated by the U.S.  Department of Labor, Employment                                                                    
     and  Training Administration,  is  0.8  or greater  and                                                                    
     after consultation with the department's actuary.                                                                          
                                                                                                                                
     Section  7 amends  AS 23.20.390(f)  to bring  the state                                                                    
     into conformity  with federal  law, Public  Law 112-40,                                                                    
     by  removing the  department's authority  to waive  the                                                                    
     collection   of   a    penalty   established   due   to                                                                    
     misrepresentation and  requires that  a minimum  of 30%                                                                    
     of the  unemployment insurance penalties  collected due                                                                    
     to  misrepresentation  be  deposited into  the  state's                                                                    
     unemployment trust fund account.                                                                                           
                                                                                                                                
     Section 8  adds new section, AS  23.20.486 to authorize                                                                    
     the  department  to  offset  unemployment  compensation                                                                    
     debt against  a claimant's  federal income  tax refund.                                                                    
     This section  would allow the  state to  participate in                                                                    
     the federal treasury offset program.                                                                                       
                                                                                                                                
Mr. Dick elaborated on Section  7 and relayed that currently                                                                    
the  department  was required  to  put  100 percent  of  the                                                                    
penalty  collections   into  the  unemployment   trust  fund                                                                    
account (the  figure would  be changed  to 30  percent under                                                                    
the legislation).  He pointed to  Section 8 and  shared that                                                                    
there were  19 other  states currently participating  in the                                                                    
federal treasury  offset program;  the program  would enable                                                                    
the department to collect $500,000  per year and to allocate                                                                    
more money to the trust fund.                                                                                                   
                                                                                                                                
5:09:14 PM                                                                                                                    
                                                                                                                                
Mr. Dick continued with the sectional analysis:                                                                                 
                                                                                                                                
     Section  9  amends  AS  23.20.520,   by  adding  a  new                                                                    
     paragraph to define  "covered unemployment compensation                                                                    
     debt"   in  accordance   with  the   federal  statutory                                                                    
     definition.                                                                                                                
                                                                                                                                
     Section   10  effective   July  1,   2018  repeals   AS                                                                    
     23.20.291, added by section 6 of this bill.                                                                                
                                                                                                                                
     Section 11  amends state  uncodified law  by specifying                                                                    
     that AS  23.20.279, added  by section  3 of  this bill,                                                                    
     applies to overpaid  benefits established after October                                                                    
     21, 2013.                                                                                                                  
                                                                                                                                
     Section  12 specifies  that the  department will  adopt                                                                    
     necessary    regulations    to    implement    changes.                                                                    
     Regulations  will not  be effective  prior  to July  1,                                                                    
     2013.                                                                                                                      
                                                                                                                                
     Section  13 establishes  that section  12 takes  effect                                                                    
     immediately.                                                                                                               
                                                                                                                                
     Section  14  establishes  the effective  date  for  the                                                                    
     remaining sections of this Act as July 1, 2013.                                                                            
                                                                                                                                
5:10:08 PM                                                                                                                    
                                                                                                                                
CATHIE ROEMMICH, CEO, JUNEAU CHAMBER OF COMMERCE, spoke in                                                                      
support of the legislation. She read from a statement:                                                                          
                                                                                                                                
     Thank you  for all  of your efforts  to keep  our state                                                                    
     strong by  working for small business  growth. It's not                                                                    
     often  these days  we find  ways to  lower the  cost on                                                                    
     anything,  so  we  applaud the  governor  for  bringing                                                                    
     forward  the solvency  of  Alaska's Unemployment  Trust                                                                    
     Fund   Account.   The   Juneau  Chamber   of   Commerce                                                                    
     represents  nearly  400   business  members  and  their                                                                    
     employees.  It is  our  job to  promote  and support  a                                                                    
     positive  business climate,  not  only  in Juneau,  but                                                                    
     throughout the  state. Our members  support legislation                                                                    
     that  updates  and clarifies  laws  as  they relate  to                                                                    
     doing  business  in  an   effort  to  improve  Alaska's                                                                    
     business environment.  Therefore, we would like  to add                                                                    
     our support to House Bill  76. We are pleased that this                                                                    
     legislation will  ensure that  business owners  as well                                                                    
     as  Alaskan  workers  are  not  paying  more  to  state                                                                    
     government   in  unemployment   insurance  taxes   than                                                                    
     necessary.  The  Juneau  Chamber also  understands  the                                                                    
     importance of compliance  with the federal unemployment                                                                    
     insurance  laws.  Maintaining   a  significant  federal                                                                    
     Unemployment   Tax  Act   credit  that   our  employers                                                                    
     currently   receive  is   another  critical   piece  of                                                                    
     responsible    taxation.    The   federal    compliance                                                                    
     components  of  House  Bill   76  ensure  that  Alaskan                                                                    
     businesses  will  not  be sending  any  more  money  to                                                                    
     Washington  D.C. than  necessary  for the  unemployment                                                                    
     insurance  program.  We  are  also  supportive  of  the                                                                    
     greater efficiencies that the  Department of Labor will                                                                    
     be  able to  provide by  allowing electronic  filing of                                                                    
     our  unemployment claims.  Thank you  all for  the work                                                                    
     you do on behalf of Alaskans.                                                                                              
                                                                                                                                
5:11:56 PM                                                                                                                    
                                                                                                                                
BARBARA   HUFF    TUCKNESS,   DIRECTOR,    LEGISLATIVE   and                                                                    
GOVERNMENTAL  AFFIARS, TEAMSTERS  LOCAL  959, discussed  the                                                                    
organization's  membership. She  referred  to an  opposition                                                                    
letter  from  the Fairbanks  Chamber  of  Commerce (copy  on                                                                    
file).   She  relayed   that  the   organization  had   paid                                                                    
approximately  $36,000   in  unemployment  taxes   in  2012;                                                                    
employees  had paid  slightly over  $8,000. She  shared that                                                                    
Alaska was one  of three states where  employee and employer                                                                    
contributions went into the fund.  She communicated that the                                                                    
organization had concern  related to Section 6  of the House                                                                    
Labor  and  Commerce Committee  CS.  She  detailed that  the                                                                    
concern  with  Section 6  related  to  the amount  of  money                                                                    
employers and  employees would  pay into  the fund.  She had                                                                    
sent DLWD questions  related to how the  rate was calculated                                                                    
and  how the  change would  impact employers  and employees.                                                                    
She read a  specific question that had  been raised followed                                                                    
by a response from DLWD:                                                                                                        
                                                                                                                                
     Q: If  the rate  increases are suspended  as referenced                                                                    
     in Section 5 [Section 6 in  the current CS] of the bill                                                                    
     and  the average  high cost  multiple  falls below  the                                                                    
     trigger, won't employers  and employees subsequently be                                                                    
     required to pay more than  what they would have had the                                                                    
     earlier rate increase not been suspended.                                                                                  
                                                                                                                                
     A:  If  rate  increases  are  suspended  employers  and                                                                    
     employees  would be  required to  pay slightly  more in                                                                    
     subsequent years than they would  have if the increases                                                                    
     had not been  suspended in the earlier  years. Over the                                                                    
     long-term, the  amount paid by employers  and employees                                                                    
     would be about  the same or slightly  less if increases                                                                    
     were  never suspended.  Any suspension  would have  the                                                                    
     effect of deferring suspended taxes that would be                                                                          
     absorbed over a multiple of years following.                                                                               
                                                                                                                                
Ms. Huff Tuckness was not  concerned with any other sections                                                                    
of the bill.                                                                                                                    
                                                                                                                                
5:16:21 PM                                                                                                                    
                                                                                                                                
Ms.  Huff Tuckness  stressed that  the  current formula  had                                                                    
worked  well  since the  1980s.  The  concern related  to  a                                                                    
potential impact on a fund  that was currently running well.                                                                    
She  encouraged  the  committee's consideration  related  to                                                                    
Section 6.                                                                                                                      
                                                                                                                                
Representative   Holmes   asked  what   the   organization's                                                                    
preference  was  related to  Section  6.  Ms. Huff  Tuckness                                                                    
replied that the organization would  prefer that the section                                                                    
was  removed  from  the  legislation.  She  noted  that  the                                                                    
removal of  the section  would mean there  would not  be any                                                                    
suspensions of what employers or employees would pay.                                                                           
                                                                                                                                
Representative  Gara  asked  whether   Section  6  could  be                                                                    
rewritten  so  that the  regular  rate  would go  back  into                                                                    
effect  when   the  fund's  surplus  dissipated.   Ms.  Huff                                                                    
Tuckness felt  that she  was not  the appropriate  person to                                                                    
respond to the  question. She referred to a  question by the                                                                    
organization  about  how a  surplus  in  the fund  would  be                                                                    
defined. She  believed the questions fell  under the purview                                                                    
of the  department or the  creator of the  original formula.                                                                    
She added that  the UI fund paid for  some great educational                                                                    
programs  throughout the  state  and  made contributions  to                                                                    
unemployed individuals.                                                                                                         
                                                                                                                                
Representative Gara  wanted to ensure  the fund was  able to                                                                    
continue paying for  items it funded. He asked  if Ms. Huff-                                                                    
Tuckness disagreed that the fund currently had a surplus.                                                                       
                                                                                                                                
5:20:02 PM                                                                                                                    
                                                                                                                                
Ms. Huff  Tuckness did not  agree that there was  a surplus.                                                                    
She  elaborated  that fund  contributions  were  based on  a                                                                    
formula  that had  been established  in the  1980s that  had                                                                    
successfully  ensured adequate  contributions when  economic                                                                    
times in  the state  were bad or  good. She  discussed rates                                                                    
over  the past  10  or  20 years  and  referred  to a  chart                                                                    
showing slight  increases and decreases over  the years. She                                                                    
noted that the current formula ran smoothly.                                                                                    
                                                                                                                                
Vice-Chair  Neuman   asked  whether   the  issue   had  been                                                                    
addressed in the  House Labor and Commerce  Committee and if                                                                    
so, why the  committee had decided to keep  the section. Ms.                                                                    
Huff Tuckness  replied that she  had brought the  concern to                                                                    
the  prior  committee.  She   believed  a  sunset  provision                                                                    
amendment  passed  by  the  prior committee  was  a  way  to                                                                    
address any negative issues should  they occur. She surmised                                                                    
that if the  bill passed with the provision  intact and none                                                                    
of the concerns  came to fruition there may be  an effort to                                                                    
either extend or remove the repeal.                                                                                             
                                                                                                                                
Representative  Costello requested  that  the  bill be  held                                                                    
after public  testimony for further review.  She offered her                                                                    
time to help resolve the issue.                                                                                                 
                                                                                                                                
5:23:26 PM                                                                                                                    
                                                                                                                                
PAUL GROSSI, ALASKA PIPE TRADES  AND IRON WORKERS OF ALASKA,                                                                    
JUNEAU,  followed  up  on testimony  provided  by  Ms.  Huff                                                                    
Tuckness related to  Section 6 and stated that  there may be                                                                    
a surplus  in the fund currently,  but there was no  way for                                                                    
him  to  know.  He  surmised that  the  Legislative  Finance                                                                    
Division director  was probably  the expert. He  stated that                                                                    
there may be  a way of tweaking the formula  if the fund was                                                                    
over funded  in order  to give employers  a break;  the fund                                                                    
had been  in effect for over  30 years and had  worked close                                                                    
to perfectly. He  cautioned to be careful  with changing the                                                                    
formula because if  there was a relief of an  increase and a                                                                    
downturn in the economy caused  the fund to become insolvent                                                                    
the employers  would be on  the hook. He explained  that the                                                                    
federal government would have to  pay the benefits and would                                                                    
require reimbursement with interest  and the fund would need                                                                    
to be  made solvent again.  He did  not believe the  sky was                                                                    
falling, but the current system  had worked for a long-time.                                                                    
He  suggested  that  the committee  look  further  into  the                                                                    
issue.                                                                                                                          
                                                                                                                                
5:26:42 PM                                                                                                                    
                                                                                                                                
Representative Wilson  observed that  Section 6  appeared to                                                                    
have checks and balances. She  furthered that if the formula                                                                    
were to be changed it would  be looked at again in the first                                                                    
year  and   subsequent  years  to  ensure   it  was  running                                                                    
smoothly.                                                                                                                       
                                                                                                                                
Mr.  Grossi  agreed  that there  were  checks  included  the                                                                    
Section.  He communicated  that  when the  formula had  gone                                                                    
into effect  in 1979  or 1980  there had  been significantly                                                                    
fewer  employers and  employees. He  stated that  it may  be                                                                    
possible to tweak the formula  to give employers a break for                                                                    
a long period of time.  He noted that the financial analysts                                                                    
would be better equipped to provide that information.                                                                           
                                                                                                                                
5:28:45 PM                                                                                                                    
                                                                                                                                
DENNIS   DEWITT,   NATIONAL    FEDERATION   OF   INDEPENDENT                                                                    
BUSINESSES,   JUNEAU,    shared   information    about   the                                                                    
organization. He spoke in strong  support of the legislation                                                                    
including  Section  6.  He shared  that  the  organization's                                                                    
national  consultant  had  looked  at the  section  and  was                                                                    
comfortable that  the slight formula  tweak would  not cause                                                                    
any trouble for  employers. He detailed if  no employer were                                                                    
able  to pay  any UI  taxes the  fund would  still have  the                                                                    
ability to  pay out funds  equal to  those paid in  the last                                                                    
year for  another 1.75 years. The  organization believed the                                                                    
amount was  sufficient for a  trust fund.  Additionally, the                                                                    
organization believed that continuing  to increase the trust                                                                    
fund  assessment  was taking  money  out  of employers'  and                                                                    
employees'  pockets  and putting  it  into  a state  savings                                                                    
account at an inappropriate and unneeded level.                                                                                 
                                                                                                                                
Representative Gara pointed  to Section 6, page  4, line 26.                                                                    
He believed  the bill's provision  requiring a  reduction to                                                                    
last for  a one-year period  in the  event of a  surplus was                                                                    
inflexible.  He  wondered  whether   the  section  could  be                                                                    
modified  to allow  for a  lower rate  on a  month to  month                                                                    
basis.                                                                                                                          
                                                                                                                                
Mr.  Dewitt  replied that  continued  changes  of tax  rates                                                                    
created problems for employers  related to payroll. Changing                                                                    
the rate on  a monthly basis would  require computer systems                                                                    
to be  reprogrammed on a  monthly basis, which  would become                                                                    
expensive.  He  stated  that  Public  Employees'  Retirement                                                                    
System  (PERS)  was  concerned   about  when  retirees  were                                                                    
elderly; however,  the UI fund  was concerned  about setting                                                                    
rates for the present and  three years out. The organization                                                                    
believed   an  annual   setting  was   sufficient  and   the                                                                    
likelihood  of  the fund  being  expended  during that  time                                                                    
period was very unlikely.                                                                                                       
                                                                                                                                
Representative Gara assumed that the  rate would not need to                                                                    
be looked at every month. He  believed that if a surplus was                                                                    
identified the rate  could be reduced and once  there was no                                                                    
longer a surplus it could be dropped the following month.                                                                       
                                                                                                                                
5:33:30 PM                                                                                                                    
                                                                                                                                
DON  ETHERIDGE,   ALASKA  AFL-CIO,  JUNEAU,   supported  the                                                                    
majority of  the legislation but had  concerns about Section                                                                    
6. He shared that declining  revenues was the primary reason                                                                    
for concern.                                                                                                                    
                                                                                                                                
5:34:29 PM                                                                                                                    
                                                                                                                                
ANDY ROGERS, SELF, ANCHORAGE  (via teleconference), spoke in                                                                    
support of  the legislation.  He spoke from  the perspective                                                                    
of an employer  and did not see the bill  as a game changer.                                                                    
He was  encouraged by the  state's work to  conduct business                                                                    
efficiently.  He looked  at Section  6 and  opined that  the                                                                    
ability for the commissioner to  give employers a break when                                                                    
the  fund did  well was  a good  way for  the state  to help                                                                    
employers.  He  did  not  believe a  break  on  a  potential                                                                    
increase  would save  the solvency  of the  fund in  a major                                                                    
economic downturn.                                                                                                              
                                                                                                                                
Co-Chair Stoltze  asked if Mr.  Rogers was a  small business                                                                    
owner. Mr.  Rogers replied  in the  affirmative. He  and his                                                                    
wife  owned   a  physical   therapy  clinic   with  multiple                                                                    
locations.                                                                                                                      
                                                                                                                                
5:36:54 PM                                                                                                                    
                                                                                                                                
RACHEL  PETRO, PRESIDENT  and CEO,  ALASKA STATE  CHAMBER OF                                                                    
COMMERCE  (via  teleconference),  spoke in  support  of  the                                                                    
legislation.  She stated  that most  of the  provisions were                                                                    
straight  forward.  She  asked  for  the  system  to  remain                                                                    
compliant,  efficient,  and  fair.   She  relayed  that  the                                                                    
chamber did support Section 6 of the legislation.                                                                               
                                                                                                                                
Co-Chair Stoltze CLOSED the public testimony.                                                                                   
                                                                                                                                
HB  76  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
AT EASE                                                                                                                         
5:39:06 PM                                                                                                                    
                                                                                                                                
RECONVENED                                                                                                                      
5:42:48 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 193                                                                                                            
                                                                                                                                
     "An Act relating to the joint administration of                                                                            
     tobacco taxes by the state and a municipality."                                                                            
                                                                                                                                
5:43:10 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze  brought   previously  reported  out  CSHB                                                                    
193(FIN) back  before the committee  upon advice  from legal                                                                    
counsel related to an amendment.                                                                                                
                                                                                                                                
Representative  Costello MOVED  that  the committee  RESCIND                                                                    
its action to  report CSHB 193(FIN) out  of committee. There                                                                    
being NO OBJECTION, it was so ordered.                                                                                          
                                                                                                                                
Co-Chair Austerman  MOVED to RECIND action  on amending CSHB                                                                    
193(FIN). There being NO OBJECTION, it was so ordered.                                                                          
                                                                                                                                
Co-Chair Austerman  pointed to  page 2,  line 12,  and MOVED                                                                    
Amendment 2 that would replace the word "may" with "must."                                                                      
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
Co-Chair   Austerman   explained  that   Legislative   Legal                                                                    
Services  had communicated  that the  proper replacement  of                                                                    
the word "may"  was "must" (instead of "shall")  in order to                                                                    
accomplish the amendment's intent.                                                                                              
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 2 was ADOPTED.                                                                                     
                                                                                                                                
Representative Costello  MOVED to  REPORT CSHB  193(FIN) out                                                                    
of  committee   with  individual  recommendations   and  the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
CSHB  193(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation and with one  new zero impact note from                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
and one new fiscal impact note from Department of Revenue.                                                                      
                                                                                                                                
5:45:51 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:46:30 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 129                                                                                                            
                                                                                                                                
     "An Act relating to approval for oil and gas or gas                                                                        
     only exploration and development in a geographical                                                                         
     area; and providing for an effective date."                                                                                
                                                                                                                                
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
committee  substitute for  HB  129,  Work Draft  28-GH1970\U                                                                    
(Bullock,  4/5/13).  There being  NO  OBJECTION,  it was  so                                                                    
ordered.                                                                                                                        
                                                                                                                                
5:47:12 PM                                                                                                                    
                                                                                                                                
JOE  BALASH,  DEPUTY  COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES (DNR),  relayed that the department  had worked on                                                                    
changes to  the substantive portion  of the bill  in Section                                                                    
2.  He  noted that  Section  1  included  a lengthy  set  of                                                                    
findings and  determinations in response to  a recent Alaska                                                                    
Supreme Court decision  [Sullivan v. Resisting Environmental                                                                    
Destruction on Indigenous Lands];  the language directed DNR                                                                    
to   follow   the   existing  statutory   guidance   in   AS                                                                    
38.05.180(a) in order to adopt  regulations to implement the                                                                    
court's finding  in terms of  the state's  interests (public                                                                    
and  otherwise)  for  the  advancement  of  exploration  and                                                                    
development.                                                                                                                    
                                                                                                                                
Mr.   Balash  pointed   to  Section   2  and   relayed  that                                                                    
Legislative  Legal  Services  had recommended  a  couple  of                                                                    
clarifying changes. The department  had no concerns with the                                                                    
changes.                                                                                                                        
                                                                                                                                
Co-Chair Stoltze  noted that the  bill was  heard previously                                                                    
and that public testimony had been closed.                                                                                      
                                                                                                                                
Mr. Balash  added that  DNR staff  was available  online for                                                                    
technical questions.                                                                                                            
                                                                                                                                
5:49:12 PM                                                                                                                    
                                                                                                                                
Representative Costello pointed to  the findings section and                                                                    
wondered  if it  was common  for the  legislative branch  to                                                                    
mention a decision made by another branch of government.                                                                        
                                                                                                                                
Mr.  Balash  believed  the   language  was  appropriate.  He                                                                    
communicated that  the agency was  addressing a  decision by                                                                    
the  Supreme  Court,  which  determined   that  it  was  the                                                                    
legislature's   prerogative  related   to   how  DNR   would                                                                    
implement the aspect  of the case requiring that  DNR take a                                                                    
continuing hard look at decisions  beyond the leasing phase.                                                                    
The language was  modeled on language that  had been adopted                                                                    
by the legislature approximately 12 years earlier.                                                                              
                                                                                                                                
Co-Chair Stoltze  agreed that the  language was  not unique.                                                                    
He recalled  fighting a past  effort by the  Alaska Railroad                                                                    
to overturn  an Alaska Supreme  Court decision related  to a                                                                    
Native village in his district.                                                                                                 
                                                                                                                                
5:51:41 PM                                                                                                                    
                                                                                                                                
Representative  Gara wanted  to ensure  that the  bill would                                                                    
not extend the amount of time  a company with an oil and gas                                                                    
lease  would  have  to  develop the  land.  He  stated  that                                                                    
currently companies were provided  a specific amount of time                                                                    
under a  lease to develop; if  the lease was not  acted upon                                                                    
the state had the right to lease the area to another party.                                                                     
                                                                                                                                
Mr. Balash  replied a lease  could be  held no more  than 10                                                                    
years unless the terms specified  a shorter period. The only                                                                    
way for  a party to continue  to hold the lease  was through                                                                    
production,   a   certified   well,  or   unitization.   The                                                                    
legislation would not impact  the existing requirements; the                                                                    
language related to the decisions  made by DNR when granting                                                                    
permission to explore or develop the lease.                                                                                     
                                                                                                                                
Representative Gara asked for  verification that current law                                                                    
provided three  public comment periods (when  the lease came                                                                    
out,  when the  development plan  was released,  and in  one                                                                    
other circumstance), but the  legislation reduced the number                                                                    
down to one.                                                                                                                    
                                                                                                                                
Mr. Balash replied that after  the leasing phase there would                                                                    
be  an  opportunity  for  public   notice  and  comment  for                                                                    
exploration and another opportunity  for comment on the area                                                                    
in question  for development. He  stated that  under current                                                                    
practice there  may be multiple public  notices/comments for                                                                    
each one  of the  phases; the change  to one  public comment                                                                    
period   per  phase   would  provide   more  efficiency   in                                                                    
considering decisions. He furthered  that DNR wanted to hold                                                                    
public  comment on  the frontend  in  order to  have a  more                                                                    
meaningful decision making process.                                                                                             
                                                                                                                                
Representative  Gara asked  for verification  that the  bill                                                                    
would  maintain the  two  levels of  public  comment, but  a                                                                    
broader  combination of  leases would  be combined  into one                                                                    
public comment period.                                                                                                          
                                                                                                                                
Mr. Balash  responded in the affirmative.  He explained that                                                                    
the intent  was to  enable a given  decision to  affect more                                                                    
than   one   lease,   rather  than   having   lease-by-lease                                                                    
decisions. He  detailed that the  number of  leases included                                                                    
in a decision would be  dependent on the circumstances; some                                                                    
leasing areas  lent themselves to larger  geographic scopes.                                                                    
For example, DNR would be  more discerning related to public                                                                    
comment  on the  east side  of  Cook Inlet,  which was  more                                                                    
populated than the west side.                                                                                                   
                                                                                                                                
5:56:21 PM                                                                                                                    
                                                                                                                                
Representative Gara  noted that he  tended to want  to speed                                                                    
up development  on most  of the  leases rather  than letting                                                                    
them lag.  He understood that residents  in some communities                                                                    
wanted  to proceed  with caution.  He stated  that when  the                                                                    
system  was lease  by lease  the development  plan would  be                                                                    
known; however,  if many  leases were  combined it  would be                                                                    
harder  to meaningfully  comment on  leases that  may be  at                                                                    
different stages. He wondered  how the department would deal                                                                    
with the potential issue.                                                                                                       
                                                                                                                                
Mr. Balash pointed to a  distinction between exploration and                                                                    
development. He explained that  the exploration activity was                                                                    
likely  to  be  on  a broader  scope  than  the  development                                                                    
decision;  exploration and  development would  have separate                                                                    
decisions associated with various  phases of development. He                                                                    
shared that  currently leases were sold  to companies coming                                                                    
to the state for exploration.  Under the bill there would be                                                                    
a  public notice  and  decision  document affecting  leases;                                                                    
once  a  resource was  located  there  would be  a  separate                                                                    
decision that would likely narrow  the scope from the larger                                                                    
body of  leases to those  under which the resource  had been                                                                    
found. He  furthered that the details  on the implementation                                                                    
of decisions would be determined under DNR regulations.                                                                         
                                                                                                                                
5:59:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze handed the gavel to Co-Chair Austerman.                                                                        
                                                                                                                                
Co-Chair  Austerman  pointed   to  legislative  findings  in                                                                    
Section 3 and  asked if the direction  to continue analyzing                                                                    
the  cumulative impact  of a  project was  already addressed                                                                    
within current DNR regulations.                                                                                                 
                                                                                                                                
Mr. Balash replied that the  examination of multiple factors                                                                    
beyond  the   cumulative  impacts  was  undertaken   in  the                                                                    
department's  10-year best  interest  finding conducted  for                                                                    
the  leasing   phase.  He  expounded  that   each  year  DNR                                                                    
conducted a  call for additional information,  which allowed                                                                    
the   public  and   communities  to   bring  items   to  the                                                                    
department's   attention;   other   departments   frequently                                                                    
brought  new  reports, studies,  and  findings  to DNR.  The                                                                    
items  were all  taken  into account  before the  department                                                                    
moved forward with  annual lease sales. He  relayed that the                                                                    
Supreme  Court decision  mandated  that DNR  could not  stop                                                                    
considering the impacts.                                                                                                        
                                                                                                                                
Co-Chair Austerman  asked whether the cumulative  effect was                                                                    
included. Mr. Balash replied in the affirmative.                                                                                
                                                                                                                                
Co-Chair Austerman  asked whether the cumulative  effect was                                                                    
included  in new  regulation. Mr.  Balash  replied that  DNR                                                                    
considered cumulative  effects as part of  the best interest                                                                    
finding in  the leasing  stage; the department  continued to                                                                    
look at  the information  as time  went by  as the  face and                                                                    
speed of development  changed in a given  area. He furthered                                                                    
that  DNR was  considering  the items,  but the  regulations                                                                    
would direct it  to specify when or  where the consideration                                                                    
took place.                                                                                                                     
                                                                                                                                
Representative  Kawasaki asked  for  the impact  of each  of                                                                    
court's  legislative  findings  under the  legislation.  Mr.                                                                    
Balash asked for a specific example.                                                                                            
                                                                                                                                
Representative  Kawasaki pointed  to  Section  5 related  to                                                                    
consideration  and analysis  by  the  department, Section  7                                                                    
related the  department's continued look at  new information                                                                    
and  changing  circumstances,  and   Section  8  related  to                                                                    
meaningful public notice by the  department. He believed the                                                                    
items were subjective and asked for comment.                                                                                    
                                                                                                                                
Mr.  Balash replied  that Sections  5 and  7 fell  under the                                                                    
prior   topic   discussed   with  Co-Chair   Austerman.   He                                                                    
elaborated that the best interest  finding was done on a 10-                                                                    
year   cycle  for   each  sale   area;   the  document   was                                                                    
comprehensive and considered a  multitude of items specified                                                                    
in statute. He stated that 10  years was a long time between                                                                    
findings;  therefore, DNR  did a  call for  information each                                                                    
year in  order to make  sure findings remained  relevant. He                                                                    
elaborated that  the call was publicly  noticed and provided                                                                    
an  opportunity  for  other   agencies  and  the  public  to                                                                    
comment. He explained  that Section 7 related  to the annual                                                                    
call  and  Section  5  acknowledged  that  the  department's                                                                    
current  process  made  the  creation  of  an  entirely  new                                                                    
finding for decisions unnecessary.                                                                                              
                                                                                                                                
6:04:51 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki asked  for  an  explanation of  the                                                                    
changes  included in  Section 2  and about  their necessity.                                                                    
Mr. Balash answered  that the changes made had  not been due                                                                    
to  the Supreme  Court  case. He  relayed  that the  changes                                                                    
helped  bring  clarity to  the  meaning  of the  substantive                                                                    
section.  He  pointed to  a  write  up of  specific  changes                                                                    
included  in   member's  packets   (copy  on   file),  which                                                                    
referenced  the  page and  line  numbers  from the  original                                                                    
bill.  He  detailed  that  the   words  "without  regard  to                                                                    
individual lease  boundaries" had  been deleted  because the                                                                    
topic was  related to  area-wide decisions.  He communicated                                                                    
that DNR had  no problem with the change.  He furthered that                                                                    
per  a  recommendation  by Legislative  Legal  Services  the                                                                    
sentence had  been revised to  read "an approval  applies to                                                                    
an  exploration or  development commencing  during a  period                                                                    
for up to 10 years. The  language created an upper limit and                                                                    
pertained to decisions  that were made in  an exploration or                                                                    
development context;  the decision  would define  the length                                                                    
of time.                                                                                                                        
                                                                                                                                
Mr. Balash  continued to explain  the changes in  Section 2.                                                                    
He  addressed   a  clarifying   change  from   the  language                                                                    
"specified  period"   to  "a  period  specified   under  the                                                                    
approval." The length of time  would not automatically be 10                                                                    
years  and would  be  determined in  the  decision made.  He                                                                    
relayed that the  department had no problem with  any of the                                                                    
changes. The fourth  change added the language  "or group of                                                                    
leases" to  follow the word  "leases" in the bill.  He noted                                                                    
that  the  word  "area"  was  mistakenly  used  twice  in  a                                                                    
sentence and subsequently had been deleted.                                                                                     
                                                                                                                                
Vice-Chair  Neuman  discussed  a  gas  well  that  had  been                                                                    
drilled  in Big  Lake.  He explained  that  the company  had                                                                    
drilled some  monitoring wells in  response to  concern from                                                                    
locals; the  lease had  subsequently transferred  to another                                                                    
company. He  noted that commitments  had been made  to check                                                                    
for contaminates over time. He  wondered who was responsible                                                                    
for transfers and  whether it was associated  with the lease                                                                    
contract.                                                                                                                       
                                                                                                                                
6:09:09 PM                                                                                                                    
                                                                                                                                
Mr. Balash  replied that each  case was  different; however,                                                                    
the obligations  of the  lease or  any permits  would change                                                                    
hands from  lessee to lessee.  He relayed that  transfers of                                                                    
interest in  a lease had to  be approved by the  Division of                                                                    
Oil  and  Gas. The  department  looked  to see  whether  the                                                                    
company  taking over  a  lease would  take  on the  existing                                                                    
obligations  (e.g.  obligations  on  older  properties  with                                                                    
abandonment liabilities).                                                                                                       
                                                                                                                                
Vice-Chair  Neuman   cited  language   on  page  3   of  the                                                                    
legislation:  "the  director  may  approve  exploration  for                                                                    
development for all  or part of an  area previously approved                                                                    
for oil and  gas leasing." He further  discussed the drilled                                                                    
area at Big  Lake and relayed that the cleanup  had not been                                                                    
ideal. He  pointed to  the 10-year  lease maximum  under the                                                                    
legislation and wondered if a  similar scenario could happen                                                                    
again; if so, he doubted it would be approved by DNR.                                                                           
                                                                                                                                
6:09:46 PM                                                                                                                    
                                                                                                                                
Mr. Balash  answered that the bill's  language addressed the                                                                    
different  phases regarding  a  previously approved  leasing                                                                    
area. He discussed circumstances  when DNR had determined it                                                                    
was  in the  state's best  interest to  dispose of  property                                                                    
interest on a  piece of land; the division  would still need                                                                    
to make  a decision for exploration  and development phases,                                                                    
but  in  order  for  property  to be  disposed  of  DNR  was                                                                    
required to do a best interest finding.                                                                                         
                                                                                                                                
Vice-Chair Neuman  continued to  speak to  the issue  in Big                                                                    
Lake. He shared  that the drilling had been  approved by DNR                                                                    
on  private  property  and  the   property  owner  had  been                                                                    
concerned about the situation.                                                                                                  
                                                                                                                                
Mr. Balash  answered that  Alaska had  a split  estate where                                                                    
the  mineral interest  was reserved  for the  state and  the                                                                    
surface area  could be sold  to private individuals  in some                                                                    
cases.  The state  had the  ability to  make decisions  that                                                                    
affected  private  owners,  but   DNR  had  regulations  and                                                                    
processes   that  governed   under  the   circumstances.  He                                                                    
furthered  that  DNR would  be  required  to provide  public                                                                    
notice that  a lease  was in  question if  the lease  was on                                                                    
private  land. He  relayed  that  the department's  decision                                                                    
would  be   subject  to  appeal  and/or   litigation  if  an                                                                    
individual was concerned about the area in question.                                                                            
                                                                                                                                
6:14:46 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman surmised that the  Big Lake land owner had                                                                    
not wanted to go to the expense of suing the state.                                                                             
                                                                                                                                
Representative Munoz commented that  the purpose was to look                                                                    
holistically  at  a  geographical   area  to  determine  the                                                                    
parameters  of  development  that   would  be  allowed.  She                                                                    
believed the  goal was to  provide the public with  a better                                                                    
understanding of  what types of activity  would occur within                                                                    
a certain area.                                                                                                                 
                                                                                                                                
Mr. Balash replied in the  affirmative. He communicated that                                                                    
DNR wanted its  process to be more meaningful  and to engage                                                                    
the  public in  a way  that  would allow  the department  to                                                                    
guide its decisions on the  front-end as opposed to a piece-                                                                    
meal process.  He pointed out  that the North  Slope Borough                                                                    
had provided  a letter of  support for the  legislation. The                                                                    
department  believed  that  engaging the  borough  would  be                                                                    
holistic  and  would  help everyone  involved  to  reach  an                                                                    
affirmative decision in a better way.                                                                                           
                                                                                                                                
Representative  Costello discussed  the  fiscal impact  note                                                                    
from Department of Natural  Resources that included $134,000                                                                    
in FY 14 for one non-permanent position.                                                                                        
                                                                                                                                
Representative Costello cited language  from the fiscal note                                                                    
analysis  section:  "without   regard  to  individual  lease                                                                    
boundaries."  She believed  the  language  had been  removed                                                                    
from  the bill  and wondered  about the  impact. Mr.  Balash                                                                    
replied that there would not be a fiscal impact.                                                                                
                                                                                                                                
Representative  Gara stated  that the  bill would  result in                                                                    
fewer public  hearings. He surmised that  subsequently there                                                                    
would  be  less employees  required.  He  remarked that  the                                                                    
state was facing fiscal challenges  and he was not convinced                                                                    
the fiscal note made sense.                                                                                                     
                                                                                                                                
Mr. Balash  answered that  the department  was asking  for a                                                                    
non-permanent employee to maintain  current work done and to                                                                    
help compile  regulations that would guide  the new program.                                                                    
Once the  transition was made,  the division expected  to be                                                                    
able  to perform  its  job more  efficiently.  He could  not                                                                    
quantify the change, but the  goal was for the department to                                                                    
make preparations to do more with less.                                                                                         
                                                                                                                                
6:19:58 PM                                                                                                                    
                                                                                                                                
Representative  Gara noted  that the  division had  existing                                                                    
staff  to   handle  multiple   hearings.  He   believed  the                                                                    
development of  regulations could  be done with  its current                                                                    
staff and with  the help of the Department of  Law (DOL). He                                                                    
did not believe a new position was necessary.                                                                                   
                                                                                                                                
Mr. Balash  answered that  DNR would  have to  reimburse DOL                                                                    
for work done.  He clarified that public  notice and comment                                                                    
periods were  held, but there  were not a  tremendous number                                                                    
of public hearings held on  the decisions. He furthered that                                                                    
the  department  would  continue  to review  plans  once  an                                                                    
exploration decision  had been  made. He explained  that the                                                                    
public comment period would be truncated.                                                                                       
                                                                                                                                
Representative Gara  OBJECTED to  the fiscal note.  He MOVED                                                                    
to AMEND the fiscal note to  zero. He stated that there were                                                                    
DOL  attorneys who  worked specifically  on regulations.  He                                                                    
believed  the work  could be  done  with existing  employees                                                                    
with some potential overtime work.                                                                                              
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED: Munoz, Holmes,  Neuman, Wilson, Costello, Thompson,                                                                    
Stoltze, Austerman                                                                                                              
                                                                                                                                
The MOTION FAILED (2/8).                                                                                                        
                                                                                                                                
Representative Costello  MOVED to  REPORT CSHB  129(FIN) out                                                                    
of  committee   with  individual  recommendations   and  the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSHB  129(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass"  recommendation and  with one  new fiscal  impact note                                                                    
from the Department of Natural Resources.                                                                                       
                                                                                                                                
CS FOR SENATE BILL NO. 18(FIN) am                                                                                             
                                                                                                                                
     "An    Act    making,     amending,    and    repealing                                                                    
     appropriations,   including   capital   appropriations,                                                                    
     supplemental   appropriations,  reappropriations,   and                                                                    
     other   appropriations;    making   appropriations   to                                                                    
     capitalize  funds;  and   providing  for  an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
CSSB 18(FIN) am was SCHEDULED but not HEARD.                                                                                    
                                                                                                                                
Co-Chair Stoltze discussed the schedule for the following                                                                       
day.                                                                                                                            
                                                                                                                                
Representative Munoz  asked which  bills were  scheduled for                                                                    
the following morning.  Representative Costello replied that                                                                    
the bills on the schedule included  SB 21, HB 63, HB 102, HB                                                                    
134, and HB 195.                                                                                                                
                                                                                                                                
Co-Chair Stoltze noted that not all bills would be heard                                                                        
and that the schedule had been compiled to provide                                                                              
sufficient public notice.                                                                                                       
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
6:27:16 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 6:27 p.m.                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
CSHB 76 UI Tax chart.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 Letters of Support.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 NEW FN CS(L&C)-DOLWD-CO-3-20-13.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 NEW FN CS(L&C)-DOLWD-UI-3-20-13.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76 Transmittal Letter 1-17-2013.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 76-CSHB 76L&C Changes.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 AkHLA Letter of Suppport .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 Historical UI Tax Rates .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 -Treasury Offset Program .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB76 -UI STEP TVEP flow chart .pdf HFIN 4/7/2013 1:30:00 PM
HB 76
Sectional Analysis CSHB 76 (HLC) 3 20 13.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 193 Daniel Moore Testimony.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Letter of Support - Municipality of Anchorage.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Sectional Analysis.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Sponsor Statement.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
UI Bill FAQ 3-19.pdf HFIN 4/7/2013 1:30:00 PM
HB 76
HB 193 CS WORKDRAFT FIN U.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 193 Summary of Changes.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
HB 129 CS WORKDRAFT FIN 28-GH1970_U.pdf HFIN 4/7/2013 1:30:00 PM
HB 129
NEW FN HB 193 DOR-Tax Division-4-7-13.pdf HFIN 4/7/2013 1:30:00 PM
HB 193
SB 21 DOR Handout 2013_Analyst_Meeting_transcript (2).pdf HFIN 4/7/2013 1:30:00 PM
SB 21
SB 21 DOR 13.04.06 HFIN follow ups.pdf HFIN 4/7/2013 1:30:00 PM
SB 21
SB 21 DOR 13.04.06 SB21 Comparison Chart.pdf HFIN 4/7/2013 1:30:00 PM
SB 21