Legislature(2017 - 2018)HOUSE FINANCE 519

04/14/2017 01:30 PM FINANCE

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Audio Topic
01:38:25 PM Start
01:40:13 PM Spring Revenue Forecast: Powerpoint
03:37:42 PM HB103
03:55:40 PM HB76
04:27:17 PM HB128
05:02:01 PM SB3
05:27:23 PM HB167
05:57:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
+ Presentation: Spring Revenue Forecast by TELECONFERENCED
Commissioner Randall Hoffbeck, Dept. of Revenue
+ HB 76 MARICULTURE REVOLVING LOAN FUND TELECONFERENCED
Heard & Held
+ HB 128 SHELLFISH ENHANCE. PROJECTS; HATCHERIES TELECONFERENCED
Heard & Held
*+ HB 167 STATE AGENCY PERFORMANCE AUDITS TELECONFERENCED
Heard & Held
+ SB 3 SMALL VESSEL WASTEWATER EXEMPTION; 1% ART TELECONFERENCED
Moved HCS SB 3(TRA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 103 OPTOMETRY & OPTOMETRISTS TELECONFERENCED
Moved CSHB 103(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 14, 2017                                                                                            
                         1:38 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:38:25 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:38 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Randall Hoffbeck,  Commissioner, Department of  Revenue; Ken                                                                    
Alper,  Director,  Tax   Division,  Department  of  Revenue;                                                                    
Chantal Walsh,  Division Director,  Oil and  Gas, Department                                                                    
of   Natural   Resources;   Ed  King,   Special   Assistant,                                                                    
Department  of  Natural  Resources;  Jerry  Burnett,  Deputy                                                                    
Commissioner,  Treasury  Division,  Department  of  Revenue;                                                                    
Representative Ivy Spohnholz, Sponsor;  Dr. Barney, Board of                                                                    
Optometry;  Elizabeth  Bolling,   Staff  Representative  Dan                                                                    
Ortiz;   Britteny  Cioni-Haywood,   Director,  Division   of                                                                    
Economic Development  and Commerce, Department  of Commerce;                                                                    
Tamsen  Peeples,  Lead  Alaska Operations,  Blue  Evolution,                                                                    
Juneau;   Julie   Decker,   Alaska   Fisheries   Development                                                                    
Foundation, Juneau;  Mary Hakala, Staff,  Representative Dan                                                                    
Ortiz;   Forrest  Bowers,   Deputy  Director,   Division  of                                                                    
Commercial  Fisheries, Department  of Fish  and Game;  Ginny                                                                    
Eckert,  Alaska  King   Crab  Research,  Rehabilitation  and                                                                    
Biology Program,  Juneau; Angel Dvobnica,  Aleutian Pribilof                                                                    
Island  Community  Development   Association;  Senator  Bert                                                                    
Stedman,  Sponsor; Michael  A. Neussl,  Deputy Commissioner,                                                                    
Department  of Transportation  and  Public Facilities;  Dave                                                                    
Scott,   Staff,   Senator   Bert   Stedman;   Representative                                                                    
Gabrielle   LeDoux,   Sponsor;  Kris   Curtis,   Legislative                                                                    
Auditor, Alaska Division of Legislative Audit;                                                                                  
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Tomi  Marsh, Board  Member, Oceans  Alaska, Ketchikan;  Erik                                                                    
O'Brien, Southwest  Alaska Municipal  Conference, Anchorage;                                                                    
Doug   Griffin,  Southwest   Alaska  Municipal   Conference,                                                                    
Anchorage;  Tomi  Marsh,  Oceans  Alaska,  Ketchikan;  Jamey                                                                    
Cagle,  Alaskan Dream  Cruises, Sitka;  Peter Butz,  Alaskan                                                                    
Dream Cruises, Sitka;                                                                                                           
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 76     MARICULTURE REVOLVING LOAN FUND                                                                                       
                                                                                                                                
          HB 76 was HEARD and  HELD in committee for further                                                                    
          consideration.                                                                                                        
                                                                                                                                
HB 103    OPTOMETRY & OPTOMETRISTS                                                                                              
                                                                                                                                
          CSHB 103(FIN)  was REPORTED out of  committee with                                                                    
          a "do  pass" recommendation and with  a previously                                                                    
         published fiscal impact note: FN2 (CED).                                                                               
                                                                                                                                
HB 128    SHELLFISH ENHANCE. PROJECTS; HATCHERIES                                                                               
                                                                                                                                
          HB  128  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.  1                                                                                             
                                                                                                                                
HB 167    STATE AGENCY PERFORMANCE AUDITS                                                                                       
                                                                                                                                
          HB  167  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.                                                                                                
                                                                                                                                
SB 3      SMALL VESSEL WASTEWATER EXEMPTION; 1 Percent ART                                                                      
                                                                                                                                
          HCSSB 3  (TRA) was REPORTED out  of committee with                                                                    
          a  "do pass"  recommendation and  with a  new zero                                                                    
          fiscal  note by  the Department  of Transportation                                                                    
          and Public Facilities and with a previously                                                                           
          published zero fiscal note: FN1 (DEC).                                                                                
                                                                                                                                
SPRING REVENUE FORECAST: POWERPOINT                                                                                             
                                                                                                                                
Co-Chair  Foster  conveyed  the  agenda  for  the  day.  The                                                                    
committee would be hearing six bills and one presentation.                                                                      
                                                                                                                                
^SPRING REVENUE FORECAST: POWERPOINT                                                                                          
                                                                                                                                
1:40:13 PM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
introduced  the  PowerPoint Presentation:  "Revenue  Sources                                                                    
Book Spring 2017." He reported  comments having been made in                                                                    
the  House finance  Committee speculating  that the  Revenue                                                                    
Sources  Book information  had been  withheld for  political                                                                    
purposes.  He  reassured  the  committee  that  nothing  was                                                                    
further  from the  truth. The  department  was committed  to                                                                    
providing  accurate  information  in a  timely  fashion.  He                                                                    
reported  that  the department  had  a  draft of  the  final                                                                    
report done about a month prior  to its release. There was a                                                                    
concern about releasing the  information prior to completing                                                                    
March tax  returns. However, the department  had released it                                                                    
in the  prior year in advance  and intended to do  so in the                                                                    
current year.  However, the  department recognized  it would                                                                    
have to  release Advisory Bulletin 2017-1,  which would have                                                                    
a  dramatic impact  on  revenues.  He did  not  feel it  was                                                                    
appropriate to  release a  document that  was going  to have                                                                    
large changes of  about $100 million in  revenues. The staff                                                                    
of the  Department of  Revenue (DOR)  was instructed  to get                                                                    
2017  out the  door  before  tax returns  were  due so  that                                                                    
taxpayers  would  have  the advisory  bulletin  to  use  for                                                                    
filling  out tax  returns.  Afterwards,  the department  was                                                                    
told to focus  on the Revenue Sources Book so  that it could                                                                    
be released as  quickly as possible. The  department had not                                                                    
held onto  the report, as  the numbers were  being finalized                                                                    
the  previous afternoon.  He clarified  that the  department                                                                    
released the Revenue Sources Book as quickly as it could.                                                                       
                                                                                                                                
Commissioner Hoffbeck began with  slide 4: "FORECAST CHANGE:                                                                    
Production Tax Revenue Highlights":                                                                                             
                                                                                                                                
                                                                                                                                
   · Oil price forecasts up by 7% for FY17. Post FY 2018                                                                        
     unchanged from fall forecast                                                                                               
        · Long-term prices (FY 2025+) expected to settle                                                                        
          around $70-75 real                                                                                                    
                                                                                                                                
   · Oil production forecasts up by 7% for FY17. FY18                                                                           
     forecast increased by 1%.                                                                                                  
        · Long-term forecast decreased slightly (~ 2% per                                                                       
          year)                                                                                                                 
                                                                                                                                
   · Unrestricted revenue forecast increased due to higher                                                                      
     oil price and production forecasts                                                                                         
                                                                                                                                
Commissioner  Hoffbeck relayed  that due  to the  higher oil                                                                    
price   and   production    forecast,   the   state   showed                                                                    
substantially  more  revenue  in  FY  18.  This  was  driven                                                                    
largely  by  the advisory  bulletin,  and  the treatment  of                                                                    
credits moving forward.                                                                                                         
                                                                                                                                
Commissioner  Hoffbeck   advanced  to  slide   5:  "FORECAST                                                                    
CHANGE: Comparison from Fall 2016  Forecast for FY 2017." He                                                                    
explained that the  slide showed a breakout  of the forecast                                                                    
data  and  the difference  between  the  Fall 2016  and  the                                                                    
Spring  2017  forecasts.  In the  Fall  2016  forecast,  the                                                                    
department projected the  annual average price of  oil to be                                                                    
$46.81 per  barrel (/bbl). The  Spring 2017  forecast showed                                                                    
the annual average price of oil  to be $50.05 per barrel, an                                                                    
increase of $3.24 and a 7 percent change.                                                                                       
                                                                                                                                
Commissioner  Hoffbeck highlighted  that Alaska  North Slope                                                                    
(ANS) oil production would move  from 490.3 thousand barrels                                                                    
per day  (bbls/day) to 523.7 thousand  bbls/day, an increase                                                                    
of 33.4  thousand bbls/day (7  percent). He  continued that,                                                                    
based  on  data  that  the   state  had  received,  the  ANS                                                                    
deductible  lease  expenditures  and  transportations  costs                                                                    
decreased.  The net  effect was  that from  the time  of the                                                                    
fall forecast  with revenue estimated  at $966.9  million in                                                                    
UGF petroleum revenue it had  increased to $1,158.5 million,                                                                    
an increase of $191.6 million (20 percent).                                                                                     
                                                                                                                                
Vice-Chair   Gara  commented   that   in   looking  at   the                                                                    
unrestricted  petroleum   revenue  it  would   reach  $1.279                                                                    
billion  by FY  18 according  to the  Revenue Sources  Book.                                                                    
There  had been  discussion about  a revenue  cap, which  he                                                                    
understood would take effect until  the price of oil reached                                                                    
$85 /bbl. He wondered if  revenue would reach $1.279 billion                                                                    
by the coming fiscal year.                                                                                                      
                                                                                                                                
1:45:46 PM                                                                                                                    
                                                                                                                                
KEN ALPER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE,                                                                    
responded  in  the negative.  He  elaborated  that the  $1.2                                                                    
billion  included  the   other  two  unrestricted  petroleum                                                                    
revenues: the property tax and  the corporate income tax. If                                                                    
those numbers  were backed  out, the  number would  be below                                                                    
the $1.2 billion threshold.                                                                                                     
                                                                                                                                
Vice-Chair Gara asked  when the state would  hit the revenue                                                                    
cap. Commissioner  Hoffbeck responded that he  would have to                                                                    
refer to  his chart,  which he  did not  have with  him. Mr.                                                                    
Alper  believed  it kicked  in  around  $75 /bbl.  He  would                                                                    
confirm the number and get back to the committee.                                                                               
                                                                                                                                
Representative   Guttenberg  had   a   question  about   the                                                                    
transportation  costs noted  on  slide 5.  He mentioned  how                                                                    
many construction  projects happened  in the  summer months.                                                                    
He wondered if  it was typical for  the transportation costs                                                                    
to go down outside of the  summer months as reflected in the                                                                    
Spring 2017  forecast. Commissioner Hoffbeck  responded that                                                                    
the chart reflected the department's  estimate of the annual                                                                    
average   cost  for   transportation.  The   department  had                                                                    
additional  data  showing  the  transportation  costs  being                                                                    
lower.                                                                                                                          
                                                                                                                                
Commissioner Hoffbeck pointed to  slide 6: "FORECAST CHANGE:                                                                    
Comparison  from  Fall  2016   Forecast  for  FY  2018."  He                                                                    
indicated the  information on the  slide reflected  the same                                                                    
items for  FY 18. Slide  5 showed additional revenue  for FY                                                                    
17 and the  current slide showed additional  revenues for FY                                                                    
18. The  department had forecasted  $54 /bbl for Fall  FY 16                                                                    
and  $54 /bbl  for Spring  FY  17. Therefore,  there was  no                                                                    
change estimated  for the forecast  going forward in  FY 18.                                                                    
He  expounded that  the forecast  was  consistent with  what                                                                    
could be  seen in  the present market.  It was  difficult to                                                                    
get beyond the  price point between $55 to  $60 /bbl because                                                                    
of  the  volume of  oil  and  supply and  demand.  Likewise,                                                                    
production  was not  adjusted  dramatically  going into  the                                                                    
spring forecast. There  was a slight increase  of 1 percent.                                                                    
The deductible  lease expenditures and  transportation costs                                                                    
were expected to  be higher in the  following year. Overall,                                                                    
state revenue  was estimated to  go from $1.099  billion UGF                                                                    
in the  fall to $1.279 billion  UGF in the spring,  a $179.2                                                                    
million  increase in  revenues for  the following  year. The                                                                    
largest  component  driving  the  change  was  the  way  the                                                                    
department was looking at oil  and gas tax credits under the                                                                    
advisory  bulletin  that was  released.  He  noted that  Mr.                                                                    
Alper would discuss the bulletin  later in the presentation.                                                                    
He indicated that  if the number had been  released prior to                                                                    
calculating  the impacts  with  the  advisory bulletin,  the                                                                    
$179.9  million would  have been  about $62  million, hence,                                                                    
why the department held off releasing the figures.                                                                              
                                                                                                                                
Commissioner   Hoffbeck   highlighted  slide   8:   "REVENUE                                                                    
FORECAST:  2016  to  2018 Unrestricted  General  Fund  (UGF)                                                                    
Revenue." He pointed  out the total UGF for FY  17 was $1.64                                                                    
billion. He  noted that the  revenue was up from  about $1.4                                                                    
billion in  the fall  forecast. The forecast  for FY  18 was                                                                    
$1.831 up from about $1.6 billion in the fall forecast.                                                                         
                                                                                                                                
1:50:34 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  if  the  numbers included  the                                                                    
motor  fuel  tax  that  had  not  passed  yet,  or  if  they                                                                    
reflected  only  what  was currently  in  law.  Commissioner                                                                    
Hoffbeck responded  that it only  included taxes  already in                                                                    
statute.                                                                                                                        
                                                                                                                                
Commissioner Hoffbeck  detailed slide 9:  "REVENUE FORECAST:                                                                    
Revenue Available for Appropriation":                                                                                           
                                                                                                                                
   · Useful for outside analysts not familiar with Alaska's                                                                     
     budget conventions                                                                                                         
   · Better reflects ability of state to meet its                                                                               
     obligations                                                                                                                
     · Alaska has a budget framework that restricts certain                                                                     
        revenue based on constitution, statute, or customary                                                                    
        practice                                                                                                                
     · The ability of the state to meet its obligations is                                                                      
        not fully reflected by the UGF revenue category                                                                         
   · All revenue subject to appropriation for any purpose                                                                       
     can be used by the legislature to fund government                                                                          
     services or obligations, including:                                                                                        
     · Constitutional Budget Reserve Fund                                                                                       
     · Earnings Reserve of the Permanent Fund                                                                                   
                                                                                                                                
Commissioner  Hoffbeck   indicated  that  slide  9   was  an                                                                    
explanatory slide.                                                                                                              
                                                                                                                                
Commissioner   Hoffbeck  turned   to   slide  10:   "REVENUE                                                                    
FORECAST: 2016  to 2018 Totals to  Appropriate." He reported                                                                    
that   the  slide   was  included   to  provide   a  broader                                                                    
explanation to  entities unfamiliar with the  Permanent Fund                                                                    
and  Alaska's  budget.  Typically,  the  department  had  to                                                                    
explain that  there was  more money  than just  UGF revenues                                                                    
available for appropriation.  In particular, the information                                                                    
was important when dealing with bond rating agencies.                                                                           
                                                                                                                                
Representative  Thompson  did  not  see  the  constitutional                                                                    
budget  reserve  (CBR)  or   Permanent  Fund  (PF)  Earnings                                                                    
Reserve account  (ERA) totals listed.  Commissioner Hoffbeck                                                                    
responded  that  the department  had  to  decide about  what                                                                    
information to include. It chose  to include the earnings in                                                                    
a given  year rather  than the  value of  the pool  of money                                                                    
available for  appropriation. He argued that  the department                                                                    
could have included  $5 billion for the CBR  and $10 billion                                                                    
for the  PF ERA but  they would be a  one-time appropriation                                                                    
rather  than  a  repeatable   number.  The  information  was                                                                    
footnoted in the Revenue Sources Book.                                                                                          
                                                                                                                                
Representative  Thompson  requested  the balances  of  those                                                                    
accounts.  Commissioner Hoffbeck  would provide  the numbers                                                                    
to the committee.                                                                                                               
                                                                                                                                
Vice-Chair Gara  wondered if there  was any talk  of getting                                                                    
rid  of the  distinction  between  designated general  funds                                                                    
(DGF) and UGF. He thought  using one designation of UGF with                                                                    
a   subcategory  would   be  more   favorable.  Commissioner                                                                    
Hoffbeck  could  not  speak   for  the  Legislative  Finance                                                                    
Division   (LFD)   but   thought    it   agreed   with   the                                                                    
administration about speaking in  terms of total numbers. It                                                                    
would simplify  things to use  UGF. Otherwise,  moving funds                                                                    
between accounts had  to be tracked between DGF  and UGF. He                                                                    
thought it would  provide a much cleaner  picture about what                                                                    
the state was  spending in a given year. It  would require a                                                                    
shift  in thought  process.  He  believe the  administration                                                                    
would be supportive.                                                                                                            
                                                                                                                                
1:55:01 PM                                                                                                                    
                                                                                                                                
Representative Wilson disagreed  with Commissioner Hoffbeck.                                                                    
She thought DGF provided a  means of looking at programs and                                                                    
their  utilization.  She  wanted  to see  more  emphasis  on                                                                    
evaluating the  different departments  and their  ability to                                                                    
be self-sufficient.  A portion  of government could  pay for                                                                    
itself and  other portions  would require  UGF. Commissioner                                                                    
Hoffbeck responded  that it would  be a process to  make the                                                                    
change with a goal in mind of more clarity.                                                                                     
                                                                                                                                
Commissioner Hoffbeck  advanced to slide 12:  "12 PRODUCTION                                                                    
FORECAST:  ANS   Details."  He   detailed  that   the  slide                                                                    
addressed  the  production   forecast.  He  highlighted  the                                                                    
official forecast  figure under P90 of  523,686 bbls/day, an                                                                    
average daily  rate for  the entire year  of 2017.  Next, he                                                                    
highlighted the  significant drop  of 12 percent  going into                                                                    
2018.  The process  that the  department had  always had  in                                                                    
place regarding the  spring forecast update was  to take the                                                                    
new  data  since the  prior  fall  forecast and  update  the                                                                    
current year's  numbers. However, the department  did not do                                                                    
a whole  new forecast.  The department only  did a  new full                                                                    
forecast each fall. He noted  production was robust in 2017.                                                                    
He complimented  BP for its field  management. He summarized                                                                    
that the state had a  better than expected production for FY                                                                    
17 going to  a legacy number from the fall  forecast in 2018                                                                    
creating a big delta. He  anticipated a dramatic increase in                                                                    
the fall forecast. He explained  that no one was forecasting                                                                    
a 12 percent  decline; rather it was comparing  a new number                                                                    
to a legacy number.                                                                                                             
                                                                                                                                
Representative  Thompson   purported  that   the  production                                                                    
number   had  not   been  adjusted.   In  years   past,  the                                                                    
legislature had  paid a consultant to  generate a production                                                                    
forecast  twice  per  year.  He  thought  that  the  459,000                                                                    
bbls/day  did not  look realistic,  as new  fields, such  as                                                                    
Armstrong Oil and  Gas Inc.'s, had come  online. He wondered                                                                    
what would trigger forecasts  that would include Armstrong's                                                                    
numbers. Commissioner  Hoffbeck responded  that there  was a                                                                    
slide  further  in  the presentation  that  laid  out  which                                                                    
fields  were not  included  and some  of  the triggers  that                                                                    
would  bring certain  fields into  the  forecast. He  agreed                                                                    
that  the FY  18  number  was not  correct.  In general,  50                                                                    
thousand  bbls/day was  worth $100  million  in revenue.  He                                                                    
relayed  that  the  Department of  Natural  Resources  (DNR)                                                                    
could provide a reasonable estimate of how to adjust.                                                                           
                                                                                                                                
2:00:07 PM                                                                                                                    
                                                                                                                                
Representative  Wilson was  looking at  the Revenue  Sources                                                                    
Book for  the fall. She  relayed that the  official forecast                                                                    
was 490,289.  She asked  if 523,686  was the  correct number                                                                    
for  an estimate.  Commissioner Hoffbeck  responded that  it                                                                    
was the estimate  to the end of the fiscal  year. The number                                                                    
reflected the  current date  up to two  weeks prior  with an                                                                    
estimate to the end of the year.                                                                                                
                                                                                                                                
Representative Wilson referred to  the fall revenue book and                                                                    
asked  for  further  clarification   about  the  12  percent                                                                    
decrease. Commissioner Hoffbeck replied  that the 12 percent                                                                    
decrease was a  comparison between the current  number and a                                                                    
legacy  number from  the  fall  forecast for  FY  18 with  a                                                                    
slight adjustment. He  would have to consult  with his staff                                                                    
regarding  the  1  percent adjustment.  The  department  was                                                                    
forecasting  a  4  percent  to 5  percent  decline,  a  more                                                                    
reasonable decline going  into FY 18. He  indicated that DNR                                                                    
could further address the production forecasting.                                                                               
                                                                                                                                
Representative Wilson  stated that  at the beginning  of the                                                                    
presentation he  had a  7 percent increase  and a  1 percent                                                                    
increase.  She  wondered  why the  numbers  did  not  match.                                                                    
Commissioner  Hoffbeck encouraged  Representative Wilson  to                                                                    
look  at the  FY 17  number, which  reflected the  7 percent                                                                    
increase.  He  referred  to  slide 5  where  it  read  523.7                                                                    
thousand bbls/day ANS oil  production [Column titled: Spring                                                                    
2017 Forecast).  He drew  attention back  to slide  12 where                                                                    
the same number could be  found under the forecast for 2017.                                                                    
Again, the  commissioner referred  to slide  5. In  the fall                                                                    
[2016] forecast  490.3 bbls/day thousand was  projected. The                                                                    
difference between 490.3 thousand and  523.7 was a 7 percent                                                                    
increase.  The  7 percent  increase  was  imbedded into  the                                                                    
number on slide 12. The 2018 number included 1 percent.                                                                         
                                                                                                                                
Representative  Wilson  asked if  the  1  percent went  with                                                                    
523,686. Commissioner  Hoffbeck responded that it  went with                                                                    
the  490,000 in  the  fall forecast.  The  one percent  went                                                                    
against the 455,000 from the fall forecast.                                                                                     
                                                                                                                                
Representative   Wilson   asked   about  the   current   oil                                                                    
production  rate per  day.  Commissioner Hoffbeck  responded                                                                    
550 [thousand].                                                                                                                 
                                                                                                                                
Representative  Wilson  asked  about  the  accuracy  of  the                                                                    
numbers based on the gains  the state had seen. Commissioner                                                                    
Hoffbeck  indicated  the  answers  could  be  found  on  the                                                                    
following slide, slide 13.                                                                                                      
                                                                                                                                
2:04:17 PM                                                                                                                    
                                                                                                                                
Commissioner Hoffbeck  continued to  the chart on  slide 13:                                                                    
"PRODUCTION HISTORY:  FY15 -FY17 Production  Comparison." He                                                                    
highlighted  the green  dashed line  that showed  the FY  15                                                                    
actual production.  The black dashed  line showed FY  16 and                                                                    
the solid  red line reflected  FY 17 to-date. The  state had                                                                    
heard since  early in the  year that production was  up from                                                                    
the  previous year.  However,  he pointed  out  that in  the                                                                    
first  2 months  there was  not  a major  turnaround of  the                                                                    
facilities  during   2016.  There   was  a  head   start  on                                                                    
production for  the beginning  of the  fiscal year.  It fell                                                                    
behind the prior year's production  in September and October                                                                    
and remained behind FY 16  until December. In the fall, when                                                                    
the  revenue forecast  was being  done, the  state was  well                                                                    
below  the  prior  year's  forecast.   The  state  had  more                                                                    
production than  in the  prior year, but  on a  daily basis,                                                                    
the state  was below. There  had been  a bump by  not having                                                                    
the turn-a-round.   In December, the  production became more                                                                    
consistent -  greater than  the prior 2  years. There  was a                                                                    
greater  upswing  in February  and  March.  He believed  the                                                                    
numbers  would change  in the  summer because  turbines were                                                                    
not  nearly  as  efficient  in  warm  weather.  He  expected                                                                    
production  to  drop  dramatically.   On  the  North  Slope,                                                                    
maintenance   took  place   with  warmer   temperatures.  He                                                                    
anticipated the number being low  for FY 2018 and would need                                                                    
to be adjusted.  He reported that DNR  estimated an increase                                                                    
in production of about 20 thousand to 30 thousand.                                                                              
                                                                                                                                
Representative  Wilson  asked  what 550,000  bbls/day  would                                                                    
equate  to  in  additional revenue  for  2018.  Commissioner                                                                    
Hoffbeck  responded  that  an  additional  100,000  thousand                                                                    
barrels would be about $200 million.                                                                                            
                                                                                                                                
Vice-Chair Gara referred  to the dips in the  prior 2 years.                                                                    
He explained  that the  state normally  had a  partial field                                                                    
maintenance shutdown.  He wondered  if there  was not  a dip                                                                    
because  there was  not  a  shutdown. Commissioner  Hoffbeck                                                                    
replied  that  in   the  two  prior  years   they  had  done                                                                    
substantial  maintenance turn-arounds.  However, a  decision                                                                    
was made  that a  significant turn-around was  not necessary                                                                    
in 2016.  He suggested  being several  months away  from the                                                                    
start of the  maintenance process in Prudhoe  Bay. The state                                                                    
was  several  months  away  from  the  steep  downturn  that                                                                    
accompanied  the turn-around.  However, it  would roll  over                                                                    
and start to decline as temperatures warmed up.                                                                                 
                                                                                                                                
Vice-Chair Gara asked  that if there had been a  stem on the                                                                    
decline and  an increase and whether  particular fields were                                                                    
responsible.  Commissioner Hoffbeck  answered  that CD5  was                                                                    
driving the increase  because it had stemmed  the decline in                                                                    
Prudhoe Bay  over the  previous couple of  years. It  was an                                                                    
anomaly and  a remarkable achievement by  BP. Otherwise, CD5                                                                    
would  have  shown  up  as  a  flattening  of  the  decline.                                                                    
However,  because BP  was  able  to keep  Prudhoe  Bay at  a                                                                    
relatively stable  level, CD5  showed up  as an  increase in                                                                    
production.                                                                                                                     
                                                                                                                                
Vice-Chair  Gara  noted  that  several years  prior  in  the                                                                    
Revenue  Sources  Books  it  indicated that  by  FY  17  the                                                                    
production decline was  projected at 2 percent  per year. He                                                                    
wondered how the actual decline compared.                                                                                       
                                                                                                                                
Commissioner   Hoffbeck  reported   that  the   decline  was                                                                    
relatively  flat. He  suggested obtaining  an exact  decline                                                                    
rate from DNR.                                                                                                                  
                                                                                                                                
Representative Guttenberg asked if  the chart would look any                                                                    
different if  the comparison  was made  for a  6-year period                                                                    
rather  than   a  3-year  period.     Commissioner  Hoffbeck                                                                    
answered affirmatively.  He indicated that  everything would                                                                    
move up  slightly because production was  higher in previous                                                                    
years. The turn-around  in the summer, the roll  over in the                                                                    
springtime  as  production   declined,  and  the  wobbliness                                                                    
through the winter could be seen.                                                                                               
                                                                                                                                
2:10:24 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  wanted  to clarify  that  he  should                                                                    
direct   his  questions   regarding   methodology  to   DNR.                                                                    
Commissioner Hoffbeck replied, "That's correct."                                                                                
                                                                                                                                
Representative Pruitt  asked if  the commissioner  felt that                                                                    
in 2026 the  state would have 326,000 barrels  coming out of                                                                    
the  line.  He wondered  if  the  state had  considered  all                                                                    
factors. Commissioner  Hoffbeck would be able  to answer his                                                                    
question by  going to  slide 14. He  could address  what was                                                                    
not included.                                                                                                                   
                                                                                                                                
Commissioner  Hoffbeck  turned   to  slide  14:  "PRODUCTION                                                                    
FORECAST: ANS." He  reported that the slide  showed the bulk                                                                    
of production coming from the  legacy fields rather than the                                                                    
new fields.                                                                                                                     
                                                                                                                                
Commissioner   Hoffbeck  reviewed   slide  15:   "PRODUCTION                                                                    
FORECAST: Excluded from Forecast":                                                                                              
                                                                                                                                
     Characteristics:                                                                                                           
     Unknown first-oil date/estimated greater than 5 years                                                                      
     Discovery (contingent resource) or just prospects                                                                          
     (prospective resource)                                                                                                     
     Uncertain finances (e.g., sourcing for private equity)                                                                     
     Facilities incomplete or nonexistent                                                                                       
     Projects in Appraisal                                                                                                      
     Technological Uncertainty                                                                                                  
     Environmental/Permitting Uncertainty                                                                                       
     Economic Uncertainty                                                                                                       
                                                                                                                                
     Examples: Pikka, Ugnu, Placer, Tofkat, Pt Thomson (MGS                                                                     
     or full-cycling), Liberty, Fiord West, Smith Bay                                                                           
                                                                                                                                
Commissioner Hoffbeck  elaborated that  if an oil  date were                                                                    
more than  5 years  out it  would not  be factored  into the                                                                    
forecast. The decision to exclude  the information was based                                                                    
on fields typically coming online  late. He used the example                                                                    
of  the  Liberty  field, which  was  incorporated  into  the                                                                    
forecast 15 years  prior and was still not  online. He added                                                                    
that  some fields  could  be  online within  6  or 7  years.                                                                    
However,  they  were  outside of  the  forecast  window.  He                                                                    
indicated  that the  department  could  provide an  estimate                                                                    
that assumed certain fields coming  online 5 to 7 years from                                                                    
the present. He  reiterated that those figures  would not be                                                                    
a part of the official forecast.                                                                                                
                                                                                                                                
2:13:39 PM                                                                                                                    
                                                                                                                                
Representative   Pruitt   commented   on   the   discussions                                                                    
regarding  the  restructuring  of  the  Permanent  Fund  and                                                                    
highlighted  that DOR  had  done modeling  out  to 2041.  He                                                                    
appreciated  the  department  being  conservative  with  the                                                                    
forecast. However,  he thought that not  having enough money                                                                    
was  driving   the  conversation.  He  suggested   that  the                                                                    
department  use similar  long-term projections  for oil  and                                                                    
gas.  Commissioner   Hoffbeck  responded   that  speculative                                                                    
numbers could  be provided  with the  caveat that  they were                                                                    
strictly   estimates.   He    commented   that   forecasting                                                                    
investment returns  was fraught  with peril  and forecasting                                                                    
production  was even  more  so. There  were  so many  moving                                                                    
parts to production including  price, a producer's financing                                                                    
issues, and the quality of  a field. He noted that, although                                                                    
he was willing  to do some estimating, he  would be hesitant                                                                    
to do any robust budgeting based on those numbers.                                                                              
                                                                                                                                
Mr. Alper  added that  DOR had made  a presentation  2 years                                                                    
prior  to   the  House   Resources  Committee   that  looked                                                                    
speculatively   at  what   revenues  from   Alaska  National                                                                    
Wildlife   Refuge  (ANWR)   would  be   out  to   2070.  The                                                                    
information included  a 60-year full field  development with                                                                    
certain assumptions  based on different studies,  the number                                                                    
of fields,  and the  position of the  fields. He  agreed the                                                                    
information would need to be heavily caveated.                                                                                  
                                                                                                                                
2:17:41 PM                                                                                                                    
                                                                                                                                
Representative  Ortiz  wondered  how much  the  graph  would                                                                    
change on  slide 14 if  7 of the 9  fields came online  in 5                                                                    
years. He thought his example might be optimistic.                                                                              
                                                                                                                                
Commissioner  Hoffbeck   agreed  that   it  would   be  very                                                                    
optimistic.                                                                                                                     
                                                                                                                                
Representative Ortiz restated his question.                                                                                     
                                                                                                                                
Commissioner   Hoffbeck   thought  production   would   stop                                                                    
declining  and  the  graph  would  begin  to  curve  up.  He                                                                    
provided  a  hypothetical  scenario   as  to  how  much  new                                                                    
production  would  be needed  to  solve  the state's  fiscal                                                                    
problem. He suggested  that at $60 /bbl oil  the state would                                                                    
need  1.6  million  barrels  produced  per  day.  Currently,                                                                    
550,000  barrels were  produced per  day. The  fields ranged                                                                    
from 20,000 to 200,000 bbls/day.  The graph would reflect an                                                                    
increase  in  production  if  all  of  the  fields  came  on                                                                    
together. However,  they would  not get  the state  close to                                                                    
solving its fiscal problem.                                                                                                     
                                                                                                                                
Representative Ortiz  asked if  it was  safe to  deduct that                                                                    
the  state  would  not return  to  above  500,000  bbls/day.                                                                    
Commissioner  Hoffbeck thought  it was  possible if  several                                                                    
fields  came   online.  However,  looking  at   the  present                                                                    
decline,  if PICA  (100,000 -  150,000 bbls/day  field) came                                                                    
online in  5 years in  2022 and production was  currently at                                                                    
440,000  bbls/day production  would  bump  to about  600,000                                                                    
bbls/day.                                                                                                                       
                                                                                                                                
Representative Thompson  understood the importance  of being                                                                    
conservative  because  the  state   had  not  made  accurate                                                                    
projections in  the past.  He thought that  some of  the new                                                                    
fields,  such  as  PICA, looked  more  promising  at  coming                                                                    
online  than the  Liberty field.  He did  not think  the two                                                                    
fields were a fair  comparison. Commissioner Hoffbeck stated                                                                    
that there  were different  issues associated  with bringing                                                                    
the fields online. He thought  PICA could be challenged with                                                                    
the issue  of obtaining capital  with a prolonged  oil price                                                                    
environment of $50  to $55 /bbl. The  industry was currently                                                                    
capital constrained.  It might take a  while before finances                                                                    
would be available  to bring on a field that  appeared to be                                                                    
robust.  It  would  require some  production  facilities  in                                                                    
order  to get  to production.  Some fields  were technically                                                                    
challenged. He noted that Liberty  was going to be offshore;                                                                    
the producers planned to build  an island. However, the plan                                                                    
changed due to other challenges.                                                                                                
                                                                                                                                
2:21:51 PM                                                                                                                    
                                                                                                                                
Representative Thompson asked if  HB 111 [Legislation passed                                                                    
in 2017 -  Short Title: OIL & GAS  PRODUCTION TAX; PAYMENTS;                                                                    
CREDITS] had been factored  into the forecasts. Commissioner                                                                    
Hoffbeck responded in the negative.                                                                                             
                                                                                                                                
Representative Thompson asked  if the administration thought                                                                    
HB 111 would increase or  decrease the amount of oil getting                                                                    
through  the line.  Commissioner Hoffbeck  responded that  a                                                                    
stable oil  and gas tax system  was needed. If there  were a                                                                    
full  fiscal  plan  in place,  the  governor  would  support                                                                    
paying off  the old  oil and gas  tax credits.  A tremendous                                                                    
amount of capital  would be injected into  the fields, which                                                                    
could help  with production. He  posed the  question whether                                                                    
higher taxes  would increase  production and  indicated they                                                                    
would  not. The  larger question  to  ask about  HB 111  was                                                                    
whether it made Alaska non-competitive elsewhere.                                                                               
                                                                                                                                
Representative Thompson  thought the current tax  system was                                                                    
successful in  that the state  had increased  production and                                                                    
increased  revenues.   He wondered  if  changing the  system                                                                    
would  reduce  investment.  He was  concerned  with  hearing                                                                    
feedback about a poor atmosphere.                                                                                               
                                                                                                                                
2:24:03 PM                                                                                                                    
                                                                                                                                
Representative  Grenn  referred to  slide  14.  He asked  if                                                                    
there were  specific fields that  fell under  the categories                                                                    
of under  development (orange)  or under  evaluation (grey).                                                                    
Commissioner Hoffbeck confirmed that  there were and that in                                                                    
the presentation of the fall  forecast there had been a more                                                                    
detailed  discussion on  the  topic. He  would  be happy  to                                                                    
provide Representative Grenn the information.                                                                                   
                                                                                                                                
Representative  Pruitt relayed  that the  administration was                                                                    
predicting  that the  petroleum corporate  income tax  would                                                                    
double. He wondered  if it had to do with  the effects of HB                                                                    
247  limiting  the  ability of  corporations  to  use  their                                                                    
credits for corporate income tax.  Mr. Alper referred to the                                                                    
same table.  He was unclear where  Representative Pruitt was                                                                    
getting  his numbers.  He relayed  that the  issue with  the                                                                    
corporate income tax  was that there was a  lot inherent lag                                                                    
and  delay  in  it.  For   instance,  the  2016  number  was                                                                    
negative, in  part, because of large  estimated tax payments                                                                    
that were paid  in 2014. The price of oil  went down so much                                                                    
that the  oil companies lost  money or owed much  less taxes                                                                    
than  they thought  when they  were  paying their  quarterly                                                                    
estimated taxes. They  ended up paying large  refunds in the                                                                    
fall of  2015, which was  part of the  FY 16 cash  flow even                                                                    
though it  was part  of a  2014 tax.  There was  an inherent                                                                    
lag.  The tax  for 2017  was largely  based on  2015 company                                                                    
performance. He thought  a mild creeping up of  oil had been                                                                    
seen from  the $30  range from the  previous session  to the                                                                    
$50 range presently.                                                                                                            
                                                                                                                                
Commissioner   Hoffbeck  advanced   to   slide  17:   "PRICE                                                                    
FORECAST: Nominal ANS Price  Distribution." He reported that                                                                    
the  new  data  was  projected   in  the  slide.  The  slide                                                                    
reflected the 50 percent line  across the board for the fall                                                                    
forecast.  Oil  Producing  and  Exporting  Countries  (OPEC)                                                                    
reached  an agreement  to  limit  production. Prices  jumped                                                                    
about $5 /bbl shortly after  the fall forecast was released.                                                                    
In  putting the  spring  forecast  together, the  department                                                                    
moved to  the 60 percent line  for the current year  but had                                                                    
not  adjusted  the other  years  going  forward. They  still                                                                    
seemed to be in line with other forecasting agencies.                                                                           
                                                                                                                                
Commissioner   Hoffbeck  continued   to  slide   18:  "PRICE                                                                    
FORECAST: Impact  of other  prices in  FY 2017."  He relayed                                                                    
that the slide  showed the price by month and  the effect of                                                                    
various price points  until the end of the  fiscal year. The                                                                    
price forecast was $50.05, which  would result in $50 to $55                                                                    
/bbl for  the remainder  of the year.  He continued  that if                                                                    
prices averaged  $55 /bbl  the average  would be  $50.56. If                                                                    
they  only averaged  $50 /bbl,  the state  would average  at                                                                    
$49.31. The  department was forecasting an  average of about                                                                    
$53 /bbl until the end of the year.                                                                                             
                                                                                                                                
2:28:06 PM                                                                                                                    
                                                                                                                                
Commissioner   Hoffbeck  continued   to   slide  19:   PRICE                                                                    
FORECAST:  Historical  ANS  West   Coast  Price  2015+."  He                                                                    
highlighted that  the slide  showed the  impact of  the OPEC                                                                    
production cuts, which had  flattened the price dramatically                                                                    
in the previous few months more than in the last two years.                                                                     
                                                                                                                                
Representative Guttenberg  assumed that the spikes  on slide                                                                    
19  were  associated with  certain  events.  He wondered  if                                                                    
there   was  a   correlation  between   spikes  or   if  the                                                                    
assumptions created the spikes.  He wondered what caused the                                                                    
spike  to go  down on  August 15th  when Saudi  continued to                                                                    
produce  record oil.  Commissioner Hoffbeck  responded that,                                                                    
in  hindsight,  it was  the  best  estimate about  what  was                                                                    
driving the  volatility. Obviously, it would  have been nice                                                                    
to be able  to forecast them. It was important  to look back                                                                    
at  the point  in which  the price  turned to  evaluate what                                                                    
changed.                                                                                                                        
                                                                                                                                
Commissioner Hoffbeck reported on  slide 21: "COST FORECAST:                                                                    
North Slope  Capital Lease Expenditures." He  indicated that                                                                    
the   slide   showed   the  forecast   for   capital   lease                                                                    
expenditures declining for the remainder  of 2017 and at the                                                                    
beginning of  2018. The expenditures would  increase in 2019                                                                    
and 2020.  They would drop  again in 2021 to  stabilize with                                                                    
the long-term  forecast. The slide  was based  on additional                                                                    
information the  department received from the  producers and                                                                    
developers since the fall forecast.                                                                                             
                                                                                                                                
Commissioner   Hoffbeck  continued   to   slide  22:   "COST                                                                    
FORECAST:  North  Slope  Operating Lease  Expenditures."  He                                                                    
relayed   that  the   slide  showed   the  operating   lease                                                                    
expenditures based  on updated  information provided  by the                                                                    
producers.                                                                                                                      
                                                                                                                                
2:30:39 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  referred to slide 21.  He asked about                                                                    
the  difference  in  the spring  forecast  versus  the  fall                                                                    
forecast.  He wondered  how  it  translated into  additional                                                                    
barrels.  Commissioner  Hoffbeck  responded that  DNR  could                                                                    
discuss  the issue  with more  authority.  He noted  concern                                                                    
about the  limited amount of  capital monies being  spent in                                                                    
the fields currently. He suggested  that it would eventually                                                                    
manifest itself in reduced production.                                                                                          
                                                                                                                                
Mr.  Alper   suggested  that  there  was   also  an  inverse                                                                    
relationship  because  the  tax   was  a  net  profit  based                                                                    
production  tax. He  suggested that  a decrease  in spending                                                                    
could result  in an increase  in revenue for the  short term                                                                    
because the companies were slightly more profitable.                                                                            
                                                                                                                                
Representative  Pruitt   commented  that   subsequently  the                                                                    
state's  expectation  regarding  revenue was  that  if  they                                                                    
decided  to make  up for  it  later, an  inverse would  take                                                                    
place unless money  came into the general fund.  He asked if                                                                    
he was  understanding correctly. Mr. Alper  responded in the                                                                    
affirmative. He elaborated  that if a company  were to spend                                                                    
and increment  of money it would  reduce their profitability                                                                    
and their tax collections.                                                                                                      
                                                                                                                                
Commissioner   Hoffbeck   addressed   slide   24:   "CREDITS                                                                    
FORECAST:  Compared  with  Production  Tax"  and  slide  25:                                                                    
"CREDITS  FORECAST:  Compared  with  Unrestricted  Petroleum                                                                    
Revenue." He  specified that slide  24 showed the  impact of                                                                    
tax credits  against a  severance tax.  Slide 25  showed the                                                                    
impact of  credits against  total oil  and gas  revenues. He                                                                    
reported  that  in FY  16  after  deducting credits  against                                                                    
liability  and  repurchased credits  the  state  was in  the                                                                    
negative. In FY  17 and FY 18, the state  was positive after                                                                    
applying  the  deduction  of  credits.  He  noted  that  the                                                                    
figures were based  on the statutory payment  levels for the                                                                    
credits. He  estimated an  underlying credit  liability that                                                                    
would reach  an estimate of $1.04  billion by the end  of FY                                                                    
18 in the form of unredeemed credit certificates.                                                                               
                                                                                                                                
2:33:32 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  how much  pertained  to  Cook                                                                    
Inlet versus the North Slope.  Mr. Alper replied that on the                                                                    
revenue side it was nearly  all the North Slope. Very little                                                                    
revenue came in  from Cook Inlet oil and  gas production. He                                                                    
pointed  to the  credit against  liability (the  gap between                                                                    
the blue  and the  orange lines)  which was  almost entirely                                                                    
North Slope. There  was very little Cook  Inlet liability to                                                                    
offset.    The credits  paid  were  limited because  of  the                                                                    
limited appropriation.  About 60  percent was going  to Cook                                                                    
Inlet  because  of  the  nature of  the  backlog.  The  data                                                                    
applied  primarily  to  the  North Slope,  give  or  take  a                                                                    
rounding error.   The credits  that were owed in  the amount                                                                    
of approximately $1  billion was a 50/50 split  - 50 percent                                                                    
North Slope and 50 percent Cook Inlet.                                                                                          
                                                                                                                                
Representative  Wilson asked  if the  state's liability  was                                                                    
reflected in  the charts.  Mr. Alper  replied that  the blue                                                                    
bar represented  revenue and the orange  bar represented the                                                                    
actual revenues collected after  the credits were applied to                                                                    
offset  the liability.  The grey  bar  represented the  cash                                                                    
that was appropriated to buy  credits. However, the grey bar                                                                    
did not  reflect the  credits that had  not been  paid which                                                                    
totaled about $1.04 billion.                                                                                                    
                                                                                                                                
Representative Wilson asked if  the outstanding credits were                                                                    
equally split  between the North  Slope and Cook  Inlet. Mr.                                                                    
Alper replied  the numbers were approximate.  The department                                                                    
would follow up with precise amounts.                                                                                           
                                                                                                                                
Vice-Chair Gara  asked for clarification regarding  what the                                                                    
blue bar encompassed. Mr. Alper  replied that the per-barrel                                                                    
credit  was   the  largest  of  the   credits  used  against                                                                    
liability. The  orange represented the actual  revenue - the                                                                    
amount of money  in the door. The blue  bar represented what                                                                    
the amount would have been  before the per-barrel credit was                                                                    
accounted  for.  He  added  that of  the  $1.04  billion  in                                                                    
outstanding  credits $592  million  applied  to North  Slope                                                                    
liability and $451 million to non-North Slope liability.                                                                        
                                                                                                                                
Vice-Chair Gara  did not  count the  per-barrel credit  as a                                                                    
real credit and  would focus on the orange  bar. He referred                                                                    
to a report  that had been generated by  Dan Stickel earlier                                                                    
in the year wondering  if the information remained accurate.                                                                    
He asked if companies would  generate more credits than were                                                                    
owed placing the  state in a negative  position. Mr. Stickle                                                                    
had replied in  the affirmative. He asked if  that was still                                                                    
the case. Mr.  Alper replied that the  department would have                                                                    
to  revisit  the analysis.  He  added  that the  anticipated                                                                    
number of  credits earned  in FY 18  would not  change much.                                                                    
However, the  revenue in FY  18 was expected to  be slightly                                                                    
higher.                                                                                                                         
                                                                                                                                
2:37:45 PM                                                                                                                    
                                                                                                                                
Mr. Alper  addressed slide 27: "  REVENUE FORECAST: Advisory                                                                    
Bulletin Impacts":                                                                                                              
                                                                                                                                
   DOR Advisory Bulletin (2017-1)                                                                                               
   · Clarification of existing regulation regarding the                                                                         
     application of per-taxable-barrel credits for non-GVR                                                                      
     oil (024(j))                                                                                                               
   · If a company applies 024(j) credits, they cannot use                                                                       
     other credits to reduce below minimum tax                                                                                  
   · A company can forego their use of the 024(j) credits                                                                       
     and use other credits to reduce below minimum tax (if                                                                      
     allowed)                                                                                                                   
   · Estimated Impacts:                                                                                                         
        · 2014 to 2016 Tax Years: ~ $50 - $100M tax due to                                                                      
          the State                                                                                                             
        · 2017 and 2018 small UGF increases                                                                                     
        · Credit transfers decrease in FY 2018, thus less                                                                       
          are used against tax liability. This increases                                                                        
          both tax revenue and balance of credits                                                                               
          outstanding.                                                                                                          
                                                                                                                                
Mr. Alper mentioned having briefly  spoken with the chairman                                                                    
when  discussing   HB  111   about  the   advisory  bulletin                                                                    
published by  DOR about two  weeks previously.  The bulletin                                                                    
related back to the passage  of SB 21 [Legislation passed in                                                                    
2013 -  Short title: OIL  AND GAS PRODUCTION TAX].  The bill                                                                    
had a  late amendment  that hardened the  floor specifically                                                                    
to the per-barrel  credit for legacy oil  (O24J Credit). The                                                                    
way the amendment  was worded was that the  credit could not                                                                    
be used  to reduce  tax payments below  the minimum  tax. He                                                                    
continued  that regulations  were drafted  to implement  the                                                                    
provision and to  interpret the testimony by  the sponsor of                                                                    
the amendment  and the House  Resources Committee.  Over the                                                                    
past  year,  contradictory  information had  been  given  in                                                                    
different  forms.  There  were certain  taxpayers  that  had                                                                    
treated  the circumstances  differently. The  department had                                                                    
seen cases where  the per-barrel credit had been  used to go                                                                    
to the  minimum tax  (4 percent) level  and then  some other                                                                    
credit might  be used  to reduce taxes  further to  zero. He                                                                    
noted that  the other credit  could be a  carry-forward loss                                                                    
credit or  a small producer  credit, or a  per-barrel credit                                                                    
for a  gross value reduction  (GVR) eligible oil.  It turned                                                                    
out that  the state's regulations,  drafted in 2013  as part                                                                    
of SB 21,  were clear that an entity could  not reduce taxes                                                                    
below the minimum tax level  by combining per-barrel credits                                                                    
with  other credits  for North  Slope production.  He listed                                                                    
the  specific regulation:  15  AAC  55.335(g). He  explained                                                                    
that  when  faced  with  the  reality  that  the  state  had                                                                    
released inconsistent  information to  the public it  had to                                                                    
act quickly  to publish the advisory  bulletin (2017-1). The                                                                    
department's goal was to release  the bulletin by late March                                                                    
prior  to  the  due  date  of the  2016  tax  payments.  The                                                                    
bulletin included  the story  he just  relayed and  the fact                                                                    
that the per-barrel credit could  not be combined with other                                                                    
credits. The alternative, at low  prices, was that a company                                                                    
could choose  not to use  any per-barrel credits but  to use                                                                    
other credits  potentially down to  zero. The  other credits                                                                    
were not  hardened to the floor.  He argued that it  was not                                                                    
necessarily  a hardship  at $40  oil  because, typically,  a                                                                    
company  would  not  earn any  per-barrel  credits  in  that                                                                    
circumstance. As  the price of  oil lowered, the  ability of                                                                    
companies to  use the per-barrel credit  became more limited                                                                    
as the  4 percent minimum  tax became  a larger part  of the                                                                    
tax calculation. Therefore, some  companies would be able to                                                                    
forego their  minimum tax still  paying zero and  some would                                                                    
have to  re-file their  taxes not using  all of  their small                                                                    
producer  credits. He  indicated that  2014, 2015,  and 2016                                                                    
taxes would be affected. He  relayed that the main impact in                                                                    
the  Revenue  Sources Book  was  in  2018.  As of  the  fall                                                                    
forecast,   the   department   was  forecasting   with   the                                                                    
assumption that there were a  lot of credits for which money                                                                    
had not  been appropriated to re-purchase  them. The thought                                                                    
was  that  there  would  be   more  of  a  secondary  market                                                                    
developing where companies would  purchase those credits and                                                                    
use them to offset their taxes.                                                                                                 
                                                                                                                                
2:41:22 PM                                                                                                                    
                                                                                                                                
Mr.  Alper pointed  to  the  chart on  slide  28: "  REVENUE                                                                    
FORECAST:  Advisory  Bulletin   Impacts."  He  continued  to                                                                    
explain that what the department  learned in researching the                                                                    
advisory bulletin was  that a purchased credit  could not be                                                                    
used  in  conjunction with  O24J  credits  to go  below  the                                                                    
minimum floor.  The most  prominent revision  the department                                                                    
needed to make  between the fall and spring  forecast was to                                                                    
take $100 million out of the  system. The result was that it                                                                    
reduced the  number of credits being  used against liability                                                                    
and  therefore  increased  by $100  million  the  number  of                                                                    
available  credits that  were awaiting  state appropriation.                                                                    
It  also  increased  the  production  tax  revenue  by  $100                                                                    
million.  The production  tax revenue  line  in the  Revenue                                                                    
Sources Book was  about $240 million, but  the fall forecast                                                                    
was only  about $90 million.  He furthered that of  the $150                                                                    
million difference, $100 million was from the single item.                                                                      
                                                                                                                                
Representative Wilson  surmised the state was  going to make                                                                    
the  companies   go  back   to  2014   taxes  to   make  the                                                                    
corrections. She  wondered how much it  would cost companies                                                                    
to correct an  error the state made. Mr.  Alper replied that                                                                    
if the  department made a  mistake it was  in communication.                                                                    
The  regulations  underwent  a  public  review  process  and                                                                    
companies were given the opportunity  to read and comment on                                                                    
them.  He  indicated that  no  one  ever commented  on  that                                                                    
particular  provision during  the public  review process  of                                                                    
regulations for SB  21. Some companies would  have to refile                                                                    
their 2014  and 2015 taxes.  The numbers were not  huge: the                                                                    
sum total  of the older  tax returns were about  $50 million                                                                    
in  aggregate  among  multiple companies  and  multiple  tax                                                                    
returns.                                                                                                                        
                                                                                                                                
Representative  Wilson commented  that companies  would have                                                                    
to pay  to make  the changes. Mr.  Alper responded  that any                                                                    
company that  used other  credits to  pay below  the minimum                                                                    
tax while  also claiming a  per-barrel credit would  have to                                                                    
re-file  their taxes.  Several companies  misinterpreted the                                                                    
law and would have to refile their returns.                                                                                     
                                                                                                                                
Representative Wilson  commented that many of  the companies                                                                    
had highly paid experts that did  taxes all of the time. She                                                                    
thought that if  the state's regulations had  been clear the                                                                    
specific mistake would  not have been made.  She wondered if                                                                    
companies   had  interpreted   the  law   one-way  and   the                                                                    
department  went back  and interpreted  it another  way, the                                                                    
result  of which  would provide  the state  $100 million  in                                                                    
additional revenues and lost credits for companies.                                                                             
                                                                                                                                
2:45:09 PM                                                                                                                    
                                                                                                                                
Mr. Alper replied  that when he first had  the issue brought                                                                    
to  his attention  he  was  in denial.  Once  he reread  the                                                                    
regulation, he thought it was  very clear that the intent of                                                                    
the regulation was  to harden the floor.  The regulation was                                                                    
written with  the expectation that  it was  interpreting the                                                                    
intent of the legislature based  on the provision debate. He                                                                    
reiterated it  came in the  form of an  amendment introduced                                                                    
in the House Resources Committee.  He could not speak to why                                                                    
the  corporations misinterpreted  the  law.  He pointed  out                                                                    
that the $100  million seen on slide 28 was  not being taken                                                                    
from any  particular company. It  simply stayed in  the pool                                                                    
of credits  that the state owed  and would have to  pay back                                                                    
at some  point. The credits  would not  be sold from  one of                                                                    
the  small explorers  to  one of  the  major producers.  The                                                                    
major producers  did not have  the capacity to  purchase the                                                                    
credits and  use them  against their taxes  to go  below the                                                                    
floor.                                                                                                                          
                                                                                                                                
Representative Wilson  responded that  it explained  why the                                                                    
state should not be writing oil tax law.                                                                                        
                                                                                                                                
Vice-Chair Gara  clarified that Mr.  Alper had  reviewed the                                                                    
regulations and  found them to  be clear although  he missed                                                                    
it  originally. Mr.  Alper  responded  that the  regulations                                                                    
were clear  and had  been written  4 years  ago. He  had not                                                                    
been working at  DOR at the time. It was  done in a previous                                                                    
administration to  implement a bill  passed in 2013.  It was                                                                    
possible   that   companies    would   disagree   with   the                                                                    
department's  interpretation,  which  could  end  up  in  an                                                                    
appeal process.                                                                                                                 
                                                                                                                                
Commissioner  Hoffbeck added  that in  the audit  process it                                                                    
was   common   that   parties   interpreted   statutes   and                                                                    
regulations  differently   than  the  state.   The  advisory                                                                    
bulletin   would  provide   direction  to   head  off   such                                                                    
circumstances.                                                                                                                  
                                                                                                                                
Representative  Pruitt  asked  if  the  interest  provisions                                                                    
applied to companies  that would have to  re-file. Mr. Alper                                                                    
responded affirmatively.                                                                                                        
                                                                                                                                
Representative  Pruitt wondered  if some  of the  companies,                                                                    
not  necessarily the  ones that  received  the credits,  who                                                                    
purchased them  from another company would  have to re-file.                                                                    
Mr.  Alper   stated  that  there   might  be  a   couple  of                                                                    
circumstances in 2016  regarding purchased credits. However,                                                                    
there  had not  been  a robust  market  for second-hand  tax                                                                    
credits in  Alaska because the  state used to buy  them all.                                                                    
He reported that when the  issues were happening in 2014 and                                                                    
2015  companies were  not buying  and  selling credits.  The                                                                    
circumstances were limited to producer created credits.                                                                         
                                                                                                                                
Mr.  Alper turned  to slide  29: REVENUE  FORECAST: Advisory                                                                    
Bulletin  Impacts: Spring  2017  Forecast Credits  Available                                                                    
for  Purchase." He  pointed out  that the  slide showed  the                                                                    
relative impact  of the advisory bulletin  versus the credit                                                                    
obligation. The credit obligation  was heavy in 2018 because                                                                    
the  value that  was vetoed  was  rolled forward  and a  new                                                                    
value  was accumulating  at  the higher  rate  prior to  the                                                                    
impact  of HB  247. He  highlighted that  what was  a little                                                                    
over $1  million was a  little under $1 billion  without the                                                                    
guidance  memo of  the advisory  bulletin. The  numbers were                                                                    
relatively  smaller  and  closer  to  neutral  in  2019  and                                                                    
beyond.                                                                                                                         
                                                                                                                                
Co-Chair  Foster reviewed  a list  of  people available  for                                                                    
additional questions.                                                                                                           
                                                                                                                                
2:50:35 PM                                                                                                                    
                                                                                                                                
Representative Wilson  wanted a better understanding  of the                                                                    
numbers  per barrel  and the  difference between  the spring                                                                    
and fall forecast.                                                                                                              
                                                                                                                                
CHANTAL WALSH,  DIVISION DIRECTOR,  OIL AND  GAS, DEPARTMENT                                                                    
OF NATURAL RESOURCES, introduced herself.                                                                                       
                                                                                                                                
Representative  Wilson   brought  up  that  the   state  was                                                                    
producing  about  550,000  bbls/day.  She did  not  see  the                                                                    
number reflected in the forecast for 2018.                                                                                      
                                                                                                                                
Ms.  Walsh   indicated  that  the  2018   numbers  were  not                                                                    
adjusted. The spring forecast  involved inserting the actual                                                                    
available  data.  The  department  entered  real  production                                                                    
numbers and adjusted the annualized  average number in 2017.                                                                    
The numbers for 2018 were untouched.                                                                                            
                                                                                                                                
Representative  Wilson asked  why the  department would  not                                                                    
make the adjustment for 2018.                                                                                                   
                                                                                                                                
ED   KING,   SPECIAL   ASSISTANT,  DEPARTMENT   OF   NATURAL                                                                    
RESOURCES, agreed that the state  should adjust the numbers.                                                                    
Unfortunately,  the  state did  not  have  the resources  to                                                                    
conduct  an   entire  new  forecast  twice   per  year.  The                                                                    
Department of Natural  Resources absorbed the responsibility                                                                    
of producing  a fall forecast  from the DOR  consultant. The                                                                    
number reflected in FY 18  presently was the forecast number                                                                    
from the previous December.                                                                                                     
                                                                                                                                
Representative Wilson asked if  the consultant completed the                                                                    
fall  and spring  forecast or  just the  fall forecast.  Mr.                                                                    
King  responded that  when the  consultants  were doing  the                                                                    
forecasts, they did  not do an entirely new  forecast in the                                                                    
spring. They made some  adjustments incorporating the actual                                                                    
data since  the fall  forecast. If there  were room  left in                                                                    
the consultants' contract, they  would update the particular                                                                    
fields that  needed adjusting. He  confirmed that  the state                                                                    
had never  had two  full forecasts per  year: the  state had                                                                    
one in the fall and an update in the spring.                                                                                    
                                                                                                                                
Representative  Wilson  argued  that the  current  year  was                                                                    
different. In  the current  year, the  state was  looking to                                                                    
take money out  of the pockets of Alaskans because  of a gap                                                                    
the state might  or might not have. She also  noted that the                                                                    
difference was that the state  did not see the decrease that                                                                    
it had  seen, but  rather, an increase.  She thought  it was                                                                    
important  to  show  whether  there  was  more  oil  in  the                                                                    
pipeline. Ms. Walsh concurred.  She indicated the department                                                                    
would provide  a range but  would not  be able to  provide a                                                                    
full reassessment of the fall approach to the forecast.                                                                         
                                                                                                                                
Mr. King added that the  department knew that the number did                                                                    
not reflect the data from  the Kuparuk and Alpine fields and                                                                    
Prudhoe Bay. He expected  the number to change substantially                                                                    
in the fall. He encouraged  Representative Wilson to ask DOR                                                                    
to plug  in a number she  thought was more realistic  to see                                                                    
the resulting number. Unfortunately,  it was the best number                                                                    
DOR had  at the  time to insert  into their  model. However,                                                                    
the  department could  easily determine  what an  additional                                                                    
30,000 or 40,000 bbls/day of  oil would potentially generate                                                                    
in revenue.                                                                                                                     
                                                                                                                                
2:55:00 PM                                                                                                                    
                                                                                                                                
Representative Wilson appreciated  the information. However,                                                                    
it was her  understanding that it was up to  DNR rather than                                                                    
DOR. She  asked if he could  look at the totals  for January                                                                    
through  April comparing  the previous  year to  the current                                                                    
year to determine a better  range. She understood the number                                                                    
would be an  estimate. Mr. King thought  480,000 barrels was                                                                    
a  reasonable number.  The number  was a  rough estimate  of                                                                    
what might  happen and how  the forecast might  be adjusted.                                                                    
He  thought  she  should  run some  scenarios  to  see  what                                                                    
500,000  or 520,000  looked  like. He  thought  that if  the                                                                    
numbers  were  plugged  in  and  everything  else  was  held                                                                    
constant the state  could see another $50 to  $00 million in                                                                    
potential revenue. He  also encouraged her as  she was going                                                                    
through the process and looking  at what might happen in the                                                                    
future  that she  acknowledge the  other uncertainties  that                                                                    
were  in  the  forecast  looking at  the  entire  range.  He                                                                    
thought  it  was  important that  the  legislature  did  not                                                                    
overcommit itself  to budgeting to something  that might not                                                                    
come to fruition.                                                                                                               
                                                                                                                                
Representative Wilson commented  that it was not  her job to                                                                    
make those calculations. However, it  was her job to be able                                                                    
to provide those numbers to her constituents.                                                                                   
                                                                                                                                
2:57:22 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  thought  the  numbers  had  actually                                                                    
changed  more   than  reported.  The  numbers   appeared  to                                                                    
decrease in  the out  years beginning  in 2019.  He observed                                                                    
that the number was reduced by  1 percent in 2019, 2 percent                                                                    
in 2020, 1.8  percent in 2021, 2.3 percent in  2022, and 2.3                                                                    
percent  in 2023.  He continued  to  provide the  percentage                                                                    
adjustments.   He wondered why the  department would publish                                                                    
lower  numbers if  the numbers  were not  changing much  and                                                                    
there was  recognition that there  was something  wrong with                                                                    
the data.  He did  not believe  the numbers  correlated. Mr.                                                                    
King reported that  the department had not  made any changes                                                                    
to  the   base  forecast,  which  encompassed   all  of  the                                                                    
producing  fields and  a  field-by-field analysis.  However,                                                                    
one adjustment  was made  to one of  the fields  expected to                                                                    
come online in  the following couple of  years. The start-up                                                                    
date of  that field  was changed in  the model.  He realized                                                                    
the small change created some  confusion but advised that it                                                                    
should not be interpreted as a new forecast.                                                                                    
Representative Pruitt asked why  there was a spring forecast                                                                    
if  the legislature  was going  to rehash  the fall  numbers                                                                    
with changes that were known for the current year                                                                               
                                                                                                                                
Ms. Walsh reported that the  spring forecast was adjusted to                                                                    
show reality. In the past,  adjustments had been made in the                                                                    
opposite  direction.  Therefore,  rather  than  having  more                                                                    
revenue, it was less  revenue. The information was pertinent                                                                    
because of  closing up  the year. It  was important  to have                                                                    
real data.  The spring forecast  had never been a  total re-                                                                    
run of the  forecast in the out years. The  current year was                                                                    
a particularly  sensitive year. Revenues  in 2018  were also                                                                    
very  critical.   It  lent  itself   to  needing   a  better                                                                    
guestimate of what was going on in the 2018 timeframe.                                                                          
                                                                                                                                
Mr. King added  that there should have been a  change to the                                                                    
forecast.  However,   the  department   did  not   have  the                                                                    
resources to  do a full  forecast. As the  department looked                                                                    
into    the   fall    forecast,   reviewed    the   forecast                                                                    
methodologies,  looked at  where the  errors were  made, and                                                                    
made necessary adjustments, it would  figure out a way to be                                                                    
more accommodating in the following year.                                                                                       
                                                                                                                                
Representative  Pruitt commented  that the  state was  faced                                                                    
with  the same  challenges from  the previous  year. In  the                                                                    
previous  year,  there was  an  effort  to ensure  that  the                                                                    
legislature  received  something  earlier,  March  21st.  He                                                                    
wondered if in the previous  year the early push resulted in                                                                    
an adjusted fall forecast that  included reality numbers. He                                                                    
thought the concern of the  department to produce a forecast                                                                    
earlier had evaporated. Mr. King  responded that DNR had not                                                                    
been  involved  with the  spring  forecast  in the  previous                                                                    
year. The department  took over in the  spring. He suggested                                                                    
the representative redirect his questions to DOR.                                                                               
                                                                                                                                
Representative Pruitt  mentioned that the state  had decided                                                                    
to  use DNR  to produce  the forecast  rather than  using an                                                                    
outside consultant.   He asked if the  decision would result                                                                    
in a  cost savings  to the  state. He  asked about  what the                                                                    
consultant  was paid.  He noted  that  DNR individuals  were                                                                    
currently doing the  work, which also cost  the state money.                                                                    
He wondered if it was a  better investment to use an outside                                                                    
consultant. Mr.  King responded  that he  did not  know what                                                                    
the contract amount was with  the consultant. He pointed out                                                                    
that  DNR had  absorbed all  of the  costs and  the workload                                                                    
related to doing the forecast.  The department was trying to                                                                    
give the legislature the best  answers possible and the best                                                                    
pulse on  what was going on.  He indicated it was  up to the                                                                    
legislature whether it wanted to pay for a consultant.                                                                          
                                                                                                                                
Ms.  Walsh  noted  the oil  companies  underestimated  their                                                                    
field productions  in the current year.  Production was flat                                                                    
or up in fields that had not been so before.                                                                                    
                                                                                                                                
Representative  Pruitt asked  her  to  elaborate. Ms.  Walsh                                                                    
reported  the fields  on the  North Slope,  on average,  had                                                                    
declined 4 percent to 6  percent per year with high activity                                                                    
levels. She  thought it  was reasonable  to expect  the same                                                                    
pattern to  continue into the  future. She thought  it spoke                                                                    
to  innovative  and creative  ways  that  the companies  had                                                                    
managed  the  fields.  Even  their   own  experts  in  their                                                                    
companies underestimated the production of the fields.                                                                          
                                                                                                                                
3:05:30 PM                                                                                                                    
                                                                                                                                
Representative Pruitt asked if  DNR would continue doing the                                                                    
forecasts. If  so, he wondered  what the  legislature should                                                                    
expect going  forward.   Mr. King answered  that it  was the                                                                    
first  year  DNR  had  done the  forecast.  There  would  be                                                                    
lessons  learned from  the process  over the  previous year.                                                                    
The department would take the  data for the year, review the                                                                    
previous  forecast, and  look at  how it  could improve.  He                                                                    
would expect  DNR would  continue doing  the forecast  if an                                                                    
appropriation  for  a consultant  was  not  included in  the                                                                    
budget.                                                                                                                         
                                                                                                                                
Representative  Thompson thought  it seemed  that the  hired                                                                    
contractor  that had  done  the  production forecasting  was                                                                    
paid  about  $50,000  per year.  Their  forecasts  had  been                                                                    
accurate.  He   valued  the   accuracy  of   the  production                                                                    
forecast.                                                                                                                       
                                                                                                                                
Co-Chair Seaton suggested having someone from DOR respond.                                                                      
                                                                                                                                
3:07:43 PM                                                                                                                    
                                                                                                                                
JERRY  BURNETT,  DEPUTY   COMMISSIONER,  TREASURY  DIVISION,                                                                    
DEPARTMENT OF REVENUE, reported  having been involved in the                                                                    
revenue forecasting  process for  the previous 13  years. In                                                                    
that  time,  the state  had  used  two different  consulting                                                                    
firms. The  previous year  was the last  in which  the state                                                                    
used  a consultant.  The contract  amount was  for $100,000.                                                                    
The  state  had  never  had the  consultant  do  2  complete                                                                    
forecasts  in  a year.  The  department  had had  systematic                                                                    
overproduction  analysis  for  a  number  of  years  because                                                                    
certain fields had been included.  For example, for 10 years                                                                    
in a row the department  had included Point Thompson 5 years                                                                    
out  and eventually  stopped. The  department switched  to a                                                                    
risk-based  analysis. There  had  been a  number of  changes                                                                    
over  time.  The Department  of  Natural  Resources did  the                                                                    
forecasting for  the first time  in the current year  due to                                                                    
budget  reductions.   The  department  had  access   to  the                                                                    
information  and  a  professional  staff that  could  do  an                                                                    
excellent  job of  generating the  production forecast.  The                                                                    
forecast was not updated in the  spring and DOR did not know                                                                    
what  it should  have been.  He confirmed  that DOR  and DNR                                                                    
worked closely together  and would take all  of the comments                                                                    
provided seriously.  He added that  the forecasts  that were                                                                    
provided were 93 percent accurate.                                                                                              
                                                                                                                                
Vice-Chair Gara  did not think any  of the people at  DNR or                                                                    
DOR should  be put on the  defensive for the work  they were                                                                    
doing. He reviewed that Mr. King  had made it clear that the                                                                    
state was doing  once-a-year forecasts in the  fall. He gave                                                                    
kudos to the  departments for dealing with  the budgets they                                                                    
were  given.  He  understood  that there  would  be  a  full                                                                    
forecast in  the fall and  that the interim  spring forecast                                                                    
was inaccurate. Mr. King responded that he was correct.                                                                         
                                                                                                                                
Vice-Chair  Gara thought  the state  could spend  additional                                                                    
monies on forecasting  but they had never  been accurate. He                                                                    
did not want to spend more  money on a forecast. He asked if                                                                    
reality would kick  in and production would  be declining in                                                                    
the summer months  and increasing in the  winter months. Mr.                                                                    
King responded in the affirmative.                                                                                              
                                                                                                                                
Vice-Chair  Gara referred  to the  statement that  the state                                                                    
might or might not have a  budget gap. If production went up                                                                    
the amount would  not equal the budget gap  of $2.9 billion.                                                                    
Mr. King indicated the representative was correct.                                                                              
                                                                                                                                
3:12:00 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton   thought  the  state  had   to  take  into                                                                    
consideration  the  reductions  that had  been  made  within                                                                    
departments. He added that anticipating  a greater number of                                                                    
forecasts was  illogical. He appreciated the  estimate of an                                                                    
increase   of  30,000   bbls/day.  He   indicated  that   an                                                                    
additional 50,000  bbls/day would equate to  $100 million, a                                                                    
figure helpful  to the legislature in  making its estimates.                                                                    
He  remembered being  frustrated  with  forecasts that  were                                                                    
high because all  of the fields that might  come online were                                                                    
factored  in.  The  numbers  were  never  accurate  and  the                                                                    
legislature had to consider a  lesser number. He appreciated                                                                    
changes  to avoid  over-forecasting.  The legislature  would                                                                    
know in  the fall whether the  new change would result  in a                                                                    
more accurate  forecast. He was  pleased that  oil companies                                                                    
had  embraced new  technologies, which  resulted in  greater                                                                    
production. He was glad to  know that even if oil production                                                                    
increased by  50,000 bbls/day, it  did not fill the  gap. He                                                                    
appreciated the department's work  and particularly the P50,                                                                    
P90,  and  P10  ranges.  It  provided  probability  and  was                                                                    
helpful to  policy makers. He  thanked both  departments for                                                                    
coming up with the best  forecast with the resources allowed                                                                    
by the legislature.                                                                                                             
                                                                                                                                
Co-Chair Foster indicated the committee  had 6 more bills to                                                                    
address and would be powering through them.                                                                                     
                                                                                                                                
3:15:45 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  recalled consultants  coming into                                                                    
the room  over the  years admitting that  most of  them were                                                                    
wrong  most of  the time.  Otherwise, they  would be  taking                                                                    
care of their own business  rather than being consultants to                                                                    
other  people. He  thought  there was  a  certain amount  of                                                                    
uncertainty  built into  forecasting. He  had been  troubled                                                                    
that the  state did not  have the expertise from  within, as                                                                    
Alaska was  primarily an  oil state. He  was glad  the state                                                                    
was doing the work in-house  presently. If the state rehired                                                                    
the  consultant,  it  could   challenge  their  answers.  He                                                                    
highlighted  the   observation  that  was  made   about  the                                                                    
industry being wrong  about some of their  estimates. It was                                                                    
not only about  what was being pumped out of  the ground. He                                                                    
provided  several  examples of  unpredictable  circumstances                                                                    
that could arise that could  potentially affect a production                                                                    
forecast. He  thought the  accuracy of  93 percent  was very                                                                    
good but  could be better.  He encouraged the  department to                                                                    
keep  working on  it.  He  was the  chair  of DNR's  finance                                                                    
subcommittee and  indicated there  would be  more discussion                                                                    
on the topic in the following year.                                                                                             
                                                                                                                                
3:19:44 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt asked  how  much the  state paid  the                                                                    
consultant to  write the tax  structure being  proposed. Mr.                                                                    
Burnett  relayed  that the  consultant  was  hired and  paid                                                                    
through  the Department  of  Law but  thought  it was  about                                                                    
$80,000 to $100,000.                                                                                                            
                                                                                                                                
Representative Pruitt  wondered what  was used as  the basis                                                                    
for  revenue  for  any  of  the models  other  than  the  PF                                                                    
information. He  specifically asked what Mr.  Teal used. Mr.                                                                    
Burnett   was   uncertain   which    part   of   the   model                                                                    
Representative Pruitt was referring.                                                                                            
                                                                                                                                
Representative Pruitt responded, "The  revenue aspect of the                                                                    
model." He  asked if it  was the fall forecast.  Mr. Burnett                                                                    
answered in the affirmative.                                                                                                    
                                                                                                                                
Representative  Pruitt concluded  that  the legislature  was                                                                    
making  decisions about  how the  state  would move  forward                                                                    
based on a  very key piece, the fall forecast.   Mr. Burnett                                                                    
replied, "Correct."                                                                                                             
                                                                                                                                
Representative Pruitt continued that  $85,000 was spent on a                                                                    
gentleman to  write a  tax system  instead of  spending that                                                                    
money  on   making  sure  the  state   had  the  appropriate                                                                    
information to  make the right decisions  regarding revenue.                                                                    
He  asked  about  the  decision  making  process  of  hiring                                                                    
someone to write the tax  system. Mr. Burnett responded that                                                                    
it had not been his decision.                                                                                                   
                                                                                                                                
Representative Pruitt highlighted that  there was money that                                                                    
could  have been  appropriated  to hire  someone  to do  the                                                                    
forecasting  but the  money was  spent elsewhere.  He opined                                                                    
that  when  the  legislature   started  talking  about  $100                                                                    
million as if  it were "chump change" and  pushing it aside,                                                                    
it had lost touch with  reality. He thought it was important                                                                    
to  be  as  accurate  as possible,  especially  when  making                                                                    
decisions about going into people's pocketbooks.                                                                                
                                                                                                                                
Representative   Ortiz  understood   that   the  state   was                                                                    
producing  more   than  500,000  bbls/day  at   present.  He                                                                    
asserted  that it  was unlikely  in the  year 2025  that the                                                                    
state would be about 500,000 bbls/day. He asked if he was                                                                       
correct.                                                                                                                        
                                                                                                                                
Mr. Burnett relayed that based on what was known and the                                                                        
forecast of prices he thought it would be very unlikely.                                                                        
                                                                                                                                
Co-Chair Foster stated that the committee would be taking a                                                                     
10-minute break. He reviewed the order in which the bills                                                                       
would be heard.                                                                                                                 
                                                                                                                                
3:23:22 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:37:42 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 103                                                                                                            
                                                                                                                                
     "An Act relating to the practice of optometry."                                                                            
                                                                                                                                
3:37:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster MOVED to ADOPT Amendment 1:                                                                                     
                                                                                                                                
     Page 2, line 27, following "practice.":                                                                                    
          Insert "(a)" 3                                                                                                        
                                                                                                                                
     Page 2, following line 30:                                                                                                 
          Insert new subsections to read:                                                                                       
          "(b)  A   licensee  may  not   perform  ophthalmic                                                                    
          surgery unless the procedure is                                                                                       
               (1) within the scope of the licensee's                                                                           
               education and training from an accredited                                                                        
               school of optometry; and                                                                                         
               (2) authorized by regulations adopted by the                                                                     
               board.                                                                                                           
          (c)  In this  section, "ophthalmic  surgery" means                                                                    
          an  invasive procedure  in which  human tissue  is                                                                    
          cut,   ablated,   or   otherwise   penetrated   by                                                                    
          incision, laser, or other  means to treat diseases                                                                    
          of  the human  eye,  alter  or correct  refractive                                                                    
          error, or  alter or enhance cosmetic   appearance;                                                                    
          "ophthalmic     surgery"  does  not   include  the                                                                    
         procedure described under AS 08.72.273."                                                                               
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
REPRESENTATIVE   IVY  SPOHNHOLZ,   SPONSOR,  explained   the                                                                    
amendment. She  decided to advance an  amendment in response                                                                    
to some of  the concerns expressed about  the potential that                                                                    
optometrists might work outside  of their scope of practice.                                                                    
The amendment  would do  two things  to clarify  and further                                                                    
codify the  restrictions the original bill  stated. She read                                                                    
directly from  the amendment (See above).  She conveyed that                                                                    
the  definition of  surgery provided  in  the amendment  was                                                                    
borrowed  from Washington  state  law and  preferred by  the                                                                    
ophthalmologists. They  would not practice any  of the items                                                                    
unless they  were clearly trained  in them by  an accredited                                                                    
school of  optometry. It would  ensure that there  would not                                                                    
be  fly-by-night   optometry  trainings  offered   in  hotel                                                                    
conference rooms that could result in unsafe care.                                                                              
                                                                                                                                
Vice-Chair  Gara   wanted  it  on  record   that  if  either                                                                    
amendment   passed   there   was   an   ophthalmic   surgery                                                                    
definition.    The    amendments   were    different.    His                                                                    
understanding  was that,  regardless of  her definition,  it                                                                    
would allow optometrists to continue  doing things they were                                                                    
doing presently. He  did not want to limit  their ability to                                                                    
perform  procedures they  were currently  allowed to  do. He                                                                    
asked  her to  comment.  Representative Spohnholz  responded                                                                    
that there  were two amendments. Amendment  1 would continue                                                                    
to allow optometrists to practice  as they did currently. It                                                                    
was  her understanding  Amendment  2 would  not. The  second                                                                    
amendment  would roll  back some  of the  authorization that                                                                    
optometrists had  to practice. She  thought a member  of the                                                                    
Board of Optometry was available online.                                                                                        
                                                                                                                                
Vice-Chair  Gara   did  not  want  the   amendment  to  stop                                                                    
optometrists  from doing  the  procedures  they had  already                                                                    
been authorized  to perform. He  asked if the  amendment was                                                                    
aimed  at  future  things that  optometrists  were  thinking                                                                    
about  doing. Representative  Spohnholz  responded that  the                                                                    
language in  Amendment 1 stipulated clearly  that a licensee                                                                    
could not  perform ophthalmic  surgery unless  the procedure                                                                    
was within  their scope of education  and training. Anything                                                                    
that  they were  currently  practicing were  items they  had                                                                    
already  received training  in at  an optometry  school. The                                                                    
amendment allowed them to continue with their practices.                                                                        
                                                                                                                                
Vice-Chair Gara wanted  to get on record  that the amendment                                                                    
should not be interpreted in  a way that would somehow erase                                                                    
their   ability  to   practice   what   they  were   already                                                                    
practicing.                                                                                                                     
                                                                                                                                
Co-Chair Foster relayed the list of testifiers available.                                                                       
                                                                                                                                
3:43:05 PM                                                                                                                    
                                                                                                                                
Representative   Kawasaki  asked   about  removing   foreign                                                                    
bodies.  He  wanted to  make  sure  they  would be  able  to                                                                    
continue  to perform  the surgery.  Representative Spohnholz                                                                    
responded  in  the affirmative  because  it  was within  the                                                                    
scope of their training and licensure.                                                                                          
                                                                                                                                
Representative   Kawasaki  mentioned   the  40   schools  of                                                                    
optometry and  asked if  any of  them taught  Lasik surgery.                                                                    
Representative  Spohnholz  thought  Lasik  surgery  was  not                                                                    
within the scope of practice  for optometrists. She deferred                                                                    
to the doctor online for clarification.                                                                                         
                                                                                                                                
DR.  BARNEY, BOARD  OF OPTOMETRY,  responded that  Lasik was                                                                    
not taught at any optometry school in the US.                                                                                   
                                                                                                                                
Representative  Wilson commented  that the  definitions were                                                                    
the same. She  was concerned that optometrists  wanted to do                                                                    
surgery. She  was unclear of  the purpose of  the amendment.                                                                    
She  wondered what  the amendment  would do  to change  what                                                                    
optometrists could do  without the amendment. Representative                                                                    
Spohnholz responded that the  amendment codified some things                                                                    
that  had been  verbally  expressed on  the  record but  not                                                                    
explicitly  stated in  statute  and the  original bill.  She                                                                    
felt  the  amendment  might give  people  more  comfort  and                                                                    
clarity  that  there  would  not  be  a  dramatic  scope  of                                                                    
practice   change.   She   emphasized  the   importance   of                                                                    
specifying that  education and training needed  to come from                                                                    
an accredited  school of optometry. The  amendment clarified                                                                    
that drive-by-night  trainings in  Lasik surgery  offered at                                                                    
hotels by  non-accredited institutions and rammed  through a                                                                    
board of optometry was not possible.                                                                                            
                                                                                                                                
Representative  Wilson  asked  what  procedure  optometrists                                                                    
could  currently  perform  that fit  within  the  definition                                                                    
provided   in   the  amendment.   Representative   Spohnholz                                                                    
deferred  to  Dr. Barney.  Dr.  Barney  provided a  list  of                                                                    
procedures  optometrists could  currently  perform that  met                                                                    
the definition of  surgery as written in  the amendment. The                                                                    
list  included  corneal  foreign  body  removal,  rust  ring                                                                    
removal,   epithelial   debridement,  removal   of   corneal                                                                    
filament, and draining a hidrocystoma.                                                                                          
                                                                                                                                
Representative Wilson  wondered if all of  the procedures he                                                                    
mentioned  had  been taught  at  an  accredited school.  Dr.                                                                    
Barney responded affirmatively.                                                                                                 
                                                                                                                                
3:48:41 PM                                                                                                                    
                                                                                                                                
Representative Wilson  was trying  to address  concerns that                                                                    
were  brought to  her attention  via  email. She  understood                                                                    
there  was a  difference between  the two  groups concerning                                                                    
surgery. She wanted  to make sure people  remained safe. She                                                                    
had  heard in  testimony  that they  [optometrists] did  not                                                                    
want to  do surgery. However,  they were already  doing what                                                                    
was  considered  surgery  based on  the  definition  in  the                                                                    
amendment.  She  did  not  understand  the  purpose  of  the                                                                    
amendment.    Representative   Spohnholz    clarified   that                                                                    
accreditation was  done by a separate  nationally recognized                                                                    
body  which was  true for  all accredited  universities. The                                                                    
Alaska board  was not in charge  of accrediting universities                                                                    
that offered optometric education.                                                                                              
                                                                                                                                
Representative Wilson  thought that the board  could require                                                                    
all  training to  be from  an  accredited university.  Under                                                                    
regulation,  they   [optometrists]  could   already  perform                                                                    
defined  services.  She  believed  the  legislation  allowed                                                                    
providers  to go  beyond the  scope of  their training.  She                                                                    
would  be  voting  based  on the  testimony  she  heard  and                                                                    
received.                                                                                                                       
                                                                                                                                
Co-Chair Seaton  thought that regulations  required training                                                                    
to be obtained  by an accredited institution.  He added that                                                                    
the board could implement  the same requirement. However, he                                                                    
believed  the amendment  clarified that  the training  would                                                                    
have to  be obtained by  an accredited school  of optometry.                                                                    
He thought  the definition of  surgery was too  broad, based                                                                    
on feedback  from the entire  medical field. He  provided an                                                                    
example  of  an  optometrist  removing  a  fishhook  from  a                                                                    
person's eyes and it being  considered a surgical procedure.                                                                    
He indicated he was comfortable with the amendment.                                                                             
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO OBJECTION, Amendment 1 was ADOPTED.                                                                              
                                                                                                                                
3:52:35 PM                                                                                                                    
                                                                                                                                
Representative Wilson WITHDREW Amendment 2.                                                                                     
                                                                                                                                
Vice-Chair Gara  commented that he  thought the  bill should                                                                    
be  decided  with a  floor  vote.  Therefore, he  would  not                                                                    
object to moving the bill from committee.                                                                                       
                                                                                                                                
Vice-Chair  Gara reviewed  that there  was one  fiscal note:                                                                    
Office of Management and Budget  (OMB) component number 2360                                                                    
in the amount of $5,100  for the drafting and implementation                                                                    
of regulations.                                                                                                                 
                                                                                                                                
Representative  Wilson clarified  that the  amount would  be                                                                    
paid  for with  program  receipts rather  than general  fund                                                                    
dollars.                                                                                                                        
                                                                                                                                
Co-Chair  Seaton  MOVED to  report  CSHB  103 (FIN)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
CSHB  103 (FIN)  was REPORTED  out of  committee with  a "do                                                                    
pass" recommendation and with  a previously published fiscal                                                                    
impact note: FN2 (CED).                                                                                                         
                                                                                                                                
3:54:48 PM                                                                                                                    
At EASE                                                                                                                         
                                                                                                                                
3:55:31 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 76                                                                                                             
                                                                                                                                
     "An Act relating to the mariculture revolving loan                                                                         
     fund and loans from the fund; and providing for an                                                                         
     effective date."                                                                                                           
                                                                                                                                
3:55:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAN  ORTIZ, SPONSOR,  mentioned that  about 6                                                                    
weeks  prior US  Senator Dan  Sullivan addressed  the Alaska                                                                    
State Legislature.  In his address,  he spoke of  the robust                                                                    
fishing industry  ($6 billion/year)  existing in  Alaska. He                                                                    
spoke  about  how the  State  of  Alaska provided  about  60                                                                    
percent  of the  seafood sold  within the  U.S. He  had also                                                                    
spoken about the  need to do everything  possible to protect                                                                    
and  enhance the  fishing industry.  He relayed  that HB  76                                                                    
looked to provide a small  jump-start to a potential part of                                                                    
the fishing industry growing it  by another $1 billion/year.                                                                    
In the  previous year, the governor  appointed a mariculture                                                                    
task force  with the  intent of exploring  ways in  which to                                                                    
develop  mariculture   along  the  coastal   communities  of                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Representative Ortiz read the sponsor statement:                                                                                
                                                                                                                                
     This  bill  amends   the  existing  Alaska  Mariculture                                                                    
     Revolving Loan  Fund to  allow up  to forty  percent of                                                                    
     the fund  to be used  for loans to  permitted shellfish                                                                    
     hatcheries for planning, construction and operation.                                                                       
                                                                                                                                
     Alaska shellfish  farms currently do not  have a stable                                                                    
     supply of seed  for the propagation of  oysters, and no                                                                    
     regular, in-state  source of seed for  resident aquatic                                                                    
     plants and other shellfish. A  stable supply of seed is                                                                    
     one of many hurdles the  industry must overcome to grow                                                                    
     and become a viable Alaskan industry.                                                                                      
                                                                                                                                
     This bill  will amend  the program  to shift  its focus                                                                    
     and eligibility from  individual mariculture farmers to                                                                    
     include  shellfish hatcheries  that would  market stock                                                                    
     to local Alaskan mariculture farmers.                                                                                      
                                                                                                                                
     The  mariculture industry  in Alaska  is not  yet fully                                                                    
     developed,  and   is  extremely   high  risk,   from  a                                                                    
     financial  standpoint.  These  obstacles  make  private                                                                    
     financing  difficult  to  obtain, but  this  bill  will                                                                    
     enable Alaskans  to maintain their businesses  and grow                                                                    
     Alaska's mariculture industry.                                                                                             
                                                                                                                                
Co-Chair Foster relayed a list of available testifiers.                                                                         
                                                                                                                                
3:59:37 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara was  hesitant  about expanding  the use  of                                                                    
hatcheries   in   the   state  because   of   the   possible                                                                    
contamination  of wild  fish.  However,  in the  legislation                                                                    
being discussed he  only saw changes to  the eligibility and                                                                    
the use  of the  loan fund,  not changes  to the  ability to                                                                    
engage  in  mariculture.  He   wondered  if  his  assessment                                                                    
accurate.  Representative   Ortiz  responded  that   he  was                                                                    
correct.                                                                                                                        
                                                                                                                                
Representative Wilson  asked if  the bill  offered up  to $1                                                                    
million per year for an applicant.                                                                                              
                                                                                                                                
ELIZABETH   BOLLING,   STAFF   REPRESENTATIVE   DAN   ORTIZ,                                                                    
explained that  the $1 million  per year limit  only applied                                                                    
to the  40 percent (non-profit associations  and enhancement                                                                    
projects). She expounded that the  cap for one loan would be                                                                    
$1 million. However,  she did not believe it  was likely for                                                                    
people to  ask for  $1 million loans  due to  the collateral                                                                    
requirements.                                                                                                                   
                                                                                                                                
Representative  Wilson wanted  to know  the number  of loans                                                                    
that were $1 million. She pointed  to page 5, lines 27-31 of                                                                    
the  bill. It  stated that  the department  could defer  the                                                                    
principle of and interest on a  loan made under the terms of                                                                    
the bill for a  period of up to 11 years  after the loan was                                                                    
made. She argued  that it was a long time.  It also appeared                                                                    
that the state could deter  the interest between 6 years and                                                                    
11  years.  She wondered  if  the  terms  were based  on  an                                                                    
outside model. She thought many  people would like the terms                                                                    
of  such  a loan.  Ms.  Bolling  replied that  the  deferred                                                                    
interest  was  accrued  on  individual  farmers  in  the  40                                                                    
percent category.  The 6  years to  11 years  was consistent                                                                    
with  the   finfish  fund,  a   fund  that  had   been  very                                                                    
successful. She noted that  additional deferments applied to                                                                    
the non-profit associations.                                                                                                    
                                                                                                                                
Representative  Wilson  did  not understand  the  difference                                                                    
between an  individual receiving the loan  and a non-profit.                                                                    
She wondered  what type  of non-profit  would apply  for the                                                                    
loan. Ms.  Bolling responded that  it was very  expensive to                                                                    
operate  a seed  supply organization.  The payoff  was small                                                                    
and only came over a long  period. She suggested it would be                                                                    
unreasonable to expect a short-term  payback. The reason the                                                                    
bill  was needed  and  why  there was  a  bottleneck in  the                                                                    
growing industry  was because there was  no substantial gain                                                                    
from participating in just the  seed supply. She opined that                                                                    
it was  necessary for the state  to get involved due  to the                                                                    
riskiness of the developing industry.  She noted that it was                                                                    
unlikely  to  be  able  to find  financing  in  the  private                                                                    
sector.                                                                                                                         
                                                                                                                                
Representative  Wilson   asked  Ms.   Bolling  if   she  was                                                                    
concerned that an entity could  get into the process and not                                                                    
be able to  pay the money back to  the state. Representative                                                                    
Ortiz deferred to the Department  of Commerce, Community and                                                                    
Economic Development.                                                                                                           
                                                                                                                                
BRITTENY  CIONI-HAYWOOD,  DIRECTOR,   DIVISION  OF  ECONOMIC                                                                    
DEVELOPMENT   AND   COMMERCE,    DEPARTMENT   OF   COMMERCE,                                                                    
introduced  herself  and   asked  Representative  Wilson  to                                                                    
repeat her question.                                                                                                            
                                                                                                                                
Representative Wilson  suggested that  the bill  would allow                                                                    
her to borrow $1 million with  a plan. She could obtain $100                                                                    
thousand  in   grant  funding  to  develop   her  plan.  The                                                                    
committee had just heard that  the industry was difficult to                                                                    
get started and to see  returns. She asked if the department                                                                    
had  concerns  that the  payments  would  not begin  for  11                                                                    
years. Ms.  Cioni-Haywood indicated that the  department was                                                                    
diligent  about   properly  collateralizing  the   loans  to                                                                    
protect  the state's  assets. She  was more  concerned about                                                                    
the loan fund  and its ability to be revolving  in the first                                                                    
decade.  Once the  payments  started  returning a  revolving                                                                    
loan fund would be available for the industry.                                                                                  
                                                                                                                                
Representative  Wilson  asked  Ms. Cioni-Haywood  about  the                                                                    
number  of loans.  Ms.  Cioni-Haywood  responded there  were                                                                    
currently  5  loans   all  of  which  were   loans  made  to                                                                    
individual farmers rather than hatcheries.                                                                                      
                                                                                                                                
Representative Wilson  asked about  the balances. She  had a                                                                    
figure  of  approximately  $4.5 million  in  the  fund.  Ms.                                                                    
Cioni-Haywood  answered   that  Representative   Wilson  was                                                                    
correct.                                                                                                                        
                                                                                                                                
4:05:53 PM                                                                                                                    
                                                                                                                                
Representative Pruitt reported  that it had been  3 years or                                                                    
4 years since he had visited  one of the farms in Ketchikan.                                                                    
He recalled that most of the  seed was coming from the Puget                                                                    
Sound area.  He wondered  if he was  correct. Representative                                                                    
Ortiz  responded  that  there  was  an  organization  called                                                                    
Oceans Alaska in the Ketchikan  area that provided seed that                                                                    
was not in business 4 years previously.                                                                                         
                                                                                                                                
Ms. Bolling added that per  a regulation from the Department                                                                    
of Fish and Game (DFG)  all native plants and marine aquatic                                                                    
shellfish that  were produced  in the  State of  Alaska were                                                                    
required to come from seed created in Alaska.                                                                                   
                                                                                                                                
Representative  Pruitt noted  that 3  years or  4 years  ago                                                                    
South  or Southeast  was  a great  place  for this  emerging                                                                    
industry. He  asked if  some of the  seed could  be utilized                                                                    
outside of  Alaska. He  wondered if the  intent was  to grow                                                                    
the industry  in Alaska  or to possibly  to provide  seed to                                                                    
places outside  of Alaska to  make a  profit. Representative                                                                    
Ortiz responded that  the intent of the bill  was to promote                                                                    
local mariculture  farms. He understood that  the demand for                                                                    
seed was  strong enough  that it  would like  be used  up in                                                                    
Alaska. In  the case  of Oceans  Alaska, he  understood they                                                                    
could not  produce seed  fast enough  for the  demand within                                                                    
the state.                                                                                                                      
                                                                                                                                
Representative  Pruitt  asked  if  there was  a  market.  He                                                                    
wondered if there  would be a challenge to pay  the funds in                                                                    
the   future.   Representative    Ortiz   thought   it   was                                                                    
appropriate,  as  it  was a  developing  industry.  However,                                                                    
there  was an  element of  risk.  He did  not see  a way  to                                                                    
develop the industry  to get to the point where  there was a                                                                    
viable  industry   without  getting  through  a   period  of                                                                    
relatively high risk.                                                                                                           
                                                                                                                                
4:10:05 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt asked  if the  expansion of  the loan                                                                    
fund  - by  adding another  group -  would create  a problem                                                                    
with  pressure on  the fund  at  a future  time. Ms.  Cioni-                                                                    
Haywood  responded  that it  explained  the  reason for  the                                                                    
construction of a 40/60 split.  She noted that 60 percent of                                                                    
the fund would remain  available for individual farmers. The                                                                    
remaining 40 percent  (set at a particular time  so it would                                                                    
not  be  in  flux)  would  be  available  for  hatchery  and                                                                    
enhancement projects.                                                                                                           
                                                                                                                                
Representative  Kawasaki asked  about  the  40/60 split.  He                                                                    
wondered if the  60 percent portion would be  enough for the                                                                    
remaining  mariculture   businesses  that   were  originally                                                                    
listed. Representative  Ortiz replied that to-date  the fund                                                                    
had been underutilized. There were  currently 5 loans with a                                                                    
balance of  just under $5  million in the fund.  The initial                                                                    
funding amount was $5 million.  The industry recognized that                                                                    
the supply of  seed was a problem. If the  state were to see                                                                    
an increase in the manufacturing  of seed resulting from the                                                                    
40/60 split,  then it  was possible there  would also  be an                                                                    
increase  in the  number of  farmers  interested in  getting                                                                    
into the business. There would  likely be an increase on the                                                                    
demand  of the  remaining 60  percent. He  noted Ms.  Cioni-                                                                    
Haywood  talking  about  the fund  initially  not  having  a                                                                    
revolving  nature because  of the  funds being  expended. He                                                                    
thought it  was better to  have a  fund that was  being used                                                                    
rather than underutilized.                                                                                                      
                                                                                                                                
Co-Chair Seaton  noted that there  was a  shellfish hatchery                                                                    
in Seward focused  on a King Crab project.  He reported that                                                                    
the oyster farms in the  area were having difficulty getting                                                                    
seed. He clarified that seeds  other than oyster seeds could                                                                    
not be brought into  Alaska. Oyster seeds were grandfathered                                                                    
in.  Currently,  because  of   warm  waters,  the  State  of                                                                    
Washington's   seed  production   was  down   significantly.                                                                    
Farmers in  Alaska had to  have new  seed each year  if they                                                                    
were harvesting  annually. He concluded that  without a good                                                                    
seed supply,  the business model  would not work.  He wanted                                                                    
to make  sure to report that  the bill was not  only related                                                                    
to  Southeast Alaska.  He mentioned  another  bill that  had                                                                    
passed  regarding  Geoducks. It  was  9  years to  11  years                                                                    
before Geoducks were harvestable.  He suggested that putting                                                                    
off the payment of principle  and interest was necessary. He                                                                    
pointed  out that  a farmer  might have  a valuable  product                                                                    
with a lengthy cycle.  He mentioned that previously Geoducks                                                                    
could  not   be  planted  or  farmed   anywhere  outside  of                                                                    
Southeast Alaska.  It did  not make  sense because  they did                                                                    
not reproduce naturally further  North. However, North could                                                                    
provide   a  great   growing  area.   He  cited   a  village                                                                    
corporation project in the Port Graham area.                                                                                    
                                                                                                                                
4:15:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster OPENED Public Testimony.                                                                                        
                                                                                                                                
4:16:05 PM                                                                                                                    
                                                                                                                                
TAMSEN  PEEPLES,  LEAD  ALASKA OPERATIONS,  BLUE  EVOLUTION,                                                                    
JUNEAU,  spoke in  favor  of  HB 76.  Blue  Evolution was  a                                                                    
company  developing   commercial  seaweed   maricultures  in                                                                    
Alaska.  The previous  August she  constructed and  operated                                                                    
the first commercial  kelp hatchery in the  state located in                                                                    
Juneau,  Alaska, at  the University  of Alaska  Southeast in                                                                    
the  Anderson Building.  She produced  over thirty  thousand                                                                    
feet of seeded line and  distributed it to three independent                                                                    
Alaskan  growers:  two   out  of  Kodiak  and   one  out  of                                                                    
Ketchikan.  The first  harvest of  material would  occur the                                                                    
following week.  The company aimed to  collect over thirteen                                                                    
thousand  pounds  of kelp  that  grew  from its  independent                                                                    
farmer from  seed material produced  in Juneau.  Her company                                                                    
would be purchasing the product  from the farmer, drying it,                                                                    
and making  added value  products such  as a  seaweed pasta.                                                                    
Her company was  already producing the pasta  and selling it                                                                    
online. As  Representative Ortiz mentioned, seed  was a huge                                                                    
choke point in  production even within her  own company. All                                                                    
three  independent farmers  applied to  increase their  farm                                                                    
space  substantially. The  company would  be going  over 500                                                                    
percent  production from  the past  year.  She relayed  that                                                                    
having access  through the  mariculture revolving  loan fund                                                                    
to the  hatcheries would  greatly increase  Blue Evolution's                                                                    
production but  all other  shellfish and  seaweed hatcheries                                                                    
throughout the  state. As an  Alaskan and  marine biologist,                                                                    
she whole-heartedly supported the industry in its entirety.                                                                     
                                                                                                                                
4:18:00 PM                                                                                                                    
                                                                                                                                
JULIE  DECKER,  ALASKA   FISHERIES  DEVELOPMENT  FOUNDATION,                                                                    
JUNEAU, spoke  in support of  HB 76. She explained  that her                                                                    
organization broadly  represented the seafood  industry from                                                                    
harvesters, processors,  and support sector  businesses. The                                                                    
foundation had a vision to grow  a $1 billion industry in 30                                                                    
years.  The  foundation  believed  that there  was  a  major                                                                    
opportunity  in  developing  mariculture  in  the  State  of                                                                    
Alaska including wild  fishery enhancement, aquatic farming,                                                                    
and  restoration  of  shellfish   and  aquatic  plants.  She                                                                    
mentioned that  finfish farming  was off  the table  and not                                                                    
allowed in  the state.  The organization believed  there was                                                                    
serious  opportunity available.  She  mentioned examples  in                                                                    
the State  of Washington  and provided some  statistics. She                                                                    
also noted an  announcement in a publication  that China was                                                                    
making a $200  million investment in Eastern  Russia to grow                                                                    
sea  cucumbers,  mussels,  and   scallops  -  three  species                                                                    
present in Alaska. The foundation  firmly believed there was                                                                    
an  opportunity.  In  addition  to  supporting  HB  76,  she                                                                    
offered that the following bill, HB  128, was also a part of                                                                    
the  building   blocks  needed   to  develop   the  industry                                                                    
efficiently.  The governor's  mariculture task  force agreed                                                                    
that the two bills were  necessary and supported both bills.                                                                    
There was also a list  of 16 other organizations from across                                                                    
the state that  supported the bills. She  also mentioned the                                                                    
support  of the  farmers  because they  needed a  consistent                                                                    
source of seed. She thanked the committee.                                                                                      
                                                                                                                                
4:20:20 PM                                                                                                                    
                                                                                                                                
TOMI  MARSH, BOARD  MEMBER,  OCEANS  ALASKA, KETCHIKAN  (via                                                                    
teleconference),  spoke in  support  of HB  76  and HB  128.                                                                    
Oceans  Alaska  was  a non-profit  shellfish  hatchery.  The                                                                    
company  started producing  oyster  seed prior  to 2015  and                                                                    
wanted  to expand  into seaweed  and geoduck  seed. It  went                                                                    
from  producing  5.0 thousand  oyster  seeds  to about  10.0                                                                    
million oyster  seeds. The  non-profit's ability  to produce                                                                    
seeds  would  allow  more  expansion  by  existing  and  new                                                                    
Alaskan  businesses   and  farmers   and  would   help  with                                                                    
rehabilitation  and  enhancement.   She  reported  that  the                                                                    
Ketchikan Gateway  Borough had  invested over  $600 thousand                                                                    
of  economic  development  funds   to  Oceans  Alaska.  Many                                                                    
individual board  members had also contributed.  There was a                                                                    
significant amount  of local support  for the  hatchery. She                                                                    
indicated  that  if  the bill  passed  Oceans  Alaska  would                                                                    
pursue  a loan  from  the Mariculture  revolving loan  fund,                                                                    
which  would  help  stabilize its  existing  operations  and                                                                    
allow for expansion.                                                                                                            
                                                                                                                                
4:22:06 PM                                                                                                                    
                                                                                                                                
ERIK   O'BRIEN,   SOUTHWEST  ALASKA   MUNICIPAL   CONFERENCE                                                                    
(SWAMC), ANCHORAGE  (via teleconference), spoke in  favor of                                                                    
HB 76.  He was an  independent farmer and intended  to apply                                                                    
for a  mariculture loan. He  thought kelp mariculture  was a                                                                    
stepping-stone  into other  mariculture activities.  He also                                                                    
planned on participating in hatchery operations.                                                                                
                                                                                                                                
4:23:33 PM                                                                                                                    
                                                                                                                                
DOUG   GRIFFIN,  SOUTHWEST   ALASKA  MUNICIPAL   CONFERENCE,                                                                    
ANCHORAGE (via  teleconference), spoke in support  of HB 76.                                                                    
He  explained that  about  4 years  prior  SWAMC had  become                                                                    
interested  in mariculture  as a  development initiative  to                                                                    
increase economic activity. It was  seen as a perfect fit in                                                                    
communities  that  were  experiencing a  loss  of  fisheries                                                                    
access. Coastal  communities were well placed  to succeed in                                                                    
the  mariculture industry.  The  bottleneck for  development                                                                    
was access  to capital  to get into  what was  considered by                                                                    
regular  banks as  a  speculative  industry. The  initiative                                                                    
SWAMC started  4 years ago  had not gained momentum  for the                                                                    
reasons  he  mentioned.  He   opined  that  Mariculture  was                                                                    
complimentary  to  other  fisheries  and would  be  a  great                                                                    
initiative  of  job creation.  He  relayed  that high  value                                                                    
products in  demand worldwide would come  from the industry.                                                                    
He asserted that  along with the initiative  the state would                                                                    
need to  move to  marketing and other  items. He  noted that                                                                    
Kodiak  was actively  looking at  permitting  and access  to                                                                    
capital within the mariculture industry.                                                                                        
                                                                                                                                
Co-Chair Foster CLOSED Public Testimony.                                                                                        
                                                                                                                                
Co-Chair  Foster relayed  that  amendments were  due in  his                                                                    
office by Tuesday, April 17th.                                                                                                  
                                                                                                                                
HB  76  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 128                                                                                                            
                                                                                                                                
     "An Act  relating to management  of enhanced  stocks of                                                                    
     shellfish; authorizing  certain nonprofit organizations                                                                    
     to engage  in shellfish enhancement  projects; relating                                                                    
     to application  fees for  salmon hatchery  permits; and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
4:27:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ORTIZ, SPONSOR,  thanked  the committee  for                                                                    
hearing HB 128. He noted  Ms. Decker had mentioned pieces of                                                                    
a puzzle being put together  to help spur the development of                                                                    
Alaska's  mariculture industry.  He opined  that HB  128 was                                                                    
one  of  the pieces  of  the  puzzle.  He read  the  sponsor                                                                    
statement:                                                                                                                      
                                                                                                                                
     Enhancement  of Alaska's  shellfish industry  holds the                                                                    
     potential   of  expanded   economic  opportunities   in                                                                    
     Alaska's coastal  communities and  increased resilience                                                                    
     of the State's fisheries portfolio.                                                                                        
                                                                                                                                
     To  tap this  potential  HB 128  allows qualified  non-                                                                    
     profits  to   pursue  enhancement   and/or  restoration                                                                    
     projects involving shellfish  species including red and                                                                    
     blue  king  crab,  sea  cucumber,  abalone,  and  razor                                                                    
     clams.                                                                                                                     
                                                                                                                                
     The  bill creates  a  regulatory  framework with  which                                                                    
     Alaska  Department   of  Fish   and  Game   can  manage                                                                    
     shellfish  enhancement projects  and outlines  criteria                                                                    
     for issuance  of permits. It sets  out stringent safety                                                                    
     standards  to  ensure   sustainability  and  health  of                                                                    
     existing natural stocks. The  Commissioner of ADFG must                                                                    
     also  make   a  determination  of   substantial  public                                                                    
     benefit before a project can proceed.                                                                                      
                                                                                                                                
     In addition,  the bill sets  the application fee  for a                                                                    
     shellfish enhancement project at  $1,000 and amends the                                                                    
     application fee for a salmon hatchery permit,                                                                              
     increasing the fee from $100 to $1,000.                                                                                    
                                                                                                                                
     HB 128  plays an important  role in the  development of                                                                    
     mariculture  in   Alaska  by  providing  a   method  to                                                                    
     increase the available harvest  of shellfish for public                                                                    
     use in an environmentally safe manner.                                                                                     
                                                                                                                                
Co-Chair  Foster reviewed  the available  testifiers in  the                                                                    
room and online.                                                                                                                
                                                                                                                                
Vice-Chair   Gara   asked   about   Representative   Ortiz's                                                                    
reference   to  a   provision  in   the  legislation   about                                                                    
protecting against contamination or  danger to wild species.                                                                    
He  asked  if  the  representative  was  referring  to  wild                                                                    
shellfish or  wild fish also. Representative  Ortiz asked if                                                                    
Vice-Chair Gara was talking about salmon.                                                                                       
                                                                                                                                
Vice-Chair Gara  responded affirmatively. He wanted  to make                                                                    
sure there  were provisions  in place  to ensure  that there                                                                    
was no  danger of  contamination that  would spread  to wild                                                                    
fish  or shellfish.  Representative Ortiz  deferred to  DFG.                                                                    
His understanding  was that a totally  different enhancement                                                                    
process was  being discussed. He thought  the shellfish were                                                                    
staying in  one area  without intermixing.  He asked  DFG to                                                                    
add to his comments.                                                                                                            
                                                                                                                                
4:31:34 PM                                                                                                                    
                                                                                                                                
FORREST  BOWERS,  DEPUTY  DIRECTOR, DIVISION  OF  COMMERCIAL                                                                    
FISHERIES, DEPARTMENT  OF FISH AND GAME,  explained that the                                                                    
enhancement  or   rehabilitation  projects  that   would  be                                                                    
promoted under  the bill would  target existing  stocks. For                                                                    
example,  there was  a King  Crab stock  around Kodiak.  The                                                                    
abundance level  was too  low to  harvest. The  efforts that                                                                    
would be undertaken  with the bill would  attempt to restore                                                                    
the stock to  a level where fisheries could  occur. The bill                                                                    
would  allow for  a restoration  of  native existing  stocks                                                                    
rather than  introducing a  new species  into an  area where                                                                    
they were not native.                                                                                                           
                                                                                                                                
4:32:42 PM                                                                                                                    
                                                                                                                                
MARY HAKALA,  STAFF, REPRESENTATIVE DAN ORTIZ,  added that a                                                                    
definition was provided  on page 9, line 3 of  the bill. The                                                                    
bill  specifically   spoke  to  shellfish.   The  definition                                                                    
detailed that shellfish was  exclusively indigenous to state                                                                    
waters.  She highlighted  a  provision on  page  5, line  11                                                                    
regarding collecting  brood stock.  The permit  holder would                                                                    
be directed to (where  feasible) first take shellfish native                                                                    
to the  area in which  the shellfish would be  released. She                                                                    
continued that in  some case where an  entity was restocking                                                                    
depleted stock it could take  from another area. She thought                                                                    
there were strong directives in the bill.                                                                                       
                                                                                                                                
Vice-Chair Gara was mainly  concerned with protecting native                                                                    
stock.  He asked  if the  bill authorized  hatcheries beyond                                                                    
the relocation of  shellfish from one area to  another or if                                                                    
it  had more  to do  with enhancement  that did  not involve                                                                    
hatcheries. Mr.  Bowers responded  that hatcheries  could be                                                                    
used as  tools for  enhancements. However, there  were other                                                                    
methods available.                                                                                                              
                                                                                                                                
Vice-Chair Gara asked if there  were rules in place to avoid                                                                    
contaminating native fish with  hatchery species. Mr. Bowers                                                                    
replied that all of the  shellfish that would potentially be                                                                    
involved in  one of the projects  would undergo pathological                                                                    
testing for  disease. The department  had a  genetics policy                                                                    
that  ensured that  genetic diversity  of native  stocks was                                                                    
maintained.   In  addition,   the  department   had  fishery                                                                    
management  policies dealing  with  harvest  rates to  avoid                                                                    
overexploiting stocks.                                                                                                          
                                                                                                                                
Vice-Chair Gara  remarked that  he was  not a  scientist. He                                                                    
asked for assurance that there were  rules in place to do no                                                                    
harm  to  native  stocks.  Mr.  Bowers  responded  that  the                                                                    
department's directive  was to do no  harm. The department's                                                                    
interest was in conserving the  wild resources of the state,                                                                    
enhancing them  if they  became depleted,  or rehabilitating                                                                    
them.  The  department would  not  permit  a project  if  it                                                                    
thought it would do harm.                                                                                                       
                                                                                                                                
4:36:17 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  how  the  issue was  different                                                                    
from mixing wild salmon with  farmed salmon. She wondered if                                                                    
the state would  be raising shellfish in a  separate way and                                                                    
then mixing  them with wild  shellfish. Mr.  Bowers answered                                                                    
that there were a number  of ways in which enhancement could                                                                    
occur. One  approach to shellfish  enhancement was  to take,                                                                    
for example, female King Crab  bred and fertilized naturally                                                                    
in the wild, brought into  a hatchery where they would span.                                                                    
The juvenile crab  would be raised up to a  certain size and                                                                    
released  into   the  wild.   Essentially,  they   would  be                                                                    
naturally  produced  organisms  that   had  been  helped  to                                                                    
survive  a  vulnerable  life  stage. They  would  not  be  a                                                                    
hatchery-produced  fish. They  would  be  native and  placed                                                                    
back  into their  native habitat.  He  suggested that  other                                                                    
approaches might  include moving  organisms such  as abalone                                                                    
closer  together.  Speculations  had been  made  that  their                                                                    
reproduction  was  limited   because  the  individuals  were                                                                    
geographically too  far apart  to breed  successfully. There                                                                    
were  other  approaches  as  well  including  back  planning                                                                    
hatchery-produced organisms to  speed up natural recruitment                                                                    
to allow  fisheries to happen  more quickly. In the  case of                                                                    
the  fish  Representative  Wilson mentioned,  some  interior                                                                    
hatcheries were  non-native species  like Rainbow  Trout. He                                                                    
noted   that   triploid   organisms  could   not   reproduce                                                                    
naturally.  They were  introduced into  areas such  as land-                                                                    
locked  lakes  where  they  could  not  interact  with  wild                                                                    
salmonids.                                                                                                                      
                                                                                                                                
Representative  Wilson discussed  the general  concern about                                                                    
releasing them [enhancement fish]  into the wild potentially                                                                    
causing  issues with  the population.  She  wondered how  to                                                                    
address the concern. She asked for clarification.                                                                               
                                                                                                                                
4:40:12 PM                                                                                                                    
                                                                                                                                
Mr.  Bowers responded  that the  native  organisms would  be                                                                    
placed  back  into  the  area where  they  would  have  been                                                                    
produced in  the wild.  He cited the  example of  Kodiak Red                                                                    
King  Crab. The  department  was not  moving organisms  into                                                                    
places  where  they  were  not native.  He  noted  that  the                                                                    
existing hatchery programs were  situated in areas where the                                                                    
department  believed  straying   and  interbreeding  between                                                                    
hatchery  and naturally  produced fish  would be  minimized.                                                                    
There  were protections  in place.  He  reemphasized he  was                                                                    
speaking about native organisms.                                                                                                
                                                                                                                                
Representative Wilson asked if  any other states had similar                                                                    
programs. Mr. Bowers was not aware of any.                                                                                      
                                                                                                                                
Representative  Guttenberg  reiterated the  information  Mr.                                                                    
Bowers  had provided.  He asked  if there  had been  lessons                                                                    
learned regarding  overharvesting issues that would  help in                                                                    
avoiding recreating problems from the past.                                                                                     
                                                                                                                                
Mr. Bowers replied  that in the case of Red  King Crab, some                                                                    
of the  declines were  due to over  fishing. There  had also                                                                    
been changes in  the North Pacific eco system  that made the                                                                    
environment  less favorable  for  shellfish than  it was  30                                                                    
years  to  40  years  ago.  The  department  had  learned  a                                                                    
significant   amount   about  conservative   management   of                                                                    
shellfish  stocks  because  of their  volatile  history.  In                                                                    
general, the  department's harvest  policies were  much more                                                                    
conservative at present then they  were 30 years or 40 years                                                                    
ago. The department  has spent a significant  amount of time                                                                    
working on  the issue  with the  Alaska Board  of Fisheries.                                                                    
The department's  stock assessment  was better than  it used                                                                    
to  be.  With  regard  to  other  research,  the  department                                                                    
believed some  of the  stocks had  not rebuilt  because they                                                                    
were  recruitment limited.  In other  words, there  were not                                                                    
enough juvenile  crab being  produced to  overcome predation                                                                    
and natural mortality  to rebuild the stock  to levels where                                                                    
harvests could be  sustained. The intent of the  bill was to                                                                    
overcome  the recruitment  limitation  in order  to get  the                                                                    
stocks back  to a sustainable level.  Enhancement would help                                                                    
to provide additional harvest opportunity.                                                                                      
                                                                                                                                
4:44:52 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  asked if the department  would be                                                                    
able  to  monitor  the  habitat  changes  to  determine  the                                                                    
success of the harvest. Mr.  Bowers indicated that the major                                                                    
benchmark  of  success would  be  abundance  or stock  size,                                                                    
which was  measured through  annual surveys.  Even fisheries                                                                    
that had been  closed for several years, such  as Kodiak Red                                                                    
King Crab stocks, were still surveyed annually.                                                                                 
                                                                                                                                
Representative   Ortiz  furthered   that   in  addition   to                                                                    
overharvesting  being a  contributing  factor to  decreasing                                                                    
stocks  in shellfish  in Southeast  Alaska,  sea otters  and                                                                    
other predators have influenced stock levels.                                                                                   
                                                                                                                                
Representative Guttenberg  referred to page 9,  Section 6 of                                                                    
the  bill. He  asked  about the  definition  of a  shellfish                                                                    
facility. He  thought the definition  was placed  within the                                                                    
definition of farmed fish. He  asked for clarity. Mr. Bowers                                                                    
answered  that  the section  simply  adds  shellfish to  the                                                                    
exemption  provided  in  the  farmed  fish  definition.  The                                                                    
existing  language  exempted   salmon  hatcheries  from  the                                                                    
farmed  fish definition  and added  shellfish operations  to                                                                    
the exemption under the bill, as they were wild fish.                                                                           
                                                                                                                                
4:48:58 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  asked  if  shellfish  hatcheries                                                                    
were  being  added. Mr.  Bowers  responded  that a  hatchery                                                                    
could  be  used.   It  was  one  tool   for  enhancement  or                                                                    
rehabilitation.  Shellfish produced  in  a  hatchery or  any                                                                    
other enhancement  operation that  would be  permitted under                                                                    
the bill would not be considered farmed fish.                                                                                   
                                                                                                                                
Co-Chair Seaton spoke  of segments of shoreline  in his area                                                                    
that  did   not  have  clam  populations   return  after  an                                                                    
earthquake. He wondered if the  state had been successful in                                                                    
reestablishing subsistence and sport  harvest areas that had                                                                    
reduced  stocks  such  that  they  were  not  available  for                                                                    
harvest. He  also wondered about an  overly large population                                                                    
of pink  salmon interfering  with other stocks.  He wondered                                                                    
if  the bill  would apply  to his  examples. He  wondered if                                                                    
there  were  concerns  about   filter  feeders.  Mr.  Bowers                                                                    
appreciated Co-Chair  Seaton bringing up his  question about                                                                    
clams in  South Central  Alaska. They  were stocks  that had                                                                    
declined  significantly over  the previous  several decades.                                                                    
They would be candidate  stocks for rehabilitation under the                                                                    
bill.                                                                                                                           
                                                                                                                                
Co-Chair  Seaton clarified  that  he was  talking about  the                                                                    
harvest of stocks from beaches  and repopulating the beaches                                                                    
-  not bringing  in  stocks from  another  area. Mr.  Bowers                                                                    
answered in the affirmative.  He relayed that the department                                                                    
would look for the nearest  available stock that had surplus                                                                    
biomass available  which would  be used  as brood  stock. He                                                                    
was unaware of  concerns that had been  raised by increasing                                                                    
any  shellfish populations  to  their  native or  historical                                                                    
biomass levels. It would be  a reasonable part of sustaining                                                                    
eco system diversity.                                                                                                           
                                                                                                                                
Representative Pruitt  made a joking  remark. Representative                                                                    
Ortiz responded in kind.                                                                                                        
                                                                                                                                
Co-Chair Foster OPENED Public Testimony for HB 128.                                                                             
                                                                                                                                
4:53:34 PM                                                                                                                    
                                                                                                                                
GINNY ECKERT, ALASKA KING  CRAB RESEARCH, REHABILITATION AND                                                                    
BIOLOGY PROGRAM,  JUNEAU, spoke  in support  of HB  128. She                                                                    
was  a  fisheries  professor at  the  University  of  Alaska                                                                    
Fairbanks.  She provided  additional background  information                                                                    
indicating her  shellfish expertise in Alaska.  She had been                                                                    
doing research  on King Crab  since 2007 to  investigate the                                                                    
feasibility   of   rehabilitation.   She   had   learned   a                                                                    
significant amount about King Crabs  in their early years of                                                                    
life. She was convinced that  one bottleneck was their early                                                                    
life history. For  example, in Kodiak when  she went looking                                                                    
for  small baby  King  Crab she  did not  find  them in  the                                                                    
places  they  had  been  historically.  She  had  worked  on                                                                    
methods  to rear  King  Crab  in a  hatchery.  She had  also                                                                    
conducted  experimental  out-plantings  to  determine  which                                                                    
habitat would best promote survival  for juveniles. She also                                                                    
looked at predation. She reported  that she had not done any                                                                    
experiments  in  areas where  there  were  wild stocks.  She                                                                    
indicated that some of the  concerns that had been discussed                                                                    
such as genetic issues were  real and viable. However, crabs                                                                    
were very different  from salmon and other  fish. King Crabs                                                                    
were reproducing  in the  wild. She  reported that  the goal                                                                    
was  to increase  the survival  of offspring  that had  been                                                                    
produced  in the  wild. She  noted  that in  some cases  the                                                                    
rehabilitation could increase  genetic diversity through the                                                                    
process.  She reported  examples of  hatchery production  in                                                                    
the wild to  restore wild stocks including a  huge effort on                                                                    
the east coast to restore wild  oysters and an effort on the                                                                    
west coast to restore Abalone.                                                                                                  
                                                                                                                                
4:57:16 PM                                                                                                                    
                                                                                                                                
TOMI MARSH,  OCEANS ALASKA, KETCHIKAN  (via teleconference),                                                                    
spoke in  support of HB 76  and HB 128. She  believed HB 128                                                                    
was very  important because it allowed  an infrastructure in                                                                    
order  to  enhance  some  of the  wild  stocks  that  needed                                                                    
rehabilitation  due to  predators or  environmental changes.                                                                    
She emphasized  that Oceans Alaska supported  both pieces of                                                                    
legislation.                                                                                                                    
                                                                                                                                
4:58:34 PM                                                                                                                    
                                                                                                                                
ANGEL   DVOBNICA,   ALEUTIAN   PRIBILOF   ISLAND   COMMUNITY                                                                    
DEVELOPMENT ASSOCIATION  (APICDA), reported  she was  also a                                                                    
member of  the Mariculture  Task Force. The  association had                                                                    
submitted  letters of  support  on both  of the  mariculture                                                                    
bills.   The Aleutian Pribilof Island  Community Development                                                                    
Association  was   one  of  six  groups   in  the  Community                                                                    
Development  Quota Program  and represented  six communities                                                                    
in  the Aleutian  Pribilof Region.  She provided  additional                                                                    
information regarding  the association.  She opined  that HB                                                                    
128  was necessary  to bring  a certain  program out  of its                                                                    
research  phase  into  implementation. The  association  saw                                                                    
tremendous opportunity in mariculture  in Western Alaska for                                                                    
increasing  access to  commercial and  subsistence fisheries                                                                    
and  to  better understand  in  impacts  of climate  related                                                                    
ocean changes  on important  fisheries species  and building                                                                    
resiliency to those changes. The  communities of APICDA were                                                                    
heavily invested  in fisheries  and were very  interested in                                                                    
mariculture  development.  Such  development could  play  an                                                                    
important   role  in   diversifying  the   existing  seafood                                                                    
operations. She  indicated that  both mariculture  bills had                                                                    
wide  support throughout  Western  Alaska  and thought  both                                                                    
were  necessary. She  added that  on  a personal  note as  a                                                                    
Dungeness crab fisherman in the  Southeast she would support                                                                    
Representative Pruitt's amendment.                                                                                              
                                                                                                                                
5:01:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster CLOSED Public Testimony on HB 128.                                                                              
                                                                                                                                
Co-Chair Foster indicated amendments for  HB 128 were due on                                                                    
Tuesday, April 18, 2017 by 5:00 p.m.                                                                                            
                                                                                                                                
HB  128  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Foster  relayed  that there  were  two  additional                                                                    
bills to be heard before the end of the meeting.                                                                                
                                                                                                                                
SENATE BILL NO. 3                                                                                                             
                                                                                                                                
     "An  Act  relating  to  the  regulation  of  wastewater                                                                    
     discharge  from small  commercial passenger  vessels in                                                                    
     state waters; relating to  art requirements for certain                                                                    
     public  facilities;  and  providing  for  an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
5:02:01 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster invited  Senator Stedman  and his  staff to                                                                    
the table.                                                                                                                      
                                                                                                                                
SENATOR  BERT STEDMAN,  SPONSOR, thanked  the committee  for                                                                    
the opportunity  to present  his bill.  He read  the sponsor                                                                    
statement:                                                                                                                      
                                                                                                                                
     HCS  SB 3(TRA)  addresses marine  vessels operating  in                                                                    
     Alaska   waters.   This  legislation   reinstates   the                                                                    
     statutory  exemption from  large cruise  ship discharge                                                                    
     requirements for small commercial passenger vessels.                                                                       
                                                                                                                                
     Small  commercial passenger  vessels  and ferries  with                                                                    
     capacity to  accommodate between  50 and  249 overnight                                                                    
     passengers have  been covered by a  statutory exemption                                                                    
     from  the treatment  system and  discharge requirements                                                                    
     for  large cruise  ships in  Alaska. Instead  they have                                                                    
     operated  under Best  Management Practices  (BMP) plans                                                                    
     that are  submitted to and  approved by  DEC. Operation                                                                    
     under  these   plans  has  dramatically   improved  the                                                                    
     quality  of wastewater  discharged  from these  vessels                                                                    
     since the program was established.                                                                                         
                                                                                                                                
     The exemption became law in  2004 and had a sunset date                                                                    
     of  January  1, 2016.  Support  for  the exemption  was                                                                    
     provided by  a 2004  DEC report  on small  cruise ships                                                                    
     and Alaskan  ferries that found  meeting the  terms for                                                                    
     large cruise  ships would  be financially  and feasibly                                                                    
     prohibitive.                                                                                                               
                                                                                                                                
     SB  3 is  necessary to  reinstate the  exemption, which                                                                    
     was automatically repealed on  January 1, 2016. Without                                                                    
     the exemption, small cruise ships  and ferries would be                                                                    
     required  to install  and  operate Advanced  Wastewater                                                                    
     Treatment  Systems,  which  would  be  cost  and  space                                                                    
     prohibitive.  Department of  Transportation and  Public                                                                    
     Facilities estimates  the cost  to retrofit  ferries is                                                                    
     over $5 million.                                                                                                           
                                                                                                                                
Senator Stedman remarked  that the bill was  an extension of                                                                    
policy put  in place  by the legislature.  He noted  that it                                                                    
would be  very difficult  for the smaller  ship if  they did                                                                    
not  get  the  proposed  exemption. He  wanted  to  see  the                                                                    
industry encouraged to grow, as  it was good for commerce in                                                                    
coastal Alaska. He opined that  forcing smaller ships out of                                                                    
the market  place was not good  for anyone. In terms  of the                                                                    
Alaska Marine  Highway system, there was  a budget struggle.                                                                    
The state was  trying to operate a  transportation system in                                                                    
the rail belt  and on the coast. The state  had an old fleet                                                                    
it was attempting  to modernize. There were a  couple of new                                                                    
vessels  under  construction  presently.  He  believed  that                                                                    
trying to  make the older  smaller vessels to  comply rather                                                                    
than obtain extensions would not  work. He was available for                                                                    
questions.                                                                                                                      
                                                                                                                                
Co-Chair Foster reviewed the available testifiers.                                                                              
                                                                                                                                
Representative   Kawasaki   asked   how   many   boats   the                                                                    
legislation would apply to in the state.                                                                                        
                                                                                                                                
5:07:27 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:07:52 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Senator Stedman responded  that there were about  ten of the                                                                    
smaller ships. There  was a list in the  packets provided to                                                                    
members.                                                                                                                        
                                                                                                                                
Representative Kawasaki  asked about any  sunset provisions.                                                                    
Senator  Stedman  thought  it   was  the  first  sunset.  He                                                                    
recalled that  there had been considerable  debate regarding                                                                    
cruise ship  discharge. In  the process,  a sunset  date was                                                                    
included. He thought it should be dealt with right away.                                                                        
                                                                                                                                
Representative Kawasaki asked if  there was a current sunset                                                                    
in the bill. Senator Stedman responded in the negative.                                                                         
                                                                                                                                
Representative   Kawasaki  asked   if  a   new  boat   would                                                                    
automatically comply  with requirements and,  therefore, not                                                                    
need   an  exemption.   Senator   Stedman   deferred  to   a                                                                    
representative  from  the  Division  of  the  Alaska  Marine                                                                    
Highway System respond.                                                                                                         
                                                                                                                                
5:10:28 PM                                                                                                                    
                                                                                                                                
MICHAEL  A.  NEUSSL,   DEPUTY  COMMISSIONER,  DEPARTMENT  OF                                                                    
TRANSPORTATION AND PUBLIC FACILITIES,  responded that it did                                                                    
not apply  to the  two Alaska class  ferries for  the marine                                                                    
highway. The vessels  had a Type 3  marine sanitation devise                                                                    
that held  all discharge waters onboard  discharging ashore.                                                                    
The  legislation would  apply to  the proposed  MV Tustumena                                                                    
replacement  vessel, which  met  the standards  for a  small                                                                    
passenger  vessel.   The  vessel  was  designed   under  the                                                                    
provisions of the best management  practices statute. It had                                                                    
a MSD type 2 system  to put an advanced wastewater treatment                                                                    
system onboard  to comply with  large cruise  ship discharge                                                                    
standards. It would not fit  in the marine sanitation devise                                                                    
room.  It was  three  times  the size  and  three times  the                                                                    
weight  of the  system. The  ship would  need a  redesign to                                                                    
accommodate it, which would be costly.                                                                                          
                                                                                                                                
Representative Kawasaki  asked about the  original exemption                                                                    
in  2004 and  why there  was a  sunset in  2016. Mr.  Neussl                                                                    
suggested  the  question  be   directed  to  Michelle  Hale,                                                                    
Division of Water,  Department of Environmental Conservation                                                                    
(DEC).                                                                                                                          
                                                                                                                                
Vice-Chair Gara suggested having  the Senator's staff review                                                                    
the changes in the bill.  Senator Stedman indicated he would                                                                    
be returning  to the Senate  Resources Committee.  His staff                                                                    
could answer member's questions.                                                                                                
                                                                                                                                
Vice-Chair Gara  asked about the differences  of the current                                                                    
version  of  the  bill  and  the version  of  the  bill  the                                                                    
committee previously heard.                                                                                                     
                                                                                                                                
DAVE SCOTT, STAFF, SENATOR BERT  STEDMAN, responded that the                                                                    
changes  were  minor. House  Bill  151  had a  retroactivity                                                                    
effective  date, whereas,  the  Senate version  did not.  He                                                                    
reported that  when he  spoke with  DEC, the  department did                                                                    
not have a problem with  the bill not having a retroactivity                                                                    
clause.                                                                                                                         
                                                                                                                                
Representative  Pruitt mentioned  that  the bill  previously                                                                    
had  a different  title and  contained an  additional piece.                                                                    
He inquired as to why the  piece was removed. He noted there                                                                    
had been a  discussion about 1 percent of monies  for art on                                                                    
the ferries and  another discussion relating to  the cost of                                                                    
the new ferries.                                                                                                                
                                                                                                                                
Mr. Scott spoke  to the 1 percent for art.  He indicated the                                                                    
amount was  removed by  the House  Transportation Committee.                                                                    
There were three sections removed  that all dealt with the 1                                                                    
percent for art.  He reported that the MV Taku  was for sale                                                                    
and the  FVF Chenega was  tied up.  The art in  both vessels                                                                    
would  be  removed  and  placed  on  the  new  Alaska  class                                                                    
ferries.                                                                                                                        
                                                                                                                                
Co-Chair Foster OPENED Public Testimony.                                                                                        
                                                                                                                                
5:15:18 PM                                                                                                                    
                                                                                                                                
JAMEY   CAGLE,    ALASKAN   DREAM   CRUISES,    SITKA   (via                                                                    
teleconference), spoke  in support  of the bill  as amended.                                                                    
He thought it  was an integral part to the  operation of his                                                                    
vessels.                                                                                                                        
                                                                                                                                
5:15:58 PM                                                                                                                    
                                                                                                                                
PETER    BUTZ,   ALASKAN    DREAM   CRUISES,    SITKA   (via                                                                    
teleconference),  spoke  in support  of  the  bill with  the                                                                    
amendment being  passed. The  legislation was  necessary for                                                                    
the  continuation of  his company's  small fleet  to operate                                                                    
out of Sitka.                                                                                                                   
                                                                                                                                
5:16:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster CLOSED Public Testimony.                                                                                        
                                                                                                                                
Representative  Wilson asked  if the  bill was  going to  be                                                                    
moved.                                                                                                                          
                                                                                                                                
Co-Chair  Foster  was  open  to   moving  the  bill  if  the                                                                    
committee members did not have amendments.                                                                                      
                                                                                                                                
Vice-Chair Gara agreed with Representative Wilson.                                                                              
                                                                                                                                
Representative  Wilson  relayed  that there  were  two  zero                                                                    
impact  fiscal notes  [OMB Component  Number  2062 from  the                                                                    
Department of  Environmental Conservation and  OMB Component                                                                    
Number  2604  from  the  Department  of  Transportation  and                                                                    
Public Facilities].                                                                                                             
                                                                                                                                
5:18:10 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:18:36 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Foster invited Mr. Neussl  to review the new fiscal                                                                    
note for OMB Component Number 2604.                                                                                             
                                                                                                                                
Mr.  Neussel  explained that  the  new  fiscal note  was  an                                                                    
update  of the  previous  fiscal note.  The previous  fiscal                                                                    
note covered  the bill when  it had  both the 1  percent for                                                                    
art  and  the wastewater  discharge  provisions  in it.  The                                                                    
department striped out  the 1 percent for  art language from                                                                    
the  fiscal note.  The note  remained a  zero fiscal  impact                                                                    
note  and   contained  the   same  language   regarding  the                                                                    
wastewater discharge bill.                                                                                                      
                                                                                                                                
Representative Pruitt asked if  there was enough artwork for                                                                    
the  vessels.   Mr.  Neussel  responded  that   the  artwork                                                                    
salvaged  from the  MV Taku  and  the FVF  Chenega would  be                                                                    
sufficient for the new Alaska class ferry.                                                                                      
                                                                                                                                
Representative Pruitt relayed that  the original fiscal note                                                                    
stated that  there was approximately  $2.37 million  for the                                                                    
future  MV Tustumena  replacement  vessel. He  asked if  the                                                                    
money  was  still  necessary.   Mr.  Neussl  responded  that                                                                    
regarding the  1 percent for  art portion, the  MV Tustumena                                                                    
replacement  vehicle  was   not  currently  under  contract,                                                                    
therefore,  did not  apply. He  detailed that  $2.37 million                                                                    
was the  estimated cost  of 1  percent for  art. He  did not                                                                    
think the  department could spend  that much on art  for the                                                                    
vessel. It was  a large amount for artwork on  a vessel. The                                                                    
department planned  to salvage the  art off of  the existing                                                                    
MV Tustumena  to reuse on  its replacement  and supplemented                                                                    
as necessary with a small increase.                                                                                             
                                                                                                                                
Representative Pruitt  thought that  using the art  from the                                                                    
MV  Tustumena was  the right  thing  to do.  He wondered  if                                                                    
there  was a  statutory  requirement  concerning the  amount                                                                    
spent  on art.  Mr.  Neussel relayed  that  there were  some                                                                    
concerns  about  the  1  percent for  art  account  being  a                                                                    
dedicated  fund  and  unconstitutional.  Therefore,  it  was                                                                    
removed from the bill.                                                                                                          
                                                                                                                                
Representative  Pruitt asked  if  there  was an  expectation                                                                    
that  the  state  spent  an additional  amount  on  art.  He                                                                    
wondered if  additional language was necessary.  Mr. Neussel                                                                    
did not believe  additional language to deal  with the issue                                                                    
of the 1  percent for art. The new vessel  would have reused                                                                    
art. Any additional  monies for art would  come from funding                                                                    
from within the construction project.  He did not believe it                                                                    
would be 1 percent.                                                                                                             
                                                                                                                                
Representative Wilson MOVED  to report HCSSB 3  (TRA) out of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
HCSSB  3 (TRA)  was REPORTED  out  of committee  with a  "do                                                                    
pass" recommendation and with a  new zero fiscal note by the                                                                    
Department of Transportation and  Public Facilities and with                                                                    
a previously published zero fiscal note: FN1 (DEC).                                                                             
                                                                                                                                
5:23:05 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:27:01 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 167                                                                                                            
                                                                                                                                
     "An Act  relating to  performance reviews,  audits, and                                                                    
     termination   of  executive   and  legislative   branch                                                                    
     agencies,  the University  of  Alaska,  and the  Alaska                                                                    
     Court System."                                                                                                             
                                                                                                                                
5:27:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GABRIELLE  LEDOUX, SPONSOR,  explained  that                                                                    
the  bill  would  repeal  the  requirement  for  performance                                                                    
audits. She  reported that performance  audits had  not been                                                                    
funded for the  previous couple of years.  She thought their                                                                    
costs ran over $1 million.  The audits were typically 800 to                                                                    
1000 pages in length. She  doubted anyone had ever read any.                                                                    
Someone  had  requested  that  she  introduce  the  bill  to                                                                    
eliminate the requirement.                                                                                                      
                                                                                                                                
Representative Wilson did not agree  with the reason for the                                                                    
proposed elimination.  She wondered  if the  legislature was                                                                    
taking  the  wrong  approach  to  finding  efficiencies  and                                                                    
measuring  programs.  She wondered  if  there  was a  better                                                                    
approach to take rather than requiring performance audits.                                                                      
                                                                                                                                
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE AUDIT,  replied that  she believed there  was an                                                                    
expectation gap in terms of  the definition of a performance                                                                    
audit.  Performance audits  were  not in  place  to cut  the                                                                    
budget. She continued that a  very small piece of the audits                                                                    
had to do with the  budget. Departments were asked to submit                                                                    
10  percent  reductions  in  their  general  funds  and  the                                                                    
consultant  was asked  to  evaluate  whether the  reductions                                                                    
were  in  line  with  their findings  of  the  reviews.  She                                                                    
explained that a performance review  included looking at the                                                                    
agency's  mission  and  evaluating   how  it  conducted  its                                                                    
business. The performance reviews  were not intended to help                                                                    
solve the  state's budget crisis. The  inherent problem with                                                                    
the audit  reviews was that they  had not been read.  If the                                                                    
expectation was  the performance reviews were  going to help                                                                    
solve  the budget,  it  was not  valid.  If the  legislature                                                                    
chose to fund  audits in the future, many  changes should be                                                                    
made to make  them effective. She had been  asked to provide                                                                    
a summary  of suggested changes.  However, she did  not have                                                                    
the resources  to do so  at present. She suggested  it might                                                                    
be   possible  in   the  off-season.   She  added   that  if                                                                    
performance audits  were to continue  at the request  of the                                                                    
legislature,  some  tweaks would  need  to  be made  to  the                                                                    
process.                                                                                                                        
                                                                                                                                
5:31:53 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  commented that  the largest  department had                                                                    
already been reviewed - the  Department of Health and Social                                                                    
Services. He  wondered if was correct.  Ms. Curtis confirmed                                                                    
that DHSS had been audited.                                                                                                     
                                                                                                                                
Vice-Chair  Gara imagined  that  the DHSS  audit would  have                                                                    
been the most expensive audit  process. He recalled that the                                                                    
department  made the  changes  that seemed  rational on  the                                                                    
audit report.  He could not  say there  was no value  to the                                                                    
reports.  However, the  goal  of the  original  bill was  to                                                                    
review  internal  practices in  the  hopes  of achieving  10                                                                    
percent  reductions wherever  possible. He  did not  see the                                                                    
need for future audit reports.                                                                                                  
                                                                                                                                
Representative  Wilson   thought  only  a  portion   of  the                                                                    
Department of  Health and Social Services  had been audited.                                                                    
She asked if she was accurate.                           Ms.                                                                    
Curtis  replied  that  the process  called  for  Legislative                                                                    
Audit to  help draft  a scope  of work.  The scope  was then                                                                    
provided   to  the   committee,   they   approved  it,   and                                                                    
contractors were  hired. The audit  had been focused  on the                                                                    
overall organization of the  department, long-term care, and                                                                    
another piece that she did not recall in the moment.                                                                            
                                                                                                                                
Representative  Wilson thought  that  the entire  department                                                                    
was going  to be audited  and noted her  disappointment. She                                                                    
stated that if there was  a possibility to tweak the program                                                                    
to  achieve the  original  intent of  the  legislation at  a                                                                    
lower price.                                                                                                                    
                                                                                                                                
5:35:07 PM                                                                                                                    
                                                                                                                                
Ms.  Curtis  responded  that  she   would  have  to  receive                                                                    
guidance from policy makers on  what they wanted to see from                                                                    
the bill. She  clarified they were not  audits, but reviews.                                                                    
The budget  request was so  high because the  University was                                                                    
included  in the  list of  departments to  be reviewed.  The                                                                    
cost was contingent on the size of the department.                                                                              
                                                                                                                                
Representative  Pruitt asked  when the  legislature's review                                                                    
had  been  scheduled.  Ms.  Curtis   answered  that  it  was                                                                    
scheduled  the year  it was  defunded. The  legislature, the                                                                    
Office of  the Governor,  and the  Alaska Court  System were                                                                    
scheduled in the same cycle.                                                                                                    
                                                                                                                                
Representative Pruitt  asked if  there was harm  to revising                                                                    
the  program.  He  referred  to  a  memorandum  in  members'                                                                    
packets. He  wondered if  there was  a problem  with leaving                                                                    
the law  on the  books. Ms. Curtis  responded that  the only                                                                    
problem  had to  do with  the uncertainty  of staffing.  She                                                                    
detailed it  was difficult to determine  whether staff would                                                                    
be  available.  It  had  taken  a lot  to  get  the  program                                                                    
running.  If it  was the  will of  policy makers,  she could                                                                    
provide feedback  on some  of the  obstacles in  getting the                                                                    
reports to lawmakers to make  a difference. She had feedback                                                                    
if individuals  were interested  in continuing  the program.                                                                    
If it were left on the  books, she would have to come before                                                                    
the legislature each year to request the funding.                                                                               
                                                                                                                                
5:38:34 PM                                                                                                                    
                                                                                                                                
Representative    Pruitt    thought   the    reviews    were                                                                    
misunderstood.  He believed  there was  an understanding  by                                                                    
legislators and  the public that  the audits were  to assist                                                                    
in finding  efficiencies. He referenced suggestions  made by                                                                    
Mr. Alexander  and asked if  the items he  highlighted would                                                                    
assist  in  addressing  inefficiencies  in  government.  Ms.                                                                    
Curtis responded that  she did not believe  the problem with                                                                    
the  program was  how it  had been  structured. She  offered                                                                    
that  the current  statutes provided  direction for  looking                                                                    
for   efficiencies   within  departments   and   essentially                                                                    
providing  a  grade  to  an  agency  for  accomplishing  its                                                                    
mission. She believed it [the  review process] had been well                                                                    
set  up; however,  using  it as  a tool  to  cut the  budget                                                                    
appeared to be  the expectation. She indicated  that she was                                                                    
not in  agreement with some of  Mr. Alexander's suggestions.                                                                    
She reported that if the  expectation were to use the review                                                                    
process  to  help an  agency  cut  its budget,  some  tweaks                                                                    
should be made. She suggested  that the Office of Management                                                                    
and  Budget, because  they have  oversight of  the agencies,                                                                    
might be  a better source  for suggested reductions.  It was                                                                    
left  to the  departments to  recommend cuts;  however, some                                                                    
did  not  provide any  feedback.  She  mentioned some  other                                                                    
problems  with the  structure of  the  reports that  limited                                                                    
their effectiveness.  For instance, the reports  came out in                                                                    
December, a  time of the  year when the  Legislative Finance                                                                    
Division was busy  with reviewing the budget.  There was not                                                                    
much time  to get  the information  to legislators,  and the                                                                    
legislature lacked a working group  to vet the report. There                                                                    
was also  a lack of  feedback as to  what to include  in the                                                                    
reports or any kind of follow-up mechanism.                                                                                     
                                                                                                                                
Ms. Curtis indicated that she  struggled with how to get the                                                                    
legislature's attention.  She posed  the question as  to who                                                                    
was responsible  for implementing items. In  the Legislative                                                                    
Budget  and Audit  Annual  Report,  the Legislative  Finance                                                                    
Division was required  to report on the  savings. She shared                                                                    
that DHSS had  reported over $1 million in  savings from one                                                                    
of the recommendations in the  report. She opined that there                                                                    
had  been gems  in  the  report. She  noted  that there  was                                                                    
information in  the Department  of Corrections  report about                                                                    
booking fees,  parole fees  that were on  the books  but not                                                                    
being  collect. However,  there  was no  one  to gather  the                                                                    
information. She  claimed there were real  problems with the                                                                    
way things  were set up.  She speculated  that it was  not a                                                                    
good use  of funds to  generate a report if  the information                                                                    
was  not  used. She  had  a  neutral  position, but  it  was                                                                    
disappointing,   based  on   the  effort   that  went   into                                                                    
generating the reports, not to see the material utilized.                                                                       
                                                                                                                                
5:43:00 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg discussed  that in  the past  the                                                                    
legislature  had spent  significant  time defining  missions                                                                    
and measures for  the departments that he  believed had been                                                                    
forgotten.  The administration  was  required  to produce  a                                                                    
tool that  would help the  legislature in  determining where                                                                    
to make  reductions. He  reported people  did not  like that                                                                    
the  tool revealed  certain places  where additional  monies                                                                    
should  be spent.  He  cited  an example  of  a mission  and                                                                    
measure   in  the   Recorder's   Office.   He  thought   the                                                                    
legislature had not had a  vested interest in the report. He                                                                    
expressed  concerns  about  eliminating the  report  in  its                                                                    
entirety. He  was glad  Ms. Curtis pointed  out some  of the                                                                    
recommendations. He asked how  often the recommendations had                                                                    
been taken up by the departments.                                                                                               
                                                                                                                                
5:46:01 PM                                                                                                                    
                                                                                                                                
Ms. Curtis  did not know  of a  mechanism in place  to track                                                                    
implementation. She urged members  to look at the Department                                                                    
of  Education and  Early  Development's performance  review.                                                                    
She  characterized the  report  as a  phenomenal report  and                                                                    
encouraged all  members to review  it. She  highlighted that                                                                    
the  reports depended  on  a contractor,  an  expert in  the                                                                    
field,  being hired.  In managing  the reports,  contractors                                                                    
had  a vested  interest in  having additional  studies done.                                                                    
She suggested contractors  would always recommend conducting                                                                    
additional  studies. She  thought it  was one  obstacle. She                                                                    
added that  it was  important that the  relationship between                                                                    
the  department and  the  contractor remained  professional.                                                                    
She shared  that her staff  had attended every  meeting with                                                                    
the  contractor.  There  were  many lessons  that  had  been                                                                    
learned that she believed could be applied in the future.                                                                       
                                                                                                                                
Co-Chair   Seaton   reported    that   the   House   Finance                                                                    
Subcommittee for  the Legislature's  budget met  on February                                                                    
23rd  and  decided  to  ask the  House  Rules  Committee  to                                                                    
introduce  a  bill that  would  eliminate  the provision  of                                                                    
reviewing all  of the  departments in  a 10-year  cycle. The                                                                    
cost  included $1  million and  3  full-time positions.  The                                                                    
legislature  did  not  fund  the  amount.  He  thought  that                                                                    
routine performance  reviews were  not being used  enough to                                                                    
justify the  expense. He would  rather that  the legislature                                                                    
request a  specific audit for  a department when  needed. He                                                                    
believed  the  committee  should   move  the  bill  and  get                                                                    
something off  the books  that required  full-time positions                                                                    
to be hired.                                                                                                                    
                                                                                                                                
5:49:53 PM                                                                                                                    
                                                                                                                                
Representative   Wilson   disagreed.    She   believed   the                                                                    
legislature  was partially  at  fault.  She thought  finance                                                                    
should have had a subcommittee  review the reports. She also                                                                    
recommended reviewing  a lesser  number of  departments each                                                                    
year. She had  read the reviews and  believed they contained                                                                    
good information.   She found  that some of  the departments                                                                    
had done  better than  other ones.  If the  legislature were                                                                    
more involved,  agencies would  be more  cooperative knowing                                                                    
they   would  be   held  accountable.   She  believed   that                                                                    
accountability was  a missing link.  She thought  that based                                                                    
on  the times,  the legislature  should be  taking a  deeper                                                                    
look beyond  a 90-day or  120-day session. She spoke  to the                                                                    
importance  of  finding  efficiencies. She  thought  follow-                                                                    
through  was  important  to  put   into  place  without  any                                                                    
additional  costs.  Members  of  the  legislature  could  be                                                                    
appointed to review the reports.  She believed the situation                                                                    
was a  disservice to Legislative  Budget and Audit.  She did                                                                    
not support  rushing the bill  through when she  thought the                                                                    
review process could be saved.                                                                                                  
                                                                                                                                
Co-Chair Seaton  surmised that Representative  Wilson wanted                                                                    
to fund the reviews and to fund the three positions.                                                                            
                                                                                                                                
Representative  Wilson believed  the  legislature could  not                                                                    
afford three  positions. She thought that  spending money on                                                                    
the University  to conduct  the review  did not  make sense.                                                                    
She suggested that  maybe the issue could  be addressed over                                                                    
the interim and that the state could pay for one review.                                                                        
                                                                                                                                
5:53:00 PM                                                                                                                    
                                                                                                                                
Representative   Guttenberg  was   concerned  that   if  the                                                                    
required  audits were  eliminated in  statute, institutional                                                                    
memory  could  potentially  be lost.  In  reference  to  the                                                                    
university, he  thought one of  its problems was  in looking                                                                    
at its self.                                                                                                                    
                                                                                                                                
Co-Chair Foster  asked committee  members if they  wanted to                                                                    
take  action on  the bill.  He would  provide more  time for                                                                    
members  to think  about  the bill.  He  indicated that  the                                                                    
deadline for  amendments was on  Tuesday, April 17,  2017 at                                                                    
5:00 p.m.                                                                                                                       
                                                                                                                                
Co-Chair Foster OPENED Public Testimony on HB 167.                                                                              
                                                                                                                                
Co-Chair Foster CLOSED Public Testimony on HB 167.                                                                              
                                                                                                                                
HB  167  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster  reviewed the agenda  for the  following day                                                                    
and recessed the  meeting to a call of the  chair [Note: the                                                                    
meeting never reconvened].                                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
5:57:15 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 5:57 p.m.                                                                                          

Document Name Date/Time Subjects
HB0076 CS Sectional Analysis 03.15.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Sponsor Statement 01.26.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - Alaska Fisheries Development Foundation Letter 03.01.2017.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - Alaska Shellfish Growers Letter 03.03.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - APICDA 03.06.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - City and Borough of Wrangell Letter 03.01.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - Ketchikan Gateway Borough Letter 03.02.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - Mariculture Task Force Letter 03.03.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - OceansAlaska Letter 03.06.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - Shelly Wright Letter 03.02.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document - Southeast Conference Resolution 03.02.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document-Alaska Municipal League 01.26.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document-City and Borough of Wrangell 01.26.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB0076 Supporting Document-Ketchikan Gateway Borough 01.26.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB76 and HB128 Supporting Document-APICDA 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 76
HB 128
HB128 Amend Document-M.Adkison 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Opposing Document-N. Hilstrand 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Sectional Analysis 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Sponsor Statement 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-AFDF 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-AK Mariculture Task Force 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-Alutiiq Pride Shellfish Hatchery 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-ASGA 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-B Yuknis 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-City & Borough of Wrangell 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-JEDC 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-Ketchikan Gateway Borough 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-SE conference 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128 Supporting Document-SWAMC 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HB128-Supporting Document-SARDFA 4.4.17.pdf HFIN 4/14/2017 1:30:00 PM
HB 128
HCS SB3 - Explanation of Changes.PDF HFIN 4/14/2017 1:30:00 PM
SB 3
HCS SB3 - Sectional Analysis.PDF HFIN 4/14/2017 1:30:00 PM
SB 3
HCS SB3 - Sponsor Statement.PDF HFIN 4/14/2017 1:30:00 PM
SB 3
SB 3 - Letter of Support - AK Chamber.pdf HFIN 4/14/2017 1:30:00 PM
SB 3
SB 3 - new cruise line in Alaska.PDF HFIN 4/14/2017 1:30:00 PM
SB 3
SB3 - FINAL Small Ship 2016 Sampling Report 1-3-17.pdf HFIN 4/14/2017 1:30:00 PM
SB 3
SB3 - Environmental Compliance Info Sheet.pdf HFIN 4/14/2017 1:30:00 PM
SB 3
SB3 - vessel vs. muni discharge.pdf HFIN 4/14/2017 1:30:00 PM
SB 3
SB3 - Letter of Support - Alaskan Dream Cruises.pdf HFIN 4/14/2017 1:30:00 PM
SB 3
SB3 - Small Vessel Discharge Bill FAQs 1.3.2017.pdf HFIN 4/14/2017 1:30:00 PM
SB 3
HB167 Additional Document - Statutory Recommendations to Rules.pdf HFIN 4/14/2017 1:30:00 PM
HB 167
HB167 Suggested Improvements to the Performance Review Program.pdf HFIN 4/14/2017 1:30:00 PM
HB 167
HB167 Sponsor Statement.pdf HFIN 4/14/2017 1:30:00 PM
HB 167
Spring Revenue Forecast DOR 2017 RSB - 4.14.17.pdf HFIN 4/14/2017 1:30:00 PM
HFIN DOR Spring Revenue Forecast
DOR Spring 2017 Revenue Forecast Presentation - FINAL.PDF HFIN 4/14/2017 1:30:00 PM
HFIN DOR Spring Revenue Forecast PP
HB 103 - Amendments.pdf HFIN 4/14/2017 1:30:00 PM
HB 103
HB103_Support_041417.pdf HFIN 4/14/2017 1:30:00 PM
HB 103
SB3 Support UFA to Hse Finance 030117.pdf HFIN 4/14/2017 1:30:00 PM
SB 3