Legislature(2013 - 2014)HOUSE FINANCE 519

04/18/2014 06:00 PM FINANCE

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05:19:59 PM Start
05:19:59 PM Sb 138 Fiscal Note Discussion
06:10:43 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 18, 2014                                                                                            
                         5:19 p.m.                                                                                              
5:19:59 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 5:19 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Joe Balash,  Commissioner, Department of  Natural Resources;                                                                    
Daniel   Fauske,  President,   Alaska  Gasline   Development                                                                    
Corporation;   Michael   Pawlowski,   Deputy   Commissioner,                                                                    
Strategic Finance, Department of Revenue.                                                                                       
CSSB 64(FIN)                                                                                                                    
         OMNIBUS CRIME/CORRECTIONS/RECIDIVISM BILL                                                                              
         CSSB 64(FIN) was SCHEDULED but not HEARD.                                                                              
CSSB 138(FIN) am                                                                                                                
          GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                               
          HCS CSSB  138(FIN) was  REPORTED out  of committee                                                                    
          with a  "do pass" recommendation and  with one new                                                                    
          fiscal  note  from  the  Department  of  Commerce,                                                                    
          Community  and   Economic  Development,   one  new                                                                    
          fiscal note from  the Department of Transportation                                                                    
          and Public  Facilities, one  new fiscal  note from                                                                    
          the House Finance Committee,  two new fiscal notes                                                                    
          from  the Department  of Revenue,  one new  fiscal                                                                    
          note from the Department  of Natural Resources and                                                                    
          one previously published fiscal note: (CED).                                                                          
CSSB 140(FIN)                                                                                                                   
          AIDEA: ARCTIC DEVELOPMENT PROGRAM/FUND                                                                                
          CSSB 140(FIN) was SCHEDULED but not HEARD.                                                                            
CS FOR SENATE BILL NO. 138(FIN) am                                                                                            
     "An Act  relating to the  purposes, powers,  and duties                                                                    
     of   the   Alaska  Gasline   Development   Corporation;                                                                    
     relating  to  an  in-state  natural  gas  pipeline,  an                                                                    
     Alaska  liquefied natural  gas project,  and associated                                                                    
     funds; requiring  state agencies and other  entities to                                                                    
     expedite  reviews and  actions related  to natural  gas                                                                    
     pipelines  and projects;  relating  to the  authorities                                                                    
     and  duties of  the commissioner  of natural  resources                                                                    
     relating to a North Slope  natural gas project, oil and                                                                    
     gas and gas only leases,  and royalty gas and other gas                                                                    
     received  by  the  state   including  gas  received  as                                                                    
     payment for the production tax  on gas; relating to the                                                                    
     tax on oil  and gas production, on  oil production, and                                                                    
     on  gas  production;  relating to  the  duties  of  the                                                                    
     commissioner  of  revenue  relating to  a  North  Slope                                                                    
     natural  gas project  and gas  received as  payment for                                                                    
     tax;  relating to  confidential information  and public                                                                    
     record  status of  information provided  to  or in  the                                                                    
     custody of the Department  of Natural Resources and the                                                                    
     Department  of   Revenue;  relating   to  apportionment                                                                    
     factors of the Alaska Net  Income Tax Act; amending the                                                                    
     definition of gross value at  the 'point of production'                                                                    
     for  gas for  purposes of  the oil  and gas  production                                                                    
     tax; clarifying that  the exploration incentive credit,                                                                    
     the oil or gas producer  education credit, and the film                                                                    
     production tax credit may not  be taken against the gas                                                                    
     production tax paid in gas;  relating to the oil or gas                                                                    
     producer education  credit; requesting the  governor to                                                                    
     establish  an  interim  advisory board  to  advise  the                                                                    
     governor  on municipal  involvement  in  a North  Slope                                                                    
     natural gas  project; relating to the  development of a                                                                    
     plan  by the  Alaska  Energy  Authority for  developing                                                                    
     infrastructure  to deliver  affordable energy  to areas                                                                    
     of  the state  that will  not have  direct access  to a                                                                    
     North Slope  natural gas pipeline and  a recommendation                                                                    
     of   a  funding   source   for  energy   infrastructure                                                                    
     development; establishing the  Alaska affordable energy                                                                    
     fund; requiring the commissioner  of revenue to develop                                                                    
     a  plan  and  suggest legislation  for  municipalities,                                                                    
     regional corporations,  and residents  of the  state to                                                                    
     acquire ownership  interests in  a North  Slope natural                                                                    
     gas  pipeline  project; making  conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
^SB 138 FISCAL NOTE DISCUSSION                                                                                                
5:19:59 PM                                                                                                                    
JOE  BALASH, COMMISSIONER,  DEPARTMENT OF  NATURAL RESOURCES                                                                    
reviewed  the fiscal  notes attached  to SB  138. The  first                                                                    
fiscal  note showed  an operating  cost of  approximately $3                                                                    
million   for  FY   15.  He   pointed   out  the   estimated                                                                    
supplemental  cost resulting  from  the immediate  effective                                                                    
dates. Some costs  would be incurred before  the fiscal year                                                                    
closed out.                                                                                                                     
5:21:15 PM                                                                                                                    
DANIEL   FAUSKE,  PRESIDENT,   ALASKA  GASLINE   DEVELOPMENT                                                                    
CORPORATION, introduced himself.                                                                                                
Commissioner   Balash  discussed   the  first   fiscal  note                                                                    
including the  expected operating costs associated  with the                                                                    
AGDC's  participation   in  Alaska  Liquefied   Natural  Gas                                                                    
(AKLNG).  Included in  the costs  were personnel  and travel                                                                    
expenses  for various  expected  meetings.  The fiscal  note                                                                    
requested funding  for a one-time capital  outlay for build-                                                                    
out  of  necessary facilities  to  support  the staffing  on                                                                    
AKLNG.  The fund  source was  the AKLNG  fund. The  fund was                                                                    
established  as part  of SB  138. An  additional amount  was                                                                    
included to capitalize the fund over the pre-FEED process.                                                                      
5:22:41 PM                                                                                                                    
Commissioner Balash  discussed the next fiscal  note, number                                                                    
16  Alaska  Industrial   Development  and  Export  Authority                                                                    
(AIDEA),  Alaska  Energy  Authority (AEA)  fiscal  note.  He                                                                    
stated  that  the  director  of AEA  was  available  in  the                                                                    
committee  room for  questions.  The fiscal  note showed  no                                                                    
operating  expenditures. The  estimated capital  expenditure                                                                    
for  FY 15  was  projected at  approximately  $2 million  to                                                                    
complete the studies requested in  the uncodified section of                                                                    
the bill.                                                                                                                       
5:24:01 PM                                                                                                                    
Commissioner  Balash  continued  with   the  note  from  the                                                                    
Department of  Natural Resources including  the expenditures                                                                    
expected for  FY 17,  which were  converted into  a one-time                                                                    
item.  He   noted  that  the  one-time   item  included  the                                                                    
personnel cost  for six new individuals  hired for marketing                                                                    
in  exempt positions.  He noted  that  the exempt  positions                                                                    
were marketing-oriented  personnel to assist  in determining                                                                    
the best practice for marketing  the state's LNG. The fiscal                                                                    
note  had  a significant  travel  item  associated. The  new                                                                    
personnel  would travel  overseas  to  communicate with  the                                                                    
buyers of  LNG with a travel  cost of $102 thousand  for the                                                                    
next  fiscal year.  The large  line item  was $7,115,000  to                                                                    
procure  personal services  to  support  the development  of                                                                    
5:26:45 PM                                                                                                                    
Vice-Chair Neuman asked about page  3 of the fiscal note and                                                                    
the  $350  thousand and  $325  thousand  charged for  expert                                                                    
analysis. He  wondered why  the cost of  the service  was so                                                                    
Commissioner    Balash   replied    that   the    department                                                                    
investigated  the option  of hiring  a  person with  current                                                                    
expertise  in LNG  marketing with  the Division  of Oil  and                                                                    
Gas. He stated  that the experience in  the market commanded                                                                    
an  annual  salary  in  the  range  of  $250  thousand.  The                                                                    
additional funds  were associated  with their  benefits. The                                                                    
other  four marketing  analysts  would be  compensated at  a                                                                    
range of  $200 thousand annually.  The final position  was a                                                                    
standard range 20.                                                                                                              
5:29:04 PM                                                                                                                    
Representative  Wilson  asked   about  contracting  for  the                                                                    
Commissioner Balash  replied that  the flexibility to  use a                                                                    
contract   was  included   in  the   procurement  code   for                                                                    
professional and technical services.                                                                                            
5:29:37 PM                                                                                                                    
Commissioner Balash discussed the  next fiscal note from the                                                                    
Department  of   Revenue  for   $750  thousand   to  support                                                                    
enhancements of  the tax revenue  management system  and the                                                                    
accompanying regulations.                                                                                                       
5:30:34 PM                                                                                                                    
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT OF REVENUE pointed out  an additional notation on                                                                    
page 2 of  the fiscal note recognizing the  expansion of the                                                                    
educational credit  for the  broad vocational  and donations                                                                    
of equipment  under the production  tax. He added  a comment                                                                    
about the Department of Revenue's  fiscal note. The Division                                                                    
of  Oil  and Gas  shared  services  with the  Department  of                                                                    
Natural Resources, who took the lead on position requests.                                                                      
5:31:40 PM                                                                                                                    
Mr. Pawlowski discussed another  fiscal note from Department                                                                    
of  Revenue  for  $2.5  million from  the  AKLNG  fund.  The                                                                    
request  would  fund  a  financing  studies  investment  for                                                                    
Alaskans,   communities  and   regional  corporations.   The                                                                    
financial   analysis  would   occur   prior   to  the   firm                                                                    
transportation services agreement with TransCanada.                                                                             
Representative  Gara  discussed  his concern  regarding  the                                                                    
transfer  of  $2  million.  He   asked  if  the  alternative                                                                    
pipeline would not spend $2 million in the same year.                                                                           
5:32:54 PM                                                                                                                    
Mr.  Pawlowski  replied that  the  funding  was for  studies                                                                    
needed by the  Department of Revenue, which  included a fund                                                                    
source change to the AKLNG  project. He stated that AGDC was                                                                    
provided flexibility  to pace both  projects. The  board was                                                                    
provided discretion about such pacing.                                                                                          
5:33:30 PM                                                                                                                    
Representative  Guttenberg   discussed  the   Department  of                                                                    
Revenue  Taxation and  Treasury note.  He believed  that the                                                                    
note assumed that  gas would be taken in-kind  as opposed to                                                                    
waiting for a best interest finding.                                                                                            
Mr. Pawlowski stated  that the note allowed  the division to                                                                    
draft regulations  describing the process in  the event that                                                                    
the  Department   of  Natural  Resources   modified  leases.                                                                    
Another   purpose  was   the  process   of  accounting   and                                                                    
adjustment in  the tax revenue management  system for either                                                                    
in-value or in-kind.                                                                                                            
5:34:36 PM                                                                                                                    
Mr. Pawlowski continued  with the next fiscal  note for fund                                                                    
capitalization. The  request was  a supplemental for  FY 14.                                                                    
The fund source  was the AKLNG for  $69,834,500, which would                                                                    
allow the  project to advance  with the  immediate effective                                                                    
5:36:02 PM                                                                                                                    
Mr. Pawlowski discussed  the last fiscal note  in the packet                                                                    
for the  Department of Transportation and  Public Facilities                                                                    
for $70  thousand in  FY 15.  The fund  source was  in AKLNG                                                                    
receipts, which would be derived  from the earlier mentioned                                                                    
Co-Chair Stoltze  noted that  the bill  had been  passed out                                                                    
previously,  but he  wished  to  offer additional  committee                                                                    
member  comments  for the  record.  The  fiscal notes  would                                                                    
accompany the bill out of committee.                                                                                            
5:38:10 PM                                                                                                                    
Representative  Gara thanked  the administration.  He stated                                                                    
that the  state-share numbers led  to concern  regarding the                                                                    
version with less ownership and  the other with more. If the                                                                    
state did  not buy-in to  the equity stake,  the state-share                                                                    
would  reside  in  the  lower  third  of  the  jurisdictions                                                                    
provided. He  pointed out that  the state-share  was greater                                                                    
with  a  buy-in  to  the  project.  He  cited  Roger  Marks,                                                                    
Legislative   Consultant,  Legislative   Budget  and   Audit                                                                    
Committee  who  stated  that countries  with  similar  risks                                                                    
averaged  approximately  80  percent  of  state-share  while                                                                    
Alaska  was estimated  at  20  percent less.  Representative                                                                    
Gara  expressed concern  about Alaska  receiving their  fair                                                                    
Representative Gara  stated that  his second issue  was tied                                                                    
to  the  expansion of  the  pipeline.  He preferred  not  to                                                                    
settle  with royalty  in-kind, but  understood the  idea. He                                                                    
appreciated the common ground  reached by the administration                                                                    
and the legislature. He was unsure  how he would vote on the                                                                    
House Floor.                                                                                                                    
5:41:56 PM                                                                                                                    
Co-Chair Stoltze stated  that Representative Gara's concerns                                                                    
both written and verbal were included in the record.                                                                            
5:42:14 PM                                                                                                                    
Representative   Holmes  observed   a  healthy   balance  of                                                                    
optimism and  skepticism in the Capitol  and among committee                                                                    
members. She realized  that the state was in  the early part                                                                    
of  the  process.  She  acknowledged  the  work  ahead.  She                                                                    
recalled  a past  contract  that had  been  voted down.  She                                                                    
requested  that  the  administration make  every  effort  to                                                                    
inform the legislature about future changes.                                                                                    
Co-Chair Stoltze stated that the contract was not ratified.                                                                     
Representative Holmes stood corrected.                                                                                          
5:44:10 PM                                                                                                                    
Representative   Wilson  thanked   the  co-chairs   for  the                                                                    
latitude   to   ask   questions.  Most   of   the   Interior                                                                    
delegation's concerns  were linked  to state  energy issues.                                                                    
She stressed that burning wood  was not a long-term solution                                                                    
for the Interior region. She  thanked the team for answering                                                                    
questions multiple  times. She  wished for  partnership with                                                                    
the right  partner. She stressed  that she would  update her                                                                    
constituents as the project moved along.                                                                                        
5:46:23 PM                                                                                                                    
Representative  Costello  thanked   the  co-chairs  and  the                                                                    
administration. She appreciated the  Alaska Hire and the LNG                                                                    
marketing  amendments added  to the  bill by  the committee.                                                                    
She acknowledged  her concern with the  state's relationship                                                                    
with TransCanada.                                                                                                               
5:47:27 PM                                                                                                                    
Co-Chair Austerman supported the  concept of a gas pipeline.                                                                    
His  concerns included  those of  the public.  He wished  to                                                                    
ensure  that  the  public  understood  the  changes  in  the                                                                    
state's tax  regime resulting from  the bill. He  hoped that                                                                    
the administration  took the education  needs of  the public                                                                    
seriously. He  appreciated the candid  conversations between                                                                    
the committee members and the administration.                                                                                   
5:49:02 PM                                                                                                                    
Representative Thompson thanked  the co-chairs for providing                                                                    
access to  the consultants  and for the  information related                                                                    
to   the  gas   pipeline  processes.   He  appreciated   the                                                                    
presentations provided  by the administration as  they added                                                                    
to his comfort level in the project.                                                                                            
5:49:46 PM                                                                                                                    
Vice-Chair  Neuman relayed  his  initial opinions  regarding                                                                    
diversifying  the state's  income.  He stated  that the  gas                                                                    
pipeline  would lead  to  long-term  sustainable energy  for                                                                    
Alaska.  He  mentioned  additional opportunities  in  mining                                                                    
that  would  benefit  from the  energy  available  from  the                                                                    
advent of the gas pipeline.  The many benefits would help to                                                                    
diversify the  economy. He added  that the benefits  of jobs                                                                    
in the communities  would help to balance  the Department of                                                                    
Health and Social Services budget.  He mentioned the alcohol                                                                    
and drug  abuse in rural  Alaska resulting from the  lack of                                                                    
stability and employment. He pointed  out the decline of oil                                                                    
production and  noted that Alaska's future  included the gas                                                                    
5:53:37 PM                                                                                                                    
Representative  Guttenberg recalled  his experience  working                                                                    
to  build  the  Trans-Alaska   Pipeline  System  (TAPS).  He                                                                    
believed  that  the  new  pipeline   would  lead  to  future                                                                    
employment for Alaskans.  He appreciated Vice-Chair Neuman's                                                                    
optimism related to affordable  energy throughout the state.                                                                    
He  expressed  concern  about   the  process  including  the                                                                    
Memorandum  of Agreement  and Heads  of Agreement  that were                                                                    
untouchable  by  both the  legislature  and  the public.  He                                                                    
stated that he did not understand  if AGDC would work on two                                                                    
projects  simultaneously.  He   stated  that  past  pipeline                                                                    
projects led  to false starts  and he expressed  worry about                                                                    
this project  as well.  He wished the  best for  the project                                                                    
and its outcome. He expressed both cynicism and optimism.                                                                       
5:58:02 PM                                                                                                                    
Representative  Guttenberg stated  that the  nuances of  the                                                                    
economies in  rural Alaska were complicated.  He had eternal                                                                    
optimism for  the state  and believed  it had  resources for                                                                    
many years  to come. He discussed  characteristics common to                                                                    
Alaskans including optimism.                                                                                                    
5:59:35 PM                                                                                                                    
Representative  Edgmon  thanked   the  co-chairs  for  their                                                                    
organization  of   the  hearings  related  to   SB  138.  He                                                                    
acknowledged that  the subject was complicated.  He spoke to                                                                    
various  oil   and  gas  options  including   the  Petroleum                                                                    
Production Tax  (PPT) and the  Alaska's Clear  and Equitable                                                                    
Share (ACES). He believed the  legislative product in SB 138                                                                    
was  the most  rounded; it  spoke to  affordable energy  and                                                                    
addressed the issue from a  statewide perspective. He listed                                                                    
other   components   including   infrastructure,   ownership                                                                    
potential,  instate  provisions  and bridges.  He  expressed                                                                    
cautious  optimism  for  the  project.  He  appreciated  the                                                                    
stage-gated approach taken by the measure.                                                                                      
6:02:13 PM                                                                                                                    
Representative Munoz  considered the moment  historical. She                                                                    
stated that Alaska  learned from the development  of the oil                                                                    
industry.  The legislation  considered previous  experiences                                                                    
such as  municipal impacts and  those of roads  and bridges.                                                                    
She  echoed   the  sentiments  of   Representative  Costello                                                                    
related  to local  hire and  training. She  stated that  the                                                                    
legislation incorporated  many experiences and  lessons from                                                                    
the past. She  looked forward to the economic  benefits of a                                                                    
gas pipeline in Alaska.                                                                                                         
6:04:35 PM                                                                                                                    
Representative  Gara thanked  Co-Chair Stoltze  and Co-Chair                                                                    
Austerman  for  allowing Mr.  Harper  to  offer a  different                                                                    
perspective.  He  thanked  Senator  Fairclough  and  Senator                                                                    
French  for  arranging  the  meeting  that  allowed  a  more                                                                    
balanced view for the committee.                                                                                                
6:05:16 PM                                                                                                                    
Co-Chair  Stoltze thanked  the committee  and staff  for the                                                                    
flexibility  on  the  issue. The  issue  forced  many  other                                                                    
meetings. He  admitted to  feeling a  mix of  skepticism and                                                                    
6:08:26 PM                                                                                                                    
Vice-Chair Neuman MOVED  to REPORT HCS CSSB  138(FIN) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
Vice-Chair  Neuman MOVED  the letter  of intent  attached to                                                                    
the bill. There being NO OBJECTION, it was so ordered.                                                                          
HCS CSSB 138(FIN)  was REPORTED out of committee  with a "do                                                                    
pass" recommendation and  with one new fiscal  note from the                                                                    
Department of Commerce,  Community and Economic Development,                                                                    
one new  fiscal note  from the Department  of Transportation                                                                    
and Public  Facilities, one new  fiscal note from  the House                                                                    
Finance Committee, two new fiscal  notes from the Department                                                                    
of  Revenue, one  new  fiscal note  from  the Department  of                                                                    
Natural Resources and one  previously published fiscal note:                                                                    
6:10:43 PM                                                                                                                    
The meeting was adjourned at 6:10 p.m.                                                                                          

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