Legislature(2015 - 2016)HOUSE FINANCE 519

03/24/2016 09:30 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time --
Moved CSHB 77(FIN) Out of Committee
-- Public Testimony --
Moved CSHB 231(FIN) Out of Committee
-- Public Testimony --
Moved CSHB 222(FIN) Out of Committee
-- Public Testimony --
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 24, 2016                                                                                            
                         9:33 a.m.                                                                                              
9:33:33 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  Thompson   called  the  House   Finance  Committee                                                                    
meeting to order at 9:33 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Ester Mielke,  Staff, Representative Bob Lynn;  Kris Curtis,                                                                    
Legislative Auditor,  Alaska Division of  Legislative Audit;                                                                    
Julie  Lucky,  Staff,  Representative Mike  Hawker;  Randall                                                                    
Hoffbeck,  Commissioner, Department  of Revenue;  Ken Alper,                                                                    
Director,   Tax  Division,   Department  of   Revenue;  Jane                                                                    
Pierson, Staff, Representative Steve Thompson.                                                                                  
PRESENT VIA TELECONFERENCE                                                                                                    
Megan  Wallace, Attorney,  Legislative Legal  Services; Rick                                                                    
Webb,  Wallbusters,  Fairbanks; Juanita  Webb,  Wallbusters,                                                                    
Fairbanks; Chad Goeden, Alaska State Troopers, Sitka;                                                                           
HB 77     DISABILITY:ID/LICENSE AND TRAINING RQMTS.                                                                             
          CSHB 77  (FIN) was REPORTED out  of committee with                                                                    
          a  "do pass"  recommendation and  with a  new zero                                                                    
          fiscal    note    from     the    Department    of                                                                    
HB 222    INCREASE OF APPROPRIATION ITEM                                                                                        
          CSHB 77  (FIN) was REPORTED out  of committee with                                                                    
          a  "do pass"  recommendation and  with a  new zero                                                                    
         fiscal note from the Alaska Legislature.                                                                               
HB 231    EXTEND BOARD OF PAROLE                                                                                                
          CSHB 231 (FIN) was  REPORTED out of committee with                                                                    
          a "do  pass" recommendation and with  a new fiscal                                                                    
          impact note by the Department of Corrections.                                                                         
HB 247    TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                                    
          HB  247  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.                                                                                                
Co-Chair Thompson  reviewed the  agenda for the  meeting. He                                                                    
planned to move HB 77, HB  222, and HB 231 from committee if                                                                    
it was the will of committee members.                                                                                           
9:34:53 AM                                                                                                                    
HOUSE BILL NO. 231                                                                                                            
     "An Act extending the termination date of the Board of                                                                     
     Parole; and providing for an effective date."                                                                              
Vice-Chair  Saddler MOVED  to ADOPT  the proposed  committee                                                                    
substitute  for  HB  231 (FIN),  Work  Draft  (29-LS1138\H).                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
JANE   PIERSON,   STAFF,  REPRESENTATIVE   STEVE   THOMPSON,                                                                    
explained  that  the  change   in  the  bill  shortened  the                                                                    
extension date  from 2022 to  2019 providing 3  years before                                                                    
the  termination  came  before the  legislature  again.  The                                                                    
parole  was a  board that  might go  through changes  if the                                                                    
state changed its criminal statutes.                                                                                            
Representative Wilson  asked if  an audit would  be required                                                                    
as  a result  of changing  the date.  Ms. Pierson  responded                                                                    
Representative Wilson  asked about  the cost of  the current                                                                    
year's audit.  Ms. Pierson  deferred to  Kris Curtis  in the                                                                    
Representative  Wilson  requested  getting the  answer  from                                                                    
whomever was appropriate.                                                                                                       
Co-Chair  Thompson  noted  that  Representative  Pruitt  had                                                                    
joined the meeting.                                                                                                             
ESTER  MIELKE,  STAFF,  REPRESENTATIVE   BOB  LYNN,  had  no                                                                    
further comments.                                                                                                               
9:36:47 AM                                                                                                                    
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE  AUDIT,  responded  to  Representative  Wilson's                                                                    
question. She  explained that  the audit  took approximately                                                                    
700 hours  and the cost  per hour was  about $70 for  FY 15.                                                                    
The total cost of the audit was approximately $50 thousand.                                                                     
Representative Wilson asked whether  a change in dates would                                                                    
have  made  a difference  to  the  audit. She  thought  that                                                                    
changes  to the  parole board  could still  be made  and the                                                                    
sunset could be extended in  the normal process for statute.                                                                    
Ms.  Curtis concurred  that  changes could  be  made to  the                                                                    
parole board  outside of the  sunset process. The  office of                                                                    
Legislative  Audit  had  no opinion  concerning  the  sunset                                                                    
date. It would be up to  the policy makers to decide whether                                                                    
it was worth the extra cost.                                                                                                    
Representative Wilson  wondered if  the time  between audits                                                                    
influenced their  costs. She remarked  that the  last sunset                                                                    
was much longer than the  current audit being discussed. She                                                                    
wondered if  the cost  would be $50  thousand no  matter the                                                                    
Ms. Curtis responded  that if the time between  audits was a                                                                    
shorter period  the cost would  be less because it  would be                                                                    
completed  more  quickly.  However,   due  to  the  dramatic                                                                    
changes  to  the  landscape  it could  be  a  longer  audit.                                                                    
Several  factors  impacted  the  length  of  an  audit.  She                                                                    
relayed  that if  everything stayed  the  same typically  an                                                                    
audit took less time.                                                                                                           
Co-Chair Thompson  indicated Representative Gara  had joined                                                                    
the committee.                                                                                                                  
9:39:12 AM                                                                                                                    
Representative  Guttenberg mentioned  that  there were  four                                                                    
recommendations  from   the  audit  but   expressed  concern                                                                    
regarding the  report. The  findings included:  Parole board                                                                    
files   did   not    consistently   contain   all   required                                                                    
information,  notifications to  offenders  and victims  were                                                                    
not sufficiently documented, changes  to regulations did not                                                                    
address  statutory  requirements,  and the  audit  contained                                                                    
several   deficiencies  that   could  affect   security  and                                                                    
consistency  of data.  He asked  about the  severity of  the                                                                    
findings in  terms of the  functioning of the  parole board.                                                                    
He asked how  far out of alignment these  findings were from                                                                    
normal practices.                                                                                                               
Ms.  Curtis  responded  that  none  of  the  recommendations                                                                    
impacted  the auditor's  recommendation  for extension.  She                                                                    
furthered that  the auditor would have  recommended the full                                                                    
8 years, the maximum allowed  in statute, had there not been                                                                    
a concern for  the need for oversight. The reason  had to do                                                                    
with the change in the  risk assessment tool towards the end                                                                    
of  the  audit.  The  auditors  were not  able  to  see  and                                                                    
evaluate its impact. The auditors  did not consider SB 91 in                                                                    
the audit  recommended. The board was  operating fairly well                                                                    
and professionally. She  explained that whenever Legislative                                                                    
Audit  conducts an  audit  it  considered documentation  and                                                                    
9:41:28 AM                                                                                                                    
Representative Guttenberg asked if  the office was lacking a                                                                    
filing  clerk   position  which   could  be   affecting  the                                                                    
efficiency of operations.                                                                                                       
Ms. Curtis answered that it  was the interaction between the                                                                    
board and  the department. Some of  the documentation issues                                                                    
had  to   do  with   the  interactions   with  institutional                                                                    
correctional officers  and to  what degree  they documented.                                                                    
It also  had to  do with what  degree they  were effectively                                                                    
using the  management system to  document. It was  not about                                                                    
missing a  staff person, but about  the coordination between                                                                    
the board and the department.                                                                                                   
Representative Guttenberg  wondered if it was  for training.                                                                    
Ms. Curtis  replied that  it was just  being aware  of where                                                                    
they were at and a willingness to improve.                                                                                      
Co-Chair Thompson OPENED public testimony.                                                                                      
Co-Chair Thompson CLOSED public testimony.                                                                                      
Representative Wilson  was not going  to stop the  bill from                                                                    
moving forward.  However, she was comfortable  with the date                                                                    
currently on  the bill. She did  not see any red  flags that                                                                    
would constitute  a date change  to 3 years.  She understood                                                                    
there were several  moving pieces but believed  all could be                                                                    
completed  and the  checks and  balances could  be performed                                                                    
without  adding more  work for  the auditors.  She preferred                                                                    
not to change the date.                                                                                                         
Co-Chair  Thompson   had  taken  pending   legislation  into                                                                    
consideration  that  could alter  what  the  state would  be                                                                    
doing in the future.                                                                                                            
9:44:03 AM                                                                                                                    
Representative  Gara agreed  with Representative  Wilson. He                                                                    
thought it  took time  and money to  have the  auditors come                                                                    
before   the  committee.   He  suggested   a  5-year   board                                                                    
Representative Gara  MOVED to ADOPT a  conceptual amendment:                                                                    
Extend the Board  of Parole to 2021, a 5  year extension [as                                                                    
opposed to the committee substitute's  proposal to 2019, a 3                                                                    
year  proposal] in  Section 1,  page  1 of  the bill.  There                                                                    
being NO OBJECTION, it was so ordered.                                                                                          
Vice-Chair Saddler relayed  that HB 231 had  a single fiscal                                                                    
note  from  the Department  of  Corrections.  It called  for                                                                    
$1,017,500  from undesignated  general funds  and $1,019,400                                                                    
from  interagency  receipts.  There   was  a  total  ongoing                                                                    
expense  of  $1,019,400  which was  a  continuation  of  the                                                                    
existing funding.                                                                                                               
Vice-Chair Saddler MOVED to report  CSHB 231(FIN) as amended                                                                    
out  of Committee  with individual  recommendations and  the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSHB  231 (FIN)  was REPORTED  out of  committee with  a "do                                                                    
pass" recommendation  and with a  new fiscal impact  note by                                                                    
the Department of Corrections.                                                                                                  
9:47:03 AM                                                                                                                    
AT EASE                                                                                                                         
9:48:57 AM                                                                                                                    
HOUSE BILL NO. 222                                                                                                            
     "An Act relating to increases of appropriation items."                                                                     
Vice-Chair  Saddler MOVED  to ADOPT  the proposed  committee                                                                    
substitute  for  HB  222, Work  Draft  (29-LS1045\H).  There                                                                    
being NO OBJECTION, it was so ordered.                                                                                          
Ms.  Pierson explained  that the  committee substitute  (CS)                                                                    
before the  committee changed  the 45 day  limit to  90 days                                                                    
thereby  giving the  legislature more  time for  evaluation.                                                                    
The legislature  could always provide  approval prior  to 90                                                                    
days.  She  indicated  that Julie  Lucky  could  supply  the                                                                    
committee with additional detail.                                                                                               
9:50:17 AM                                                                                                                    
JULIE  LUCKY, STAFF,  REPRESENTATIVE MIKE  HAWKER, explained                                                                    
that  the  bill codified  a  procedure  for the  legislature                                                                    
during the  budgeting process to prohibit  using the revised                                                                    
program   legislative   (RPL)   process   to   increase   an                                                                    
appropriation  in the  budget. The  CS extended  the waiting                                                                    
period to 90 days. Therefore,  if the Legislative Budget and                                                                    
Audit Committee were to receive  an RPL the executive branch                                                                    
would have to  wait 90 days before expending  the RPL unless                                                                    
the  committee  took  action  to   hasten  the  timeline  by                                                                    
approving the RPL.                                                                                                              
Co-Chair Thompson OPENED public testimony.                                                                                      
Co-Chair Thompson CLOSED public testimony.                                                                                      
Vice-Chair  Saddler  explained  that  HB 222  had  one  zero                                                                    
fiscal note from the legislature.                                                                                               
9:52:03 AM                                                                                                                    
Vice-Chair Saddler  MOVED to  REPORT CSHB  222 (FIN)  out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying zero fiscal note.                                                                                                  
Representative Gara OBJECTED for discussion.                                                                                    
Representative  Gara  commented  that   no  one  would  have                                                                    
thought of  the current bill without  the Medicaid expansion                                                                    
debate in  the prior year.  The current process  allowed the                                                                    
state to accept  grant funds that fit  within the parameters                                                                    
agreed  upon by  the legislature  to appropriate.  The money                                                                    
came from the federal government  or a private donor. He did                                                                    
not believe  the legislature  could anticipate  what funding                                                                    
it   could  potentially   lose  out   on.  He   thought  the                                                                    
legislature  would be  overstepping  itself  by passing  the                                                                    
bill. He presented a  hypothetical situation where renewable                                                                    
energy money would be needed  to complete a project that the                                                                    
state would  not accept. If the  bill had been in  place the                                                                    
previous  year  and  the state  had  not  accepted  Medicaid                                                                    
expansion  money  the state  would  have  lost out  on  $140                                                                    
million of federal funding that  was rippling throughout the                                                                    
economy.  He suggested  that much  of the  budget reductions                                                                    
had been  possible because of the  Medicaid expansion monies                                                                    
coming  in. There  were reductions  in behavioral  health of                                                                    
$5.7 million  because the money was  being leveraged through                                                                    
the new federal law. In the  future it would be difficult to                                                                    
determine what the legislation would  prevent the state from                                                                    
accepting.  The bill  had to  do with  money coming  in from                                                                    
another source  for something  approved by  the legislature.                                                                    
He thought  the passage of  the legislation would  result in                                                                    
unintended consequences.  He believed that in  30 years into                                                                    
the future the legislature might  realize a project had been                                                                    
blocked that  could have  been useful to  the state.  He did                                                                    
not support changing  the current law and  would be opposing                                                                    
the bill.                                                                                                                       
9:54:57 AM                                                                                                                    
Representative Wilson  spoke about  a significant  amount of                                                                    
stimulus money coming to the  state a few years prior. After                                                                    
the  state  accepted  the  money  it  ended  up  backfilling                                                                    
certain projects,  although that had not  been the intention                                                                    
upon   taking  the   funding.  Her   understanding  of   the                                                                    
legislation was that  it did not disallow  the acceptance of                                                                    
funding.  It allowed  the legislature  to better  understand                                                                    
what the money would be used  for and to decide if a project                                                                    
should  move  forward.  She thought  the  bill  allowed  the                                                                    
legislature to be more proactive.  She did not feel the bill                                                                    
blocked  funding but  allowed  for more  due diligence.  She                                                                    
indicated she was in favor of the bill.                                                                                         
9:55:58 AM                                                                                                                    
Vice-Chair  Saddler suggested  that the  bill came  up as  a                                                                    
result of  a dispute regarding Medicaid  expansion. However,                                                                    
the  current issue  was not  Medicaid expansion  but clearly                                                                    
the  legislature's appropriation  authority  and the  proper                                                                    
balance between  the executive and legislative  branches. He                                                                    
opined  that the  legislation  allowed  the legislature  the                                                                    
improved opportunity  to consider  the meaning  of accepting                                                                    
more  money   through  the  RPL  process.   He  thought  the                                                                    
legislation was appropriate and would be supporting it.                                                                         
Representative   Guttenberg   commented    that   in   every                                                                    
department  cuts  were  applied  and  the  departments  were                                                                    
directed  to  go  out  to find  additional  monies.  He  was                                                                    
concerned  that the  bill was  a "pull  back" from  agencies                                                                    
being  able   to  function   with  more   efficiencies.  The                                                                    
legislature  had  told the  governor  and  agencies to  find                                                                    
additional  funding but  the legislation  did not  allow for                                                                    
flexibility. He objected to the bill.                                                                                           
9:58:18 AM                                                                                                                    
Representative  Pruitt   reported  that  within   state  and                                                                    
federal  government the  legislative body  had the  power of                                                                    
the  purse.  Any  money  that went  through  the  state  was                                                                    
appropriated  by  the  legislature.   He  thought  that  the                                                                    
current  discussion was  rethinking whether  the legislature                                                                    
had  given  up   the  ability  to  maintain   the  power  to                                                                    
appropriate.  The reason  the legislature  had appropriation                                                                    
power was  because legislators were  closest to  the people.                                                                    
Legislators had  a more direct connection  with constituents                                                                    
than  the administration  or the  governor. The  legislative                                                                    
body  recognized  that  there  was  a  situation  where  the                                                                    
legislature had  seated its authority  to another  branch of                                                                    
government. He  asserted that the  bill was  recognizing and                                                                    
correcting the scenario.  The bill was placing  the power of                                                                    
appropriations  back into  the hands  of the  people through                                                                    
the  legislature.  He   appreciated  the  legislation  being                                                                    
brought forward.                                                                                                                
Representative    Kawasaki   was    glad   there    was   an                                                                    
acknowledgement that  the legislation came about  because of                                                                    
Medicaid expansion  and that the  legislature had  the power                                                                    
of the  purse. Sometimes the legislature  disagreed with the                                                                    
governor.  He suggested  that  while  the legislature  might                                                                    
disagree with  the governor on  some issues it was  a simple                                                                    
separation  of  powers.  The governor  had  the  ability  to                                                                    
accept federal funds on behalf of  the rest of the state. He                                                                    
feared  a  program  such as  early  education  (the  federal                                                                    
government  was looking  at  granting  states certain  Pre-K                                                                    
dollars)  could come  up in  the middle  of the  summer. The                                                                    
state  was now  looking at  a window  of 90  days before  it                                                                    
could accept funding.  It was possible the  state might need                                                                    
to  receive   the  funds  earlier.   He  suggested   that  a                                                                    
legislative  chairman,   only  representing  a   portion  of                                                                    
Alaskans,  could  decide  they   did  not  like  Pre-K.  The                                                                    
governor  had  the  opportunity, representing  the  rest  of                                                                    
Alaskans, to  say it was  something the state would  like to                                                                    
see  but  would not  have  a  means  to accept  the  funding                                                                    
barring the  legislator's responsiveness and  willingness to                                                                    
bring  it  forward. He  added  that  he thought  there  were                                                                    
certain circumstances  in which  the legislation  could make                                                                    
things very difficult. He objected to the bill.                                                                                 
10:02:40 AM                                                                                                                   
Representative Munoz  thought it  was possible  to overthink                                                                    
the change.  It was a very  simple change adding 45  days of                                                                    
review time  to the  Legislative Budget and  Audit Committee                                                                    
when accepting new grant monies.  She thought the change was                                                                    
appropriate and one that she supported.                                                                                         
Co-Chair Thompson asked for clarification.                                                                                      
Ms. Lucky stated that the  policy discussion was exactly the                                                                    
result Representative Hawker was  looking for by introducing                                                                    
the legislation. She suggested  the discussion was about the                                                                    
separation of powers  and the power of the  purse versus the                                                                    
power to accept money (which  the governor had). She pointed                                                                    
out that the power to  accept additional federal funding was                                                                    
not a power granted to  the governor by the constitution but                                                                    
granted  via   the  legislature  by  statute   (the  current                                                                    
legislation  proposed to  amend  the statute).  It would  be                                                                    
reconsidered every year  in the full budget  and was granted                                                                    
each year. At any point  the legislature could choose not to                                                                    
include Section  24 in the  budget. She furthered that  by a                                                                    
quick budget  amendment the  legislature could  disallow the                                                                    
governor  from  accepting  any   federal  funds  during  the                                                                    
interim. She reported that the  State of Arizona had adopted                                                                    
such a policy.  She furthered that Arizona had  to call back                                                                    
into special  session anytime additional federal  funds came                                                                    
in. In  many other states  Legislative Budget and  Audit had                                                                    
more power  to accept or  reject based on the  difference in                                                                    
the constitutional balance of powers.                                                                                           
Ms. Lucky  continued to explain that  within Alaska's system                                                                    
the Legislative Budget and Audit  Committee did not have the                                                                    
power to reject the acceptance  of funds. She explained that                                                                    
the  legislature  had a  two-step  process  of granting  the                                                                    
power via  the budget and then  a process would be  put into                                                                    
place. She highlighted  that the power was  not absolute, it                                                                    
was limited.  In a  previous meeting  Mr. Teal  had reported                                                                    
that it  was allowed for  general funds but  the legislature                                                                    
had chosen to  amend the budget not  allowing general funds.                                                                    
The revised  program legislative  process was  not currently                                                                    
available for those funds at present.  It was not her job or                                                                    
duty   to  discuss   the  policy;   that  rested   with  the                                                                    
legislature.  However,  she was  providing  a  few facts  in                                                                    
front  of  legislators about  how  the  process worked.  The                                                                    
process   envisioned  by   HB  222   would  be   a  specific                                                                    
prohibition on a specific budget  item rather than a blanket                                                                    
prohibition on  many items.  It was the  intent of  the bill                                                                    
sponsor that if the  legislature, as the appropriating body,                                                                    
had  considered a  particular  appropriation and  determined                                                                    
not to  move forward with  it they  would have the  power to                                                                    
restrict  it  in  the  budget. It  was  not  necessarily  to                                                                    
prohibit the governor  or the executive branch  or the state                                                                    
from taking  advantage of the  funding but rather to  have a                                                                    
process where  the full legislature,  as opposed  to however                                                                    
many members sat  on the committee could  make any important                                                                    
policy  decision  that  had   already  been  considered  but                                                                    
rejected by the entire legislature.                                                                                             
10:06:45 AM                                                                                                                   
Representative  Guttenberg wondered  about the  first change                                                                    
in the bill on Page 1,  Line 4 [Section 1(h)]. He provided a                                                                    
hypothetical  scenario  where  the legislature  adopted  the                                                                    
previous  year's budget  outlining  that there  would be  no                                                                    
Medicaid  expansion   while  the   courts  ruled   that  the                                                                    
expansion  was mandatory.  He wondered  if there  would have                                                                    
been a conflict.                                                                                                                
Co-Chair  Thompson did  not want  to get  into a  discussion                                                                    
about Medicaid expansion.                                                                                                       
Representative Guttenberg  explained that  although Medicaid                                                                    
expansion was in the past he  was using it as an example. He                                                                    
rephrased  his  question. He  asked  about  if language  was                                                                    
inserted  into the  budget that  stated no  money should  be                                                                    
taken for a  certain program and the  federal government has                                                                    
defined  the  program  as mandatory.  He  wondered  how  the                                                                    
conflict would be resolved.                                                                                                     
Ms. Lucky was not a  constitutional scholar. She deferred to                                                                    
Legislative Legal Services online.                                                                                              
Representative Pruitt  thought that  the first  line related                                                                    
to the  legislature being able  to accept federal  funds. He                                                                    
explained that unless the  legislature excluded the language                                                                    
in the budget, there would have  to be a process in place to                                                                    
resolve  such a  conflict. He  thought  there was  a mix  of                                                                    
issues  at hand.  He suggested  it was  a two-step  process.                                                                    
First,  the   legislature  would  give  authority   for  the                                                                    
acceptance of federal funds. A  second step was being added.                                                                    
If the  legislature did not  ask for the authority  then the                                                                    
step would not  be needed. He presumed  that the legislature                                                                    
had not indicated that there  was not the authority in place                                                                    
for the  administration to accept federal  money. He thought                                                                    
that it  was moving away  from a court decision  because the                                                                    
legislature  would have  to first  elect not  to accept  any                                                                    
additional federal funding.                                                                                                     
Representative   Guttenberg  wondered   how  to   resolve  a                                                                    
conflict  in   which  the  budget  included   language  that                                                                    
specified  that   the  state  not  accept   certain  federal                                                                    
funding,  yet there  was  a federal  mandate  to accept  the                                                                    
Ms. Lucky believed  it would be resolved similar  to the way                                                                    
in which  the state resolved anything  regarding the balance                                                                    
of powers. She suggested that  the bill only stated that the                                                                    
RPL process  could not  be used  to accept  federal funding.                                                                    
She  thought that  if the  legislature chose  not to  accept                                                                    
funds  in the  budget  process  or in  any  process and  the                                                                    
federal  government required  the state  to accept  it, then                                                                    
the issue  would likely  have to be  litigated. In  the bill                                                                    
being discussed,  it stated that  the RPL process  would not                                                                    
be an appropriate avenue for a particular issue.                                                                                
10:10:36 AM                                                                                                                   
Co-Chair Thompson indicated someone from legal was online.                                                                      
MEGAN  WALLACE, ATTORNEY,  LEGISLATIVE  LEGAL SERVICES  (via                                                                    
teleconference), relayed that she was available.                                                                                
Representative Guttenberg referred to Page  1, Line 4 of the                                                                    
committee  substitute.  He   highlighted  the  portion  that                                                                    
stated,  "Unless   expressly  prohibited  language   of  the                                                                    
appropriation."  He  wondered how  the  issue  of passing  a                                                                    
budget that  identified funds the  state was not  allowed to                                                                    
accept from the federal government but mandated to do so.                                                                       
Ms. Wallace responded that it  would be a difficult question                                                                    
to answer in a hypothetical  context. It would depend on the                                                                    
program  and the  Alaska statutes  surrounding the  program.                                                                    
Hypothetically, the  language would  prevent an  increase to                                                                    
an existing appropriation. If there  was a program funded in                                                                    
the budget  and additional  federal dollars  for it  came in                                                                    
but   the  legislature   had  chosen   to  insert   language                                                                    
prohibiting  the acceptance  of additional  funds, a  person                                                                    
would likely  have to turn  to the statutes. There  would be                                                                    
the question  of whether the additional  federal funding was                                                                    
needed to  fully fund  the program. If  so, the  question of                                                                    
what would happen if the  program was not fully funded would                                                                    
need to be addressed.                                                                                                           
Representative Gara MAINTAINED his OBJECTION.                                                                                   
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Gattis, Munoz, Pruitt, Saddler, Wilson, Thompson                                                                      
OPPOSED: Gara, Guttenberg, Kawasaki                                                                                             
The MOTION PASSED (6/3).                                                                                                        
Co-Chair Neuman  and Representative Edgmon were  absent from                                                                    
the vote.                                                                                                                       
CSHB  77 (FIN)  was REPORTED  out  of committee  with a  "do                                                                    
pass" recommendation  and with a  new zero fiscal  note from                                                                    
the Alaska Legislature.                                                                                                         
10:13:45 AM                                                                                                                   
AT EASE                                                                                                                         
10:15:28 AM                                                                                                                   
HOUSE BILL NO. 77                                                                                                             
     "An  Act relating  to  training regarding  disabilities                                                                    
     for   police  officers,   probation  officers,   parole                                                                    
     officers,  correctional  officers, and  village  public                                                                    
     safety  officers; relating  to  guidelines for  drivers                                                                    
     when encountering or being stopped  by a peace officer;                                                                    
     relating   to   driver's  license   examinations;   and                                                                    
     relating  to a  voluntary disability  designation on  a                                                                    
    state identification card and a driver's license."                                                                          
Ms. Pierson read a portion of the Sponsor Statement:                                                                            
     The goal  of HB77 is to  improve communications between                                                                    
     law  enforcement  and   corrections  professionals  who                                                                    
     interact    with   people    who   have    non-apparent                                                                    
     disabilities,   whether   these  disabled   individuals                                                                    
     encounter  the  "systems"  as  victims,  witnesses,  or                                                                    
     alleged perpetrators.                                                                                                      
Ms.  Pierson  reported that  the  bill  had three  parts;  a                                                                    
training   component,  a   voluntary  option   to  have   an                                                                    
identifying mark  on a driver's license  denoting the driver                                                                    
had  a disability,  and  an added  section  in the  driver's                                                                    
manual  in  which  questions could  appear  on  the  written                                                                    
driver's test.                                                                                                                  
Co-Chair Thompson OPENED public testimony                                                                                       
10:17:13 AM                                                                                                                   
RICK  WEBB,  WALLBUSTERS,  FAIRBANKS  (via  teleconference),                                                                    
supported  the   bill.  He   believed  education   was  very                                                                    
important.  The  bill  would  help  to  change  preconceived                                                                    
ideas. He  noted that the bill  would not equate to  a "Get-                                                                    
out-of-jail-free" card.  He provided a personal  story about                                                                    
his friend in  a wheelchair who had been  arrested for drunk                                                                    
driving. He emphasized that the  legislation was about equal                                                                    
treatment not  special treatment.  He thanked  the committee                                                                    
for its time.                                                                                                                   
10:20:05 AM                                                                                                                   
JUANITA WEBB,  WALLBUSTERS, FAIRBANKS  (via teleconference),                                                                    
supported the  legislation and understood the  importance of                                                                    
the  bill. She  opined  that the  bill  was about  educating                                                                    
people.  She  thanked  the bill  sponsor  for  bringing  the                                                                    
legislation forward and urged  committee members to pass the                                                                    
bill along.                                                                                                                     
Co-Chair Thompson CLOSED public testimony.                                                                                      
10:21:44 AM                                                                                                                   
Representative  Wilson  supported  the bill.  She  expressed                                                                    
concerns  about  having  identification without  having  any                                                                    
backup  about the  type of  disability. She  wondered if  it                                                                    
would  be an  issue to  only see  that a  disability existed                                                                    
rather than specifying the disability type.                                                                                     
Co-Chair Thompson  commented that the intention  of the bill                                                                    
was not to highlight a  person's disabilities but to begin a                                                                    
conversation  between  an officer  and  the  person who  was                                                                    
10:22:30 AM                                                                                                                   
CHAD   GOEDEN,    ALASKA   STATE   TROOPERS,    SITKA   (via                                                                    
teleconference), understood  concerns around the  balance of                                                                    
privacy  and an  officer having  enough information  to make                                                                    
the  best decisions.  Since  it was  a  voluntary option  he                                                                    
suggested the  inclusion of a provision  that enabled people                                                                    
to  determine  how  much information  they  wanted  to  make                                                                    
available.  Information  could  be  added  to  the  dispatch                                                                    
system  rather than  on a  license so  that the  information                                                                    
could be provided to an officer upon calling into dispatch                                                                      
Representative  Wilson stated  that it  had been  brought to                                                                    
her attention  that even with  a designation there  had been                                                                    
issues with people getting nervous  and having difficulty in                                                                    
providing information.  She was  wondering if  the objective                                                                    
of the  legislation could  be accomplished  through changing                                                                    
regulation since it was voluntary.  She added that even with                                                                    
a simple  designation more information  could smooth  over a                                                                    
Representative  Gara thought  it would  be best  to make  it                                                                    
clear that  the person  had some  sort of  disability rather                                                                    
than specifically designating a  disability. It was an alert                                                                    
to  officers  that  there  was   an  issue  and  to  further                                                                    
investigate.  He  liked  the  way  the  bill  was  currently                                                                    
written and thought it struck a better balance.                                                                                 
10:25:39 AM                                                                                                                   
Vice-Chair Saddler was co-sponsoring  the bill. He expressed                                                                    
concerns  about  placing  too  much  responsibility  on  the                                                                    
police  to  have a  positive  outcome  between the  disabled                                                                    
person and  law enforcement.  He encouraged  disabled people                                                                    
to help  police knew of  the person's situation.  He thought                                                                    
meeting with  police officers and school  resource officers.                                                                    
He also  suggested the use  of identification  bracelets. He                                                                    
recommended that  parents review appropriate  responses when                                                                    
interacting with  police officers  such as  complying, being                                                                    
respectful,  and  answering  questions.  He  opined  that  a                                                                    
person could not legislate common sense.                                                                                        
Vice-Chair Saddler  continued that the responsibility  for a                                                                    
positive outcome  between anyone  and police officers  was a                                                                    
shared  responsibility.  He  believed that  the  legislation                                                                    
offered  police officers  additional information  and was  a                                                                    
good step that he would support.                                                                                                
Representative  Gattis  asked  Officer Goeden  to  walk  her                                                                    
through what would be included  in training if the bill were                                                                    
to  pass. Office  Goeden asked  whether she  meant what  the                                                                    
troopers would do  for training or what an  officer would do                                                                    
if  they came  in contact  with a  person with  the proposed                                                                    
mark on their license.                                                                                                          
Representative  Gattis  supposed  she meant  both  but  most                                                                    
importantly wondered  what a  law enforcement  officer would                                                                    
do  when stopping  someone with  a  disability. She  thought                                                                    
that an  officer would  have to  be trained.  Officer Goeden                                                                    
suggested  that  when  troopers made  a  traffic  stop  they                                                                    
positioned  their car  so  that  there was  a  safe lane  of                                                                    
travel  to  get  up  to the  vehicle.  The  law  enforcement                                                                    
vehicle would have overhead flashing  lights front and rear.                                                                    
Officers   would  try   to  be   aware  of   several  things                                                                    
simultaneously such  as oncoming  traffic, movements  in the                                                                    
car,  number of  people in  the car  being pulled  over, and                                                                    
what the passengers were doing.  The troopers would identify                                                                    
themselves, ask  the driver for identification  and proof of                                                                    
insurance,  ask  for any  legal  reason  for why  they  were                                                                    
stopped, and give  them a decision as to  whether a citation                                                                    
would be issued.                                                                                                                
10:28:42 AM                                                                                                                   
Representative  Gattis  asked  what  the  officer  would  do                                                                    
differently  than  the  standard protocol  when  stopping  a                                                                    
person  with  a  designation   on  their  driver's  license.                                                                    
Officer  Goeden replied  that it  would depend  on how  much                                                                    
detail  was provided  with the  designation.  It would  also                                                                    
depend on the  driver's behavior. For instance,  if a person                                                                    
was  acting unusual  or extremely  nervous an  officer might                                                                    
ask whether there  was anything they should be  aware of. It                                                                    
all hinged  on getting  to the point  where the  law officer                                                                    
was looking at a person's  driver's license to see a special                                                                    
Representative  Gattis  relayed   that  Officer  Goeden  had                                                                    
answered her question.                                                                                                          
10:30:38 AM                                                                                                                   
Representative Guttenberg liked the  bill because he thought                                                                    
it  addressed problems  from both  the side  of the  trained                                                                    
officer and the motorist. He  was very concerned with public                                                                    
safety  officers having  an adequate  level of  training. He                                                                    
asked if  there was specific  training to handle  stops made                                                                    
with vehicles having handicap license plates.                                                                                   
Officer Goeden  responded that  the academy's  recruits went                                                                    
through  an   8  hour  crisis  intervention   training.  The                                                                    
training covered  hidden and visible  disabilities including                                                                    
how to  recognize them  and how  to deal  with them.  He had                                                                    
never  specifically  spoken  with the  instructor  about  an                                                                    
approach  change  if  an  officer  saw  a  handicap  license                                                                    
placard. He  hoped that a  visual indicator would  provide a                                                                    
clue that the person might have a disability.                                                                                   
Co-Chair   Thompson  thanked   Officer   Goeden  for   being                                                                    
available for questions.                                                                                                        
Vice-Chair  Saddler  reviewed  the  zero  fiscal  note  from                                                                    
Department of Administration.                                                                                                   
Vice-Chair  Saddler MOVED  to report  CSHB 77  (FIN) out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note(s). There being NO OBJECTION, it                                                                       
was so ordered.                                                                                                                 
CSHB 77 (FIN) was REPORTED out of committee with a "do                                                                          
pass" recommendation and with a new zero fiscal note from                                                                       
the Department of Administration.                                                                                               
10:33:46 AM                                                                                                                   
AT EASE                                                                                                                         
10:35:54 AM                                                                                                                   
10:35:54 AM                                                                                                                   
HOUSE BILL NO. 247                                                                                                            
     "An  Act relating  to  confidential information  status                                                                    
     and  public   record  status  of  information   in  the                                                                    
     possession of  the Department  of Revenue;  relating to                                                                    
     interest  applicable  to  delinquent tax;  relating  to                                                                    
     disclosure  of  oil  and   gas  production  tax  credit                                                                    
     information; relating  to refunds  for the  gas storage                                                                    
     facility tax credit, the  liquefied natural gas storage                                                                    
     facility  tax credit,  and the  qualified in-state  oil                                                                    
     refinery   infrastructure   expenditures  tax   credit;                                                                    
     relating to  the minimum  tax for  certain oil  and gas                                                                    
     production;  relating to  the  minimum tax  calculation                                                                    
     for  monthly  installment  payments of  estimated  tax;                                                                    
     relating  to interest  on monthly  installment payments                                                                    
     of  estimated  tax;  relating to  limitations  for  the                                                                    
     application  of tax  credits; relating  to oil  and gas                                                                    
     production   tax  credits   for   certain  losses   and                                                                    
     expenditures;     relating    to     limitations    for                                                                    
     nontransferable  oil  and  gas production  tax  credits                                                                    
     based on oil production  and the alternative tax credit                                                                    
     for oil  and gas  exploration; relating to  purchase of                                                                    
     tax  credit  certificates  from the  oil  and  gas  tax                                                                    
     credit fund; relating  to a minimum for  gross value at                                                                    
     the   point   of    production;   relating   to   lease                                                                    
     expenditures  and tax  credits for  municipal entities;                                                                    
     adding    a   definition    for   "qualified    capital                                                                    
     expenditure";  adding  a  definition  for  "outstanding                                                                    
     liability  to   the  state";  repealing  oil   and  gas                                                                    
     exploration    incentive    credits;   repealing    the                                                                    
     limitation on  the application  of credits  against tax                                                                    
     liability  for   lease  expenditures   incurred  before                                                                    
     January 1,  2011; repealing  provisions related  to the                                                                    
     monthly installment payments for  estimated tax for oil                                                                    
     and gas produced before January  1, 2014; repealing the                                                                    
     oil  and  gas  production   tax  credit  for  qualified                                                                    
     capital  expenditures  and certain  well  expenditures;                                                                    
     repealing   the    calculation   for    certain   lease                                                                    
     expenditures applicable before  January 1, 2011; making                                                                    
     conforming amendments;  and providing for  an effective                                                                    
Co-Chair Thompson  indicated that Commissioner  Hoffbeck and                                                                    
Mr. Alper would be providing  a 30 thousand foot overview of                                                                    
oil and gas tax credits.  The committee would not be hearing                                                                    
the bill  sectional in the  current meeting. There  would be                                                                    
an  overview of  issues that  generated the  legislation. He                                                                    
offered that there would be  several meetings on the bill at                                                                    
which time there would several  opportunities to discuss the                                                                    
bill and to ask questions at future meetings.                                                                                   
10:36:38 AM                                                                                                                   
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
provided a  PowerPoint presentation titled "Oil  and Gas Tax                                                                    
Credit Reform: HB 247" dated  March 24, 2016 (copy on file).                                                                    
He began by providing a  couple of brief opening statements.                                                                    
He  opined  that  HB  247   was  a  critical  piece  of  the                                                                    
governor's  overall fiscal  plan  for the  current year  and                                                                    
into the  future. The administration  saw a  sustainable oil                                                                    
and  gas  tax credit  program  as  vital  for the  State  of                                                                    
Alaska. He pointed out that  the key word was "sustainable."                                                                    
The  plan would  have to  be sustainable  going forward.  He                                                                    
reported that  when the bill  was first introduced  in House                                                                    
Resources Committee  it was presented primarily  as a budget                                                                    
issue. The  House Resources Committee  found the bill  to be                                                                    
much more of an oil and gas tax policy issue.                                                                                   
Commissioner Hoffbeck  reported that the hearing  focused on                                                                    
both budget  issues and oil  and gas tax policy  issues. The                                                                    
administration saw  that both needed  to be dealt  with. The                                                                    
state could not  offer any certainty to the  industry on the                                                                    
tax credit program if the credits  were paid at a level that                                                                    
the state could not sustain  or afford. He thought there had                                                                    
to be a balance between  the credits the industry desired or                                                                    
needed  and  what  the  state  was  capable  of  paying.  He                                                                    
mentioned  the overview  of the  preliminary spring  revenue                                                                    
forecast  presented   earlier  in   the  current   week.  He                                                                    
highlighted that  the department  was looking at  oil prices                                                                    
that were essentially range-bound  somewhere between $35 and                                                                    
$60 per  barrel. He  remarked that  if prices  dropped below                                                                    
$35 per  barrel drilling would essentially  cease. Oil would                                                                    
likely come off  the market and oil  prices would eventually                                                                    
rebound. If the  price of oil were to reach  much beyond $60                                                                    
per barrel a significant amount  of oil would hit the market                                                                    
causing  a   brief  spike.   Eventually  the   supply  would                                                                    
overwhelm  demand  causing  the  price  to  drop  again.  He                                                                    
suggested that  it was pretty  consistent with  the thinking                                                                    
across  the board  as  far as  what people  saw  in the  oil                                                                    
industry. In terms of talking  about a rebound and hoping to                                                                    
get $100 per  barrel it did not appear to  be in the future.                                                                    
He added that the state's  credit program was being paid out                                                                    
at a level more consistent with  $100 per barrel to $110 per                                                                    
barrel oil. The  governor felt that it was  a critical thing                                                                    
to  deal  with if  the  state  were  to  have some  kind  of                                                                    
certainty within  the oil and  gas tax credit  program. What                                                                    
he put forward in the bill  was to reduce the state's annual                                                                    
outlay. He wanted  to protect the net  operating loss credit                                                                    
program  within  the  bill  which  he  added  was  the  most                                                                    
critical  piece  of  the  credit program.  It  was  a  field                                                                    
leveler between  the legacy producers and  the newcomers. He                                                                    
furthered that the  state needed to have a way  to limit the                                                                    
amount of repurchases in any  given year in order to control                                                                    
the state's outlay.                                                                                                             
10:40:30 AM                                                                                                                   
Commissioner  Hoffbeck explained  that the  state needed  to                                                                    
strengthen  the minimum  tax because  in  the current  price                                                                    
environment  Alaska was  essentially a  4 percent  gross tax                                                                    
state. The  price of oil needed  to be above $80  per barrel                                                                    
before  that would  change. The  administration did  not see                                                                    
the price  increasing above $80  per barrel any time  in the                                                                    
future.  The  minimum  tax  really   became  "the"  tax.  He                                                                    
mentioned that  the administration sought  more transparency                                                                    
in   the  credit   program   to   facilitate  more   dynamic                                                                    
discussions. The credits were a  large outlay and he thought                                                                    
it  was important  for the  people of  Alaska to  know where                                                                    
their  money was  being spent  and what  returns were  being                                                                    
received.   Lastly,  due   to  the   repercussions  of   the                                                                    
governor's  veto  from  the previous  year,  the  department                                                                    
thought it  was very  important the state  had some  kind of                                                                    
visible  commitment  to  paying the  existing  credits.  The                                                                    
state  wanted  to avoid  any  uncertainty  in the  financial                                                                    
markets  that the  credits  that had  been  earned would  be                                                                    
paid. He  concluded that he  had highlighted  the underlying                                                                    
components of  the decision making  process in  crafting the                                                                    
legislation    currently   before    the   committee.    The                                                                    
administration  hoped  the  final  version  reflected  these                                                                    
components once it went through the legislative process.                                                                        
KEN ALPER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE,                                                                    
introduced  the PowerPoint  presentation: "Oil  and Gas  Tax                                                                    
Credit Reform: CS  HB247 (RES)." He indicated  he would only                                                                    
be focusing  on the  highlights of the  bill in  the current                                                                    
meeting. He  hoped there  would be  additional opportunities                                                                    
to  delve into  the  deep  details of  the  bill in  another                                                                    
10:42:36 AM                                                                                                                   
Mr.  Apler advanced  to slide  2:  "History of  Oil and  Gas                                                                    
Production Tax Credits":                                                                                                        
     FY 2007 thru 2015, $7.4 Billion in Credits                                                                                 
     North Slope                                                                                                                
       · $4.3 billion credits against tax liability                                                                             
             · Major producers; mostly 20% capital credit                                                                       
               in ACES and per-taxable-barrel credit in                                                                         
        · $2.1 billion refunded credits                                                                                         
             · New producers and explorers developing new                                                                       
     Non-North Slope (Cook Inlet & Middle Earth)                                                                                
       · $100 million credits against tax liability                                                                             
             · Another $500 to $800 million Cook Inlet tax                                                                      
               reductions (through 2013) due to the tax cap                                                                     
               still tied to ELF                                                                                                
        · $900 million refunded credits (most since 2013)                                                                       
Mr. Alper explained that Alaska  had been in the business of                                                                    
paying  tax  credits by  statute  since  2007. In  the  time                                                                    
period  between FY  07 and  the end  of the  previous fiscal                                                                    
year  [2015] about  $7.4 billion  worth of  oil and  gas tax                                                                    
credits had  been paid or  paid through reduced  taxation by                                                                    
the State  of Alaska. The  largest share was from  the North                                                                    
Slope where the  bulk of the production and  value was, with                                                                    
the  majority   used  against  tax  liability,   about  $4.3                                                                    
billion. He explained that the  major producers were able to                                                                    
subtract certain  credits against their tax  payments before                                                                    
writing any  checks to the  state. Previously under  the era                                                                    
of  Alaska's  Clear  and  Equitable   Share  (ACES)  it  was                                                                    
primarily the  20 percent capital expenditure  credit. Since                                                                    
the  transition  to   SB  21  [Short  Title:   OIL  AND  GAS                                                                    
PRODUCTION TAX  - legislation  passed in  2013] it  had been                                                                    
the  per  taxable  barrel credit,  a  sliding  scale  credit                                                                    
between zero and $8 dollars.                                                                                                    
Mr. Alper also pointed out a  very large number on the North                                                                    
slope  of $2.1  billion that  had been  refunded (the  state                                                                    
wrote checks  and the  legislature appropriated  money every                                                                    
year  to  repurchase  tax credits  primarily  going  to  new                                                                    
players in the  field - the new producers  and the explorers                                                                    
that were looking for and developing new oil).                                                                                  
Mr.  Alper  continued  to the  non-North  Slope  area  which                                                                    
included  Cook Inlet  and  Middle  Earth (Interior  Alaska).                                                                    
There  was  no current  production  in  Interior Alaska  but                                                                    
there was  some exploration. However, the  number of players                                                                    
and the  numbers of  credits were too  small to  be released                                                                    
without  violating confidentiality  law which  accounted for                                                                    
lumping  all of  the non-North  Slope together.  He reported                                                                    
that only $100  million had been used  against tax liability                                                                    
because of less  work and because there  were statutory caps                                                                    
(maximum taxes  in the Cook  Inlet that were put  into place                                                                    
in  2006  as  part  of  the  PPT  bill).  There  was  not  a                                                                    
significant  amount of  tax liability  in  the first  place,                                                                    
therefore there was  not to offset. He  furthered that about                                                                    
$900 million through  the previous year had  been refunded -                                                                    
repurchased in tax credits in the previous several years.                                                                       
10:45:00 AM                                                                                                                   
Mr. Alper pointed  to the graph on slide 3:  "History of Oil                                                                    
and  Gas Production  Tax Credits:  Refunded  Tax Credits  by                                                                    
Region." He explained  that the most obvious  feature in the                                                                    
graph was the growing red  wedge representing the Cook Inlet                                                                    
and other  non-North Slope areas.  It used to  be relatively                                                                    
small but  had started  growing in  2012 or  2013. It  was a                                                                    
response to  the additional  work that  had been  done since                                                                    
the  passage of  the  Cook Inlet  Recovery  Act and  related                                                                    
legislation in 2010. He reported  a large ramping up of work                                                                    
some  of which  resulted  in resolving  some  of the  supply                                                                    
uncertainty  that  South  central was  experiencing  at  the                                                                    
time. It  had grown to where,  of the money the  state spent                                                                    
in the previous year, over  60 percent was outside the North                                                                    
Slope  in terms  of refundable  tax credits.  The state  was                                                                    
seeing similar numbers were seen for FY 16.                                                                                     
Mr. Alper  turned to slide  4: "Forecast of O&G  Revenue and                                                                    
Tax Credits." He explained that  the first of the three bars                                                                    
was  all  unrestricted oil  and  gas  revenue prior  to  any                                                                    
credits.  The   number  was  theoretical.  The   middle  bar                                                                    
represented in dark  green was the actual  money received by                                                                    
the  state, the  difference between  the two  was the  money                                                                    
taken  as  credits  against  tax   liability.  The  red  bar                                                                    
reflected  the  revenue   after  subtracting  the  repayment                                                                    
checks for tax  credits. Suddenly in FY 15  the oil revenue,                                                                    
which  had  decreased  from   $2.3  billion  before  credits                                                                    
against  liability  to $1.7  billion,  was  only about  $1.0                                                                    
billion. He was only talking  about unrestricted oil and gas                                                                    
revenues  which included  royalties,  corporate income  tax,                                                                    
property tax, and  the production tax. He  thought the graph                                                                    
made it look like FY 15 was  a good year and did not reflect                                                                    
back  far enough.  If a  person were  to look  at FY  12 the                                                                    
state  had about  $8  billion  to $9  billion  worth of  oil                                                                    
revenue. The  reduction was a  major shift  of consciousness                                                                    
for  the  state  forming  a budget,  while  switching  to  a                                                                    
climate of  structural deficits.  Going down  from FY  15 to                                                                    
the present things  were getting even worse,  likely tied to                                                                    
the further reduction in the price  of oil and the growth in                                                                    
the  tax credit  program. The  forecasted tax  credit number                                                                    
for FY 17  was about $825 million. He reported  that for the                                                                    
first time  the amount was a  larger number than all  of the                                                                    
state's  unrestricted oil  and gas  tax revenues.  The state                                                                    
would be functionally  negative on oil and gas in  FY 17 for                                                                    
the first time ever.                                                                                                            
10:48:10 AM                                                                                                                   
Mr.  Alper  advanced  to  slide 5:  "Work  Done  Since  Last                                                                    
        · Governor's line-item veto capped FY16 spending at                                                                     
          $500 million                                                                                                          
             · Temporary liquidity crisis; many meetings                                                                        
               with industry and others to help reassure                                                                        
        · Multiple presentations with history, current                                                                          
          practice, and possible changes                                                                                        
            · Joint Resources in Kenai, June 17                                                                                 
             · Three "regional" presentations to Senate                                                                         
               Working Group September through November                                                                         
             · All presentations on BASIS; we're prepared                                                                       
               to go through similar information for the                                                                        
        · Development of reform legislation including plan                                                                      
          for transition from current system                                                                                    
Mr. Alper explained that the  results of the governor's line                                                                    
item veto limiting spending to  $500 million helped to cover                                                                    
everything that was  in the cue at the  time. The governor's                                                                    
primary mission  was to start  a conversation. He  was aware                                                                    
that  it was  a big  issue  that needed  addressing. He  did                                                                    
something dramatic in  order to put a process  in place that                                                                    
lead to  legislation in  the 2016  session. He  relayed that                                                                    
the administration was  taken by surprise by  the degree the                                                                    
industry  reacted, stopping  lending  because of  a fear  of                                                                    
even  greater cutbacks  and spending  in  future years.  The                                                                    
commissioner  of  DOR  and  other   senior  members  of  the                                                                    
administration had  met with industry assuring  repayment of                                                                    
the  state's   obligations.  He  stated  that   there  could                                                                    
possibly  be slight  delays  during  the transition  period.                                                                    
However, the state  was working towards a  system that would                                                                    
keep everyone  whole. Any changes  to the statutes  would be                                                                    
forward looking  rather than  retroactive. He  mentioned the                                                                    
liquidity  crisis  being  resolved. Loans  were  being  made                                                                    
again  and   everyone  was   going  about   their  business.                                                                    
Meanwhile, through  the previous interim there  were several                                                                    
meetings  and  presentations.  The  first one  was  a  Joint                                                                    
Resources Meeting in  Kenai in June where  the Department of                                                                    
Revenue  made  a  major presentation.  Senator  Giessel  put                                                                    
together  a  working  group  of   Senators  and  members  of                                                                    
industry.  The  group  had  a  series  of  hearings  in  the                                                                    
previous fall  providing very detailed presentations  on the                                                                    
credit structure on the North  Slope, Cook Inlet, and in the                                                                    
middle earth area.  Each of the presentations  were on BASIS                                                                    
through the  Senate tax credit working  group. He encouraged                                                                    
members of  the committee  to review  them. He  relayed that                                                                    
they could  be brought  before the  committee as  well. They                                                                    
provided a  significant amount of detail.  He furthered that                                                                    
out of the hearings  and discussions with the administration                                                                    
a reform  package in the  form of legislation  that included                                                                    
the plan  for transition from  the current system  to ensure                                                                    
enough money  would be  available to  keep the  system whole                                                                    
through that  time. The legislation  had been  introduced at                                                                    
the  beginning  of session  as  HB  247 (Short  Title:  TAX;                                                                    
CREDITS; INTEREST; REFUNDS; O & G).                                                                                             
10:50:37 AM                                                                                                                   
Mr. Alper moved on to slide 6: "Major Bill Themes":                                                                             
        1. Reduce the state's annual cash outlay                                                                                
        2. Protect Net Operating Loss credits as a playing                                                                      
          field leveler between legacy producers and                                                                            
        3. Limit repurchases                                                                                                    
        4. Strengthen the minimum tax                                                                                           
        5. Be more open and transparent                                                                                         
        6. Honor and pay credits earned to date and through                                                                     
          any transition period                                                                                                 
Mr.   Alper  indicated   that   the   slide  reflected   the                                                                    
commissioner's  introduction which  outlined the  themes the                                                                    
governor  hoped to  accomplish through  a tax  credit reform                                                                    
package. He read the list.                                                                                                      
10:51:06 AM                                                                                                                   
Mr.  Alper  turned  to  slide 7:  "Major  Bill  Concepts  in                                                                    
Governor's Proposal":                                                                                                           
       1. Exploration Credits- sunset and transition                                                                            
        2. Cook Inlet Drilling Credits- phase out while                                                                         
          retaining operating loss credits                                                                                      
        3. Repurchase Limits- limit cash outlay                                                                                 
        4. Remove Exceptions / Loopholes                                                                                        
        5. Strengthen Minimum Tax- prevent certain credits                                                                      
          from going below the floor, plus increase to 5%                                                                       
        6. Other Provisions- technical cleanup,                                                                                 
          transparency, interest rate reform                                                                                    
Mr. Alper explained that the  slide went into greater detail                                                                    
of the  concepts that  were in  HB 247.  He would  not drill                                                                    
down into  the details in  the current hearing.  There would                                                                    
be time to  discuss them in other hearings.  He reviewed the                                                                    
list.  He explained  that many  of  the exploration  credits                                                                    
were nearing  sunset. The intent  would be to allow  them to                                                                    
sunset   and  transition   away  from   direct  support   of                                                                    
exploration.  The  Cook  Inlet drilling  credits  were  very                                                                    
large  and were  created to  resolve the  Cook Inlet  supply                                                                    
crisis.  The  proposal  included  phasing  those  out  while                                                                    
retaining  the operating  loss  credits.  The proposal  also                                                                    
included  placing   some  sort  of  caps   on  the  physical                                                                    
repurchases,  specifically  dollar  values per  company.  He                                                                    
furthered  that  there  were  a  number  of  exceptions  and                                                                    
loopholes in  the statutes  that became  apparent in  a low-                                                                    
price environment that needed to be cleaned up.                                                                                 
Mr.   Alper    continued   that   the    proposal   included                                                                    
strengthening the  minimum tax.  However, it  was discovered                                                                    
that, although the 4 percent  floor governed tax payments by                                                                    
the major  producers, as the  state got  into a period  of a                                                                    
sustained low  prices there  were other  circumstances where                                                                    
tax payments could  go below the 4 percent  number. The most                                                                    
prominent one  began in  January 2016:  If a  major producer                                                                    
had an  operating loss they  could use their  operating loss                                                                    
credits to  reduce their  payments below  the floor  all the                                                                    
way to zero.  The legislation was looking  to strengthen the                                                                    
minimum  tax and  to bump  up the  minimum tax  rate from  4                                                                    
percent to  5 percent. He  relayed that there were  a number                                                                    
of other  provisions in the legislation  including technical                                                                    
cleanup of  existing law, the  concept of  transparency, and                                                                    
reform to the interest  rate structure for delinquent taxes.                                                                    
He concluded that he had presented the guts of the bill.                                                                        
Mr.  Alper   scrolled  to  slide   8:  "Content   of  Future                                                                    
        · We provided five different presentations to the                                                                       
          prior committee; all are on BASIS                                                                                     
        · History and development of our credit system                                                                          
       · History and application of the minimum tax                                                                             
        · Various credits and how they have been used,                                                                          
          which ones haven't been, and what is sun setting                                                                      
        · Detailed forecasts and scenario analysis                                                                              
       · Details and modeling of specific provisions                                                                            
        · Explanation of changes made in prior committee                                                                        
        · Life cycle modeling of typical new projects, with                                                                     
          impact of legislation                                                                                                 
Mr. Alper  mentioned that the House  Resources Committee had                                                                    
met 24 times on the subject of HB  247 over a period of 6 to                                                                    
7 weeks.  The Department  of Revenue provided  the committee                                                                    
with  five   different  presentations  all  of   which  were                                                                    
available   on  BASIS.   He  wanted   to  be   working  with                                                                    
legislators   and  staff   to   determine  the   appropriate                                                                    
information  and the  order in  which it  should be  brought                                                                    
before  the  House Finance  Committee.  Some  of the  larger                                                                    
concepts in the previous  presentations included the history                                                                    
and development of Alaska's credit  system going back to the                                                                    
early 2000's,  how the  minimum tax  evolved over  the years                                                                    
going back  to the 1970's  during the Economic  Limit Factor                                                                    
(ELF) era, how  the various credits worked,  how the credits                                                                    
had  been used,  which  credits were  never  used, and  what                                                                    
credits  would sunset.  Additional content  included looking                                                                    
at  scenario  analysis  and what  might  happen  if  certain                                                                    
changes  were  made.  He  elaborated that  DOR  had  done  a                                                                    
significant  amount   of  modeling  of  specific   and  more                                                                    
mathematically complicated  provisions of the bill.  He also                                                                    
informed committee  members that  he would be  reviewing the                                                                    
changes  made by  the House  Resource  Committee which  were                                                                    
reflected in the  committee substitute and how  the bill had                                                                    
Mr.  Alper  reported that  DOR  had  developed a  new  model                                                                    
called  a  "Life  Cycle" model  that  looked  at  individual                                                                    
fields. He cited the example of  a new player coming to town                                                                    
wanting  to  develop  a  50 million  barrel  field  with  an                                                                    
assumption  for capital  spending, a  certain timing,  and a                                                                    
certain  set of  credits. He  wondered if  the state's  cash                                                                    
flow could  be determined.  He was  interested to  know what                                                                    
the  state's cash  flow would  look like  and what  the cash                                                                    
flow of  the producers  would look like.  He also  wanted to                                                                    
know how the  changes in the current  legislation affect the                                                                    
profitability and the state's  cash flow. The department was                                                                    
capable of  generating new scenarios  at the request  of the                                                                    
Mr.  Alper  concluded  his  presentation  and  made  himself                                                                    
available for questions.                                                                                                        
HB  247  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair  Thompson   indicated  the  committee   would  have                                                                    
several  additional  meetings  in  order  to  dig  into  the                                                                    
details  of  the  bill.  He  reviewed  the  agenda  for  the                                                                    
10:56:08 AM                                                                                                                   
The meeting was adjourned at 10:56 a.m.