Legislature(2013 - 2014)HOUSE FINANCE 519

04/11/2013 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 1:15 a.m. on 4/12/13 --
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Moved HCS CSSB 21(FIN) Out of Committee
+ SB 47 DISTRICT OPERATED BOARDING SCHOOLS TELECONFERENCED
Heard & Held
+ SB 83 INTEREST ON CORPORATION INCOME TAX TELECONFERENCED
Moved HCS CSSB 83(FIN) Out of Committee
+ SB 85 EXPERIMENTAL VEHICLE PLATES TELECONFERENCED
Moved Out of Committee
+ SB 62 SCHOOL CONST. GRANTS/SMALL MUNICIPALITIES TELECONFERENCED
Scheduled But Not Heard
+= SB 18 BUDGET: CAPITAL TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 22 CRIMES; VICTIMS; CHILD ABUSE AND NEGLECT TELECONFERENCED
Moved HCS CSSB 22(FIN) Out of Committee
+= SB 7 CORPORATE INCOME TAX TELECONFERENCED
Scheduled But Not Heard
+= SB 88 ALASKA NATIVE MEDICAL CENTER HOUSING TELECONFERENCED
Moved Out of Committee
+ SB 65 RETIREMENT PLANS; ROTH IRAS; PROBATE TELECONFERENCED
Moved Out of Committee
+= SB 27 REGULATION OF DREDGE AND FILL ACTIVITIES TELECONFERENCED
Moved Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 11, 2013                                                                                            
                         9:45 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:45:13 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 9:45 a.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;  Joe Balash,  Deputy  Commissioner,                                                                    
Department of Natural  Resources; Brittany Hutchison, Staff,                                                                    
Senator Click Bishop; Senator  Peter Micciche, Sponsor; John                                                                    
MacKinnon,    Executive    Director,   Associated    General                                                                    
Contractors of Alaska;  Daniel George, Staff, Representative                                                                    
Bill   Stoltze;   Leslie   Houston,   Deputy   Commissioner,                                                                    
Department   of  Corrections;   Anne  Carpeneti,   Assistant                                                                    
Attorney  General, Legal  Services Section-Juneau,  Criminal                                                                    
Division,  Department   of  Law;  Naomi   Harris,  Community                                                                    
Relations   Manager,   Office    of   Children's   Services,                                                                    
Department of  Health and  Social Services;  Joseph Masters,                                                                    
Commissioner,  Department  of  Public Safety;  Senator  John                                                                    
Coghill;  Rynnieva Moss,  Staff, Senator  John Coghill;  Les                                                                    
Morse, Deputy  Director, Department  of Education  and Early                                                                    
Development;  Barry  Pulliam,  Managing Director,  Econ  One                                                                    
Research,  Inc.; Bruce  Tangeman,  Deputy Commissioner,  Tax                                                                    
Division,  Department   of  Revenue;   Representative  Peggy                                                                    
Wilson;  Representative Beth  Kerttula; Representative  Mike                                                                    
Chennault, Representative Lance Pruitt.                                                                                         
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Allison  Airhart,  Attorney,  Volkswagen Group  of  America,                                                                    
Virginia;  Julie  Emslie,   Fairbanks  Economic  Development                                                                    
Corporation, Fairbanks; Idonna  Piper Nelson, Partner, Davis                                                                    
Constructors  and Engineers,  Anchorage;  Lisa Rieger,  Cook                                                                    
Inlet  Tribal Council;  Jerry  Covey, Education  Consultant,                                                                    
Citizens  for  the   Educational  Advancement  of  Alaskan's                                                                    
Children  and  Cook  Inlet   Tribal  Council;  Matt  Fonder,                                                                    
Director, Tax Division, Department of Revenue.                                                                                  
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 7 am   CORPORATE INCOME TAX                                                                                                  
                                                                                                                                
          SB 7 am was SCHEDULED but not HEARD.                                                                                  
                                                                                                                                
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                                                                                            
                                                                                                                                
          HCS  CSSB 21(FIN)  was REPORTED  out of  committee                                                                    
          with   no   recommendation   and  with   one   new                                                                    
          indeterminate fiscal  note from the  Department of                                                                    
          Natural  Resources; two  new  fiscal impact  notes                                                                    
          from   the   Department   of  Revenue;   and   one                                                                    
          previously  published   zero  fiscal   note:  FN11                                                                    
          (CED).                                                                                                                
                                                                                                                                
CSSB 22(FIN)                                                                                                                    
          CRIMES; VICTIMS; CHILD ABUSE AND NEGLECT                                                                              
                                                                                                                                
          HCS  CSSB 22(FIN)  was REPORTED  out of  committee                                                                    
          with a  "do pass" recommendation and  with one new                                                                    
          indeterminate fiscal  note from the  Court System;                                                                    
          four  previously  published  indeterminate  fiscal                                                                    
          notes:  FN5 (ADM),  FN8  (ADM),  FN10 (COR),  FN12                                                                    
          (CRT); and  four previously published  zero fiscal                                                                    
          notes: FN2  (DPS), FN7 (DHS), FN9  (LAW), and FN11                                                                    
          (DPS).                                                                                                                
                                                                                                                                
CSSSSB 47(FIN)                                                                                                                  
          DISTRICT OPERATED BOARDING SCHOOLS                                                                                    
                                                                                                                                
          CSSSSB  47(FIN) was  HEARD and  HELD in  committee                                                                    
          for further consideration.                                                                                            
                                                                                                                                
SB 62     SCHOOL CONST. GRANTS/SMALL MUNICIPALITIES                                                                             
                                                                                                                                
          SB 62 was SCHEDULED but not HEARD.                                                                                    
                                                                                                                                
CSSB 83(FIN)                                                                                                                    
          INTEREST ON CORPORATION INCOME TAX                                                                                    
                                                                                                                                
          HCS  CSSB 83(FIN)  was REPORTED  out of  committee                                                                    
          with  a  "do  pass" recommendation  and  with  one                                                                    
          previously  published  indeterminate fiscal  note:                                                                    
          FN1(REV).                                                                                                             
                                                                                                                                
          [Note: The  meeting was  recessed until  1:12 a.m.                                                                    
          on April  12, 2013  and CSSB 83(FIN)  was reported                                                                    
          from committee  at that time. See  April 12, 2013,                                                                    
          1:12 a.m. minutes for detail.]                                                                                        
                                                                                                                                
CSSB 85(TRA)                                                                                                                    
          EXPERIMENTAL VEHICLE PLATES                                                                                           
                                                                                                                                
          CSSB 85(TRA) was REPORTED out  of committee with a                                                                    
          "do pass"  recommendation and with  one previously                                                                    
          published zero fiscal note: FN1 (DOT).                                                                                
                                                                                                                                
SB 88     ALASKA NATIVE MEDICAL CENTER HOUSING                                                                                  
                                                                                                                                
          SB 88  was REPORTED  out of  committee with  a "do                                                                    
          pass"  recommendation  and with  three  previously                                                                    
          published  fiscal  impact  notes: FN1  (ADM),  FN2                                                                    
          (DHS), FN3 (REV).                                                                                                     
                                                                                                                                
9:45:41 AM                                                                                                                    
                                                                                                                                
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."                                                                                                               
                                                                                                                                
9:46:08 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:47:25 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Stoltze discussed the intent of the committee.                                                                         
                                                                                                                                
MICHAEL  PAWLOWSKI,   ADVISOR,  PETROLEUM   FISCAL  SYSTEMS,                                                                    
DEPARTMENT OF REVENUE, spoke to the bill.                                                                                       
                                                                                                                                
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
committee  substitute for  CSSB  21(FIN)  am(efd fld),  Work                                                                    
Draft 28-GS1647\L (Nauman/Bullock, 4/10/13).                                                                                    
                                                                                                                                
There  being  NO  OBJECTION,   Work  Draft  28-GS1647\L  was                                                                    
ADOPTED.                                                                                                                        
                                                                                                                                
Mr.  Pawlowski   supported  that   the  CS   maintained  the                                                                    
administration's intention  for revenues from  the corporate                                                                    
income tax to  be directed to the  community revenue sharing                                                                    
fund  (Section 1,  page 2).  The administration  appreciated                                                                    
the bill's  retention of the  qualified oil and  gas service                                                                    
to  industry expenditure  credit in  Section 3,  page 3.  He                                                                    
directed attention  to a tax  rate increase from  33 percent                                                                    
in  the  House Resources  Committee  version  to 35  percent                                                                    
(page  4, Section  4, line  20); related  conforming changes                                                                    
had  been made  throughout  the  bill. He  moved  to page  9                                                                    
(Section 8),  which included  the mechanism  for installment                                                                    
payments. He noted that conforming  amendments had been made                                                                    
on page 9, lines 15 and 30; and page 10, lines 12 and 21.                                                                       
                                                                                                                                
9:51:56 AM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski  referred  to a  capital  expenditure  credit                                                                    
repeal included in  the prior bill version and  how it would                                                                    
impact smaller  oil companies that had  plans of development                                                                    
under the  current system.  He pointed  to Section  14, page                                                                    
14,  which  allowed the  tax  credit  for the  carry-forward                                                                    
loss;  the credit  only applied  to companies  when spending                                                                    
exceeded  the tax  liability. He  observed  that the  carry-                                                                    
forward credit  had been increased  to 45 percent  (page 14,                                                                    
line 26)  between January  1, 2014 and  January 1,  2016 and                                                                    
decreased  to 35  percent following  the latter  date. Under                                                                    
the current system the companies  received a 25 percent loss                                                                    
credit  and a  20 percent  capital credit;  under the  House                                                                    
Resources  Committee proposal  the total  credit would  have                                                                    
dropped to 35 percent. He  complimented the committee on its                                                                    
solution, which he believed addressed public comment.                                                                           
                                                                                                                                
Representative  Gara asked  about the  carry forward  credit                                                                    
that  went  from  45  percent through  January  2016  to  35                                                                    
percent (page 14) and down to 25 percent (page 15).                                                                             
                                                                                                                                
Mr. Pawlowski responded that the  25 percent was modified by                                                                    
page 14, line 31 for  expenditures south of the North Slope.                                                                    
The  provision preserved  the current  system in  Cook Inlet                                                                    
and Middle Earth related to the credits.                                                                                        
                                                                                                                                
Mr.  Pawlowski addressed  conforming  amendments in  Section                                                                    
20, page  17. The CS  increased the gross  revenue exclusion                                                                    
(GRE) for certain  new units. He discussed  the bill's clear                                                                    
direction  to the  department recognizing  which per  barrel                                                                    
credits  would  apply  (page  17,  lines  14  and  21).  The                                                                    
department  appreciated  the  way   the  language  had  been                                                                    
structured.                                                                                                                     
                                                                                                                                
Representative Gara asked for more  detail on the issue. Mr.                                                                    
Pawlowski pointed to Section 27,  page 24. He explained that                                                                    
subsection (f), lines 10 through  27 retained the prior bill                                                                    
version's GRE. Additionally, subsection  (g) had been added,                                                                    
which  linked  to units  developed  after  January 1,  2003;                                                                    
language on  page 25 required that  units had to be  made up                                                                    
solely  of leases  with a  royalty share  of more  than 12.5                                                                    
percent  in amount  or value  of the  production removed  or                                                                    
sold from lease.  The bill added a 10 percent  GRE on top of                                                                    
the 20  percent offered at  the base level.  He communicated                                                                    
that language in Section 20  conformed to ensure that legacy                                                                    
production  received  a sliding  scale  because  it did  not                                                                    
qualify for the GRE.                                                                                                            
                                                                                                                                
9:57:31 AM                                                                                                                    
                                                                                                                                
Mr. Pawlowski  continued to  discuss changes  in the  CS. He                                                                    
pointed  to   pages  25  through  28,   which  included  the                                                                    
reintroduction  of the  Oil and  Gas Competitiveness  Review                                                                    
Board  (the  language had  been  in  prior versions  of  the                                                                    
bill).                                                                                                                          
                                                                                                                                
Co-Chair  Stoltze noted  that the  provision may  be further                                                                    
modified.                                                                                                                       
                                                                                                                                
Mr. Pawlowski  believed the administration  saw the  Oil and                                                                    
Gas  Competitiveness  Review  Board  as  an  opportunity  to                                                                    
continue the  dialogue on "what  was hopefully  a relatively                                                                    
less  political perspective"  related to  the state's  long-                                                                    
term  competitiveness  regarding  the   tax  system  and  an                                                                    
alternative means  to improve Alaska's position.  He pointed                                                                    
to  a  reference  to workforce  development,  infrastructure                                                                    
investment,  and the  permitting and  regulatory environment                                                                    
on page  27. He  shared that in  previous bill  versions the                                                                    
Department of Revenue (DOR) had  committed to supporting the                                                                    
effort with existing staffing levels  and had not introduced                                                                    
a new position to support  the board's work. He believed the                                                                    
department  would   maintain  a  similar  position   if  the                                                                    
language was retained in the CS.                                                                                                
                                                                                                                                
10:00:02 AM                                                                                                                   
                                                                                                                                
JOE  BALASH,  DEPUTY  COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES,  communicated  that  the  Department  of  Natural                                                                    
Resources  (DNR)  was available  to  all  members and  would                                                                    
continue to review the CS.                                                                                                      
                                                                                                                                
Representative  Gara wondered  whether  the  tax rate  would                                                                    
always  be 35  percent or  if 35  percent was  the cap.  Mr.                                                                    
Pawlowski  responded  that the  statutory  tax  rate was  35                                                                    
percent,  but the  effective  tax rate  would  be lower;  it                                                                    
would  cap  out  for  the legacy  production,  which  had  a                                                                    
sliding  scale  credit. The  rate  would  not reach  the  35                                                                    
percent for  new production and areas  with higher royalties                                                                    
due to the GRE.                                                                                                                 
                                                                                                                                
Representative Gara asked if the  sliding scale was $0.00 to                                                                    
$8.00  and  applied only  to  legacy  fields. Mr.  Pawlowski                                                                    
answered in  the affirmative. He  pointed to page  17, lines                                                                    
14 and 21  related to the criteria under  subsections (f) or                                                                    
(g) [AS 43.55.160] that linked to GRE eligibility.                                                                              
                                                                                                                                
Representative Gara  queried if  the CS  maintained language                                                                    
that the  35 percent tax rate  would be reached at  $150 per                                                                    
barrel. Mr. Pawlowski responded in the affirmative.                                                                             
                                                                                                                                
Representative Gara asked what the  tax rate would be at the                                                                    
lowest end of the sliding  scale. Mr. Pawlowski replied that                                                                    
related  to   legacy  production   the  CS   maintained  the                                                                    
prohibition that  the sliding scale per  barrel credit could                                                                    
not be used to offset the  4 percent gross minimum tax (page                                                                    
17,  line  24).  He  detailed  that  on  legacy  production,                                                                    
barring other  outside credits that  could be applied  the 4                                                                    
percent  gross  minimum  would  be  a  real  floor.  He  was                                                                    
uncertain about the amount on a net rate.                                                                                       
                                                                                                                                
Co-Chair Stoltze  relayed that the department  would have an                                                                    
opportunity  to clarify  and expand  on answers  at a  later                                                                    
time.                                                                                                                           
                                                                                                                                
10:03:39 AM                                                                                                                   
                                                                                                                                
Representative Gara asked what  the effective tax rate would                                                                    
be at the bottom of  the sliding scale without consideration                                                                    
of the  gross floor.  Mr. Pawlowski would  follow up  on the                                                                    
question.                                                                                                                       
                                                                                                                                
Representative  Gara  asked   about  non-legacy  fields.  He                                                                    
referred to  the GRE and  asked what the effective  tax rate                                                                    
would be on  $110 per barrel oil. He surmised  that the rate                                                                    
would be less than 35 percent.                                                                                                  
                                                                                                                                
Co-Chair Stoltze  asked Mr.  Pawlowski to  come back  with a                                                                    
comprehensive  analysis. Mr.  Pawlowski would  follow up  on                                                                    
the question.                                                                                                                   
                                                                                                                                
Mr. Balash  remarked that overall the  total government take                                                                    
would be approximately 60 percent to 61 percent.                                                                                
                                                                                                                                
Co-Chair   Stoltze   asked   for   verification   that   the                                                                    
administration   was   preparing  various   scenarios.   Mr.                                                                    
Pawlowski agreed.                                                                                                               
                                                                                                                                
Co-Chair  Stoltze believed  the administration  had prepared                                                                    
an analysis on a multitude of rate scenarios.                                                                                   
                                                                                                                                
Representative Gara  requested effective  tax rates  for all                                                                    
provisions of the bill. He  referred to testimony on a prior                                                                    
bill version that a 20 percent  GRE on new oil equated to an                                                                    
effective  tax rate  of 17  percent at  $110 per  barrel. He                                                                    
wondered which  fields the  30 percent  GRE would  apply to.                                                                    
Mr. Pawlowski replied  that the 30 percent  GRE only applied                                                                    
to a  unit made up  of leases with  a royalty share  of more                                                                    
than 12.5 percent (page 25).                                                                                                    
                                                                                                                                
10:06:49 AM                                                                                                                   
                                                                                                                                
Representative Gara  referred to  higher royalty  fields and                                                                    
asked if  the 30 percent GRE  applied to legacy and  new oil                                                                    
fields. Mr. Balash was not  aware of any currently producing                                                                    
units that  would start  off qualifying  for the  30 percent                                                                    
GRE.  He explained  that Prudhoe  Bay and  Kuparuk had  one-                                                                    
eighth [12.5 percent] leases and  would not qualify. The two                                                                    
currently   producing  units   intended   to  qualify   were                                                                    
Nikaitchuq  and Oooguruk.  He detailed  that Oooguruk  would                                                                    
remain  at  the   20  percent  because  it   had  a  royalty                                                                    
modification currently  in effect; once payout  on the NPSLs                                                                    
[net  profit share  leases] was  reached  and royalty  rates                                                                    
increased, the  field would qualify  for the 30  percent GRE                                                                    
the following calendar year.                                                                                                    
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
Oooguruk  royalty  rate  reduction  had been  based  on  the                                                                    
economics  under the  current Alaska's  Clear and  Equitable                                                                    
Share  (ACES) tax  system. He  surmised that  royalty relief                                                                    
for Oooguruk  had been  granted in order  to make  the field                                                                    
economic. Mr.  Balash replied that royalty  modification for                                                                    
Oooguruk   had   been  granted   in   2006   prior  to   the                                                                    
implementation of ACES.                                                                                                         
                                                                                                                                
Representative  Gara asked  whether  Oooguruk  was the  only                                                                    
existing field  that would qualify  for the 30  percent GRE.                                                                    
Mr. Balash replied that he  would need to check to determine                                                                    
whether  the  Nikaitchuq  field would  qualify  for  the  30                                                                    
percent GRE; it would definitely  qualify for the 20 percent                                                                    
GRE. He relayed  that there was a lease in  the field's unit                                                                    
that had been  segregated because it had  originally been in                                                                    
one  of the  legacy units;  the  unit received  a new  lease                                                                    
number after January 1, 2003;  therefore the lease would not                                                                    
disqualify the  Oooguruk unit for  the 20 percent GRE  in AS                                                                    
43.55.160(f)(1).                                                                                                                
                                                                                                                                
10:09:49 AM                                                                                                                   
                                                                                                                                
Mr.  Pawlowski  pointed to  a  presentation  by Pioneer  and                                                                    
added that  the additional development in  the Oooguruk unit                                                                    
was  occurring   where  new  pockets   of  oil   were  being                                                                    
developed.  The provisions  would  apply  to the  additional                                                                    
development within the unit such  as the Torok participating                                                                    
area when the  unit was above the  one-eighth [12.5 percent]                                                                    
lease.                                                                                                                          
                                                                                                                                
Co-Chair  Stoltze   asked  members  to   provide  additional                                                                    
questions   to   his   office  for   distribution   to   the                                                                    
departments.                                                                                                                    
                                                                                                                                
Representative Gara stated that  originally the governor had                                                                    
defined  new oil  inside a  legacy field.  Additionally, the                                                                    
governor  had included  a new  lower tax  rate with  the GRE                                                                    
inside  legacy  fields  for  new  oil.  He  pointed  to  the                                                                    
governor's  definition for  new  separate geological  units,                                                                    
which had been changed in  the bill. He wondered whether the                                                                    
administration preferred the original definition.                                                                               
                                                                                                                                
Mr.  Balash  replied  that  the  House  Resources  Committee                                                                    
language accomplished what  the administration needed, which                                                                    
was  to  highlight  what would  qualify  going  forward.  He                                                                    
communicated  that  the  only   part  of  the  existing  and                                                                    
currently  producing  participating  areas (PA)  that  would                                                                    
qualify were  any additions made  in the future;  he relayed                                                                    
that if  something was not currently  in the PA, it  was not                                                                    
thought  to be  contributing. He  discussed additional  work                                                                    
that would  be necessary  in order  to bring  the additional                                                                    
area into  production. The change  in the  legislation still                                                                    
satisfied the fundamental goal of rewarding new production.                                                                     
                                                                                                                                
Representative Gara asked what the  term "new area" within a                                                                    
legacy field meant. He did  not want an additional tax break                                                                    
to go  to new  oil that  was in  the same  pool in  a legacy                                                                    
field that a company would produce at a later time.                                                                             
                                                                                                                                
Mr. Balash answered that the  units were managed through the                                                                    
PA process.  He explained that  when companies found  oil or                                                                    
gas they  had the resource put  into a unit to  cover all of                                                                    
the leases  the oil and  gas underlies, which was  the basis                                                                    
for managing  and governing activity  and production  on the                                                                    
unit. Additionally,  areas to be  drilled and  produced were                                                                    
identified through the development  plan; the expectation of                                                                    
which part of  the unit would be  contributing to production                                                                    
was the  portion included in  the PA. The  determination was                                                                    
based on  expectations of lessees, various  working interest                                                                    
owners in the  unit, the state, and the Division  of Oil and                                                                    
Gas.  He elaborated  that PAs  were  formed when  production                                                                    
began and  over the course  of time if  production performed                                                                    
differently  than  expected the  PAs  may  be contracted  or                                                                    
expanded.  He relayed  that if  an addition  was made  to an                                                                    
existing PA  it may  qualify for  the GRE,  but only  if the                                                                    
producer  could satisfy  DOR  with regard  to  how it  would                                                                    
allocate  or  account for  the  production  and to  keep  it                                                                    
separate from existing production.                                                                                              
                                                                                                                                
10:15:09 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stoltze commended  Representatives Eric  Feige and                                                                    
Dan Saddler on their work in the House Resources Committee.                                                                     
                                                                                                                                
CSSB 21(FIN)  am(efd fld)  was HEARD  and HELD  in committee                                                                    
for further consideration.                                                                                                      
                                                                                                                                
[Note: CSSB 21(FIN) am(efd fld)  was heard later in the same                                                                    
meeting beginning at 3:58 p.m.]                                                                                                 
                                                                                                                                
CS FOR SENATE BILL NO. 85(TRA)                                                                                                
                                                                                                                                
     "An Act relating to experimental vehicles."                                                                                
                                                                                                                                
10:16:10 AM                                                                                                                   
                                                                                                                                
BRITTANY HUTCHISON,  STAFF, SENATOR  CLICK BISHOP,  spoke to                                                                    
the bill. She explained that  the CS had removed the wording                                                                    
"cold weather"  on page 1, lines  6, 7, and 11  in order for                                                                    
the  state to  welcome  all types  of  vehicle testing.  She                                                                    
stated that for  many years Alaska had been  marketed as the                                                                    
most accessible,  affordable, and reliable place  to conduct                                                                    
cold  weather testing.  She noted  that the  state was  also                                                                    
known as a prime location.  Currently there were no statutes                                                                    
regulating the registration  of experimental vehicles, which                                                                    
made  it  difficult  for automotive  companies  to  continue                                                                    
conducting  business   in  Alaska.  She   communicated  that                                                                    
recently  the  Volkswagen  Group  of America  had  to  bring                                                                    
experimental vehicles back after  an initial testing session                                                                    
due  to  stricter  emission  regulations  (the  company  had                                                                    
conducted  its vehicle  testing  in the  state since  2000);                                                                    
however, the  company had  been told that  it would  need to                                                                    
register and  title all of  the vehicles, which  was neither                                                                    
desirable or possible in Alaska.                                                                                                
                                                                                                                                
Ms. Hutchinson relayed that the  sponsor's office had spoken                                                                    
with the Division of Motor  Vehicles (DMV) and had been told                                                                    
that  the   DMV  lacked   statutory  authority   to  provide                                                                    
registration  for experimental  vehicles. She  detailed that                                                                    
the  sponsor had  worked with  DMV and  Volkswagen Group  of                                                                    
America's  corporate council  Allison Airhart  to draft  the                                                                    
legislation.  The   bill  would  allow  the   DMV  to  issue                                                                    
experimental  vehicle  plates  to vehicle  distributors  and                                                                    
manufacturers.  The plates  would  be valid  for a  12-month                                                                    
period and  could be  renewed up  to two  times for  a total                                                                    
period of  36 months.  She communicated that  vehicles would                                                                    
be required  to be  either destroyed or  taken out  of state                                                                    
following the 36-month period.                                                                                                  
                                                                                                                                
Representative   Costello   moved   the  bill   before   the                                                                    
committee.                                                                                                                      
                                                                                                                                
10:18:44 AM                                                                                                                   
                                                                                                                                
Representative Thompson believed the  bill was important. He                                                                    
wondered how  much the license  plates would cost  per year.                                                                    
Ms.  Hutchison replied  that  the charge  would  be $90  per                                                                    
year.                                                                                                                           
                                                                                                                                
Representative Thompson asked  whether manufacturers had any                                                                    
problem  with  the  charge. Ms.  Hutchison  replied  in  the                                                                    
negative.                                                                                                                       
                                                                                                                                
ALLISON  AIRHART,  ATTORNEY,  VOLKSWAGEN GROUP  OF  AMERICA,                                                                    
VIRGINIA  (via  teleconference),  spoke in  support  of  the                                                                    
bill. She communicated that the  legislation would allow the                                                                    
company to continue  to perform its cold  weather testing in                                                                    
Alaska. She believed  the bill was ideal and  that it served                                                                    
the  interests  of the  company,  the  Alaska DMV,  and  the                                                                    
Fairbanks   area.  She   explained  that   Alaska's  current                                                                    
statutes inhibited the company from  testing in the state to                                                                    
the  extent that  it did  not allow  for multi-year  vehicle                                                                    
registrations.  She  elaborated  that testing  over  several                                                                    
seasons was necessitated  by recent Environmental Protection                                                                    
Agency   guidelines.   She   shared   that   sustained   low                                                                    
temperatures  in  Alaska  were ideal  for  vehicle  testing.                                                                    
Other  benefits included  a large  availability of  seasonal                                                                    
workers, a  system of  roadways with  a variety  of terrain,                                                                    
affordable lodging, and an airport.                                                                                             
                                                                                                                                
10:21:33 AM                                                                                                                   
                                                                                                                                
JULIE  EMSLIE, FAIRBANKS  ECONOMIC DEVELOPMENT  CORPORATION,                                                                    
FAIRBANKS (via teleconference), testified  in support of the                                                                    
bill.   She  stated   that  the   consistent  cold   weather                                                                    
conditions in  Alaska were difficult to  find elsewhere. She                                                                    
expounded  that  the  temperature  combined  with  excellent                                                                    
facilities  in the  state's service  industry  had made  the                                                                    
state a  prime location for  companies to cold  weather test                                                                    
their  products.   She  shared  that  the   testing  brought                                                                    
positive impacts to the Fairbanks  community and the Alaskan                                                                    
economy.  She  pointed  to  an  estimate  that  the  testing                                                                    
brought in  $500 million annually  in Fairbanks.  She stated                                                                    
that the automotive industry  in particular heavily utilized                                                                    
Alaska's Interior for cold  weather testing. The corporation                                                                    
had discovered that some  local automotive testing companies                                                                    
were  running into  problems with  Alaska's current  vehicle                                                                    
titling  and   registration  regulations,  largely   due  to                                                                    
changing  federal emission  regulations. She  concluded that                                                                    
the  bill  offered a  solution  to  the problem,  removed  a                                                                    
barrier  to the  automotive cold  weather testing  industry,                                                                    
and did not  infringe on the DMV's ability to  carry out its                                                                    
mission.                                                                                                                        
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
Representative  Costello  discussed   the  one  zero  impact                                                                    
fiscal  note from  Department of  Transportation and  Public                                                                    
Facilities.                                                                                                                     
                                                                                                                                
Representative Thompson MOVED to  REPORT CSSB 85(TRA) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
                                                                                                                                
CSSB 85(TRA) was REPORTED out  of committee with a "do pass"                                                                    
recommendation  and  with   one  previously  published  zero                                                                    
fiscal note: FN1 (DOT).                                                                                                         
                                                                                                                                
10:24:24 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:27:05 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
CS FOR SENATE BILL NO. 83(FIN)                                                                                                
                                                                                                                                
     "An  Act  relating  to   the  corporation  income  tax;                                                                    
     relating  to  the  computation of  interest  under  the                                                                    
     look-back method  applicable to long-term  contracts in                                                                    
     the  Internal  Revenue  Code;   and  providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
Representative   Costello   moved   the  bill   before   the                                                                    
committee.                                                                                                                      
                                                                                                                                
10:27:28 AM                                                                                                                   
                                                                                                                                
SENATOR  PETER  MICCICHE,   SPONSOR,  communicated  that  in                                                                    
addition to its focus on  corporate income tax, the bill was                                                                    
about fairness  and simplicity.  He detailed  that currently                                                                    
for  state   and  federal  corporate  income   tax  purposes                                                                    
contractors  undertaking large  multi-year projects  such as                                                                    
highways,  schools, and  university buildings  were required                                                                    
to  estimate their  total profit  on  a project  and to  pay                                                                    
income  tax on  the portion  of the  project completed  in a                                                                    
given tax year. He stated  that it was impossible to predict                                                                    
in the  first year of  the project  what the actual  cost or                                                                    
profit would  be. He furthered  that upon completion  of the                                                                    
project and once the profit  amount had been determined, the                                                                    
contractor  filed look-back  taxes (an  amended return).  He                                                                    
expounded that a contractor either  owed additional taxes or                                                                    
received a refund based on  whether the profit had been over                                                                    
or  under estimated;  interest was  owed  on the  additional                                                                    
taxes due or the refund to be paid.                                                                                             
                                                                                                                                
Senator Micciche relayed that  although the Internal Revenue                                                                    
Service (IRS)  code had  a specific  provision for  over and                                                                    
under  payments  of  estimated   taxes  for  the  multi-year                                                                    
projects, existing state laws  considered the payments to be                                                                    
delinquent  and applied  an 11  percent  interest rate.  The                                                                    
state made  no distinction between its  system of estimating                                                                    
taxes  based on  a  contractor's best  knowledge  and a  tax                                                                    
payer who  did not make  a timely filing. He  believed there                                                                    
should be a  distinction. He stated that the  bill would tie                                                                    
the interest  rate to a  recognized index as opposed  to the                                                                    
11  percent  interest  currently   paid  by  the  state  and                                                                    
contractors.  He  noted  that  the  current  interest  rates                                                                    
charged by the state were outdated.                                                                                             
                                                                                                                                
Senator Micciche  expounded that the bill  would correct the                                                                    
interest issue,  simplify the  process for  contractors, and                                                                    
adopt the  IRS bulletin rates  for look-back taxes  on long-                                                                    
term projects allowing contractors and  the state to use the                                                                    
same interest pay  schedules for state taxes  as the federal                                                                    
system. Currently the interest rate  was 2 percent for under                                                                    
payments when  the profit had  been underestimated  and over                                                                    
payments when the state owed  money in the amount of $10,000                                                                    
or less;  interest was  currently levied  at 0.5  percent on                                                                    
amounts  greater  than $10,000.  He  relayed  that the  rate                                                                    
fluctuated  and was  published quarterly.  The CS  specified                                                                    
the  tax policy  would  be  in effect  for  the entire  2013                                                                    
calendar tax year.                                                                                                              
                                                                                                                                
10:30:10 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stoltze  stated  that  there  were  two  potential                                                                    
amendments.  He   expressed  desire  for  a   more  thorough                                                                    
discussion on  the legislation and how  the amendments would                                                                    
impact  it.  He  thought  the second  amendment  related  to                                                                    
helping commercial seiners in Southeast.                                                                                        
                                                                                                                                
Senator Micciche  noted that the second  potential amendment                                                                    
related to hatcheries.  He reiterated the bill  focused on a                                                                    
fairness issue.  He pointed to  multiple letters  of support                                                                    
from  general   contractors,  the  Association   of  General                                                                    
Contractors,   bankers,  public   accountants,  surety   and                                                                    
bonding brokers,  and others. He  emphasized the  bill would                                                                    
be good for  the state. He relayed that he  would review the                                                                    
amendments. He  stated that  he had worked  on the  bill all                                                                    
session  and would  prefer  to not  include  items that  may                                                                    
prevent the bill from moving forward in the current year.                                                                       
                                                                                                                                
Co-Chair Stoltze communicated his  desire for a deliberative                                                                    
discussion.                                                                                                                     
                                                                                                                                
JOHN  MACKINNON,  EXECUTIVE   DIRECTOR,  ASSOCIATED  GENERAL                                                                    
CONTRACTORS OF ALASKA, was available for questions.                                                                             
                                                                                                                                
Representative Costello  asked for Mr. Mackinnon  to comment                                                                    
on the bill.                                                                                                                    
                                                                                                                                
Mr. Mackinnon  testified in support  of the bill.  He stated                                                                    
that an  11 percent  interest rate had  been in  place since                                                                    
the early  1980s. He remarked  that his first home  loan had                                                                    
been over 10 percent in 1981.   The bill brought the rate in                                                                    
line  with  the  current  federal  rate  and  made  a  clear                                                                    
distinction that  the returns were  amended. He  opined that                                                                    
referring to an amended return  as a delinquent tax unfairly                                                                    
characterized  contractors' and  C corporations'  efforts to                                                                    
be  honest. He  furthered that  the current  system unfairly                                                                    
penalized  C corporations,  given  that they  were the  only                                                                    
businesses  paying taxes  to the  state.  He explained  that                                                                    
most   contractors    were   limited    partnerships,   sole                                                                    
proprietorships or S corporations that paid no taxes.                                                                           
                                                                                                                                
Co-Chair  Stoltze recalled  that the  state had  opposed the                                                                    
imposition of the  interest rate when it  had been litigated                                                                    
against by out-of-state commercial  fishermen in the Carlson                                                                    
case.  He  communicated  that  the state  had  gone  to  the                                                                    
supreme court  on the unfairness  of the rates.  He believed                                                                    
the state was  on the record related to its  position on the                                                                    
interest rates.                                                                                                                 
                                                                                                                                
10:35:45 AM                                                                                                                   
                                                                                                                                
IDONNA  PIPER   NELSON,  PARTNER,  DAVIS   CONSTRUCTORS  AND                                                                    
ENGINEERS,  ANCHORAGE (via  teleconference), spoke  in favor                                                                    
of the bill.  She relayed that the company had  chosen to be                                                                    
a C  corporation; it was  not objecting to paying  the look-                                                                    
back taxes,  but wanted to  be treated  the same way  by the                                                                    
state as  it was  by the federal  government. She  had begun                                                                    
work on the  issue with legislators during  the past several                                                                    
years. She  thanked the committee  and urged the  passage of                                                                    
the legislation.                                                                                                                
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
Co-Chair   Stoltze  discussed   the  amendments   and  asked                                                                    
sponsors to provide them to his office.                                                                                         
                                                                                                                                
SB  83  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
[Note: The  meeting was  recessed at  10:41 p.m.  until 1:12                                                                    
a.m. on  April 12, 2013  and CSSB 83(FIN) was  reported from                                                                    
committee  at  that time.  See  April  12, 2013,  1:12  a.m.                                                                    
minutes for detail.]                                                                                                            
                                                                                                                                
10:38:28 AM                                                                                                                   
RECESSED                                                                                                                        
                                                                                                                                
1:53:19 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CS FOR SENATE BILL NO. 22(FIN)                                                                                                
                                                                                                                                
     "An  Act relating  to the  commencement of  actions for                                                                    
     felony  sex trafficking  and felony  human trafficking;                                                                    
     relating to  the crime of  sexual assault;  relating to                                                                    
     the crime  of unlawful contact; relating  to forfeiture                                                                    
     for certain crimes  involving prostitution; relating to                                                                    
     the  time in  which to  commence certain  prosecutions;                                                                    
     relating to release in a  prosecution for stalking or a                                                                    
     crime involving  domestic violence or for  violation of                                                                    
     a  condition  of release  in  connection  with a  crime                                                                    
     involving domestic  violence; relating  to interception                                                                    
     of private  communications for certain  sex trafficking                                                                    
     or  human  trafficking  offenses; relating  to  use  of                                                                    
     evidence  of  sexual   conduct  concerning  victims  of                                                                    
     certain   crimes;   relating    to   consideration   at                                                                    
     sentencing  of the  effect of  a crime  on the  victim;                                                                    
     relating to the time to  make an application for credit                                                                    
     for  time served  in a  treatment program  or while  in                                                                    
     other  custody; relating  to  suspending imposition  of                                                                    
     sentence for  sex trafficking; relating  to consecutive                                                                    
     sentences for  convictions of certain  crimes involving                                                                    
     child  pornography  or  indecent materials  to  minors;                                                                    
     relating  to  the  referral of  sexual  felonies  to  a                                                                    
     three-judge  panel;  relating   to  the  definition  of                                                                    
     'sexual  felony'  for   sentencing  and  probation  for                                                                    
     conviction   of  certain   crimes;   relating  to   the                                                                    
     definition  of  'sex  offense' regarding  sex  offender                                                                    
     registration;  relating to  the  definition of  'victim                                                                    
     counseling   centers'   for   disclosure   of   certain                                                                    
     communications  concerning sexual  assault or  domestic                                                                    
     violence;  relating  to  violent  crimes  compensation;                                                                    
     relating to  certain information in  retention election                                                                    
     of  judges concerning  sentencing of  persons convicted                                                                    
     of  felonies; relating  to remission  of sentences  for                                                                    
     certain sexual felony offenders;  relating to forms for                                                                    
     sexual   assault,  stalking,   and  domestic   violence                                                                    
     protective orders;  relating to  the subpoena  power of                                                                    
     the attorney general  in cases involving the  use of an                                                                    
     Internet  service   account;  relating   to  reasonable                                                                    
     efforts in child-in-need-of-aid  cases involving sexual                                                                    
     abuse  or   sex  offender  registration;   relating  to                                                                    
     mandatory reporting by athletic  coaches of child abuse                                                                    
     or  neglect;  making  conforming  amendments;  amending                                                                    
     Rules  16, 32.1(b)(1),  and  32.2(a),  Alaska Rules  of                                                                    
     Criminal Procedure,  and Rules  404(a) and  (b), Alaska                                                                    
     Rules  of  Evidence;  and providing  for  an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
1:54:59 PM                                                                                                                    
                                                                                                                                
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
committee  substitute  for  CSSB  22(FIN),  Work  Draft  28-                                                                    
GS1587\R  (Strasbaugh, 4/10/13).  Co-Chair Stoltze  OBJECTED                                                                    
for discussion.                                                                                                                 
                                                                                                                                
DANIEL   GEORGE,   STAFF,   REPRESENTATIVE   BILL   STOLTZE,                                                                    
discussed the changes  in the CS. He relayed  that the first                                                                    
change had  been made to the  bill title on page  2, lines 8                                                                    
through 11:                                                                                                                     
                                                                                                                                
     ...the rights  of certain victims of  sexual assault to                                                                    
     obtain  legal  and  equitable  remedies  from  injuries                                                                    
     arising from the conduct of  a perpetrator; relating to                                                                    
     the definition  of 'sexual assault' for  the purpose of                                                                    
     adoption  and the  termination  of  parental rights  in                                                                    
     certain proceedings; relating to...                                                                                        
                                                                                                                                
Co-Chair Stoltze  noted that  some of  the changes  were not                                                                    
products  of the  House Finance  Committee and  included the                                                                    
adoption of work done by the House Judiciary Committee.                                                                         
                                                                                                                                
Mr.  George relayed  that the  next  change clarified  which                                                                    
offences were eligible for the  forfeiture of property (page                                                                    
7).                                                                                                                             
                                                                                                                                
1:57:17 PM                                                                                                                    
                                                                                                                                
Mr. George pointed to the  addition of a fifth item (Section                                                                    
17, subsection (a),  page 10) to the list of  items a victim                                                                    
may request from the court  prior to a presentencing report:                                                                    
"letters   of   support   submitted   to   the   court   for                                                                    
consideration."                                                                                                                 
                                                                                                                                
Co-Chair  Stoltze  relayed  that the  change  resulted  from                                                                    
outreach to the Office of Victims' Rights.                                                                                      
                                                                                                                                
Mr. George noted  that Sections 31 and 32 had  been added to                                                                    
the bill  (page 16)  in the  House Judiciary  Committee. The                                                                    
additions related  to a  savings clause  that would  allow a                                                                    
victim of  sexual assault to  terminate parental  rights and                                                                    
pursue  civil damages.  The meaning  of  sexual assault  was                                                                    
further defined in  Section 32. He continued on  page 20 and                                                                    
relayed that  the word "and"  had been inserted on  line 30;                                                                    
additionally, language  had been  deleted from line  31 that                                                                    
read "any  individual the defendant  may seek to  qualify to                                                                    
furnish expert testimony at trial."                                                                                             
                                                                                                                                
Representative Holmes asked for the page number.                                                                                
                                                                                                                                
Mr. George  reiterated the information about  page 20, lines                                                                    
30 and 31. He read the full sentence beginning on line 27:                                                                      
                                                                                                                                
     The material shall be considered  to be made reasonably                                                                    
     available to  the defendant or  defense counsel  if the                                                                    
     prosecuting attorney provides, at  a law enforcement or                                                                    
     prosecution    facility,    ample    opportunity    for                                                                    
     inspection,  viewing, and  examination of  the material                                                                    
     by the defendant and the defendant's attorney.                                                                             
                                                                                                                                
Mr. George elaborated that the  sentence had gone on to read                                                                    
(but had  been deleted):  "any individual the  defendant may                                                                    
seek to qualify to furnish expert testimony at trial."                                                                          
                                                                                                                                
2:00:37 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:01:37 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Mr. George continued on page 21.  Lines 2 through 5 had been                                                                    
edited  to  read  "If  the   defendant  or  the  defendant's                                                                    
attorney identifies  an expert  who must view  the material,                                                                    
the court shall  make arrangements for the court  or the law                                                                    
enforcement agency  that possesses  it to send  the material                                                                    
directly to the  expert"; the words "outside  the state" had                                                                    
been removed from the sentence.                                                                                                 
                                                                                                                                
2:02:49 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Work Draft 28-GS1587\R was ADOPTED.                                                                          
                                                                                                                                
Representative  Wilson asked  whether  the use  of a  global                                                                    
positioning device was available  throughout the state or in                                                                    
urban areas only.                                                                                                               
                                                                                                                                
LESLIE   HOUSTON,   DEPUTY   COMMISSIONER,   DEPARTMENT   OF                                                                    
CORRECTIONS,  asked  Representative  Wilson  to  repeat  the                                                                    
question.                                                                                                                       
                                                                                                                                
Representative  Wilson  stated  that she  was  uncomfortable                                                                    
with the concept  of using a global  positioning device. She                                                                    
wondered whether  the devices would  be used in  all Alaskan                                                                    
communities  if Department  of  Corrections  decided to  use                                                                    
them. Ms. Houston replied that  the technology did exist for                                                                    
use throughout Alaska.                                                                                                          
                                                                                                                                
Representative  Wilson  asked  for verification  that  court                                                                    
ordered treatment  outside a treatment center  did not count                                                                    
as jail time unless a person was escorted.                                                                                      
                                                                                                                                
ANNE CARPENETI,  ASSISTANT ATTORNEY GENERAL,  LEGAL SERVICES                                                                    
SECTION-JUNEAU, CRIMINAL DIVISION,  DEPARTMENT OF LAW (DOL),                                                                    
agreed.  She detailed  that in  order  for a  person to  get                                                                    
credit  for  treatment they  needed  to  go to  a  treatment                                                                    
center  and  to be  escorted  by  the  center to  any  other                                                                    
treatment location.  She noted that some  exceptions existed                                                                    
such as meetings with counsel, going to court, and other.                                                                       
                                                                                                                                
Representative  Wilson planned  to research  the issue  over                                                                    
the  interim.  She  was concerned  about  smaller  treatment                                                                    
facilities  that could  not provide  all services  and about                                                                    
the  additional cost  that  may  occur as  a  result of  the                                                                    
chaperone requirement.  She wanted to avoid  people choosing                                                                    
to  sit  in  jail  instead of  leaving  for  treatment.  She                                                                    
reiterated her plan to look into the issue further.                                                                             
                                                                                                                                
Ms. Carpeneti replied  that DOL would be happy  to work with                                                                    
Representative Wilson on the issue.                                                                                             
                                                                                                                                
Representative Gara referred to a  sexual abuse case at Penn                                                                    
State [Jerry Sandusky case]. He  asked for verification that                                                                    
if a college  coach or personnel learned  about sexual abuse                                                                    
occurring  they  were  legally  required  to  report  it  in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Ms.  Carpeneti  answered  that a  person  connected  with  a                                                                    
school,  a  part of  a  school  administration, or  teaching                                                                    
staff was legally required to report the abuse.                                                                                 
                                                                                                                                
Representative Gara  stated asked for verification  that the                                                                    
law included universities. Ms. Carpeneti believed so.                                                                           
                                                                                                                                
Representative  Gara asked  for  confirmation that  existing                                                                    
Alaska law covered a Jerry  Sandusky situation, assuming all                                                                    
people charged  were guilty. Ms.  Carpeneti was  not certain                                                                    
that all individuals who knew  about the Sandusky abuse were                                                                    
paid staff of the university.                                                                                                   
                                                                                                                                
Representative Gara asked if paid  university staff would be                                                                    
subject  to  prosecution  under Alaska  law.  Ms.  Carpeneti                                                                    
replied that  the individuals  would be  mandatory reporters                                                                    
under Alaska law.                                                                                                               
                                                                                                                                
Representative  Gara asked  for verification  that it  was a                                                                    
crime  for a  mandatory reporter  to not  report abuse.  Ms.                                                                    
Carpeneti replied that it could be  a crime if a person knew                                                                    
about the  abuse and did not  report it. She added  that the                                                                    
state had  never prosecuted  a similar  case. Representative                                                                    
Gara asked  whether the  situation was  covered by  the law.                                                                    
Ms. Carpeneti replied in the affirmative.                                                                                       
                                                                                                                                
Representative  Gara   MOVED  Amendment   1  (28-GS1587\Y.4,                                                                    
Gardner/Strasbaugh, 4/4/13)(copy on file):                                                                                      
                                                                                                                                
     Page 19, line 8, following "members":                                                                                      
     Insert ", including athletic coaches,"                                                                                     
                                                                                                                                
     Page 19, lines 19-20:                                                                                                      
     Delete";                                                                                                                   
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Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
Representative Gara noted that  the amendment was conceptual                                                                    
as it had  been written to the prior bill  version. The bill                                                                    
related to  pages 19  and 20  of the  legislation. Currently                                                                    
the  bill  stipulated  that  paid  coaches  were  liable  as                                                                    
mandatory  reporters of  child  abuse or  neglect that  they                                                                    
knew about. He  provided a scenario of a  person being asked                                                                    
to coach their  child's soccer team the  night before school                                                                    
started for a  token amount of pay. He did  not want to make                                                                    
the individual under the scenario  liable. Existing law made                                                                    
school  teachers, school  administrative  staff, members  of                                                                    
public  and private  schools liable.  He explained  that the                                                                    
amendment  would   insert  the  words   "including  athletic                                                                    
coaches"  to the  list on  page 19,  line 31.  The amendment                                                                    
would delete  subsection (9) reading "athletic  coaches" and                                                                    
Section 40  that defined an  athletic coach as a  person who                                                                    
may  get a  token  amount  of pay  (e.g.  $10  or $25).  The                                                                    
amendment contained conforming language as well.                                                                                
                                                                                                                                
Representative  Gara explained  that  the  intention of  the                                                                    
amendment  was  to  distinguish between  a  school  athletic                                                                    
coach  who  ostensibly received  some  kind  of training  in                                                                    
mandatory reporting  and a  parent who  had no  training. He                                                                    
stated that a parent who  volunteered to coach a team should                                                                    
not be held to the same requirement.                                                                                            
                                                                                                                                
2:11:03 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked for the definition  of a school                                                                    
administrative staff member.                                                                                                    
                                                                                                                                
NAOMI  HARRIS,   COMMUNITY  RELATIONS  MANAGER,   OFFICE  OF                                                                    
CHILDREN'S SERVICES  (OCS), DEPARTMENT OF HEALTH  AND SOCIAL                                                                    
SERVICES,  did   not  have  the   definition  of   a  school                                                                    
administrative staff member available.  She was available to                                                                    
speak  to  mandatory  reporting requirements  and  available                                                                    
training.                                                                                                                       
                                                                                                                                
Representative  Gara asked  for verification  that currently                                                                    
all mandatory reporters were  in professional positions. Ms.                                                                    
Harris responded in the affirmative.                                                                                            
                                                                                                                                
Co-Chair Stoltze  wondered who would potentially  be subject                                                                    
to  a felony  charge  under the  legislation. Ms.  Carpeneti                                                                    
replied  that  teachers  fell under  the  description  of  a                                                                    
professional person.  She elaborated that in  the absence of                                                                    
a definition for  "administrator," the dictionary definition                                                                    
could be  used. She cited  the definition as someone  on the                                                                    
staff who  is paid  in a school  (e.g. school  counselors or                                                                    
other  paid  employees).  She  relayed  that  the  mandatory                                                                    
reporting  requirements  applied  to  childcare  workers  as                                                                    
well. She  noted that childcare  workers did not get  paid a                                                                    
substantial  amount  of money,  but  they  were required  to                                                                    
report if they suspected child abuse and neglect.                                                                               
                                                                                                                                
Co-Chair  Stoltze interjected  that  the  assertion was  not                                                                    
about making  a substantial amount  of money. He  noted that                                                                    
the individuals [the amendment aimed  to exclude] were often                                                                    
uncompensated; they may receive  inexpensive items such as a                                                                    
ticket to a school event or lunch money.                                                                                        
                                                                                                                                
Ms. Harris added  that there was a  training video available                                                                    
on the  OCS website that could  be sent in the  mail as well                                                                    
through the Children's Justice Task Force.                                                                                      
                                                                                                                                
Co-Chair Stoltze  was concerned  about the  possibility that                                                                    
the bill was  overreaching in the area related  to who would                                                                    
be  considered a  mandatory  reporter. He  did  not want  to                                                                    
felonize a person who did not  have training and who may not                                                                    
be present very  willingly [as a volunteer  coach or other].                                                                    
He agreed  with Representative Gara  on the issue  about the                                                                    
seriousness of  creating a felony  possibility for  a person                                                                    
who was essentially a volunteer.                                                                                                
                                                                                                                                
2:17:13 PM                                                                                                                    
                                                                                                                                
Representative  Wilson   surmised  that  the   term  "school                                                                    
administrative staff"  had been included  in the bill  for a                                                                    
reason. She  was not a  fan of the legislation  and believed                                                                    
it was  overreaching. She wanted statistics  showing who the                                                                    
bill aimed  to catch. She  stated that athletic  coaches fit                                                                    
under the term school  administrative staff. She referred to                                                                    
workers who  received a stipend  to care for  students after                                                                    
school on school  grounds. She wondered if  the after school                                                                    
workers  would   be  subject  to  the   mandatory  reporting                                                                    
requirement  if the  bill language  was  changed to  "school                                                                    
staff." She  did not know what  "school administrative staff                                                                    
member" meant and was concerned about the issue.                                                                                
                                                                                                                                
Co-Chair   Stoltze  redirected   the  conversation   towards                                                                    
Amendment 1.                                                                                                                    
                                                                                                                                
Representative  Wilson  wondered   why  the  term  "athletic                                                                    
coach" was needed  in the legislation; she  wondered who the                                                                    
[mandatory reporting] provision applied to.                                                                                     
                                                                                                                                
Ms.  Harris  clarified  that mandatory  reporters  were  not                                                                    
expected to  be experts  in child  abuse. She  detailed that                                                                    
coaches,  school staff,  and after  school staff  had unique                                                                    
and close  relationships with  the children.  She elaborated                                                                    
that the  staff often  noticed things or  children disclosed                                                                    
information to them.  The requirement was that  if the staff                                                                    
became aware  of incidents  of child  abuse or  neglect that                                                                    
they were to alert OCS.                                                                                                         
                                                                                                                                
Co-Chair Stoltze  asked what would happen  if the individual                                                                    
did not  alert OCS. Ms.  Harris replied that a  person would                                                                    
not be charged  with a misdemeanor if it came  to light that                                                                    
they had  been aware of abuse  and had failed to  report it.                                                                    
She added  that an incident  had only been reported  once in                                                                    
the past.                                                                                                                       
                                                                                                                                
Ms. Carpeneti believed the amendment  would most likely make                                                                    
the section  in the bill unnecessary;  people connected with                                                                    
a school  were already mandatory reporters.  She referred to                                                                    
a  letter from  Gary  Matthews  [executive director,  Alaska                                                                    
School Activities  Association, Inc.], which  mentioned that                                                                    
hundreds  of  athletic  coaches   were  not  connected  with                                                                    
schools (copy on  file); the bill would  require the coaches                                                                    
to be  mandatory reporters.  She relayed  that the  group of                                                                    
coaches  were  treated  differently  at  different  schools.                                                                    
There were a number of  schools in Anchorage that contracted                                                                    
their  coaching to  individuals; some  schools required  the                                                                    
coaches to  be mandatory reporters  and others did  not. The                                                                    
association  [Alaska  School Activities  Association,  Inc.]                                                                    
required  people  with  direct  supervisory  authority  over                                                                    
children to receive training. She  relayed that the training                                                                    
was not onerous;  it took approximately 30  minutes to watch                                                                    
the  training on  the  OCS  website. A  person  was able  to                                                                    
report suspected  abuse anonymously;  OCS used  standards to                                                                    
determine whether an investigation  should occur following a                                                                    
report.  She stated  that adding  paid athletic  coaches was                                                                    
not an onerous addition to the existing law.                                                                                    
                                                                                                                                
Co-Chair Stoltze remarked that a  bill on the issue ought to                                                                    
easily stand alone.                                                                                                             
                                                                                                                                
2:21:47 PM                                                                                                                    
                                                                                                                                
Representative Thompson spoke in  support of Amendment 1. He                                                                    
discussed his  involvement with the youth  soccer and hockey                                                                    
associations in Fairbanks; every  year the associations were                                                                    
short on coaches and the groups  had to beg parents to coach                                                                    
teams. He  believed the provision  in the  legislation would                                                                    
make some coaches  hesitant to get involved.  He opined that                                                                    
the language in the bill was overreaching.                                                                                      
                                                                                                                                
Representative Munoz  supported the amendment.  She believed                                                                    
the bill  language was too  broad with its inclusion  of any                                                                    
sporting  programs  that  received  municipal  funding.  She                                                                    
stated  that in  Juneau the  provision could  include almost                                                                    
all of the  youth sporting programs where  most coaches were                                                                    
volunteers who were  paid a small stipend.  She worried that                                                                    
as  written,   the  provision  would   be  a   deterrent  to                                                                    
participation.  She   had  heard   from  parents   who  were                                                                    
concerned with the provision. She  believed it was important                                                                    
to include coaches associated with  public or private school                                                                    
programs in  the school  employee section,  but she  did not                                                                    
want unintended consequences  impacting participation in all                                                                    
local programs.                                                                                                                 
                                                                                                                                
Co-Chair Stoltze  corrected his  earlier statement  that the                                                                    
crime would be a felony.  The offence was a misdemeanor with                                                                    
maximum incarceration of up to one year.                                                                                        
                                                                                                                                
Ms. Carpeneti communicated that  the provision did not apply                                                                    
to volunteer coaches.                                                                                                           
                                                                                                                                
Co-Chair Stoltze  noted "we don't know  the interpretation."                                                                    
He  believed in  the  fundamentals of  choosing respect  and                                                                    
having   responsibilities  to   prevent   bad  things   from                                                                    
happening. He stated  that it was not  possible to formulate                                                                    
everything  on moral  behavior into  a law.  He stated  that                                                                    
there were  delineations for the providers  that people have                                                                    
training.                                                                                                                       
                                                                                                                                
2:25:00 PM                                                                                                                    
                                                                                                                                
Representative   Gara  stated   that   the  Jerry   Sandusky                                                                    
situation was currently covered by  Alaska law. He wanted to                                                                    
ensure that  school coaches were  subject to the  same rule.                                                                    
Currently the  only people covered in  schools were teachers                                                                    
and school administrative staff.  The amendment would ensure                                                                    
that  school athletic  coaches  were  included as  mandatory                                                                    
reporters.  He explained  that  the  amendment would  remove                                                                    
subsection (9) and  the definition of athletic  coach was to                                                                    
exclude individuals who were paid  a small stipend to coach.                                                                    
He stressed that  if the individuals were  included the bill                                                                    
may  as well  include  all people  in  Alaska. He  expressed                                                                    
discomfort at making  a person who was paid  $25 a mandatory                                                                    
reporter.  He  communicated  that  the  amendment  tried  to                                                                    
adhere  to  the intent  of  the  bill; athletic  coaches  in                                                                    
schools would be subject to the law.                                                                                            
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
OBJECTION,  Amendment 1  (28-GS1587\Y.4, Gardner/Strasbaugh,                                                                    
4/4/13) was ADOPTED.                                                                                                            
                                                                                                                                
2:28:00 PM                                                                                                                    
                                                                                                                                
Representative  Costello  communicated  that  the  bill  had                                                                    
eight indeterminate and zero fiscal notes.                                                                                      
                                                                                                                                
Representative  Holmes expressed  discomfort  at DOL's  zero                                                                    
note  that  did  not  include an  explanation  on  the  zero                                                                    
impact.  She  felt  the same  way  about  the  indeterminate                                                                    
notes.  She  stated that  crime  bills  invariably cost  the                                                                    
state a significant amount of money.                                                                                            
                                                                                                                                
Co-Chair Stoltze  discussed a past  crime bill  package that                                                                    
had  many  fiscal  notes  attached from  a  broad  range  of                                                                    
departments.   He  discussed   that   the   cost  had   been                                                                    
substantial and had been included in the fiscal notes.                                                                          
                                                                                                                                
Ms. Carpeneti offered  to respond to DOL's  fiscal note. She                                                                    
relayed that the fiscal note  was zero because the bill only                                                                    
added one  new crime that  prohibited a probation  or parole                                                                    
officer from  engaging in  sexual contact  with a  person on                                                                    
probation or parole. The bill's  other provisions dealt with                                                                    
improving the  efficiency of the administration  of justice.                                                                    
She  believed the  fiscal note  was  legitimately zero.  She                                                                    
stated that only one  probation/parole officer situation had                                                                    
been brought to the state's attention sense 1978.                                                                               
                                                                                                                                
Co-Chair Stoltze noted that the  information would have been                                                                    
helpful  to have  in the  department's  written fiscal  note                                                                    
analysis.                                                                                                                       
                                                                                                                                
Representative   Holmes    remarked   that   two    of   the                                                                    
indeterminate notes  were from  a department she  would work                                                                    
on the following year.                                                                                                          
                                                                                                                                
2:33:18 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  wondered  about  costs  to  victims.  He                                                                    
stated that sex offenders had  an average of 110 victims and                                                                    
318 offenses  prior to being  caught. He furthered  that the                                                                    
offenders went undetected for an  average of 16 years, which                                                                    
explained why there  were so many victims  of each offender.                                                                    
He shared  that the National Institute  of Justice estimated                                                                    
that  the  average  cost  of  caring  for  the  victims  was                                                                    
$86,500. He stated  that only 16 percent of  the crimes were                                                                    
reported.  He relayed  that Alaska  spent approximately  $45                                                                    
million on sexual assault victim treatment.                                                                                     
                                                                                                                                
Representative Holmes  clarified she was not  opposed to the                                                                    
legislation,  but  that  she would  prefer  to  see  numbers                                                                    
included in the fiscal notes.                                                                                                   
                                                                                                                                
Representative  Wilson surmised  that because  the bill  was                                                                    
about efficiencies  she believed  savings should  occur. She                                                                    
requested comment  on the issue. Ms.  Carpeneti replied that                                                                    
her testimony  related to  increasing efficiencies  was only                                                                    
related to DOL.                                                                                                                 
                                                                                                                                
2:35:46 PM                                                                                                                    
                                                                                                                                
Representative  Wilson wondered  what problem  the bill  was                                                                    
aimed at solving.                                                                                                               
                                                                                                                                
JOSEPH  MASTERS, COMMISSIONER,  DEPARTMENT OF  PUBLIC SAFETY                                                                    
(DPS), viewed the  fiscal impact as zero because  it did not                                                                    
see additional  expenses to the department.  He communicated                                                                    
that  it  was  difficult  for  DPS  to  calculate  potential                                                                    
savings.  He stated  that one  section dealt  with adding  a                                                                    
second  representative of  the attorney  general that  could                                                                    
assist DPS  with administrative subpoenas; the  absence of a                                                                    
second person  during critical times  would cause  DPS extra                                                                    
work.  Calculating   the  extra  work  was   not  difficult;                                                                    
however,  counting the  number  of times  it  may occur  was                                                                    
challenging.                                                                                                                    
                                                                                                                                
Representative  Wilson  wondered  about the  possibility  of                                                                    
zeroing out  all of the  fiscal notes. She remarked  that it                                                                    
did not sound like any  additional offenders would be caught                                                                    
or incarcerated under the legislation.                                                                                          
                                                                                                                                
Co-Chair Stoltze  noted that members had  communicated their                                                                    
concerns about  the fiscal  notes. He  believed some  of the                                                                    
concerns had been answered adequately.                                                                                          
                                                                                                                                
Representative Wilson hoped that  information on an existing                                                                    
problem  and  solution  would be  provided  in  future  bill                                                                    
presentations.                                                                                                                  
                                                                                                                                
Co-Chair  Stoltze  added  that   it  would  be  helpful  for                                                                    
departments   to  include   an   explanation   on  zero   or                                                                    
indeterminate notes in the analysis section.                                                                                    
                                                                                                                                
Representative  Costello MOVED  to  REPORT  CSSB 22(FIN)  as                                                                    
amended  out of  committee  with individual  recommendations                                                                    
and the accompanying fiscal notes.                                                                                              
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
Vice-Chair Neuman referred to  earlier testimony on the need                                                                    
to  correct  issues  related  to  a  three-judge  panel  and                                                                    
wondered what the bill would  change. He recalled discussion                                                                    
on  a  prior bill  regarding  the  complexity of  the  issue                                                                    
including  false  accusations.  He stated  that  individuals                                                                    
were placed in  jail for significant periods of  time due to                                                                    
mandatory requirements.                                                                                                         
                                                                                                                                
Ms.  Carpeneti  replied  that  hopefully  nothing  would  be                                                                    
changed with the three-judge panel.  One of the bill's goals                                                                    
was to correct a mistaken  interpretation of the intent of a                                                                    
bill passed  in 2006. She spoke  to the intent of  the prior                                                                    
legislation  related  to  the increased  sentencing  ranges,                                                                    
which  was  due  to  harm  done  by  people  committing  sex                                                                    
felonies. She relayed  that the past October  when the court                                                                    
of appeals  had decided  Collins v. State  it had  adopted a                                                                    
different interpretation.  The department had not  found any                                                                    
legislative  history  of  intent  to  change  standards  for                                                                    
referral of the cases to a three-judge panel.                                                                                   
                                                                                                                                
Vice-Chair  Neuman  read  from  a  subsection  [Section  23,                                                                    
subsection (f), page 12]:                                                                                                       
                                                                                                                                
     ...manifest injustice  would result from  imposition of                                                                    
     a sentence  within the  presumptive range  based solely                                                                    
     on the  claim that the  defendant, either singly  or in                                                                    
     combination, has (1)  prospects for rehabilitation that                                                                    
     are less than  extraordinary; or (2) a  history free of                                                                    
     unprosecuted,   undocumented,   or  undetected   sexual                                                                    
     offences.                                                                                                                  
                                                                                                                                
Vice-Chair  Neuman  surmised  that  unless  the  three-judge                                                                    
panel  believed  an  offender could  be  rehabilitated,  the                                                                    
offender could apply for a  three-judge panel. Ms. Carpeneti                                                                    
replied   in  the   affirmative.  She   detailed  that   the                                                                    
department's  concern was  related to  the Collins  v. State                                                                    
decision,  which addressed  the law  for the  transfer of  a                                                                    
case to a three-judge  panel for sentencing after conviction                                                                    
based  on standards  that were  different from  other cases.                                                                    
Currently a sentencing  court had to find that  a person had                                                                    
prospects  for  rehabilitation  that were  extraordinary  in                                                                    
order for  referral to a  three-judge panel  for sentencing.                                                                    
The court  decision had allowed  the transfer of a  case for                                                                    
sex   felons  to   a   three-judge   panel  under   ordinary                                                                    
rehabilitation prospects, which the bill aimed to correct.                                                                      
                                                                                                                                
2:42:57 PM                                                                                                                    
                                                                                                                                
Representative Edgmon  thanked first lady Sandy  Parnell for                                                                    
championing the  issue. He  spoke in  strong support  of the                                                                    
legislation.  He  remarked that  many  of  the victims  were                                                                    
young  Native women  from  rural Alaska.  He  referred to  a                                                                    
sexual trafficking  committee report from the  past fall and                                                                    
relayed  that many  signs pointed  towards  child abuse  and                                                                    
childhood  trauma. He  encouraged  legislators  to not  lose                                                                    
sight of the importance  of preventing victims from becoming                                                                    
engaged   in   horrific   situations   with   "Johns"   [sex                                                                    
traffickers  or other]  who were  among the  more despicable                                                                    
members of society.                                                                                                             
                                                                                                                                
2:44:40 PM                                                                                                                    
                                                                                                                                
Representative  Wilson felt  that  the  committee was  being                                                                    
pushed to pass the legislation. She  did not want to see any                                                                    
more victims,  but she  did not want  innocent people  to be                                                                    
punished for  being in  the wrong place  at the  wrong time.                                                                    
She  was uncomfortable  about the  legislation  and did  not                                                                    
know who the  bill aimed to catch and what  it would do. She                                                                    
stated that it was not possible  to make laws to catch every                                                                    
bad person.  She felt that  provisions in the bill  were too                                                                    
far reaching  at an unknown cost  to the state. She  did not                                                                    
believe  the committee  had been  given  sufficient time  to                                                                    
examine the bill. She stressed that  she did not want to see                                                                    
unintended consequences result from the legislation.                                                                            
                                                                                                                                
Representative Gara  supported preventing  domestic violence                                                                    
and sexual  abuse, but  he did  not believe  a new  bill was                                                                    
needed  annually to  convey that  the  state apposed  sexual                                                                    
abuse.  He discussed  that legislation  on  the topic  arose                                                                    
every year  and required  slight adjustments to  statute. He                                                                    
stated that sex and  human trafficking were already illegal.                                                                    
He felt  the bill  was more positive  than negative,  but he                                                                    
surmised   that  solutions   to  the   issue  were   largely                                                                    
budgetary. He noted that he did not object to the bill.                                                                         
                                                                                                                                
Co-Chair  Stoltze   spoke  in  strong  agreement   of  other                                                                    
portions of  the bill. He  believed there was  one provision                                                                    
that  was  not  as  thought   out,  but  that  it  was  well                                                                    
intentioned.  He  stated  that  the  committee  had  a  vast                                                                    
concurrence  on the  majority of  the legislation  including                                                                    
initiatives on  sex trafficking and other.  He remarked that                                                                    
it was  not possible to  make malignant behavior  illegal; a                                                                    
statutory   connection  was   required.  He   applauded  the                                                                    
administration  for   its  efforts  and  first   lady  Sandy                                                                    
Parnell's  attention  to  the issue.  He  communicated  that                                                                    
there  were positive  feelings about  the  direction of  the                                                                    
bill.                                                                                                                           
                                                                                                                                
2:50:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze   commended  the  bill  on   its  valuable                                                                    
components.                                                                                                                     
                                                                                                                                
Vice-Chair Neuman  MOVED to REPORT  HCS CSSB 22(FIN)  out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
HCS CSSB  22(FIN) was REPORTED  out of committee with  a "do                                                                    
pass" recommendation  and with one new  indeterminate fiscal                                                                    
note  from  the  Court  System;  four  previously  published                                                                    
indeterminate  fiscal  notes:  FN5 (ADM),  FN8  (ADM),  FN10                                                                    
(COR),  FN12  (CRT);  and  four  previously  published  zero                                                                    
fiscal  notes: FN2  (DPS), FN7  (DHS), FN9  (LAW), and  FN11                                                                    
(DPS).                                                                                                                          
                                                                                                                                
2:51:19 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:03:18 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SENATE BILL NO. 88                                                                                                              
                                                                                                                                
     "An Act  authorizing the state bond  committee to issue                                                                    
     certificates   of   participation    to   finance   the                                                                    
     construction  and equipping  of residential  housing to                                                                    
     serve  the  Anchorage  campus   of  the  Alaska  Native                                                                    
     Medical  Center;  and  authorizing  the  Department  of                                                                    
     Administration   to   enter   into   a   lease-purchase                                                                    
     agreement for  the benefit of the  Alaska Native Tribal                                                                    
     Health Consortium."                                                                                                        
                                                                                                                                
3:03:45 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze  explained  that  the bill  related  to  a                                                                    
certificate of participation, which was  a bond that did not                                                                    
require  voter approval.  He detailed  that  the bill  would                                                                    
finance a residential facility on  the Alaska Native Medical                                                                    
Center  campus  in  Anchorage. The  significant  expenditure                                                                    
would be  funded on  an annual  basis through  the operating                                                                    
budget. He  noted that Medicaid  savings resulting  from the                                                                    
facility offset the costs to the state.                                                                                         
                                                                                                                                
Representative  Holmes  discussed  that  the  Department  of                                                                    
Revenue (DOR)  and the sponsor's office  had been incredibly                                                                    
responsive  to  her questions  from  the  previous day.  She                                                                    
discussed that  five floors  of the  building would  be paid                                                                    
for by the certificate of  participation and one floor would                                                                    
be paid  for by the  Alaska Native Tribal  Health Consortium                                                                    
(ANTHC). She was satisfied with  the bill's language because                                                                    
the   project  described   in  Section   2  referred   to  a                                                                    
residential housing facility  and related pedestrian bridge;                                                                    
the residential portion would be  funded by the certificates                                                                    
of  participation. She  continued that  ANTHC would  pay for                                                                    
the classroom  treatment section.  Page 2, lines  10 through                                                                    
12 referenced a  memorandum of agreement to  be entered into                                                                    
by ANTHC and  the state; the memorandum would  flush out any                                                                    
details  including  ANTHC's  monetary  contribution  to  the                                                                    
project.  Additionally, she  clarified that  DOR would  have                                                                    
the  ability  to use  any  bond  premiums generated  by  the                                                                    
certificates of participation for the cost of construction.                                                                     
                                                                                                                                
3:07:22 PM                                                                                                                    
                                                                                                                                
Representative  Costello discussed  the three  fiscal notes:                                                                    
one  zero note  from the  Department of  Administration; one                                                                    
fiscal impact note from the  Department of Health and Social                                                                    
Services including  $3,849,800 in incoming  federal receipts                                                                    
in FY  15 through FY 19  and a reduction out  of the general                                                                    
fund in  the same  amount; and one  fiscal impact  note from                                                                    
the  Department  of Revenue  including  $765,000  in FY  14,                                                                    
$2,791,600 in FY  15, $2,792,500 in FY 16,  $2,793,700 in FY                                                                    
17, $2,795,700 in FY 18, and $2,793,900 in FY 19.                                                                               
                                                                                                                                
Representative  Costello  MOVED  to  REPORT  SB  88  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
Co-Chair Austerman  spoke to the  fiscal notes and  the cost                                                                    
over time. He appreciated the  direction of the bill and the                                                                    
need  for  the  project;  however, he  cautioned  about  the                                                                    
fiscal obligation and the  uncertainty of federal government                                                                    
financing.                                                                                                                      
                                                                                                                                
Co-Chair  Stoltze echoed  Co-Chair Austerman's  comments. He                                                                    
commented on  his preference  for bonds  versus certificates                                                                    
of  participation  given  the additional  checks  and  voter                                                                    
approval  requirement.  He  remarked that  the  project  had                                                                    
tangible benefits.                                                                                                              
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
SB  88  was REPORTED  out  of  committee  with a  "do  pass"                                                                    
recommendation  and with  three previously  published fiscal                                                                    
impact notes: FN1 (ADM), FN2 (DHS), FN3 (REV).                                                                                  
                                                                                                                                
3:12:32 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:14:43 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CS FOR SPONSOR SUBSTITUTE FOR SENATE BILL NO. 47(FIN)                                                                           
                                                                                                                                
     "An Act relating to boarding schools operated by                                                                           
     school districts; and providing for an effective                                                                           
     date."                                                                                                                     
                                                                                                                                
3:14:56 PM                                                                                                                    
                                                                                                                                
RYNNIEVA MOSS,  STAFF, SENATOR JOHN COGHILL,  explained that                                                                    
the bill expanded on a  concept included in past legislation                                                                    
introduced  by the  sponsor (HB  16 in  2005); prior  to the                                                                    
bill's passage, students  had been paid a  stipend to attend                                                                    
a school in  another area when a village  school was closed.                                                                    
The  capability  had  been expanded  to  allow  students  in                                                                    
grades 9  through 12  to receive  a stipend  while attending                                                                    
boarding   school   facilities.  The   current   legislation                                                                    
eliminated  a  restriction   limiting  eligibility  only  to                                                                    
schools that  had been  in operation  prior to  January 2005                                                                    
(Section  1).  The  bill  would  expand  to  include  magnet                                                                    
schools, which  would enable them  to qualify  for stipends.                                                                    
Section  2  increased  the  stipend  paid  to  the  schools.                                                                    
Section 3 provided a provision  to allow school districts to                                                                    
contract  for  room  and board  services.  Section  4  would                                                                    
repeal  a  provision  that would  limit  the  Department  of                                                                    
Education  and Early  Development (DEED)  to approving  only                                                                    
three  additional  schools.  Additionally,  the  bill  would                                                                    
repeal  the   definition  of  district   operated  statewide                                                                    
residential  education  programs  (the definition  had  been                                                                    
moved to Section 1 of the bill).                                                                                                
                                                                                                                                
Ms.   Moss  communicated   that   the   bill  expanded   the                                                                    
opportunity to  magnet schools and  allowed for DEED  to add                                                                    
additional boarding schools. She  stated that the bill would                                                                    
allow for magnet schools with  variable terms to accommodate                                                                    
some  exciting things  underway  in  rural Alaska  including                                                                    
schools in Kotzebue  to train high school  students for jobs                                                                    
at Red Dog Mine; and Bethel  had a program that it wanted to                                                                    
expand  into  to  airline   freight  industry,  which  would                                                                    
provide  an   opportunity  to   many  rural   students.  She                                                                    
commented on  the challenge facing children  in rural Alaska                                                                    
who wanted to  go to college, but did not  have the adequate                                                                    
education  resources to  get into  college. She  likened the                                                                    
situation to  a quote by Vance  Law "when you're in  a slump                                                                    
it's  almost as  if you  look at  a field  and it's  one big                                                                    
glove." The  goal was to  "close the glove" and  provide the                                                                    
children with an opportunity.                                                                                                   
                                                                                                                                
3:18:00 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze recognized  Senator  John  Coghill in  the                                                                    
audience.                                                                                                                       
                                                                                                                                
LISA    RIEGER,    COOK    INLET   TRIBAL    COUNCIL    (via                                                                    
teleconference), spoke  in support  of the  legislation. She                                                                    
noted that support existed statewide.                                                                                           
                                                                                                                                
3:19:46 PM                                                                                                                    
                                                                                                                                
JERRY   COVEY,  EDUCATION   CONSULTANT,  CITIZENS   FOR  THE                                                                    
EDUCATIONAL  ADVANCEMENT  OF  ALASKAN'S  CHILDREN  AND  COOK                                                                    
INLET TRIBAL COUNCIL (via  teleconference), spoke in support                                                                    
of the  legislation. He believed  the increased  stipend was                                                                    
justified  based  on  the delivery  cost  of  education.  He                                                                    
stated  that  the  district variable  length  programs  were                                                                    
favorable and would improve the  quality of rural education.                                                                    
He believed  that the partnership between  school districts,                                                                    
non-profits,  and   Native  organizations  in   relation  to                                                                    
residential services for students was also positive.                                                                            
                                                                                                                                
Co-Chair  Stoltze asked  whether the  bill provided  support                                                                    
for  children in  public K-12  education. Mr.  Covey replied                                                                    
that the bill would  provide residential stipend funding for                                                                    
students in grades 9 through 12.                                                                                                
                                                                                                                                
Co-Chair  Stoltze  asked  whether  the  bill  would  provide                                                                    
additional support  within the public education  system. Mr.                                                                    
Covey replied in the affirmative.                                                                                               
                                                                                                                                
Ms. Moss  clarified that the  bill covered grades  9 through                                                                    
12. Co-Chair Stoltze  understood that the bill  related to a                                                                    
subset within the grades K-12.                                                                                                  
                                                                                                                                
3:22:57 PM                                                                                                                    
                                                                                                                                
Representative Wilson asked whether  there was concern about                                                                    
students left  behind when others  were taken out  of public                                                                    
schools and put in boarding  schools. Mr. Covey replied that                                                                    
when students were  taken out of school  districts to attend                                                                    
statewide  residential  schools  the funding  traveled  with                                                                    
them.  Under  the  variable  length  programs  the  students                                                                    
stayed  within   their  school  districts;   therefore,  the                                                                    
district did not lose funding.                                                                                                  
                                                                                                                                
Co-Chair Stoltze  noted that the  department could  speak to                                                                    
the question as well.                                                                                                           
                                                                                                                                
Representative Wilson  was concerned that  removing students                                                                    
from smaller districts put the districts at risk.                                                                               
                                                                                                                                
Co-Chair Stoltze commented on the  potential of being put in                                                                    
a position  to make  a value judgment  on whether  a student                                                                    
should be held back from higher or different aspirations.                                                                       
                                                                                                                                
3:24:59 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze asked  DEED to  comment on  Representative                                                                    
Wilson's question.                                                                                                              
                                                                                                                                
Representative Wilson noted that  the bill applied to grades                                                                    
9 through 12  and that no program existed for  K-8 if school                                                                    
districts closed.  She wondered  whether the  department had                                                                    
looked  at  how taking  numerous  students  from a  district                                                                    
impacted the district.                                                                                                          
                                                                                                                                
LES  MORSE, DEPUTY  DIRECTOR,  DEPARTMENT  OF EDUCATION  AND                                                                    
EARLY DEVELOPMENT, replied that  the issue had occurred with                                                                    
Mt. Edgecumbe  for years  and had  occurred since  2005 with                                                                    
the  additional  boarding  schools.  He  stressed  that  the                                                                    
administration  strongly  supported  families  and  children                                                                    
having the  choices and  options. He  stated that  there was                                                                    
definitely an  impact on school  districts; however,  he did                                                                    
not believe the impact overrode  the opportunity to choose a                                                                    
boarding school route.                                                                                                          
                                                                                                                                
Co-Chair  Stoltze asked  for  clarification  on the  funding                                                                    
trail.  Mr.   Morse  replied  that  for   the  legislation's                                                                    
variable length  programs the Base Student  Allocation (BSA)                                                                    
would remain  in the school  district. He  communicated that                                                                    
the only  [funding] item the  bill addressed was  a stipend.                                                                    
However, when students attended  boarding schools for a full                                                                    
school year the BSA and stipend went to that school.                                                                            
                                                                                                                                
Representative Wilson asked for  verification that Mr. Morse                                                                    
believed that  a family's  ability to  choose where  a child                                                                    
went  to school  was positive.  Mr. Morse  replied that  the                                                                    
choice provided by the bill was a good thing.                                                                                   
                                                                                                                                
Representative Wilson remarked that choice was good.                                                                            
                                                                                                                                
Representative  Holmes  wondered   if  the  variable  length                                                                    
programs  would be  greater  or less  than  nine months  and                                                                    
whether the  stipend would  be paid for  the same  number of                                                                    
months. She noted  that the bill referred to  the payment of                                                                    
a stipend for  nine months and included  variable length and                                                                    
180-day school terms.                                                                                                           
                                                                                                                                
Mr.  Morse answered  that the  intent was  for the  variable                                                                    
length  programs to  be offered  within the  full nine-month                                                                    
scope. He  used the example  of multiple six-week  terms and                                                                    
stated  that even  though there  would  be several  students                                                                    
experiencing  the terms  they  would  receive one  full-year                                                                    
stipend. For example,  it would come out to  look like there                                                                    
were 30  students experiencing the  program in terms  of the                                                                    
amount of money dedicated; but,  in reality it would be many                                                                    
more  students  because  there  would  be  30  students  per                                                                    
variable length term.                                                                                                           
                                                                                                                                
3:29:22 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  asked whether the cities  where the                                                                    
three  boarding schools  were located  (Nenana, Galena,  and                                                                    
[Bethel]) had property taxes or  another local tax base that                                                                    
helped pay  for the schools.  Ms. Moss was not  certain, but                                                                    
believed that Galena had a tax.                                                                                                 
                                                                                                                                
Mr. Morse  stated that the Lower  Kuskokwim Learning Academy                                                                    
in  Bethel  was  in  the midst  of  a  Regional  Educational                                                                    
Attendance Area (REAA) and would not have a tax base.                                                                           
                                                                                                                                
Co-Chair  Stoltze replied  that  the City  of  Galena had  a                                                                    
total  of 487  residents  with  a 3  percent  sales tax;  he                                                                    
surmised the  city could not  be supporting a  school system                                                                    
on a 3 percent sales tax and no other taxes.                                                                                    
                                                                                                                                
Ms. Moss  believed Nenana  also believed  that Nenana  had a                                                                    
tax.                                                                                                                            
                                                                                                                                
Co-Chair Stoltze  relayed that the  City of Nenana had  a 12                                                                    
mil property tax.                                                                                                               
                                                                                                                                
Representative Munoz  asked whether the bill  applied to Mt.                                                                    
Edgecumbe.  Ms. Moss  replied in  the  negative. She  stated                                                                    
that  Mt. Edgecumbe  was a  state operated  school that  was                                                                    
fully funded  through the legislature by  appropriation. She                                                                    
noted  that  the  cost  per student  of  a  boarding  school                                                                    
education was approximately half of the Mt. Edgecumbe cost.                                                                     
                                                                                                                                
3:32:54 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman  shared that he  had spent time  in Galena                                                                    
and had stayed at the  school with the students. He recalled                                                                    
that  the  students voiced  that  they  were at  the  school                                                                    
because they wanted  to improve their lives.  He referred to                                                                    
the  cost of  education and  stated  that 80  percent to  90                                                                    
percent of  the students  were at risk  for drug  or alcohol                                                                    
abuse. The  schools provided students  with an  education to                                                                    
help improve  students' lives. He  realized the cost  of the                                                                    
schools,  but  stressed  the  importance  of  turning  lives                                                                    
around.  He spoke  to students'  energy  to learn  different                                                                    
trades.  He noted  that the  regional learning  centers each                                                                    
offered different programs in  order to increase options for                                                                    
students. He  spoke in  strong support  for the  program. He                                                                    
added that  it would have a  positive impact on the  cost of                                                                    
education in the end.                                                                                                           
                                                                                                                                
SB  47  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
3:35:18 PM                                                                                                                    
RECESSED                                                                                                                        
                                                                                                                                
3:58:25 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
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."                                                                                                               
                                                                                                                                
3:58:36 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  called the  meeting  back  to order.  He                                                                    
relayed  that  the   administration  would  provide  further                                                                    
analysis  on the  bill.  He asked  if  the presenters  would                                                                    
present two presentations.                                                                                                      
                                                                                                                                
MICHAEL  PAWLOWSKI,   ADVISOR,  PETROLEUM   FISCAL  SYSTEMS,                                                                    
DEPARTMENT OF REVENUE, responded in the affirmative.                                                                            
                                                                                                                                
Vice-Chair  Neuman  noted that  members  had  copies of  the                                                                    
presentations. He asked members  to hold questions until the                                                                    
presentations were finished.                                                                                                    
                                                                                                                                
BARRY PULLIAM,  MANAGING DIRECTOR, ECON ONE  RESEARCH, INC.,                                                                    
relayed that he  had updated his previous  analysis to focus                                                                    
on  changes included  in the  CS. He  provided a  PowerPoint                                                                    
presentation  titled  "Analysis of  HCS  CS  SB21 (FIN)  for                                                                    
House  Finance  Committee" dated  April  11,  2013 (copy  on                                                                    
file). He pointed to slide 2.                                                                                                   
                                                                                                                                
Representative  Gara   noted  that  he  had   to  leave  for                                                                    
conference committee [on the operating budget].                                                                                 
                                                                                                                                
Mr. Pulliam  began on  slide 2: "Key  Features, of  ACES, SB                                                                    
21/HB  72, HCS  CSSB  21(RES)  and HCS  CS  SB21 (FIN)."  He                                                                    
relayed that the slide added  the House Finance Committee CS                                                                    
to the comparison and showed  the terms that were different.                                                                    
He  stated that  under the  CS the  base rate  had increased                                                                    
from 33 percent  to 35 percent. The  Gross Revenue Exclusion                                                                    
(GRE)  had been  split  into two  sections:  20 percent  GRE                                                                    
remained for 12.5 percent royalty  and 30 percent GRE if the                                                                    
royalty  was greater  than 12.5  percent. The  net operating                                                                    
losses (NOLs) had been increased  to 45 percent through 2015                                                                    
and 35 percent thereafter, which  was equal to the tax rate.                                                                    
The  current small  producer credit  would remain  and would                                                                    
phase out in 2016.                                                                                                              
                                                                                                                                
4:02:10 PM                                                                                                                    
                                                                                                                                
Mr.  Pulliam turned  to slide  3 titled  "Effective Net  Tax                                                                    
Rates  under HCS  CSSB 21  (FIN)." The  chart showed  legacy                                                                    
production, 12.5 percent  royalty/20 percent GRE production,                                                                    
and 16.67  percent royalty/30 percent GRE  production over a                                                                    
price range of  $50 a wellhead to $200 a  wellhead. He noted                                                                    
that the effective tax rate  for the legacy fields would dip                                                                    
slightly  below  10  percent  before  it  caught  the  gross                                                                    
minimum floor,  which would increase  as the  wellhead price                                                                    
increased and would top out at 35 percent at $150 wellhead.                                                                     
                                                                                                                                
Representative Gara  requested to  ask some  questions prior                                                                    
to  leaving  for  conference  committee.  Vice-Chair  Neuman                                                                    
asked him to write the questions down.                                                                                          
                                                                                                                                
Mr. Pulliam  moved to  slide 4  titled "Effective  Gross Tax                                                                    
Rates  under HCS  CS SB21  (FIN)." The  chart showed  legacy                                                                    
production, 12.5 percent  royalty/20 percent GRE production,                                                                    
and 16.67  percent royalty/30 percent GRE  production over a                                                                    
price  range  of $50  a  wellhead  to  $200 a  wellhead.  He                                                                    
highlighted the  4 percent gross  floor [at $50  per barrel]                                                                    
for the legacy production, which  increased to 30 percent at                                                                    
a wellhead  price of $200.  The 12.5 percent/20  percent GRE                                                                    
topped out at approximately 20  percent [at a wellhead price                                                                    
of  $200]  and  the  16.67 percent  royalty/30  percent  GRE                                                                    
topped out at approximately 17  percent [at a wellhead price                                                                    
of $200]. The calculations for  the slides were contained in                                                                    
the appendix.                                                                                                                   
                                                                                                                                
4:04:42 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam  directed attention to  slide 5:  "Effective Tax                                                                    
Rates  on  Gross  Value  for   Legacy  Production  ACES  vs.                                                                    
SB21/HB72, HCS  CS SB21 (RES),  HCS CS SB21 (FIN)  and Other                                                                    
Large  Oil-Producing States  with Production  Taxes at  $100                                                                    
Wellhead Value," which was based  on cost information for FY                                                                    
2012. The  base rate  change from 33  percent to  35 percent                                                                    
would move the effective gross  rate up slightly between the                                                                    
House  Resources   Committee  CS   and  the   House  Finance                                                                    
Committee  CS.  He  looked  at slide  6,  which  showed  the                                                                    
average government  take for all existing  producers (FY 15-                                                                    
FY 19) for all versions of  the bill. The slide included HCS                                                                    
CSSB 21(FIN)  in column 5  and showed that the  tax increase                                                                    
from 33 percent to 35  percent would increase the government                                                                    
take  by approximately  1 percent.  Under the  House Finance                                                                    
Committee CS the government take would  run from a low of 60                                                                    
percent to 61 percent up to a  high of 67 percent at a price                                                                    
of $150.                                                                                                                        
                                                                                                                                
4:06:20 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam  pointed to slide  7 titled "State,  Federal and                                                                    
Producer  Take  at  Various  $2012 WC  ANS  Prices  for  All                                                                    
Producers (FY  2015-FY 2019)  ACES and  HCS CS  SB21 (FIN)."                                                                    
The percent  of total  take for  ACES was  shown on  the top                                                                    
half of the slide and  the same information was provided for                                                                    
the CS on the bottom portion  of the slide. The CS increased                                                                    
the state  take over the  price range, which  was consistent                                                                    
with government  takes seen previously;  the state  take was                                                                    
approximately 40 percent  on the low end  and slightly under                                                                    
50  percent at  the  $140 price  range as  a  result of  the                                                                    
progressive nature of the severance tax.                                                                                        
                                                                                                                                
Mr. Pulliam addressed slide 8  titled "Summary of Investment                                                                    
Measures for New Participant 50 MMBO Alaska Oil Development                                                                     
ACES and  HCS CS SB21  (FIN) v. Benchmark Areas."  The slide                                                                    
highlighted  updated   economics  for  a   new  participant.                                                                    
Columns (2) and (3) included  the economics used in the GRE;                                                                    
column (2) showed  a 12.5 percent royalty with  a 20 percent                                                                    
GRE and column (3) showed a  16.67 percent royalty with a 30                                                                    
percent  GRE.  He  detailed  that the  metrics  in  the  two                                                                    
columns were  aligned and were attractive  relative to other                                                                    
areas.                                                                                                                          
                                                                                                                                
Vice-Chair   Neuman   asked   for  verification   that   the                                                                    
Department  of  Revenue would  be  available  to answer  any                                                                    
questions.                                                                                                                      
                                                                                                                                
BRUCE   TANGEMAN,   DEPUTY   COMMISSIONER,   TAX   DIVISION,                                                                    
DEPARTMENT OF  REVENUE, replied that multiple  staff members                                                                    
were available  in person and  via teleconference  to answer                                                                    
any questions.                                                                                                                  
                                                                                                                                
Vice-Chair  Neuman wanted  to ensure  that  members had  the                                                                    
opportunity to confer with the administration.                                                                                  
                                                                                                                                
4:09:27 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam continued to discuss  slide 8. He noted that the                                                                    
net  present value  (NPV) on  new investment  increased from                                                                    
$4.17 under ACES (column (1))  to $6.75 under column (2) and                                                                    
$6.54 under  column (3). The  cash margins moved up  and the                                                                    
government   take  for   the  GRE   barrels   would  be   at                                                                    
approximately 60  percent, which  would put takes  in Alaska                                                                    
at a favorable and competitive position.                                                                                        
                                                                                                                                
Mr.  Pulliam  moved  to slide  10:  "Tax  Calculation  Using                                                                    
Stepped  Scale Production  Credit  (Volumes  Not Subject  to                                                                    
Gross Revenue  Exclusion)." The slide  included calculations                                                                    
underlying the  effective tax rate charts  [slides 3 through                                                                    
5] and  applied to legacy  production. Slide 11  titled "Tax                                                                    
Calculation  Using  Fixed   $5  Production  Credit  (Volumes                                                                    
Subject to  Gross Revenue Exclusion, 12.5%  Royalty)" showed                                                                    
the  calculation for  12.5 percent  royalty barrels;  the 20                                                                    
percent GRE  would apply. Slide  12 titled  "Tax Calculation                                                                    
Using Fixed  $5 Production Credit (Volumes  Subject to Gross                                                                    
Revenue  Exclusion,  >12.5%  Royalty)"  related  to  volumes                                                                    
greater than  12.5 percent royalty, which  would qualify for                                                                    
the 30 percent GRE.                                                                                                             
                                                                                                                                
4:11:44 PM                                                                                                                    
                                                                                                                                
Representative Costello pointed to slide  2 and asked if the                                                                    
House  Finance Committee  CS was  represented  in the  slide                                                                    
title. Mr. Pawlowski stated yes.                                                                                                
                                                                                                                                
Representative Costello  pointed to  the slide  and believed                                                                    
that the CS  would remove the small producer  credit and add                                                                    
the 30 percent GRE to  fields with greater than 12.5 percent                                                                    
royalty. She believed the column  representing the CS should                                                                    
be corrected related to the small producer credit.                                                                              
                                                                                                                                
Mr.  Pawlowski apologized  for not  addressing what  was not                                                                    
included in the CS in his  discussion of the bill earlier in                                                                    
the day.  He relayed that  the small producer credit  in the                                                                    
House Resources Committee CS had  been extended to 2022; the                                                                    
removal of the  language left the small credit  in place for                                                                    
qualifying companies. The credit  was scheduled to expire in                                                                    
2016;  therefore,  companies  would   be  required  to  have                                                                    
production  prior  to that  time  in  order to  qualify.  He                                                                    
explained that if the credit  was repealed it would be taken                                                                    
away from companies receiving the  credit currently. He also                                                                    
noted  that  provisions  related to  the  Alaska  Industrial                                                                    
Development  and  Export   Authority  (AIDEA)  financing  of                                                                    
infrastructure  and the  joint  interest billings  (language                                                                    
adjusting how  DOR conducted audits)  had been  removed from                                                                    
the CS.                                                                                                                         
                                                                                                                                
Representative  Costello  thanked   Mr.  Pawlowski  for  the                                                                    
clarification.                                                                                                                  
                                                                                                                                
Representative  Gara  asked  about  slide  6  that  included                                                                    
government take for existing oil.  He wondered whether there                                                                    
was a  chart that  reflected the  lower government  take for                                                                    
new  oil. Mr.  Pulliam  replied that  the  chart showed  the                                                                    
average government take  for the time period  covered by the                                                                    
fiscal   note  for   all  existing   production  (production                                                                    
occurring  at present  and production  forecast  to come  on                                                                    
prior to 2019).                                                                                                                 
                                                                                                                                
Vice-Chair Neuman  noted that  any questions  should pertain                                                                    
to a correction to the presentation information.                                                                                
                                                                                                                                
Representative  Gara pointed  to slide  8 and  noted that  a                                                                    
comparison of  the profitability of  ACES was only  made for                                                                    
the  few  fields with  a  16  percent royalty.  He  wondered                                                                    
whether the  presentation showed a comparison  for ACES with                                                                    
the 12.5 percent royalty.                                                                                                       
                                                                                                                                
4:15:33 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam  answered that the information  was not included                                                                    
in the presentation.                                                                                                            
                                                                                                                                
Mr. Pawlowski added that slide  8 showed the economics for a                                                                    
new  participant   as  a   standalone  investment   for  new                                                                    
development, which  was different  than the  government take                                                                    
on existing production shown on slide 6.                                                                                        
                                                                                                                                
Mr.  Pulliam  agreed  and  noted  that  the  new  standalone                                                                    
investment  by a  new participant  would  typically carry  a                                                                    
16.67 percent royalty.                                                                                                          
                                                                                                                                
4:16:39 PM                                                                                                                    
                                                                                                                                
Mr.  Pulliam turned  to slide  13 titled  "Estimated Average                                                                    
2013  -  2042 State  Oil  Revenues  ($2012 Billion  Dollars)                                                                    
Under Potential Production and Tax  Scenarios ACES v. HCS CS                                                                    
SB21  (FIN) (35%  Base Rate,  30% GRE)  $120 West  Coast ANS                                                                    
($2012)."  He  relayed  that the  set  of  slides  contained                                                                    
information  requested by  Representative  Gara  and were  a                                                                    
derivative of an analysis he  had presented to the committee                                                                    
earlier.                                                                                                                        
                                                                                                                                
Representative  Wilson  asked  the presenters  to  reference                                                                    
page  numbers  throughout  the presentation.  Mr.  Pawlowski                                                                    
pointed to slide 13.                                                                                                            
                                                                                                                                
Mr. Pulliam relayed  that slide 13 provided an  update of an                                                                    
earlier  analysis that  showed  the  additional oil  revenue                                                                    
that  would be  collected  by the  state assuming  different                                                                    
decline rates  under different  tax systems.  Previously the                                                                    
information had  been presented  on two  slides showing  a 6                                                                    
percent  decline and  a 3  percent decline;  the information                                                                    
was now included on one slide.  The top section began with a                                                                    
6  percent decline  (at the  $90  level). With  a 6  percent                                                                    
decline under  ACES the average  annual state  revenue would                                                                    
be approximately  $2.6 billion over a  30-year period (shown                                                                    
in real 2012 terms). Under  the House Finance Committee CS a                                                                    
6   percent   decline  would   mean   a   revenue  drop   of                                                                    
approximately  $200 million  per year;  if the  decline rate                                                                    
was slowed to 3 percent  the state revenue would increase to                                                                    
$3.1 billion.  He explained that  the blue  bars represented                                                                    
incremental  volumes over  the base  decline all  with a  30                                                                    
percent GRE. The  upper right portion of  the chart factored                                                                    
in half of the new volume  coming on from legacy fields (the                                                                    
other half  represented new oil  that would qualify  for the                                                                    
GRE);  he  believed  the scenario  was  more  realistic.  He                                                                    
pointed  out that  the revenue  increase  would be  slightly                                                                    
higher under the scenario that included legacy oil.                                                                             
                                                                                                                                
4:20:11 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam  noted that slides  were included for  every $10                                                                    
price increase.  Slide 14 titled  "Estimated Average  2013 -                                                                    
2042  State  Oil  Revenues  ($2012  Billion  Dollars)  Under                                                                    
Potential Production and  Tax Scenarios ACES v.  HCS CS SB21                                                                    
(FIN) (35% Base  Rate, 30% GRE)$100 West  Coast ANS ($2012)"                                                                    
showed what would  happen at $100 West Coast  ANS. Under the                                                                    
scenario revenue  was enhanced  as long  as the  decline was                                                                    
stemmed. Slide  15 showed  the scenario  at $110  West Coast                                                                    
ANS  and  reflected a  revenue  enhancement  if decline  was                                                                    
stemmed. Slide 16 provided the  data at $120 West Coast ANS,                                                                    
which showed that  any decline under 6  percent would result                                                                    
in  a  revenue  enhancement.  The bottom  section  showed  a                                                                    
revenue enhancement or a breakeven  at the zero to 1 percent                                                                    
level.                                                                                                                          
                                                                                                                                
Mr. Pawlowski  pointed to  slide 16 and  noted that  half of                                                                    
the revenue represented in the  green bars on the right came                                                                    
from  legacy  fields (where  the  majority  of new  oil  was                                                                    
potentially  found).  The  data  showed the  impact  of  the                                                                    
progressive system on  the legacy fields; the  CS would mean                                                                    
60  percent to  67 percent  government take,  which improved                                                                    
revenue as prices increased.                                                                                                    
                                                                                                                                
Mr.  Pulliam moved  to slide  17  titled "Estimated  Average                                                                    
2013  -  2042 State  Oil  Revenues  ($2012 Billion  Dollars)                                                                    
Under Potential Production and Tax  Scenarios ACES v. HCS CS                                                                    
SB21  (FIN) (35%  Base Rate,  30% GRE)  $130 West  Coast ANS                                                                    
($2012)."  Slide 17  provided the  data at  $130 per  barrel                                                                    
West Coast ANS. Slide 18 showed  the data at $140 per barrel                                                                    
West Coast ANS.                                                                                                                 
                                                                                                                                
Mr. Pulliam turned to slide  19 titled "Estimated Additional                                                                    
Annual Volumes Needed (2013 -  2042) Under HCS CS SB21 (FIN)                                                                    
(35% Base Rate, 30% GRE)  to Match State Oil Revenues ($2012                                                                    
Billion Dollars)  Under ACES  at 6%  and 3%  Decline Rates."                                                                    
The  slide showed  annual  volumes per  year  that would  be                                                                    
needed to come online over and  above a base decline rate to                                                                    
make up  for revenues that  would be lost in  the transition                                                                    
from one  tax system to another.  The top panel assumed  a 6                                                                    
percent  base decline  rate. The  blue bars  represented the                                                                    
volume needed  (at different price  levels) to  breakeven on                                                                    
the  revenue  loss  related  to  new  oil  (30  percent  GRE                                                                    
barrels). The  green bars showed  the volume  needed related                                                                    
to 50 percent new oil/50 percent legacy oil.                                                                                    
                                                                                                                                
4:23:43 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski  provided  a PowerPoint  Presentation  titled                                                                    
"Fiscal Impact  Draft HFIN  CSSB21: House  Finance Committee                                                                    
Version   28-GS1647\L."  The   presentation  was   aimed  at                                                                    
highlighting some  of the elements  that would be seen  in a                                                                    
fiscal note. He communicated that  DOR reserved the right to                                                                    
continue working  through the numbers with  any changes that                                                                    
may occur to the bill.  He addressed slide 2: "Provisions in                                                                    
draft HCS  CSSB21(FIN) and their Estimated  Fiscal Impact as                                                                    
Compared  to Spring  2013 Forecast  ($millions)." The  slide                                                                    
showed revenue  losses, revenue gains, and  the total fiscal                                                                    
impact  of  the CS.  He  remarked  that  the data  had  been                                                                    
updated to reflect the DOR  Spring 2013 Revenue Forecast. He                                                                    
noted that the legislation would  be effective on January 1,                                                                    
2014; therefore, he would speak to  FY 15. Line 1 showed the                                                                    
elimination  of the  progressive portion  of the  tax, which                                                                    
would mean  a reduction  of approximately $1.4  billion. The                                                                    
increase of  the base tax rate  (line 2) from 25  percent up                                                                    
to 35  percent would add approximately  $1,050 billion. Line                                                                    
3  showed  that  the  limitation of  credits  for  qualified                                                                    
capital expenditures  (the 20 percent credits  that would be                                                                    
eliminated  in 2014)  would increase  state revenue  by $675                                                                    
million.                                                                                                                        
                                                                                                                                
Mr.  Pawlowski moved  to line  5 on  slide 2  that showed  a                                                                    
slightly  wider GRE  over time  from between  $0.00 and  $25                                                                    
million  in FY  15 rising  to  between $50  million and  $75                                                                    
million in  FY 19. The  line reflected potential  impacts of                                                                    
the  change  in  GRE  to   30  percent  and  that  potential                                                                    
scenarios existed  in which  some of  the production  in the                                                                    
forecast may carry it.                                                                                                          
                                                                                                                                
4:27:36 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski  continued on  slide 2,  line 8,  which showed                                                                    
the  sliding  scale per  barrel  credit  and the  $5.00  per                                                                    
barrel for GRE  eligible oil. The provision would  lead to a                                                                    
reduction in  state revenue in  FY 15 of  approximately $825                                                                    
million.  The CS  made no  adjustments  to the  oil and  gas                                                                    
service  industry  expenditure  credit or  to  the  interest                                                                    
rates  or  removal of  the  three-mile  requirement for  the                                                                    
Frontier  Basin credit;  neither item  had a  fiscal impact.                                                                    
Additionally,   there  was   no  fiscal   impact  from   the                                                                    
establishment of the competitiveness  review board. He noted                                                                    
that the  impact on  the operating  budget of  the qualified                                                                    
capital expenditure credits  issued to non-current taxpayers                                                                    
and  redeemed through  the oil  and gas  credit fund  was an                                                                    
increase  in  state  revenue (through  a  reduction  in  the                                                                    
needed appropriation)  of $150  million. A reduction  of $80                                                                    
million for  the net  operating loss  credits to  45 percent                                                                    
from  35 percent  was shown  for  FY 15.  The total  revenue                                                                    
impact was  potentially (assuming no  incremental production                                                                    
between  $500  million and  $575  million)  a loss  of  $430                                                                    
million to  $505 million in  FY 15, which would  increase in                                                                    
FY 19 to  between $765 million and $840  million. He relayed                                                                    
that  the  projection was  problematic  because  it did  not                                                                    
include  potential  changes  in production,  which  was  the                                                                    
underlying intent of the legislation.                                                                                           
                                                                                                                                
Representative Edgmon  relayed Co-Chair  Austerman's request                                                                    
to have the information in line  8 split into two line items                                                                    
(credit of  $5.00 per taxable  barrel and the  sliding scale                                                                    
$0.00  to  $8.00 credit  per  taxable  barrel based  on  oil                                                                    
price). Mr. Pawlowski agreed to update the table.                                                                               
                                                                                                                                
4:30:32 PM                                                                                                                    
                                                                                                                                
Mr.   Pawlowski  addressed   slide   3  titled   "Production                                                                    
Scenarios":                                                                                                                     
                                                                                                                                
     Scenario A:                                                                                                                
                                                                                                                                
        · New 50 Million barrel field developed by small                                                                        
          producer without tax liability                                                                                        
        · Peak production = 10,000 bbls/day                                                                                     
        · Development costs = $500,000,000                                                                                      
        · Qualifies for GRE and NOL                                                                                             
                                                                                                                                
Mr.  Pawlowski   pointed  to  slide  4   titled  "Production                                                                    
Scenarios":                                                                                                                     
                                                                                                                                
     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                                                                                                             
        · Which each then decline at 15% per year                                                                               
        · Does not qualify for GRE                                                                                              
                                                                                                                                
Mr. Pawlowski  expounded that Scenario B  assumed an initial                                                                    
low production  of 1,000  barrels per day  with a  steady 15                                                                    
percent decline per  year. Scenario C was  outlined on slide                                                                    
5:                                                                                                                              
                                                                                                                                
     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                                                                                              
       · Scenario C also includes items in A and B.                                                                             
                                                                                                                                
Mr.  Pawlowski elaborated  that Scenario  C factored  in the                                                                    
addition  of  large  investments within  legacy  fields.  He                                                                    
relayed that  the scenarios  were for  illustrative purposes                                                                    
only.                                                                                                                           
                                                                                                                                
4:32:40 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski turned  to  a  bar chart  on  slide 6  titled                                                                    
"Projected   revenues  under   production  scenarios   -  at                                                                    
$90/barrel  ANS." The  chart illustrated  the effect  of the                                                                    
legislation with incremental production  across the range of                                                                    
the  fiscal  note;  the bars  represented  the  Spring  2013                                                                    
Revenue  Forecast  (blue),  Scenario  A  (red),  Scenario  B                                                                    
(green),  Scenario C  (purple),  and ACES  (black). Slide  7                                                                    
illustrated  the  effect  of the  legislation  on  projected                                                                    
revenues under  the three production  scenarios at  $100 per                                                                    
barrel ANS.  He noted that  the numbers had been  rounded to                                                                    
the  nearest hundred  million dollars.  Slide  8 showed  the                                                                    
impact  at  $120  per  barrel   ANS.  He  pointed  out  that                                                                    
production under  Scenarios B  and C  surpassed ACES  in the                                                                    
out-years shown on  the slide. Slide 9  presented the impact                                                                    
at the forecast ANS price.                                                                                                      
                                                                                                                                
Mr.   Pawlowski  addressed   slide  10   titled  "Production                                                                    
Profiles of Production  Scenarios" showed production volumes                                                                    
underlying the scenarios.                                                                                                       
                                                                                                                                
4:35:00 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski referred  to a letter that had  been issued to                                                                    
the  committee from  DOR in  response to  members' questions                                                                    
[dated April  10, from  Deputy Commissioner  Bruce Tangeman]                                                                    
(copy  on  file).  The  letter   addressed  a  request  from                                                                    
Representative  Gara  to  assume  a decline  rate  that  was                                                                    
different  than the  spring forecast  going forward  from FY                                                                    
16. The  table provided the comparable  forecast that showed                                                                    
the different decline rate in outer years.                                                                                      
                                                                                                                                
Mr. Tangeman clarified that the  information was included in                                                                    
a DOR response [to members'  questions that arose in a House                                                                    
Finance Committee meeting  on April 9, 2013]  from the prior                                                                    
day.                                                                                                                            
                                                                                                                                
Vice-Chair  Neuman asked  for verification  that the  packet                                                                    
included  answers   to  questions  asked  by   members.  Mr.                                                                    
Tangeman replied in the affirmative.                                                                                            
                                                                                                                                
Representative Gara asked for  verification that the revenue                                                                    
projection scenarios used  DOR's forecast of a  6 percent to                                                                    
7  percent  decline rate  beginning  in  2017. Mr.  Tangeman                                                                    
answered in the affirmative.                                                                                                    
                                                                                                                                
Representative Gara referred  to a ConocoPhillips assessment                                                                    
that  assumed a  3 percent  revenue decline  by 2017  on the                                                                    
Alpine field  and legacy  fields that  it shared  with Exxon                                                                    
and  BP.  He asked  for  verification  that the  alternative                                                                    
projections  had been  done at  his request  based on  the 3                                                                    
percent decline.                                                                                                                
                                                                                                                                
Mr. Tangeman  disagreed. He stated that  the information DOR                                                                    
had from  all producers on  the North Slope was  included in                                                                    
the  department's forecast  projections.  He clarified  that                                                                    
the  3  percent was  already  included  in the  department's                                                                    
production forecast.                                                                                                            
                                                                                                                                
Representative Gara  referred to an article  he had provided                                                                    
to  DOR in  which Conoco  predicted a  3 percent  decline by                                                                    
2017 for  legacy fields (Kuparuk,  Prudhoe Bay,  and Alpine)                                                                    
based on investment it had  committed to; if new fields were                                                                    
added in they predicted a  2 percent decline. He stated that                                                                    
other oil on  the North Slope was not really  declining at a                                                                    
major  rate.  He  wondered  where  DOR's  projected  steeper                                                                    
decline rate had come from.                                                                                                     
                                                                                                                                
4:37:44 PM                                                                                                                    
                                                                                                                                
Mr. Tangeman discussed  the department's production forecast                                                                    
methodology.  He detailed  that the  state had  consistently                                                                    
put  out an  overly optimistic  production forecast  for the                                                                    
past  10 to  20 years.  The  department's goal  had been  to                                                                    
provide   the   governor,   the  administration,   and   the                                                                    
legislature  a more  realistic  and  reliable projection  in                                                                    
order to help with  short-term budget and long-term planning                                                                    
decisions.  He  expounded  that forecasts  had  historically                                                                    
been 60  percent or higher  beginning 5  or 6 years  out. He                                                                    
explained that  the error rate  would have been cut  in half                                                                    
if DOR's  newly implemented process  that risked new  oil in                                                                    
the future  had been  in place 10  years earlier.  He stated                                                                    
that  it  was not  prudent  or  responsible to  assume  that                                                                    
everything that  was hoped for  would happen  when expected.                                                                    
He provided the  Liberty oil field as an  example: the field                                                                    
had  continually  been  included   in  forecasts  for  years                                                                    
because  of  production  delays. He  acknowledged  that  the                                                                    
potential of a  2 percent or 3 percent  decline existed, but                                                                    
the administration was  working the bill to  make the number                                                                    
positive.  He  added  that  the  department  was  not  in  a                                                                    
position to select winners and  losers, but based on history                                                                    
it  was known  that some  things  would not  come online  as                                                                    
planned at predicted production levels.                                                                                         
                                                                                                                                
4:39:49 PM                                                                                                                    
                                                                                                                                
Representative  Gara  asked  whether the  department  agreed                                                                    
that projected revenue  went down under ACES  as the assumed                                                                    
decline rate grew.                                                                                                              
                                                                                                                                
Mr.  Pawlowski  asked  Representative  Gara  to  repeat  the                                                                    
question.                                                                                                                       
                                                                                                                                
Representative Gara restated his  question. He surmised that                                                                    
the  less revenue  projected by  ACES meant  the closer  the                                                                    
numbers were between ACES and  the various versions of SB 21                                                                    
if a larger decline rate  was assumed. Mr. Pawlowski replied                                                                    
in the  affirmative. He noted  the information was  shown in                                                                    
the analysis provided by the department.                                                                                        
                                                                                                                                
Representative Gara referred to  information provided to the                                                                    
committee  by DOR  on  April  10, 2013  (copy  on file).  He                                                                    
pointed to a chart on page 3.                                                                                                   
                                                                                                                                
Vice-Chair Neuman  remarked that it was  difficult to follow                                                                    
along  because  other committee  members  did  not have  the                                                                    
charts.                                                                                                                         
                                                                                                                                
Representative  Gara responded  that  DOR  had provided  the                                                                    
information  to  all  committee   members.  He  thought  the                                                                    
information would be in the PowerPoint presentation.                                                                            
                                                                                                                                
Vice-Chair Neuman  noted that only questions  related to the                                                                    
PowerPoint would be heard.                                                                                                      
                                                                                                                                
Representative Wilson referred to slides  3 through 5 of the                                                                    
DOR  presentation related  to  Scenarios A,  B,  and C.  She                                                                    
wondered why  the scenarios  had been  selected and  if they                                                                    
were realistic.                                                                                                                 
                                                                                                                                
Mr. Pawlowski replied that the  scenarios had been developed                                                                    
by  the   department  to  model  sensitivities   to  initial                                                                    
production;  therefore, in  order to  remain consistent  and                                                                    
accessible,  the  scenarios  had been  used  throughout  the                                                                    
process. He  communicated that the scenarios  had been built                                                                    
based off of  data the department used to  model out various                                                                    
types of  development that  could bring  production on  in a                                                                    
fairly realistic way.                                                                                                           
                                                                                                                                
Representative  Wilson   wondered  if  the  data   could  be                                                                    
compared  to what  North  Dakota and  Texas  had seen  under                                                                    
their tax structures.                                                                                                           
                                                                                                                                
Mr.  Pawlowski replied  in  the  negative. The  department's                                                                    
goal was to  base the scenarios on the  types of development                                                                    
that  occurred   in  Alaska,   which  were   typically  more                                                                    
expensive, had  longer lead times, and  were not necessarily                                                                    
as productive.  For example, the  types of wells  modeled in                                                                    
Scenario B had  a very long decline at  15 percent; whereas,                                                                    
the  type  of wells  seen  in  North  Dakota had  very  high                                                                    
initial production with a much  steeper decline. He compared                                                                    
the development  occurring in different locations  to apples                                                                    
and oranges.  He encouraged members  to look at an  Econ One                                                                    
chart for a comparison  that showed benchmarks against other                                                                    
regions (e.g. Norway, North Dakota, and other).                                                                                 
                                                                                                                                
Representative Wilson asked how  much the developments would                                                                    
cost  under  each  scenario.   Mr.  Pawlowski  replied  that                                                                    
Scenario A  (50 million  barrel field)  was modeled  at $500                                                                    
million (listed on slide 3).                                                                                                    
                                                                                                                                
Vice-Chair Neuman RECESSED the meeting.                                                                                         
                                                                                                                                
4:44:55 PM                                                                                                                    
RECESSED                                                                                                                        
                                                                                                                                
7:28:20 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Stoltze RECONVENED  the meeting  with all  members                                                                    
present.                                                                                                                        
                                                                                                                                
Mr.  Pawlowski  pointed  to a  presentation  titled  "Select                                                                    
Slides   from  DOR   Responses:   House  Finance   Committee                                                                    
Supplemental  Slides as  Requested  by Representative  Gara"                                                                    
dated  April 11,  2013 (copy  on file).  Slide 2  showed the                                                                    
potential fiscal  impact of the  House Finance  Committee CS                                                                    
for CSSB  21(FIN) without  potential changes  in production.                                                                    
He  relayed that  the administration  had  walked through  a                                                                    
similar  table  earlier  in  the   meeting;  the  slide  was                                                                    
provided as  a reference. He  directed attention to  slide 3                                                                    
that  showed the  fiscal impact  of varying  the per  barrel                                                                    
credit  between $1.00  and $10.00  across fiscal  years; the                                                                    
slide  showed the  fiscal impact  of moving  the dollar  per                                                                    
barrel at the forecast level.                                                                                                   
                                                                                                                                
Mr. Pawlowski turned  to slide 4 that showed  a fiscal table                                                                    
based  on the  prior bill  version (HCS  CSSB 21(RES));  the                                                                    
table was included  as a reference. Slide 5  was in response                                                                    
to  a request  to break  out the  impact of  the per  barrel                                                                    
credit  into two  separate  lines. Line  8a  showed the  per                                                                    
barrel  for GRE-eligible  production ($5  million in  FY 14,                                                                    
$10 million  in FY  15, and  $25 million per  year in  FY 16                                                                    
through  FY 19).  Line 8b  showed the  impact of  the legacy                                                                    
barrels (non-GRE eligible).                                                                                                     
                                                                                                                                
7:32:11 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski pointed  to slide  6 that  showed the  fiscal                                                                    
impact on a  per barrel range from $80 to  $160 based on the                                                                    
spring  2013  forecast.  Slides   7  and  8  showed  revenue                                                                    
sensitivity for FY 16 and FY  17. Slides 8 through 10 showed                                                                    
adjusted decline  rates used in  the spring forecast  for FY                                                                    
17  through FY  19 (the  [3 percent]  decline rate  had been                                                                    
used as requested by Representative Gara).                                                                                      
                                                                                                                                
Co-Chair Stoltze clarified asked  if the slides included the                                                                    
House  Finance  Committee CS  in  the  comparison (slides  7                                                                    
through 10).  Mr. Pawlowski replied  that the slide  did not                                                                    
include the [base tax rate]  change to 35 percent, which had                                                                    
been made in the House Finance Committee CS.                                                                                    
                                                                                                                                
Co-Chair Stoltze  noted that the slides  included the Senate                                                                    
version of the bill [and  others], but not the House Finance                                                                    
Committee CS.                                                                                                                   
                                                                                                                                
Mr.  Pawlowski relayed  that the  purple bar  in the  charts                                                                    
(slides  6 through  10)  was based  on  the House  Resources                                                                    
Committee CS. He  noted that the House  Finance Committee CS                                                                    
contained  a 35  percent  base tax  rate  and therefore  had                                                                    
higher revenues  over the spectrum  of time compared  to the                                                                    
slides, which showed the 33  percent base rate. Slides 9 and                                                                    
10 related to FY 18 and  FY 19 respectively. Slide 11 showed                                                                    
an update  to the spring  2013 forecast per  the committee's                                                                    
request.  The  slide also  included  the  3 percent  decline                                                                    
assumption beginning in  FY 17 per request.  Slide 12 showed                                                                    
the  same analysis,  but  used  a 35  percent  tax rate.  He                                                                    
relayed that slide 12 was  a closer representation of the CS                                                                    
before the committee.                                                                                                           
                                                                                                                                
7:35:34 PM                                                                                                                    
                                                                                                                                
Representative Gara did not believe  there was much analysis                                                                    
with the  current version of  the bill. He pointed  to slide                                                                    
8, which showed DOR's rate of  decline through FY 17 and a 3                                                                    
percent rate of  decline from that point on.  He opined that                                                                    
based on a ConocoPhillips article  the 3 percent decline was                                                                    
more accurate. He asked what  the current CS would look like                                                                    
under the scenario on slide 8 at $120 per barrel.                                                                               
                                                                                                                                
Mr. Pawlowski  replied that a  1 percent change in  the base                                                                    
tax   rate  was   equal  to   approximately  $100   million;                                                                    
therefore, under the  current CS there would  be an increase                                                                    
of  approximately $200  million  across  the price  spectrum                                                                    
represented on slide 8.                                                                                                         
                                                                                                                                
Representative Gara  asked for verification that  on slide 8                                                                    
at $120  per barrel ACES  (blue bar) was  approximately $7.7                                                                    
billion   and  the   House   Resources   Committee  CS   was                                                                    
approximately    $6.2    billion   (which    would    become                                                                    
approximately  $6.4  billion  under  the  current  CS).  Mr.                                                                    
Pawlowski  agreed that  the numbers  would fall  within that                                                                    
range.                                                                                                                          
                                                                                                                                
Representative  Gara  asked  if   the  difference  would  be                                                                    
approximately $1.4  billion (under  his requested  3 percent                                                                    
decline   scenario).   Mr.   Pawlowski  replied   that   the                                                                    
assumption was  that there was no  production increase under                                                                    
the legislation by FY 17;  assuming a 3 percent decline, the                                                                    
administration  had  shown   revenue  sensitivities  if  the                                                                    
legislation went  to a  1 percent  or zero  percent decline.                                                                    
The  administration had  avoided  projecting  its hopes  for                                                                    
stemming the  decline (ConocoPhillips  had noted  that there                                                                    
were  opportunities to  reverse the  decline in  its analyst                                                                    
report). The  hope was for increasing  production instead of                                                                    
continual decline.                                                                                                              
                                                                                                                                
Representative Gara remarked that he  would also like to see                                                                    
increased  production. He  asked whether  the administration                                                                    
had spoken  with oil companies about  specific projects that                                                                    
would decrease  the decline  to between  zero and  3 percent                                                                    
(projected  decline used  by  the  administration under  the                                                                    
legislation).                                                                                                                   
                                                                                                                                
Mr. Pawlowski  answered that the administration  had not put                                                                    
specific projects on  the table; it had  listened to company                                                                    
testimony   and  had   read   analyst   reports  about   the                                                                    
opportunity  to  reverse  decline.  The  administration  had                                                                    
attempted  to  provide  various   assumptions  in  order  to                                                                    
illustrate  sensitivities to  new production  that would  be                                                                    
created under the legislation.                                                                                                  
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
administration had  no guarantee of any  projects that would                                                                    
occur based on the passage  of the legislation. He asked for                                                                    
confirmation  that the  decline  rates used  related to  the                                                                    
legislation  were hypothetical.  Mr. Pawlowski  replied that                                                                    
the sensitivity analyses were hypothetical  in order to show                                                                    
the  potential  response  to  the   bill.  He  believed  the                                                                    
companies' testimony to the various  committees stood on its                                                                    
own.                                                                                                                            
                                                                                                                                
Representative Gara recalled the testimony.                                                                                     
                                                                                                                                
7:40:33 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze pointed to the amendments.                                                                                     
                                                                                                                                
7:41:01 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
7:47:36 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Stoltze   initiated  the  amendment   process.  He                                                                    
relayed  that various  staff  from  the administration  were                                                                    
available  in  person  and   via  teleconference  to  answer                                                                    
questions.                                                                                                                      
                                                                                                                                
Representative  Thompson MOVED  to  ADOPT  Amendment 1,  28-                                                                    
GS1647\L.3, Nauman/Bullock, 4/11/13 (copy on file):                                                                             
                                                                                                                                
     Page 5, following line 30:                                                                                                 
                                                                                                                                
     Insert a new bill section to read:                                                                                         
                                                                                                                                
     "* Sec~ 8. AS 43.55.011(p) is amended to read:                                                                             
                                                                                                                                
     (P)  For  the  seven years  immediately  following  the                                                                    
     commencement  of commercial  production of  oil or  gas                                                                    
     produced from  leases or properties  in the  state that                                                                    
     are outside  the Cook Inlet sedimentary  basin and that                                                                    
     do not include  land located north of  68 degrees North                                                                    
     latitude, where that  commercial production began after                                                                    
     December 31,  2012, and before January  1, 2027 [2022],                                                                    
     the levy of  tax under (e) of this section  for oil and                                                                    
     gas may not  exceed four percent of the  gross value at                                                                    
     the point of production."                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 28, line 26:                                                                                                          
          Delete "sec. 2611                                                                                                     
          Insert "sec. 27"                                                                                                      
                                                                                                                                
     Page 28, line 27:                                                                                                          
          Delete "sec. 13"                                                                                                      
          Insert "sec. 14"                                                                                                      
          Delete "sees. 15 -18"                                                                                                 
          Insert "sees. 16 -19"                                                                                                 
          Delete "Sec. 30"                                                                                                      
          Insert "Sec. 31"                                                                                                      
                                                                                                                                
     Page 29, line 19:                                                                                                          
          Delete "15 -18, 23, and 31"                                                                                           
          Insert "16 -19, 24, and 32"                                                                                           
                                                                                                                                
     Page 32, line 20:                                                                                                          
          Delete "sec. 13"                                                                                                      
          Insert "sec. 14"                                                                                                      
          Delete "see. 26"                                                                                                      
          Insert "sec. 27"                                                                                                      
                                                                                                                                
     Extends the sunset  on 4% production tax  cap for first                                                                    
     7 years  of production for  new fields in  Middle Earth                                                                    
     from 2022 to 2027.                                                                                                         
                                                                                                                                
     Amendment 28-GS1647\L.3                                                                                                    
                                                                                                                                
     When  SB 23  passed there  was  a 2022  sunset on  this                                                                    
     provision.  This  2022  date is  convenient  because  a                                                                    
     number  of  Cook  Inlet  tax  treatments  sunset  then.                                                                    
     However, a sunset in 2022  works at cross purposes with                                                                    
     the objective of Middle Earth  production and the hoped                                                                    
     for  attractiveness   may  now  be   illusory.  Whether                                                                    
     considering  Yukon  Flats,  parts  of  Nenana,  or  the                                                                    
     Kotzebue area  basins, none of those  and similar areas                                                                    
     have  much  of  a  chance at  getting  into  production                                                                    
     before 2022, even  with aggressive exploration, success                                                                    
     and  no   setbacks.  They  are  just   too  remote  and                                                                    
     expensive. A  simple, flat  rate tax  cap as  a measure                                                                    
     was chosen  to help  attract new investment  into these                                                                    
     high cost  and geologically  risky areas which  have no                                                                    
     oil  and gas  infrastructure and  no discoveries.  A 5-                                                                    
     year  extension  to 2027  will  go  a long  way  toward                                                                    
     making this provision work as intended.                                                                                    
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative Thompson  explained that the  amendment would                                                                    
insert a new  bill section (Section 8) on  page 5, following                                                                    
line 30.  He read a  portion of the proposed  section, which                                                                    
would amend AS 43.55.01(p):                                                                                                     
                                                                                                                                
     For   the  seven   years   immediately  following   the                                                                    
     commencement  of commercial  production of  oil or  gas                                                                    
     produced from  leases or properties  in the  state that                                                                    
     are outside  the Cook Inlet sedimentary  basin and that                                                                    
     do  not  include  land  located  north  of  68  degrees                                                                    
     North...                                                                                                                   
                                                                                                                                
Representative Thompson elaborated that the amendment would                                                                     
extend the date from 2022 to 2027. He read from the                                                                             
amendment explanation (also included above):                                                                                    
                                                                                                                                
     ...However, a  sunset in 2022  works at  cross purposes                                                                    
     with the  objective of Middle Earth  production and the                                                                    
     hoped for  attractiveness may now be  illusory. Whether                                                                    
     considering  Yukon  Flats,  parts  of  Nenana,  or  the                                                                    
     Kotzebue area  basins, none of those  and similar areas                                                                    
     have  much  of  a  chance at  getting  into  production                                                                    
     before 2022, even  with aggressive exploration, success                                                                    
     and  no   setbacks.  They  are  just   too  remote  and                                                                    
     expensive. A  simple, flat  rate tax  cap as  a measure                                                                    
     was chosen  to help  attract new investment  into these                                                                    
     high cost  and geologically  risky areas which  have no                                                                    
     oil and gas infrastructure and no discoveries. A 5-                                                                        
     year extension to 2027 will go a long way toward                                                                           
     making this provision work as intended.                                                                                    
                                                                                                                                
Co-Chair Stoltze asked the administration to respond.                                                                           
                                                                                                                                
7:51:01 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski  spoke  to  the   impact  of  the  provision.                                                                    
Currently DOR  did not forecast  any production  from Middle                                                                    
Earth (the  area between  the North  Slope outside  the Cook                                                                    
Inlet  sedimentary basin).  He  relayed that  the state  and                                                                    
legislature  had  worked  to  open the  basin  in  order  to                                                                    
deliver  new production  in new  areas. The  amendment would                                                                    
extend  the qualification  period to  enter into  production                                                                    
and to  utilize benefits included in  legislation passed the                                                                    
prior  year;  many  provisions   within  the  House  Finance                                                                    
Committee CS supplemented, corrected,  and revised pieces of                                                                    
the  legislation  from  the  past   year  (AS  43.55.011  in                                                                    
particular).  He  stated  that  the  amendment  subject  was                                                                    
germane to the CS.                                                                                                              
                                                                                                                                
JOE  BALASH,  DEPUTY  COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES, spoke  about the policy  side of Amendment  1. He                                                                    
shared  that  Department  of  Natural  Resources  (DNR)  had                                                                    
supported  the  sponsors'  efforts of  the  legislation  the                                                                    
prior year  that had  put the  particular piece  into place.                                                                    
The department  believed the time extension  was reasonable,                                                                    
given  that the  areas (frontier  basins) did  not currently                                                                    
have  infrastructure. He  relayed that  the state  owned the                                                                    
mineral rights for much of the  land in the basins and had a                                                                    
long-term  interest   in  seeing  the  areas   explored  and                                                                    
developed.                                                                                                                      
                                                                                                                                
7:53:30 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  recalled that he had  not liked the                                                                    
bill  that  had  passed  the   prior  year.  He  appreciated                                                                    
Amendment 1.  He wondered when  drilling was  anticipated to                                                                    
begin. He  asked whether stretching  the credit  out farther                                                                    
would impact future liabilities to the state.                                                                                   
                                                                                                                                
Mr. Pawlowski replied that the  provision in AS 43.55.011(p)                                                                    
was  a tax  ceiling and  not a  credit. The  ceiling was  an                                                                    
alternative  to the  tax rate,  which set  a flat  4 percent                                                                    
gross tax rate on production from the relevant areas.                                                                           
                                                                                                                                
Representative Kawasaki  wondered whether the  ceiling could                                                                    
potentially  be  viewed by  DOR  as  a liability  in  future                                                                    
revenue   forecasting.  Mr.   Pawlowski  replied   that  the                                                                    
department  currently forecast  a liability  in its  revenue                                                                    
forecast  for  the  credits to  undertake  the  exploration;                                                                    
therefore,  the liability  had  already  been accepted.  The                                                                    
amendment related to  the tax in the  event that exploration                                                                    
was successful and resulted in production.                                                                                      
                                                                                                                                
Representative Kawasaki  wondered if  DOR factored  into its                                                                    
forecasting the possibility of the  state earning lower than                                                                    
expected revenues. Mr. Pawlowski  answered that DOR received                                                                    
development  and exploration  forecasts from  companies. The                                                                    
department did not  forecast what the state  may have earned                                                                    
on something that did not go forward.                                                                                           
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 1 was ADOPTED.                                                                                     
                                                                                                                                
7:56:43 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  MOVED  to  ADOPT  Amendment  2,  28-                                                                    
GS1647\L.1, Nauman/Bullock, 4/11/13 (copy on file).                                                                             
                                                                                                                                
     Page 17, line 18, through page 18. line 20:                                                                                
                                                                                                                                
     Delete all material and insert:                                                                                            
                                                                                                                                
          "(j) For each month of the calendar year for                                                                          
     which a  producer's average monthly gross  value at the                                                                    
     point of production of a  barrel of taxable oil and gas                                                                    
     is less  than $150,  a producer  may apply  against the                                                                    
     producer's tax  liability for  the calendar  year under                                                                    
     AS 43.55.011 (e)  a tax credit in  the amount specified                                                                    
     in  this  subsection for  each  barrel  of taxable  oil                                                                    
     under AS  43.55.01I(e) that  does not  meet any  of the                                                                    
     criteria  in  AS  43.55.160(f)  and  that  is  produced                                                                    
     during a  calendar year after  December 31,  2013, from                                                                    
     leases  or   properties  north  of  68   degrees  North                                                                    
     latitude.  A  tax credit  under  this  section may  not                                                                    
     reduce a  producer's tax liability for  a calendar year                                                                    
     under  AS 43.SS.011(e)  below zero.  The amount  of the                                                                    
     tax credit for a barrel  of taxable oil subject to this                                                                    
     subsection is                                                                                                              
                                                                                                                                
          (1) if the producer's average monthly gross value                                                                     
     at the point  of production of a barrel  of taxable oil                                                                    
     and gas  is less  than or  equal to  $100, $5  for each                                                                    
     barrel of taxable oil; or                                                                                                  
                                                                                                                                
          (2) if the producer's average monthly gross value                                                                     
     at the  point of 17  production of a barrel  of taxable                                                                    
     oil and  gas is more than  $100 and less than  $150, $5                                                                    
     for each  barrel of taxable  oil, reduced by  one tenth                                                                    
     of the  difference between  that average  monthly gross                                                                    
     value at  the point  of production of  a barrel  of oil                                                                    
     and $100."                                                                                                                 
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative Edgmon  explained that Amendment  2 attempted                                                                    
to give  the state more of  the share when the  price of oil                                                                    
reached $100  per barrel  or less.  Under the  amendment the                                                                    
sliding curve for the legacy  fields (non-GRE) would go from                                                                    
$5.00 per barrel  to $100 per barrel; above  $100 per barrel                                                                    
the curve would slope downwards  as it would have originally                                                                    
under  the legislation.  He detailed  that the  idea was  to                                                                    
share  more proportionately  on  the downside  when oil  was                                                                    
$100 per  barrel or less  and to  ensure that the  state was                                                                    
protected.                                                                                                                      
                                                                                                                                
Mr.  Pawlowski  spoke  against the  amendment.  He  believed                                                                    
everyone  shared  the  concern  about how  low  oil  prices,                                                                    
particularly at very low production  rates, would impact the                                                                    
state.  He opined  that the  amendment's  approach was  very                                                                    
fair.  However, the  administration  believed the  amendment                                                                    
would upset the  balance of the sliding  scale. He discussed                                                                    
offering better economics at lower  prices and the impact it                                                                    
had on  the planning cycles  of projects, which  allowed the                                                                    
state  to   take  more  as   the  price  of  oil   rose.  He                                                                    
communicated  that the  administration was  comfortable with                                                                    
the 4  percent gross  floor, which could  be used  under the                                                                    
CS;  the  administration saw  the  floor  as an  appropriate                                                                    
place  to set  downside  protection,  particularly when  the                                                                    
removal  of the  qualified capital  expenditure credit  also                                                                    
provided  protection  for  the  state.  He  summarized  that                                                                    
removing  the encouragement  to  economics  on the  downside                                                                    
would  necessitate the  removal of  the upside  as well;  it                                                                    
would take a relatively progressive  system and move it back                                                                    
towards progressive,  but without the  appropriate economics                                                                    
incentive.                                                                                                                      
                                                                                                                                
Representative Gara responded to  Mr. Pawlowski's comment on                                                                    
progressivity in  the CS. He  stated that  the progressivity                                                                    
in the  CS capped out at  35 percent regardless of  the cost                                                                    
per barrel;  progressivity was lower  than 35  percent below                                                                    
$150 per barrel.  He did not see the  system as progressive.                                                                    
He wondered what  the amendment would do to  taxes at higher                                                                    
prices.                                                                                                                         
                                                                                                                                
Representative Edgmon  replied that  at $100 per  barrel the                                                                    
amendment  would  resume  the  slope of  the  curve  in  the                                                                    
sliding scale  under the  CS. He  detailed that  the sliding                                                                    
scale  would be  $4.00 at  $110 per  barrel, $3.00  at $120,                                                                    
$2.00 at $130, $1.00 at $140, and zero at $150.                                                                                 
                                                                                                                                
Representative Gara  asked how  the tax under  the amendment                                                                    
would be different  at $150 per barrel in  comparison to the                                                                    
CS.  Representative Edgmon  answered that  the tax  [at $150                                                                    
per  barrel]  would  be identical.  The  trajectory  of  the                                                                    
downward slope  from $100  to $150 per  barrel would  be the                                                                    
same as in the CS.                                                                                                              
                                                                                                                                
Representative Gara  surmised that the  tax would cap  at 35                                                                    
percent. He asked for verification  that the amendment would                                                                    
lower  taxes at  lower  prices, but  did  nothing at  higher                                                                    
prices. Representative Edgmon replied in the affirmative.                                                                       
                                                                                                                                
8:02:03 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski  remarked that each  committee that  had heard                                                                    
the   bill   had   made  policy   calls   related   to   the                                                                    
competitiveness of the tax regime  they wished to create. He                                                                    
stated  that technically  the amendment  would  do what  the                                                                    
sponsor had  testified it would.  He reiterated  his earlier                                                                    
statement  that the  administration  believed the  amendment                                                                    
would   upset  the   balance   struck   in  the   relatively                                                                    
progressive nature of the system in the CS.                                                                                     
                                                                                                                                
Representative  Edgmon agreed  that the  issue was  a policy                                                                    
call for the  committee and legislature to make.  He had not                                                                    
been convinced throughout testimony  on the bill that moving                                                                    
the per barrel credit from $8.00  down to $5.00 would not be                                                                    
an inducement  to increase activity.  The credit  related to                                                                    
legacy oil  (the committee had  been told by DOR  that there                                                                    
were approximately  3 billion barrels of  recoverable legacy                                                                    
oil).  He contended  that even  $5 per  barrel could  be too                                                                    
much.  He detailed  that by  lowering the  credit to  $5 per                                                                    
barrel there was still an  opportunity to give explorers and                                                                    
producers a credit, while softening  the impact to the state                                                                    
at  the bottom  line going  forward.  He added  that if  the                                                                    
price of oil dipped down the state would be protected given                                                                     
the lower per barrel credit on legacy fields up to $100.                                                                        
                                                                                                                                
8:04:54 PM                                                                                                                    
                                                                                                                                
A roll call vote was taken on the motion to adopt Amendment                                                                     
2.                                                                                                                              
                                                                                                                                
IN FAVOR: Edgmon, Gara, Kawasaki, Munoz                                                                                         
OPPOSED: Neuman, Thompson, Wilson, Costello, Holmes,                                                                            
Austerman, Stoltze                                                                                                              
                                                                                                                                
The MOTION to Adopt Amendment 2 FAILED (4/7).                                                                                   
                                                                                                                                
Representative Thompson MOVED to ADOPT Amendment 3, 28-                                                                         
GS1647\L.2, Nauman/Bullock, 4/11/13 (copy on file):                                                                             
                                                                                                                                
     Page 19, following line 11:                                                                                                
                                                                                                                                
     Insert a new bill section to read:                                                                                         
                                                                                                                                
     "* Sec. 22. AS 43.S5.02S(b) is amended to read:                                                                            
                                                                                                                                
          (b) To qualify for the production tax credit                                                                          
     under (a)  (5), (6), or  (7) [(a)] of this  section, an                                                                    
     exploration  expenditure  must  be  incurred  for  work                                                                    
     performed after June 30, 2008,  and before July 1,2016,                                                                    
     or, for work qualifying under  (a)(l), (2), (3), or (4)                                                                    
     of this section, for work  performed in an area outside                                                                    
     of the  Cook Inlet  sedimentary basin  and south  of 68                                                                    
     degrees  North  latitude,  after  June  30,  2008,  and                                                                    
     before January 1, 2022, and                                                                                                
                                                                                                                                
          (1) may be for seismic or other geophysical                                                                           
     exploration costs not connected with a specific well;                                                                      
                                                                                                                                
          (2) if for an exploration well,                                                                                       
                                                                                                                                
               (A) must be incurred by an explorer that                                                                         
     holds  an interest  in the  exploration well  for which                                                                    
     the production tax credit is claimed;                                                                                      
                                                                                                                                
               (B) may be for either a well that encounters                                                                     
     an oil or gas deposit or a dry hole;                                                                                       
                                                                                                                                
               (C) must be for a well that has been                                                                             
     completed,  suspended, or  abandoned  at  the time  the                                                                    
     explorer claims the tax credit under (f) of this                                                                           
     section; and                                                                                                               
                                                                                                                                
               (D) must be for goods, services, or rentals                                                                      
     of  personal  property   reasonably  required  for  the                                                                    
     surface preparation,  drilling, casing,  cementing, and                                                                    
     logging of an  exploration well, and, in the  case of a                                                                    
     dry hole, for the  expenses required for abandonment if                                                                    
     the well is abandoned within 18 months                                                                                     
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative  Thompson explained  that  Amendment 3  would                                                                    
insert  a  new  bill  section   (Section  22)  on  page  19,                                                                    
following  line  11,  which  would  amend  AS  43.55.025(b).                                                                    
Currently the  production tax  credit had  a sunset  date of                                                                    
July  1, 2016.  The new  section  would extend  the date  to                                                                    
January 1, 2022 for work outside  of Cook Inlet and south of                                                                    
68 degrees  North latitude. The  amendment would  extend the                                                                    
30 percent and 40  percent credits under AS 43.55.025(a)(1),                                                                    
(2), (3), or  (4) to 2022 for Middle Earth.  The 2016 sunset                                                                    
would be  left in place  for the  75 percent and  80 percent                                                                    
credits applicable only to Middle Earth.                                                                                        
                                                                                                                                
Mr. Balash  responded that the administration  was comforted                                                                    
that  the specific  credits had  a two-step  process: (1)  a                                                                    
company  was required  to obtain  prequalification from  the                                                                    
Division of  Oil and Gas, which  entailed demonstrating that                                                                    
a geologic  target would be pursued  through the exploration                                                                    
effort;  and (2)  companies were  required  to report  their                                                                    
results  to  the   Resource  Evaluation  Division  following                                                                    
exploration activity.  After approval, the company  could go                                                                    
to DOR  to qualify and  receive the credit  certificates. He                                                                    
stated  that  the  administration   felt  that  the  process                                                                    
provided  a reasonable  check on  the particular  credit and                                                                    
any exposure  it may mean  for the state. He  referenced his                                                                    
earlier  comments related  to the  Frontier  Basins and  the                                                                    
opportunity presented the state and overall economy.                                                                            
                                                                                                                                
Representative  Costello   asked  whether   the  information                                                                    
collected by the companies became  the state's property. Mr.                                                                    
Balash  replied in  the affirmative.  He  detailed that  the                                                                    
state  was required  to maintain  confidential treatment  of                                                                    
the information  for a period  of time; the time  period was                                                                    
shorter if the information pertained to public land.                                                                            
                                                                                                                                
Representative Kawasaki  wondered whether the FY  09 through                                                                    
present  Middle   Earth  credits   had  been   audited.  Mr.                                                                    
Pawlowski deferred the question to  the DOR Tax Division. He                                                                    
asked  the division  whether the  credits for  the specified                                                                    
time period had been used at present.                                                                                           
                                                                                                                                
MATT FONDER,  DIRECTOR, TAX DIVISION, DEPARTMENT  OF REVENUE                                                                    
(via teleconference), replied that  the tax credits had been                                                                    
adopted in  the prior  legislative session and  the division                                                                    
had not yet received an application.                                                                                            
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 3 was ADOPTED.                                                                                     
                                                                                                                                
8:11:06 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  MOVED  to  ADOPT  Amendment  4,  28-                                                                    
GS1647\L.6, Nauman/Bullock, 4/11/13 (copy on file):                                                                             
                                                                                                                                
     Page 25, lines 27 -29:                                                                                                     
          Delete "nominated by the two leading nonprofit                                                                        
     trade  associations   representing  the  oil   and  gas                                                                    
     industry in  the state and  appointed by  the governor,                                                                    
     with one member nominated by each association"                                                                             
          Insert "of the public appointed by the governor                                                                       
     who do not represent the oil and gas industry."                                                                            
                                                                                                                                
     Page 26, line 22:                                                                                                          
          Delete "may not meet more than"                                                                                       
          Insert "shall meet at least"                                                                                          
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
8:11:44 PM                                                                                                                    
                                                                                                                                
Representative Wilson  explained that Amendment  4 pertained                                                                    
to the  Oil and Gas Competitiveness  Review Board structure.                                                                    
She pointed  to page  25, lines  27 through  29 of  the bill                                                                    
where  the  amendment would  delete  "nominated  by the  two                                                                    
leading  nonprofit trade  associations representing  the oil                                                                    
and  gas  industry  in the  state..."  The  amendment  would                                                                    
insert language  to read:  "of the  public appointed  by the                                                                    
governor who  do not  represent the  oil and  gas industry."                                                                    
The  amendment would  delete language  on page  26, line  22                                                                    
that  read "may  not meet  more than"  and would  replace it                                                                    
with "shall meet  at least." The purpose was  to ensure that                                                                    
the  review board  would  meet at  least  once per  calendar                                                                    
year. She relayed  that the board would help  the state gain                                                                    
a   broader  understanding   related   to  its   competitive                                                                    
position.   The  amendment   recognized  that   markets  and                                                                    
technology changed over time.  Additionally, the goal was to                                                                    
decrease the political nature of the board structure.                                                                           
                                                                                                                                
Representative Holmes voiced support  for the amendment. She                                                                    
was in favor  of reinstating the review  board, but believed                                                                    
the language in the CS  was industry heavy. She relayed that                                                                    
the three  public members in  the past review board  had all                                                                    
been  petroleum engineers,  geologists, financial  analysts,                                                                    
members   of   the   Alaska   Oil   and   Gas   Association,                                                                    
commissioners,  and other.  The goal  was to  include public                                                                    
members  who  were not  affiliated  with  the industry.  The                                                                    
amendment would  also ensure  that the  board would  meet at                                                                    
least once per year.                                                                                                            
                                                                                                                                
There being  NO further OBJECTION, Amendment  4 was ADOPTED.                                                                    
[Note: The action  to adopt Amendment 4  was rescinded later                                                                    
in  the  meeting.  A  modified   version  of  the  amendment                                                                    
(Amendment 16)  was adopted. See  9:53:20 p.m.  through 9:58                                                                    
p.m.]                                                                                                                           
                                                                                                                                
8:14:02 PM                                                                                                                    
                                                                                                                                
Representative  Gara   MOVED  to  ADOPT  Amendment   5,  28-                                                                    
GS1647\L.9, Nauman/Bullock, 4/11/13 (copy on file):                                                                             
                                                                                                                                
     Page 24, line 11, following "section,":                                                                                    
          Insert "for the first seven years immediately                                                                         
     following production subject to tax under AS 43.55.011                                                                     
     (e),"                                                                                                                      
                                                                                                                                
     Page 24, line 30, following "section,":                                                                                    
          Insert "for the first seven years immediately                                                                         
     following the commencement of production subject to                                                                        
     tax under AS 43.55.011 (e),"                                                                                               
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative Gara hoped the  compromise offered in several                                                                    
of his  amendments would gain  a consensus from  members. He                                                                    
asked the  department to pull  up slide  3 from an  Econ One                                                                    
presentation dated  4/11/13 ["Analysis of HCS  CS SB21 (FIN)                                                                    
for House  Finance Committee"] (copy on  file). He discussed                                                                    
the state's current fairly robust  tax rate and the argument                                                                    
by some  that the rate was  too high at high  oil prices. He                                                                    
opined that  without some amendments  the current  bill went                                                                    
too far  in the  other direction. He  addressed the  area of                                                                    
new oil under the legislation  where the tax rate at current                                                                    
prices  was around  17 percent  or 18  percent. He  stressed                                                                    
that the state  could not build an economy on  an 18 percent                                                                    
tax rate. He elaborated that  as an increasing amount of oil                                                                    
became  new oil  the next  generation of  Alaskans would  be                                                                    
left with  a tax rate of  18 percent. He stated  that the CS                                                                    
contained  a new  tax rate  of approximately  14 percent  at                                                                    
current prices. He did not  believe any company needed a tax                                                                    
rate that low  or that an economy could be  built on the low                                                                    
rate. He  equated the  low rates to  tax rates  in countries                                                                    
that had minimal oil (e.g. Peru).                                                                                               
                                                                                                                                
Representative Gara  relayed that  the amendment  would help                                                                    
encourage production at the lower  tax rate for seven years.                                                                    
A  company  would   recoup  much  of  its   costs  and  make                                                                    
additional  profits.  He pointed  out  that  the bill  would                                                                    
adopt a  much lower tax  rate than under current  law. Under                                                                    
the  amendment, after  the seven-year  period, the  tax rate                                                                    
would  revert  to   what  the  administration's  consultants                                                                    
called a  competitive rate. He  was accepting of a  low rate                                                                    
for  the  first  seven  years,   but  could  not  support  a                                                                    
perpetual 14  percent or 18  percent rate going  forward. He                                                                    
emphasized that  the rate would  not provide the  state with                                                                    
adequate  funding  for  schools,   the  capital  budget,  or                                                                    
savings.                                                                                                                        
                                                                                                                                
8:18:20 PM                                                                                                                    
                                                                                                                                
Mr. Balash  spoke in  opposition to  Amendment 5.  He stated                                                                    
that  the amendment  lacked clarity  on  what would  qualify                                                                    
under  the  temporary  seven-year  period  (i.e.  the  unit,                                                                    
lease,  and/or  PA).  The administration  believed  that  in                                                                    
addition  to  taxes it  was  necessary  to factor  in  total                                                                    
government  take. He  stressed that  royalties mattered.  He                                                                    
pointed  to a  slide presented  earlier in  the evening  and                                                                    
stated that  while the  tax rate for  the 16  and two-thirds                                                                    
leases would be lower, the  royalties were higher, which had                                                                    
an  offsetting  effect.   The  administration  believed  the                                                                    
policy  was to  ensure  that the  one-sixth [16.67  percent]                                                                    
leases had  the same attractiveness as  the one-eighth [12.5                                                                    
percent]  leases. He  was interested  in seeing  the 16  and                                                                    
two-thirds  leases  explored,  developed, and  brought  into                                                                    
production. Additionally,  he pointed  to the impact  a time                                                                    
limit had on economic  behavior. The administration believed                                                                    
the  time  limit  would  have  a  distortion  on  investment                                                                    
behavior if a company utilized  the tax relief for the first                                                                    
seven years of production and  then experienced tax and unit                                                                    
cost  increases as  production declined.  The administration                                                                    
had concern that under  the amendment ultimately development                                                                    
could  proceed in  a way  that did  not achieve  the maximum                                                                    
resource recovery in the long-term.                                                                                             
                                                                                                                                
8:21:16 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski pointed to slide  8 of the [Econ One, 4/11/13]                                                                    
presentation, which showed  comparable economics for various                                                                    
regions.  He  detailed that  the  slide  showed models  that                                                                    
assumed  specific  development  and production  happened  at                                                                    
certain times.  He furthered that operating  in Alaska often                                                                    
did not  work out as  hoped; a permitting delay  changed the                                                                    
economics  of  a  field.  He  noted  that  there  were  many                                                                    
challenges  to overcome.  The administration  saw the  total                                                                    
overall economics  to the  project including  the government                                                                    
take  as  critical to  moving  new  development forward.  He                                                                    
pointed to  the NPVs for the  State of Alaska at  the bottom                                                                    
of the  slide. The  administration believed that  the "life-                                                                    
cycle"  government take  that opened  up new  areas at  high                                                                    
royalty  rates  with  a  reasonable  tax  rate  would  yield                                                                    
dividends  to  the state.  He  highlighted  that the  models                                                                    
showed the state  as consistently ahead of  the companies on                                                                    
a NPV  basis; the  state took  a larger  share of  the total                                                                    
than the industry.                                                                                                              
                                                                                                                                
Representative Munoz  spoke in  support of Amendment  5. She                                                                    
stated that the changes in  the bill would increase Alaska's                                                                    
competitiveness  compared to  other  areas in  the U.S.  She                                                                    
spoke to provisions  allowed through the GRE  for new fields                                                                    
and  her  concern that  a  lower  rate  would be  locked  in                                                                    
indefinitely for  any new major discoveries.  She believed a                                                                    
time limit would  protect the state's revenues  in the long-                                                                    
term.                                                                                                                           
                                                                                                                                
Co-Chair Austerman asked  whether increasing the amendment's                                                                    
proposed  timeline from  7 up  to  10 years  would make  the                                                                    
administration  more comfortable.  Mr.  Balash replied  that                                                                    
change  would not  alter the  administration's concern  that                                                                    
increasing taxes  later in the  life of  a well or  PA could                                                                    
shut it in for economic purposes.                                                                                               
                                                                                                                                
8:24:40 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki spoke in  support of Amendment 5. He                                                                    
referred  to a  comment by  the administration  on what  was                                                                    
considered new  oil and old  oil, which he  believed related                                                                    
to  the GRE  portion  of  the bill.  He  supported that  the                                                                    
amendment would help clarify what  new oil meant and whether                                                                    
it was  being produced  (either under a  7 or  10-year look-                                                                    
forward).  He believed  that it  was  fair to  say that  the                                                                    
meaning of new oil may be  unclear, but a 7-year limit would                                                                    
provide the opportunity to look at the issue.                                                                                   
                                                                                                                                
Representative  Costello voiced  opposition to  Amendment 5.                                                                    
She referred  to companies' comments that  taxes had changed                                                                    
up to four  times during the length of  one lease; companies                                                                    
had  expressed  their hope  that  the  instability would  be                                                                    
changed. She did  not believe inserting a tax  change in the                                                                    
legislation would be beneficial to the state.                                                                                   
                                                                                                                                
Representative Edgmon  spoke in  favor of the  amendment. He                                                                    
believed  the  debate  underscored  the  difficulty  of  the                                                                    
issue.  He  contended that  the  amendment  would act  as  a                                                                    
safeguard to  protect the state's  interests. He  pointed to                                                                    
the possibility  that the price of  oil could go up  to $150                                                                    
and remain high;  he wondered what the state  would do then.                                                                    
He observed that there was more  than one way to look at the                                                                    
issue.                                                                                                                          
                                                                                                                                
Vice-Chair Neuman asked how Amendment  5 would affect fields                                                                    
within and the expansion of  PAs. Mr. Pawlowski believed the                                                                    
amendment  applied to  the  broader GRE  for  new areas  and                                                                    
large  capital investments  the  development of  undeveloped                                                                    
pools of  viscous oil  within legacy  fields that  were more                                                                    
challenging  and  costly.  He  relayed  that  the  amendment                                                                    
applied  to  the   suite  of  the  oil  that   part  of  the                                                                    
legislation aimed  to target; to  lay a foundation  and grow                                                                    
production throughout the future.                                                                                               
                                                                                                                                
8:28:23 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  spoke in opposition  to the  amendment. He                                                                    
noted that the amendment  pertained to non-producing oil and                                                                    
one  of  the  bill's  goals  was  to  provide  incentive  to                                                                    
increase new  production. He discussed reward  for investors                                                                    
taking risk  on fields that  had higher costs and  were less                                                                    
proven. He  supported increasing  revenue from oil  that was                                                                    
not currently in production.                                                                                                    
                                                                                                                                
Representative  Gara provided  closing remarks  on Amendment                                                                    
5. He did not believe it  would ever be possible to increase                                                                    
the revenue  brought in  with 14 percent  to 18  percent tax                                                                    
rates. He stressed  that the rates were among  the lowest in                                                                    
the world.  He was disappointed that  the administration did                                                                    
not provide a  chart showing how Alaska  would look compared                                                                    
to the rest of the world  using the 14 percent or 18 percent                                                                    
tax rate. He reminded the  administration that it called the                                                                    
35 percent tax rate very  competitive; after 7 years the tax                                                                    
rate  would increase  to the  new competitive  tax rate.  He                                                                    
stressed  that  there  would  be  no  punishment  under  the                                                                    
scenario and  that companies would  be able to  recoup their                                                                    
costs. He continued that after 7  years at one of the lowest                                                                    
tax rates in the world a  company would then be subject to a                                                                    
tax rate  that the  administration called  very competitive.                                                                    
He believed  a 7-year cap  on the  14 percent or  17 percent                                                                    
tax rate made  sense. He relayed that making  taxes too high                                                                    
or too low could make  a tax system unstable given potential                                                                    
pressure to  make a  change to the  tax structure.  He noted                                                                    
that he was open to changing  the 7-year period to a 10-year                                                                    
period if an amendment to  the amendment was offered. He did                                                                    
not  believe the  administration  acknowledged  the way  the                                                                    
state significantly benefited new  oil; the state helped pay                                                                    
for new oil by paying  for exploration credits and other. He                                                                    
believed  that  in the  end  the  tax  rate was  still  low.                                                                    
Without the  amendment he did  not know how the  state would                                                                    
be able  to afford  school construction, hire  new teachers,                                                                    
or fund the state.                                                                                                              
                                                                                                                                
8:32:39 PM                                                                                                                    
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
5.                                                                                                                              
                                                                                                                                
IN FAVOR: Munoz, Edgmon, Gara, Kawasaki, Austerman                                                                              
OPPOSED:   Holmes,  Neuman,   Thompson,  Wilson,   Costello,                                                                    
Stoltze                                                                                                                         
                                                                                                                                
The MOTION to adopt Amendment 5 FAILED (5/6).                                                                                   
                                                                                                                                
Representative  Gara   MOVED  to  ADOPT  Amendment   6,  28-                                                                    
GS1647\L.29, Nauman/Bullock, 4/11/13 (copy on file):                                                                            
                                                                                                                                
     Page 4, line 18, following "to":                                                                                           
          Insert "the sum of (A)"                                                                                               
                                                                                                                                
     Page 4, line 20, following "percent";                                                                                      
          Insert H; and (B) the sum, over all months of the                                                                     
     calendar year, of the tax  amounts determined under (g)                                                                    
     of this section"                                                                                                           
                                                                                                                                
     Page 4, line 21, through page 5, line 7:                                                                                   
          Delete all material and insert: "* Sec. 5. AS                                                                         
     43.55.011(g) is amended to read:                                                                                           
          (g) For purposes of (e) of this section, the tax                                                                      
     amount is determined as follows:                                                                                           
          (1) before January 1, 2014, for [FOR] each month                                                                      
     of the  calendar year for which  the producer's average                                                                    
     monthly production  tax value under  AS 43.55.160(a)(2)                                                                    
     of a  [PER] BTU  equivalent barrel  of the  taxable oil                                                                    
     and  gas is    more than  $30, the  amount  of tax  for                                                                    
     purposes of  (e)(1)(B) and  (e)(2)(B) [(e)(2)]  of this                                                                    
     section  is  determined   by  multiplying  the  monthly                                                                    
     production  tax  value  of  the  taxable  oil  and  gas                                                                    
     produced during  the month by  the tax  rate calculated                                                                    
     as follows:                                                                                                                
               (A) [(1)] if the producer's average monthly                                                                      
     production tax  value of a [PER]  BTU equivalent barrel                                                                    
     of the  taxable oil and gas  for the month is  not more                                                                    
     than $92.50, the tax rate  is 0.4 percent multiplied by                                                                    
     the number that represents  the difference between that                                                                    
     average  monthly production  tax value  of a  [PER] BTU                                                                    
     equivalent barrel and $30; or                                                                                              
                                                                                                                                
               (B) [(2)] if the producer's average monthly                                                                      
     production tax  value of a [PER]  BTU equivalent barrel                                                                    
     of the taxable  oil and gas for the month  is more than                                                                    
     $92.50, the tax  rate is the sum of 25  percent and the                                                                    
     product of  0.1 percent  multiplied by the  number that                                                                    
     represents the  difference between the  average monthly                                                                    
     production tax  value of a [PER]  BTU equivalent barrel                                                                    
     and $92.50,  except that the sum  determined under this                                                                    
     paragraph may not exceed 50 percent:                                                                                       
                                                                                                                                
          (2) on or after January 1, 2014, for each month                                                                       
     of the  calendar year for which  the producer's average                                                                    
     monthly production  tax value under  AS 43.55.160(a){2)                                                                    
     of a BTU  equivalent barrel of the taxable  oil and gas                                                                    
     is more  than $60,  the difference between  the monthly                                                                    
     production  tax value  of a  BTU equivalent  barrel and                                                                    
     $60 multiplied  by the volume  of oil and  gas produced                                                                    
     by  the  producer  for  the   month  multiplied  by  10                                                                    
     percent."                                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 9, line 15, following "ii":                                                                                           
          Insert "the sum of the amount calculated for the                                                                      
     month under AS 43.55.011(g) and"                                                                                           
                                                                                                                                
     Page 9, line 30, following "(iii)":                                                                                        
          Insert "the sum of the amount calculated for the                                                                      
     month under AS 43.55.011(g) and"                                                                                           
                                                                                                                                
     Page 10, line 12, following "!ii":                                                                                         
          Insert "the sum of the amount calculated for the                                                                      
     month under AS 43.55.011(g) and"                                                                                           
                                                                                                                                
     Page 10, line 21, following "i"                                                                                            
          Insert "the sum of the amount calculated for the                                                                      
     month under AS 43.55.011(2) and"                                                                                           
                                                                                                                                
     Page 11, lines 10 -28:                                                                                                     
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 13, lines 11 -29:                                                                                                     
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
     Page 28, line 20:                                                                                                          
          Delete   "AS   43.55.020(d),   43.55.023(i),   and                                                                    
     43.55.023(p)"                                                                                                              
          Insert "AS 43.55.023(i) and 43.55.023(p)"                                                                             
                                                                                                                                
     Page 28, line 26:                                                                                                          
          Delete "sec. 26"                                                                                                      
          Insert "sec. 24"                                                                                                      
                                                                                                                                
     Page 28, line 27:                                                                                                          
          Delete "sec. 13"                                                                                                      
          Insert "sec. 11"                                                                                                      
          Delete "sees. 15 -18"                                                                                                 
          Insert "sees. 13 -16"                                                                                                 
                                                                                                                                
     Page 29, line 7:                                                                                                           
          Delete "sec. 30"                                                                                                      
                                                                                                                                
     Page 29, line 11:                                                                                                          
          Delete "15 -18, 23, and 31"                                                                                           
          Insert "13 -16, 21, and 29"                                                                                           
                                                                                                                                
     Page 29, line 12:                                                                                                          
          Delete "sec. 13"                                                                                                      
          Insert "sec. 11"                                                                                                      
          Delete "sec. 26"                                                                                                      
          Insert "sec. 24"                                                                                                      
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative Gara hoped Amendment  6 would gain bipartisan                                                                    
support from the committee. He  explained that the amendment                                                                    
would maintain  the tax rate  from approximately  27 percent                                                                    
to 35  percent at $150 per  barrel that was included  in the                                                                    
CS. Company profits above $60  per barrel (what the governor                                                                    
had referred  to as  "bracketing" the  prior year)  would be                                                                    
taxed at 45  percent. He expounded that  when companies were                                                                    
making record  or near-record profits  above $60  per barrel                                                                    
the state's share would increase  to a slightly higher rate.                                                                    
He  believed the  amendment would  mitigate revenue  loss to                                                                    
the state.  Additionally, the amendment would  not deter new                                                                    
investment  because the  rate would  not  take effect  until                                                                    
companies had  made substantial profits. He  opined that the                                                                    
concept should be attractive to the oil industry.                                                                               
                                                                                                                                
8:36:09 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski spoke  against Amendment  6. He  believed the                                                                    
amendment  was a  fundamental departure  from the  structure                                                                    
the   administration  aimed   to   build.   He  noted   that                                                                    
progressiveness of a system was  in the eye of the beholder.                                                                    
The  administration   believed  that  the   concept  created                                                                    
distortions in the system. He pointed  to page 2, line 13 of                                                                    
the legislation and  stated that linking a  variation in the                                                                    
monthly tax rate to the  net value per barrel introduced the                                                                    
incentive for companies to make  decisions that would impact                                                                    
the margin; if  a value increase triggered  an additional 10                                                                    
percent tax  it would drive  a company to do  something that                                                                    
was relatively inefficient.  The administration believed the                                                                    
issue was important for the  state because it had a profits-                                                                    
based  tax; increased  efficiency  in the  oil sector  meant                                                                    
increased  benefit for  the state  from the  more profitable                                                                    
barrels produced. He stressed that  the CS maintained one of                                                                    
the   administration's   central   tenets   that   a   flat,                                                                    
predictable  tax rate  allowed investors  to make  long-term                                                                    
planning decisions.                                                                                                             
                                                                                                                                
Mr. Pawlowski  communicated that  the progressive  aspect of                                                                    
the  legislation came  from the  per barrel  credit and  not                                                                    
from the  change in the  tax rate,  which made the  flat tax                                                                    
system progressive. He stated  that Amendment 6 reintroduced                                                                    
a  modified form  of progressivity  that would  lead to  the                                                                    
same challenges the administration  had been working on from                                                                    
the beginning.                                                                                                                  
                                                                                                                                
Representative  Costello voiced  opposition to  Amendment 6.                                                                    
She believed it  was not well known  that approximately $849                                                                    
million of  the state's  share under the  ACES progressivity                                                                    
feature   was   lost   due   to   the   qualifying   capital                                                                    
expenditures;  the bill  would remove  the feature.  She had                                                                    
heard that  under the ACES  structure companies  were buying                                                                    
down their  tax rates; she  observed that the state  was not                                                                    
benefitting from  the situation  because additional  oil was                                                                    
not being  produced. She believed the  instability of basing                                                                    
tax  on  price  was  not viable  for  businesses'  long-term                                                                    
planning.  She  communicated  that she  cared  about  future                                                                    
generations  and  remarked  on the  importance  of  weighing                                                                    
gains and losses when making changes to the tax structure.                                                                      
                                                                                                                                
Representative  Wilson asked  what substantial  profit meant                                                                    
under  the amendment.  She asked  if the  term pertained  to                                                                    
each  field,  new  fields,  legacy   fields  or  other.  She                                                                    
believed the amendment would be an accounting nightmare.                                                                        
                                                                                                                                
Representative  Kawasaki replied  that  the amendment  would                                                                    
apply  to producers  and  their  average monthly  production                                                                    
tax. He explained that when  a producer (there were 19 total                                                                    
in Alaska) began  making $60 of profit per  barrel under the                                                                    
amendment they  would go  to a bracketed  tax rate  that was                                                                    
higher than  the rates in  the CS. He referred  to testimony                                                                    
on protecting  the state  at the low  end and  ensuring that                                                                    
Alaska received its fair share  under windfalls. He stressed                                                                    
that  the state  ought  to benefit  from  the extreme  price                                                                    
variations.  He  remarked  that   the  state  may  not  have                                                                    
anticipated  oil  in  the  $90s or  $100s,  but  there  were                                                                    
diagrams that  showed prices as  low as  $10 and as  high as                                                                    
$200 per barrel.  He stated that he had seen  oil as high as                                                                    
$140  and that  it  was currently  slightly  under $110.  He                                                                    
believed the  amendment protected the value  of Alaska's oil                                                                    
and gave the  state a fair share when  companies were making                                                                    
a  considerable amount  ($60 per  barrel profit).  He stated                                                                    
that the  number could be  tweaked to one that  members were                                                                    
more  comfortable with.  He emphasized  that when  companies                                                                    
were  making  a  large  profit that  the  state  and  future                                                                    
generations should benefit as well.                                                                                             
                                                                                                                                
8:43:05 PM                                                                                                                    
                                                                                                                                
Representative  Gara provided  closing remarks  on Amendment                                                                    
6. In  response to comments  that the amendment  was complex                                                                    
he countered  that the amendment  was less complex  than the                                                                    
governor's bill from the prior  year; the proposal the prior                                                                    
year contained  three or  four brackets  instead of  one. He                                                                    
disputed the  claim that the administration  would be unable                                                                    
to administer the provision. He  stressed that the provision                                                                    
would be  four times as easy  to administer as the  tax bill                                                                    
proposed the prior year. He  stated that the amendment would                                                                    
benefit the  state and was  tepid for producers;  a producer                                                                    
would need  to make $60 per  barrel profit prior to  the tax                                                                    
increase. He  stressed that  the profit  was high;  it would                                                                    
reach  $6 million  for 100,000  barrels. He  emphasized that                                                                    
the companies would continue to  make a profit under the tax                                                                    
increase.  He disagreed  with  the administration's  comment                                                                    
that the  amendment would be  a disincentive  to production.                                                                    
He underscored  that the tax  increase was slight  and would                                                                    
allow the  state to share  more fairly at higher  prices. He                                                                    
believed the  public would be  happy with the  provision. He                                                                    
reminded  the  committee  that   a  company  would  not  pay                                                                    
anything if they were not making profits.                                                                                       
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
6.                                                                                                                              
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED: Munoz, Neuman,  Thompson, Wilson, Costello, Edgmon,                                                                    
Holmes, Stoltze, Austerman                                                                                                      
                                                                                                                                
The MOTION to adopt Amendment 6 FAILED (2/9).                                                                                   
                                                                                                                                
Representative  Gara   MOVED  to  ADOPT  Amendment   7,  28-                                                                    
GS1647\L.10, Nauman/Bullock, 4/11/13 (copy on file):                                                                            
                                                                                                                                
     Page 24, line 13:                                                                                                          
          Delete "20"                                                                                                           
          Insert "15"                                                                                                           
                                                                                                                                
Co-Chair Stoltze OBJECTED                                                                                                       
                                                                                                                                
Representative Gara asked  Mr. Pawlowski to turn  to slide 3                                                                    
on  the Econ  One  presentation ["Analysis  of  HCS CS  SB21                                                                    
(FIN) for House Finance Committee"] (copy on file).                                                                             
                                                                                                                                
Representative  Gara relayed  that  the  amendment had  been                                                                    
written  to the  prior  bill  version He  asked  to make  an                                                                    
amendment  to  Amendment  7. He  proposed  the  deletion  of                                                                    
language on page 24, line 28.                                                                                                   
                                                                                                                                
Co-Chair Stoltze  interjected that  his preference  would be                                                                    
to  have  the  amendment written  out.  Representative  Gara                                                                    
agreed.                                                                                                                         
                                                                                                                                
Co-Chair  Stoltze   relayed  his  intent  to   postpone  the                                                                    
consideration of Amendment 7 until later in the meeting.                                                                        
                                                                                                                                
8:47:41 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:54:41 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Stoltze  asked Representative Gara if  he wished to                                                                    
defer the consideration of  Amendment 8. Representative Gara                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Representative  Gara   MOVED  to  ADOPT  Amendment   9,  28-                                                                    
GS1647\L.11, Nauman/Bullock, 4/11/13 (copy on file):                                                                            
                                                                                                                                
     Page 24, line 12, following "gas":                                                                                         
          Insert "produced from an area, unit, or expanded                                                                      
     area that did not have production before July 1, 2013,                                                                     
     and"                                                                                                                       
                                                                                                                                
     Page 24, line 30, following "gas":                                                                                         
          Insert "produced from an area, unit, or expanded                                                                      
     area that did not have production before July 1, 2013,                                                                     
     and"                                                                                                                       
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
8:55:50 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:56:17 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Gara  explained Amendment  9. He  referred to                                                                    
the bill's permanent low tax rate  for new oil of 14 percent                                                                    
to  18 percent.  He  addressed the  administration's aim  to                                                                    
incentivize new oil  and stated that it was  not possible to                                                                    
incentivize  something  that  had   already  been  done.  He                                                                    
detailed that  under the CS the  low tax applied to  any oil                                                                    
produced after  2011; companies that were  already producing                                                                    
would be  treated as new  oil producers and would  receive a                                                                    
credit  that was  aimed to  incentivize  something that  had                                                                    
already begun. The amendment specified  that the new oil tax                                                                    
rate  would apply  to oil  produced after  July 1,  2013. He                                                                    
believed companies  should be satisfied with  the change. He                                                                    
opined that the money did not need to be given away.                                                                            
                                                                                                                                
Mr. Balash  pointed to  language that  would be  inserted by                                                                    
the  amendment  reading "produced  from  an  area, unit,  or                                                                    
expanded area  that did not  have production before  July 1,                                                                    
2013." He  wondered whether  a new PA  in Prudhoe  Bay would                                                                    
qualify or whether the intent was  to ensure that new PAs in                                                                    
Prudhoe Bay would not qualify.                                                                                                  
                                                                                                                                
Representative Gara replied that the  intent was to apply to                                                                    
every  category  that the  bill  considered  to be  new  oil                                                                    
including new  oil within  an existing  unit, outside  of an                                                                    
existing unit, and all other  categories where the lower new                                                                    
oil  tax rate  would apply.  The amendment  aimed to  ensure                                                                    
that  the   lower  tax   rate  would   only  apply   to  oil                                                                    
incentivized by the legislation.                                                                                                
                                                                                                                                
Mr.  Balash   spoke  in  opposition  to   Amendment  9.  The                                                                    
amendment would undo the  administration's intent to include                                                                    
some of  the newer  units that  were currently  producing in                                                                    
new areas  including the Oooguruk unit  operated by Pioneer.                                                                    
He explained that  the GRE would not apply  to production in                                                                    
the   areas,  which   went   against  the   administration's                                                                    
objective.  He  believed  the  administration  fundamentally                                                                    
disagreed  with the  characterization [of  the bill]  by the                                                                    
amendment's sponsor. He emphasized  that the legislation was                                                                    
not giving  away anything. He  stated "we're taking  less in                                                                    
order to get more."                                                                                                             
                                                                                                                                
Representative Kawasaki  voiced support for Amendment  9. He                                                                    
spoke to the  bill's goal to incentivize  new oil production                                                                    
and  the state's  vast resources  that  the legislature  had                                                                    
been  told  were under  explored  and  under developed.  The                                                                    
amendment  communicated the  desire to  see new  oil in  the                                                                    
pipeline  (oil expanded  into other  areas across  the North                                                                    
Slope), not oil that was currently being produced.                                                                              
                                                                                                                                
Representative  Munoz   asked  for  verification   that  the                                                                    
decision to  move forward with  development on  the Oooguruk                                                                    
field had  been made  prior to  the implementation  of ACES.                                                                    
She  surmised  that  the bill  provided  an  opportunity  to                                                                    
extend  a   more  favorable  tax  system   to  the  specific                                                                    
development.                                                                                                                    
                                                                                                                                
Mr. Pawlowski  replied in the affirmative.  He detailed that                                                                    
Oooguruk  had been  sanctioned prior  to  ACES; its  sister-                                                                    
field  Nikaitchuq  had  been   in  development  and  nearing                                                                    
sanction at  the time ACES  had been developed. He  spoke to                                                                    
new  investment  and  stated  that  the  administration  was                                                                    
concerned that it  was necessary to look back  to January 1,                                                                    
2003 to  identify fields that  9 years later were  barely in                                                                    
production. He  stated that "we're talking  about two fields                                                                    
in  the last  7-8 years";  he noted  that there  were a  few                                                                    
other   fields   in  the   works.   He   relayed  that   the                                                                    
administration's policy  call was related to  the companies'                                                                    
experiences through multiple tax changes.                                                                                       
                                                                                                                                
9:04:10 PM                                                                                                                    
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
Nikaitchuq and  Oooguruk oil fields  had been  given royalty                                                                    
relief. He  referenced statute that reduced  royalty to make                                                                    
the development  of a property  economic if the tax  was too                                                                    
high.  Mr.  Balash replied  that  both  fields had  received                                                                    
royalty modifications. However,  the Nikaitchuq modification                                                                    
was a downside mechanism;  at current prices Nikaitchuq paid                                                                    
full royalty.                                                                                                                   
                                                                                                                                
Representative Gara believed the  point was that both fields                                                                    
[Nikaitchuq and  Oooguruk] had  received royalty  relief. He                                                                    
explained that at full prices  a company was not required to                                                                    
pay the full  royalty at certain prices;  when fields became                                                                    
economic at  high prices the royalty  relief disappeared. He                                                                    
stated  that  the two  fields  currently  had a  tax  system                                                                    
tailored   to  make   them   economic.   He  remarked   that                                                                    
additionally  the  fields  had   the  benefit  of  what  the                                                                    
administration  called a  very competitive  tax rate;  under                                                                    
the amendment the fields would pay  the tax rate used in the                                                                    
proposed legislation. He believed  the fields should pay the                                                                    
regular base  tax rate proposed in  the CS as opposed  to an                                                                    
18 percent rate. He stressed  that the 18 percent rate would                                                                    
be one of  the lowest rates in the world.  He continued that                                                                    
the  companies had  moved forward  with  the fields  despite                                                                    
ACES and had obtained royalty  relief. He emphasized that it                                                                    
did not  make sense to  incentivize something that  was done                                                                    
in the  past; there was  no reason  to apply the  18 percent                                                                    
rate for the remaining life of  a field that the company had                                                                    
decided  was   already  economic.  He  concluded   that  the                                                                    
companies  would  already  pay  a competitive  tax  rate  of                                                                    
approximately  30   percent  at  $110  per   barrel  if  the                                                                    
legislation became law.                                                                                                         
                                                                                                                                
Co-Chair Stoltze  remarked that the current  film tax credit                                                                    
applied to a  multitude of groups that  were already working                                                                    
in Alaska.                                                                                                                      
                                                                                                                                
Representative Gara replied  that a company that  had done a                                                                    
film in Alaska prior to  the credit program had not received                                                                    
the incentive.                                                                                                                  
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
9.                                                                                                                              
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED:   Neuman,  Thompson,   Wilson,  Costello,   Edgmon,                                                                    
Holmes, Munoz, Austerman, Stoltze                                                                                               
                                                                                                                                
The MOTION to adopt Amendment 9 FAILED (2/9).                                                                                   
                                                                                                                                
9:08:43 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:09:06 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Gara  WITHDREW Amendment  10, 28-GS1647\L.12,                                                                    
Nauman/Bullock, 4/11/13 (copy on file).                                                                                         
                                                                                                                                
9:10:41 PM                                                                                                                    
                                                                                                                                
Representative  Gara MOVED  to ADOPT  Amendment 7  28-LS0021                                                                    
(copy on file):                                                                                                                 
                                                                                                                                
     Page 24, line 13:                                                                                                          
          Delete "20" Insert "15"                                                                                               
                                                                                                                                
     Page 24, line 28 through Page 25, line 8                                                                                   
          Delete all material                                                                                                   
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative  Gara  asked  Mr.  Pawlowski  to  pull  up  a                                                                    
presentation  slide [slide  3 of  the Econ  One presentation                                                                    
(copy  on file)].  He believed  Amendment 7  was modest  and                                                                    
made a  necessary fix to  the legislation; it  addressed the                                                                    
new oil  tax rate. He  stated that  with a 20  percent [GRE]                                                                    
the  new oil  tax  rate  went down  at  $110  per barrel  to                                                                    
approximately 18 percent. He addressed  that the CS added an                                                                    
additional new oil tax rate  of approximately 14 percent for                                                                    
higher royalty fields. The amendment  would use a 15 percent                                                                    
[GRE]. The  change would reduce  the tax  rate in the  CS by                                                                    
approximately 30  percent; a  30 percent  tax rate  would be                                                                    
decreased to  21 percent  and 35 percent  tax rate  would be                                                                    
decreased to approximately 23 percent.  He detailed that new                                                                    
oil would still be taxed  at a permanent substantially lower                                                                    
rate than legacy oil; he did  not believe the rate needed to                                                                    
be even lower. He stated that  the 15 percent [GRE] was a 28                                                                    
percent to 30  percent drop from the tax rate  paid by other                                                                    
oil under the CS.                                                                                                               
                                                                                                                                
Representative  Gara  anticipated the  administration  would                                                                    
respond by saying  that the 30 percent [GRE]  was for fields                                                                    
that  paid the  16.67 percent  royalty. He  stated that  the                                                                    
higher  royalty only  applied in  a negotiated  deal between                                                                    
the  state and  the  company  bidding on  the  lease on  the                                                                    
grounds  that the  lease was  very promising.  He emphasized                                                                    
that  DNR was  not arbitrarily  imposing the  higher royalty                                                                    
rate on worse  prospects. He stated that the  royalty was at                                                                    
a market rate and furthered  that DNR designed the system so                                                                    
that  companies  that saw  the  fields  as better  prospects                                                                    
would agree  to pay a  higher royalty. He concluded  that it                                                                    
made sense  for the higher  and lower royalty fields  to pay                                                                    
the same rate.                                                                                                                  
                                                                                                                                
9:16:15 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski   voiced  opposition   to  Amendment   7.  He                                                                    
addressed the subject of the  agreement between companies to                                                                    
invest in Alaska in the lease  sales. He pointed to the past                                                                    
several lease  sales in the state  that were in the  tens of                                                                    
millions of dollars. He detailed  that the lease sale to buy                                                                    
access for  leases to look  for gold  off the coast  of Nome                                                                    
raised approximately $8 million  to $10 million. He stressed                                                                    
that people were not coming to  buy the high value leases at                                                                    
rates Alaskans  hoped for because the  state's cash margins,                                                                    
NPVs, internal  rates of return  (IRR), and  government take                                                                    
were not as  attractive as those offered  in other locations                                                                    
(Econ One presentation, slide 8);  this was reflected in the                                                                    
lease  bonus bids  received by  DNR, which  at $20-plus  per                                                                    
acre,  were  not  comparable  to  those  received  in  other                                                                    
locations.  The administration  hoped that  a reduced  long-                                                                    
term and  stable tax rate  would drive lease bonuses  up and                                                                    
increase the  state's competitiveness. He  communicated that                                                                    
ultimately  the NPV  would increase  to  levels obtained  by                                                                    
other locations listed on slide 8.                                                                                              
                                                                                                                                
Representative Holmes spoke in  opposition to the amendment.                                                                    
She was  concerned about  the second  half of  the amendment                                                                    
that would impact  the 30 percent GRE. She  believed the GRE                                                                    
had been  raised to 30 percent  in the CS to  compensate for                                                                    
the elimination of the small  producer credit; the amendment                                                                    
would  reduce the  GRE, but  would not  reinstate the  small                                                                    
producer credit, which would be a significant change.                                                                           
                                                                                                                                
Representative Gara  provided a wrap  up on Amendment  7. He                                                                    
assumed  DNR  was  making  the decision  to  give  the  12.5                                                                    
percent  royalty rates  for fields  that were  deserving and                                                                    
the higher 16.67  rate for others. He the idea  that DNR was                                                                    
a victim of itself for  establishing a royalty rate that was                                                                    
too  high while  it simultaneously  stated it  was open  for                                                                    
business was  nonsensical. He did  not believe that  DNR was                                                                    
arbitrarily imposing the higher  royalty rate on fields that                                                                    
it should  not be.  He opined that  the amendment  offered a                                                                    
handsome incentive  for new  oil and a  lower rate  than the                                                                    
one charged  in the bill.  He noted  that at some  point all                                                                    
oil produced in  the state would be new; he  did not believe                                                                    
an  economy could  be built  on a  14 percent  tax rate.  He                                                                    
summarized that  the amendment offered a  compromise, worked                                                                    
consistently  with  the  governor's  bill,  and  provided  a                                                                    
substantial tax reduction for new oil.                                                                                          
                                                                                                                                
9:20:41 PM                                                                                                                    
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
7.                                                                                                                              
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED:  Wilson, Costello,  Edgmon, Holmes,  Munoz, Neuman,                                                                    
Thompson, Austerman, Stoltze.                                                                                                   
                                                                                                                                
The MOTION to adopt Amendment 7 FAILED (2/9).                                                                                   
                                                                                                                                
9:21:29 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:22:08 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Gara   MOVED  to  ADOPT  Amendment   11  28-                                                                    
GS1647\L.14, Nauman/Bullock, 4/11/13  (copy on file). [Note:                                                                    
Due  to  its  length,  the  body of  Amendment  11  was  not                                                                    
included in the minutes.]                                                                                                       
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative  Gara  explained   that  Amendment  11  would                                                                    
provide  a more  familiar  way  for the  state  to share  in                                                                    
windfall profits  at high oil  prices. He  communicated that                                                                    
it would  be a  progressivity rate that  was lower  than the                                                                    
one  under the  Petroleum  Production Tax  (PPT); the  state                                                                    
would  share  in the  increases  in  price  of oil  and  oil                                                                    
company  profits.  He elaborated  that  at  the point  where                                                                    
companies made $55 in profit  they would continue to pay the                                                                    
tax  rate  included  in  the  CS;  above  $55  in  profit  a                                                                    
progressivity  would  be  implemented  to  increase  at  0.2                                                                    
percent per every  $1 increase in oil. The  rate would equal                                                                    
half  of the  progressivity under  ACES and  would be  lower                                                                    
than  the rate  under PPT.  He stressed  that at  some point                                                                    
when companies  were making  substantial profits,  the state                                                                    
should share  in the money  as well. He elaborated  that the                                                                    
amendment  would  help  reduce  shortfalls  when  the  state                                                                    
entered into years  with $1 billion to  $2 billion deficits.                                                                    
He  reiterated that  oil companies  would  continue to  make                                                                    
increased profits if the amendment took effect.                                                                                 
                                                                                                                                
Mr. Pawlowski  spoke against Amendment 11  for technical and                                                                    
philosophical reasons.  He addressed  the concept  of hoping                                                                    
the state could share [in  profits]. He detailed that the CS                                                                    
contained a profits-based tax  with an effective progressive                                                                    
rate that started  lower and increased; as  prices rose, the                                                                    
state would  take a  growing share of  the profit.  He noted                                                                    
that the  state took a  share in  the profit through  a tax,                                                                    
royalty,  corporate income,  and property  tax. He  believed                                                                    
that  fundamentally there  was  a  difference in  philosophy                                                                    
about the idea that at  some point companies were profitable                                                                    
in  Alaska   and  that  the  opportunities   did  not  exist                                                                    
elsewhere. He  elaborated that the  impact of the  price and                                                                    
profit increase  on companies' decisions  had fallen  in the                                                                    
past 5 to 7 years due  to the progressive tax rate; whereas,                                                                    
the  state's competitors  had  regressive  tax rates  (where                                                                    
companies became more profitable  as prices rise). He stated                                                                    
that in  2011 and 2012  even California had  been increasing                                                                    
oil   production.  He   stressed  that   Alaska  needed   to                                                                    
reasonably compete in order to attract investment.                                                                              
                                                                                                                                
9:27:02 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki voiced support  for Amendment 11. He                                                                    
pointed to  continued testimony that  much of  the increased                                                                    
production in  the Lower 48  was related to  advancements in                                                                    
technology; he hoped the public  and the administration were                                                                    
aware of  this. He stated that  taxes were only one  part of                                                                    
the equation; he disagreed with  the logic that changing one                                                                    
component  would spur  significant development.  He disputed                                                                    
testimony  that progressive  systems  were  not utilized  by                                                                    
other states or countries.  He remarked that other locations                                                                    
had  progressive  severance  systems that  worked  well.  He                                                                    
stated that  progressivity was  understood by  oil companies                                                                    
and the  public understood.  He had  supported progressivity                                                                    
and had worked on its design  in the past. He noted that Mr.                                                                    
Balash had  worked on presenting  progressivity when  he had                                                                    
been  a  special assistant.  He  stated  that the  amendment                                                                    
would take effect when profits  reached $55; it had been set                                                                    
to take effect at $55 because  that was the point where ACES                                                                    
reached  the  35  percent tax  rate.  He  believed  Alaskans                                                                    
should receive the benefit for a limited natural resource.                                                                      
                                                                                                                                
9:29:37 PM                                                                                                                    
                                                                                                                                
Representative  Gara provided  closing remarks  on Amendment                                                                    
11.  He   stated  that  it   was  hard  to  hear   from  the                                                                    
administration that  a very low windfall  profit share would                                                                    
somehow  deter  investment.  He recalled  that  three  years                                                                    
earlier the  governor had  believed ACES  was fine  and that                                                                    
the only  necessary change was  to increase the  infield tax                                                                    
credit for  legacy fields from  20 percent to 30  percent in                                                                    
order to make the state  very competitive. He continued that                                                                    
two years earlier  the governor had believed  ACES was fine,                                                                    
but  that modifications  were needed  in order  to make  the                                                                    
state very  competitive; the proposal  had been  to increase                                                                    
the infield tax credit from 20  percent to 30 percent and to                                                                    
have  progressivity that  tampered down  at high  prices. He                                                                    
addressed   the  administration's   current  standing   that                                                                    
progressivity did  not work. He  agreed with  the governor's                                                                    
statement  in 2010  that  the  elimination of  progressivity                                                                    
gave companies money that they  could spend anywhere else in                                                                    
the world.  His fundamental problem  with the bill  was that                                                                    
it   disagreed  with   the  governor's   2010  comments   on                                                                    
progressivity.                                                                                                                  
                                                                                                                                
Representative Gara pointed to  slide 8 ["Select Slides from                                                                    
DOR  Responses" dated  4/11/13]  that showed  the 3  percent                                                                    
decline  rate  (following FY  17)  that  everyone wanted  to                                                                    
reverse. He  highlighted that  at $120  per barrel  the bill                                                                    
would reduce  taxes by approximately $1.4  billion per year.                                                                    
He noted that  as the governor had said, the  money could be                                                                    
spent anywhere  in the world.  The amendment  addressed that                                                                    
the state  would like a small  share of the high  profit. He                                                                    
stated  that under  ACES ConocoPhillips  had  taken in  $2.3                                                                    
billion  in  profits  the  prior   year.  He  surmised  that                                                                    
although Exxon  would not divulge  its profits,  the company                                                                    
made profits  similar to ConocoPhillips. He  noted that BP's                                                                    
profits  in  Alaska were  not  known  because their  reports                                                                    
included  other  locations as  well.  He  stressed that  the                                                                    
companies were  making approximately $2 billion  per year in                                                                    
profits under  ACES, which had  a much  higher progressivity                                                                    
rate than  the one included in  the CS. He stated  that ACES                                                                    
attached a windfall  profits tax when companies  made $30 in                                                                    
profit or  above. The amendment  would not increase  the tax                                                                    
until  profits   of  $55  per   barrel  were   obtained.  He                                                                    
reiterated that  companies would  pay 0.2 percent  extra for                                                                    
each $1 the price increased  above the $55 mark. He believed                                                                    
companies  would  be  very  happy   with  the  scenario.  He                                                                    
concluded that  the amendment contained the  lowest possible                                                                    
progressivity rate that  would raise the share  of money for                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
11.                                                                                                                             
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED: Holmes, Munoz,  Neuman, Thompson, Wilson, Costello,                                                                    
Edgmon, Austerman, Stoltze                                                                                                      
                                                                                                                                
The MOTION to adopt Amendment 11 FAILED (2/9).                                                                                  
                                                                                                                                
Representative Gara  WITHDREW Amendment  12, 28-GS1647\L.17,                                                                    
Nauman/Bullock, 4/11/13 (copy on file).                                                                                         
                                                                                                                                
9:35:30 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:35:50 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative   Kawasaki   WITHDREW   Amendment   13,   28-                                                                    
GS1647\L.18, Nauman/Bullock, 4/11/13 (copy on file).                                                                            
                                                                                                                                
Representative  Gara  MOVED  to   ADOPT  Amendment  14,  28-                                                                    
GS1647\L.21, Nauman/Bullock, 4/11/13  (copy on file). [Note:                                                                    
Due  to  its  length,  the  body of  Amendment  14  was  not                                                                    
included in the minutes.]                                                                                                       
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative  Gara believed  Amendment 14  would move  the                                                                    
state  forward; under  the amendment  if a  company produced                                                                    
new oil  in Alaska,  its tax  rate would  be reduced.  A tax                                                                    
break would  not be  provided when  no activity  occurred or                                                                    
based  on  hypotheticals.  He  stated   that  the  tax  rate                                                                    
proposed  by the  administration was  based on  hypothetical                                                                    
activity. He was not  satisfied with hypothetical production                                                                    
that  could result  in  the  loss of  $1.4  billion to  $1.5                                                                    
billion to  the state. He  noted the state would  already be                                                                    
facing deficit spending.  The amendment had a  number of new                                                                    
provisions   that  would   encourage  new   investment,  but                                                                    
acknowledged  that  just   eliminating  progressivity  would                                                                    
allow companies to spend the money in other locations.                                                                          
                                                                                                                                
Representative Gara  continued that  the first  provision in                                                                    
the amendment  established a 10  percent GRE for new  oil in                                                                    
legacy fields. He elaborated that  the goal was to encourage                                                                    
new   production  in   legacy  fields;   therefore,  a   new                                                                    
geological area inside an existing  unit such as Prudhoe Bay                                                                    
or Kuparuk would give a  company a 10 percent GRE reduction,                                                                    
which  was  roughly a  20  percent  tax reduction  for  five                                                                    
years.  The credit  would allow  companies  to recoup  their                                                                    
investment  costs. The  amendment  would  maintain the  ACES                                                                    
exploration  and   development  credits,   which  encouraged                                                                    
investment in  Alaska; capital investment  in the  state had                                                                    
doubled  since the  implementation  of  ACES. He  reiterated                                                                    
that  the 10  percent  GRE would  benefit production  inside                                                                    
legacy fields  where companies  such as  BP, ConocoPhillips,                                                                    
and  ExxonMobil  already  had  a  significant  incentive  to                                                                    
maximize the costs put into  the fields. The amendment would                                                                    
provide a 20  percent GRE (close to a 40  percent tax break)                                                                    
for  the development  of new  units  for a  period of  seven                                                                    
years.                                                                                                                          
                                                                                                                                
9:40:32 PM                                                                                                                    
                                                                                                                                
Representative  Gara communicated  that  Amendment 14  would                                                                    
grant a  20 percent  GRE reduction for  increased production                                                                    
in  legacy fields;  incremental oil  above a  company's 2012                                                                    
production levels would receive the  tax break. A 10 percent                                                                    
GRE reduction  (a 20  percent tax  break) would  be provided                                                                    
for heavy oil. A research  and development credit would also                                                                    
be  provided  for  heavy  oil   to  help  companies  develop                                                                    
technology needed  to get more  of the oil in  the pipeline.                                                                    
Additionally,  the  amendment  provided  for  AIDEA  bonding                                                                    
assistance   to  help   small  producers   build  processing                                                                    
facilities (where  the separation  of the  oil from  the gas                                                                    
and  water took  place). He  detailed that  larger producers                                                                    
did   not  provide   smaller  producers   access  to   their                                                                    
processing facilities.  He stressed  that everything  in the                                                                    
amendment would award  a producer for moving  ahead with new                                                                    
oil in the state, but it  would not break the bank. He noted                                                                    
that  the  ACES  tax  rate  was too  high  at  high  prices;                                                                    
therefore,  the  amendment capped  the  rate  at 55  percent                                                                    
(down from  75 percent). He  was amenable to  tampering back                                                                    
progressivity at higher prices  if an amendment to Amendment                                                                    
14 was offered.                                                                                                                 
                                                                                                                                
Representative Gara  emphasized that  unlike the  current CS                                                                    
that  gave a  40 percent  tax break  for oil  in production,                                                                    
none  of the  provisions in  the amendment  would give  away                                                                    
state  revenue to  companies for  doing  nothing. He  stated                                                                    
that the CS  would eliminate the windfall  profits share. He                                                                    
believed the  companies would receive between  $1 billion to                                                                    
$2 billion and would spend  it in other locations throughout                                                                    
the world as  a result. He recalled that  companies had told                                                                    
him that  they would look  around the world to  decide where                                                                    
to  spend the  money when  he had  asked whether  they would                                                                    
spend  it  in Alaska  if  progressivity  was eliminated.  He                                                                    
stressed that only  reducing taxes did not work;  up to 2006                                                                    
there had been a zero production  tax on 15 of the 19 fields                                                                    
on the  North Slope.  He discussed  various past  oil prices                                                                    
and the  decline of production  between 2000 and 2007  at an                                                                    
annual  rate of  5 percent  to 8  percent; the  same decline                                                                    
rate as at present.                                                                                                             
                                                                                                                                
Representative  Gara summarized  that he  was supportive  of                                                                    
rewarding  companies  for  producing   in  Alaska,  but  was                                                                    
uncomfortable providing $1 billion  to $1.5 billion per year                                                                    
without  requiring  any  new production.  He  observed  that                                                                    
companies had two  ways to increase profits: (1)  to do work                                                                    
or (2)  to receive a  tax break  for no additional  work. He                                                                    
stated  that the  CS would  give companies  $1.5 billion  at                                                                    
$120  per barrel  prices, which  was the  easiest way  for a                                                                    
company to  make money. He strongly  believed that Amendment                                                                    
14 provided the right solution to oil tax reform.                                                                               
                                                                                                                                
9:46:16 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki addressed  the  goal of  increasing                                                                    
oil  in  the pipeline.  He  discussed  testimony from  small                                                                    
producers  who were  not  able  to get  their  oil into  the                                                                    
pipeline.  He elaborated  that many  of the  major producers                                                                    
had   locked   up  major   units   and   owned  the   entire                                                                    
infrastructure.  In response  Amendment 14  included a  fund                                                                    
and money  for heavy oil  that was difficult to  produce. He                                                                    
referred to  testimony from companies  and other  that there                                                                    
needed  to   be  a  way   to  capitalize  on   research  and                                                                    
development;  therefore, credits  had been  included in  the                                                                    
amendment.  The  intent  was to  incentivize  companies  for                                                                    
production.  He did  not believe  the  CS went  in the  same                                                                    
direction;   therefore,  he   believed  the   amendment  was                                                                    
necessary.                                                                                                                      
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
14.                                                                                                                             
                                                                                                                                
IN FAVOR: Gara, Kawasaki                                                                                                        
OPPOSED: Thompson, Wilson,  Costello, Edgmon, Holmes, Munoz,                                                                    
Neuman, Stoltze, Austerman                                                                                                      
                                                                                                                                
The MOTION to adopt Amendment 14 FAILED (2/9).                                                                                  
                                                                                                                                
9:49:31 PM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman   MOVED  to  ADOPT  Amendment   15,  28-                                                                    
GS1647\L.30, Nauman/Bullock, 4/11/13 (copy on file):                                                                            
                                                                                                                                
     Page 2, line 14:                                                                                                           
          Delete "when a tax levied in this title becomes                                                                       
          delinquent"                                                                                                           
          Insert "a delinquent tax under this title,"                                                                           
                                                                                                                                
     Page 2, line 15:                                                                                                           
          Delete "it"                                                                                                           
          Insert "[WHEN A TAX LEVIED IN THIS TITLE BECOMES                                                                      
          DELINQUENT, IT]"                                                                                                      
          Delete "a"                                                                                                            
          Insert "each [A]"                                                                                                     
                                                                                                                                
     Page 2, line 20:                                                                                                           
                                                                                                                                
          Delete "it"                                                                                                           
          Delete "a"                                                                                                            
          Insert "each"                                                                                                         
                                                                                                                                
     Page 2, lines 23 -25:                                                                                                      
          Delete ", or at the annual rate of 11 percent,                                                                        
     whichever is greater, compounded quarterly as of the                                                                       
     last day of that quarter"                                                                                                  
                                                                                                                                
     Page 22, lines 5 -6:                                                                                                       
          Delete "attributable to that category and to that                                                                     
     [FOR THE CALENDAR YEAR APPLICABLE TO THE]"                                                                                 
          Insert "for the calendar year applicable to the"                                                                      
                                                                                                                                
     Page 22, line 7:                                                                                                           
          Following "gas":                                                                                                      
               Insert "in that category"                                                                                        
          Delete "for"                                                                                                          
          Insert "during"                                                                                                       
                                                                                                                                
     Page 25, lines 9 -14:                                                                                                      
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 29, line 7:                                                                                                           
          Delete "sec. 30"                                                                                                      
          Insert "sec. 29"                                                                                                      
          Delete "November 1, 2014"                                                                                             
          Insert "January 1, 2014"                                                                                              
                                                                                                                                
     Page 29, line 11:                                                                                                          
          Delete "31"                                                                                                           
          Insert "30"                                                                                                           
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Co-Chair Austerman relayed that the amendment contained                                                                         
cleanup items identified by the administration.                                                                                 
                                                                                                                                
Mr.  Pawlowski  communicated  that  Amendment  15  contained                                                                    
technical cleanups to reflect  the legislation's intent. The                                                                    
first item corrected language on  page 2, line 14, Section 2                                                                    
related to an  adjustment to interest rates  included in the                                                                    
legislation. He relayed that under  current law the interest                                                                    
rate  was a  variation between  a  floating rate  and an  11                                                                    
percent rate,  which had come  under fire over  time through                                                                    
the  Carlson  case  and other.  The  amendment  brought  the                                                                    
section back to its original  intent by recognizing that the                                                                    
statute should read  "a delinquent tax under  this title" in                                                                    
order for the language to  apply more broadly. He noted that                                                                    
the  following changes  were conforming.  Page  2, lines  23                                                                    
through 25  removed the language  "11 percent,  whichever is                                                                    
greater,  compounded quarterly  as of  the last  day of  the                                                                    
quarter."  The change  made the  rate a  true floating  rate                                                                    
that reflected the market rate.  The next change occurred on                                                                    
page  22,  lines   5  through  6;  the  CS   used  the  word                                                                    
"attributable";  whereas the  department preferred  the word                                                                    
"applicable,"  given  that  its regulations  used  the  word                                                                    
applicable. The change would provide clarity to investors.                                                                      
                                                                                                                                
Mr. Pawlowski continued to discuss  Amendment 15. He pointed                                                                    
to  page  25,   lines  9  through  14   that  contained  the                                                                    
requirement  for the  department  to prepare  a report.  The                                                                    
language   was  deleted   as  it   was  superseded   by  the                                                                    
reinstatement  of the  Oil  and  Gas Competitiveness  Review                                                                    
Board  that  would  provide a  more  thorough  and  publicly                                                                    
involved  process  to  consider the  issues  facing  Alaska.                                                                    
Lastly, the amendment included  corrections to the direction                                                                    
to the  administration and governor to  provide appointments                                                                    
to  the  review  board  (page  29, line  7).  The  date  the                                                                    
governor was  required to appoint  members to the  board was                                                                    
changed  from  November 1,  2014  to  January 1,  2014;  the                                                                    
change  would  provide  members  of the  board  time  to  be                                                                    
engaged in the process.                                                                                                         
                                                                                                                                
9:53:20 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 15 was ADOPTED.                                                                                    
                                                                                                                                
Representative  Wilson asked  the committee  to RESCIND  the                                                                    
adoption  of  Amendment  4, 28-GS1647\L.6.  There  being  NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
9:54:31 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:55:08 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Wilson  MOVED  to   ADOPT  Amendment  16  [a                                                                    
modified version of the previous Amendment 4]:                                                                                  
                                                                                                                                
     Page 25, line 29, following "association"                                                                                  
          Insert "and two members of the public appointed                                                                       
     by the governor who do not represent the oil and gas                                                                       
     industry."                                                                                                                 
                                                                                                                                
     Page 26, line 22:                                                                                                          
          Delete "may not meet more than"                                                                                       
          Insert "shall meet at least"                                                                                          
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative Wilson  explained that her intent  was to add                                                                    
two  public  members  to the  Oil  and  Gas  Competitiveness                                                                    
Review Board  and that Amendment  4 should not  have removed                                                                    
two members of the oil  and gas industry. She believed there                                                                    
were many  individuals in the  oil and gas  service industry                                                                    
that could provide  knowledge to the board.  She opined that                                                                    
having two  public members and  two members of  the industry                                                                    
made more sense. She asked for the committee's support.                                                                         
                                                                                                                                
Representative   Gara   felt    that   the   expertise   and                                                                    
contribution of the  oil and gas industry  was very welcome;                                                                    
however,  he  believed the  industry  would  always vote  in                                                                    
favor  of lowering  oil taxes.  He did  not believe  the two                                                                    
members from  the industry should  have voting power  on the                                                                    
board,  but  he  thought   their  contribution  as  advisory                                                                    
members or  consultants could be  useful. He  observed there                                                                    
would be a  disagreement over which consultants  to hire. He                                                                    
WITHDREW his OBJECTION.                                                                                                         
                                                                                                                                
There being  NO further OBJECTION Amendment  16 was ADOPTED.                                                                    
[Note: A  conforming amendment to  Amendment 16  was adopted                                                                    
at approximately 10:08 p.m.]                                                                                                    
                                                                                                                                
9:58:28 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
10:00:05 PM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Kawasaki MOVED  to  ADOPT  Amendment 8,  28-                                                                    
GS1647\S.38, Nauman/Bullock, 4/11/13  (copy on file). [Note:                                                                    
Due to its length, the body  of Amendment 8 was not included                                                                    
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Stoltze OBJECTED.                                                                                                      
                                                                                                                                
Representative Kawasaki discussed that  the state would lose                                                                    
money  under the  bill in  the near-term  and the  hope that                                                                    
money  would  be gained  in  later  years due  to  increased                                                                    
production. Amendment  8 would insert  a sunset in  2019; it                                                                    
would provide several years to  allow for production and for                                                                    
new fields  to come  online. He  elaborated that  the sunset                                                                    
would not  occur if  production levels  were higher  in 2018                                                                    
than in 2013.                                                                                                                   
                                                                                                                                
Mr.  Balash  spoke  in  opposition  to  the  amendment.  The                                                                    
administration   believed  a   sunset  mechanism   that  was                                                                    
dependent on  the actions  of others  would have  a chilling                                                                    
effect on  incentivizing new investment and  new production.                                                                    
He expounded  that the intent  to create new  investment and                                                                    
production,  particularly  outside  of the  existing  areas,                                                                    
would  be  harmed  by  the  provision.  He  added  that  the                                                                    
conditional affect  that relied on production  from calendar                                                                    
year 2013 was an unknown. He  communicated that the use of a                                                                    
calendar year that had been completed may be better.                                                                            
                                                                                                                                
Representative Gara believed that  Mr. Balash's comments got                                                                    
to  Representative Kawasaki's  point. He  believed the  bill                                                                    
should be made  subject to the conduct  of others; companies                                                                    
should only  receive the tax  break if  production occurred.                                                                    
He   reflected  on   claims   by   the  administration   and                                                                    
consultants  that production  would increase  within two  or                                                                    
three years  if the bill  passed. He stated that  the number                                                                    
provided previously had been five  to seven years. He opined                                                                    
that  the legislature  needed  to design  a  better bill  if                                                                    
production was not  going to increase while  money was lost.                                                                    
He did  not believe  in claims  that the  bill or  any other                                                                    
bill  would  fill  the  pipeline   (with  the  exception  of                                                                    
offshore  oil   that  would  not  provide   substantial  tax                                                                    
revenue).  He stressed  that under  the  amendment the  bill                                                                    
would not sunset  if production increased [by  2019]. He did                                                                    
not support the concept of  an ongoing system that was based                                                                    
on hypotheticals.                                                                                                               
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
8.                                                                                                                              
                                                                                                                                
IN FAVOR: Edgmon, Gara, Kawasaki                                                                                                
OPPOSED: Neuman, Thompson,  Wilson, Costello, Holmes, Munoz,                                                                    
Austerman, Stoltze                                                                                                              
                                                                                                                                
The MOTION to adopt Amendment 8 FAILED (3/8).                                                                                   
                                                                                                                                
10:05:58 PM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:07:46 PM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Wilson  offered  a conforming  amendment  to                                                                    
Amendment 16;  the Oil and Gas  Competitiveness Review Board                                                                    
membership would total 11 members.                                                                                              
                                                                                                                                
Representative  Holmes  asked   for  verification  that  the                                                                    
amendment  would be  made on  page 25,  line 26  of the  CS.                                                                    
Representative  Wilson  replied  in the  affirmative.  There                                                                    
being NO  OBJECTION, Amendment 16  was amended  [to increase                                                                    
the review board membership from 9 to 11].                                                                                      
                                                                                                                                
Co-Chair Stoltze  asked Mr. Pawlowski to  discuss the fiscal                                                                    
impact of the bill.                                                                                                             
                                                                                                                                
Mr.  Pawlowski  referred  to slide  2  of  the  presentation                                                                    
titled  "Fiscal  Impact  Draft HFIN  CSSB21:  House  Finance                                                                    
Committee  Version 28-GS1647\L."  He noted  that any  fiscal                                                                    
impact of  the amendments  to the CS  was not  factored into                                                                    
the   presentation.  He   pointed   to   the  Middle   Earth                                                                    
exploration credit that had been  added as an amendment; the                                                                    
change   would  move   the  fiscal   impact  slightly.   The                                                                    
information on  slide 2  provided a  variation of  the table                                                                    
showing  the  revenue  impact  and   fiscal  impact  of  the                                                                    
legislation  at the  DOR Spring  2013 Revenue  Forecast. The                                                                    
slide did  not include any potential  changes in production.                                                                    
The  slide showed  an  impact in  FY 14  (only  half of  the                                                                    
calendar year) of between $675  million and $725 million. He                                                                    
pointed out that  $375 million of the amount  was related to                                                                    
the closeout  of the  qualified capital  expenditure credit.                                                                    
He directed attention to the FY  15 column for a true fiscal                                                                    
impact;  he noted  that some  provisions increased  revenue,                                                                    
while others  reduced revenue. The FY  15 forecasted revenue                                                                    
impact  was  [a reduction]  between  $430  million and  $505                                                                    
million. He restated that the slide  was a draft and was not                                                                    
reflective of amendments passed  during the current meeting.                                                                    
Other  sections   in  the  presentation   showed  production                                                                    
scenarios  to   indicate  how  increased   production  could                                                                    
replace the lost  revenues. He relayed that  the fiscal note                                                                    
would reflect  the type  of analysis shown  on slide  2; the                                                                    
actual fiscal  impact should be  close to what was  shown on                                                                    
the slide.                                                                                                                      
                                                                                                                                
10:11:59 PM                                                                                                                   
                                                                                                                                
Representative  Edgmon expressed  discomfort  that that  the                                                                    
Legislative  Finance  Division  had  not  provided  its  own                                                                    
numbers on the bill's fiscal impact.                                                                                            
                                                                                                                                
Representative Gara  stated that  the fiscal note  was based                                                                    
on DOR's  2013 Spring  Revenue Source Book.  He communicated                                                                    
that  DOR's forecasted  production decline  was higher  than                                                                    
the   decline  rate   published  by   ConocoPhillips,  which                                                                    
increased  the  amount  of  revenue  the  state  would  lose                                                                    
compared to  ACES. He  believed the  ConocoPhillips' numbers                                                                    
should be used instead of the  DOR numbers. He referred to a                                                                    
chart from DOR  showing that at $120 per barrel  by 2017 the                                                                    
fiscal difference  was approximately  $1.4 billion  per year                                                                    
when the ConocoPhillips numbers  were used. He observed that                                                                    
numbers could be changed  significantly with various decline                                                                    
curves and  lower or higher  prices; he did not  believe the                                                                    
fiscal note provided by the  administration was accurate. He                                                                    
stated  that he  did  not  have faith  in  the note  without                                                                    
having  an   independent  review  of   the  administration's                                                                    
numbers by the Legislative Finance Division.                                                                                    
                                                                                                                                
10:14:11 PM                                                                                                                   
                                                                                                                                
Representative  Costello MOVED  to REPORT  HCS CSSB  21(FIN)                                                                    
out  of committee  with individual  recommendations and  the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Representative  Kawasaki OBJECTED.  He voiced  opposition to                                                                    
the  legislation. He  discussed his  past membership  on the                                                                    
House  Oil  and  Gas  Committee   where  he  had  learned  a                                                                    
significant amount  about the issue  and its  complexity. He                                                                    
was  uncomfortable  moving  the bill  forward  and  believed                                                                    
there   were  too   many  unknowns.   He  believed   it  was                                                                    
irresponsible  of the  House Finance  Committee to  not hear                                                                    
from  the  Legislative  Finance Division  on  the  potential                                                                    
fiscal impacts prior  to sending a bill to  the House floor.                                                                    
He   opined  that   the  committee   did  not   sufficiently                                                                    
understand the  fiscal impact  of the bill  and that  it was                                                                    
rushing  into the  significant changes.  He did  not support                                                                    
advancing the bill forward.                                                                                                     
                                                                                                                                
Representative Gara  spoke against the bill.  He stated that                                                                    
the bill used  a rate that he believed would  harm the state                                                                    
in the  long-term; it  was the  highest rate  of legislation                                                                    
that had gone  through the legislature. He  pointed to March                                                                    
14,  2013 testimony  from  Scott  Jeffson of  ConocoPhillips                                                                    
when the  bill had  included a 33  percent tax;  Mr. Jeffson                                                                    
had testified that the company  was not able to specify what                                                                    
it  would  do  differently  if the  legislation  passed.  He                                                                    
elaborated that Damian  Bilbao [BP] had testified  that a 33                                                                    
percent rate  did not go far  enough to attract the  type of                                                                    
meaningful investment that was  required. He shared that Dan                                                                    
Seckers  [ExxonMobil] had  communicated that  the base  rate                                                                    
was  too  high  at  33  percent  and  did  not  make  Alaska                                                                    
attractive enough.  He remarked  that the  companies' effort                                                                    
was to get  the lowest possible tax rate and  to ensure that                                                                    
a  bill  giving  a  tax break  passed  the  legislature.  He                                                                    
stressed that  testimony had become more  positive, but that                                                                    
the  companies did  not commit  to any  production, specific                                                                    
projects,  spend,  spend increase,  or  to  ensure that  the                                                                    
state would be repaid for the amount given.                                                                                     
                                                                                                                                
Representative Gara  discussed that the committee  had heard                                                                    
many times  from the administration  about Alaska's  lack in                                                                    
competitiveness.  He  did  not believe  the  Econ  One  data                                                                    
proved  the point  (slide 8).  The slide  included a  metric                                                                    
showing  what ACES  did  to  a company's  IRR;  at $100  per                                                                    
barrel the  state had a higher  rate of return than  most of                                                                    
the  locations  it  was  compared  to.  He  noted  that  his                                                                    
amendment  would have  made the  state more  competitive. He                                                                    
observed that  the administration  had selected some  of the                                                                    
lower taxing jurisdictions in the  world for the comparison;                                                                    
they had not  selected countries such as  Libya, Bolivia, or                                                                    
Russia that  had high  tax rates. He  observed that  at $100                                                                    
per  barrel under  ACES the  state's IRR  was 23.3  percent,                                                                    
which was higher than the  Lower 48 Bakken field and Norway,                                                                    
the same  as offshore Gulf  of Mexico  and twice as  high as                                                                    
the Canadian  Oil Sands.  He pointed  out that  Alaska's IRR                                                                    
beat out  three of the  seven locations at $120  per barrel.                                                                    
He  added that  the  state performed  better than  locations                                                                    
companies  were investing  in that  were more  dangerous. He                                                                    
suspected that  Alaska performed even better  and noted that                                                                    
the Econ  One slide only  showed how profitable ACES  was on                                                                    
fields  that paid  the 16.67  percent  royalty. He  believed                                                                    
that  the  committee  had   received  information  from  its                                                                    
consultants that seemed  to only show the  versions of facts                                                                    
that  benefited the  administration's case.  He agreed  with                                                                    
the  fiscal  note the  administration  had  provided at  his                                                                    
request  based  on  ConocoPhillips'  testimony  [using  a  3                                                                    
percent decline rate].                                                                                                          
                                                                                                                                
10:22:13 PM                                                                                                                   
                                                                                                                                
Representative Gara did not believe  the bill was a good way                                                                    
to lose $1.4  billion per year. He communicated  that he had                                                                    
written  to  the  administration  "a  long  time  ago";  the                                                                    
administration had  contracted a  report from  Gaffney Cline                                                                    
and Associates to  assess the state's oil tax  system and to                                                                    
provide  recommendations  for  changes.  He  had  written  a                                                                    
letter requesting a copy of  the report; however, he had not                                                                    
received  it. He  stated that  when  the administration  had                                                                    
been asked to share its experts  it had told the minority to                                                                    
hire its  own; the minority did  not have money to  hire its                                                                    
own  experts. He  opined  that  it was  possible  to get  an                                                                    
expert  to  say  almost   anything.  He  believed  committee                                                                    
members should  have heard from additional  experts in order                                                                    
to make up  their own minds. He did  not believe withholding                                                                    
information  served  the public  or  the  state and  he  was                                                                    
unhappy  with the  administration's  decision to  do so.  He                                                                    
reiterated his opposition to the bill.                                                                                          
                                                                                                                                
10:25:31 PM                                                                                                                   
                                                                                                                                
Co-Chair Austerman  relayed that he  would vote to  move the                                                                    
bill  from committee,  but  it was  not  necessarily how  he                                                                    
would vote  on the  House floor.  He believed  that spending                                                                    
the next six  months on the legislation would  not result in                                                                    
a major difference  in the result. He saw no  reason to keep                                                                    
the  bill  from the  House  floor  where all  members  could                                                                    
participate in the conversation.                                                                                                
                                                                                                                                
Representative  Wilson knew  that  the barrels  of oil  were                                                                    
decreasing and that  Fairbanks did not have  the same number                                                                    
of  jobs that  it had  when ACES  had been  implemented. She                                                                    
stressed that the lack of  quality jobs was a primary reason                                                                    
for the community's energy problems.  She detailed that when                                                                    
energy  costs  rose  and  there   were  less  consumers  the                                                                    
remaining   customers   experienced   higher   prices.   She                                                                    
discussed  credits  provided  to the  industry  for  capital                                                                    
projects  that would  allow  them  maintain old  facilities,                                                                    
which  she  believed  had  been   the  wrong  approach.  She                                                                    
discussed   that  under   the  legislation   production  was                                                                    
necessary  in  order  to  get the  per  barrel  credit.  She                                                                    
emphasized  that  the  oil  industry   was  a  business  and                                                                    
producers  were supposed  to make  money.  She disputed  the                                                                    
characterization that the state  was giving companies money;                                                                    
the companies  had made the  money. She elaborated  that the                                                                    
bill allowed companies to keep  more of their own money. She                                                                    
stated  that if  people  cared about  kids  and schools  the                                                                    
state could  not use "it"  all up in  the next four  or five                                                                    
years; she wondered what would  happen then and asked if the                                                                    
solution would  be to  tax everyone.  She recognized  that a                                                                    
change  to the  tax system  was necessary  and believed  the                                                                    
bill was  close. She thought  it was  time to move  the bill                                                                    
from committee. She stressed that  a major issue existed and                                                                    
that constituents were the ones paying for it.                                                                                  
                                                                                                                                
10:28:11 PM                                                                                                                   
                                                                                                                                
Vice-Chair Neuman relayed  that he had been  present for the                                                                    
four  changes in  tax policy  over the  past nine  years. He                                                                    
pointed out  that taxation "levers"  continued to  be turned                                                                    
on the  petroleum industry and that  production continued to                                                                    
decline. He  stated that  it was the  producers' job  to say                                                                    
taxes  were  too high.  He  noted  that  90 percent  of  the                                                                    
state's revenue  was based on oil  production. He emphasized                                                                    
that  the  state was  experiencing  rate  decline of  40,000                                                                    
barrels per  day. He  relayed that  production had  begun to                                                                    
decline when  ACES had been implemented.  He discussed other                                                                    
state's  production had  been  increasing  during oil  price                                                                    
increases.  He stressed  that  the loss  of  40,000 per  day                                                                    
equated to a  loss of $1.5 billion per year.  He opined that                                                                    
something needed  to be  done. He  elaborated that  he would                                                                    
make an  adjustment if he had  a business that was  losing a                                                                    
significant  amount of  money. He  supported the  changes in                                                                    
the  legislation.  He  added   that  the  state's  right  to                                                                    
taxation would not be lost and  changes could be made in the                                                                    
future if necessary.                                                                                                            
                                                                                                                                
10:31:22 PM                                                                                                                   
                                                                                                                                
Representative  Costello  spoke   to  the  heartfelt  public                                                                    
testimony on the  issue. She discussed time  spent on charts                                                                    
and  numbers  and  recognized  that  the  market  could  not                                                                    
testify. She addressed the pursuit  for the right base rate;                                                                    
she  believed there  was  a range.  She  stressed that  what                                                                    
mattered was the whole package  included in the bill and not                                                                    
just one number. She stated  that the current system was not                                                                    
working  and that  numbers  were stark;  10  rigs in  Alaska                                                                    
compared  to over  800 in  Texas; 500  exploratory wells  in                                                                    
Alaska and  1000s in other  areas. She believed it  would be                                                                    
irresponsible for the legislature  to ignore the "draconian"                                                                    
statistics. She opined that it  was important to address the                                                                    
issue at present. She touched  on money coming in under ACES                                                                    
and  communicated  that  she worried  about  the  future  of                                                                    
children in  the state. She  was concerned that  the state's                                                                    
savings accounts would be depleted  by the time the children                                                                    
were  in  high   school.  She  believed  that   it  was  the                                                                    
responsibility  of legislators  to  address  the issue.  She                                                                    
hoped  that action  was taken  and that  Alaska would  be on                                                                    
equal footing with the rest of the world.                                                                                       
                                                                                                                                
Representative  Holmes  shared  that she  had  been  present                                                                    
during  the  ACES  implementation.  She  recalled  her  time                                                                    
observing past Oil and Gas  Committee meetings. She observed                                                                    
that over the past several  years there had been significant                                                                    
incoming  revenue   to  the   state  along   with  declining                                                                    
production.  She  discussed  the House  Finance  Committee's                                                                    
time spent on budgets and  future projections for the state.                                                                    
She  believed   the  future  projections  were   scary.  She                                                                    
addressed  that  the incentives  built  into  ACES with  the                                                                    
intent  to  spur  production  appeared  to  have  created  a                                                                    
complicated system that  was hard to predict  and model. She                                                                    
thanked  the  chairman and  believed  the  process had  been                                                                    
collaborative. She opined  that the CS was  no one's perfect                                                                    
bill. She believed members could  find optimism in the bill;                                                                    
she  stated that  projections  under  the current  structure                                                                    
were not optimistic. She pointed  to current budget deficits                                                                    
and  credited the  legislature and  governor for  savings in                                                                    
the current session. She supported advancement of the bill.                                                                     
                                                                                                                                
10:37:12 PM                                                                                                                   
                                                                                                                                
Representative  Edgmon communicated  that he  would vote  to                                                                    
move  the bill  forward for  debate on  the House  floor. He                                                                    
spoke  to his  apprehension  and observed  that  it was  not                                                                    
possible to predict  the future. He remarked  that the state                                                                    
would be  put in a  position of  risk if nothing  were done;                                                                    
however,  the search  for  a  solution put  the  state in  a                                                                    
position of  risk as well,  given that reward and  risk went                                                                    
hand  in hand.  He believed  all committee  members had  the                                                                    
best intentions  for the state's  good fortune.  However, he                                                                    
communicated his  nervousness that the bill  could have been                                                                    
further  vetted. He  pointed to  DOR  projections and  noted                                                                    
that  they could  be much  smaller  depending on  production                                                                    
numbers.  He  did not  believe  an  accurate projection  was                                                                    
known about  the potential generation of  production. He was                                                                    
incredibly hopeful that the bill  would work. He stated that                                                                    
the nervousness would  carry with him until he  saw that the                                                                    
change had been successful. He  would have liked to see some                                                                    
consultants with experience in  the oil industry the various                                                                    
scenarios  provided by  the administration.  He thanked  the                                                                    
chairman  for his  work and  expressed appreciation  for the                                                                    
members' cooperation and collegiality.                                                                                          
                                                                                                                                
10:40:14 PM                                                                                                                   
                                                                                                                                
Co-Chair Stoltze thanked committee  members for the process.                                                                    
He believed it  was natural to have a level  of humility and                                                                    
concern  about  whether  such  a  large-scale  decision  was                                                                    
right.  He had  more hope  for doing  something rather  than                                                                    
nothing.                                                                                                                        
                                                                                                                                
Representative  Gara  and Representative  Kawasaki  WITHDREW                                                                    
their OBJECTIONS.  There being NO further  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
HCS CSSB  21(FIN) was REPORTED  out of committee with  a "no                                                                    
recommendation" and  with one new indeterminate  fiscal note                                                                    
from  the Department  of Natural  Resources; two  new fiscal                                                                    
impact  notes  from  the  Department  of  Revenue;  and  one                                                                    
previously published zero fiscal note: FN11 (CED).                                                                              
                                                                                                                                
Co-Chair Stoltze discussed that  the committee may reconvene                                                                    
following House floor session.                                                                                                  
                                                                                                                                
SENATE BILL NO. 7 am                                                                                                          
                                                                                                                                
     "An Act relating  to the computation of the  tax on the                                                                    
     taxable income  of a  corporation derived  from sources                                                                    
     within the state."                                                                                                         
                                                                                                                                
SB 7 am was SCHEDULED but not HEARD.                                                                                            
                                                                                                                                
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.                                                                                    
                                                                                                                                
SENATE BILL NO. 62                                                                                                            
                                                                                                                                
     "An Act relating to grants for school construction."                                                                       
                                                                                                                                
SB 62 was SCHEDULED but not HEARD.                                                                                              
                                                                                                                                
10:41:55 PM                                                                                                                   
RECESSED                                                                                                                        
                                                                                                                                
[Note: The meeting resumed at 1:12 a.m. on 4/12/13. See                                                                         
4/12/13 1:12 a.m. minutes for detail.]                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
ADM Statewide.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
AFN 2012 Resolution.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Alaska Dispatch are Boarding Schools the Solution.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Boarding School Enrollees By City.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Chugach SB47 Testimony.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
CITC Letter of Support.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Delete Secondary Amendment.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Galena School Letter Dec 2012.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
North Slope School District Letter.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Residential Boarding Homes 2013Summary 3 6 13.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
ResidentialActualCostsFY09-FY13 3 12 13.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
SchoolClosuresFY99-FY13_3-4-13.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Sectional Analysis Version H (S)FIIN.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Sponsor Statement Version H.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
Support Letter for SB 47 Nenana.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
SW School District Resolution.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
SB 83 Support Letter - THG - Mason.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 83 Support Letter - THG - Branson.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 83 Support Letter - PSFleek.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 83 Support Letter - Cons Ent.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 83 Support Letter - AGC.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 83 SFIN CS Sponsor Statement scanned.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
Interest on Under-Overpayments on Fed Taxes.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
Interest on Under-Overpayments on Fed Taxes.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
Interest Rate Table.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
26 USC 460.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
Sectional Analysis Version H (S)FIIN.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
CSSB 85 Alaska Aerofuel Letter of Support.pdf HFIN 4/11/2013 9:00:00 AM
SB 85
CSSB 85 FEDCo Letter of Support.pdf HFIN 4/11/2013 9:00:00 AM
SB 85
CSSB 85 Sponsor Statement.pdf HFIN 4/11/2013 9:00:00 AM
SB 85
CSSB 85 VWGoA Support.pdf HFIN 4/11/2013 9:00:00 AM
SB 85
HCS CSSB 22(FIN), version R.pdf HFIN 4/11/2013 9:00:00 AM
SB 22
SB 21 CS WORKDRAFT 4.11.13 L.pdf HFIN 4/11/2013 9:00:00 AM
SB 21
SB 47 Amenmedments 1&2 Edgemon -CSSBFIN.pdf HFIN 4/11/2013 9:00:00 AM
SB 47
SB 21 Econ One/DOR HFIN (4-11-13)corrected.pdf HFIN 4/11/2013 9:00:00 AM
SB 21
SB 83 Amendments 1 & 2.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 22 Amendments Gara Holmes CS FIN.pdf HFIN 4/11/2013 9:00:00 AM
SB 22
SB 21 Amendments CS FIN 1-14.pdf HFIN 4/11/2013 9:00:00 AM
SB 21
SB 21 Amendments CS FIN 15 & 7.pdf HFIN 4/11/2013 9:00:00 AM
SB 21
DOR responses slides - 20130411.pdf HFIN 4/11/2013 9:00:00 AM
SB 21
SB 65 Sponsor Statement P version.PDF HFIN 4/11/2013 9:00:00 AM
SB 65
SB 65 Sectional P version.PDF HFIN 4/11/2013 9:00:00 AM
SB 65
SB 83 Additional Support.pdf HFIN 4/11/2013 9:00:00 AM
SB 83
SB 21 Opposition additional.pdf HFIN 4/11/2013 9:00:00 AM
SB 21