Legislature(2009 - 2010)HOUSE FINANCE 519
04/14/2010 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB230 | |
| SB144 | |
| SB269 | |
| SB235 | |
| HB317 | |
| HB69 | |
| SB305 | |
| HB69 | |
| HB421 | |
| SB219 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 230 | TELECONFERENCED | |
| + | SB 144 | TELECONFERENCED | |
| + | SB 219 | TELECONFERENCED | |
| + | SB 235 | TELECONFERENCED | |
| + | SB 269 | TELECONFERENCED | |
| + | SB 305 | TELECONFERENCED | |
| + | HB 69 | TELECONFERENCED | |
| += | HB 317 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 421 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 14, 2010
9:10 a.m.
9:10:51 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 9:10 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Vice-Chair
Representative Allan Austerman
Representative Mike Doogan
Representative Anna Fairclough
Representative Neal Foster
Representative Les Gara
Representative Reggie Joule
Representative Mike Kelly
Representative Woodie Salmon
MEMBERS ABSENT
None
ALSO PRESENT
Representative Jay Ramras; Senator Joe Thomas; James
Armstrong, Staff, Co-Chair Stoltze; Tim Benintendi, Staff,
Senator Donny Olsen; Devin Mitchell, Executive Director,
Alaska Municipal Bond Bank, Department of Revenue; Mark
Davis, Economic Development Officer, Alaska Industrial
Development and Export Authority, Department of Commerce,
Community and Economic Development; Senator Kevin Meyer,
Sponsor; Jomo Stewart, Staff, Senator Kevin Meyer; Sam
Kito, School Facilities Engineer, Department of Education;
Katie Koester, Staff, Representative Paul Seaton; Eddy
Jeans, Director, School Finances and Facilities, Department
of Education and Early Development; Representative Chris
Tuck, Sponsor; Aurah Landeau, Staff, Representative Chris
Tuck; Senator Bert Stedman, Co-Chair, Senate Finance
Committee, Sponsor; Senator Joe Paskvan; Roger Marks,
Petroleum Economist, Legislative Budget & Audit Committee;
Chuck Logsdon, Petroleum Economist, Legislative Budget &
Audit Committee; Kevin Brooks, Deputy Commissioner,
Department of Administration; Chris Christensen, Deputy
Administrative Director, Alaska Court System; Senator Lesil
McGuire, Sponsor; Esther Cha, Staff, Senator Lesil McGuire;
Martha Moore, Chair, Alaska Brain Injury Network; Angela
Salerno, Division of Senior & Disability Services,
Department of Health and Social Services.
PRESENT VIA TELECONFERENCE
Debbie Baldwin, Director, Division of Child Development,
Rural Alaska Community Action Program; Steve Williams,
Program Officer, Alaska Mental Health Trust Authority; Jill
Hodges, Executive Director, Alaska Brain Injury Network;
Dr. Christie Artuso, Director, Neuroscience Services,
Providence Alaska Medical Center, Anchorage; Kristin
English, Chief Operating Office, Cook Inlet Tribal Council.
SUMMARY
HB 69 EARLY CHILDHOOD ED: PARENTS AS TEACHERS
CSHB 69(FIN) was REPORTED out of Committee with a
"do pass" recommendation and with attached new
fiscal impact note by the Department of Education
and Early Development.
HB 317 EDUC. FUNDING: BASIC/SPEC NEEDS/TRANSPORT
CSHB 317(FIN) was REPORTED out of Committee with
no recommendation, with a Letter of Intent by the
Education Committee, and with previously
published fiscal notes: FN1 (EED), FN2 (EED).
HB 421 PUBLIC EMPLOYEE SALARIES
HB 421 was REPORTED out of Committee with a "do
pass" recommendation and with three attached new
fiscal impact notes by the Legislature, the Court
system, and the Office of the Governor.
CSSB 144(FIN)
MUSK OXEN PERMITS
SB 144 was REPORTED out of Committee with a "do
pass" recommendation and with previously
published fiscal note: FN1 (DFG).
CSSB 219(FIN)
TRAUMATIC BRAIN INJURY: PROGRAM/MEDICAID
CSSB 219(FIN) was REPORTED out of Committee with
a "do pass" recommendation and with attached
previously published fiscal notes: FN1 (DHS), FN2
(DHS).
SB 230 BUDGET: CAPITAL, SUPP. & OTHER APPROPS
SB 230 was HEARD and HELD in Committee for
further consideration.
SB 235 CHARTER/ALTERNATIVE SCHOOL FUNDING
HCSSB 235(FIN) was REPORTED out of Committee with
a "do pass" recommendation and with attached new
fiscal note by the Department of Education and
Early Development and previously published fiscal
note: FN1 (EED).
CSSB 269(FIN)
ECON. STIMULUS BONDS: REALLOCATION/WAIVER
CSSB 269(FIN) was REPORTED out of Committee with
no recommendation and previously published fiscal
notes: FN 1 (CED), FN2 (REV).
SB 305 SEPARATE OIL & GAS PRODUCTION TAX
SB 305 was HEARD and HELD in Committee for
further consideration.
SENATE BILL NO. 230
"An Act making and amending appropriations, including
capital appropriations, supplemental appropriations,
and other appropriations; making appropriations to
capitalize funds; and providing for an effective
date."
9:11:23 AM
JAMES ARMSTRONG, STAFF, CO-CHAIR STOLTZE, introduced the
legislation.
9:12:10 AM AT EASE
9:12:36 AM RECONVENED
Co-Chair Hawker MOVED to ADOPT CS SB 230(FIN) (26-GS2824\P)
as working document before the committee.
Co-Chair Stoltze OBJECTED for discussion.
Mr. Armstrong provided a sectional analysis of the capital
budget using the spreadsheet "2010 Legislature Capital
Budget: Statewide Totals, Senate Structure" (4/13/10; 13:07
by the Legislative Finance Division, copy on file). He
explained that the spreadsheet details the difference
between the governor's request and the Senate version of
the bill.
Mr. Armstrong began with Section, noting that earlier in
the legislative session the governor had put capital budget
money into the supplemental bill. The supplemental portion
was put into the Senate version of the capital bill and
totaled $118 million. Section 2 is the deferred maintenance
portion of the governor's request and was increased by the
Senate by roughly $19 million to a total of $124 million.
Section 3 is the governor's main request and totals $1.631
million. Section 4 includes the Senate additions to the
bill and totals $472,574,000 in general funds. Section 5 is
the cruise ship money; the Senate added $20 million cruise
ship funds for projects mainly in Southeast Alaska. Section
6 is appropriating language for the education bonds, the
Senate's version; he noted that the language would be
amended in another version based on what the House passed
out the previous day. Section 7 is total spending for the
Senate, or $2,771,481.2. Section 8 compares to the
governor's request of $1,921,212.0.
Mr. Armstrong pointed out that there are also technical
corrections that would be addressed in a forthcoming CS.
9:16:14 AM
Representative Fairclough asked for more information
regarding duplicated funds. Mr. Armstrong replied that he
would get the information.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, the CS was ADOPTED as a working
document.
CSSB 230(FIN) was HEARD and HELD in Committee for further
consideration.
CS FOR SENATE BILL NO. 144(FIN)
"An Act relating to hunting permits and tag fees for
musk oxen."
9:18:00 AM
TIM BENINTENDI, STAFF, SENATOR DONNY OLSEN, explained that
the bill would authorize a second permit for resident and
subsistent hunters to take musk oxen. He added that the
bill would double the chances of getting an animal but
would not change the current bag limit of one per year,
either a cow or a bull. The second permit applies when a
hunter is unable to get a musk ox under the first permit.
He stressed that non-resident hunters could not take
advantage of the second permit.
Mr. Benintendi informed the committee that musk oxen are
the only game animal left in Alaska with a one-permit
restriction. He reviewed the four game management areas
musk oxen are located in and noted that the current
estimation of the size of the herd is 4,400; annually
between 325 and 350 are available for harvest. He noted
that wildlife biologist regulators in the Department of
Fish and Game have determined that the size and health of
the herd would allow for expansion of hunting. The
department estimates that the minimum number of additional
permits would be 50 to 60 and that approximately 25 animals
would be harvested per year under SB 144.
Mr. Benintendi remarked that the Board of Game would have
authority under the bill to reduce or eliminate subsistence
tag and fee requirements. The bill would also change the
calendar year to a regulatory year, which would accommodate
August to March hunts and allow hunters to pay once for the
season. The legislation would take effect August 2010. The
fiscal note is zero. The bill has the support of the
department and several hunting groups.
Vice-Chair Thomas acknowledged the Tenakee Springs group in
the audience.
9:22:11 AM
Co-Chair Stoltze stated that he supported the residence
preference provision in SB 144.
Representative Fairclough questioned whether the provision
meets constitutionality since a recent ruling. Mr.
Benintendi replied that out-of-state residents could take
part in drawing hunts (as opposed to permit hunts) and so
are accommodated.
Co-Chair Stoltze asked whether there could be a situation
in which non-resident hunters would feel disadvantaged. Mr.
Benintendi answered that the provision would not take away
existing rights but only adds to opportunities for Alaskan
resident hunters; other hunts would not be impacted.
Co-Chair Stoltze referred to challenges from non-resident
fishermen.
Representative Fairclough stated that she preferred to have
Alaskan preference.
Co-Chair Stoltze closed public testimony.
9:25:02 AM
Vice-Chair Thomas MOVED to report SB 144 out of Committee
with individual recommendations and the accompanying fiscal
note.
SB 144 was REPORTED out of Committee with a "do pass"
recommendation and with previously published fiscal note:
FN1 (DFG).
CS FOR SENATE BILL NO. 269(FIN)
"An Act relating to the waiver of volume cap of
recovery zone economic development bonds authorized by
26 U.S.C. 1400U-2 and reallocation by the Alaska
Municipal Bond Bank Authority of the waived volume
cap; relating to the waiver of volume cap of recovery
zone facility bonds authorized by 26 U.S.C. 1400U-3
and reallocation by the Alaska Industrial Development
and Export Authority of the waived volume cap;
increasing the total amount of bonds and notes that
the Alaska Municipal Bond Bank Authority may have
outstanding; relating to revenue bonds and to
obligations secured by lease that are issued by the
Alaska Municipal Bond Bank Authority; relating to
allocations of tax credit and bonding limits imposed
by the federal government; and providing for an
effective date."
9:26:00 AM
DEVIN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK, DEPARTMENT OF REVENUE, reported that the primary
portion of the bill would use federal allocations to
finance certain recovery zone bonds and other tax credit
structures. There are also aspects that relate specifically
to the bond bank, including an increase in the borrowing
level of the bank from $750 million to $1 billion. He added
that the bond bank issues obligation bonds to the state.
The cap has been increased several times over the past six
years. The revolving balance is currently approximately
$120 million.
Mr. Mitchell explained that the increase is being requested
in light of historical community need as well as projected
need and opportunities. Other changes related to the bond
bank are in the revenue bond allowances. Currently, the
bond bank is not allowed to participate in hydroelectric
project loans; SB 269 would eliminate that restriction.
Restrictions against loaning to the state and participating
in revenue bond loans buying existing buildings would also
be eliminated. He thought the restrictions were put in
place when revenue bond statutes of the corporation were
created and were outdated. The ability of communities to
borrow money would be improved.
Mr. Mitchell spoke to American Recovery and Reinvestment
Act (ARRA) allocations made to the Department of Labor and
Workforce Development (DLWD) for labor statistics. He
explained the Build America Bond Program, which provided an
opportunity for the issuer of tax-exempt debt to benefit
through a direct subsidy from the U.S. Treasury rather than
selling the tax exempt debt to an investor and having the
investor benefit. The rate on the bond program is 35
percent. Billions of dollars have been issued in 2009 and
2010. He explained the structure as a combination of tax-
exempt and taxable bonds; there is a yield curve in every
market that typically starts with lower interest rates and
climbs to higher rates later in the maturity schedule.
There has been a break-over point between years eight and
twelve of the maturity schedule; switching over the Build
America Bond Program during that time is beneficial. The
investor has to pay taxes, but the department gets a 35
percent subsidy. The benefit has been as much as 2 percent
in interest rate reduction. The recovery zone economic
development bond allocation provides for a 45 percent
subsidy rather than 35 percent.
Mr. Mitchell related that the bill would provide ability to
use the allocations. The final portion of the bill is the
allocation of other tax credit structures through the state
bond committee, including qualified school construction
bonds and energy credit bonds. There is a $28.9 million
allocation for the school construction bond program without
a means to allocate the money to communities, who are
eligible for 100 percent reimbursement on interest expense.
9:34:48 AM
Representative Fairclough asked when municipal bank bond
authority was last raised. Mr. Mitchel1 replied two and a
half years ago.
MARK DAVIS, ECONOMIC DEVELOPMENT OFFICER, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, added that
AIDEA would undertake the reallocation of recovery zone
facility bonds. He detailed that the bonds are tax-free
bonds that could cover private activity bonds. He noted
that the problem with the allocation is that some cannot be
used and some are too small. He provided the example of the
Aleutians East Borough receiving a zero allocation because
of unemployment, while the Aleutians West census area
received a $7 million allocation that cannot be used as it
is not a governmental entity. In addition, the City and
Borough of Yakutat received an allocation of only $148,000,
which is too small to use. Senate Bill 269 would allow
AIDEA to reallocate funds to boroughs that could not
otherwise use them.
Mr. Davis stressed that timing is important as the bonds
will expire January 1, 2011; the facility bonds will not be
used without SB 269. He noted that the facility bonds that
AIDEA would acquire are tax exempt and could be used for
any industrial, commercial, retail, or office use (country
clubs and massage parlors are excluded). The bonds would be
used as private activity conduit bonds as AIDEA's bond
authority has sunset. Regulations would be issued; AIDEA is
directed on page 7 to use regulations that would try to
reallocate the bonds back to the areas from which they
came.
Representative Doogan requested more information about the
building segment in Section 4. Mr. Mitchell explained that
the typical issue with the language is the partnering of a
community with a state agency. For example, when a
department rents office space from a municipality the bond
bank is not allowed to provide lower-cost capital to the
community for the project.
9:39:38 AM
Representative Doogan wanted a specific example. Mr.
Mitchell relayed being approached by Bethel regarding a
building that would have accommodated a combination of
state agencies and city agencies; the bond bank was not
able to help.
Representative Doogan queried the issue with equipment. Mr.
Mitchell responded that the intent of the amendment was
that there is no need to exclude equipment. Certificates of
participation can theoretically be issued for equipment, or
a lease for equipment can be entered into. The ability to
help with lower-cost capital for equipment is limited.
Representative Doogan pointed to two possible definitions
of "equipment." The first is buying a fire truck; another
is equipment to finish buildings. He asked whether the
legislation was looking for a way to bond fire trucks or
assist in the expensive process of equipment to get a
project up and running. Mr. Mitchell believed the fire
truck example was more fitting. He alluded to safely checks
that limit the ability to fund anything through the
program. For example, there is a credit review process.
There must be an ability to repay. Secondly, when issuing
tax-exempt debt, an entity is limited in various ways by
the necessity of having an obligation in compliance with
Internal Revenue Service (IRS) rules. For example, what is
financed must be durable; the life of the debt cannot
exceed the life of the assets. He did not think the program
would be used to replace other means of financing equipment
like computers.
9:43:48 AM
Representative Austerman asked for a clearer explanation of
what the legislation would do. Mr. Mitchell replied that
the $750 million borrowing limit could be exceeded, based
on the historical use of the program by communities and the
projected need around the state. He emphasized that the
bond bank is a moral obligation of the state; there is a
statutory requirement for a reserve fund that is pledged to
the bond issue and about one year of debt service. The
pooled reserve is larger than any one bond issue. The bond
bank is required to ask the state for replenishment when
there is a draw on the reserve due to borrower default. The
statutory framework creates a moral obligation or intent to
replenish. He noted that there has never been a need to
replenish.
Representative Gara remarked that the federal proposal
seemed useful. He asked whether there was interest in the
bond projects. Mr. Mitchell believed that the allocations
would be utilized, particularly the economic development
bonds. He noted that there are boroughs that have already
used the bonds: Ketchikan Gateway Borough had a $3,744,000
allocation and Juneau has a $7,586,000 allocation planned
for May. Ketchikan was able to get cost of capital on a 30-
year note at 3.35 percent, for example. He detailed the
financing strategy to get the greatest benefit where
interest rates would be highest. He believed any community
issuing debt would welcome the opportunity.
9:48:24 AM
Representative Foster summarized that the bill would raise
the cap so that local governments could take advantage of
lower interest rate economic development and facility
bonds. He queried the risk of increasing the cap on the
maximum authority of the bond bank. Mr. Mitchell responded
that there were layers of credit in between the state's
general fund and the particular obligation. He believed the
risk was not significant.
Mr. Davis added that AIDEA's bonds would be conduit bonds;
there would be no risk to AIDEA. The bond obligations go
from the bond holder to the bond issuer; AIDEA steps out of
the process.
Representative Austerman spoke of the debt in California
and wondered how high Alaska's guarantee of the bonds
should go. Mr. Mitchell replied that the $750 million cap
has developed over 40 years. Borrowers have become more
self-reliant in recent years as obtaining capital funds
from the state has become more difficult. He stated that
his comfort level was high compared with the alternatives
because communities would be paying more without the
program. For example, the bond bank worked with the City
and Borough of Juneau to fund the Bartlett [Regional
Hospital] expansion; the revenue bond on its own would have
paid about $10 million more in interest over the life of
the bond without the bond bank. The projects would have
been accomplished but at higher cost to the state through
higher interest rates. He emphasized that the program has
already been successful and is an alternative that would
help communities save money.
Co-Chair Stoltze closed public testimony.
9:53:22 AM
Representative Doogan pointed to the density of the
language in the first line of the fiscal note.
Co-Chair Hawker explained that the fiscal note acknowledges
that a legal framework and advisory costs would be needed
in order to accommodate the reallocation of the funds. He
thought the $80,000 was a fair price and that it was worth
the investment to help communities.
Vice-Chair Thomas MOVED to report CSSB 269(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSSB 269(FIN) was REPORTED out of Committee with no
recommendation and previously published fiscal notes: FN 1
(CED), FN2 (REV).
9:55:35 AM AT EASE
10:00:14 AM RECONVENED
SENATE BILL NO. 235
"An Act relating to charter school approval and
funding."
10:00:23 AM
Co-Chair Hawker MOVED to ADOPT Work Draft HCSSB 235(FIN),
Version 26-LS1256\E as a working document before the
committee.
Co-Chair Stoltze OBJECTED for discussion.
SENATOR KEVIN MEYER, SPONSOR, explained that the bill would
help charter schools get started. He discussed the
challenges charter schools experience in finding affordable
buildings. Senate Bill 235 would amend existing state
statute to allow the Department of Education and Early
Childhood Development (DEED) to compete on behalf of Alaska
charter schools for facility maintenance and start-up
grants nationally available to the U.S. Department of
Education. Currently, Alaskan charter schools are not
eligible. The bill would first remove the statutory cap of
60 charter schools (there are currently 26 charter schools
in Alaska). Second, the bill would create a statute
requiring some sort of state mechanism to comply with the
federal grant program, amending current law to establish
the per person facilities aid program required under the
U.S. Department of Education eligibility requirements.
Senator Meyer noted that the cost would be nominal ($1.00
per pupil) in order to keep overall costs down. He believed
minimal state involvement would maximize local incentive.
He emphasized that local school district would have the
final say regarding which charter schools are accepted. The
bill would improve the state's ability to secure federal
start-up funds, make charter schools eligible to compete
for federal grants, reduce a major barrier in the
development of charter schools, and increase educational
choices for parents and opportunities for students. He
requested the committee's support.
JOMO STEWART, STAFF, SENATOR KEVIN MEYER, spoke to the CS.
He pointed to a clarification on page 2, lines 19 through
25, regarding the 90/10 split between federal funding,
state funding, and the obligations of the school districts.
Line 22 clarifies through language. The phrase reads: "The
department shall provide a participating share that is
equal to the difference between the allowable costs of a
project and the combined available federal funding and
state aid provided." He stressed that the obligation
regarding the match is the remainder after accruing federal
and state funding.
Representative Gara queried the $1.00 per pupil amount.
Senator Meyer replied that some state contribution was
required; since the amount was not stipulated, the sponsors
tried to do the minimum.
Representative Gara affirmed that the contribution was
necessary to participate in the federal grant program. He
asked whether the federal grant program was dedicated to
charter schools. Senator Meyer replied that charter schools
would be allowed to apply through DEED for federal grants
for charter school facilities.
Representative Gara asked whether there was a grant program
specifically for charter schools. Senator Meyer answered in
the affirmative.
Representative Gara supported providing state funds for
charter schools. He asked whether a state match would be
required. Senator Meyer responded that the only state match
was the $1.00 per student; the rest would come from the
federal government.
10:07:01 AM
Vice-Chair Thomas queried the drop-out rate in high
schools. Senator Meyer did not know.
Representative Fairclough believed the number was around 40
percent but has been on the decline. She noted that the
drop-out rate was much lower for charter schools.
Vice-Chair Thomas thought there would be a bigger
difference. Senator Meyer thought the rate was typically
less in charter schools.
Co-Chair Stoltze reported that charter schools in the Mat-
Su Borough have the highest rate of achievement. He added
that not all charter schools go through grade 12, but he
believed the drop-out rate was very low in charter schools
ending in the eighth grade.
Vice-Chair Thomas stated that he had not originally been a
fan of charter schools but that he had come to support
them. Senator Meyer concurred that he had been skeptical
but now believed they served a good purpose.
Representative Joule asked Representative Kelly whether the
charter school in Fairbanks had affected the drop-out rate
there. Representative Kelly answered that the rate was
better but he did not know the number.
Representative Gara elaborated that there were two kinds of
optional schools in Anchorage, optional schools and charter
schools. He thought charter schools provided an option for
parents; however, he pointed out that the most actively
involved parents tended to opt for charter schools, and
that affected the graduation rate. He stated support for
the charter school system and the legislation.
Co-Chair Stoltze noted that optional and charter schools
are not the same as far as funding goes.
10:11:35 AM
Representative Kelly asked whether conforming to the
national model to get federal funding would negatively
impact charter schools. Senator Meyer replied that he had
had similar concerns about possible strings attached to
federal money. He believed the program wanted charter
schools to remain autonomous. He assured the committee that
the local school district still has the final say about the
charter schools.
Representative Kelly verified that Alaska was under the cap
by about half.
Representative Salmon remarked that there had been no
options in earlier days in rural communities. He believed
improving charter schools would benefit young people who
could not thrive in regular schools. He supported the idea.
Co-Chair Stoltze spoke in support of providing more money
for charter school facilities. He believed charter schools
had been effective.
10:15:07 AM
Representative Foster queried the interest in charter
schools in rural communities and whether schools have said
they would go after the federal funds. Senator Meyer
answered that he had not heard from all 26 charter schools,
but the more active schools were very interested in and
supportive of the bill. He had not heard from the Nome
charter school.
Mr. Stuart pointed out that there had been much response
throughout the process.
Co-Chair Hawker remarked on the fiscal note for $150,000 to
administrate the program. He communicated concerns about
the increment to state costs and wondered whether the
fiscal note could be program receipts rather than general
funds.
SAM KITO, SCHOOL FACILITIES ENGINEER, DEPARTMENT OF
EDUCATION AND EARLY DEVELOPMENT, detailed that 5 percent
would be allowed for administrative costs if the grant were
received. He provided more information about the grant.
Competition for a federal program implemented in 2001
through the No Child Left Behind program resulted in two
recipients, California and Indiana. In 2009, the U.S.
Department of Education offered another grant competition
for four grants between $2 million and $10 million for a
charter school assistance program, but there was no funding
provided.
Mr. Kito told the committee that SB 235 would increase
DEED's ability to get competitive facility funding. He
noted that there was no guarantee that the state would
receive the funding. The bill would establish the structure
of a program that would not function until federal money
was received. In order to have the ability to receive the
money, regulations would have to be established, which
would cost an initial $150,000. He estimated that
additional staff of one and one-half employees would be
necessary to administer the program for five years until
the sunset date. He based the estimate on experience with
other federal grants.
Co-Chair Hawker asked whether the fiscal note summarized
costs for a grant that had yet to be awarded. Mr. Kito
responded that the Senate Finance Committee had modified
the fiscal note so that in the first year the department
would develop regulations and would not apply for the grant
program. He stressed that personnel would not be hired
until the state successfully competed for the grant
funding. The initial cost would be to establish regulations
to administer the program.
10:21:49 AM
Co-Chair Hawker summarized that the regulations would be
written, the grant would be applied for, and people would
be needed to administer the program if the grant were
received. He asked for more information. Mr. Kito answered
that the amount would be for reimbursable services to the
Department of Law for promulgating the regulations.
Co-Chair Hawker thought contractual services would be more
correct than personal services. He asked why it was
necessary to write the regulations before applying for the
grant. Mr. Kito believed that the regulations had to be in
place before funding could be received.
Co-Chair Hawker was still uncomfortable.
10:23:46 AM
Representative Kelly described concerns regarding federal
control coming with federal money. He thought there were
too many regulations. He asked whether the federal
government could be charged back for the cost of writing
regulations. Mr. Kito responded that that there was no
guarantee that Alaska could win a competitive grant; he
pointed out that if the grant money was won there might not
be enough time to write the regulations.
Representative Kelly asked whether there were regulations
already existing that could apply. Mr. Kito responded that
the state does not have a program with a competitive
process that matches the requirements. Regulations would
have to be written to describe a process for prioritizing
project applications for charter school facilities in the
event that there is not enough money between the state,
local, and federal sources.
Representative Kelly reiterated his frustrations.
10:27:18 AM
Co-Chair Hawker asked whether the time needed to write the
regulations could be part of the process instead of trying
to implement the program immediately; the administrative
money could be requested as part of the regular budget
cycle after the grant was awarded. Mr. Kito replied that he
was not comfortable relying on funding that may not be
available. Co-Chair Hawker stressed that he was also
uncomfortable relying on money that might not be available.
Representative Gara suggested using the same process
municipalities use when they get capital money from the
legislature. He suggested writing a provision stating that
the department would allow charge-backs to the extent
permitted by federal law to recoup the on-going costs of
grant administration. Mr. Kito thought the course of action
could work for the five years the program would be in
effect. The federal program is intended as a step-up or
start-up program. He believed the intent was that the
federal program would participate at decreasing levels of
funding as the state funding levels increased, until the
state had a viable facilities program for charter schools.
10:30:38 AM
Representative Fairclough suggested changing the debate.
She proposed zeroing out the additional staff for the out
years and keep the $150,000 for the regulations period. She
maintained that charter schools had proven successful
already, and there should be a mechanism to fund such
success as there is currently funding inequity. She spoke
in support of the legislation.
Vice-Chair Thomas agreed that charter schools were a
success and supported a fiscal note that allowed for the
writing of the regulations and went out two more years.
Co-Chair Hawker asked committee to consider a zero
appropriation in FY 11 and then indeterminates for FY 12 to
FY 16; if a significant grant is received, more money might
be needed.
Representative Doogan thought the first $150,000 in FY 12
was to write the proposal and subsequent increasing fiscal
notes were for the costs of running the program in the
event that the grant was received. Mr. Kito responded that
the first $150,000 was to write the regulations that would
establish the program. He noted that the department would
still be able to apply for the grant if there were no
appropriation this year, but would not be able to start the
regulation process until the grant was successfully
received.
Representative Doogan queried the advantage of the original
proposal. Mr. Kito responded that the program would be
established and the funding could immediately be used for
school district projects. Representative Doogan understood
that the issue was timing.
10:36:57 AM
Representative Joule queried the mechanism already in place
with the public school districts. Mr. Kito responded that
currently districts can apply for grants that can cover all
facilities, but charter schools have not received much
support related to facilities.
Representative Joule established that charter schools are
under the umbrella of the school district in which they
reside. Mr. Kito explained that there are charter schools
that are the responsibility of the school districts but
charter school facilities are not getting much attention.
Representative Foster asked whether having the regulations
in place would enhance the state's ability to get the
federal funds. Mr. Kito responded that the more robust the
program, the better the applicant scores. He thought that a
program in regulation might affect the scores in a
competition.
Mr. Stuart added that some of the eligibility requirements
are universal. He stated that writing the regulations now
would enhance the state's ability to pursue other grants.
10:40:13 AM
Representative Kelly suggested that the school districts
apply to prove motivation at the local level. Mr. Kito
supported opening up the opportunity for additional
funding. He noted that currently schools would be competing
against all other state projects. He had not seen charter
school applications through the existing grant program and
thought a specific program would be good.
Representative Kelly wanted to send a signal of support for
the program and for taking off the cap. He also wanted
local communities to do the work of selling the need to
local districts. He stated that he supported either a zero
or indeterminate fiscal note. He stressed his frustration
about the need to fund a person for a year to write
regulations.
Senator Meyer agreed that the charter school process has
been frustrating as some school districts do not embrace
the idea. He believed that the program could get dropped
without adequate funding. He supported Co-Chair Hawker's
proposal of the indeterminate fiscal note.
Representative Kelly stated his support of charter schools
and agreed with Co-Chair Hawker's plan.
Co-Chair Hawker requested a new fiscal note with a zero for
FY 11 and indeterminates for FY 12 through FY 16 to
emphasize the expectation that schools would get involved
and drive the program.
10:45:00 AM
Co-Chair Stoltze did not want the costs to be forced back
on school districts that did not support charter schools.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, the CS (Version 26-LS1256\E) was
ADOPTED.
Co-Chair Stoltze closed public testimony. He emphasized his
support of charter schools.
Vice-Chair Thomas MOVED to report HCSSB 235(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
HCSSB 235(FIN) was REPORTED out of Committee with a "do
pass" recommendation and with attached new fiscal note by
the Department of Education and Early Development and
previously published fiscal note: FN1 (EED).
10:47:20 AM RECESSED
11:21:02 AM RECONVENED
HOUSE BILL NO. 317
"An Act increasing the special needs funding and base
student allocation for public schools, and extending
the adjustment for student transportation funding; and
providing for an effective date."
11:21:11 AM
Co-Chair Hawker MOVED to ADOPT Work Draft CSHB 317(FIN)
(Version 26-LS1378\P, Mischel, 4/13/10) as a working
document before the committee. There being NO OBJECTION, it
was so ordered.
KATIE KOESTER, STAFF, REPRESENTATIVE PAUL SEATON, explained
that the committee substitute would first increase the base
student allocation (BSA) by $125 per year for FY 12 and FY
13 and second increase the block funding for special
education gifted and talented vocational and bilingual
education by 1.5 percent for FY 12 and FY 13. The intent
was to have the money spent on vocational education, as
stated in the Letter of Intent by the Education Committee
(copy on file).
Ms. Koester noted that the CS deletes Section 1, which had
extended inflation adjustment for pupil transportation and
correlated to the adjustment to increases in the consumer
price index (CPI).
Representative Gara questioned whether deleting the
inflation adjustment would allow for cost increases. Ms.
Koester replied that the deletion would remove changes in
the CPI. She believed there might not be much inflation in
some years. She pointed out that Section 1 was put in place
in 2008 as a recommendation of the Joint Legislative
Education Funding Task Force.
Vice-Chair Thomas commented that the increases should be
adjusted to graduation rates rather than to inflation. He
thought the goal of the Education Committee was success; he
did not think increasing the BSA had resulted in success.
Co-Chair Stoltze acknowledged concern related to improving
graduation rates.
11:26:06 AM
EDDY JEANS, DIRECTOR, SCHOOL FINANCES AND FACILITIES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, remarked
that most pupil transportation contracts in the state have
an automatic inflationary adjustment built in. He noted
that the contracts are increased each year by the Anchorage
CPI. He pointed out that the previous version of HB 317
repealed a sunset clause on applying the Anchorage CPI to
the pupil transportation contracts; the new version removed
the adjustment to transportation except related to student
population.
Representative Gara opined that as costs for pupil
transportation go up, districts will have to decrease staff
and supply funding if the legislature does not increase the
increment. He liked the pupil transportation inflation
adjustment and did not like betting on inflation in coming
years. He suggested putting Section 1 back in the bill.
11:29:30 AM AT EASE
11:39:59 AM RECONVENED
Co-Chair Stoltze MOVED Conceptual Amendment 3:
Page 2, following line 24 Insert:
Sec. 7. Section 11, ch. 9, SLA 2008, is amended to
read:
Sec. 11 AS 14.09.010©, added by sec. 2, ch.9, SLA
2008 [OF THIS ACT] is repealed June 30, 2013
[2011].
Co-Chair Hawker OBJECTED for discussion.
Co-Chair Stoltze detailed that Conceptual Amendment 3
corrects a mistake that removed the sunset extension;
without the extension, the program would sunset. The
amendment would give the program an additional two years
before considering the policy measure.
Co-Chair Hawker noted that the amendment restores language
that was in the Education Committee version of the bill.
Co-Chair Hawker WITHDREW his OBJECTION. There being no
further objection, Conceptual Amendment 3 was ADOPTED.
Representative Gara MOVED new Amendment 2:
Page 2, line 17:
Delete "$5,805"
Insert "5,830"
Page 2, lines 21-22:
Delete "5,930 [$5,805]"
Insert "5,980 [$5,830]"
Co-Chair Stoltze OBJECTED for discussion.
Representative Gara explained the amendment. Currently, the
proposal is for the BSA for the next two years to go up by
$125 per year. He was concerned that the BSA has gone up
$100 over the last two years, slightly behind inflation.
Over the next three years the BSA should lag behind
inflation at $125 per year. The $125 increase on the $5,800
BSA is less than 2 percent. He stressed that since the
actual inflation rate is unknown, he was concerned about
setting the rate for three years out.
Representative Gara stated concerns about other reductions
that would become necessary if the BSA does not keep up
with inflation. The Department of Education and Early
Development normally uses the previous three years to
establish an average inflation rate for Anchorage
projections; for the past three years the average has been
2.7 percent. He pointed to a chart on page 2 and asserted
that a 2.7 increase over the next three years would come to
$151 to $155 BSA increase. He noted that the incremental
cost of increasing the BSA from $125 to $150 would be
approximately $6 million per year.
Representative Gara believed the Education Task Force had
done an important thing when they added funding for special
needs and the area cost differential. He did not believe
the additional funds were intended to be lost to inflation
increases.
11:44:24 AM
Co-Chair Hawker MAINTAINED his OBJECTION. He believed the
topic had been thoroughly discussed by committed people and
he wanted to respect their determination.
Co-Chair Stoltze also objected to the amendment. He did not
want to bind any future legislature to an amount in
statute. He observed that education funding only went up,
not down, except an administrative formula decrease in FY
97.
Mr. Jeans agreed that the only time the foundation program
was reduced was in 1987 under Governor Sheffield.
11:48:26 AM
A roll call vote was taken on the motion.
IN FAVOR: Foster, Gara, Doogan
OPPOSED: Kelly, Salmon, Thomas, Austerman, Fairclough,
Hawker, Stoltze
Absent from the vote: Joule
The MOTION FAILED (7-3).
Representative Thomas emphasized that his vote against the
amendment was not a vote against education.
Co-Chair Hawker explained the fiscal notes.
Co-Chair Hawker MOVED to ADOPT the Letter of Intent [from
the House Education Committee] dated February 10, 2010.
There being no OBJECTION, it was so ordered.
Co-Chair Hawker MOVED to report CSHB 317(FIN) out of
Committee with individual recommendations, the Letter of
Intent, and the accompanying fiscal notes. There being NO
OBJECTION, it was so ordered.
CSHB 317(FIN) was REPORTED out of Committee with no
recommendation, with a Letter of Intent by the Education
Committee, and with previously published fiscal notes: FN1
(EED), FN2 (EED).
HOUSE BILL NO. 69
"An Act establishing in the Department of Education
and Early Development a voluntary parent education
home visiting program for pre-elementary aged
children; and establishing a rating system for early
childhood education."
11:51:50 AM
REPRESENTATIVE CHRIS TUCK, SPONSOR, explained that the bill
was also known as the "Parents as Teachers Act." He
described parents as a child's first and most important
teachers. House Bill 69 would empower parents with the
knowledge and resources to help their children develop into
successful students with stronger scholastic achievements.
Research has shown that the early years are critical in a
child's development and lay the foundation for later
success in school and life. The bill would allow the
Department of Education and Early Childhood Development
(DEED) to offer early childhood learning methodology to
parents as an education option for families with children
ages zero to five. Parents who choose to participate would
be supported by local childhood development specialists.
Parents as Teachers uses a research-based model that helps
parents and other family members understand what to expect
during each state of development, how to promote the best
development in children, and how to prepare children for
success in learning in the future. The program can save
money for schools by helping families detect problems that
can be corrected before starting school. The program fits
with many educational philosophies.
Representative Tuck noted that the program would offer
resources to families to help parents learn about child
development and opportunities to network with other parents
in groups. Children are also given opportunities to develop
social skills through interactions with peers. Referrals
are made with the consent of the family and are based on
the family's needs. Currently the program is serving nearly
50 communities throughout the state and is funded through
federal grants, in-kind donations, and public/private
partnerships. Parents as Teachers works through any local
entity, including school districts, tribal councils, and
other community organizations. The bill intends to develop
local partnerships that will increase local control,
maximize in-kind support, and more fully integrate early
education into communities.
Representative Tuck informed the committee that the average
cost would be $3,000 per family, reflected in the fiscal
note as a total of $4 million per year for state-wide
coverage. About 12 percent of the amount would go to
materials for the parents and 4 percent would go to
overheard.
11:56:26 AM
Co-Chair Hawker MOVED to ADOPT Work Draft CSHB 69(FIN)
(Version 26-LS0281\W) as a working document before the
committee. There being NO OBJECTION, it was so ordered.
Representative Tuck detailed that the CS was a simplified
version of the CS forwarded by the Education Committee.
Both versions establish a Parents as Teachers early
childhood education system through DEED for ages 5 and
under; however, the previous version was more prescriptive.
The proposed CS before the Finance Committee would give
DEED the flexibility to do the program as it works best in
various communities while still meeting quality standards.
Representative Tuck noted that Section 1 provides the
title. Section 2 establishes a statewide voluntary learning
system; subsection (a) requires that there is evidence-
based education, parental involvement, and adherence to
accepted best practices and early learning guidelines;
subsection (b) directs DEED to develop local partnerships
to implement the program; and subsection (c) adds a three-
year sunset clause. He underlined that a previous version
provided that the bill would serve 650 children for the
first two years and then be expanded statewide; the current
CS would take a more simple approach by providing for the
program state-wide and providing for a sunset date in 2013.
He believed extending the date for three years would allow
for measurable results in childhood education.
Co-Chair Stoltze acknowledged the number of people who
support the bill.
11:59:39 AM
Representative Fairclough asked whether Representative Tuck
had attended budget discussions for a K through 12 pilot
program. Representative Tuck responded that he had not.
Representative Fairclough queried results from the pilot
program. Representative Tuck replied that he did not have
the results immediately available but he understood that
the program provided many early education opportunities; he
viewed the bill as one more tool.
AURAH LANDEAU, STAFF, REPRESENTATIVE CHRIS TUCK, responded
that the pilot program serves several hundred children
state wide. The two-year program is in its second year and
the results would be forthcoming. She pointed out that a
main difference between the pilot program and the Parents
as Teachers program is that through the later families are
offered resources to create an early environment wherever
families are.
Representative Fairclough asked for a comparison with the
Best Beginnings program. Ms. Landeau answered that Best
Beginnings provides the Imagination Library and other
things while Parents as Teachers is a model that entity
could provide.
Representative Fairclough pointed out that the federal
government is ramping down funding on the Parents as
Teachers program the state currently has; the education
subcommittee had looked at that and did not want to start
new pilot programs until results were received from DEED
regarding the pre-K pilot program, which was in the current
operating budget at $2 million. She did not believe there
were results from the $2 million investment. She voiced
caution about investing in another pre-K program in spite
of fact that Parents as Teachers does a good job.
Representative Fairclough referred to an amendment that
Representative Gara had proposed at a subcommittee meeting
for $600,000 that included Parents as Teachers. She
questioned additional funding of another pre-K program. In
addition to the $2 million for the pre-K pilot, funding for
the Best Beginnings programs was increased from $200,000 to
$380,000 as well as adding $600,000 for another pre-K
amendment.
Representative Fairclough emphasized her support of early
childhood education but reiterated concerns about
additional spending.
12:04:16 PM
Representative Tuck informed the committee that the bill
was first introduced the year previously in order to expand
the program statewide to respond to a need. Because of the
success rate, other communities wanted the program.
Expansion is limited by the federal funds. He referred to
experience serving on a school board, where people knew
that providing early learning opportunities leads to later
success. He had proposed using school facilities that were
empty during the summer period for early childhood
programs. The Alaska Association of School Boards wanted to
implement the program statewide. He asserted that the
Parents as Teachers program was the right program, as it
involves the parents and provides opportunities for
communities. He pointed out that the recent Moore vs. State
case demonstrated that pre-K with parental involvement is a
key factor.
Vice-Chair Thomas spoke as a co-sponsor and supporter of
the bill. He reported that five parents from his district
had flown to Juneau to speak to him in support of the
program. He referred to another $42 million program that
has not been successful. He wanted to start education
earlier to improve graduation rates. He pointed out that in
a small community, everyone can help the children.
12:08:04 PM
Representative Fairclough agreed that the Parents as
Teachers program was wonderful; constituents had advocated
to her about the program as well. However, she reiterated
concerns that almost $3 million new funding was already
being allowed in the operating budget for pre-K programs.
She also worried about choosing money for an individual
program rather than letting communities decide what
programs are best for their particular location. She
pointed out that Head Start, Best Beginnings, Campfires of
Alaska, and others were also trying to get state money.
Co-Chair Hawker opened public testimony.
DEBBIE BALDWIN, DIRECTOR, DIVISION OF CHILD DEVELOPMENT,
RURAL ALASKA COMMUNITY ACTION PROGRAM (RURAL CAP) (via
teleconference), spoke in support of the legislation. She
informed the committee that RurAL CAP serves over 1,500
children between the ages of zero and five and their
families in 29 communities throughout the state. The
program provides early childhood education and family
support services through Head Start, Early Head Start,
Parents as Teachers, child care, and the pre-K program. She
stated that RurAL CAP believes the Parents as Teachers is
one of the best early childhood and family support programs
offered in the home environment. The program is
internationally recognized as a program that serves
families from pregnancy until kindergarten through
voluntary visits and group socialization conducted by a
certified parent educator.
Ms. Baldwin asserted that the family environment can be a
major predictor of cognitive, social, and emotional
abilities; some believe it can be a predictor of crime and
educational attainment. Parents as Teachers provides
parents with information and age-appropriate activities
based on brain research and windows of opportunity for
development, which improves parent practices and leads to
both school readiness and educational achievement. The
program has existed for over 25 years in the country and
RurAL CAP has over 11 years of experience offering Parents
as Teachers programs in Alaska. In 1999, the program
started with 27 families; today 450 families are being
served in 19 communities.
Ms. Baldwin reported that the program works because pre-
and post-screening and assessment results show children
achieving gains in all areas of development. In addition,
developmental data and interviews with kindergarten
teachers show that Parents as Teachers children are
transitioning to kindergarten with key indicators of school
readiness as defined by the Alaska Early Learning
Guidelines. Pre- and post-parent surveys document changes
in parental attitudes and beliefs about child-rearing. The
results are used to individualize parent education.
Ms. Baldwin stressed that the program is results oriented.
RurAL CAP can demonstrate the number and frequency of
positive interactions between parent and child upon
entering and exiting the program and how many parents are
reading to their children more often. Parents report having
more confidence in their parenting practices as a result of
learning about early brain development and other age-
appropriate information.
Ms. Baldwin stated that a voluntary, high-quality early
learning system for any state should have a variety of
programs offering options in intensity, duration, and
comprehensiveness. She recognized that not all families
want or need a four-hours-per-day, four-days-per-week, out-
of-the-home preschool experience for their young child. The
wait list for the Parents as Teachers program indicates
that there are many families who would like support and
partnership developed in their home environment.
Ms. Baldwin relayed experience in a small community outside
Bethel where she attended a parent involvement meeting at
the K-12 school. A parent from the early childhood program
was sharing with other parents what a window of opportunity
meant for parents working with a young child.
Ms. Baldwin responded to earlier remarks by Representative
Fairclough. She testified that the federal government is
not ramping down support for Parents as Teachers; rather,
all entities are competing for the money through the DEED
Alaska Native Education Equity Programming Fund. The
program supports increasing educational outcomes for Alaska
Native students from birth to post-secondary. Grants have
been awarded over the past two years. She stressed that
money is available, but has already been earmarked.
Ms. Baldwin maintained that there are results from the
Parents as Teachers program and that the program is very
different than the pre-K pilot program, as it focuses on
the home environment.
Ms. Baldwin supported the $600,000 increase to Best
Beginnings and/or Parents as Teachers. She noted that RurAL
CAP is looking at shutting down services in five
communities to about 100 children and families starting in
August 2010 because there is not sustainability under
current federal funding.
12:17:35 PM
Co-Chair Hawker closed public testimony.
Co-Chair Hawker addressed the fiscal note. He pointed out
that it was outdated and needed to be updated.
EDDY JEANS, DIRECTOR, SCHOOL FINANCES AND FACILITIES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, detailed
that in the new fiscal note the numbers for FY 12 through
FY 14 would be the FY 13 number from the old fiscal note,
or $4,124,400. He explained that the previous version of
the bill had a phase-in provision limiting the number of
participants for the first couple of years.
Co-Chair Hawker asked how the department determined the
amount of money that would be required per student. Mr.
Jeans replied that the fiscal note was based on the current
Parents as Teachers program, which cost about $3,000 per
family.
Representative Foster spoke in support of the program and
pointed out that there was higher unemployment in the
Native community and that fewer young people make it to
college or vocational school. He noted that more Native
people went to jail and had to rely on public assistance.
He emphasized the critical importance of early childhood
development especially for Native Alaskans. He informed the
committee that 60 percent of participants in the Parents as
Teachers program were Alaskan Native.
12:20:53 PM
Representative Gara queried the timing. Co-Chair Hawker
felt time was needed for accurate analysis. He stated that
one of the things he liked about early childhood programs
such as Best Beginnings and the Imagination Library was
that they were not government programs; parents were
involved. He was concerned that the legislation was making
the program a government program.
Representative Gara stated that he supported Head Start and
traditional pre-K programs. He acknowledged citizens who
wanted programs like Parents as Teachers because government
was less involved. He thought the program was a good
compromise for many people. He acknowledged those who had
supported the development of the program and the
legislation.
Co-Chair Hawker wondered whether the bill represented an
acknowledgment that the current pre-K pilot program was a
failure. Representative Gara did not believe so. He thought
there were many ways to accomplish early childhood
education. He pointed out that the program cost less than
Head Start and was still effective. He noted that the
legislation was not intended to make the program the
state's model for pre-K education, but would be part of a
range of options.
12:25:14 PM
Vice-Chair Thomas voiced disappointment about funding for
the programs that resulted in success. He hoped the program
would help.
HB 69 was SET ASIDE until later in the meeting.
12:27:20 PM RECESSED
1:45: 33 PM RECONVENED
SENATE BILL NO. 305
"An Act relating to the tax on oil and gas production;
and providing for an effective date."
1:46:04 PM
Co-Chair Hawker explained that SB 305 addresses the
decoupling of oil from gas as related to the oil and gas
production tax and the interplay of the issue with Alaska
Gasline Inducement Act (AGIA) legislation in the
forthcoming open season. He reported that the bill had been
thoroughly vetted on the Senate side with a lot of
technical analysis and that the bill had also been
carefully reviewed in the House Resources Committee.
Co-Chair Hawker stated his intent to accomplish the mission
of the sponsors. He anticipated a difference of opinion
from the administration on the necessity of passing the
bill. He outlined his plan for the bill in the House
Finance Committee.
1:50:55 PM
SENATOR BERT STEDMAN, CO-CHAIR, SENATE FINANCE COMMITTEE,
SPONSOR, provided an overview of the history of the
legislation. His initial concern was looking at the issue
from a fiscal position and determining that the state was
potentially at a fiscal disadvantage at the level of
billions of dollars. He recognized the difficulty of
communicating the magnitude of the fiscal challenges. He
explained Senator Paskvan's role as a legal advisor on the
legislation. He believed Senator Paskvan had the advantage
of entering the legislature after the discussions on the
Petroleum Production Tax (PPT), Alaska's Clear and
Equitable Share (ACES), and AGIA; he believed a fresh eye
would be helpful.
1:54:13 PM
Senator Stedman referred to the time when the state
functioned under the Economic Limit Factor (ELF) or tax and
royalty regime and was transitioning to a production-
sharing arrangement. He noted that North America is
basically structured under the tax and royalty approach and
most of the global hydrocarbon basins have production-
sharing or profit-sharing arrangements. He recalled that
after extensive legislative review of the ELF structure,
the fiscal regime of Alaska was restructured to production
sharing. He noted that months were spent in the legislature
adjusting the new structure, especially related to
progressivity. The royalties had been left in place;
however, it became clear that the share going to the state
would decline when the price of oil went from $60 to $80
per barrel. Concern about the decline led to progressivity,
an added tax that would protect the state when oil prices
were high. The decision had been made to stop the PPT at
$60 per barrel; in hindsight that was too low. There was
debate about progressivity.
Senator Stedman referred to negotiations for a gas line
under the Murkowski administration and a proposal to take
20 percent of the gas (12.5 percent of royalties plus 7.5
percent severance), own 20 percent of the pipe, have a 20
percent capital credit, and a 20 percent base tax. The base
tax was increased to 25 percent. At the time, there was no
gas to speak of. Cook Inlet was separated from the
discussion as an old, declining basin; the new tax regime
did not apply to it. The only gas in the state was in Cook
Inlet and in the Arctic. The gas field in Prudhoe Bay was
going to be taken in-kind. All of the focus of the
discussions at the time was on oil. Gas was intentionally
set aside.
1:58:09 PM
Senator Stedman continued that adjustments were made
through ACES and AGIA; the 20 percent ownership in pipe and
the 20 percent ownership in gas fell away. However, the gas
tax structure was still left in place.
Senator Stedman underlined that the legislature had
structured progressivity around oil. He described gas as a
lower-valued hydro-carbon; oil produces six times more
energy per volume than gas, and is eight or ten times more
valuable. In the eight to ten range there is not a lot of
impact on the fiscal regime. There has been a structural
change within the economy and the energy world in the past
three or four past years. Vast supplies of natural gas have
been discovered globally, lowering the pressure on gas,
while upward pressure has been put on oil. Currently, oil
is valued at about $80 per barrel and gas is at $4, a 20 to
1 ratio.
Senator Stedman relayed that a couple of years ago, the
Legislative Budget and Audit Committee found a consultant
to make a mathematical model of Prudhoe Bay, Kuparuk, and
Alpine fields so that the legislature could measure and
evaluate a potential gasline proposal. He had requested
that the consultant review the oil tax structure and the
gas tax structure and measure the offset (or subsidy or
dilution) resulting from large gas volumes and oil volumes;
the total revenue was going down instead of up.
Senator Stedman referred to a March 2, 2010 memorandum from
Dr. David Wood, a consultant to the legislature (copy on
file) calculating the impact over the past couple of years.
Dr. Wood had presented his findings to the House Resources
Committee. Some believed the policy implications were huge
and asked for a presentation before the Legislative Budget
and Audit Committee.
Senator Stedman reported that he had become greatly
concerned about Dr. Wood's analysis of the dilution effect
in terms of the fiscal impact to the state but also about
the lack of recognition in the legislature of the potential
impact. He emphasized that the mechanism is extremely
complicated and the numbers are unbelievably large.
Senator Stedman continued that the AGIA open season came
around and Mr. Tony Palmer from TransCanada came before the
legislature to discuss potential costs of a mainline pipe.
Mr. Palmer referred to estimated tariffs and price
expectations.
2:03:50 PM
Senator Stedman maintained that under the AGIA terms the
state faced a contractual obligation to lock in the gas tax
by May 1, 2010. He noted that the state has the ability to
adjust oil tax up or down, but not gas tax.
Senator Stedman explained that the Senate Finance Committee
had spent several weeks studying the information available,
starting with the basic structure of the oil and gas tax.
Oil was covered in the first week and then the hypothetical
4.5 billion cubic feet per day (Bcf/day) gas model. He
underlined that the conclusions were "not pretty." The
administration did a review as well, but their numbers were
not any better.
Senator Stedman emphasized that the state had a good
revenue stream with oil, but when oil is 15 times more
valuable than gas, the total dollars to the treasury went
down with gas. He was alarmed that the state has spent
thirty years waiting for a gas line and a strong gas
economy, when it was clear that without gas revenue, there
would be no gas economy.
Senator Stedman pointed to current numbers, stressing that
what matters is the relationship between oil and gas
prices. With oil standing alone, the state would make $8.6
billion; with gas, the state would make $330 million.
Noting that the progressivity calculations are based on 30
days, with 30 days before first gas at ten to twelve years
out, the revenue stream would be $8.6 billion (annualized
over 12 months). Given that number, the legislature might
work the budget details.
2:08:22 PM
Senator Stedman continued that first gas could come, and
thirty days later the state might find out, for example,
that the same volume of oil (500,000 barrels) was being
pumped and gas was flowing well, but the revenue would then
be only $5.2 billion. He warned that under the example, the
state could suddenly lose $3.4 billion and make only $330
million in gas. The net loss could be $3.1 billion. The gas
line would have to be shut down and there would be serious
budget problems. Nothing could be done because the state
would be under contractual obligation for the following ten
years.
Senator Stedman questioned how the legislature could answer
to future generations for such a significant loss after
waiting thirty to forty years for gas to flow. He commented
that he and other legislators had traveled throughout
Canada and the United States to energy conferences and
looked carefully at the models. There had been
consideration about how to incentivize an oil basin,
including adjusting progressivity, production-sharing, and
base tax numbers or shifting property taxes for things like
a gas treatment plant.
Senator Stedman stressed that the Arctic has a world-class
oil basin. He argued that the state was not creating an
incentive, but giving away revenue at a "staggering"
magnitude. For example, the state could build a $100
million road to encourage drilling and exploration or build
a port at Anchorage for several hundred million. He did not
want the state to give away billions of dollars year after
year.
Senator Stedman suggested buying equity in a project, such
as buying 10 or 20 percent of the pipe, so that the state
would make the 12 or 13 percent regulated rate of return
rather than handing the cash to others.
Senator Stedman emphasized that the problem was the quickly
approaching lock-down date on May 1, 2010, the first day of
binding open season.
2:14:04 PM
Senator Stedman warned that the magnitude of the problem is
so severe that if AGIA succeeds and the first binding open
season succeeds, the industry could lock the state down and
it would be "game over." He pointed out that the only
leverage the state has left is oil, if gas cannot be moved.
He argued that politically, oil taxes could not be raised
by one third (the amount required to make up the gap in the
previous example). Compared to other structures around the
world, he believed the current tax structure in Alaska is a
burden. He felt that the state was currently giving its oil
away and that oil revenue had to be protected through
adjustments and incentives, and the gas pipeline had to be
made competitive and attractive.
Senator Stedman stated that he did not want the legacy of
giving away the state's oil. He noted that the state can
legally decouple at any time, but he argued that if it is
done before May 1, 2010, there would be less fiscal risk
than waiting until after the date. He thought the state
could gamble that the price of gas would go higher than the
price of oil, but he did not think the projections
supported such a gamble. He believed there would be higher-
valued oil and lower-valued natural gas because of the
amount of gas available.
2:18:43 PM
Co-Chair Hawker stated for the record that he agreed with
the problem identified by Senator Stedman. He relayed that
he had participated in the discussions about PPT, ACES, and
AGIA. In 2006, there was a session during which the new
proposal for the profit-sharing production tax was vetted.
He noted that it had been universally appreciated that the
ELF had become outdated and needed to be replaced. A
special session was called where the debate continued.
During the interim between two special sessions, he and
others met to consider the deadlocked bill; the "producer
pay plan" was crafted as an evolution of the profit-sharing
production tax involving an incentive to lower tax rates
for producers increasing production.
Co-Chair Hawker continued that the new bill made it through
the House and was fine-tuned by the Senate; the producer
pay plan developed into the profit-sharing production tax
(PPT). The bill was crafted in his office with the
Department of Revenue (DOR) to address the oil ELF, but as
time passed, it became clear that the gas ELF also needed
to be addressed through a different formula. He witnessed
that the crafters of the legislation had believed they did
not have to worry about the gas tax for another 15 years.
They understood that it would be complex to structure both
a new tax on oil and on gas and decided to put them under
the same tax regime, although there was a different price
structure on oil than on gas; one was sold by the barrel
and the other by thousands or millions of cubic feet. In
addition, there was a significant value difference. The
same tax rate could not be put on the different values.
Co-Chair Hawker recalled that the crafters came up with the
idea of the British Thermal Unit (BTU) equivalency formula.
However, that would work only if the BTU equivalency was
the same as the price equivalency. They knew that combining
low-value gas and high-value oil would result in a diluted
tax structure, but knew also that there would be 15 years
to deal with the problem.
2:23:13 PM
Co-Chair Hawker noted that the progressivity feature added
by ACES exacerbated the problem as it triggered profound
value differences. Next, AGIA was passed and provided
"fiscal certainty" for the players: the gas-production tax
would be fixed at the start of the first day of the binding
open season. The lock-in provision based on the start of
the first open season suddenly reduced the 15 years they
had previous assumed they had to 15 months. He admitted
that when AGIA passed, he had not made the connection that
the time would be shortened.
Co-Chair Hawker agreed that on May 1, 2010, the state would
be locked in to the gas tax structure for ten years. He
emphasized that the crafters of the structure had not
intended the outcome.
SENATOR JOE PASKVAN informed the committee that he had
arrived at the same conclusion as Senator Stedman regarding
the need for decoupling gas and oil. He had begun by
reading the AGIA statutes to understand the extent of the
lock-in that the state was facing on May 1. He had reviewed
the opinion of Attorney General David Marquez and his
analysis under the Stranded Gas Development Act of the risk
to the state of Alaska.
Senator Paskvan reported that he had called the current
Attorney General Dan Sullivan two months ago and told him
he believed there was a tremendous risk and that he was not
legally comfortable with. He emphasized that the legal
issues were complex. He thought the number one issue before
the current legislature was the fiscal issue. He agreed
that the magnitude of the problem was so great that it
could result in Alaska giving up 100 percent of any
production tax on natural gas and 100 percent of its
royalty. The state would have to use oil savings while the
gas flows.
2:27:57 PM
Senator Paskvan stressed that the monthly analysis of the
situation was that Alaska would be bringing in about $725
million per month in the first 30 days before the 4.5 Bcf/d
of gas flows; after the gas flows, the state would receive
less than $500 million per month. Hundreds of millions of
dollars would be lost each month. He called the situation a
"third-world resource extraction model" where the state
would pay while the resource leaves the state.
Senator Paskvan argued that decoupling gas and oil would
result in absolutely no increase in oil tax and that the
trigger point at 25 percent and the slope of progressivity
would remain the same. The gas tax would remain the same,
at 25 percent with the same slope of progressivity. The
state would be protected if gas became more valuable than
oil.
Senator Paskvan underlined the conclusion that decoupling
is necessary. He added that the only other issue before the
legislature was the question of the methodology of
determining the gas production tax obligation specifically
referenced in AGIA statute Section 320. He referred to a
presentation by DOR Commissioner Pat Galvin to the Senate
Finance Committee. Commissioner Galvin had used the point-
of-production tax (the system put in by regulation 15,
AAC.90.220) and arrived at a gas production tax obligation
of $1.2 billion. Decoupling and using a point-of-production
analysis, using the same structure used by the commissioner
would allocate 78 percent of the cost to oil and 22 percent
of the cost to gas. The tax obligation on a decoupled basis
would be approximately $1,015,500. He stressed that that is
the beginning point for negotiation.
Senator Paskvan concluded that the state should keep its
eye on the top line for gross revenues for both products on
a decoupled basis and then look at the negotiation position
by making sure that the starting point is at the billion
dollar range.
Co-Chair Hawker noted that SB 305 was the proposed solution
and would be presented by the consultants.
2:32:18 PM
Representative Gara commented on the difficulty of shifting
ideologies without preconceptions. He noted that with some
language changes he might agree with the senators and
Representative Hawker. He pointed out that he had been
present throughout the PPT and ACES debates and had not
been told once that Alaska could have a gas pipeline and a
oil pipeline that produced less revenue than an oil
pipeline alone. He believed the issue was very important.
Representative Gara stated that he, Senator Hollis French,
and others had tried to push for separate oil and gas taxes
and were told that it could not be done. He wanted to enter
into gasline negotiations from the strongest position
possible. He listed previous concerns that had been
addressed, including that it made sense to leave
progressivity in. He had committed to let industry deduct
gas field costs from oil taxes in order to move a gasline
forward, and he thought it would be wise to craft language
so that the small amount of gas produced on the North Slope
would not have to be burdened with decoupling in the
meantime.
Vice-Chair Thomas stated concerns about the timing of the
legislation; he worried that the House would not have the
time with the legislation that the Senate had. He agreed
that the issue was huge. He did not want to lose money, but
he wanted more information about the gas taxes and urged
proceeding with caution.
2:37:34 PM
Senator Stedman pointed out that currently there was cross-
subsidy going on as there was gas in the Arctic and Cook
Inlet as well as Prudhoe Bay-Kuparik, but emphasized that
SB 305 was revenue-neutral. He recalled that in the last
three years the impact to the treasury has been roughly
$250 million without gas. There was language in the bill to
protect the industry so they would get the current
dilution. The crafters did not want to "rock the boat";
they wanted to protect the state from being locked in on
May 1.
Co-Chair Stoltze emphasized the importance of the May 1,
2010 date and the consequences of the administration
deciding not to sign the bill. Senator Stedman agreed
regarding the importance of the date.
Co-Chair Hawker reported that the administration had
testified that it views the problem as less severe.
Vice-Chair Thomas queried what could happen if the governor
vetoed the bill. He wondered whether the legislature could
override the veto in time. Senator Paskvan did not know. He
believed the effective date on the statute was January 1.
Co-Chair Stoltze hoped there would be more testimony
related to the importance of timing.
2:42:07 PM AT EASE
2:42:22 PM RECONVENED
Representative Fairclough believed there was time before
May 1 to fully understand the issue.
Co-Chair Hawker pointed to extensive testimony and analysis
on the bill's website.
ROGER MARKS, PETROLEUM ECONOMIST, LEGISLATIVE BUDGET &
AUDIT COMMITTEE, introduced himself and his partner as
being from Logsdon & Associates and under contract with the
Legislative Budget and Audit Committee to assist the
legislature in gas taxation matters.
Co-Chair Hawker queried their qualifications related to oil
and gas issues. Mr. Marks replied that they had worked for
the Tax Division of DOR for many years on the oil and gas
production tax and issues of gas commercialization.
CHUCK LOGSDON, PETROLEUM ECONOMIST, LEGISLATIVE BUDGET &
AUDIT COMMITTEE, added that they had over fifty years of
experience between the two of them in evaluating petroleum
taxation related to the Alaska fiscal system.
Mr. Marks provided a summary of the premise and rationale
for the bill and a description of how the bill works, using
a PowerPoint presentation, "SB 305: The De-Coupling of Oil
from Gas for the Oil and Gas Production Tax, Logsdon &
Associates, House Finance Committee, April 14, 2010" (copy
on file). He began with Slide 2, "Acronyms":
BBL barrel
BCF billions of cubic feet
MMBTU millions of BTUs
BOE barrel of oil equivalent
Mr. Marks detailed that a barrel (bbl) is how the volume of
oil is measured and the unit of how oil is sold. Billions
of cubic feet (Bcf) refers to how the volume of gas is
measured. He explained that natural gas contains mostly
methane but also butane and heavier hydrocarbons; while the
volume is measured in cubic feet, it is sold in terms of
the millions of British Thermal Unit (BTU) content (MMBTU).
Finally, the barrel of oil equivalent (BOE) puts gas on the
same basis of oil so they can be added up, measured, and
compared by converting MMBTUs of gas to bbls of oil. A
barrel of oil has 6 million BTUs; taking the amount of BTUs
of gas and dividing by 6 puts the gas on a barrel of oil
equivalent (BOE).
2:47:29 PM
Mr. Marks turned to Slide 3, "The Problem":
• The progressivity part of the production tax rate is
based on per barrel oil or per BTU gas profitability
• Under current law oil and gas are combined for
calculating the progressivity
• Oil is worth much more than gas
• With a major gas sale, combining the lower value gas
with the higher value oil will "dilute" the per barrel
oil profitability:
- Driving down the progressivity factor
- Materially reducing production taxes
Mr. Marks detailed that there is currently a base tax rate
of 25 percent on the oil and gas production tax;
progressivity is added to that to give a higher rate if the
value of the oil or gas is above a certain rate.
Co-Chair Hawker summarized that when gas comes on the unit
higher values of the oil are diluted.
Mr. Marks reviewed Slide 4, "Oil vs. Gas Value":
• Now:
- Gas: $4/mmbtu
- Oil: $80/bbl ($13/mmbtu)
• Department of Energy forecast for 2020:
- Gas: $8/mmbtu
- Oil: $120/bbl ($20/mmbtu)
• Transportation cost deductions:
- Gas: $5.00/mmbtu to Lower 48
- Oil: $6.00/bbl ($1.00/mmbtu)
Mr. Marks detailed that on a straight BTU to BTU basis, oil
is currently worth about three times as much as gas. The
U.S. Department of Energy forecast for 2020 (when it is
hoped that a major gas sale would start) is $8/MMBTU, while
the forecast for oil is around $20/MMBTU, or about 2.5
times as much as gas. In addition, in Alaska the
differences are exacerbated by transportation costs. The
tax is based on net value. Gas will have a much higher
transportation cost than oil per MMBTU, about five times as
much.
2:50:52 PM
Mr. Marks directed attention to Slide 5, "How the Tax Rate
is Determined":
• Base 25% rate
• Plus progressivity
- Progressivity is based on the net value per BOE:
• Oil Alone: Total oil value / Total oil
barrels
• Combined Oil & Gas: Total oil and gas net
value / Total oil and gas BOE's
- When lower value gas is added to the higher value
oil the average net value of the combined oil and
gas goes down
Representative Doogan asked whether part of the problem
would be a lot of low-value gas compared to relatively less
high-value oil. Mr. Marks responded that he was correct and
suggested thinking of the relationship as a fraction with
the numerator being the value and the denominator being the
amount of production.
Representative Doogan noted that a lot of the issue is
related to the theory that there would be a lock-down when
companies nominate gas during the open season. He asked
whether the problem would be exacerbated as more gas is
nominated. Mr. Marks responded that he was correct; the
greater the difference between oil and gas value, the
larger the problem, and the more gas there is relative to
oil, the greater the problem.
Mr. Marks turned to Slide 6, "Reference Case," or how the
world might look in 2020:
• Oil
- 500,000 barrels per day
- $120/bbl market price
• Gas
- 4.5 bcf/day
- $8/mmbtu market price
• Upstream costs
- $2.2 billion capital
- $2.2 billion operating
2:54:39 PM
Co-Chair Hawker noted that the same reference numbers had
been used in the previous committee. He asked whether the
upstream operating and capital expenses were reasonable
costs to anticipate. Mr. Marks believed the numbers were
reasonable and consistent with current costs, adjusted for
inflation plus additional costs that may occur with new
fields like Pt. Thompson.
Representative Austerman asked whether the 500,000 barrels
per day was taxable oil. Mr. Marks agreed; the numbers are
DOR's forecast for production in 2020.
Mr. Marks moved on to Slide 7, "What Happens under Status
Quo":
• Oil taxes under status quo prior to gas production:
Net value of oil = $86/bbl (tax rate 47%)
Oil Tax = $6.1 billion
• Add a 4.5 bcf/day of gas:
Combined net value of oil and gas = $47/bbl (tax
rate 32%)
Total oil & gas taxes: $5.5 billion
• Bottom line: The drop in the tax rate of oil more than
offsets all the the taxes on gas. Not only does the
state not received any additional revenues from the
gas, but oil revenues drop as well.
Mr. Marks detailed that the numbers assume oil production
similar to present levels and no gasline, 500,000 barrels
per day and the $120 Lower 48 price. When the costs are
subtracted to get to the net or production tax value, the
net value is approximately $86/bbl. Given the way
progressivity works, when the amount above $30 is subject
to a 0.4 percent slope per dollar, the tax rate is 47
percent at $86/bbl. The tax rate would be $6.1 billion
annually.
Mr. Marks explained that adding a 4.5 Bcf/day gasline on
top of the oil production would not affect oil; but
combining the lower-value gas with the higher-value oil
would reduce the $86/bbl average BOE value down to $47/bbl.
Co-Chair Hawker asked whether the scenario would occur when
the switch is flipped on and gas is produced. Mr. Marks
agreed; the prices would occur when the average value of
the oil is diluted by the gas. Without the gas, oil would
have the $86/bbl tax value at 47 percent tax rate;
switching on the gas would bring the combined value down
from $86/bbl to $47/bbl (tax rate at 32 percent).
Mr. Marks highlighted that the total taxes would then be
$5.5 billion for both the oil and the gas. There would be
no additional taxes from the gas and the oil revenue would
drop as well.
Mr. Marks reported that over the past months he and Mr.
Logsdon had looked extensively at other international
petroleum fiscal regimes. They could find no other place on
the planet where a jurisdiction combines substances of
different values and the basis for taxation is the combined
per unit value.
Co-Chair Hawker clarified that the comparisons referred to
annualized numbers. Mr. Marks concurred, and emphasized
that the $5.5 billion was the total taxes from the oil and
the gas both, compared to the $6.1 billion that was oil
alone.
2:59:11 PM
Representative Kelly queried writing regulations [adopted
by DOR during AGIA] related to changing the point of
production and the BTU oil equivalent. Mr. Marks replied
that he would get to the issue.
Representative Doogan asked the value of gas in the
example. Mr. Marks replied that the value of gas on a MMBTU
basis would be about $1.60 and on a BTU basis $9 to $10.
The dilution effect drags the oil taxes down and the gas
taxes up, but the net effect is that the oil effect
overwhelms the gas effect, which creates the drop in
revenue when oil and gas are both being produced.
Vice-Chair Thomas asked what would motivate a person who
voted against ACES to vote for decoupling. Mr. Marks
replied that the issue was a policy call. He stated as an
analyst that whether a person liked ACES or not, it was the
law of the land. He stressed that ACES would stay in effect
just as it was passed except that it would apply to oil and
gas distinctly.
Co-Chair Hawker agreed that the question was on his mind as
well. He reiterated that the crafters of PPT knew that the
dilution problem would have to be dealt with. He believed
the issue was a long-term consistency one and that SB 305
would "buy an insurance policy, just in case."
3:04:39 PM
Representative Austerman asked for clarification about the
numbers arrived at. Mr. Marks replied that the assumptions
start with $86/bbl oil and the gas at $9 on a BOE basis and
ends up with and average of $47 for per unit value oil and
gas combined.
Representative Austerman queried the value of the $8 when
oil and gas are combined. Mr. Marks responded that the
value was about $1.60.
Representative Gara went back to Representative Kelly's
question. He summarized that (related to valuing the gas)
the Senate had passed a version on a BTU basis; the House
Resources Committee worked with the administration and came
up with a point-of-production basis for the value. Whether
there is a BTU basis that results in a lower gas tax or a
point-of-production basis that is higher, the goal is to
not start the open season with a gas tax that is too low as
it might only go lower with negotiations. He queried the
regulations passed with a definition of gas taxes. He asked
whether the DOR regulations would be overridden if SB 305
were passed.
Mr. Marks clarified that there were two different issues.
With decoupling, there would be the issue of allocating
costs between oil and gas. The regulations adopted by DOR
several weeks ago stipulate that under AGIA the gas part of
the tax is locked in. Since under the status quo there is
one total tax that does not separate gas tax and oil tax,
the department needs to come up with a way to ascribe how
much of the $5.5 billion is gas. Tax is being allocated,
not costs, using gross value. He agreed that if SB 305
passed, the adopted regulations would not make sense.
Decoupling would make clear how much the gas taxes are.
3:09:12 PM
Representative Gara wanted assurance that Mr. Marks would
work with the administration if SB 305 says that the
regulations are no longer necessary. Mr. Marks thought the
question was for the administration.
Representative Fairclough summarized her understanding: the
oil tax at $6.1 billion is an equivalent when taken into
barrels; when the 4.5 Bcf/day gas is added, which will be
taxed at the combined rate, the new combined rate equals
the $47 per barrel (taxed at 32 percent). She asked the
values of the oil and the gas. Mr. Marks replied that the
value of oil has not changed.
Representative Fairclough queried the difference in the tax
rate. Mr. Marks replied that the tax rate on the $86 oil is
47 percent.
Representative Fairclough asked for clarification. Mr.
Marks explained that the tax went from 47 percent to 32
percent because of progressivity. Even though there is
higher value for the oil, dropping the tax rate 15 percent
on the total value accounts for the $1.6 billion less.
Mr. Logsdon added that the weight average should come out
to $47/bbl if the volume in barrels were multiplied by the
barrel price for oil and the volume of the gas were
multiplied by the barrel equivalent price of the gas. Mr.
Marks elaborated that if the 4.5 Bcf/day on a BOE basis was
divided by 6, the result would be about 750,000 BOEs per
day; 750,000 BOEs of gas and 500,000 BOEs of oil, or a
production ratio of 60 percent gas and 40 percent oil.
Mr. Marks continued that the other side is relative value.
He compared $86/bbl oil; at a BOE equivalent, the gas is
about $9 ($1.66/MMBTU). He stressed that to put oil and gas
on an equivalent basis, the $8 gas with transportation
costs subtracted is worth about $1.66/MMBTU.
3:14:47 PM
Mr. Marks turned to Slide 8, "What Happens with Decoupling
[Using relative gross value to allocate cost]":
• $120 oil and $8 gas
- Status quo taxes = $5.5 billion
- De-coupled taxes = $7.9 billion
$2.4 billion difference
• Annual difference at other prices:
- $100 oil / $8 gas: $1.4 billion
- $80 oil / $8 gas: $0.8 billion
Mr. Marks detailed that the difference between the status
quo and decoupling would be around $2.4 billion. When
decoupling, the costs need to be allocated between oil and
gas. He referred to a recent amendment by the House
Resources Committee to allocate based on the relative gross
value of oil and gas (the gross value is market price less
transportation). Using the gross value, the difference
would be $2.4 billion between the status quo and
decoupling. He noted that the bigger difference between oil
and gas value, the bigger the difference between the status
quo and decoupling. He covered the annual difference at
other prices for oil.
Co-Chair Hawker queried the break-even point. Mr. Marks
replied progressivity is not linear. Co-Chair Hawker stated
that the closer oil and gas come in price, there is less of
a problem. Mr. Marks thought the question was how SB 305
would decouple oil from gas.
Co-Chair Hawker contended that SB 305 is hard to understand
and must be taken in context with the entire statute; he
believed the presentation defined the simpler concept
embodied in the bill.
Representative Austerman asked whether the PowerPoint
information was based on the amended bill coming out of the
House Resource Committee or the Senate version. Co-Chair
Hawker answered that the two versions were the same for the
purposes of the current conversation; the major difference
in the House Resources Committee version is an additional
mechanism that would make the tax take effect for about
three days, go away, and then take effect ten years in the
future. The mechanism remained unchanged.
3:18:10 PM
Mr. Marks asserted that SB 305 was changing one small thing
in how the production tax works, which would make a big
difference. He directed attention to Slide 9, "How SB 305
Works," highlighting the difference in calculation between
the current tax regime and decoupling:
• Currently
- Each company calculates one statewide
progressivity rate based on all combined oil and
gas activity (oil, Cook Inlet gas, other in-state
gas)
• Under SB 305: Two Progressivity Calculations
- Bucket 1: Same current activity (oil, CI gas,
other in-state gas) will continue to be
calculated together
• No tax increase on current activity
- Bucket 2: Progressivity on export gas will be
calculated distinctly (same formula)
• Will not dilute oil progressivity
Mr. Marks detailed that currently there is one
progressivity rate based on all combined oil and gas
activity. Progressivity under SB 305, by contrast, would
use two calculations, first separating current activity and
export gas into two "buckets." Bucket 1 would contain all
current activity; there would be no tax increase.
Co-Chair Hawker stated that there would be no change in
activity and no change in taxes.
Mr. Marks continued that without SB 305, there would be
only one statewide bucket and when a major gas deal
happens, the gas exported would dilute the value of the
oil. Senate Bill 305 would set up a new bucket (Bucket 2)
containing only the export gas; progressivity would be
calculated on the export gas exactly as it is calculated
under ACES. He underlined that calculating the export gas
separately would prevent the export gas from diluting the
oil activity.
Co-Chair Hawker summarized that the oil activity,
calculated as it is currently would remain in Bucket 1,
while the new export gas would be in Bucket 2 with a
separate calculation.
3:20:54 PM
Representative Gara asked whether gas that is not exported
but used in the state would remain under the current ACES
tax. Mr. Marks responded in the affirmative.
Co-Chair Hawker noted that Cook Inlet gas would stay
permanently under ELF. Mr. Marks added that it would be
calculated under progressivity but would pay under ELF.
Representative Austerman asked how "export gas" was
defined. Mr. Marks replied that export gas is gas that
leaves the state and is used outside the state, with the
exception of Cook Inlet gas.
Co-Chair Hawker clarified that the gas referred to would be
from the North Slope. Mr. Marks agreed that the liquid
natural gas (LNG) is part of Bucket 1; export gas would
come from outside of Cook Inlet and leave the state, such
as North Slope gas that would go to Canada and the Lower
48.
Representative Gara pointed out that there could not be a
separate, lower tax on gas used in-state. He asked whether
the Bucket 2 language could stipulate that decoupling would
begin when North Slope gas began to be exported. He was
concerned with constitutional issues. Mr. Marks responded
that Bucket 2 would be empty until a major gas sale is made
and that the in-state gas would be Bucket 1.
3:24:16 PM
Mr. Marks pointed to Slides 10 and 11 with visual
illustrations of the two buckets.
Representative Fairclough asked whether Bucket 1 would have
the combined tax rate and Bucket 2 would not. Mr. Marks
answered in the affirmative; the combined tax rate
currently in effect would be in Bucket 1.
Co-Chair Hawker added that pure decoupling, or putting all
gas in one bucket and all oil in another, would penalize
the companies that are currently producing both oil and
gas.
Mr. Marks reported that the bucket system was structured in
the Senate Finance Committee; the intent was that there not
be a tax increase at this time.
Vice-Chair Thomas queried the tax rate for spur lines taken
off the main gasline. He wondered what the royalty rate
would be to the in-state users. Mr. Marks responded that
under the current production tax, all in-state gas has a
tax rate that is subject to old ELF provisions, a low tax
of $0.17/MMBTU regardless of the price.
Vice-Chair Thomas clarified that the rate applied to any
gas used in the state.
Co-Chair Hawker acknowledged that current statute could
face federal constitutional challenges, as different tax
structures are set up for in-state gas from the same
source. He stated that the possibility would not become
real until the state has actually exported gas. He thought
the issue did not have to be dealt with in the current
legislative session.
3:28:28 PM
Representative Gara wanted the bill written in a way that
is constitutional. He fully intended to leave the lower tax
rate on in-state use of gas as long as possible.
Representative Gara summarized that by mixing oil and gas,
the state essentially short-changes itself on the oil tax
rate in cases where there is low-priced gas. Mr. Marks
agreed.
Representative Gara stated for the record that the state is
currently giving a benefit to companies like ConocoPhillips
by allowing them to dilute oil tax payments with Cook Inlet
gas costs. Mr. Marks agreed.
Co-Chair Hawker took issue with the language "short-
changing" the state, which implied a motive that he did not
think existed.
Representative Gara restated that one of the benefits to
producers who provide in-state gas is a slightly lower tax
rate. Mr. Marks responded that PPT was designed as a state-
wide tax based on state-wide activity. Combining oil and
gas does reduce the tax.
Co-Chair Hawker explained that the sponsor's bill did not
intend to fiscally impact current producers relying on
current law. The bill intended to accommodate the interim
period and not disrupt producers from developing new gas
sources. He noted that the House Resources Committee
addressed the issue by creating a window that would open
and then close through a trigger mechanism. He referred to
concerns about the mechanism and hoped to find a better one
allowing a durable statute that would provide the hold-
harmless for existing producers. He reported that his
office had been working closely with the consultants and
DOR; both had arrived at a similar concept on a joint
proposal that would address the issue.
3:33:58 PM
Representative Kelly asked whether the major players from
the industry would be present for the discussion. Co-Chair
Hawker anticipated that they could join in public testimony
voluntarily or they could be required to join.
Representative Kelly wanted a complete record and hoped
they would be required to participate.
Representative Austerman asked for clarification regarding
LNG. Mr. Marks explained that the portion of the gas that
stayed in-state would be Bucket 1; North Slope gas that was
exported through an in-state line through Southcentral and
Valdez would be Bucket 2.
Co-Chair Stoltze stated that he did not want producers to
be compelled to testify.
3:37:17 PM
Representative Kelly maintained that it would be a mistake
to leave out information from the group because of the
short time allowed.
Representative Fairclough agreed with comments on both
sides of the issue and suggested that a time could be
specified for testimony from the players.
Co-Chair Hawker spoke to the timeline for the amendment.
SB 305 was HEARD and HELD in Committee for further
consideration.
3:40:22 PM AT EASE
4:03:00 PM RECONVENED
HOUSE BILL NO. 69
"An Act establishing in the Department of Education
and Early Development a voluntary parent education
home visiting program for pre-elementary aged
children; and establishing a rating system for early
childhood education."
4:03:28 PM
Co-Chair Hawker expressed reservations about the $4 million
per year fiscal note.
Vice-Chair Thomas MOVED to report HB 69 out of Committee
with individual recommendations and the accompanying fiscal
note.
Representative Fairclough OBJECTED for discussion. She
noted that she and Representative Thomas had met regarding
the bill and had agreed to address violence against
children in the home.
Representative Thomas agreed that he would do everything he
could.
Representative Fairclough removed her objection. There
being NO further OBJECTION, it was so ordered.
CSHB 69(FIN) was REPORTED out of Committee with a "do pass"
recommendation and with attached new fiscal impact note by
the Department of Education and Early Development.
HOUSE BILL NO. 421
"An Act relating to the compensation of certain public
officials, officers, and employees not covered by
collective bargaining agreements; and providing for an
effective date."
4:05:48 PM
KEVIN BROOKS, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, stated that the bill would provide a 2
percent increase over each of the next three years for
employees of the legislative, judicial, and executive
branches who are not covered by collective bargaining
agreements. Approximately 800 employees would be affected
in the judicial branch, 500 in the legislative branch, and
1,700 in the executive branch.
CHRIS CHRISTENSEN, DEPUTY ADMINISTRATIVE DIRECTOR, ALASKA
COURT SYSTEM, testified in support of the legislation. He
stated that the court system has the largest group of non-
union employees. He noted that court system employees as a
group are the lowest paid branch; about 70 percent of court
employees are range 15 or less, which causes problems with
turnover and training. He stated that court employees are
hard-working and dedicated. He added that over the past 20
to 25 years, non-union employees have received
substantially lower pay increases than actual increases in
the cost of living. For example, a range 10A today is
making more than 20 percent less than a range 10A in the
mid-1980s (not taking into account reductions in benefits
such as health insurance).
4:09:09 PM
Co-Chair Hawker noted that there was a fiscal note for the
legislative branch and stated his concerns regarding rising
costs. He wanted to zero out the executive and legislative
branches as he did not like passing additional salary
increments when unemployment was so high in the state. He
acknowledged that all the employees deserved to be treated
equally.
Co-Chair Stoltze hoped there would be a fiscal note
reflecting true costs related to a constitutional amendment
on increasing the legislature.
Vice-Chair Thomas MOVED to report HB421 out of Committee
with individual recommendations and the accompanying fiscal
notes. There being NO OBJECTION, it was so ordered.
HB 421 was REPORTED out of Committee with a "do pass"
recommendation and with three attached new fiscal impact
notes by the Legislature, the Court system, and the Office
of the Governor.
Representative Kelly commented that he had difficulty
supporting the bill but he wanted to treat the non-
bargaining employees in the same manner as the bargaining
ones.
Co-Chair Stoltze acknowledged the hard work of court
employees.
4:12:59 PM RECESSED
4:20:03 PM RECONVENED
CS FOR SENATE BILL NO. 219(FIN)
"An Act establishing a traumatic or acquired brain
injury program and registry within the Department of
Health and Social Services; and relating to medical
assistance coverage for traumatic or acquired brain
injury services."
4:20:30 PM
SENATOR LESIL MCGUIRE, SPONSOR, spoke to the subject of
traumatic brain injury (TBI). She reported that Alaska has
the highest incidence of TBI in the nation. There are a
variety of causes, including accidents, snow machine
crashes, and domestic violence; in addition, many senior
citizens have brain injuries as a result of stroke,
aneurism, and tumors. She highlighted that the numbers
increase as veterans return from service in Iraq. She
reminded the committee of a past presentation where
soldiers with TBI had testified. She noted that Alaska
Natives in particular have been affected by TBI.
Senator McGuire informed the committee that SB 219 would
establish a new brain injury program within the Department
of Health and Social Services (DHSS) as well as a registry
for TBI. Alaska has not had such a program in its history.
She added that Alaska leads the nation in TBI, especially
in the categories of veterans, the elderly, and Alaska
Natives.
Senator McGuire pointed out that the fiscal note was fairly
minimal. She felt the program was sustainable. The goal is
to have a place for citizens to go to access resource and
information about TBI. The Alaska Brain Injury Network,
Inc. (ABIN) was founded by people who were affected by TBI.
She hoped the new program in DHSS would allow access to
federal Medicaid dollars in the form of matching money. She
referred to an earlier plan to create a waiver; she had
come up with a solution with less fiscal impact in response
to concerns. She noted that the program coordinator would
access other Medicaid funds already in existence and
harness them for families who cannot afford treatment for
TBI; federal funds matched 50/50 with state funds.
4:25:49 PM
Senator McGuire hoped that Alaska could become part a
larger information and resource network. She hoped that the
DHSS coordinator for the program would network with other
groups, including the Department of Military and Veterans
Affairs (DMVA), the Native corporations, and the survivor
network. She concluded that TBI is a permanent, life-
altering injury; there is no way to re-generate brain
cells. However, with early intervention and treatment,
people can live productive lives.
Co-Chair Stoltze asked whether the bill was endorsed by
veterans.
ESTHER CHA, STAFF, SENATOR LESIL MCGUIRE, replied that the
sponsor had been in contact with veterans who suffer from
TBI; the ATBI has been working with DMVA and hoped to
increase cooperation.
Vice-Chair Thomas asked whether Fetal Alcohol Spectrum
Disorder (FASD) and Alzheimer's disease were covered under
the bill. Ms. Cha replied that FASD and Alzheimer's and
other degenerative diseases are not covered under the
program because they are covered under other Medicaid
waiver services.
Vice-Chair Thomas queried a letter by the Department of
Corrections stating that 42 percent of the population has a
diagnosable mental health disorder. Ms. Cha thought the
statistic was correct. Vice-Chair Thomas was concerned
about co-mingling in the prisons.
4:30:31 PM
Co-Chair Stoltze opened public testimony.
STEVE WILLIAMS, PROGRAM OFFICER, ALASKA MENTAL HEALTH TRUST
AUTHORITY (via teleconference), testified on behalf of Jeff
Jesse in support of the legislation. He reported that the
Alaska Mental Health Trust Authority (AMHTA) in partnership
with DHSS, ABIN, and other community stakeholders and
providers have worked for several years towards the
improvement of service for Alaskans with traumatic or
acquired brain injuries. Unfortunately, a significant
number of Alaskans suffer from TBI; DHSS reports that there
are 800 cases per year that result in either death or
hospitalization. It is estimated that 3,000 Alaskans visit
a hospital emergency room each year with a mild TBI and
over 10,000 Alaska are estimated to be living with a
disability resulting from a TBI.
Mr. Williams stated that AMHTA supports SB 219 and sees it
as an integral step for Alaska towards the development of
an integrated system of care for Alaskans with traumatic or
acquired brain injuries, including partnering with tribal
organizations, DMVA, and community and non-profit partners
who are providing services and support to these
individuals. The trust does not think that it is efficient
for different entities develop their own systems of care
for folks with TBI; SB 219 is an integral step towards
pulling the groups together to increase efficiency.
Mr. Williams noted that the 42 percent statistic mentioned
by Representative Thomas regarding the number of prison
inmates with mental health disorders came out of a study
done in December 2007. He offered to send the results of
the study.
4:34:30 PM
JILL HODGES, EXECUTIVE DIRECTOR, ALASKA BRAIN INJURY
NETWORK (via teleconference), spoke in support of the bill.
She explained that ABIN has traveled to many communities
and heard from thousands of Alaskans who have experienced
brain injury. She relayed that every brain injury is
unique, but the needs and concerns have been consistent
across the state. There is not an official home in Alaska
state government to address the concerns; there is also no
rehabilitation program.
Ms. Hodges noted that there are both long-term goals and
short-terms components of the legislation. She highlighted
the case management aspect of the bill, which she believed
to be a good starting point for state government; it
utilizes a significant number of federal receipts and
provides a service that can be accessible to both rural and
urban Alaskans. The services would be put in the hands of
community providers.
Ms. Hodges continued that the military has brought
attention to brain injury and also the development of case
management. Studies have shown that the approach reduces
emergency room visits and deters more costly care. Most
importantly, the approach increases readiness for
employment and vocational rehabilitation efforts. The
network has consistently heard that people with TBI want to
return to work, military personnel want to return to duty,
and Alaska Natives want to participate in subsistence
activities again. Case management can help build the
ability to do these things.
Ms. Hodges referred to research showing the amazing
abilities and the elasticity of the brain. She informed the
committee that ABIN strongly supports SB 219.
DR. CHRISTIE ARTUSO, DIRECTOR, NEUROSCIENCE SERVICES,
PROVIDENCE ALASKA MEDICAL CENTER, ANCHORAGE (via
teleconference), testified in support of SB 219. She told
the committee that Alaska has outstanding acute care
services but there is a shortage of the services needed.
She noted that Alaskan youth, athletes, and military
personnel are affected. She relayed the story of a 41-year-
old man who suffered TBI who was re-hospitalized 27 times
in 18 months; there were no appropriate services for him.
Dr. Artuso reported that the Providence Alaska Medical
Center neuroscience services department wants to partner
with the state, the AMHTA, and ABIN to develop the needed
services. She urged the committee to support the
legislation.
4:41:30 PM
KRISTIN ENGLISH, CHIEF OPERATING OFFICE, COOK INLET TRIBAL
COUNCIL (via teleconference), spoke in support of SB 219.
She explained that the tribal council provides social
services for many in the Anchorage area, but also provide
services to primarily Alaska Natives throughout the state.
She pointed to a correlation between substance abuse and
TBI; 46 percent of clients in the residential and de-tox
center have self-reported TBI and 36 percent have reported
TBI in outpatient services. She pointed out that the
numbers are probably low.
Ms. English noted that TBI has been linked to mood, stress,
and behavior disorders, which are in turn linked to
substance abuse. The tribal council believes the bill will
provide support to the substance abuse community.
MARTHA MOORE, CHAIR, ALASKA BRAIN INJURY NETWORK, testified
in support of the legislation.
Co-Chair Stoltze closed public testimony.
Representative Fairclough queried the two positions in the
fiscal note.
ANGELA SALERNO, DIVISION OF SENIOR & DISABILITY SERVICES,
DEPARTMENT OF HEALTH AND SOCIAL SERVICES, replied that the
department did not request the positions because they
believed existing staff could do the work.
Representative Fairclough MOVED to report CSSB 219(FIN) out
of Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSSB 219(FIN) was REPORTED out of Committee with a "do
pass" recommendation and with attached previously published
fiscal notes: FN1 (DHS), FN2 (DHS).
4:47:24 PM RECESSED
ADJOURNMENT
The meeting was adjourned at 8:08 PM.