Legislature(2015 - 2016)

04/08/2016 03:07 PM FIN


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03:07:47 PM Start
03:08:19 PM HB247
03:09:49 PM Amendments
09:45:56 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 8, 2016                                                                                            
                         3:07 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
3:07:47 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Thompson called the House Finance Committee                                                                            
meeting to order at 3:07 p.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                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Ken Alper, Director, Tax Division, Department of Revenue;                                                                       
Representative Andy Josephson; Representative Liz Vasquez;                                                                      
Representative Dan Ortiz.                                                                                                       
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 247    TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                                    
                                                                                                                                
          CSHB 247(FIN)  was REPORTED out of  committee with                                                                    
          individual recommendations  and with one  new zero                                                                    
          impact fiscal note from  the Department of Natural                                                                    
          Resources and one new fiscal  impact note from the                                                                    
          Department of Revenue.                                                                                                
                                                                                                                                
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                                                                    
     date."                                                                                                                     
                                                                                                                                
3:08:19 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson discussed  the meeting  agenda. He  noted                                                                    
that  the House  Finance Committee  had been  tasked with  a                                                                    
very  serious  decision.  He  spoke  to  the  importance  of                                                                    
deciding  on a  balance  that kept  encouraging industry  in                                                                    
Alaska,  while protecting  the state.  He  relayed that  the                                                                    
committee would take up amendments.                                                                                             
                                                                                                                                
^AMENDMENTS                                                                                                                   
                                                                                                                                
3:09:49 PM                                                                                                                    
                                                                                                                                
Co-Chair   Thompson  MOVED   to  ADOPT   Amendment  1,   29-                                                                    
GH2609\F.41 (Nauman/Shutts,  4/7/16) (copy on  file). [Note:                                                                    
due to the length of the  amendment it has not been included                                                                    
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Co-Chair  Thompson explained  that the  amendment maintained                                                                    
the status  of the tax  cap on Cook  Inlet oil. He  had been                                                                    
concerned about the  effect of a 35 percent  tax rate, which                                                                    
he believed  needed further evaluation.  He stated  that the                                                                    
working  group  should  be  looking at  the  issue.  He  had                                                                    
concerns about  quelling the development in  Cook Inlet, but                                                                    
the working  group would be  tasked with coming back  to the                                                                    
legislature with its recommendations.                                                                                           
                                                                                                                                
Representative Gara  spoke in  opposition to  the amendment.                                                                    
He detailed that the state  was currently facing its largest                                                                    
budget deficit ever. He objected  to waiting another year to                                                                    
take action.  He specified  that oil in  Cook Inlet  paid no                                                                    
production taxes.  He continued that  when the law  had been                                                                    
established  the intention  had  been to  provide relief  to                                                                    
locally used natural gas for  Alaska consumers; it had never                                                                    
been intended  to provide zero  production taxes on  oil. He                                                                    
had  agreed  with  a   previous  Committee  Substitute  (CS)                                                                    
because it had  imposed a profits tax on oil  in Cook Inlet.                                                                    
He noted that if a company  was not making profits, it would                                                                    
not  be  taxed.  Additionally, companies  were  receiving  a                                                                    
multitude of tax credits in  Cook Inlet. He believed the net                                                                    
operating loss (NOL)  credit the tax credits  were over $175                                                                    
million for  alone. He stated  that when the  companies were                                                                    
losing  money, the  state gave  them money;  therefore, when                                                                    
the companies  were making money,  the state  should receive                                                                    
production tax. He surmised that  the topic under discussion                                                                    
equated  to  about  $10  million in  taxes;  there  was  not                                                                    
significant oil  production in Cook  Inlet, but the  law had                                                                    
never intended for the state  to give credits and receive no                                                                    
production  taxes. He  discussed  that  the governor's  bill                                                                    
probably  saved about  $750 million  in the  first year  and                                                                    
$450  million  in  the  second   year  in  terms  of  credit                                                                    
reductions  and tax  changes. With  the amendment,  the bill                                                                    
only reduced the  state's deficit by about  $170 million. He                                                                    
did  not believe  the tax  the amendment  would remove  hurt                                                                    
business.  He  stressed  that  companies  were  receiving  a                                                                    
substantial amount  of money from  the state; he  noted that                                                                    
the committee  had been  told the  money given  to companies                                                                    
was higher than  in any other state. He  reiterated that the                                                                    
tax  would only  apply  when companies  were profitable.  He                                                                    
added that  companies could always apply  for royalty relief                                                                    
if a tax was too high for a new development.                                                                                    
                                                                                                                                
3:13:34 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki testified  against the amendment. He                                                                    
specified  that  some  of the  committee  members  had  been                                                                    
around  in  2011  and  other  years  for  discussions  about                                                                    
natural gas in Cook Inlet,  particularly when the Cook Inlet                                                                    
Recovery Act and the Cook  Inlet Natural Gas Storage Act had                                                                    
passed. He  recalled that  all of  the discussions  had been                                                                    
about natural gas  and whether there was natural  gas in the                                                                    
Cook  Inlet. He  did not  believe the  legislature had  ever                                                                    
intended something similar  for Cook Inlet oil.  He spoke to                                                                    
expensive  fuel and  utility costs  in Fairbanks.  He stated                                                                    
that Cook Inlet currently had  a plentiful supply of natural                                                                    
gas,   while  Fairbanks   did   not.   He  reiterated   that                                                                    
discussions surrounding  Cook Inlet taxes had  been based on                                                                    
natural  gas. He  believed the  amendment would  mean a  $10                                                                    
million per year giveaway on  oil produced in Cook Inlet. He                                                                    
did not believe  the legislature ever meant  to provide that                                                                    
type of benefit.                                                                                                                
                                                                                                                                
Vice-Chair  Saddler  stated  that there  was  a  significant                                                                    
public interest in  maintaining a supply of  natural gas for                                                                    
the  state's residents  for homes  and businesses.  He noted                                                                    
that  his district  relied  on natural  gas  to heat  homes.                                                                    
Likewise, individuals  in the Interior  were looking  at the                                                                    
gas  as a  potential  heating source.  He  had attended  the                                                                    
Anchorage mayor's taskforce on  natural gas shortages and he                                                                    
recalled the  dire consequences  of potentially  running out                                                                    
of gas.  He believed the  state's tax policy  and incentives                                                                    
had been helpful.                                                                                                               
                                                                                                                                
Co-Chair   Thompson  noted   that   the  current   amendment                                                                    
pertained to oil in the Cook Inlet.                                                                                             
                                                                                                                                
3:16:07 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  was concerned that  the amendment                                                                    
would  maintain the  status quo.  He believed  the amendment                                                                    
would kick the issue down  the road for another committee to                                                                    
deal with  over the  interim. He  discussed that  an interim                                                                    
committee  had dealt  with all  of  the credits  and he  was                                                                    
concerned  that the  work done  had been  for naught  if the                                                                    
amendment passed.                                                                                                               
                                                                                                                                
3:17:08 PM                                                                                                                    
                                                                                                                                
Representative  Wilson spoke  in support  of the  amendment.                                                                    
She did not have sufficient  information to know whether the                                                                    
tax  was  appropriate. She  reminded  the  committee of  the                                                                    
Flint  Hills   facility  that  had  stopped   refining.  She                                                                    
detailed that the facility had  begun importing and had made                                                                    
more  profit  than it  had  as  a refinery.  She  questioned                                                                    
whether adding taxes tipped the  scale and meant there would                                                                    
no  longer   be  in-state   refineries.  She   stressed  the                                                                    
importance of  in-state refineries. She supported  waiting a                                                                    
year for a  workgroup to do a study and  determine the right                                                                    
amount.  She  wanted  to  establish  a  "sweet  spot"  where                                                                    
revenue continued to come in  for the state and business was                                                                    
not killed off.                                                                                                                 
                                                                                                                                
Representative  Pruitt appreciated  the amendment.  He asked                                                                    
to be  added as  a cosponsor.  He remarked  that the  CS had                                                                    
represented a  substantial policy  change in Cook  Inlet. He                                                                    
continued that  the change  would potentially  occur without                                                                    
modelling  or understanding  the ramifications  of the  full                                                                    
impact. He detailed  that the change would  have meant going                                                                    
from a 65  percent state participation to possibly  20 to 30                                                                    
percent with  a 35 percent  tax. He elaborated that  the tax                                                                    
would have  been similar to the  one on the North  Slope and                                                                    
would  not have  included the  well lease  expenditure (WLE)                                                                    
credit, which was  a key part of the North  Slope credit. He                                                                    
did  not believe  the legislature  should move  forward with                                                                    
quickly adding the  tax. He stressed that the  CS would mean                                                                    
a direct tax to his  community and to anyone utilizing fuels                                                                    
from Tesoro. He  emphasized that all of the  oil produced in                                                                    
the Cook Inlet went to  Tesoro and was refined in-state. The                                                                    
change would have  meant an increase in the  cost of refined                                                                    
products  to consumers  throughout the  Railbelt, Fairbanks,                                                                    
rural  communities, and  across the  state. He  believed the                                                                    
amendment was appropriate, which would  take a step back and                                                                    
allow  time for  evaluation  by a  workgroup  formed in  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
3:20:20 PM                                                                                                                    
                                                                                                                                
Representative Edgmon spoke in  support of the amendment for                                                                    
the time  being. He  hoped the issue  would come  before the                                                                    
legislature again  in the  future after  being studied  by a                                                                    
workgroup.  He  spoke  to cheaper  energy  for  Southcentral                                                                    
(which was not  quite cheaper energy for  rural Alaska) that                                                                    
would result in  cheaper services extending out  to the rest                                                                    
of  the  state (i.e.  fuel  at  the Anchorage  International                                                                    
Airport,  the railway  station, and  other). He  pointed out                                                                    
that  the   Power  Cost  Equalization  Endowment   Fund  was                                                                    
incredibly  important  to him.  He  stressed  that he  would                                                                    
include rural Alaska in the  conversation when the committee                                                                    
started  talking about  cheaper  energy  for the  Anchorage,                                                                    
Southcentral, and the Interior.                                                                                                 
                                                                                                                                
Co-Chair Neuman WITHDREW his OBJECTION.                                                                                         
                                                                                                                                
Representative Gara OBJECTED.                                                                                                   
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt,    Gattis,   Wilson,    Edgmon,   Saddler,                                                                    
Thompson, Neuman                                                                                                                
OPPOSED: Kawasaki, Munoz, Gara, Guttenberg                                                                                      
                                                                                                                                
The MOTION  to adopt Amendment  1 PASSED (7/3).  There being                                                                    
NO further OBJECTION, it was so ordered.                                                                                        
                                                                                                                                
Representative Guttenberg asked about Amendment 3.                                                                              
                                                                                                                                
Co-Chair Thompson  replied that  he had  withdrawn Amendment                                                                    
3.                                                                                                                              
                                                                                                                                
3:22:34 PM                                                                                                                    
                                                                                                                                
Co-Chair   Thompson  MOVED   to  ADOPT   Amendment  2,   29-                                                                    
GH2609\F.25 (Nauman/Shutts, 4/7/16) (copy on file):                                                                             
                                                                                                                                
     Page 17, lines 12 - 14:                                                                                                    
                                                                                                                                
     Delete  ",if  the  producer  or  explorer  had,  before                                                                    
     January 1.  2017, taken a credit  under this subsection                                                                    
     for  an   expenditure  incurred   in  the   Cook  Inlet                                                                    
     sedimentary basin"                                                                                                         
                                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Co-Chair  Thompson  explained  that  Amendment  2  corrected                                                                    
ambiguous  and redundant  language that  attempted to  limit                                                                    
Net  Operating Loss  (NOL)  credits in  the  Cook Inlet  for                                                                    
companies  that had  already received  a  credit. He  stated                                                                    
that  pursuant  to  testimony from  Corrie  Feige  with  the                                                                    
Department  of Natural  Resources [Division  of Oil  and Gas                                                                    
director],  the  language  was not  needed  due  to  limited                                                                    
acreage in the Cook Inlet basin.                                                                                                
                                                                                                                                
Representative Gara asked for further explanation.                                                                              
                                                                                                                                
Co-Chair Thompson answered that  the language did not impact                                                                    
anyone; no  additional acreage would  be eligible  under the                                                                    
provision.  The  amendment   merely  removed  ambiguous  and                                                                    
redundant language.                                                                                                             
                                                                                                                                
Representative   Kawasaki  remarked   that  the   state  was                                                                    
offering a 25  percent credit if expenses  had been incurred                                                                    
at a certain point in time.  The state was giving 10 percent                                                                    
of a  carry-forward annual loss  if the  production happened                                                                    
prior to the  end of 2016 [2017]. He  believed the amendment                                                                    
would  remove language  "before the  end of  this year."  He                                                                    
thought  the   amendment  had  substantive   impact  because                                                                    
without the language, the credit  would go on in perpetuity.                                                                    
He pointed to page 17 of the bill for reference.                                                                                
                                                                                                                                
Co-Chair Thompson read from page  17, lines 11 through 14 of                                                                    
the bill:                                                                                                                       
                                                                                                                                
     ...a producer  or explorer may  elect to take  a credit                                                                    
     in  the  amount  of  10 percent  of  a  carried-forward                                                                    
     annual loss,  if the producer  or explorer  had, before                                                                    
     January 1,  2017, taken a credit  under this subsection                                                                    
     for  an   expenditure  incurred   in  the   Cook  Inlet                                                                    
     sedimentary basin.                                                                                                         
                                                                                                                                
Co-Chair Neuman remarked that he believed it was correct.                                                                       
                                                                                                                                
Co-Chair  Thompson  stated  that   hardly  anyone  would  be                                                                    
eligible for the credit.                                                                                                        
                                                                                                                                
Representative  Kawasaki relayed  that he  had not  seen the                                                                    
amendments  before the  meeting. He  wanted confirmation  on                                                                    
the meaning  of the amendment.  He thought that  by removing                                                                    
the date, producers and explorers  could elect to use the 10                                                                    
percent carried-forward loss  even if they did  not have any                                                                    
production or had not explored prior to the end of 2017.                                                                        
                                                                                                                                
Co-Chair Thompson  stated that the amendment  did not change                                                                    
the credit. There  was not enough acreage in  Cook Inlet for                                                                    
a party to be eligible.                                                                                                         
                                                                                                                                
3:26:40 PM                                                                                                                    
                                                                                                                                
Representative Gara  had a  hunch that  the amendment  was a                                                                    
small thing;  however, he  could not  tell if  the amendment                                                                    
would increase or decrease credits.                                                                                             
                                                                                                                                
Co-Chair  Thompson  replied  that  it did  not  increase  or                                                                    
decrease credits.                                                                                                               
                                                                                                                                
Representative Gara  noted that  the committee had  heard no                                                                    
testimony on the amendment.                                                                                                     
                                                                                                                                
Co-Chair Neuman WITHDREW his OBJECTION.                                                                                         
                                                                                                                                
Representative Gara  OBJECTED and  noted that he  would look                                                                    
at  the  item  after  the  bill  moved  from  committee.  He                                                                    
WITHDREW his OBJECTION.                                                                                                         
                                                                                                                                
There being NO further OBJECTION, Amendment 2 was ADOPTED.                                                                      
                                                                                                                                
3:27:40 PM                                                                                                                    
                                                                                                                                
Co-Chair   Thompson  MOVED   to  ADOPT   Amendment  4,   29-                                                                    
GH2609\F.22  (Nauman/Shutts, 4/7/16)(copy  on file).  [Note:                                                                    
due to the length of the  amendment it has not been included                                                                    
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Co-Chair  Thompson  explained  that   the  amendment  was  a                                                                    
technical  change.  He  specified  that  the  previous  bill                                                                    
version  had  provided for  a  bond  without a  process  for                                                                    
applying  the  proceeds  of the  bond.  The  amendment  used                                                                    
language  similar  to  a   contractor's  bond,  providing  a                                                                    
mechanism  for payment  of claims.  The amendment  clarified                                                                    
how the payments would occur.                                                                                                   
                                                                                                                                
Representative  Wilson  asked  if  the  amendment  addressed                                                                    
bankruptcies in business.                                                                                                       
                                                                                                                                
Co-Chair Thompson  replied that the amendment  would cover a                                                                    
bankruptcy. There  were suppliers  who were owed  money; the                                                                    
amendment  set out  to  put  a $250,000  bond  in place  for                                                                    
purchase. The  amendment clarified  the bond language  as to                                                                    
how claims would be paid.                                                                                                       
                                                                                                                                
Vice-Chair  Saddler  recalled   situations  in  which  local                                                                    
businesses had  provided services  to a rig  in Southcentral                                                                    
and were  not able to  get to a pass.  He believed it  was a                                                                    
good protection  for smaller businesses in  Alaska. He asked                                                                    
if the  language was consistent with  other contractor bonds                                                                    
elsewhere in state law.                                                                                                         
                                                                                                                                
Co-Chair Thompson replied in the affirmative.                                                                                   
                                                                                                                                
Representative  Kawasaki discussed  that the  amendment laid                                                                    
out   conditions  for   the  promises   to   pay  taxes   or                                                                    
contributions due to the state.  He understood the provision                                                                    
in the case of a  drill rig mentioned by Vice-Chair Saddler.                                                                    
He asked if  there was an order in which  the payments would                                                                    
be collected or due.                                                                                                            
                                                                                                                                
Co-Chair Thompson replied in the affirmative.                                                                                   
                                                                                                                                
Co-Chair Neuman WITHDREW his OBJECTION.                                                                                         
                                                                                                                                
There being NO further OBJECTION, Amendment 4 was ADOPTED.                                                                      
                                                                                                                                
3:30:22 PM                                                                                                                    
                                                                                                                                
Representative  Gattis  MOVED  to  ADOPT  Amendment  5,  29-                                                                    
GH2609\F.30 (Nauman/Shutts, 4/7/16) (copy on file):                                                                             
                                                                                                                                
     Page 26, line 9:                                                                                                           
     Delete "lease or property"                                                                                                 
     Insert "well"                                                                                                              
     Delete "five"                                                                                                              
     Insert "10"                                                                                                                
                                                                                                                                
     Page 26, line 11:                                                                                                          
     Delete "lease or property"                                                                                                 
     Insert "well"                                                                                                              
                                                                                                                                
     Page 26, line 12:                                                                                                          
     Delete "lease or property"                                                                                                 
     Insert "well"                                                                                                              
                                                                                                                                
     Page 26, line 13:                                                                                                          
     Delete "2021"                                                                                                              
     Insert "2026"                                                                                                              
                                                                                                                                
     Page 26, line 31, through page 27, line 1:                                                                                 
     Delete "lease or property"                                                                                                 
     Insert "well"                                                                                                              
                                                                                                                                
     Page 27, line 1:                                                                                                           
     Delete "five"                                                                                                              
     Insert "10"                                                                                                                
                                                                                                                                
     Page 27, line 2:                                                                                                           
     Delete "lease or property"                                                                                                 
     Insert "well"                                                                                                              
                                                                                                                                
     Page 27, lines 3 - 4:                                                                                                      
     Delete "lease or property"                                                                                                 
     Insert "well"                                                                                                              
                                                                                                                                
     Page 27, line 4:                                                                                                           
     Delete "2021"                                                                                                              
     Insert "2026"                                                                                                              
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Gattis explained the amendment in a prepared                                                                     
statement:                                                                                                                      
                                                                                                                                
     This  amendment extends  the  GVR  provision from  five                                                                    
     years to ten,  as well as redefines when  the GVR clock                                                                    
     starts by  changing the language to  "well" rather than                                                                    
     "lease" or  "property." The GVR or  "new oil" provision                                                                    
     is  one  of  the  principal  drivers  of  Alaska's  tax                                                                    
     structure. We included  it in SB 21  to incentivize new                                                                    
     oil production and  new players with new  ideas to come                                                                    
     to  Alaska.  Eliminating  the new  oil  provision  five                                                                    
     years after  production is a  change from SB 21  and it                                                                    
     would  significantly  impact  investment  decisions  of                                                                    
     companies. This is a big change  in this CS that as far                                                                    
     as I know  was never discussed in any  of our meetings.                                                                    
     We  haven't  asked our  consultant  to  model this.  We                                                                    
     haven't heard  any testimony from  industry on  this CS                                                                    
     before us. The way I read  it, the new language in this                                                                    
     CS acts as  a disincentive to business  because it will                                                                    
     lead  to  slower  time bringing  production  online  as                                                                    
     companies  try to  maximize the  advantage  of the  tax                                                                    
     code  that we  pass.  By defining  when  the five  year                                                                    
     clock on the  new oil reduction starts  by lease rather                                                                    
     than  well, we're  making a  policy call  that punishes                                                                    
     companies that want to drill  more wells. If production                                                                    
     from one hole in the  ground on the entire lease starts                                                                    
     the  clock, who  would  be incentivized  to drill  more                                                                    
     holes?  We're effectively  saying  the  same thing  the                                                                    
     federal government said to Shell  about drilling in the                                                                    
     Arctic - you  get one hole in the ground  so good luck.                                                                    
     The  proposed  language,  while   it  would  appear  to                                                                    
     protect  the  state  has  the   real  world  impact  of                                                                    
     delaying production,  increasing refundable  credits we                                                                    
     would need to pay, which  are available only during the                                                                    
     development buildup  and up to 50,000  barrels per day.                                                                    
     We  wanted  the benefits  of  new  oil once  commercial                                                                    
     production begins. This amendment  would put us back on                                                                    
     course.  In closing,  our own  consultants  told us  we                                                                    
     shouldn't mess with SB 21, and I agree.                                                                                    
                                                                                                                                
Co-Chair  Neuman  stated  that  SB   21  [oil  and  gas  tax                                                                    
legislation passed in 2013] had  allowed incentives for Cook                                                                    
Inlet  gas exploration  because  the state  had been  facing                                                                    
rolling brownouts  at the time  and the state had  not known                                                                    
the amount of its gas  supplies; SB 21 had included language                                                                    
to  incentivize gas  exploration  in Cook  Inlet, which  had                                                                    
been  successful. He  elaborated  that  there was  currently                                                                    
good  exploration  underway  and   12  years  of  known  gas                                                                    
reserves. He added that found  discoveries were still ample,                                                                    
and  thought-to-be  reserves  were  still  fairly  high.  He                                                                    
believed  the credit  costs could  exceed  $600 million.  He                                                                    
believed  that  new  oil production  had  been  about  8,000                                                                    
barrels. He  asked why the  state would continue to  put out                                                                    
$600 million in credits if there were known reserves.                                                                           
                                                                                                                                
3:34:35 PM                                                                                                                    
                                                                                                                                
Representative  Gattis  replied that  the  state  had a  tax                                                                    
regime  that had  been put  in place  one year  earlier. She                                                                    
stated that there  had not been modelling  or discussion and                                                                    
until  the  issue  was  examined she  believed  it  was  bad                                                                    
policy.                                                                                                                         
                                                                                                                                
Co-Chair  Thompson  thought  the language  was  inconsistent                                                                    
with existing  language. He pointed  to the language  in the                                                                    
gross  value   reduction  (GVR)   based  on  the   lease  or                                                                    
properties to  change to per  well. He thought  the language                                                                    
change  could cost  the state  significantly more  money. He                                                                    
was concerned by the amendment.                                                                                                 
                                                                                                                                
Representative Gattis  stated it  could also gain  the state                                                                    
much more money.                                                                                                                
                                                                                                                                
Representative Edgmon spoke in  opposition to the amendment.                                                                    
He was concerned about the  careful balance the state needed                                                                    
to achieve. He believed it  was necessary to put limitations                                                                    
in place.  He was concerned  about the GVR, its  impact with                                                                    
the  NOL,  and the  money  that  would accumulate  annually,                                                                    
which  the  state would  eventually  owe.  He reasoned  that                                                                    
there may be an extended period  of low oil prices where the                                                                    
state did  not receive revenue  back, but continued  to have                                                                    
the obligations to pay money out.                                                                                               
                                                                                                                                
3:36:35 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  opposed the amendment. He  remarked that                                                                    
the goal  of SB 21  had been to incentivize  oil production.                                                                    
One of the bill's primary  goals had been to incentivize new                                                                    
oil  production   due  to  decreased  production   that  had                                                                    
occurred.  He  reasoned  that the  state  had  offered  very                                                                    
generous provisions  in its tax  code to achieve  that goal.                                                                    
Based on  information provided  to the  committee, reservoir                                                                    
pressure was  the highest, production  was highest,  and the                                                                    
biggest benefit to the state  during the first five years at                                                                    
the  front  end of  production.  He  believed the  five-year                                                                    
accommodation was reasonable, but 10  years was too long. He                                                                    
thought there needed  to be a point at which  new oil became                                                                    
old oil.                                                                                                                        
                                                                                                                                
Representative   Gara  spoke   against  the   amendment.  He                                                                    
discussed  that  the  state  was currently  living  on  a  4                                                                    
percent  tax,  which  extended  up to  $76  per  barrel.  He                                                                    
reasoned that it was not  sustainable if the state was going                                                                    
to  have any  sort  of construction  or  school budgets.  He                                                                    
agreed with  the comments  of the  last three  speakers. The                                                                    
compromise reached in the House  Finance Committee CS was to                                                                    
grant a holiday  from the profits-based tax  for five years;                                                                    
while companies  got to  recoup costs and  did not  pay very                                                                    
much in  taxes. He  elaborated that  the same  companies had                                                                    
been receiving  cash or deductible  payments from  the state                                                                    
for credits.  He reasoned  that at some  point it  needed to                                                                    
come back the  other way. He surmised that  the state should                                                                    
not merely  get back what it  gave out. He stressed  that at                                                                    
some point it was Alaska's oil  and it was needed to support                                                                    
the  state. He  spoke to  projects, which  needed money  for                                                                    
funding.  He stated  that  at a  $4.4  billion deficit,  the                                                                    
compromise reached in the CS was one that he could accept.                                                                      
                                                                                                                                
Representative Guttenberg  testified against  the amendment.                                                                    
He did  not think it  was the state's  job to make  sure any                                                                    
industry had  a chance to  maximize something the  state put                                                                    
on  the table.  Historically, he  believed the  state had  a                                                                    
problem making  sure things got  done in a timely  way (that                                                                    
when  the  state  put  a   lease  sale  on  the  table  that                                                                    
exploration,   development,  and   production  happened   as                                                                    
quickly as possible). Ensuring those  things occurred was in                                                                    
the  state's  best  interest.  He   clearly  did  not  think                                                                    
extending  the credit  out to  10 years  was in  the state's                                                                    
best interest.  He stated that  the committee had  not heard                                                                    
anyone ask for the change.  He reasoned that companies would                                                                    
take  more time  if  it  was given,  which  was  not in  the                                                                    
state's interest.  He detailed  that when  a company  took a                                                                    
lease,  the state  wanted it  to  be developed.  He did  not                                                                    
support extending  the credit out  another 5 years  when the                                                                    
state was  already strapped; there  needed to be  a timeline                                                                    
on credits and  some return shown on  production. He thought                                                                    
the amendment  was a delay,  which was in the  best interest                                                                    
of industry.                                                                                                                    
                                                                                                                                
3:41:25 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson  clarified  that  the  amendment  was  in                                                                    
reference  to North  Slope oil.  He  asked for  verification                                                                    
that   the  amendment   language  related   to  leases   and                                                                    
properties, not a well, was inconsistent with SB 21.                                                                            
                                                                                                                                
Representative Gattis replied in the affirmative.                                                                               
                                                                                                                                
Representative  Kawasaki  testified  in  opposition  to  the                                                                    
amendment. He  spoke to a  well versus a lease  and reasoned                                                                    
there could be  a producing well that was shut  in early. He                                                                    
believed the reason for addressing  leases and properties on                                                                    
the North Slope was for  the holistic idea of producing more                                                                    
oil. He stated that determining  when new oil became old oil                                                                    
it was a balancing act.  He believed the 5-year timeline was                                                                    
reasonable.  He thought  that although  the amendment  would                                                                    
not result  in an immediate  revenue impact, there  would be                                                                    
an impact  in several years  to decades into the  future. He                                                                    
specified  that with  a 10-year  lookback, it  was extremely                                                                    
hard to  decide how much it  would cost the state  of Alaska                                                                    
in terms of monetizing its barrel of oil.                                                                                       
                                                                                                                                
Representative Pruitt  spoke in  support of Amendment  5. He                                                                    
pointed out that  SB 21 was specific to the  North Slope and                                                                    
that a  discussion about Cook  Inlet was not germane  to the                                                                    
conversation,  given that  SB  21 did  not  pertain to  Cook                                                                    
Inlet.  He noted  that another  similar  amendment would  be                                                                    
offered later. The  current amendment took the  lease in the                                                                    
property, substituted in "per  well," and added 5 additional                                                                    
years.  The later  amendment would  add 10  additional years                                                                    
for a total  of 15 for the lease of  the property. He stated                                                                    
that the committee had seen  presentations showing the state                                                                    
could  strike  too early  on  requesting  the claw-back  and                                                                    
prevent  the investment  from taking  place. He  believed 10                                                                    
years would work and was a  compromise. He thought that a 5-                                                                    
year  timeframe was  too short  and would  potentially be  a                                                                    
disincentive  to  investment  because   of  the  35  percent                                                                    
[production tax]. He detailed  that it also highlighted that                                                                    
the state was  focusing solely on production tax  and not on                                                                    
the fact that significant revenue  would result. He asked if                                                                    
the state  wanted to  potentially lose out  on a  field that                                                                    
would  bring a  royalty, property  tax, and  other ancillary                                                                    
costs to the state for the  life of the field. He agreed the                                                                    
state needed  to pay  for schools and  other things,  but he                                                                    
believed the amendment provided  an incentive to investment.                                                                    
He  noted that  SB 21  had  been opened  up as  soon as  the                                                                    
language  had been  added to  the CS.  He stressed  that the                                                                    
spirit of SB  21 was to encourage new  development, which he                                                                    
believed should  be maintained. He  thought giving  a little                                                                    
more  time could  potentially be  the  difference between  a                                                                    
project going forward or not.                                                                                                   
                                                                                                                                
3:46:27 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson WITHDREW his OBJECTION.                                                                                       
                                                                                                                                
Representative Guttenberg OBJECTED.                                                                                             
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gattis, Pruitt, Wilson                                                                                                
OPPOSED:   Munoz,   Edgmon,   Saddler,   Gara,   Guttenberg,                                                                    
Kawasaki, Thompson, Neuman                                                                                                      
                                                                                                                                
The MOTION to adopt Amendment 5 FAILED (3/8).                                                                                   
                                                                                                                                
3:47:20 PM                                                                                                                    
                                                                                                                                
Representative Gattis MOVED to ADOPT Amendment 6, 29-                                                                           
GH2609\F.28 (Nauman/Shutts, 4/7/16) (copy on file). [Note:                                                                      
due to the length of the amendment it has not been included                                                                     
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Gattis explained the amendment in a prepared                                                                     
statement:                                                                                                                      
                                                                                                                                
     This amendment will allow the  Department of Revenue to                                                                    
     suspend taxes  on a company  that can prove  that total                                                                    
     government  take for  them  has  exceeded 105  percent.                                                                    
     Just  to  be  clear,   government  take  in  this  case                                                                    
     includes  royalty,  production  tax,  corporate  income                                                                    
     tax, property  tax, and even  the 5 percent  per barrel                                                                    
     tax. It seems  when prices are low, we seem  to ask for                                                                    
     more  money  because  we don't  have  enough  and  when                                                                    
     prices are high, we ask  for more money because the oil                                                                    
     companies  can afford  to pay  more. So  where does  it                                                                    
     stop? Do  we stop when  government take is  150 percent                                                                    
     or 200  percent? What business  would stick  around for                                                                    
     that? As  a state,  we take our  royalty right  off the                                                                    
     top. So  we get value  for our  oil right off  the top.                                                                    
     Ultimately, we must get a  fair value for our oil being                                                                    
     produced. That's fair  enough. But we also  must take a                                                                    
     long view  about what  Alaska's gonna  look like  in 10                                                                    
     years  or  20 years  from  now  based  on some  of  the                                                                    
     policies  and  decisions  that we're  discussing  right                                                                    
     here today. We want all  kinds of private businesses to                                                                    
     be operating  in Alaska  and developing  our resources.                                                                    
     Businesses will come  here only if they  think they can                                                                    
     make a profit  just like anywhere else. So  I'd ask for                                                                    
     folks, let's keep  the lights on and let's  be open for                                                                    
     business because when we talk  about our taxes we don't                                                                    
     talk about the  whole government take and  I think it's                                                                    
     important  when we  talk about  this that  we literally                                                                    
     talk about what we as the  government take. So a lot of                                                                    
     times we talk about production  taxes but we talk about                                                                    
     it as if  they're separate pieces of the  whole pie. We                                                                    
     take that  whole pie and  what this amendment  does, is                                                                    
     it basically recognizes  that at what point  do we stop                                                                    
     taxing business to go somewhere else?                                                                                      
                                                                                                                                
Representative Gattis  understood that  the committee  had a                                                                    
significant amount  to address  during the meeting  and that                                                                    
the  amendment  had  a challenge  from  bill  drafters.  She                                                                    
WITHDREW the amendment.                                                                                                         
                                                                                                                                
3:50:13 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  MOVED  to  ADOPT  Amendment  7,  29-                                                                    
GH2609\F.33 (Nauman/Shutts, 4/7/16) (copy on file):                                                                             
                                                                                                                                
     Page 16, line 11:                                                                                                          
     Delete "10 [20]"                                                                                                           
     Insert "20"                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Pruitt explained  that  the amendment  would                                                                    
restore the qualified capital  expenditure (QCE) credit back                                                                    
to  the  amount  in  the   House  Resources  Committee  bill                                                                    
version. He  was concerned the  Cook Inlet credit  was being                                                                    
pulled too quickly  and could create a  complete reversal of                                                                    
the current policy. He agreed  with some changes made in the                                                                    
previous   committee  and   he  believed   the  amount   was                                                                    
appropriate. The amendment  represented a ramp-down approach                                                                    
as opposed to a "knee-jerk"  reaction. He believed the state                                                                    
should manage its way out of the credits.                                                                                       
                                                                                                                                
Co-Chair Thompson asked for  verification that the amendment                                                                    
pertained to incentives in the Cook Inlet.                                                                                      
                                                                                                                                
Representative Pruitt replied in the affirmative.                                                                               
                                                                                                                                
Co-Chair  Thompson stated  that he  looked at  the amendment                                                                    
with a question  mark. He detailed that  currently there was                                                                    
significant  gas in  Cook Inlet  (several years'  worth). He                                                                    
reasoned there was currently not a  market for new gas if it                                                                    
was discovered  and developed. He  questioned how  much more                                                                    
gas needed incentivizing in Cook Inlet at present.                                                                              
                                                                                                                                
Representative  Pruitt responded  that the  workgroup should                                                                    
be  able to  provide  an  indicator on  the  issue that  the                                                                    
legislature  could address  in  the coming  year. He  agreed                                                                    
that gas had been identified, but  it did not mean there was                                                                    
a  hole drilled  to extract  it all.  He continued  that the                                                                    
state used up to 200-plus million  cubic feet per day and it                                                                    
needed  to ensure  production of  that  amount. He  believed                                                                    
that the legislation meant that  no new players would invest                                                                    
in Alaska. He opined that the  state would need to live with                                                                    
what  it had  and  that  it needed  to  ensure that  current                                                                    
companies would continue to invest.  He stated that the bill                                                                    
totally  changed the  policy that  had  been implemented  to                                                                    
bring a rush of investors  into Cook Inlet. He reasoned that                                                                    
if  the credits  were eliminated  too quickly  the producers                                                                    
may  not  have the  money  to  continue investing  at  their                                                                    
current  level. He  stated  that just  because  the gas  was                                                                    
currently  being  produced,  it   did  not  mean  they  were                                                                    
producing  the total  amount to  be used.  He stressed  that                                                                    
Fairbanks  had a  project to  use gas  in Cook  Inlet, which                                                                    
meant  an increased  need for  available gas.  He understood                                                                    
some people did not believe  the project would move forward,                                                                    
but he was more optimistic.  He wanted to give the workgroup                                                                    
a chance  to provide  recommendations instead of  acting too                                                                    
quickly.                                                                                                                        
                                                                                                                                
3:55:21 PM                                                                                                                    
                                                                                                                                
Representative  Gara remarked  that the  committee was  that                                                                    
group.  He understood  a small  group  of legislators  would                                                                    
meet over  the interim, but  the bill  had been in  front of                                                                    
the committee for two weeks.  He had also followed the House                                                                    
Resources    Committee    hearings,   which    had    lasted                                                                    
approximately one month. Additionally,  all experts had been                                                                    
available to  the House Finance Committee.  Testimony to the                                                                    
committee had been  that there was no oil  production tax in                                                                    
Cook Inlet (after  the passage of an  earlier amendment); no                                                                    
gas tax; the  state was paying $175 million  to companies in                                                                    
NOL  credits;  and companies  received  QCE  credits or  WLE                                                                    
credits. He  stressed that the  state was very heavy  on the                                                                    
credits  it paid  out, but  did not  receive any  production                                                                    
taxes  in  return.  He  referred  to  earlier  testimony  by                                                                    
Representative  Pruitt that  oil  prices  would decrease  by                                                                    
eliminating a small  tax on oil in Cook  Inlet. He disagreed                                                                    
with the statement.                                                                                                             
                                                                                                                                
Co-Chair Thompson interjected.                                                                                                  
                                                                                                                                
Representative  Gara apologized  if he  had mischaracterized                                                                    
earlier  testimony. He  explained  that  Amendment 1,  which                                                                    
deleted  the oil  tax  would  not change  the  price of  oil                                                                    
because a  company would then  buy the oil from  North Slope                                                                    
producers;  it was  a  market price.  He  stressed that  the                                                                    
state  was overly  generous  on credits  (more  so than  any                                                                    
other location) for oil fields  that paid no production tax.                                                                    
If anything, he  believed the state was too  generous in its                                                                    
credits.  He  did not  believe  it  made  sense to  pay  out                                                                    
another $30  million. He stated  that no companies  went out                                                                    
to  explore when  there was  no  buyer looking  for gas.  He                                                                    
recalled  testimony that  when buyers  were looking  for gas                                                                    
they would  get paid the  highest prices in the  country for                                                                    
the  gas (at  $7 to  $9 in  Cook Inlet  compared to  $2). He                                                                    
emphasized  that  the  high  prices  were  an  incentive  to                                                                    
exploration.  He added  that it  was  not clear  any of  the                                                                    
credits  were  needed,  but   there  were  numerous  credits                                                                    
outside the amendment.                                                                                                          
                                                                                                                                
3:58:30 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:26:52 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Thompson  noted that  the committee  was addressing                                                                    
Amendment 7.                                                                                                                    
                                                                                                                                
Vice-Chair Saddler opposed the  amendment. The committee had                                                                    
heard  from its  analyst enalytica  that Cook  Inlet credits                                                                    
were among the most generous  in the world. He detailed that                                                                    
supply currently  met demand and  there was also  stored gas                                                                    
in Cook Inlet. In the absence  of a larger market he thought                                                                    
phasing  out  the QCE  at  10  percent was  appropriate.  He                                                                    
reasoned  that  perhaps he  could  see  the benefit  of  the                                                                    
amendment  if Agrium  was chomping  at the  bit to  open. He                                                                    
noted that the  CS did not eliminate the QCE,  but dialed it                                                                    
back. The Cook Inlet Recovery Act  had been an "all hands on                                                                    
deck" effort to ensure the state  had a supply of gas, which                                                                    
had  been successful.  He continued  that  there were  other                                                                    
steps  including changes  in  the  Regulatory Commission  of                                                                    
Alaska (RCA) process reflecting the  need to ensure a supply                                                                    
of  gas.  The challenge  was  to  strike a  balance  between                                                                    
incentives  and other  elements,  which he  believed the  CS                                                                    
did.                                                                                                                            
                                                                                                                                
Representative  Kawasaki  spoke  against the  amendment.  He                                                                    
countered the  statement that the  CS contained  a knee-jerk                                                                    
reaction  to  the industry.  He  did  not believe  the  bill                                                                    
should be  considered a knee-jerk  reaction to  anything. He                                                                    
detailed that  the state was facing  an unprecedented budget                                                                    
gap between $3  billion and $4 billion. As  the state looked                                                                    
to determine  ways to  reduce the  size of  the gap,  it was                                                                    
appropriate  to  talk about  oil  and  gas tax  credits.  He                                                                    
recalled that during his first  year in office in 2007 there                                                                    
had  been  zero  tax  credits  going  to  the  industry.  He                                                                    
detailed that  some of  the QCE credits  on the  North Slope                                                                    
equated  to   $50  million  total.   Since  that   time  the                                                                    
legislature had  created the Cook Inlet  Recovery Act, which                                                                    
seemed   to  have   been  advantageous.   Additionally,  the                                                                    
legislature  had  established  the Cook  Inlet  Natural  Gas                                                                    
Storage Act, which had created  an incredible supply of gas.                                                                    
He  elaborated  that  the Department  of  Natural  Resources                                                                    
(DNR), Division  of Oil  and Gas  estimated reserves  of 1.2                                                                    
and 1.6  trillion cubic  feet of  known supply  currently in                                                                    
Cook  Inlet, which  was commercially  available. The  amount                                                                    
would last for  12 years with Anchorage's  current demand of                                                                    
80 billion  cubic feet  per year  and with  potential growth                                                                    
from the Fairbanks area of  another 4 billion cubic feet per                                                                    
year.  He   believed  the  region  should   continue  to  be                                                                    
explored,  but disagreed  that the  change  was a  knee-jerk                                                                    
reaction. He  stressed that the  state could not  afford the                                                                    
credits it  had not anticipated, which  amounted to hundreds                                                                    
of millions  of dollars.  He pointed  out that  when Swanson                                                                    
River  had   started  production  there  had   been  no  oil                                                                    
production  tax; there  was currently  no production  tax in                                                                    
Cook  Inlet. As  a person  from  the Interior,  he had  seen                                                                    
numerous  benefits  going  to  the  Anchorage  area  and  it                                                                    
bothered  him that  the state  would continue  a substantial                                                                    
amount of  credits for  one region at  the expense  of other                                                                    
regions.                                                                                                                        
                                                                                                                                
4:31:14 PM                                                                                                                    
                                                                                                                                
Representative   Wilson   testified   in  support   of   the                                                                    
amendment. She remarked  on comments that the  bill had been                                                                    
introduced  due  to  the budget  gap.  She  believed  policy                                                                    
should  not be  changed in  response  to a  budget gap;  she                                                                    
believed  policy  should  be  changed  because  it  was  not                                                                    
providing the  desired results.  She discussed  that current                                                                    
statue offered a  20 percent QCE credit for  Cook Inlet. The                                                                    
amendment would restore the credit  and maintained the House                                                                    
Resources  Committee   sunset  in  2022.  She   stated  that                                                                    
currently  the QCE  credit in  Cook Inlet  was an  important                                                                    
factor into  the economics of many  businesses including the                                                                    
two new big developments by  Furie and Bluecrest Energy. She                                                                    
stressed that  the state wanted the  businesses to continue.                                                                    
She continued  that with a 10  percent NOL and a  20 percent                                                                    
QCE there was 30 percent  state support in Cook Inlet, which                                                                    
represented  a large  reduction from  current support  of 65                                                                    
percent  or more  and was  nearly as  low as  the governor's                                                                    
proposed  25  percent.  She  continued  that  every  company                                                                    
should be  on notice  that the legislature  would completely                                                                    
overhaul the Cook  Inlet tax system in the  near future. She                                                                    
noted that  the workgroup  would begin  its review  over the                                                                    
coming summer. She opined that  while the legislature worked                                                                    
on  large changes  it should  make moderate  changes to  how                                                                    
much support it  pulled back. She emphasized  the QCE credit                                                                    
helped  companies  doing  the   needed  work  and  not  just                                                                    
companies   receiving  NOL   credits  that   may  not   have                                                                    
production  or   fields  under  development.   She  believed                                                                    
maintaining the 2022 sunset should  be an indicator that the                                                                    
legislature  intended  for the  credit  to  end with  bigger                                                                    
pending changes to the Cook  Inlet regime. She stressed that                                                                    
it was about looking at  whether or not what the legislature                                                                    
put in place  was working at present and in  the future. She                                                                    
stated that  the issue  did not  only pertain  to Anchorage.                                                                    
She referred to a major  project in the works for Fairbanks.                                                                    
She  noted they  had discovered  the North  Slope would  not                                                                    
work despite money  they had invested. She  believed gas for                                                                    
Fairbanks  would have  to come  out  of Cook  Inlet and  she                                                                    
wanted to  ensure the  legislature did  not do  something it                                                                    
regretted later.                                                                                                                
                                                                                                                                
Representative  Guttenberg   spoke  in  opposition   to  the                                                                    
amendment. He referred to talk  about looking at tax credits                                                                    
because they were  high, looking at tax  credits because the                                                                    
state did not  have gas, and looking at  tax credits because                                                                    
the  price  was  low.  He discussed  that  the  state's  oil                                                                    
structure, tax  credits, and exploratory incentives  were in                                                                    
place  for a  purpose.  He believed  the legislature  should                                                                    
look  at  the  issue  annually because  the  incentives  and                                                                    
structure were so  much a part of the state  and its budget.                                                                    
He did  not mean the  statute should be opened  up annually,                                                                    
but he believed an annual  review was needed. He stated that                                                                    
the legislature had thrown a  significant amount of money at                                                                    
Cook Inlet to  ensure there were no brownouts  and "we're at                                                                    
that place." He stressed that  the state was not responsible                                                                    
for  the price  of  natural gas  and oil  in  the U.S.;  the                                                                    
prices were up to the  market. He emphasized that prices had                                                                    
plummeted  worldwide.   He  believed  the  state   was  just                                                                    
throwing money  at the  oil and gas  companies with  some of                                                                    
the credits. He  reasoned that if the  legislature wanted to                                                                    
ensure sustained  supply, it should manage  the question and                                                                    
not  just throw  money at  the industry  hoping it  would do                                                                    
what  the  legislature  wanted. He  continued  that  it  was                                                                    
possible to  task DNR  and the  Department of  Revenue (DOR)                                                                    
with telling  the state what it  would need and to  devise a                                                                    
production schedule  to determine when to  explore, develop,                                                                    
and other.  He believed the  state had an  inherent interest                                                                    
to do  that for  Cook Inlet, Southcentral,  Fairbanks, rural                                                                    
Alaska,  Southeast, and  throughout  the state.  He did  not                                                                    
support simply raising the credits  because the state wanted                                                                    
the  companies  to  do  work   in  Alaska.  He  thought  the                                                                    
appropriate question  was to consider  what was  working for                                                                    
the state and what it needed  to do to maintain its level of                                                                    
gas production  in Cook  Inlet. He  observed that  the state                                                                    
seemed  to be  throwing credits  at the  industry to  try to                                                                    
keep companies  working in Alaska.  He opined  that changing                                                                    
the number  and percentages was not  appropriate. He thought                                                                    
many of the credits were  designed in the hope that industry                                                                    
would stick  around. He stressed  that "the rocks  are here;                                                                    
this is where they're going to come."                                                                                           
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt, Gattis, Wilson                                                                                                
OPPOSED:  Saddler,   Edgmon,  Gara,   Guttenberg,  Kawasaki,                                                                    
Munoz, Neuman, Thompson                                                                                                         
                                                                                                                                
The MOTION to adopt Amendment 7 FAILED (3/8).                                                                                   
                                                                                                                                
4:38:05 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  MOVED  to  ADOPT  Amendment  8,  29-                                                                    
GH2609\F.32 (Shutts, 4/7/16) (copy on file):                                                                                    
                                                                                                                                
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Representative Gara and Co-Chair Neuman OBJECTED.                                                                               
                                                                                                                                
Representative  Wilson  explained  that the  amendment  made                                                                    
changes to  the timeline for  "new oil." She  addressed when                                                                    
new  oil was  no  longer  considered new  oil.  She did  not                                                                    
believe it  was new forever  and was concerned that  5 years                                                                    
was  not   correct.  She  referred  to   a  presentation  by                                                                    
Bluecrest  Energy, which  had  specified  [oil qualified  as                                                                    
new]  10  to  15  years after  sanctions.  She  referred  to                                                                    
language on page 26, line 10 through 11 of the bill:                                                                            
                                                                                                                                
     ...after the commencement of production in commercial                                                                      
     quantities of oil or gas from that lease or property.                                                                      
                                                                                                                                
Representative Wilson  did not know  what the date  would be                                                                    
on  anything   from  the   commencement  of   production  in                                                                    
commercial  quantities;  she  was   not  familiar  with  the                                                                    
language. She  referred to  an earlier  amendment pertaining                                                                    
to  a field  with numerous  wells. She  provided a  scenario                                                                    
where the  state wanted the company  to put its wells  on as                                                                    
soon  as  production began  for  each  individual well.  The                                                                    
amendment would change  the timeline to 15  years instead of                                                                    
5. She further explained that if  a company turned a well on                                                                    
and 4  years later it  began production on another  well the                                                                    
new well would  only qualify for 1 year because  it was on a                                                                    
field  that had  been producing  for  4 years.  She did  not                                                                    
believe that  was the intent  of SB 21. She  emphasized that                                                                    
the provision  applied only if  oil was being  produced. She                                                                    
highlighted that  the state would  receive the  royalty from                                                                    
the oil and  more oil down the pipeline,  which would result                                                                    
in less  maintenance. She  stressed that it  was one  of the                                                                    
biggest incentives  of SB  21. She  specified the  state had                                                                    
wanted to ensure  its credits would work  so the legislature                                                                    
had based  it on oil.  She detailed that  new oil had  to go                                                                    
through a process in DNR.  She reiterated that the companies                                                                    
only received the credit if they produced.                                                                                      
                                                                                                                                
Representative Kawasaki  opposed the amendment.  He referred                                                                    
to his recent  birthday and had been told that  the 40s were                                                                    
the new  30s. He spoke to  how new and old  were defined. He                                                                    
believed  Amendment  8 moved  away  from  the direction  the                                                                    
state should go.  He opined that classifying oil  as new for                                                                    
5 years  was appropriate and  that 10  and 15 years  was too                                                                    
long. He noted that Bluecrest  Energy was a producer in Cook                                                                    
Inlet,  but the  provision pertained  specifically to  North                                                                    
Slope assets.                                                                                                                   
                                                                                                                                
Representative  Gattis spoke  in support  of the  amendment.                                                                    
She believed there was a  disincentive to producing oil from                                                                    
another well  (on a field  with existing production)  when a                                                                    
company only  had one year  or so  remaining on its  new oil                                                                    
credit. She stated that if she  was in charge she would wait                                                                    
to  turn  all of  the  wells  on at  one  time  in order  to                                                                    
maximize the 5-year credit. She  believed changing the limit                                                                    
to  15   years  was  appropriate.   She  did  not   want  to                                                                    
disincintivize what the state was already incentivizing.                                                                        
                                                                                                                                
Representative  Gara  testified  against the  amendment.  He                                                                    
pointed out  that if the  amendment passed, the GVR  oil tax                                                                    
rate, which  was minimal  and could  not sustain  the state,                                                                    
would persist for  15 years. He detailed  that Point Thomson                                                                    
would come online in the coming  year or two and would enjoy                                                                    
the  minimal GVR  tax rate  until 2031.  He stressed  that a                                                                    
state  could  not be  run  on  that  kind  of tax  rate.  He                                                                    
remarked  that  the late  former  Governor  Jay Hammond  had                                                                    
often reminded  him of  Alaska's Constitution,  which stated                                                                    
that the public  was entitled to the maximum  benefit of its                                                                    
resources.  He elaborated  that the  maximum benefit  of the                                                                    
state's resource  was not limited  to the maximum  taxes; it                                                                    
was  the   maximum  of  which   combination  of   taxes  and                                                                    
production would  be the most  productive for the  state. He                                                                    
believed that waiting until 2031  on Point Thomson - a field                                                                    
that should have been developed  years ago - pointed out the                                                                    
problem with the amendment.                                                                                                     
                                                                                                                                
Co-Chair Thompson believed the date was actually 2032.                                                                          
                                                                                                                                
4:44:15 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  spoke in opposition  to Amendment  8. He                                                                    
stated that current law did not  allow new oil to be defined                                                                    
and had  no limit. He  believed the  5-year limit in  the CS                                                                    
was appropriate.  He clarified that the  start of commercial                                                                    
quantity  was when  oil started  flowing and  when it  began                                                                    
making money (after  initial wells had been  drilled and the                                                                    
production  and processing  facilities were  operating). The                                                                    
CS  offered  a  loss  credit  for the  first  5  years  when                                                                    
production was  highest; the production  profile was  on the                                                                    
upswing at the peak and declined  for a long period of time.                                                                    
He believed  a 15-year time  period was  too far out  on the                                                                    
decline curve.                                                                                                                  
                                                                                                                                
Representative Pruitt noted that there  had not been time to                                                                    
hear testimony on the CS. He  spoke to the provision on page                                                                    
26 and did not believe  there was a definition of commercial                                                                    
quantities, which  he believed could be  questionable in the                                                                    
future.  The amendment  pertained to  [oil or  gas produced]                                                                    
per lease  or per property.  He specified that a  well could                                                                    
be  drilled   several  years  after  the   first  commercial                                                                    
quantity of oil  became available on the  property. The goal                                                                    
was  for a  company to  continue to  drill on  the piece  of                                                                    
property and to continue to  bring in revenue. The amendment                                                                    
would mean  the clock  would not  be immediately  started on                                                                    
the  very   first  well.  He   believed  15  years   was  an                                                                    
appropriate timeframe because it  applied to each individual                                                                    
property instead of  an individual well. He  stated that the                                                                    
amendment  would continue  to make  operations on  the North                                                                    
Slope  more   profitable.  He  emphasized  the   expense  of                                                                    
extracting oil  on the North  Slope such as heavy  crude and                                                                    
other. He detailed that extracting  oil cost much more money                                                                    
at present  than it had in  the 1970s. The goal  had been to                                                                    
incentivize companies  to invest  in expensive  projects. He                                                                    
believed  that  making  the  credit too  short  would  be  a                                                                    
disincentive to  investing in the  heavy oil.  The amendment                                                                    
would give the opportunity to  make sure an entire field was                                                                    
producing fairly well when the  production tax credit began.                                                                    
He reminded  the committee that it  was currently addressing                                                                    
the production  tax credit. He  emphasized that there  was a                                                                    
multitude of  other taxes  and government  take; he  did not                                                                    
want to lose out by disincentivizing investment.                                                                                
                                                                                                                                
4:48:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson, Gattis, Pruitt                                                                                                
OPPOSED:  Saddler,   Edgmon,  Gara,   Guttenberg,  Kawasaki,                                                                    
Munoz, Thompson, Neuman                                                                                                         
                                                                                                                                
The MOTION to adopt Amendment 8 FAILED (3/8).                                                                                   
                                                                                                                                
4:49:29 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  MOVED  to  ADOPT  Amendment  9,  29-                                                                    
GH2609\F.31 (Nauman/Shutts,  4/7/16) (copy on  file). [Note:                                                                    
due to the length of the  amendment it has not been included                                                                    
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Pruitt explained  that  the amendment  would                                                                    
sunset the  WLEs in the  Cook Inlet in 2019.  Currently, the                                                                    
item ramped down,  but did not actually  sunset. He believed                                                                    
it was appropriate  to offer the item as a  credit the state                                                                    
could potentially remove.                                                                                                       
                                                                                                                                
Co-Chair Neuman  asked for an  explanation of  the repealers                                                                    
and dates changed in AS 43.55.023.                                                                                              
                                                                                                                                
Representative Pruitt  stated that  the repealer  applied to                                                                    
the WLE in Cook Inlet.                                                                                                          
                                                                                                                                
Vice-Chair Saddler spoke in opposition  to the amendment. He                                                                    
believed  it  was  important  to  allow  for  the  step-down                                                                    
process  that  had  been   recommended  by  the  legislative                                                                    
workgroup  and by  legislative  consultants.  He shared  the                                                                    
desire to  encourage oil  and gas production,  but he  had a                                                                    
difference  of opinion  on  how the  pace  of the  incentive                                                                    
should  occur.  He  did  not   believe  the  intent  of  the                                                                    
amendment was  clear. He supported  a gradual  step-down out                                                                    
to  2022,  which  was  when the  legislature  had  told  the                                                                    
industry to  anticipate the credits  would end.  He referred                                                                    
to testimony  by the industry  in support  of predictability                                                                    
and its ability to accommodate the sunset in 2022.                                                                              
                                                                                                                                
Representative  Wilson spoke  in support  of the  amendment.                                                                    
She stated  that the amendment  maintained a 40  percent WLE                                                                    
credit through 2016, stepped it  down to 30 percent in 2017,                                                                    
20  percent in  2018, and  sunset  the credit  in 2019.  She                                                                    
agreed  that credits  needed to  be stepped  down, but  some                                                                    
were more costly  and needed to be  terminated. She detailed                                                                    
that  the amendment  included a  gradual  step-down in  Cook                                                                    
Inlet,  which  provided  companies  with  several  years  to                                                                    
adjust. She referred to testimony  in the committee that the                                                                    
state should  stop giving credits  in Cook Inlet.  She noted                                                                    
that the  credit had  been in  response to  brownouts, which                                                                    
was no longer an issue.  The amendment acknowledged that the                                                                    
state could not  continue to be as generous as  it had been,                                                                    
but it maintained two other credits in place until 2022.                                                                        
                                                                                                                                
4:53:44 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon testified  against the  amendment. He                                                                    
believed the WLE  credit also applied to oil,  which did not                                                                    
pertain to  brownouts in  Cook Inlet. He  noted there  was a                                                                    
compromise  in  place  and  he  spoke  to  the  balance  the                                                                    
legislature  needed  to  achieve   between  the  budget  and                                                                    
refundable  credits  offered.   Additionally,  there  was  a                                                                    
legislative  workgroup  that  would review  the  entire  tax                                                                    
structure; he did  not want to get too ahead  of the group's                                                                    
work. He preferred  to stay with the compromise  that was in                                                                    
place.                                                                                                                          
                                                                                                                                
Representative  Munoz   asked  for  verification   that  the                                                                    
current  language in  the CS  called for  the WLE  credit to                                                                    
phase  out in  January 2022  and the  amendment proposed  to                                                                    
change it to 2019.                                                                                                              
                                                                                                                                
Representative Wilson replied in the affirmative.                                                                               
                                                                                                                                
Representative Gara  opposed the amendment. He  believed the                                                                    
state had an overly generous  tax credit system it could not                                                                    
afford in Cook  Inlet. He detailed that  producers knew they                                                                    
could sell  their gas  for the highest  price in  the nation                                                                    
(and at  one of  the highest  prices in  the world  for non-                                                                    
liquefied  natural gas)  if they  conducted exploration  and                                                                    
production  in the  area. Additionally,  the companies  were                                                                    
able to take  all of their losses and the  state paid for 10                                                                    
percent. He  stressed that the  credits were stackable  on a                                                                    
WLE  or  capital  expenditure  credit.  He  emphasized  that                                                                    
natural gas and  oil paid no production tax in  the area. He                                                                    
characterized it as a one-way  street that did not favor the                                                                    
people of  Alaska. He observed  that at high prices,  when a                                                                    
buyer  of gas  needed new  gas,  someone would  take on  the                                                                    
exploration; the gas was $7 to  $9 in Cook Inlet compared to                                                                    
$2 in the Lower 48.                                                                                                             
                                                                                                                                
Representative  Kawasaki  asked  for verification  that  the                                                                    
statues listed  in the amendment (AS  43.55.023(l), (n), and                                                                    
(o)) were  related to  WLEs anywhere  south of  Prudhoe Bay,                                                                    
which would include Middle Earth.                                                                                               
                                                                                                                                
Representative Pruitt replied that  the intent had been Cook                                                                    
Inlet.                                                                                                                          
                                                                                                                                
Representative  Kawasaki  asked  if  there was  a  value  of                                                                    
return if the expenditures were repealed in 2019.                                                                               
                                                                                                                                
Representative Pruitt did not have a specific value.                                                                            
                                                                                                                                
Co-Chair Thompson stated that cutting  the WLE was much more                                                                    
of  a  disincentive than  other  items.  He elaborated  that                                                                    
there were producers on the  verge of having some production                                                                    
that would be  taxed eventually, which would  make the state                                                                    
some money. He did not support the amendment.                                                                                   
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson, Gattis, Pruitt, Kawasaki, Munoz                                                                               
OPPOSED:   Edgmon,   Gara,  Guttenberg,   Saddler,   Neuman,                                                                    
Thompson                                                                                                                        
                                                                                                                                
The MOTION to adopt Amendment 9 FAILED (5/6).                                                                                   
                                                                                                                                
4:59:19 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  Representative Pruitt MOVED  to ADOPT                                                                    
Amendment  10,  29-GH2609\F.35  (Shutts,  4/7/16)  (copy  on                                                                    
file). [Note: due to the length  of the amendment it has not                                                                    
been included in the minutes.]                                                                                                  
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Pruitt explained  the amendment. He discussed                                                                    
that  currently Cook  Inlet and  Middle  Earth were  grouped                                                                    
together in statue  (with the exception of  some credits for                                                                    
Middle  Earth  only). He  noted  that  some of  the  credits                                                                    
expired in the  current year, although the 30  to 40 percent                                                                    
alternative credit  for exploration continued  through 2022.                                                                    
He remarked that  the CS cut numerous credits,  but for some                                                                    
reason  some of  the  credits  had been  added  back in  for                                                                    
Middle   Earth.  He   thought  it   was  inappropriate   for                                                                    
additional credits to  be added back in.  He elaborated that                                                                    
creating too  many credits in another  basin was essentially                                                                    
asking for the  same problem the state  was currently facing                                                                    
in Cook Inlet. He reasoned that  if the goal was to save the                                                                    
state  money, the  committee should  not  be adding  credits                                                                    
back in. He believed there  were some great opportunities in                                                                    
Middle Earth,  but he thought  the same policy  should apply                                                                    
to all three regions.                                                                                                           
                                                                                                                                
Co-Chair Thompson  explained that  the CS held  Middle Earth                                                                    
harmless.  He explained  that the  Frontier  Basins had  the                                                                    
potential  to  bring  energy to  rural  areas;  the  credits                                                                    
incentivized  smaller areas  where the  large oil  companies                                                                    
were  not  interested  in  working  because  there  was  not                                                                    
sufficient commercial  quantities for them. However,  it was                                                                    
sufficient to bring down the  energy cost in rural areas. He                                                                    
reiterated  that the  CS held  Middle Earth  harmless. There                                                                    
was some  exploration that would hopefully  be completed and                                                                    
successful  in  the current  year,  which  would be  stopped                                                                    
prematurely if the amendment passed.                                                                                            
                                                                                                                                
Representative  Wilson asked  for verification  that if  the                                                                    
credits  were  extended  it was  possible  the  state  could                                                                    
experience  the problem  it was  currently  facing [in  Cook                                                                    
Inlet] where it  was faced with paying out more  and more in                                                                    
credits.                                                                                                                        
                                                                                                                                
Representative Pruitt replied in the affirmative.                                                                               
                                                                                                                                
Representative  Guttenberg   spoke  in  opposition   to  the                                                                    
amendment.  He stated  that he  had been  consistent on  his                                                                    
position related  to the Frontier  Basins. He  remarked that                                                                    
the cost of doing business  had declined; there were upsides                                                                    
and  downsides  to  the prices  of  petroleum  products.  He                                                                    
detailed that unlike the other  credits, the state knew what                                                                    
credits  in Middle  Earth (Nenana  Basin  and Ahtna  region)                                                                    
were doing.  He stressed  that the legislature  was informed                                                                    
on work in  the area; the projects were  the most expensive,                                                                    
not in  terms of  value, but  due to  risk. He  believed the                                                                    
state needed  to support high-risk projects  were the chance                                                                    
of  success   was  moderate.  He   wished  there   was  more                                                                    
exploration in the Frontier Basins,  which he believed would                                                                    
be healthy for the state. He  believed the first oil well in                                                                    
Alaska  was in  Karluk  outside of  Cordova.  He noted  that                                                                    
there was  not oil in the  area any longer -  the facilities                                                                    
had  shut  down.  He  specified  that  there  were  oil  and                                                                    
hydrocarbons  statewide,  which  he believed  needed  to  be                                                                    
discovered. He  reasoned that the state  needed to determine                                                                    
a grid for  Alaska that would drive the cost  of energy down                                                                    
for everyone  (not just in  Cook Inlet and Prudhoe  Bay). He                                                                    
stressed that finding  gas or oil in the  Nenana Basin would                                                                    
be a  game changer for the  state. He construed that  if the                                                                    
quantity  was  significant   it  would  require  substantial                                                                    
investment  by  companies.  He reasoned  that  the  projects                                                                    
would  occur   long-term  and   the  legislature   would  be                                                                    
revisiting  the  tax  policies once  or  twice  before  that                                                                    
point.                                                                                                                          
                                                                                                                                
Representative  Guttenberg  continued to  address  Amendment                                                                    
10.  He believed  supporting exploratory  credits in  Middle                                                                    
Earth  was  a  smart  move  and  was  in  the  state's  best                                                                    
interest.  He reiterated  that the  companies in  the region                                                                    
had kept the  state in the loop on  their activities because                                                                    
they wanted  the state's  help; whereas,  the state  did not                                                                    
know the production  value for the return on  its credits in                                                                    
other regions.  He believed the  basins were  very important                                                                    
at any hydrocarbon market price.                                                                                                
                                                                                                                                
Representative  Kawasaki  was   against  the  amendment.  He                                                                    
referred to  prior testimony by  Ken Alper (director  of the                                                                    
DOR Tax  Division) who  had shown  aggregated charts  due to                                                                    
the few  producers within  the Cook  Inlet region  and other                                                                    
regions outside the  area. He had asked how many  of the tax                                                                    
payers were dedicated to Frontier  Basins (Middle Earth) out                                                                    
of the $384 million in  refundable tax credits the state had                                                                    
provided the  previous year. He  relayed that Mr.  Alper had                                                                    
answered  that the  number was  very small;  he referred  to                                                                    
work conducted  by Doyon in  the Nenana Basin.  He discussed                                                                    
that the  state continued  to have  production on  the North                                                                    
Slope and in Cook Inlet,  but there was still much uncharted                                                                    
territory across the state. He  referred to recent testimony                                                                    
(several  weeks  earlier) by  DNR  related  to Prudhoe  Bay.                                                                    
There had been  2,000 exploratory and side  wells drilled in                                                                    
Prudhoe Bay. He  continued that Prudhoe Bay  was roughly the                                                                    
size of Montana, which had  20,000 wells. He elaborated that                                                                    
Montana  knew where  the oil  was because  it had  explored;                                                                    
whereas,  the State  of Alaska  did  not know  what was  out                                                                    
there.  Therefore, he  listened  when people  in the  Copper                                                                    
River Basin vocalized  their desire to find  oil and natural                                                                    
gas to support their region.  The same thing applied for the                                                                    
Nenana Basin,  which had experienced  some good  findings in                                                                    
recent years. He hoped the  findings could be capitalized in                                                                    
future  years;  therefore, he  stood  in  opposition to  the                                                                    
amendment.                                                                                                                      
                                                                                                                                
5:08:02 PM                                                                                                                    
                                                                                                                                
Representative Gara  could not  consistently vote  to reduce                                                                    
tax credits  for Cook Inlet  at the  expense of the  rest of                                                                    
the state  without looking  at the  credits the  state could                                                                    
not  afford across  Alaska.  He believed  it  was not  about                                                                    
whether a  credit benefited his region  over another region,                                                                    
it was about  whether the state could afford  the credit. He                                                                    
surmised that  the amendment did not  eliminate the credits,                                                                    
but brought  them to the  Cook Inlet  level. He asked  to be                                                                    
corrected if  his understanding  was incorrect.  He stressed                                                                    
that the state  was spending over $1 billion  in credits; it                                                                    
was spending  more in  credits than it  was getting  back in                                                                    
production taxes,  royalties, and other. He  opined that the                                                                    
system had  made sense  when the state  had been  flush with                                                                    
money at high  prices. He relayed that he  could support the                                                                    
amendment if  he received  clarification that  the amendment                                                                    
matched the credits in Cook Inlet.                                                                                              
                                                                                                                                
Vice-Chair  Saddler  testified   against  Amendment  10.  He                                                                    
believed  it was  clear that  regional needs  were different                                                                    
due to  Alaska's large  size, numerous  hydrocarbon regions,                                                                    
varying  geology, and  different stages  of exploration  and                                                                    
production. He  detailed that  in Cook  Inlet the  state had                                                                    
accommodated  the special  geology, markets,  and population                                                                    
needs in  Southcentral Alaska. Under SB  21, the legislature                                                                    
had accommodated the state's  economic needs recognizing the                                                                    
North  Slope  as the  primary  producer  of wealth  for  the                                                                    
state. He  believed it was  appropriate to  offer incentives                                                                    
for  Middle  Earth;  the legislature  had  heard  frequently                                                                    
about the need  for cheaper energy in the  Interior. As much                                                                    
as  he respected  the  desire for  consistency,  he did  not                                                                    
believe   one-size-fit-all  in   Alaska.  He   believed  the                                                                    
provision should remain in the CS.                                                                                              
                                                                                                                                
Co-Chair  Neuman spoke  in opposition  to the  amendment. He                                                                    
remarked  that   the  Cook  Inlet   gas  credits   had  been                                                                    
implemented under SB 21 when  rolling brownouts had occurred                                                                    
and people  had faced the  possibility of losing gas  in the                                                                    
middle of  the night.  He stressed  that those  things would                                                                    
have  significantly  disrupted  the system;  therefore,  the                                                                    
state  had   created  large   credits  to   incentivize  gas                                                                    
exploration in  the region. He  elaborated that  the credits                                                                    
had  been successful  and better  than  expected, which  had                                                                    
been a good  thing because there were currently  12 years of                                                                    
known reserves.  He added  there were  reserves in  the area                                                                    
that  were yet  to be  discovered,  but he  did not  believe                                                                    
there  was currently  significant  gas exploration  underway                                                                    
due to  the known  reserves. He  believed it  was different;                                                                    
the legislature  was opting to  draw back the credits  a bit                                                                    
because  the Cook  Inlet Recovery  Act had  worked well.  He                                                                    
believed it was  time to reduce the credits  a bit. However,                                                                    
he wanted  to continue to  work on determining how  to bring                                                                    
gas  to  the  Interior  Alaska  to  lower  their  costs.  He                                                                    
believed the current plan was  to continue to truck gas from                                                                    
Cook Inlet  to the region; there  was plenty of gas  in Cook                                                                    
Inlet to provide or Fairbanks  (the needed amount was fairly                                                                    
small). He added  that hopefully the state  could get Donlin                                                                    
online  and  there  would  still   be  plenty  of  gas.  The                                                                    
legislature  had  heard loud  and  clear  from residents  in                                                                    
Fairbanks -  for years  the legislature  had been  trying to                                                                    
help  bring  relief  for  energy   costs  in  Fairbanks.  He                                                                    
believed a large  portion had been to get  into Middle Earth                                                                    
(the term for the center of  the state had been coined a few                                                                    
years  back).  He spoke  to  incentivizing  gas and  keeping                                                                    
costs lower  because natural  gas prices  were very  high in                                                                    
Cook Inlet. He  stated that gas was expensive  in Cook Inlet                                                                    
compared to  Henry Hub and  the Lower 48. He  believed there                                                                    
were  wells under  exploration that  could supply  Fairbanks                                                                    
and the  Interior region.  He believed  it was  important to                                                                    
continue  to  try to  help  the  region by  maintaining  the                                                                    
credits  a  little  longer. He  knew  there  were  companies                                                                    
currently working that  may be dependent on  the credits; he                                                                    
suspected  that  companies  would discontinue  work  if  the                                                                    
credits were withdrawn.                                                                                                         
                                                                                                                                
5:14:09 PM                                                                                                                    
                                                                                                                                
Representative Edgmon opposed Amendment  10. He recalled the                                                                    
resource  assessment Paul  Decker  (acting  director of  the                                                                    
Department  of Natural  Resources Division  of Oil  and Gas)                                                                    
had  given the  committee  on  all areas  in  the state.  He                                                                    
referred to testimony about the  Frontier Basins (which were                                                                    
synonymous  with  Middle  Earth)  that  had  been  partially                                                                    
assessed  at  present.  From  an  undiscovered,  technically                                                                    
recoverable  resource  standpoint,  there  was  no  question                                                                    
there were  hydrocarbons in  the region.  He thought  it was                                                                    
worthy to  maintain the  credits given  the early  stages of                                                                    
exploration and  the testimony the committee  had heard from                                                                    
Ahtna  and Doyon  in reference  to  work done  in the  Yukon                                                                    
Flats, the Nenana and Copper  River Basin. He noted that the                                                                    
legislature would review the credits again in the future.                                                                       
                                                                                                                                
Representative  Pruitt relayed  that the  amendment did  not                                                                    
get  rid of  the credits.  He clarified  that the  amendment                                                                    
would  maintain   the  current  credits;  whereas,   the  CS                                                                    
actually  increased   the  credits.   He  stated   that  the                                                                    
amendment would  go back to  the currently existing  law. He                                                                    
added that SB 21 had nothing to do with Cook Inlet.                                                                             
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gattis, Pruitt, Wilson, Gara                                                                                          
OPPOSED:  Edgmon,  Guttenberg,   Kawasaki,  Munoz,  Saddler,                                                                    
Thompson, Neuman                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 10 FAILED (4/7).                                                                                  
                                                                                                                                
5:17:18 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  MOVED  to ADOPT  Amendment  11,  29-                                                                    
GH2609\F.37 (Shutts,  4/7/16) (copy on file).  [Note: due to                                                                    
the length of the amendment it  has not been included in the                                                                    
minutes.]                                                                                                                       
                                                                                                                                
Representative Guttenberg  and Co-Chair Neuman  OBJECTED for                                                                    
discussion.                                                                                                                     
                                                                                                                                
Representative  Wilson   explained  the  amendment   with  a                                                                    
prepared statement:                                                                                                             
                                                                                                                                
     Current  statute  includes  a   hard  4  percent  gross                                                                    
     minimum tax  floor against a  sliding scale  per barrel                                                                    
     credit,  which   is  a  progressivity   mechanism.  Net                                                                    
     operating loss credits, the  small producer credit, and                                                                    
     new  oil  reductions  and  credits  can  reduce  a  tax                                                                    
     liability below the 4 percent  gross minimum floor, but                                                                    
     never below zero. The House  Finance CS eliminates this                                                                    
     step  down  in minimum  gross  taxes  at very  low  oil                                                                    
     prices setting a  firm floor of 4 percent  gross at all                                                                    
     low  oil  prices.  The CS  allows  certain  credits  to                                                                    
     reduce a  tax payer's  liability beneath the  4 percent                                                                    
     gross minimum but  only to 2 percent  of gross. Credits                                                                    
     are education tax credits,  small producer credits, new                                                                    
     oil  credits,  and  net  operating  loss  credits.  The                                                                    
     amendment  removes  these  House  Finance  CS  changes,                                                                    
     restoring the terms of SB 21.                                                                                              
                                                                                                                                
Representative   Wilson   reminded    the   committee   that                                                                    
constituents  had  voted  to  keep   SB  21  in  place.  She                                                                    
continued reading from a statement:                                                                                             
                                                                                                                                
     SB 21  was carefully  crafted and balanced  the state's                                                                    
     take on the  high end and on the low  end. To take more                                                                    
     on the  high end we give  up some on the  low end. That                                                                    
     was  our  decision.  Enalytica testified  very  clearly                                                                    
     that they do not think  that SB 21 regime needs changes                                                                    
     right now.                                                                                                                 
                                                                                                                                
Representative Wilson  noted that the legislature  had asked                                                                    
the adminstration if the conversation  would be taking place                                                                    
if oil  prices were  higher and  if government  spending was                                                                    
not  as  high.  She  relayed  that  the  administration  had                                                                    
replied in the  negative. She did not  believe the situation                                                                    
was the  fault of the  oil companies. She  continued reading                                                                    
from a statement:                                                                                                               
                                                                                                                                
     We  can't take  more from  an industry  that is  losing                                                                    
     money. Really?  We want them  to keep investing  in our                                                                    
     future  production even  when  times  are tough?  Well,                                                                    
     we're  sending the  wrong message.  The North  Slope is                                                                    
     where our  revenue will come from  once prices rebound.                                                                    
     We  don't  want to  jeopardize  that  with our  actions                                                                    
     today. SB 21  started working as soon as  it passed and                                                                    
     was upheld by voters. SB 21  is working now too, and it                                                                    
     will work  in the future,  unless we keep  changing it.                                                                    
     We can't keep increasing taxes  when prices are low and                                                                    
     increasing taxes when prices are  high or we will drive                                                                    
     industry out of this state.                                                                                                
                                                                                                                                
Representative Wilson  asked if the committee  could imagine                                                                    
doing business in  a state where the leaders  could not make                                                                    
up  their minds.  She stressed  that the  state wanted  more                                                                    
[money] during high and low  oil prices. She spoke to asking                                                                    
industry  for more  money  even when  the  industry was  not                                                                    
doing well because the state  could not manage its finances.                                                                    
She  elaborated  that  the legislature  had  tried  removing                                                                    
credits, stepping  credits down,  and other. She  noted that                                                                    
the legislature  was currently vocalizing it  needed to quit                                                                    
changing the tax structure repeatedly.  She remarked that if                                                                    
her parents  tried to  run a business  in Alaska  they would                                                                    
never make  a profit  because of the  need to  hire numerous                                                                    
staff to  determine what they  owed on their taxes.  She did                                                                    
not  understand.  She  specified that  the  legislature  had                                                                    
heard from  the administration and industry  about how often                                                                    
it had  changed the tax  system. She believed DOR  could not                                                                    
keep  up with  audits because  of the  numerous tax  systems                                                                    
(i.e.  Petroleum Profits  Tax (PPT),  Economic Limit  Factor                                                                    
(ELF),  Alaska's Clear  and Equitable  Share (ACES),  SB 21,                                                                    
and  other). She  asked "when  do we  stop?" She  reiterated                                                                    
that the  voters had maintained  SB 21. She believed  it was                                                                    
wrong for the committee to try  to decide "why one voter did                                                                    
or  didn't   do  what  they  did."   She  countered  earlier                                                                    
statements  that  the  CS   represented  a  compromise.  She                                                                    
emphasized  that  the  legislature  needed  to  stop  making                                                                    
changes  or  it  would  run its  biggest  industry  out  (an                                                                    
industry that paid the state's bills).                                                                                          
                                                                                                                                
5:22:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson  remarked that the amendment  would return                                                                    
the [tax]  floor to  a "loose"  4 percent,  which maintained                                                                    
current statute.  The CS  included a  2 percent  hard floor.                                                                    
Under the 4 percent loose  tax, credits could drop the floor                                                                    
to zero. He felt that the 2 percent was a compromise.                                                                           
                                                                                                                                
Representative Gara  spoke in  opposition to  the amendment.                                                                    
He had  been present for  the debate  on SB 21.  He recalled                                                                    
the statements  that the bill  reduced taxes at  high prices                                                                    
and included a small 4  percent minimum floor at low prices.                                                                    
He  noted that  the  gross  tax was  smaller  than in  other                                                                    
states. He stressed that the  current system was low on both                                                                    
ends.  He  recalled  being  told that  the  state  would  be                                                                    
protected by a  4 percent gross tax; he had  never been told                                                                    
the number  could go to  zero. Under  current law, in  FY 18                                                                    
through  FY 21,  the  state would  make  less in  production                                                                    
taxes  than it  would  in  fish and  game  license fees.  He                                                                    
continued  that in  FY  18, production  taxes  would be  $16                                                                    
million; a current fish and  game licensing bill would bring                                                                    
in  $31  million. Currently  the  state  was collecting  $18                                                                    
million in  fish and game  licensing fees. He  stressed that                                                                    
it was not  possible to run a society  with production taxes                                                                    
that  low. He  explained that  the projected  production tax                                                                    
revenue  dropped to  $11  million the  following  year as  a                                                                    
result of  large NOL credits.  He emphasized that  the state                                                                    
was paying a  substantial amount of money to  companies - he                                                                    
believed  the benefit  companies received  was too  high. He                                                                    
reasoned  that companies  invested based  on geology  and on                                                                    
price; Alaska's  geology was still  good, but the  price was                                                                    
bad worldwide  - the  state could not  change the  price. He                                                                    
explained  that   the  4  percent   minimum  tax   had  been                                                                    
advertised as something that would  protect the state on the                                                                    
low end with  production tax income; however,  the state did                                                                    
not  receive  the  money  due  to the  credits  it  gave  to                                                                    
companies.  He stressed  that  the NOL  credit  was over  $1                                                                    
billion in the coming year.                                                                                                     
                                                                                                                                
Representative Pruitt remarked  that SB 21 had  only been in                                                                    
place for three years and  the legislature was now trying to                                                                    
change  it.  He  detailed  that   the  governor's  bill  had                                                                    
initially  dealt with  credits,  with the  exception of  the                                                                    
current  item under  discussion. The  amendment addressed  a                                                                    
fundamental change  to SB  21. He  specified that  the state                                                                    
lived the high-life when oil  prices were high because there                                                                    
was a  high net  profits tax.  Enalytica had  testified that                                                                    
part of  what made the  net profits tax work  (especially at                                                                    
35 percent, which was higher  than the ACES base number) was                                                                    
the NOL credits. The difference  between moving from a loose                                                                    
floor to a  2 percent floor could be  the difference between                                                                    
a rig  operating or shutting  down. He reasoned that  if the                                                                    
conversation  pertained  to  needing money  immediately,  he                                                                    
wondered  what money  would be  lost in  the next  couple of                                                                    
years  because  companies  had  to  "lay  down  a  rig."  He                                                                    
stressed that whatever  oil the state lost  in production at                                                                    
present would  not come back.  He continued  that currently,                                                                    
companies were drilling  merely to keep at a  level pace. He                                                                    
elaborated that  there was  a natural  rate of  decline that                                                                    
because  of companies'  investment  (even  though they  were                                                                    
losing money),  maintained the level rate.  He stressed that                                                                    
if the  companies did not  invest, the state would  lose the                                                                    
decline.  He reiterated  that  it was  not  coming back.  He                                                                    
explained that  the CS included  a fundamental  policy shift                                                                    
that would change the tax  system after only three years and                                                                    
indicated that when the state  was in a financial problem it                                                                    
would go after companies to fill its deficit.                                                                                   
                                                                                                                                
Representative Pruitt asked  if the state would  do the same                                                                    
thing  to   other  industries  (i.e.  fishing,   mining  and                                                                    
tourism) in Alaska when it  no longer had oil coming through                                                                    
the  pipeline because  of  poor  decisions and  discouraging                                                                    
investment.   He  opined   that  the   state  should   avoid                                                                    
disincentivizing the industry  currently paying the majority                                                                    
of its bills.  He reiterated his earlier  statement that the                                                                    
bill  sent a  message  to  industry that  it  would have  to                                                                    
determine whether to  invest in a regime  that increased tax                                                                    
at  a  time when  no  other  regimes  in  the U.S.  and  few                                                                    
worldwide were  looking to make increases.  He stressed that                                                                    
Alaska would be known for  increasing taxes when the rest of                                                                    
the  world was  trying  to incentivize  oil development.  He                                                                    
supported the  amendment and  wanted to  revert back  to the                                                                    
provision passed in SB 21.                                                                                                      
                                                                                                                                
5:30:00 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler spoke against  the amendment. He recalled                                                                    
that he  had been on  the House Resources Committee  when SB                                                                    
21  had gone  through  the legislature.  He  noted that  the                                                                    
previous tax regime  did not have a [tax] floor.  He did not                                                                    
believe anyone  had wanted to  see Alaska collect  tax based                                                                    
on that  floor; however, the  prices had fallen  farther and                                                                    
faster  than anyone  anticipated. The  comfort he  had taken                                                                    
from having  a floor had been  significantly diminished when                                                                    
he  discovered  that  credits multiplied  as  they  had.  He                                                                    
remarked  that  the  industry  employed  clever  people  who                                                                    
pursued  its interests.  He  reasoned  that legislators  had                                                                    
concomitant   obligations.  He   understood  that   the  oil                                                                    
industry was  hurting, that it was  difficult to incentivize                                                                    
production, and that it was  hard to make a profit; however,                                                                    
a floor  that did not  block the value from  declining below                                                                    
that  amount, was  not a  floor. He  believed provision  was                                                                    
reasonable.                                                                                                                     
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gattis, Pruitt, Wilson                                                                                                
OPPOSED:   Gara,  Guttenberg,   Kawasaki,  Munoz,   Saddler,                                                                    
Edgmon, Thompson, Neuman                                                                                                        
                                                                                                                                
The MOTION to adopt Amendment 11 FAILED (3/8).                                                                                  
                                                                                                                                
Co-Chair  Thompson  noted that  the  5:00  p.m. meeting  was                                                                    
canceled.                                                                                                                       
                                                                                                                                
5:32:28 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:56:03 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Wilson  MOVED  to  ADOPT  Amendment  12  29-                                                                    
GH2609\F.40 (Nauman/Shutts, 4/7/16) (copy on file):                                                                             
                                                                                                                                
     Page 3, line 18:                                                                                                           
     Delete "ill"                                                                                                               
                                                                                                                                
     Page 3, lines 23 - 28:                                                                                                     
     Delete "and                                                                                                                
          (ii)  after  the  first four  years  after  a  tax                                                                    
          becomes delinquent, in each  calendar quarter at a                                                                    
          rate of  five percentage  points above  the annual                                                                    
          rate  charged member  banks  for  advances by  the                                                                    
          12th Federal Reserve District as  of the first day                                                                    
          of that calendar quarter"                                                                                             
                                                                                                                                
     Insert "no interest shall accrue after the first four                                                                      
     years after a tax becomes delinquent"                                                                                      
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative   Wilson   explained   the   amendment.   She                                                                    
clarified that she  was not arguing about the  first 4 years                                                                    
when it  came to charging compounded  and quarterly interest                                                                    
for audits to be completed;  however, she was concerned that                                                                    
audits  were  taking 6  years  (based  on testimony  to  the                                                                    
committee).  She reminded  the  committee  that audits  were                                                                    
determined  by the  department  (similar  to federal  audits                                                                    
conducted by  the Internal Revenue Service).  One reason the                                                                    
department conducted numerous audits  was due to the state's                                                                    
unclear system. She did not  believe the state should charge                                                                    
interest  after  the first  4  years.  She did  not  believe                                                                    
companies filing on  time should be charged  interest if the                                                                    
state could  not get  its business  done. The  state charged                                                                    
significant interest,  which was  sometimes larger  than the                                                                    
amount owed.                                                                                                                    
                                                                                                                                
Co-Chair  Thompson  believed   the  CS  included  compounded                                                                    
interest that would go to simple interest.                                                                                      
                                                                                                                                
Representative Wilson agreed.                                                                                                   
                                                                                                                                
Co-Chair Thompson pointed out that  it was a two-way street;                                                                    
if the companies  had overpaid, there was no  interest to go                                                                    
to the companies.                                                                                                               
                                                                                                                                
Representative  Gara opposed  the  amendment. He  understood                                                                    
the amendment  sponsor's point. He  emphasized that  the way                                                                    
to  get  audits  done  quicker  was  to  have  auditors.  He                                                                    
remarked that  many legislators had  worked to  increase the                                                                    
number of auditors, but he  believed others did not want the                                                                    
auditors. He  stated that  auditors did  a number  of things                                                                    
including ensuring  tax returns  were accurate.  He detailed                                                                    
that in  a profits tax a  company may have the  incentive to                                                                    
take deductions and  credits it was not  really entitled to.                                                                    
Companies  paying as  fairly as  possible  were entitled  to                                                                    
having  their return  audited more  quickly. He  believed in                                                                    
order to protect the state  and be fair to companies playing                                                                    
by  the  rules,  the  state should  look  at  hiring  needed                                                                    
auditors. He  surmised the state  would earn the  money back                                                                    
much more  quickly in  audits that  probably save  the state                                                                    
money. He believed it was a budget discussion.                                                                                  
                                                                                                                                
5:59:41 PM                                                                                                                    
                                                                                                                                
Representative  Gattis spoke  in support  of the  amendment.                                                                    
She agreed  that the  state needed  employees auditing  on a                                                                    
much quicker  basis. She believed  state auditors  were paid                                                                    
$200,000 to  $300,000 per  year. She  thought the  state did                                                                    
not  necessarily   need  more   auditors,  but   could  hire                                                                    
individuals to  help put the package  together. She believed                                                                    
there was a  huge problem if it took the  state six years to                                                                    
complete  the  audits. She  thought  there  had to  be  some                                                                    
incentive for  the department  to get  the audits  done. She                                                                    
opined that  4 years  was sufficient; if  the audit  was not                                                                    
complete  in 4  years  the compounding  interest should  not                                                                    
continue to accumulate - she  believed it was a disincentive                                                                    
for the department to get the work done.                                                                                        
                                                                                                                                
Vice-Chair Saddler believed  it all came out in  the wash if                                                                    
there  was  underpayment  or overpayment  by  the  state  or                                                                    
filers  of  the returns.  He  was  inclined to  support  the                                                                    
amendment. He  did not know  if the process could  be easily                                                                    
sped up or  if the work was highly technical.  He added that                                                                    
the  state  did have  complex  oil  tax laws.  He  supported                                                                    
incentivizing the  state to  accomplish audits  quickly with                                                                    
compounded interest  for the first  4 years and  no interest                                                                    
thereafter.                                                                                                                     
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gattis, Saddler, Munoz, Pruitt, Wilson,                                                                               
OPPOSED:  Guttenberg,  Kawasaki,   Edgmon,  Gara,  Thompson,                                                                    
Neuman                                                                                                                          
                                                                                                                                
The MOTION to adopt Amendment 12 FAILED (5/6).                                                                                  
                                                                                                                                
6:02:48 PM                                                                                                                    
                                                                                                                                
Representative  Gara  MOVED  to   ADOPT  Amendment  13,  29-                                                                    
GH2609\F.39 (Nauman/Shutts, 4/7/16) (copy on file):                                                                             
                                                                                                                                
     Page 16, line 30, following "January 1, 2016,":                                                                            
     Insert "and before January l, 2017,"                                                                                       
                                                                                                                                
     Page 17, line 1, following "loss.":                                                                                        
                                                                                                                                
     Insert "For lease  expenditures incurred after December                                                                    
     31, 2017,  to explore for,  develop, or produce  oil or                                                                    
     gas  deposits   located  north  of  68   degrees  North                                                                    
     latitude, a  producer or explorer  may elect to  take a                                                                    
     tax credit in the amount of 20 percent of a carried-                                                                       
     forward annual loss."                                                                                                      
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Gara explained  the amendment.  He discussed                                                                    
that over  the past few  months the legislature  had learned                                                                    
the state  was paying much more  in NOL credits than  it had                                                                    
ever  anticipated. In  FY  17 the  state  was paying  $1.025                                                                    
billion in NOL credits at  a time when production taxes were                                                                    
forecasted  in  the $16  million  range  (decreasing to  $11                                                                    
million to  $13 million). Due to  the large size of  the NOL                                                                    
credits  $618  million would  be  carried  forward into  the                                                                    
future.  He  detailed  that  even  as  prices  went  from  a                                                                    
forecast of  $38 per barrel  to $60 per barrel,  the state's                                                                    
production tax  revenue was decreasing  from $59  million at                                                                    
present to  $33 million  in 5 years.  He specified  that $82                                                                    
million of the NOL credits  on the North Slope were deducted                                                                    
from production taxes,  which brought taxes down  to zero in                                                                    
many cases; $325  million were made in cash  payments by the                                                                    
state.  He stressed  that the  system  was not  sustainable.                                                                    
Currently the CS  contained a 35 percent NOL  credit for the                                                                    
North Slope; the state was  paying 35 percent of a company's                                                                    
operating  and  capital  costs.  Meanwhile,  the  state  was                                                                    
living at  a 4 percent tax  that could drop to  zero, with a                                                                    
production  tax that  was essentially  nonexistent over  the                                                                    
next several years. He remarked  that the NOL credit did not                                                                    
include  the Cook  Inlet credits  and all  of the  money the                                                                    
state  was  paying. He  believed  the  state should  try  to                                                                    
incentivize oil, but it was  not going to convince a company                                                                    
to start  producing a small  field when oil prices  were $36                                                                    
per barrel. He explained that it  had nothing to do with the                                                                    
credit and tax system; it was  the low price. He supported a                                                                    
sustainable level  of credits; the amendment  would move the                                                                    
North Slope  NOL credit to a  20 percent credit down  from a                                                                    
very generous  35 percent. The  change would save  the state                                                                    
about $150  million per year.  He continued that  the system                                                                    
would still  be very generous  to companies; there  were not                                                                    
many  states currently  giving companies  20 percent  to pay                                                                    
for their  losses. Additionally, there were  not many states                                                                    
providing the credit when they  were receiving a tax of zero                                                                    
to 4 percent.                                                                                                                   
                                                                                                                                
Representative  Gara stressed  that  if the  taxes were  not                                                                    
reduced, the  carry-forward credits  would carry  forward in                                                                    
perpetuity. He  explained that so  many of the  credits were                                                                    
carried  forward because  companies could  not deduct  their                                                                    
taxes below zero.  He detailed that as  prices almost double                                                                    
over the next 5 years,  the state's production tax went from                                                                    
$55 million  in the current year  to $33 million in  5 years                                                                    
and to $11 million and  $16 million in intervening years. He                                                                    
specified that because  the NOL credit was so  high, the tax                                                                    
was a  bit low, and  companies would be rolling  forward NOL                                                                    
credits  for many  years  to  come. As  a  result, a  future                                                                    
legislature  would  inherit  a  budget that  was  even  more                                                                    
unsustainable. He believed the  20 percent payment under the                                                                    
amendment was still  generous. He added that  the credit was                                                                    
provided  in   the  first   year;  whereas   most  companies                                                                    
receiving a deduction  had to amortize the  amount over many                                                                    
years.                                                                                                                          
                                                                                                                                
6:08:09 PM                                                                                                                    
                                                                                                                                
Representative Munoz asked the  amendment sponsor to clarify                                                                    
the amount spent NOL carry-forward  credits. She thought the                                                                    
amount was closer  to $300 million for the  North Slope, but                                                                    
expected to continue to grow  to approximately $1 billion in                                                                    
the  next  two  years.  [Representative  Gara  nodded.]  She                                                                    
agreed  that  35 percent  was  too  high given  the  state's                                                                    
revenue  situation;  however,   she  believed  reducing  the                                                                    
number to  20 percent  was too drastic.  She MOVED  to AMEND                                                                    
Amendment 13 by allowing a  producer or explorer to elect to                                                                    
take a tax credit in the  amount of 25 percent of a carried-                                                                    
forward annual loss.                                                                                                            
                                                                                                                                
Co-Chair Neuman OBJECTED.                                                                                                       
                                                                                                                                
Representative  Munoz  asked  if   Amendment  13  should  be                                                                    
presented first and a second  conceptual amendment should be                                                                    
offered   later.   She   asked   for   Co-Chair   Thompson's                                                                    
preference.                                                                                                                     
                                                                                                                                
Co-Chair Thompson  preferred to  address Amendment  13 prior                                                                    
to addressing the conceptual amendment.                                                                                         
                                                                                                                                
Representative  Munoz WITHDREW  her  amendment to  Amendment                                                                    
13.                                                                                                                             
                                                                                                                                
6:10:32 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
6:11:23 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Gara relayed  that  he would  not object  to                                                                    
passing a 25 percent amendment.  He communicated that of the                                                                    
NOL credits that would accrue in  FY 17 for the North Slope,                                                                    
$325 million  were cashable, $82  million was  deducted from                                                                    
companies' 4 percent tax, and  $618 million would be carried                                                                    
forward into future years. The  $618 million carried forward                                                                    
would  leave the  state  with no  production  tax in  future                                                                    
years. He specified  that about $1 billion  in credits would                                                                    
accrue in FY 17.                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED.                                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Munoz, Pruitt,  Saddler,  Edgmon, Wilson,  Edgmon,                                                                    
Thompson, Neuman                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 13 FAILED (3/8).                                                                                  
                                                                                                                                
6:13:33 PM                                                                                                                    
                                                                                                                                
Representative  Gara MOVED  to conceptually  AMEND Amendment                                                                    
13, which  would move the NOL  credit from 35 percent  to 25                                                                    
percent.  [Note: the  amendment  was  actually a  conceptual                                                                    
amendment  to  the  bill,  not  to  Amendment  13.  Co-Chair                                                                    
Thompson clarified  this point  later in  the meeting  - see                                                                    
6:55 p.m. for detail.]                                                                                                          
                                                                                                                                
Co-Chair Neuman OBJECTED.                                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Kawasaki, Munoz, Gara, Edgmon, Guttenberg                                                                             
OPPOSED: Pruitt, Saddler, Gattis, Wilson, Neuman, Thompson                                                                      
                                                                                                                                
The MOTION to adopt the conceptual amendment FAILED (5/6).                                                                      
                                                                                                                                
6:16:05 PM                                                                                                                    
                                                                                                                                
Representative  Gara  MOVED  to   ADOPT  Amendment  14,  29-                                                                    
GH2609\F.19 (Shutts, 4/6/16) (copy on file):                                                                                    
                                                                                                                                
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Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Gara  explained that the  amendment pertained                                                                    
to  Cook  Inlet where  there  were  currently no  production                                                                    
taxes  on gas  or oil.  He  elaborated that  the state  paid                                                                    
companies for  a variety of  credits including a  10 percent                                                                    
NOL credit,  which could  be added to  a 10  percent capital                                                                    
expenditure credit  or a  20 percent  WLE credit.  He opined                                                                    
that at  some point  the credit  costs became  too expensive                                                                    
and  unsustainable.  The  amendment  would  reduce  the  WLE                                                                    
credit from  20 percent  to 10 percent,  which would  mean a                                                                    
difference  to  the  state  of  about  $10  million  to  $15                                                                    
million.  He remarked  that the  committee  had spent  hours                                                                    
trying  to find  a  way to  cut the  budget  by that  amount                                                                    
without  hurting  the state.  He  explained  that the  money                                                                    
mattered  to the  state and  it was  fair to  industry; even                                                                    
when  industry paid  no production  taxes it  still received                                                                    
the  highest  price  for  natural gas  in  the  country.  He                                                                    
reiterated the credits  paid to companies in  Cook Inlet. He                                                                    
stressed that  the amendment still provided  an incentive to                                                                    
companies; the state would still be paying cash credits.                                                                        
                                                                                                                                
Representative Wilson observed  that the amendment resembled                                                                    
an amendment she  had offered that had been  voted down. She                                                                    
was frustrated  that the committee  was being asked  to make                                                                    
decisions without  modelling and  real numbers  to determine                                                                    
how things  would affect the  industry. She believed  it was                                                                    
the  wrong  approach. She  asked  why  a member  would  vote                                                                    
against  the earlier  amendment, but  vote in  favor of  the                                                                    
current one.                                                                                                                    
                                                                                                                                
6:19:22 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
6:19:46 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative   Wilson  asked   how   many  companies   the                                                                    
amendment  would impact.  She wondered  how the  $15 million                                                                    
[in savings to the state] had been determined.                                                                                  
                                                                                                                                
Representative  Gara believed  the  amendment  he had  voted                                                                    
against had included a 40  percent credit, which declined to                                                                    
30 percent and  then 20 percent. He could not  vote for a 40                                                                    
percent  credit when  the state  was facing  a $4.4  billion                                                                    
deficit.  The  current  amendment   would  maintain  the  10                                                                    
percent  NOL  credit, but  companies  would  have to  choose                                                                    
between  a  10 percent  QCE  credit  and  a 10  percent  WLE                                                                    
credit. The only  change was decreasing the  WLE credit from                                                                    
20 percent down to 10 percent.                                                                                                  
                                                                                                                                
Representative  Kawasaki  highlighted  that  prior  to  2010                                                                    
(before the  implementation of the Cook  Inlet Recovery Act)                                                                    
the  state  had provided  zero  credits  to non-North  Slope                                                                    
producers  in Cook  Inlet. He  recognized the  need for  the                                                                    
credits when they  had been put in place and  perhaps in the                                                                    
future; however,  he believed the incentives  were no longer                                                                    
necessary when there  1.6 trillion cubic feet  of gas, which                                                                    
was  enough to  supply Anchorage  in a  growth state  for 12                                                                    
years (according  to the  DNR Division of  Oil and  Gas). He                                                                    
added  that  the  state could  not  afford  the  incentives.                                                                    
Additionally,  Legislative Budget  and Audit  had contracted                                                                    
with  consultant enalytica  for  the past  several years  to                                                                    
specifically address oil and gas  taxes. He relayed that the                                                                    
consultants  had questions  and comments  about credits  and                                                                    
taxes in Alaska's oil patch,  specifically in Cook Inlet. He                                                                    
read past testimony from enalytica related to 2015:                                                                             
                                                                                                                                
     Principal  among  these  credits  paid  to  Cook  Inlet                                                                    
     producers, our  estimated account  for around  half the                                                                    
     state's spending  on credits. Since the  state does not                                                                    
     levy a  profit-based production tax in  the Cook Inlet,                                                                    
     these  essentially constitute  a  subsidy  to the  Cook                                                                    
     Inlet  producers rather  than an  investment in  future                                                                    
     tax revenue.                                                                                                               
                                                                                                                                
Representative  Kawasaki specified  that  the statement  had                                                                    
been related to discussion the  legislature had on SB 21 and                                                                    
North  Slope  producers.  He explained  that  the  amendment                                                                    
would reduce  credits in the  Cook Inlet slightly,  which he                                                                    
believed was  reasonable when  the state  was facing  a $4.1                                                                    
billion budget deficit  and it was expected  to provide over                                                                    
$400 million in credits to non-North Slope producers.                                                                           
                                                                                                                                
Representative  Munoz  clarified  that the  state  had  been                                                                    
offering exploration  credits outside the North  Slope since                                                                    
2004 under  ELF. Additionally  the 20  percent carry-forward                                                                    
credits had begun  under PPT, the small  producer credit had                                                                    
been $12 million, and the  qualified capital expenditure had                                                                    
been 20 percent for non-North Slope beginning in 2007.                                                                          
                                                                                                                                
Co-Chair Thompson  stated that  when WLE credits  reached 20                                                                    
percent they essentially went away.  He added that qualified                                                                    
capital expenditure credits were at 20 percent.                                                                                 
                                                                                                                                
6:24:39 PM                                                                                                                    
                                                                                                                                
Representative Gara clarified that  WLE credits would not go                                                                    
away. He detailed that at 10  percent they would be close to                                                                    
the QCE credit. He noted  that a company would likely choose                                                                    
the QCE credit as it  would probably be worth slightly more.                                                                    
The  amendment would  save  the state  money  because at  20                                                                    
percent, a  WLE credit was  worth a bit more.  He reiterated                                                                    
that nothing would be eliminated under the amendment.                                                                           
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki, Wilson, Edgmon                                                                            
OPPOSED: Munoz, Pruitt, Saddler, Gattis, Thompson, Neuman                                                                       
                                                                                                                                
The MOTION to adopt Amendment 15 FAILED (5/6).                                                                                  
                                                                                                                                
6:26:07 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
6:54:42 PM                                                                                                                    
RECOVENED                                                                                                                       
                                                                                                                                
Co-Chair Thompson clarified that  Amendment 13 had failed to                                                                    
pass. He  corrected that  the conceptual  amendment [offered                                                                    
by Representative Gara] had been to  the bill as a whole and                                                                    
had failed to pass.                                                                                                             
                                                                                                                                
Representative  Gara  MOVED  to   ADOPT  Amendment  15,  29-                                                                    
GH2609\F.21 (Shutts, 4/6/16) (copy on file):                                                                                    
                                                                                                                                
     Page 22, line 4:                                                                                                           
     Delete "$100,000,000"                                                                                                      
     Insert "$25,000,000"                                                                                                       
                                                                                                                                
     Page 22, line 12:                                                                                                          
     Delete "$100,000,000"                                                                                                      
     Insert "$25,000,000"                                                                                                       
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Gara   explained  that  the   original  bill                                                                    
version  had contained  a  $25 million  cap  per company  on                                                                    
reimbursable  credits.  He  detailed  that  without  a  cap,                                                                    
especially with the NOL and  other credits, approximately $1                                                                    
billion  or more  in credits  would be  carried forward.  He                                                                    
stated that the  CS moved the cap to  $100 million; however,                                                                    
it was ineffective because almost  no companies claimed that                                                                    
much  in reimbursable  credit.  Whereas, the  administration                                                                    
had  determined  that a  $25  million  cap would  limit  the                                                                    
state's exposure  and give years  with some revenue  for the                                                                    
state.  The hope  was that  [oil] prices  would increase  at                                                                    
some point, which would bring  in sufficient revenue to make                                                                    
the state's  budget sound.  He stressed  that the  state was                                                                    
not  currently  sound; it  was  in  a financial  crisis.  He                                                                    
believed it was appropriate to  limit the payments the state                                                                    
made.  The $25  million cap  went forward;  he believed  the                                                                    
governor   wanted  to   pay  the   owed   credits  with   an                                                                    
appropriation. He disputed that a  cap of $100 million was a                                                                    
cap;  testimony had  been that  almost no  companies claimed                                                                    
the  amount.  The amendment  would  change  the cap  to  $25                                                                    
million per  company; if  there were  three companies  on an                                                                    
oil field the  cap would be $75 million.  He emphasized that                                                                    
the  amendment was  still generous.  He  specified that  the                                                                    
state  gave  a higher  proportion  of  credits to  companies                                                                    
(compared to  its production taxes) than  any other location                                                                    
worldwide, which the state could not afford.                                                                                    
                                                                                                                                
Vice-Chair Saddler spoke against  the amendment. He believed                                                                    
$25 million  was too  low. He  added that  he hoped  the oil                                                                    
industry would invest in Alaska.                                                                                                
                                                                                                                                
6:59:10 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  remarked   that  the  state  was                                                                    
hemorrhaging credits and needed to  gets his fiscal house in                                                                    
order. He  believed the  most important  thing was  that the                                                                    
state  had   the  natural   resources.  He   commented  that                                                                    
sometimes  the   legislature  thought   everything  revolved                                                                    
around  it and  that industry  hung  on its  every word.  He                                                                    
stressed that a  tax or credit policy that was  too high was                                                                    
unstable,  just like  one  that was  too  low. He  supported                                                                    
taking  control  of  the maximum  credits  that  were  still                                                                    
expandable to  other business partners. He  observed that it                                                                    
would not  be a bad thing  if people were using  the credits                                                                    
because it would  mean they were spending  money. He thought                                                                    
a  $100 million  cap  was too  high. He  stated  that a  $25                                                                    
million  cap  was  as  arbitrary as  $100  million,  but  he                                                                    
believed it  was more  appropriate for  the state  given the                                                                    
current fiscal  times. He  supported tightening  credits and                                                                    
getting the  state's fiscal  house in  order. He  noted that                                                                    
the  state may  be unable  to afford  a $100  million credit                                                                    
year  after  year.  Additionally,  the  credits  would  roll                                                                    
forward year after year if the state could not afford them.                                                                     
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Pruitt, Saddler,  Wilson,  Edgmon, Gattis,  Munoz,                                                                    
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 15 FAILED (3/8).                                                                                  
                                                                                                                                
7:02:02 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki MOVED  to ADOPT  Amendment 16,  29-                                                                    
GH2609\F.4 (Shutts,  4/6/16) (copy  on file). [Note:  due to                                                                    
the length of the amendment it  has not been included in the                                                                    
minutes.]                                                                                                                       
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Kawasaki explained  that the amendment sought                                                                    
to lower  some of the  initial amounts companies  and people                                                                    
creating development  projects could redeem. He  referred to                                                                    
a theoretical example provided to  the committee from DNR in                                                                    
which  a field  the size  of Armstrong  Oil and  Gas's Pikka                                                                    
could cost  the state as much  as $800 million per  year. He                                                                    
explained that  many companies or  people could  request the                                                                    
same  credit  for  one development  project.  The  amendment                                                                    
protected the state in those cases.                                                                                             
                                                                                                                                
Co-Chair  Thompson  pointed  to  lines  16  and  17  of  the                                                                    
amendment specifying a person  could be eligible for $50,000                                                                    
[$50 million] and $200,000 [$200  million] for each unit. He                                                                    
noted that as drafted, the  amounts could be added together.                                                                    
He asked if that was the amendment's purpose.                                                                                   
                                                                                                                                
Representative  Kawasaki  replied   that  Legislative  Legal                                                                    
Services had  drafted the amendment  so that  payments could                                                                    
not exceed $50,000 [$50 million]  for each person or company                                                                    
or $200 million for each unit.                                                                                                  
                                                                                                                                
Co-Chair  Thompson  believed  the   way  the  amendment  was                                                                    
drafted made it appear the  amounts could be added together.                                                                    
He thought the language needed to be clarified.                                                                                 
                                                                                                                                
Representative Gara asked  if it was the lesser  of [the two                                                                    
amounts].                                                                                                                       
                                                                                                                                
Representative  Kawasaki  relayed  that  the  amendment  was                                                                    
similar to one offered in  the House Resources Committee. He                                                                    
explained that the  intent was $50 million  for each person.                                                                    
He requested an "at ease."                                                                                                      
                                                                                                                                
7:04:56 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
7:09:22 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Kawasaki clarified  the intent  of Amendment                                                                    
16.  He  explained  that  if   there  was  a  large  project                                                                    
involving five  partners on a  unit that cost  $200 million,                                                                    
the most  each partner  would receive  was $40  million. The                                                                    
limit was  $200 million per  unit and  a cap of  $50 million                                                                    
for each company.                                                                                                               
                                                                                                                                
Co-Chair Neuman  asked for verification that  three partners                                                                    
could  only receive  up to  $150 million.  Alternatively, he                                                                    
asked if there was a $200 million cap on the field.                                                                             
                                                                                                                                
Representative Kawasaki  replied that if the  unit cost $200                                                                    
million the most a partner could receive was $50 million.                                                                       
                                                                                                                                
Representative Kawasaki  relayed that there had  been only 1                                                                    
time  a company  had received  more than  $200 million  in a                                                                    
single year  for the  repurchase credits;  there had  been 5                                                                    
times  one company  had received  between  $100 million  and                                                                    
$200 million;  and 11 times  companies had  received between                                                                    
$50 million  and $100 million  in one year. He  explained it                                                                    
was infrequent that the $200  million cap would be reached -                                                                    
probably even more  so in the future. The  amendment did not                                                                    
impact  the  timing in  which  a  company could  redeem  the                                                                    
credits.  Additionally, the  amendment  reflected twice  the                                                                    
amount the  governor had  requested, which  had been  set to                                                                    
$25 million per person/company with a $125 million cap.                                                                         
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Saddler, Wilson,  Edgmon,  Gattis, Munoz,  Pruitt,                                                                    
Thompson, Neuman                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 16 FAILED (3/8).                                                                                  
                                                                                                                                
7:13:04 PM                                                                                                                    
                                                                                                                                
Representative  Gara  MOVED  to   ADOPT  Amendment  17,  29-                                                                    
GH2609\F.42 (Nauman/Shutts,  4/8/16) (copy on  file). [Note:                                                                    
due to the length of the  amendment it has not been included                                                                    
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Gara  explained  that  the  amendment  would                                                                    
adjust the  minimum tax  floor of  4 percent  (currently the                                                                    
bill's minimum floor was 2  percent), which lasted up to $76                                                                    
per barrel. The CS would  generate $16 million in production                                                                    
taxes in  the coming year,  $11 million the year  after, and                                                                    
$13 million  the following year.  He remarked that due  to a                                                                    
couple  of adjustments  in  the bill  the  numbers would  be                                                                    
slightly different.  He spoke to the  governor's proposal of                                                                    
a 5  percent hard floor.  He believed the approach  had made                                                                    
some sense, but  the response had been that  when oil prices                                                                    
were low ($20 to $40 per  barrel; the average company on the                                                                    
North Slope  became profitable  at about  $45 per  barrel) 5                                                                    
percent was  too high.  The amendment  aimed to  address the                                                                    
issue by  protecting investment  on the  North Slope  and by                                                                    
providing fairness  to the  oil industry  and the  people of                                                                    
Alaska. He believed the price of  oil would not always be as                                                                    
low as  $35 to $38  per barrel;  if prices remained  at that                                                                    
level,  there  would  not  be  substantial  oil  revenue  in                                                                    
Alaska.   Under  the   amendment,   when  companies   become                                                                    
profitable  (at  an  average  of $46  per  barrel  -  bigger                                                                    
companies at  a lower price  and smaller fields at  a higher                                                                    
price) the state would receive a  tax that was better than 4                                                                    
percent.  The Department  of Revenue  projected the  average                                                                    
field would pay the 4 percent  tax up to $76 per barrel; oil                                                                    
prices  were forecasted  to not  exceed $76  per barrel.  He                                                                    
stressed that the state would  be stuck with the amounts for                                                                    
the next decade.                                                                                                                
                                                                                                                                
Representative  Gara continued  that on  big fields  the tax                                                                    
floor  would move  from 4  percent at  $60 per  barrel to  5                                                                    
percent.  The governor  had  proposed moving  the  tax to  5                                                                    
percent at $1  per barrel or more. The tax  would increase 1                                                                    
percent  at  every $5  interval  and  would  max out  at  10                                                                    
percent at  $85 per  barrel. He referred  to a  12.5 percent                                                                    
floor proposal  by a senator  from Sitka. The  amendment was                                                                    
not  nearly  as aggressive;  he  believed  12.5 percent  was                                                                    
probably too  harsh at low  oil prices. He believed  a floor                                                                    
tracking  company profits  made sense.  He detailed  that at                                                                    
$60 per  barrel each percent  would raise about  $60 million                                                                    
to $70 million according to  DOR. He reasoned that the money                                                                    
could go to infrastructure in  Alaska. At $70 per barrel the                                                                    
tax would be  7 percent and would probably  raise about $210                                                                    
million or so. He emphasized  that the increase in tax would                                                                    
be delayed until companies were  making profits. He spoke to                                                                    
GVR fields  (post 2002)  and a  company producing  less than                                                                    
35,000  barrels per  day; the  fields were  more challenging                                                                    
and the  lifting costs  were higher.  He explained  that the                                                                    
tax would  not reach  5 percent for  those fields  until $75                                                                    
per  barrel; the  companies would  receive an  extra $15  in                                                                    
profits before the  tax would increase to 5  percent and for                                                                    
every $5 increase in oil price  the tax would increase up to                                                                    
a maximum of  10 percent at $100 per barrel.  He stated that                                                                    
in  comparison to  the gross  taxes  and royalties  normally                                                                    
paid  to private  parties  in the  Lower  48, the  amendment                                                                    
would still  leave taxes  much lower.  He reasoned  that the                                                                    
amendment   would  enable   the  state   to  fund   schools,                                                                    
infrastructure  projects, maintenance,  and protect  seniors                                                                    
and children. He  stressed that the amendment  would only be                                                                    
a portion of  a fiscal plan; it would only  kick in when oil                                                                    
prices started  to rise. He reiterated  his explanations. He                                                                    
stated  that the  amendment was  a fair  way to  protect the                                                                    
public and the oil industry.                                                                                                    
                                                                                                                                
Representative Wilson stated that  the amendment reflected a                                                                    
huge  policy change.  She relayed  that it  would have  been                                                                    
helpful  to  see  the  amendment sooner  to  learn  how  the                                                                    
changes worked with  the rest of the bill. She  did not know                                                                    
at what oil  price a company became profitable.  She did not                                                                    
know  if  the  amendment  had negative  effects  or  how  it                                                                    
compared to the  Lower 48. She was opposed  to the amendment                                                                    
without having the information.                                                                                                 
                                                                                                                                
7:21:04 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
Representative   Gara    responded   to   a    question   by                                                                    
Representative Wilson.  The committee had been  told that on                                                                    
average a  company on the  North Slope became  profitable at                                                                    
about $46  per barrel. Additionally, the  committee had seen                                                                    
charts of  company profits for  various sized fields  at $60                                                                    
and $80 per barrel. He  reminded members that the tax system                                                                    
had been  written in a  way that allowed companies  to apply                                                                    
for   royalty   relief   if  the   production   tax   system                                                                    
accidentally  overshot.   He  noted  that  the   last  three                                                                    
applications  for  royalty  relief   had  been  granted  for                                                                    
Caleus, Oooguruk, and Nikaitchuq.  He emphasized that if the                                                                    
state  accidentally   overshot,  a  company   could  request                                                                    
royalty relief,  which could reduce  a company's  tax burden                                                                    
by a much  greater level than the  amendment increased their                                                                    
tax  burden.  However,  he stated  that  the  amendment  was                                                                    
fairer to  the industry than the  governor's proposal, which                                                                    
had included an increase even at  low prices. In order for a                                                                    
company to receive royalty relief  it had to demonstrate its                                                                    
oil field would  not be economic under the  tax. He believed                                                                    
it was a  smart provision in statute. He  emphasized that no                                                                    
one tax was  perfect for every field, which  was the purpose                                                                    
of royalty relief. He believed the amendment made sense.                                                                        
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Wilson, Edgmon,  Gattis,  Munoz, Pruitt,  Saddler,                                                                    
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 17 FAILED (3/8).                                                                                  
                                                                                                                                
7:23:37 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki MOVED  to ADOPT  Amendment 18,  29-                                                                    
GH2609\F.2 (Nauman, 4/6/16) (copy on file):                                                                                     
                                                                                                                                
     Page 6, line 23:                                                                                                           
     Delete "[(A)] four"                                                                                                        
     Insert "five [(A) FOUR]"                                                                                                   
                                                                                                                                
     Page 6, lines 24 - 27:                                                                                                     
     Delete ",  except that a  credit authorized  under this                                                                    
     chapter  may reduce  the tax  under this  subsection to                                                                    
     less  than  four percent,  but  not  to less  than  two                                                                    
     percent of the gross value at the point of production"                                                                     
                                                                                                                                
     Page 6, line 30:                                                                                                           
     Delete "four"                                                                                                              
     Insert "five"                                                                                                              
                                                                                                                                
     Page 6, line 30, through page 7, line 2:                                                                                   
     Delete ",  except that a  credit authorized  under this                                                                    
     chapter  may reduce  the tax  under this  subsection to                                                                    
     less  than  four percent,  but  not  to less  than  two                                                                    
     percent of the gross value at the point of production"                                                                     
                                                                                                                                
     Page 34, line 18, following "APPLICABILITY.":                                                                              
     Insert "(a)"                                                                                                               
                                                                                                                                
     Page 34, following line 19:                                                                                                
     Insert a new subsection to read:                                                                                           
     "(b) The  limitations on the  use of tax  credits added                                                                    
     in AS 43.55.019(e), as amended  by sec. 13 of this Act,                                                                    
     AS 43.55.020(a), as amended by  sec. 14 of this Act, AS                                                                    
     43.55.023(c), as  amended by  sec. 17  of this  Act, AS                                                                    
     43.55.024(±), as  amended by  sec. 21  of this  Act, AS                                                                    
     43.55.024(g), as  amended by sec.  22 of this  Act, and                                                                    
     AS 43.55.025(q),  added by sec.  25 of this  Act, apply                                                                    
     to credits applied to reduce  a tax liability for a tax                                                                    
     year starting on  or after the effective  date of secs.                                                                    
     13, 14, 17, 21, 22, and 25 of this Act."                                                                                   
                                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Kawasaki  discussed that  one of  the primary                                                                    
provisions in the governor's bill  had been the concept of a                                                                    
5 percent floor  for oil prices and production  on the North                                                                    
Slope upon recommendation by  a Senate workgroup. Currently,                                                                    
the unintended consequence  of having a large  NOL, was that                                                                    
the current floor  was no longer hard. He  explained that it                                                                    
meant  a  barrel  of  oil   was  providing  the  state  with                                                                    
royalties  and   very  little  production  tax   income.  He                                                                    
explained that  he had  taken some time  to compare  oil tax                                                                    
structures in  other states because  of recent  testimony to                                                                    
the committee that  most state's had a gross tax  on oil and                                                                    
did  not   offer  nearly  as  many   credits  driving  their                                                                    
production tax  to zero. He  pointed to  Louisiana's onshore                                                                    
production, which  had an  oil tax rate  of 12.5  percent of                                                                    
its  value at  the time  of severance;  incapable oil  rates                                                                    
were  taxed  at  6.25  percent. Montana's  tax  on  pre-1999                                                                    
vertical  wells was  12.5 percent  and post-1999  wells were                                                                    
taxed at 9 percent. Production  in North Dakota was taxed at                                                                    
a 5 percent floor. Utah had  a 3 percent floor for the first                                                                    
$13  per barrel  and a  5  percent for  anything above  that                                                                    
amount. Wyoming  had a 6  percent floor on  production. When                                                                    
the legislature had looked at  production taxes and credits,                                                                    
he did  not believe  anyone had  considered that  oil prices                                                                    
would  be  as low  as  they  currently were.  The  amendment                                                                    
corrected an  error when  legislators passed  SB 21  and did                                                                    
not do modelling at low prices of oil.                                                                                          
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki                                                                                            
OPPOSED:  Edgmon, Gattis,  Munoz,  Pruitt, Saddler,  Wilson,                                                                    
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 18 FAILED (3/8).                                                                                  
                                                                                                                                
7:27:05 PM                                                                                                                    
                                                                                                                                
Representative  Gara  MOVED  to ADOPT  conceptual  Amendment                                                                    
18.a, which would read the same  as Amendment 18, but with a                                                                    
4 percent hard floor.                                                                                                           
                                                                                                                                
Co-Chair Neuman OBJECTED.                                                                                                       
                                                                                                                                
Representative  Gara  stated  that  the  committee  was  not                                                                    
making significant  progress during the current  meeting. He                                                                    
remarked  that the  bill was  not  doing much  to "stop  the                                                                    
bleeding" in  terms of the state  paying out so much  in tax                                                                    
credits and  receiving so little  back in  production taxes.                                                                    
The conceptual  amendment would implement  a hard  tax floor                                                                    
of  4 percent,  which  was  what the  state  thought it  had                                                                    
accomplished with the passage of  SB 21. He remarked that he                                                                    
had not been  a fan of SB  21, but the one  major promise in                                                                    
the bill  was the tax  floor of  4 percent; however,  it had                                                                    
not occurred.  He explained that with  the carry-forward NOL                                                                    
credits,  the  production  tax  raised  less  money  than  a                                                                    
proposed fish and game license fee bill.                                                                                        
                                                                                                                                
Representative Gattis  remarked that  the committee  was not                                                                    
meeting to address  anyone else's bill. She  did not believe                                                                    
it was appropriate.                                                                                                             
                                                                                                                                
Representative Gara  continued that in  FY 18 the  state was                                                                    
projected to take in $16  million in production taxes, which                                                                    
was less than  the state currently brought in  with fish and                                                                    
game licenses.  He continued that  the number  was projected                                                                    
to decrease to  $11 million in FY 19. Under  current law the                                                                    
state  made  $18  million  on  the sale  of  fish  and  game                                                                    
licenses.  The  amendment  was  consistent  with  what  most                                                                    
people  believed  SB 21  had  accomplished,  which was  a  4                                                                    
percent protection for the state  at low prices. He surmised                                                                    
that  perhaps  some   legislators  believed  the  governor's                                                                    
proposal of  5 percent was  too high, but the  amendment was                                                                    
consistent with everything said publicly about SB 21.                                                                           
                                                                                                                                
Representative Kawasaki  agreed that no one  saw the current                                                                    
environment coming.  He referred to  the Senate oil  and gas                                                                    
tax  workgroup that  had worked  the entire  past summer  on                                                                    
particular issues.  He read from the  workgroup's section of                                                                    
findings related to protecting the production tax floor:                                                                        
                                                                                                                                
     A lot of attention has  been paid to the refundable tax                                                                    
     credits; however, Senate Bill 21,  a floor of 4 percent                                                                    
     was instituted against the  North Slope producers. This                                                                    
     was   meant  to   prevent  credits   from  taking   the                                                                    
     taxpayer's  liability effectively  down to  zero, which                                                                    
     the  older  tax system  ACES  really  could have  done.                                                                    
     However,   the  group   learned   during  its   meeting                                                                    
     deliberations  there was  potential  for an  unintended                                                                    
     scenario to occur,  for a producer to  incur a carried-                                                                    
     forward  annual loss  or net  operating  loss that  was                                                                    
     great  enough  to  drop the  tax  liability  below  the                                                                    
     floor. Although there is  disagreement on the proposals                                                                    
     to  increase  the  floor,  at  the  minimum  the  floor                                                                    
     installed in Senate  Bill 21 should be  hardened up and                                                                    
     protected.                                                                                                                 
                                                                                                                                
Representative Kawasaki  elaborated that many people  in the                                                                    
building  (some who  had been  for  and against  SB 21)  who                                                                    
agreed with the governor...                                                                                                     
                                                                                                                                
Co-Chair Thompson  interjected that  it was not  possible to                                                                    
say whether other  people agreed or how they  felt about the                                                                    
topic.                                                                                                                          
                                                                                                                                
Representative  Kawasaki replied  that  he  agreed with  the                                                                    
Senate  workgroup's recommendation  dated  December 2015  to                                                                    
harden  the  current floor  and  ensure  the production  tax                                                                    
floor was protected.                                                                                                            
                                                                                                                                
Vice-Chair  Saddler remarked  that the  point had  been made                                                                    
numerous times  that more  was being  offered in  credits to                                                                    
the  oil  industry  than is  being  provided  in  production                                                                    
taxes. He agreed that it may  be true, but he thought it was                                                                    
less  than  fully  relevant.  He  stressed  that  incentives                                                                    
resulted  in the  production, development,  and delivery  to                                                                    
market of  the state's royalty oil.  Additionally, the state                                                                    
received  corporate income  tax  and property  taxes on  the                                                                    
pipeline and  production facilities. He emphasized  that the                                                                    
net income to the state was  positive. He added that oil was                                                                    
kept in  the pipeline  and the state  had the  prospects for                                                                    
the  long-term  ability  to  deliver  oil  from  the  Alaska                                                                    
National Wildlife Refuge (ANWR)  or anyplace to markets. The                                                                    
state  also received  royalty revenue,  which paid  for K-12                                                                    
education,  the   University  of  Alaska,   Medicaid,  state                                                                    
workers, and other.                                                                                                             
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki, Munoz, Edgmon                                                                             
OPPOSED: Gattis, Pruitt, Saddler, Wilson, Thompson, Neuman                                                                      
                                                                                                                                
The MOTION to adopt conceptual Amendment 18.a FAILED (5/6).                                                                     
                                                                                                                                
7:35:31 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg MOVED to ADOPT Amendment 19, 29-                                                                      
GH2609\F.38 (Shutts,  4/7/16) (copy on file).  [Note: due to                                                                    
the length of the amendment it  has not been included in the                                                                    
minutes.]                                                                                                                       
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Guttenberg explained  that the  gist of  the                                                                    
amendment  was  on  page  2, line  12,  subsection  (m).  He                                                                    
observed  that   during  the  meeting  about   half  of  the                                                                    
committee members  had spoken about modelling.  He discussed                                                                    
that taxes paid  by companies were confidential;  he did not                                                                    
want to  open taxes  to show what  companies paid,  how they                                                                    
paid,  justifications,   credits,  reductions,   and  other.                                                                    
Companies did  not have to  apply for credits, but  they did                                                                    
because they  provided an  economic advantage.  He continued                                                                    
that  if companies  were going  to apply  for credits,  they                                                                    
would  sign an  understanding that  the documents  submitted                                                                    
for  credits were  public.  The purpose  was  to create  the                                                                    
ability  for  the   state  to  do  modelling   in  order  to                                                                    
understand  what   companies  were  doing  in   Alaska.  The                                                                    
transparency  would enable  the state  to determine  whether                                                                    
companies should  receive more or less  credits. He surmised                                                                    
that perhaps the  state could adjust the model  to ensure it                                                                    
was  receiving  production  and  not  spending  money  where                                                                    
inappropriate.  He  reasoned  it  may be  a  consequence  of                                                                    
offering the  wrong kind  of credits.  He detailed  that the                                                                    
commissioner  and  director   had  addressed  the  committee                                                                    
related to the data, but  the numbers were aggregated and it                                                                    
was  not possible  to determine  exactly  what happened.  He                                                                    
explained that  the situation  did not  occur with  Ahtna or                                                                    
Doyon  because they  were making  their  numbers public.  He                                                                    
stressed that  the amendment pertained to  modelling and the                                                                    
ability to understand what the state was doing.                                                                                 
                                                                                                                                
Representative  Guttenberg  stressed   that  the  state  was                                                                    
throwing money  at the  wall and hoping  for an  outcome. He                                                                    
continued that legislators had  justifications for what they                                                                    
were  doing  and  arguments   about  whether  something  was                                                                    
appropriate,   too  much,   too   little,   and  other.   He                                                                    
underscored that  at the end of  the day, the state  did not                                                                    
have  a  clear,  concise  picture.  He  spoke  to  aggregate                                                                    
numbers  and  assumptions  that production  was  up  due  to                                                                    
credits.  He   emphasized  that  there  had   been  numerous                                                                    
comments  around  the  committee  table about  the  lack  of                                                                    
modelling. He  stressed that the  lack of modelling  was due                                                                    
to  confidentiality. He  reiterated that  companies did  not                                                                    
have to  apply for the  credits; the program  was voluntary,                                                                    
whereas other taxes were not.  He reasoned that if companies                                                                    
wanted the  credits, he wanted  to see what they  were being                                                                    
used for.  He wanted to see  if the credits would  result in                                                                    
increased production and would  be beneficial for the state.                                                                    
He was  frustrated by not  having a defined picture  of what                                                                    
the state  was actually  doing. He  stressed that  the state                                                                    
was putting  hundreds of  millions of  dollars on  the table                                                                    
and was  in a fiscal  deficit. He believed the  state should                                                                    
have a picture  of what was taking place in  the oil and gas                                                                    
fields  and should  understand what  people  were doing.  He                                                                    
spoke to  the need to  heat residents' homes.  He emphasized                                                                    
that credits were  draining the state's bank  account and he                                                                    
believed it was important to have an accurate picture.                                                                          
                                                                                                                                
7:40:52 PM                                                                                                                    
                                                                                                                                
Representative  Wilson   hoped  the  department   was  doing                                                                    
exactly  what the  amendment sponsor  had talked  about. The                                                                    
modelling she  had referred  to pertained  to the  bill. She                                                                    
hoped  the  committee would  have  its  own economists  with                                                                    
knowledge  of  multiple  tax regimes,  who  would  know  how                                                                    
making specific  changes would impact the  state. She stated                                                                    
"shame on  the Department  of Revenue"  for not  making sure                                                                    
companies were  accountable if there were  credits going out                                                                    
that were not  legitimate. She explained that  SB 21 changed                                                                    
the law  to enable  the state  to see  barrels of  oil going                                                                    
down.  She reiterated  that the  legislature had  experts to                                                                    
provide  the  information. She  clarified  that  it was  the                                                                    
responsibility  of   the  Department  of  Revenue   to  make                                                                    
justifications for credits and outgoing money.                                                                                  
                                                                                                                                
Representative Kawasaki  discussed that the  legislature was                                                                    
the  appropriating body  of government.  He stated  that the                                                                    
only thing the  legislature was required to  do annually was                                                                    
pass a  budget. He spoke  about numbers from  DOR requesting                                                                    
$825 million  in oil and gas  tax credits in the  next year.                                                                    
He  relayed that  constituents asked  where the  money went,                                                                    
but he  had no  idea. He  did not  have transparency  on the                                                                    
individuals  benefitting from  the credits.  He believed  it                                                                    
was a  problem. He  stressed that the  legislature "needled"                                                                    
every  department and  agency individually;  the legislature                                                                    
tried to  discuss whether  a department  should have  two or                                                                    
three  deputy commissioners  in  an agency  at  the cost  of                                                                    
$100,000,  yet DOR  could not  provide the  legislature with                                                                    
information when  the department  asked for $825  million in                                                                    
the  current  year  to  pay   for  the  state's  tax  credit                                                                    
liability owed to North Slope  and Cook Inlet producers. The                                                                    
amendment sought  to make  the information  more transparent                                                                    
in order for legislators and  the public to understand where                                                                    
the  credits were  going. He  believed the  issue for  every                                                                    
budget item  boiled down  to "what are  we getting  for what                                                                    
we're  giving?" He  reasoned that  the legislature  expected                                                                    
the Department of Labor and  Workforce Development (DLWD) to                                                                    
do  a  job if  the  legislature  appropriated money  to  the                                                                    
department. He believed  not knowing what was  going on with                                                                    
the  credits was  a black  hole. The  Department of  Revenue                                                                    
received and  could release  some of  the information  in an                                                                    
aggregated method, but there was no transparency.                                                                               
                                                                                                                                
Co-Chair Thompson  had concerns  with the  amendment related                                                                    
to  antitrust issues.  He thought  becoming too  transparent                                                                    
would  cause big  problems. He  thought the  amendment could                                                                    
deter competition.                                                                                                              
                                                                                                                                
Representative  Gara understood  the  concern, but  stressed                                                                    
that  the amendment  would not  cause  antitrust issues.  He                                                                    
stated that  it would  be one thing  if the  legislature was                                                                    
invading a company's books; however,  the amendment aimed to                                                                    
merely  determine  where the  state's  money  was going.  He                                                                    
explained that  when the state  gave someone money  it could                                                                    
include  a condition  that it  would  get to  see where  the                                                                    
money was  spent. The  provision would  enable the  state to                                                                    
know whether something was working  and whether it was going                                                                    
to a company that would have  developed a field anyway or if                                                                    
the  credit  had  tipped  the   company  towards  making  an                                                                    
investment. He reasoned  that when the state  spent money it                                                                    
was entitled  to know  where the money  went. A  company did                                                                    
not have  to accept the  money if  it was worried  the state                                                                    
would  see what  it  was doing.  He  believed the  amendment                                                                    
would  help the  legislature  develop a  smarter tax  credit                                                                    
system  and  was perfectly  legal.  He  reiterated that  the                                                                    
state  could always  condition  a grant  of  state money  on                                                                    
something the other party could choose to accept or reject.                                                                     
                                                                                                                                
7:46:10 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler spoke in opposition  to the amendment. He                                                                    
agreed  that  openness  in   public  service  and  executive                                                                    
agencies was desirable and there  were many laws to protect;                                                                    
however,  private  business  was   a  different  matter.  He                                                                    
believed  equating  the  same  desire  for  transparency  in                                                                    
public  activities,  in  a  private  activity  it  could  be                                                                    
counterproductive.  He explained  that  the  purpose was  to                                                                    
incentivize private  investment in Alaska;  private business                                                                    
was competitive.  He elaborated  that many of  the companies                                                                    
operated globally,  had narrow  margins, and  were intensely                                                                    
competitive. He  did not want  to discourage  companies from                                                                    
investing  in Alaska  and taking  advantage  of the  state's                                                                    
incentives  by the  prospect  that  information shared  with                                                                    
state   tax  auditors   could  be   used   to  be   publicly                                                                    
discoverable to  the detriment of their  business interests.                                                                    
He  understood  the  desire for  transparency,  but  if  the                                                                    
state's  goal  was  to incentivize  business  investment  in                                                                    
Alaska,    he    believed    the    amendment    would    be                                                                    
counterproductive.                                                                                                              
                                                                                                                                
Representative  Guttenberg  emphasized   that  applying  for                                                                    
credits was voluntary. He equated  the credits to grants. He                                                                    
stated that if  a company qualified for the  credits and the                                                                    
aggregated numbers  include three companies,  the department                                                                    
was required  to pay them.  He stressed  that if two  of the                                                                    
companies  were  doing  good  work  and  one  was  not,  the                                                                    
department  could not  tell the  legislature. He  emphasized                                                                    
that  there was  no  transparency. He  spoke to  legislative                                                                    
debate  on whether  a credit  was good  or not;  however, he                                                                    
believed no one  really knew due to a  lack in transparency.                                                                    
He  elaborated  that the  legislature  had  no idea  whether                                                                    
companies  were  using  credits  in  the  intended  way.  He                                                                    
reiterated  that companies  did not  have to  apply for  the                                                                    
credits;  the  money  was  put  on  the  table  because  the                                                                    
legislature  expected  companies  to  do  something  in  the                                                                    
state's best interest. He reasoned  that DOR knew one way or                                                                    
another, but  it could  not divulge  the information  to the                                                                    
legislature. He had a problem  making public policy with the                                                                    
high amount  of money  without knowing what  it went  to and                                                                    
how well it was working.                                                                                                        
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Guttenberg, Gara, Kawasaki                                                                                            
OPPOSED:  Gattis, Munoz,  Pruitt,  Saddler, Wilson,  Edgmon,                                                                    
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 19 FAILED (3/8).                                                                                  
                                                                                                                                
7:50:51 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki MOVED  to ADOPT  Amendment 20:  29-                                                                    
GH2609\F.11 (Nauman/Shutts,  4/6/16) (copy on  file). [Note:                                                                    
due to the length of the  amendment it has not been included                                                                    
in the minutes.]                                                                                                                
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Kawasaki explained  the amendment relating to                                                                    
taxpayer  confidentiality  and  disaggregating some  of  the                                                                    
information  received by  DOR in  order for  the public  and                                                                    
legislators  to understand  what  the state  was getting  in                                                                    
return for  credits it provided. The  amendment would enable                                                                    
DOR  to  provide  confidential  information  to  legislators                                                                    
under   strict   confidentiality  agreements   (similar   to                                                                    
agreements signed by DOR and  DNR). There was a longstanding                                                                    
tradition  through AKLNG,  ACES,  and  AGIA [Alaska  Gasline                                                                    
Inducement  Act]   where  legislators   were  able   to  see                                                                    
confidential information  in order  for legislators  to make                                                                    
better decisions on behalf of the state and industry.                                                                           
                                                                                                                                
Representative Wilson spoke in  opposition to the amendment.                                                                    
She  surmised  that  the  legislature  must  not  trust  the                                                                    
governor   and  administration   because   work  was   their                                                                    
responsibility. She hoped the  legislature would receive the                                                                    
accurate  numbers. She  elaborated  that the  administration                                                                    
had told  the legislature  that SB 21  was working  and that                                                                    
the governor  would not have  submitted the bill if  it were                                                                    
not for the  low price of oil and the  state's large budget.                                                                    
She believed the administration  seemed informed on existing                                                                    
credits.  She could  not  imagine  the administration  would                                                                    
make  the  clear  statements  about what  was  and  was  not                                                                    
working  if  they  did  not  have  the  facts  to  back  the                                                                    
statements  up. She  stated that  the  legislature had  also                                                                    
heard  from  the  administration   that  there  were  issues                                                                    
related to  Cook Inlet;  the legislature  had been  told the                                                                    
same thing  from its legislative economist.  She believed it                                                                    
was the  responsibility of the  administration to  bring the                                                                    
information to the legislature in  terms of what was and was                                                                    
not  working. She  hoped  the legislature  did  not have  to                                                                    
address  the issue  annually. She  supported establishing  a                                                                    
legislative workgroup  to consider the  information provided                                                                    
from  the administration  and  the legislature's  economist.                                                                    
She stressed that  it was about the bigger  picture; she did                                                                    
not want to  get into the weeds on  each individual company.                                                                    
She  supported receiving  the facts  on what  the state  was                                                                    
getting  for its  money. Additionally,  she  wanted to  know                                                                    
about the taxes, royalty, and  the entire picture of revenue                                                                    
coming  into the  state  at  present and  in  the past.  She                                                                    
detailed that the  state had received benefits  from many of                                                                    
the items in  the past and not necessarily in  the same year                                                                    
the  state  was  paying  for  them.  She  trusted  that  the                                                                    
legislature was receiving accurate information.                                                                                 
                                                                                                                                
7:55:16 PM                                                                                                                    
                                                                                                                                
Representative  Gara  clarified  that  there  had  not  been                                                                    
administration  testimony   that  SB  21  was   working.  He                                                                    
detailed that  one of the  consultants who had  helped write                                                                    
SB 21 had  testified that he liked it. He  stated that every                                                                    
field that  was coming online  under the current  tax system                                                                    
was  a  field  where  investment  had  started  before  2013                                                                    
(before  the  passage  of  SB  21).  He  discussed  that  to                                                                    
determine whether the credits  were working it was necessary                                                                    
to consider  whether they were too  expensive, not expensive                                                                    
enough,  how it  related to  the tax  the state  received in                                                                    
return, and  the balance  between the  two. He  believed the                                                                    
administration had been  clear that it would  like to change                                                                    
the system to make the things work better.                                                                                      
                                                                                                                                
Representative Guttenberg  remarked on an  earlier question,                                                                    
which  he believed  needed an  answer.  The amendment  would                                                                    
enable legislators  to sign  a confidentiality  agreement to                                                                    
see  the   information  [provided  by  companies   to  DOR].                                                                    
Currently, a  company received a  credit if  they qualified;                                                                    
it was  not based on whether  a company was doing  the right                                                                    
thing or whether  it was actually beneficial  for the state.                                                                    
He emphasized  that nothing had shown  specifically what was                                                                    
going  on  with  the  credits in  slides  presented  to  the                                                                    
committee  because   the  information  was   aggregated.  He                                                                    
stressed  that   the  individuals  who  had   presented  the                                                                    
information  were   tax  experts,   but  were   not  telling                                                                    
legislators what they did not want to tell them.                                                                                
                                                                                                                                
Representative  Gattis  commented  about  the  previous  and                                                                    
current amendments.  She believed  the last thing  the state                                                                    
should  do was  let information  about a  highly competitive                                                                    
businesses   get  out.   She   was   strongly  against   the                                                                    
amendments.                                                                                                                     
                                                                                                                                
Co-Chair  Neuman opposed  the amendment.  He stated  that he                                                                    
saw numbers  when he saw  the throughput through  the Trans-                                                                    
Alaska  Pipeline  System  (TAPS)   with  more  or  less  oil                                                                    
production. He  saw numbers from  DLWD showing more  or less                                                                    
jobs in the oil and gas  industry. He saw DOR reports on oil                                                                    
and gas production and revenue.  He believed the legislature                                                                    
used  the  information  as  a gauge  to  determine  how  the                                                                    
industry  was  doing;  an industry  supporting  the  largest                                                                    
percentage of  the state's revenue.  He did not need  to see                                                                    
the   finite  details,   which  he   was  unsure   he  would                                                                    
understand. He noted  that he was not  an accountant dealing                                                                    
specifically  with  oil and  gas.  He  believed he  saw  the                                                                    
numbers he  needed to  see as a  legislature (e.g.  how many                                                                    
jobs  were created  and what  the economy  looked like).  He                                                                    
added  that  the  information   under  discussion  was  very                                                                    
confidential; there were hundreds  of millions of dollars at                                                                    
stake.                                                                                                                          
                                                                                                                                
Co-Chair  Thompson discussed  confidential information  that                                                                    
was   not   disclosed   unless    someone   had   signed   a                                                                    
confidentiality  agreement or  the information  was provided                                                                    
in  executive  session.  He  referred  to  a  legal  opinion                                                                    
barring any legislator  from being kept out  of an executive                                                                    
session.  He  was concerned  about  the  door the  amendment                                                                    
would open.                                                                                                                     
                                                                                                                                
Representative  Kawasaki noted  that the  amendment included                                                                    
permissive  language  that   the  "department  may  disclose                                                                    
confidential   tax  information"   that   he  believed   the                                                                    
legislature  should  use  in making  educated  and  informed                                                                    
decisions. He referred to an  earlier remark that it was the                                                                    
department's  and governor's  responsibility to  provide the                                                                    
legislature with information it  sought. He reasoned that if                                                                    
a person  trusted the current  governor than maybe  a person                                                                    
was  good with  that. However,  he would  prefer to  get the                                                                    
information directly.  He recalled a recent  situation where                                                                    
Ken  Alper  [DOR Tax  Division  director]  was not  able  to                                                                    
disclose the  specifics and value  around the Cook  Inlet or                                                                    
the non-North  Slope tax  credits. He  added that  Mr. Alper                                                                    
had not been  able to separate out Middle  Earth versus Cook                                                                    
Inlet. He  believed it  was problematic  during oil  and gas                                                                    
tax  policy  discussions  and when  the  legislature  talked                                                                    
about the  $300 million to  $400 million in  non-North Slope                                                                    
tax credits in the coming  year. He believed the legislature                                                                    
should have the information.  He disputed earlier statements                                                                    
that  it was  the governor's  responsibility to  provide the                                                                    
legislature with  the information. He opined  that it should                                                                    
be   the  legislature's   responsibility   to  become   more                                                                    
informed. He  stated that the amendment  language was fairly                                                                    
boiler-plate, which  had been  added into  ACES in  2008 and                                                                    
into other  legislation. He reiterated that  the legislature                                                                    
should be making informed decisions  and could not be making                                                                    
informed decisions on tax policy without the information.                                                                       
                                                                                                                                
Representative Munoz spoke against  the amendment. She could                                                                    
not imagine  a group of  legislators sitting around  a table                                                                    
analyzing confidential  tax information.  She did  not think                                                                    
it was  appropriate. There were  many ways success  could be                                                                    
measured  (i.e. increased  production,  a stable  workforce,                                                                    
whether investments were occurring or not, and other).                                                                          
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Guttenberg, Kawasaki, Gara                                                                                            
OPPOSED:  Munoz, Pruitt,  Saddler,  Wilson, Edgmon,  Gattis,                                                                    
Thompson, Neuman                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 20 FAILED (3/8).                                                                                  
                                                                                                                                
8:04:18 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:14:44 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Gara  MOVED  to   ADOPT  Amendment  21,  29-                                                                    
GH2609\F.23 (Shutts,  4/7/16) (copy on file).  [Note: due to                                                                    
the length of the amendment it  has not been included in the                                                                    
minutes.]                                                                                                                       
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Gara stated that  the amendment was small. He                                                                    
did not believe  it was a game changer, but  that it was the                                                                    
right thing to do. He  believed Cook Inlet tax credits which                                                                    
cost  the state  too  much. He  discussed  that currently  a                                                                    
company in  Cook Inlet was  allowed to take the  NOL credit,                                                                    
small producer credit, 30 to  40 percent exploration credit,                                                                    
and the QCE  credit or the WLE credit. He  stressed that the                                                                    
state was  paying about 80 percent  for the cost of  a field                                                                    
that it received no production  taxes from. He detailed that                                                                    
some   of  the   credits  would   disappear  including   the                                                                    
exploration  credit; the  state  would be  paying the  small                                                                    
producer tax  credit for the next  decade or so -  a company                                                                    
could  no  longer apply  for  the  credit beginning  in  the                                                                    
coming year.  The amendment specified  that a  company would                                                                    
have to  choose between the  NOL credit, QCE credit  and the                                                                    
WLE  credit.  He  surmised that  a  company  would  probably                                                                    
select the  NOL credit because  it was the most  lucrative -                                                                    
the state paid  a part of the company's  losses. Currently a                                                                    
company could  use the  NOL credit  and could  select either                                                                    
the  QCE credit  or WLE  credit. He  noted that  it was  not                                                                    
possible  to prevent  a company  from  also receiving  their                                                                    
remaining  small   producer  tax  credits   and  exploration                                                                    
credits. He  estimated the amendment  would save  around $15                                                                    
million.   The   amendment   would  leave   companies   with                                                                    
incentives that went beyond what  the Legislative Budget and                                                                    
Audit consultant  had specified  as an incentive;  the price                                                                    
in Cook Inlet  would bring companies to  explore, given that                                                                    
gas went for the highest price in the country.                                                                                  
                                                                                                                                
Co-Chair  Thompson  surmised  that   the  amendment  was  an                                                                    
attempt to unstack the NOL,  QCE, and WLE credits. He stated                                                                    
that  current law  prohibited a  company from  taking a  WLE                                                                    
credit without taking  a QCE credit for  that expenditure or                                                                    
other  exploration  credit  provision.   He  stated  that  a                                                                    
company  had  to choose  between  the  three. He  asked  for                                                                    
clarification.                                                                                                                  
                                                                                                                                
Representative Gara answered that  currently a company could                                                                    
combine  the QCE  or WLE  credit  with the  NOL credit.  The                                                                    
amendment  would limit  a company  to selecting  one of  the                                                                    
three credits. He  surmised a company would  choose the most                                                                    
valuable  credit.  He clarified  that  a  company could  not                                                                    
currently stack  the WLE credit  and the QCE credit  in Cook                                                                    
Inlet.                                                                                                                          
                                                                                                                                
Co-Chair  Thompson asked  for  verification  that a  company                                                                    
could pick one [of the three credits].                                                                                          
                                                                                                                                
Representative Gara nodded.                                                                                                     
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Kawasaki, Guttenberg, Gara                                                                                            
OPPOSED:  Munoz, Pruitt,  Saddler,  Wilson, Edgmon,  Gattis,                                                                    
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 21 FAILED (3/8).                                                                                  
                                                                                                                                
8:19:59 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson  MOVED to  ADOPT conceptual  Amendment 22,                                                                    
29-GH2609\F (copy on file):                                                                                                     
                                                                                                                                
     Page 6, line 25, following "chapter":                                                                                      
    Insert", excluding a credit under AS 43.55.024(j),"                                                                         
                                                                                                                                
     Page 6, line 31, following "chapter":                                                                                      
     Insert ", excludin2 a credit under AS 43.55.024(j),"                                                                       
                                                                                                                                
Co-Chair Neuman OBJECTED for discussion.                                                                                        
                                                                                                                                
Co-Chair Thompson explained the  amendment. He detailed that                                                                    
many sections of the CS created  a tax floor at 2 percent of                                                                    
the  gross  value.  He  specified  currently  credits  could                                                                    
reduce a  tax payment to  zero; the CS changed  that ability                                                                    
and  implemented  a  hard  2  percent  floor.  However,  the                                                                    
sliding  scale,  per-barrel credit  (of  zero  to $8.00)  in                                                                    
existing  law [established  in SB  21] had  been set  to not                                                                    
drop below the current 4  percent floor. The credit had been                                                                    
included in SB 21 to  ensure that legacy production from the                                                                    
North Slope  paid the  4 percent tax  unless there  was some                                                                    
other credit, such as an  NOL. The CS currently would enable                                                                    
the  per  barrel  credit  to  go  down  to  2  percent.  The                                                                    
amendment clarified  that the existing 4  percent hard floor                                                                    
for  the per  barrel credit  would  remain in  place on  the                                                                    
North Slope.  Only the other credits,  which could currently                                                                    
reduce tax  payments to  zero, were  hardened at  2 percent.                                                                    
The amendment  would save  the state  about $125  million if                                                                    
approved.                                                                                                                       
                                                                                                                                
Representative  Gattis was  unclear  on  the amendment.  She                                                                    
needed further explanation.                                                                                                     
                                                                                                                                
Co-Chair Thompson  noted that  the item  had only  just been                                                                    
discovered. The current CS established  that the North Slope                                                                    
4 percent floor  could be reduced to 2 percent  with the per                                                                    
barrel  credit of  zero to  $8.00. The  amendment reinforced                                                                    
that SB 21  legacy production from the North  Slope paid the                                                                    
4 percent  tax unless there  was some other credit,  such as                                                                    
an NOL.  The amendment would  reinsert the 4  percent floor;                                                                    
without it the CS reduced the floor to 2 percent.                                                                               
                                                                                                                                
Representative  Wilson  asked  for verification  that  if  a                                                                    
company was already at the  4 percent tax without taking the                                                                    
price per  barrel credit, the  amendment would  prevent them                                                                    
from doing so.                                                                                                                  
                                                                                                                                
Co-Chair  Thompson replied  in the  negative. The  amendment                                                                    
pertained to the  zero to $8.00 sliding  scale credit, which                                                                    
had a hard  4 percent floor. The CS would  lower the sliding                                                                    
scale credit to a hard  2 percent floor. The amendment would                                                                    
maintain the 4 percent floor for the specific credit.                                                                           
                                                                                                                                
Representative  Pruitt  surmised   that  the  sliding  scale                                                                    
credit had  an existing  floor of 4  percent. He  stated his                                                                    
understanding  that  the  CS had  accidentally  reduced  the                                                                    
floor to 2 percent for  the specific credit. He deduced that                                                                    
the amendment  would accomplish the goal  of maintaining the                                                                    
intent of SB 21.                                                                                                                
                                                                                                                                
Co-Chair  Thompson agreed.  He  expounded  that without  the                                                                    
change it could  cost the state $125 million.  The 2 percent                                                                    
hard  floor would  lower  the zero  to  $8.00 sliding  scale                                                                    
credit. The  amendment would maintain the  current 4 percent                                                                    
floor.                                                                                                                          
                                                                                                                                
Representative Gara believed the  zero to $8.00 credit under                                                                    
SB 21 worked  when there was a profits tax.  The profits tax                                                                    
existed until  it got so  low that  it was smaller  than the                                                                    
minimum tax; at that point  the gross minimum tax kicked in.                                                                    
He believed  the zero to  $8.00 only impacted the  rate paid                                                                    
for the profits  tax. He did not understand  how the profits                                                                    
tax sliding scale mechanism could impact the gross tax.                                                                         
                                                                                                                                
Co-Chair Thompson  explained that  the sliding  scale credit                                                                    
could allow the 4 percent floor  to drop to a 2 percent hard                                                                    
floor.  The  amendment would  maintain  the  4 percent  hard                                                                    
floor on the North Slope.                                                                                                       
                                                                                                                                
Representative Gara remarked that  the amendment sponsor had                                                                    
stated the  amendment would  restore the floor  to a  hard 4                                                                    
percent.  He did  not think  that was  accurate because  the                                                                    
bill had  a 2  percent hard floor.  He believed  the sponsor                                                                    
meant the floor would not drop below 2 percent.                                                                                 
                                                                                                                                
Co-Chair Thompson answered in the negative.                                                                                     
                                                                                                                                
8:26:31 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:30:10 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Neuman  WITHDREW  his OBJECTION.  There  being  NO                                                                    
further OBJECTION, Amendment 22 was ADOPTED.                                                                                    
                                                                                                                                
8:31:10 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
8:52:08 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-Chair  Saddler addressed  the three  forthcoming fiscal                                                                    
notes from  DNR Division of  Oil and Gas, DOR  Tax Division,                                                                    
and Fund Capitalization to the Oil and Gas Tax Credit Fund.                                                                     
                                                                                                                                
Co-Chair Thompson asked DOR to address the committee.                                                                           
                                                                                                                                
Representative Gattis  asked what  was meant  by forthcoming                                                                    
fiscal notes.                                                                                                                   
                                                                                                                                
Co-Chair  Thompson   answered  that  the   department  would                                                                    
explain.                                                                                                                        
                                                                                                                                
KEN ALPER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE,                                                                    
replied that he  was not entirely certain  about the meaning                                                                    
of the term forthcoming; however,  he believed it meant that                                                                    
the fiscal  notes would need  to be modified due  to changes                                                                    
made during the meeting. The  clarified the fiscal notes had                                                                    
been written to the CS before it had been amended.                                                                              
                                                                                                                                
Co-Chair Thompson  stated that  some of  the notes  would be                                                                    
reduced and others would increase.  Mr. Alper replied in the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative Gara pointed to  a fiscal note (OMB Component                                                                    
Number 2894)  that included  an $800  million. He  asked for                                                                    
verification  that  the  governor   had  proposed  the  $800                                                                    
million to pay  accrued tax credits at a time  when the bill                                                                    
would have substantially reduced  tax credits and raise some                                                                    
revenue.                                                                                                                        
                                                                                                                                
Mr. Alper replied that  the governor's initial appropriation                                                                    
request  in the  fund  capitalization fiscal  note had  been                                                                    
$926  million;  the difference  between  the  number in  the                                                                    
operating  budget and  $1 billion.  The intent  had been  to                                                                    
"clear  the  decks" to  pay  all  accrued credits  including                                                                    
those  accruing between  the present  day and  the effective                                                                    
date  of the  bill.  The expectation  was  that the  program                                                                    
would  be  sufficiently  smaller  in future  years  and  the                                                                    
appropriation would not be as substantial.                                                                                      
                                                                                                                                
Representative  Kawasaki  pointed  to  page 2  of  the  same                                                                    
fiscal  note. He  asked  if the  fiscal  note reflected  the                                                                    
change in Amendment 1.                                                                                                          
                                                                                                                                
Mr.  Alper replied  that  the fiscal  note  did not  reflect                                                                    
changes  made  during  the  current  meeting.  He  spoke  to                                                                    
revenue line item  3: $0.00 to $10 million in  FY 17 through                                                                    
FY 19,  $5 million  to $15  million in  FY 20,  etcetera. He                                                                    
detailed that  the particular item  was associated  with the                                                                    
elimination of  the tax cap for  oil in Cook Inlet.  The cap                                                                    
had been restored by Amendment  1; therefore, he anticipated                                                                    
that the  updated amendment  would remove  the $0.00  to $10                                                                    
million from the bottom line.                                                                                                   
                                                                                                                                
Representative  Kawasaki stated  that the  FY 17  change had                                                                    
been closer to $20 million  in the House Resources Committee                                                                    
version  of the  bill. He  added that  in a  version of  the                                                                    
fiscal note from  the previous day, the impact  had been $10                                                                    
million to $50 million. He  asked for verification that with                                                                    
the $10  million for the  tax limitation on Cook  Inlet oil,                                                                    
the  outlay  appeared  to  range  from  $5  million  to  $20                                                                    
million.                                                                                                                        
                                                                                                                                
Mr.  Alper answered  that  the fiscal  note  brought to  the                                                                    
committee earlier in  the week had been "on the  fly" and he                                                                    
had  relayed that  there may  be corrections.  Specifically,                                                                    
the  department  had reversed  the  direction  of the  small                                                                    
extension of  the exploration credit  in the  frontier areas                                                                    
(the number had  been negative, but it had  been reversed to                                                                    
a  positive  number  as  it  would  cost  a  bit  more).  He                                                                    
explained that it  was really not possible to look  at FY 17                                                                    
because the effective  date of almost all of  the changes in                                                                    
the bill  was not until  January 2017. Therefore,  the great                                                                    
bulk of the  credits that otherwise would have  been paid in                                                                    
FY 17 will have been paid before the bill's effective date.                                                                     
                                                                                                                                
Representative Kawasaki  believed the bill version  prior to                                                                    
the  CS   had  been  modelled  after   the  House  Resources                                                                    
Committee; in  that version the  total savings to  the state                                                                    
would be between  $770 million and $805 million  and in year                                                                    
two  the  savings would  range  from  $420 million  to  $455                                                                    
million.  Under the  CS, excluding  changes made  during the                                                                    
current  meeting, the  savings would  range from  $5 million                                                                    
and $30 million  the first year and between  $90 million and                                                                    
$165 million in the second  year. He asked if his statements                                                                    
were accurate.                                                                                                                  
                                                                                                                                
8:58:11 PM                                                                                                                    
                                                                                                                                
Mr.  Alper answered  that  the  statements were  technically                                                                    
correct, but he  put the more appropriate  comparison on the                                                                    
FY  18 numbers.  He explained  that the  governor's original                                                                    
version  of the  bill had  a more  imminent effective  date,                                                                    
which dramatically changed the FY 17 numbers.                                                                                   
                                                                                                                                
Representative  Kawasaki remarked  that the  total effective                                                                    
revenue change  for FY  18 was around  $120 million  to $130                                                                    
million. Whereas, the  amount was closer to  $430 million in                                                                    
the governor's original bill. Mr.  Alper replied that he did                                                                    
not have the  original fiscal note on hand,  but he believed                                                                    
the number sounded correct.                                                                                                     
                                                                                                                                
Representative Gara referred  to page 2 of  the fiscal note,                                                                    
which  specified  the value  to  the  state ranged  from  $5                                                                    
million and  $30 million  in FY 17  and between  $90 million                                                                    
and $165 million in the second  year. He asked if the amount                                                                    
factored in no longer receiving tax from oil in Cook Inlet.                                                                     
                                                                                                                                
Mr. Alper answered that line 3  on page 2 of the fiscal note                                                                    
included  the Cook  Inlet tax  restoration of  $0.00 to  $10                                                                    
million. The low end of the  range would not change, but the                                                                    
high end would be reduced by $10 million.                                                                                       
                                                                                                                                
Representative Gara asked why the  loss of $10 million would                                                                    
not impact the low end of $90 million.                                                                                          
                                                                                                                                
Mr.  Alper   explained  that  the  statute   contained  some                                                                    
inherent  vagueness,  especially  related to  how  different                                                                    
features  may interact  with each  other. The  economist who                                                                    
had  prepared  the  chart  included a  range  to  factor  in                                                                    
uncertainty.  He  explained  that   the  ranges  for  FY  18                                                                    
including  $0.00  to  $10  million,   $70  million  to  $100                                                                    
million, $15 million  to $25 million were  added; the bottom                                                                    
line ranges included the sum of  the low end amounts and the                                                                    
sum  of the  high end  amounts. He  elucidated that  because                                                                    
they were  moving a $0.00  to $10  million, the low  end was                                                                    
$0.00.                                                                                                                          
                                                                                                                                
9:00:31 PM                                                                                                                    
                                                                                                                                
Representative Munoz  observed that according to  the spring                                                                    
forecast numbers for  FY 17 the total credit  was about $975                                                                    
million and $655  million in FY 18. She  referred to changes                                                                    
for FY 18 shown in a  DOR fiscal analysis the prior evening,                                                                    
which included approximately $190  million (subject to minor                                                                    
change).  She  asked for  verification  that  the state  was                                                                    
looking at credits of around $500 million.                                                                                      
                                                                                                                                
Mr. Alper  answered that did  not have all of  the documents                                                                    
in front of  him. He explained that  the department's spring                                                                    
forecast numbers  included the refunded credits  and credits                                                                    
that would be  taken against liability. The  portions of the                                                                    
bill that reduced the credit  outlay also reduced the credit                                                                    
spend.  To  a certain  extent  the  increased revenue  items                                                                    
(primarily related  to the  partially hardened  floor) would                                                                    
be  a  reduction  in  credits  used  against  liability.  He                                                                    
detailed  that  the  credits  would   not  be  used  against                                                                    
liability and  instead would  be received  as taxes.  It was                                                                    
fair to  say the great  majority of  the impact in  the bill                                                                    
would adjust the chart going forward.                                                                                           
                                                                                                                                
Representative  Gara   noted  that  the  fiscal   note  (OMB                                                                    
Component Number 2894) included  an $800 million figure that                                                                    
he believed  was not  included in the  bill. He  believed it                                                                    
had been  the governor's  hope when  he introduced  the bill                                                                    
that  the state  would  pay off  existing  credits for  $800                                                                    
million. He  asked for  verification that  the bill  did not                                                                    
contain the provision.                                                                                                          
                                                                                                                                
Mr.  Alper agreed  that the  item  was not  included in  the                                                                    
bill,  but  he  clarified  that  it  had  not  been  in  the                                                                    
governor's  original  bill  either.  He  believed  the  $800                                                                    
million figure  would appear in  the fiscal note  section of                                                                    
the operating budget.                                                                                                           
                                                                                                                                
Representative Gara  asked how much the  state was obligated                                                                    
to pay  in tax credits  for FY  17. Mr. Alper  answered that                                                                    
the number had  been $73.4 million when the  budget had been                                                                    
constructed the  previous fall; the  number was  included in                                                                    
the  [FY 17]  operating budget  based on  DOR's estimate  of                                                                    
production  tax  after  adding   back  any  credits  against                                                                    
liability  multiplied by  15  percent.  The calculation  was                                                                    
somewhat  different  at  present because  the  forecast  was                                                                    
lower;  the   number  had  recently   been  adjusted   in  a                                                                    
presentation  he  had  prepared   for  the  other  body.  He                                                                    
believed the figure was around $30 million.                                                                                     
                                                                                                                                
Representative  Wilson remarked  that  the  state owed  $800                                                                    
million,  but  the $73  million  was  the state's  statutory                                                                    
obligation [in  FY 17].  She was  trying to  discern whether                                                                    
the House  Finance Committee had  asked for the  fiscal note                                                                    
to the  $800 million or if  the amount had been  included at                                                                    
the governor's request.                                                                                                         
                                                                                                                                
Mr. Alper  answered that in the  governor's original version                                                                    
of the bill,  the governor had requested  $900 plus million;                                                                    
however, that  fiscal note had  been made  indeterminate and                                                                    
had  not  come  to  the House  Finance  Committee  from  the                                                                    
previous  committee.  He  believed  the  fiscal  note  under                                                                    
discussion had been  put together by the chair  of the House                                                                    
Finance  Committee  [Co-Chair  Neuman]  or  the  Legislative                                                                    
Finance Division. The note had not come from DOR.                                                                               
                                                                                                                                
Representative  Wilson  referred  to the  DOR  Tax  Division                                                                    
fiscal note  (OMB Component Number 2476).  The note included                                                                    
a change in revenue from $20  million [FY 17] to $90 million                                                                    
[FY 18  and FY 19]  to $95 million  [FY 20] to  $145 million                                                                    
[FY 21]  to $210 million  [FY 22]. She assumed  the revenues                                                                    
were close to those the bill would generate.                                                                                    
                                                                                                                                
Mr. Alper  replied that  the specific  fiscal note  had been                                                                    
generated  by DOR.  He explained  that the  number was  also                                                                    
included  in  the  table  attached  both  fiscal  notes  the                                                                    
committee had  been speaking to (OMB  Component Numbers 2476                                                                    
and  2894). He  explained that  the  top half  of the  table                                                                    
pertained  to additional  revenue  (lines 1  through 8)  and                                                                    
lower  portion  of  the table  included  the  total  revenue                                                                    
impact of credits  the state repurchased. He  pointed to the                                                                    
revenue   impact,  which   primarily  showed   changes  from                                                                    
hardening  the floor  as well  as  the changes  to the  Cook                                                                    
Inlet tax,  which had been  added and  subsequently removed.                                                                    
The  impact showed  a range  of numbers  $10 million  to $30                                                                    
million, $70  million to  $110 million,  and $70  million to                                                                    
$110 million.  The DOR  fiscal note  showed the  midpoint of                                                                    
the  ranges. He  added  that it  represented the  additional                                                                    
revenue anticipated  to be brought  into the  state treasury                                                                    
due to the changes in the bill.                                                                                                 
                                                                                                                                
9:06:22 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  remarked  that numbers  in  the  out                                                                    
years  were usually  estimates, especially  when it  came to                                                                    
tax credits, because it depended  who cashed the credits in.                                                                    
She asked why the fiscal note  did not include a future cost                                                                    
projection.                                                                                                                     
                                                                                                                                
Mr. Alper  responded that the  original version of  the fund                                                                    
cap fiscal  note had included negative  numbers beginning in                                                                    
FY 18,  which had reflected  the savings portion of  the tax                                                                    
credit bill.  The comparable numbers  on the  bottom portion                                                                    
of the  chart would be about  $35 million to $40  million in                                                                    
FY 18;  and about $60  million in  FY 19. He  explained that                                                                    
how the  numbers were  presented was  up to  the Legislative                                                                    
Finance  Division, but  there were  negative numbers  on the                                                                    
operating side through grants and  benefits in FY 18 through                                                                    
FY 22; the numbers could be included in the note.                                                                               
                                                                                                                                
Representative  Wilson  was  not  in favor  of  paying  $800                                                                    
million in the current year.  She believed the committee had                                                                    
made it  clear to the  companies that  it would be  great if                                                                    
the  state could  pay  the  amount in  its  entirety in  the                                                                    
coming  year, but  it was  not the  state's obligation.  She                                                                    
could not support  reporting the bill out  of committee with                                                                    
an $800  million appropriation. She could  support including                                                                    
the  $73 million  with an  explanation indicating  the state                                                                    
would owe the remainder in  future years (i.e. FY 18 through                                                                    
FY 20);  she mentioned  the possibility  of paying  the owed                                                                    
credits with potential new revenue.                                                                                             
                                                                                                                                
Vice-Chair  Saddler  referred  to the  total  fiscal  impact                                                                    
shown  on the  fiscal note  table.  He asked  if the  amount                                                                    
should be  between $5  million to  $20 million  when backing                                                                    
out the elimination of the  Cook Inlet tax cap. He furthered                                                                    
that the  table would read  $110 million to $170  million in                                                                    
FY 20. He asked if it  was accurate to subtract the high and                                                                    
low.                                                                                                                            
                                                                                                                                
Mr. Alper replied in the affirmative.                                                                                           
                                                                                                                                
Representative  Edgmon  recapped  his understanding  of  the                                                                    
actions  taken on  the  CS during  the  current meeting.  He                                                                    
summarized that  the CS  included a  2 percent  hardening of                                                                    
the tax  floor, which represented  the vast majority  of the                                                                    
savings; and  the Cook  Inlet cap  was removed.  He surmised                                                                    
that the  2 percent hard  floor would lower the  hundreds of                                                                    
millions of  dollars in obligations  that would  be stacking                                                                    
up in short order (as they were already doing).                                                                                 
                                                                                                                                
Mr.  Alper answered  that the  hardening of  the floor  at 2                                                                    
percent would bring  in a bit more to the  state, but it did                                                                    
not change  the credit spend  obligation. He pointed  to the                                                                    
bottom  half of  the table  and explained  that the  largest                                                                    
portion  reflected  the  Cook  Inlet  credit  changes  (i.e.                                                                    
reduction in the  NOL and WLE credits). He pointed  to FY 19                                                                    
related  to  the NOL  and  QCE/WLE  credits, which  included                                                                    
savings of  $10 million  to $20 million  and $15  million to                                                                    
$25 million  respectively. Below that information  the table                                                                    
included savings  and spending related to  the comingling of                                                                    
the GVR with  the NOL credit, which was  where the reduction                                                                    
in  the future  year's credit  spend would  be. He  remarked                                                                    
that it  was a somewhat  esoteric technical  correction made                                                                    
on the North  Slope. The hardening of the  floor would bring                                                                    
in a bit  more revenue. He directed attention  to the bottom                                                                    
three  rows of  the table  related to  non-refundable carry-                                                                    
forward credits. He detailed that  the top of the three rows                                                                    
related  to  operating loss  credits  in  the possession  of                                                                    
major producers, which  were not cashable; by  law they were                                                                    
not able to  get money for their credits.  The numbers ($618                                                                    
million in FY 17, $751 million  in FY 18, $732 million in FY                                                                    
19, and so on) represented  credits the companies would hold                                                                    
until  the  price  of  oil  increased;  at  that  point  the                                                                    
companies  would  use the  credits  to  offset their  taxes.                                                                    
Under the  CS the companies  would be carrying  more credits                                                                    
forward  because the  credits  would not  be offsetting  the                                                                    
floor so completely; they would  only be offsetting half the                                                                    
floor. The  hardened 2 percent floor  actually increased the                                                                    
future  liability of  carry-forward credits.  He pointed  to                                                                    
the second to last row ($676  million in FY 17, $941 million                                                                    
in  FY  18, $1.065  billion  in  FY  19), which  became  the                                                                    
adjusted estimate for carry-forward credits.                                                                                    
                                                                                                                                
9:11:51 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon remained  concerned that  the CS  did                                                                    
not do enough.  He detailed that there  would be significant                                                                    
obligations down  the road,  some of  which were  already in                                                                    
place. He stated that he would  not hold the bill up, but he                                                                    
was not  certain the  committee had done  the job  it should                                                                    
have done.                                                                                                                      
                                                                                                                                
Representative Pruitt  asked if the governor  had originally                                                                    
intended  to  have  the  $800   million  or  so  in  current                                                                    
liability paid off in the coming year.                                                                                          
                                                                                                                                
Mr. Alper  answered that the  governor's intent had  been to                                                                    
put  a large  sum of  money from  the Constitutional  Budget                                                                    
Reserve  into  the  tax  credit   fund  in  advance  of  the                                                                    
liability. The  expectation had  been that  by the  time the                                                                    
credits ramped down later in  2016 that the obligation would                                                                    
be about $1 billion.                                                                                                            
                                                                                                                                
Representative Pruitt  asked how  much the state  would have                                                                    
to pay  if the legislature had  decided to only pay  off the                                                                    
state's obligation for the current year.                                                                                        
                                                                                                                                
Mr. Alper  answered that the  current year had  an estimated                                                                    
obligation of $700  million; the number had  been reduced to                                                                    
$500  million   by  the  governor's  veto,   which  left  an                                                                    
estimated $200 million  of the FY 16  obligation unpaid. The                                                                    
FY 16 obligation  rolled forward into the  FY 17 obligation;                                                                    
therefore, the DOR spring forecast  of $775 million included                                                                    
$575  million in  new obligation  and $200  million in  past                                                                    
obligation.                                                                                                                     
                                                                                                                                
Representative  Pruitt  stated that  the  veto  had put  off                                                                    
paying  $200  million  of the  state's  obligation  for  the                                                                    
current  year  [FY 16].  He  surmised  that because  the  CS                                                                    
lowered the  floor to  2 percent  it would  potentially mean                                                                    
the  state would  push  off liability  into  the future.  He                                                                    
asked how  future liabilities would be  managed. He wondered                                                                    
if the legislature would have  to appropriate money annually                                                                    
to  cover the  amount owed  in the  given year,  which would                                                                    
increase  the  unfunded  liability.  He  remarked  that  the                                                                    
governor had  at least a  couple more  years in his  role to                                                                    
make the  decision. Alternatively, he asked  if the governor                                                                    
would  ask the  legislature to  appropriate the  full amount                                                                    
the  state owed  to  the tax  credit fund  in  order to  pay                                                                    
obligations as they came due.                                                                                                   
                                                                                                                                
Mr. Alper answered that he  could not speak for the governor                                                                    
and how  he may choose  to approve appropriations  in future                                                                    
years.  The   appropriation  number  in  the   budget  would                                                                    
decrease because of the reforms  made by the CS. He referred                                                                    
to the $400-plus  million estimate in two  years; the number                                                                    
would  be reduced  by  roughly $50  million  to $60  million                                                                    
based  on  the  changes   in  the  bill.  Additionally,  the                                                                    
hardening  of the  floor  caused  the non-refundable  carry-                                                                    
forward NOL  credits (held  by the  major oil  companies) to                                                                    
increase. The companies  would offset as much  as they could                                                                    
against their  taxes; the amount  would be small as  long as                                                                    
oil prices remained  low. He detailed that  the amount would                                                                    
be 2 percent  of the gross, the per barrel  credit would get                                                                    
companies  to  4 percent,  and  the  NOL credits  would  get                                                                    
companies from  4 percent  down to  2 percent.  He furthered                                                                    
that once the price of oil  increased there would be a delay                                                                    
of 3 months to a year from  the increase in the price of oil                                                                    
and  when material  amounts of  production tax  revenue were                                                                    
generated. He explained that first,  companies would use the                                                                    
carry-forward credits to reduce their production taxes.                                                                         
                                                                                                                                
9:16:49 PM                                                                                                                    
                                                                                                                                
Representative Wilson did not  understand why the DOR fiscal                                                                    
note (OMB Component Number 2894)  included the $800 million.                                                                    
She did  not believe the  amount was  part of the  bill. She                                                                    
agreed that  it reflected  the state's outstanding  debt and                                                                    
included the $73 million the state owed in FY 17.                                                                               
                                                                                                                                
Mr. Alper answered that it was  not part of the bill. For FY                                                                    
17,  when factoring  out the  $73 million  in the  operating                                                                    
budget,  the  state's  credit   obligation  was  about  $702                                                                    
million; the  number in  the fiscal  note was  $800 million,                                                                    
but   the  bill   did  not   specify  there   would  be   an                                                                    
appropriation.                                                                                                                  
                                                                                                                                
Representative   Wilson   understood.  She   believed   that                                                                    
normally  fiscal  notes  for a  piece  of  legislation  were                                                                    
related to the  legislation. She opined that  the amount the                                                                    
state chose to  pay in the operating  and/or capital budgets                                                                    
did not follow  the bill. She believed  the notes associated                                                                    
with the bill should reflect  the actual savings or costs it                                                                    
contained.  She  stressed  that the  bill  did  not  include                                                                    
anything  to account  for the  particular  fiscal note.  She                                                                    
wanted  to  avoid confusion  about  what  the committee  was                                                                    
voting  on for  the bill  versus an  obligation outside  the                                                                    
bill.                                                                                                                           
                                                                                                                                
9:18:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman believed  the fiscal  note was  appropriate                                                                    
because it represented the state's  debt for oil and gas tax                                                                    
credits.  He relayed  that the  credit number  had not  been                                                                    
known  when  the operating  budget  when  the committee  had                                                                    
worked  on  the  operating  budget. He  continued  that  the                                                                    
committee had  just received the  final number  the previous                                                                    
week; it  was currently the first  opportunity the committee                                                                    
had  to  look   at  past  debt  the  state   owed.  The  DOR                                                                    
commissioner had confirmed in  a conversation earlier in the                                                                    
day that the $800 million would  be about what it would cost                                                                    
to cover  the state's debt  associated with the  credits. He                                                                    
believed  it was  very important  for the  state to  pay the                                                                    
debt.  He  specified  that  the credits  were  part  of  the                                                                    
contracts companies had entered  into with lending agencies.                                                                    
He thought  it was logical for  the note to travel  with the                                                                    
bill; it also paid off the  state's debt on credit owed [$73                                                                    
million in FY 17].                                                                                                              
                                                                                                                                
Representative Pruitt  asked for verification that  with the                                                                    
fiscal  note,   the  $4.1  billion  budget   passed  by  the                                                                    
legislature increased to $5 billion.                                                                                            
                                                                                                                                
Co-Chair  Neuman replied  in the  negative. He  believed the                                                                    
cost would  be outside the  operating budget and  would come                                                                    
from the  CBR. He did not  believe the cost was  intended to                                                                    
be imbedded in the budget cycle.                                                                                                
                                                                                                                                
Representative  Pruitt respectfully  disagreed. He  reasoned                                                                    
that if  the amount  was added  to the budget  for FY  17 it                                                                    
would be a  part of the recently passed  budget. He detailed                                                                    
that the $900  million plus the $4.1 billion  would make the                                                                    
budget $5  billion. He wanted  to be  sure to be  clear when                                                                    
talking to people that the budget was $5 billion.                                                                               
                                                                                                                                
Co-Chair Neuman  replied that the operating  budget produced                                                                    
by  the legislature  to run  state  government services  was                                                                    
$4.1 billion.                                                                                                                   
                                                                                                                                
Representative  Pruitt remarked  that  the operating  budget                                                                    
had  included the  $73.4  billion for  the  tax credits.  He                                                                    
reasoned  that the  fiscal note  added another  $800 million                                                                    
and  it was  not  possible  to separate  the  two items.  He                                                                    
believed it was appropriate to  include the amount. He added                                                                    
that  the   operating  budget  included  the   $73  million;                                                                    
therefore,  he  estimated the  total  budget  at about  $4.9                                                                    
billion  with the  inclusion of  the  remaining tax  credits                                                                    
owed.                                                                                                                           
                                                                                                                                
Representative  Gara OBJECTED  to the  fiscal note  from the                                                                    
House  Finance Committee  [OMB  Component  Number 2894].  He                                                                    
believed  a fiscal  note should  reflect action  taken in  a                                                                    
bill.                                                                                                                           
                                                                                                                                
9:22:55 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:24:05 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Thompson  relayed that even though  the fiscal note                                                                    
reflected what the  state owed, it could be dealt  with at a                                                                    
later  time.   Therefore,  he   WITHDREW  fiscal   note  OMB                                                                    
Component Number 2894.                                                                                                          
                                                                                                                                
Co-Chair  Neuman  MOVED  to  REPORT  CSHB  247(FIN)  out  of                                                                    
committee  as amended  with  individual recommendations  and                                                                    
the forthcoming fiscal notes.                                                                                                   
                                                                                                                                
Representative Gara OBJECTED.                                                                                                   
                                                                                                                                
Co-Chair Thompson  clarified that fiscal note  OMB Component                                                                    
Number 2894 had been withdrawn.                                                                                                 
                                                                                                                                
Representative Gara did  not want to slow down  the bill and                                                                    
thought  it  should be  voted  on  by  the entire  House  of                                                                    
Representatives. He  remarked that  a number of  members had                                                                    
voiced  their desire  to  see a  different  bill in  various                                                                    
ways. He  did not support  the current version of  the bill.                                                                    
He detailed that  filling a $4.4 billion  deficit required a                                                                    
significant number  of components. He remarked  that some of                                                                    
the  components  were  not   universally  liked  within  the                                                                    
legislature. He  believed some components in  the governor's                                                                    
bill needed  fixing, but  it had  also included  savings and                                                                    
revenue  of around  $500 million.  However,  the CS  brought                                                                    
savings of  potentially $90 million.  He did not  know where                                                                    
the  legislature would  locate  the extra  $400 million.  He                                                                    
surmised that it  would require adding the  amount to future                                                                    
debt, the Permanent Fund Dividend,  an income tax, or other,                                                                    
which he was  not thrilled about. He detailed  that the bill                                                                    
had  contained the  easiest savings  it  had in  a way  that                                                                    
could  protect  the  state and  treat  industry  fairly.  He                                                                    
committed to doing  his best to work  with other legislators                                                                    
over the upcoming  days to hopefully come out  with a better                                                                    
bill.                                                                                                                           
                                                                                                                                
Representative  Edgmon  thanked  Co-Chair Thompson  and  his                                                                    
staff Jane Pierson  for their work on the  bill. He reasoned                                                                    
the  bill  was complicated  from  every  possible angle.  He                                                                    
believed the  first thing was  to set a fair  structure that                                                                    
provided  the  proper  incentive  to  the  primary  industry                                                                    
funding government in  Alaska since 1980. He  spoke to doing                                                                    
what  the state  should be  doing  in terms  of the  massive                                                                    
revenue shortfall  and trying  to find  a balance  point. He                                                                    
was  not sure  the bill  found the  appropriate balance.  He                                                                    
remarked that the  bill would go to the other  body and that                                                                    
more work would  be done. He noted that perhaps  some of the                                                                    
work  would  be  delayed   when  the  legislative  workgroup                                                                    
provided a more comprehensive  understanding of the give and                                                                    
take, cause  and effect, and  how actions in the  bill would                                                                    
look over time.                                                                                                                 
                                                                                                                                
Representative  Kawasaki thanked  Co-Chair Thompson  for his                                                                    
communication on  the bill and the  procedures. He discussed                                                                    
that  the governor's  bill had  come to  the committee  with                                                                    
major disagreements between  committee members about whether                                                                    
the policy was  good or bad. The  governor's expected fiscal                                                                    
impact had  been around  $800 million  savings in  the first                                                                    
year, $440  million in  year two, and  $400 million  in year                                                                    
three. He  remarked that  the savings coming  out of  the CS                                                                    
were  significantly  different  ($24 million  in  the  first                                                                    
year,  $140 million  the  next year,  and  $160 million  the                                                                    
following year);  he did not  believe the bill  had anywhere                                                                    
near the budget  impact he or the  governor had anticipated.                                                                    
He  detailed that  in the  coming  year the  state would  be                                                                    
giving  $135 million  more in  credits than  it received  in                                                                    
royalties and production tax.                                                                                                   
                                                                                                                                
Representative  Kawasaki continued  that  the committee  had                                                                    
heard  from  enalytica  and  Legislative  Budget  and  Audit                                                                    
analysts who had relayed the  taxes provided by the state in                                                                    
the Cook Inlet  region in particular were  nothing more than                                                                    
a  subsidy  since the  state  did  not levy  a  profit-based                                                                    
production tax in  the region; he referred  to an associated                                                                    
report filed  in 2015 related  to the Cook  Inlet subsidies.                                                                    
He stressed  the need  for locating cuts  in the  budget and                                                                    
believed  that the  bill seemed  like a  reasonable starting                                                                    
point.  He  noted that  many  legislators  had talked  about                                                                    
revenue options  in recognition of  the huge  deficit facing                                                                    
the state.  He wholeheartedly  agreed that action  needed to                                                                    
be taken.  He had thought  the committee would agree  on the                                                                    
bill. He  highlighted bills pertaining  to income tax  and a                                                                    
restructuring of  the Permanent  Fund, which would  hurt and                                                                    
impact individual  families. He  explained that it  was very                                                                    
hard for  him to  justify supporting  any of  those measures                                                                    
when  Cook  Inlet  and  North   Slope  producers  were  held                                                                    
harmless in  the budget  cycle in the  future. He  had hoped                                                                    
the bill would be better. He did not support the bill.                                                                          
                                                                                                                                
9:33:04 PM                                                                                                                    
                                                                                                                                
Representative  Wilson believed  the  legislature needed  to                                                                    
decide if  the state was or  was not open for  business. She                                                                    
recalled a  past Institute of  Social and  Economic Research                                                                    
(ISER) presentation,  which had shown potential  revenue and                                                                    
how the state's  budget gap would continue  to increase. The                                                                    
ISER  presentation had  illustrated that  investment by  the                                                                    
oil and gas  industry was changing because  the industry had                                                                    
known if  the gap became  large enough the state  would look                                                                    
to it for reprieve. She  observed that the industry had been                                                                    
correct.  She reasoned  that  everyone had  to  pay and  the                                                                    
industry  had  been paying.  She  asked  members where  they                                                                    
thought  the  state's  money  had   been  coming  from.  She                                                                    
answered that the funds had  come from the oil industry. She                                                                    
addressed  gas,   which  had  been  primarily   utilized  by                                                                    
companies bringing up  more oil; there had  been some things                                                                    
to  help Southcentral  and Interior  Alaska also  benefitted                                                                    
because much of its electricity  came from the area. She was                                                                    
disappointed that  there had been  no explanation of  all of                                                                    
the changes in the CS.  She referred to the final amendment,                                                                    
which  had fixed  an error  in the  bill. She  was concerned                                                                    
there may be other mistakes  existing in the current version                                                                    
of  the  bill.  She  remarked that  no  industry  or  public                                                                    
testimony had been heard on  the current bill version, which                                                                    
she  believed  was   considerably  different  and  contained                                                                    
numerous policy changes.                                                                                                        
                                                                                                                                
Representative  Wilson was  primarily disappointed  that she                                                                    
kept hearing  the oil  and gas industry  needed to  pay. She                                                                    
stressed it was likely the  legislature would not be looking                                                                    
for more money from industry  if government spending was not                                                                    
out of control and the state's  deficit was not as high. She                                                                    
furthered it was the reason  the legislature was not looking                                                                    
for as  much out of  the mining  or fishing industry  or the                                                                    
box stores.  She did not  see anything easy about  the bill.                                                                    
She referred  numerous testimony  in opposition  to changing                                                                    
the  tax  structure.  She emphasized  that  the  bill  would                                                                    
change  the tax  structure again,  but she  did not  know to                                                                    
what  extent. She  believed many  of  the committee  members                                                                    
agreed for different reasons that  their expectations on the                                                                    
bill had  not been met.  She remarked that  many legislators                                                                    
had fought hard  for SB 21 because they believed  in it; she                                                                    
still believed in  it. She had heard the  number of projects                                                                    
had and production  had increased. She noted  there had been                                                                    
job  losses on  the North  Slope on  in the  past year.  She                                                                    
spoke  to her  son's experience  working for  an independent                                                                    
contractor  on  the  North  Slope and  about  how  much  had                                                                    
changed  in the  past year.  She detailed  that people  were                                                                    
getting  laid off  throughout the  state. She  stressed that                                                                    
individual families  were being  effected by the  budget and                                                                    
by the  current bill. She  did not believe oil  prices would                                                                    
remain at their  current low prices. She added  that she did                                                                    
not  believe it  would rebound  to $100  per barrel,  but it                                                                    
would  improve   over  current  prices.  She   believed  the                                                                    
committee had just  sent a major message to the  oil and gas                                                                    
industry that  the state would  change the tax  system every                                                                    
time it got into an issue.                                                                                                      
                                                                                                                                
9:36:59 PM                                                                                                                    
                                                                                                                                
Representative Gattis  stated that  there were  already over                                                                    
1,000 people hurting  due to the loss of jobs.  She spoke to                                                                    
changing  another   tax  regime.   She  remarked   that  the                                                                    
legislature had only impacted between  50 and 75 state jobs.                                                                    
She stated that  the majority of the  individuals working or                                                                    
who had worked on the North  Slope were from the Mat-Su. She                                                                    
stressed that no business would  have the ability to stay in                                                                    
business as  the state continued  to change the  tax system.                                                                    
She recognized  the state was  in a budget deficit,  but she                                                                    
did not believe  the legislature was being  equal across the                                                                    
board. She  struggled with  the bill and  would allow  it to                                                                    
move, but reluctantly.                                                                                                          
                                                                                                                                
Vice-Chair Saddler  spoke to the complex  nature of Alaska's                                                                    
oil  and  gas  tax  system. He  considered  the  substantial                                                                    
mission facing the committee,  which included addressing the                                                                    
policy  goals of  maintaining a  net profits  tax at  a time                                                                    
when  there was  no profit  to tax,  maintaining production,                                                                    
continuing  to obtain  royalties to  pay the  state's bills,                                                                    
incentivizing  oil exploration  and  production at  present,                                                                    
and preventing  oil from drying  up in the future.  In terms                                                                    
of cash  flow, he  observed it was  difficult to  resist the                                                                    
desire to get short-term revenue,  but it would mean selling                                                                    
the future short  at long-term costs. He  remarked that each                                                                    
person came  to their  own conclusions  about what  the bill                                                                    
was, which  were all accurate.  He agreed that the  bill did                                                                    
not do  everything everyone wanted  it to do (e.g.  it would                                                                    
not pay all  of the state's bills and did  not do everything                                                                    
possible  to incentivize  production). He  surmised that  if                                                                    
everyone was unhappy it may be  a good mix. He reasoned that                                                                    
the bill  would be addressed  by other legislators  as well.                                                                    
He noted  that the bill was  only one element of  a complete                                                                    
response to the unprecedented oil price decline.                                                                                
                                                                                                                                
9:40:30 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg thanked  Co-Chair Thompson and his                                                                    
staff for their  work on the legislation.  He discussed that                                                                    
the  price of  oil had  collapsed worldwide.  He noted  that                                                                    
economists had  stated it may  represent the end of  "oil as                                                                    
king."  He  discussed  that the  oil  companies  working  in                                                                    
Alaska were some  of the richest corporations  in the world.                                                                    
He emphasized  that the companies  were investing  in Alaska                                                                    
because  of the  state's  oil and  gas resources;  resources                                                                    
making the  companies rich. He  disputed the claim  that oil                                                                    
field workers and  the support industry were  being laid off                                                                    
because  of  what  the legislature  was  doing,  albeit  the                                                                    
legislature would be blamed for  it. He believed the workers                                                                    
were being  laid off due  to the  price of oil.  He surmised                                                                    
the  oil  industry  was  renegotiating  its  contracts  with                                                                    
suppliers  and  subcontractors due  to  the  decline in  oil                                                                    
price. He noted  there was nothing wrong  with the strategy;                                                                    
it  was  what  happened  [in times  of  price  decline].  He                                                                    
remarked  that apparently  it was  wrong if  the legislature                                                                    
did the same thing. He  stressed it was difficult to support                                                                    
a bill  asking Alaskans  to subsidize  the oil  industry. He                                                                    
equated the  credits to grants  and the legislature  did not                                                                    
know what  they were actually  doing. He continued  that the                                                                    
legislature    received   aggregate    numbers   from    the                                                                    
departments. He  referred to an earlier  conversation on the                                                                    
House  floor  about  separation  of  powers.  He  noted  the                                                                    
committee was  relying on the departments  to do significant                                                                    
work. He reasoned at the end  of the day the legislature had                                                                    
to  do  the people's  work.  He  stressed that  the  state's                                                                    
natural resources  were the people's  resources. He  did not                                                                    
support  subsidizing  companies  to  take  oil  out  of  the                                                                    
ground. He  believed credits offered to  companies were much                                                                    
too  high.  He continued  that  the  legislature was  asking                                                                    
Alaskans  to come  to the  table  and he  believed the  bill                                                                    
should be fair  and equitable for Alaskans  and industry. He                                                                    
opined  that  the  bill  was   not  at  that  place  and  he                                                                    
questioned whether it would get there.                                                                                          
                                                                                                                                
Co-Chair Thompson  thanked his staff his  staff Jane Pierson                                                                    
for all of  her work. Additionally, he  thanked Pete Ecklund                                                                    
(staff to  Representative Mark Neuman) and  others. He noted                                                                    
the challenging work and observed  the bill was probably not                                                                    
where  it should  be. He  highlighted  that SB  21 had  been                                                                    
passed  when oil  was around  $100  or more  per barrel.  He                                                                    
detailed  that no  one had  modelled  oil prices  at $60  or                                                                    
below to  determine what  would happen.  He did  not believe                                                                    
the situation  would be different  if there was  a different                                                                    
tax regime;  he believed it  was the economics.  He stressed                                                                    
that no  one had predicted oil  prices would drop as  low as                                                                    
$26 per  barrel. He  opined that  oil companies  would still                                                                    
lay down  their rigs because they  did not want to  pull oil                                                                    
out  of the  ground  and  sell it  for  $26  per barrel.  He                                                                    
continued that  there was  a long way  to go.  He questioned                                                                    
whether the committee  had done the right thing  in the bill                                                                    
and reasoned that  maybe it had not.  However, the committee                                                                    
had put  tremendous work and  thought into  the legislation;                                                                    
it  was not  possible to  satisfy everyone.  He thanked  the                                                                    
committee for its work.                                                                                                         
                                                                                                                                
Representative Gara WITHDREW his OBJECTION.                                                                                     
                                                                                                                                
Representative  Munoz thanked  Mr. Alper  for his  work. She                                                                    
relayed  that he  had helped  the  committee understand  the                                                                    
complexities of the state's tax system.                                                                                         
                                                                                                                                
There  being   NO  further  OBJECTION,  CSHB   247(FIN)  was                                                                    
REPORTED  out of  committee with  individual recommendations                                                                    
and  with  one   new  zero  impact  fiscal   note  from  the                                                                    
Department of  Natural Resources  and one new  fiscal impact                                                                    
note from the Department of Revenue.                                                                                            
                                                                                                                                
Co-Chair Thompson discussed the meeting for the following                                                                       
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
9:45:56 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 9:45 p.m.                                                                                          

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