Legislature(2017 - 2018)HOUSE FINANCE 519
04/14/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Spring Revenue Forecast: Powerpoint | |
| HB103 | |
| HB76 | |
| HB128 | |
| SB3 | |
| HB167 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 76 | TELECONFERENCED | |
| + | HB 128 | TELECONFERENCED | |
| *+ | HB 167 | TELECONFERENCED | |
| + | SB 3 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 103 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 14, 2017
1:38 p.m.
1:38:25 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:38 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Randall Hoffbeck, Commissioner, Department of Revenue; Ken
Alper, Director, Tax Division, Department of Revenue;
Chantal Walsh, Division Director, Oil and Gas, Department
of Natural Resources; Ed King, Special Assistant,
Department of Natural Resources; Jerry Burnett, Deputy
Commissioner, Treasury Division, Department of Revenue;
Representative Ivy Spohnholz, Sponsor; Dr. Barney, Board of
Optometry; Elizabeth Bolling, Staff Representative Dan
Ortiz; Britteny Cioni-Haywood, Director, Division of
Economic Development and Commerce, Department of Commerce;
Tamsen Peeples, Lead Alaska Operations, Blue Evolution,
Juneau; Julie Decker, Alaska Fisheries Development
Foundation, Juneau; Mary Hakala, Staff, Representative Dan
Ortiz; Forrest Bowers, Deputy Director, Division of
Commercial Fisheries, Department of Fish and Game; Ginny
Eckert, Alaska King Crab Research, Rehabilitation and
Biology Program, Juneau; Angel Dvobnica, Aleutian Pribilof
Island Community Development Association; Senator Bert
Stedman, Sponsor; Michael A. Neussl, Deputy Commissioner,
Department of Transportation and Public Facilities; Dave
Scott, Staff, Senator Bert Stedman; Representative
Gabrielle LeDoux, Sponsor; Kris Curtis, Legislative
Auditor, Alaska Division of Legislative Audit;
PRESENT VIA TELECONFERENCE
Tomi Marsh, Board Member, Oceans Alaska, Ketchikan; Erik
O'Brien, Southwest Alaska Municipal Conference, Anchorage;
Doug Griffin, Southwest Alaska Municipal Conference,
Anchorage; Tomi Marsh, Oceans Alaska, Ketchikan; Jamey
Cagle, Alaskan Dream Cruises, Sitka; Peter Butz, Alaskan
Dream Cruises, Sitka;
SUMMARY
HB 76 MARICULTURE REVOLVING LOAN FUND
HB 76 was HEARD and HELD in committee for further
consideration.
HB 103 OPTOMETRY & OPTOMETRISTS
CSHB 103(FIN) was REPORTED out of committee with
a "do pass" recommendation and with a previously
published fiscal impact note: FN2 (CED).
HB 128 SHELLFISH ENHANCE. PROJECTS; HATCHERIES
HB 128 was HEARD and HELD in committee for
further consideration. 1
HB 167 STATE AGENCY PERFORMANCE AUDITS
HB 167 was HEARD and HELD in committee for
further consideration.
SB 3 SMALL VESSEL WASTEWATER EXEMPTION; 1 Percent ART
HCSSB 3 (TRA) was REPORTED out of committee with
a "do pass" recommendation and with a new zero
fiscal note by the Department of Transportation
and Public Facilities and with a previously
published zero fiscal note: FN1 (DEC).
SPRING REVENUE FORECAST: POWERPOINT
Co-Chair Foster conveyed the agenda for the day. The
committee would be hearing six bills and one presentation.
^SPRING REVENUE FORECAST: POWERPOINT
1:40:13 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
introduced the PowerPoint Presentation: "Revenue Sources
Book Spring 2017." He reported comments having been made in
the House finance Committee speculating that the Revenue
Sources Book information had been withheld for political
purposes. He reassured the committee that nothing was
further from the truth. The department was committed to
providing accurate information in a timely fashion. He
reported that the department had a draft of the final
report done about a month prior to its release. There was a
concern about releasing the information prior to completing
March tax returns. However, the department had released it
in the prior year in advance and intended to do so in the
current year. However, the department recognized it would
have to release Advisory Bulletin 2017-1, which would have
a dramatic impact on revenues. He did not feel it was
appropriate to release a document that was going to have
large changes of about $100 million in revenues. The staff
of the Department of Revenue (DOR) was instructed to get
2017 out the door before tax returns were due so that
taxpayers would have the advisory bulletin to use for
filling out tax returns. Afterwards, the department was
told to focus on the Revenue Sources Book so that it could
be released as quickly as possible. The department had not
held onto the report, as the numbers were being finalized
the previous afternoon. He clarified that the department
released the Revenue Sources Book as quickly as it could.
Commissioner Hoffbeck began with slide 4: "FORECAST CHANGE:
Production Tax Revenue Highlights":
· Oil price forecasts up by 7% for FY17. Post FY 2018
unchanged from fall forecast
· Long-term prices (FY 2025+) expected to settle
around $70-75 real
· Oil production forecasts up by 7% for FY17. FY18
forecast increased by 1%.
· Long-term forecast decreased slightly (~ 2% per
year)
· Unrestricted revenue forecast increased due to higher
oil price and production forecasts
Commissioner Hoffbeck relayed that due to the higher oil
price and production forecast, the state showed
substantially more revenue in FY 18. This was driven
largely by the advisory bulletin, and the treatment of
credits moving forward.
Commissioner Hoffbeck advanced to slide 5: "FORECAST
CHANGE: Comparison from Fall 2016 Forecast for FY 2017." He
explained that the slide showed a breakout of the forecast
data and the difference between the Fall 2016 and the
Spring 2017 forecasts. In the Fall 2016 forecast, the
department projected the annual average price of oil to be
$46.81 per barrel (/bbl). The Spring 2017 forecast showed
the annual average price of oil to be $50.05 per barrel, an
increase of $3.24 and a 7 percent change.
Commissioner Hoffbeck highlighted that Alaska North Slope
(ANS) oil production would move from 490.3 thousand barrels
per day (bbls/day) to 523.7 thousand bbls/day, an increase
of 33.4 thousand bbls/day (7 percent). He continued that,
based on data that the state had received, the ANS
deductible lease expenditures and transportations costs
decreased. The net effect was that from the time of the
fall forecast with revenue estimated at $966.9 million in
UGF petroleum revenue it had increased to $1,158.5 million,
an increase of $191.6 million (20 percent).
Vice-Chair Gara commented that in looking at the
unrestricted petroleum revenue it would reach $1.279
billion by FY 18 according to the Revenue Sources Book.
There had been discussion about a revenue cap, which he
understood would take effect until the price of oil reached
$85 /bbl. He wondered if revenue would reach $1.279 billion
by the coming fiscal year.
1:45:46 PM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
responded in the negative. He elaborated that the $1.2
billion included the other two unrestricted petroleum
revenues: the property tax and the corporate income tax. If
those numbers were backed out, the number would be below
the $1.2 billion threshold.
Vice-Chair Gara asked when the state would hit the revenue
cap. Commissioner Hoffbeck responded that he would have to
refer to his chart, which he did not have with him. Mr.
Alper believed it kicked in around $75 /bbl. He would
confirm the number and get back to the committee.
Representative Guttenberg had a question about the
transportation costs noted on slide 5. He mentioned how
many construction projects happened in the summer months.
He wondered if it was typical for the transportation costs
to go down outside of the summer months as reflected in the
Spring 2017 forecast. Commissioner Hoffbeck responded that
the chart reflected the department's estimate of the annual
average cost for transportation. The department had
additional data showing the transportation costs being
lower.
Commissioner Hoffbeck pointed to slide 6: "FORECAST CHANGE:
Comparison from Fall 2016 Forecast for FY 2018." He
indicated the information on the slide reflected the same
items for FY 18. Slide 5 showed additional revenue for FY
17 and the current slide showed additional revenues for FY
18. The department had forecasted $54 /bbl for Fall FY 16
and $54 /bbl for Spring FY 17. Therefore, there was no
change estimated for the forecast going forward in FY 18.
He expounded that the forecast was consistent with what
could be seen in the present market. It was difficult to
get beyond the price point between $55 to $60 /bbl because
of the volume of oil and supply and demand. Likewise,
production was not adjusted dramatically going into the
spring forecast. There was a slight increase of 1 percent.
The deductible lease expenditures and transportation costs
were expected to be higher in the following year. Overall,
state revenue was estimated to go from $1.099 billion UGF
in the fall to $1.279 billion UGF in the spring, a $179.2
million increase in revenues for the following year. The
largest component driving the change was the way the
department was looking at oil and gas tax credits under the
advisory bulletin that was released. He noted that Mr.
Alper would discuss the bulletin later in the presentation.
He indicated that if the number had been released prior to
calculating the impacts with the advisory bulletin, the
$179.9 million would have been about $62 million, hence,
why the department held off releasing the figures.
Commissioner Hoffbeck highlighted slide 8: "REVENUE
FORECAST: 2016 to 2018 Unrestricted General Fund (UGF)
Revenue." He pointed out the total UGF for FY 17 was $1.64
billion. He noted that the revenue was up from about $1.4
billion in the fall forecast. The forecast for FY 18 was
$1.831 up from about $1.6 billion in the fall forecast.
1:50:34 PM
Representative Wilson asked if the numbers included the
motor fuel tax that had not passed yet, or if they
reflected only what was currently in law. Commissioner
Hoffbeck responded that it only included taxes already in
statute.
Commissioner Hoffbeck detailed slide 9: "REVENUE FORECAST:
Revenue Available for Appropriation":
· Useful for outside analysts not familiar with Alaska's
budget conventions
· Better reflects ability of state to meet its
obligations
· Alaska has a budget framework that restricts certain
revenue based on constitution, statute, or customary
practice
· The ability of the state to meet its obligations is
not fully reflected by the UGF revenue category
· All revenue subject to appropriation for any purpose
can be used by the legislature to fund government
services or obligations, including:
· Constitutional Budget Reserve Fund
· Earnings Reserve of the Permanent Fund
Commissioner Hoffbeck indicated that slide 9 was an
explanatory slide.
Commissioner Hoffbeck turned to slide 10: "REVENUE
FORECAST: 2016 to 2018 Totals to Appropriate." He reported
that the slide was included to provide a broader
explanation to entities unfamiliar with the Permanent Fund
and Alaska's budget. Typically, the department had to
explain that there was more money than just UGF revenues
available for appropriation. In particular, the information
was important when dealing with bond rating agencies.
Representative Thompson did not see the constitutional
budget reserve (CBR) or Permanent Fund (PF) Earnings
Reserve account (ERA) totals listed. Commissioner Hoffbeck
responded that the department had to decide about what
information to include. It chose to include the earnings in
a given year rather than the value of the pool of money
available for appropriation. He argued that the department
could have included $5 billion for the CBR and $10 billion
for the PF ERA but they would be a one-time appropriation
rather than a repeatable number. The information was
footnoted in the Revenue Sources Book.
Representative Thompson requested the balances of those
accounts. Commissioner Hoffbeck would provide the numbers
to the committee.
Vice-Chair Gara wondered if there was any talk of getting
rid of the distinction between designated general funds
(DGF) and UGF. He thought using one designation of UGF with
a subcategory would be more favorable. Commissioner
Hoffbeck could not speak for the Legislative Finance
Division (LFD) but thought it agreed with the
administration about speaking in terms of total numbers. It
would simplify things to use UGF. Otherwise, moving funds
between accounts had to be tracked between DGF and UGF. He
thought it would provide a much cleaner picture about what
the state was spending in a given year. It would require a
shift in thought process. He believe the administration
would be supportive.
1:55:01 PM
Representative Wilson disagreed with Commissioner Hoffbeck.
She thought DGF provided a means of looking at programs and
their utilization. She wanted to see more emphasis on
evaluating the different departments and their ability to
be self-sufficient. A portion of government could pay for
itself and other portions would require UGF. Commissioner
Hoffbeck responded that it would be a process to make the
change with a goal in mind of more clarity.
Commissioner Hoffbeck advanced to slide 12: "12 PRODUCTION
FORECAST: ANS Details." He detailed that the slide
addressed the production forecast. He highlighted the
official forecast figure under P90 of 523,686 bbls/day, an
average daily rate for the entire year of 2017. Next, he
highlighted the significant drop of 12 percent going into
2018. The process that the department had always had in
place regarding the spring forecast update was to take the
new data since the prior fall forecast and update the
current year's numbers. However, the department did not do
a whole new forecast. The department only did a new full
forecast each fall. He noted production was robust in 2017.
He complimented BP for its field management. He summarized
that the state had a better than expected production for FY
17 going to a legacy number from the fall forecast in 2018
creating a big delta. He anticipated a dramatic increase in
the fall forecast. He explained that no one was forecasting
a 12 percent decline; rather it was comparing a new number
to a legacy number.
Representative Thompson purported that the production
number had not been adjusted. In years past, the
legislature had paid a consultant to generate a production
forecast twice per year. He thought that the 459,000
bbls/day did not look realistic, as new fields, such as
Armstrong Oil and Gas Inc.'s, had come online. He wondered
what would trigger forecasts that would include Armstrong's
numbers. Commissioner Hoffbeck responded that there was a
slide further in the presentation that laid out which
fields were not included and some of the triggers that
would bring certain fields into the forecast. He agreed
that the FY 18 number was not correct. In general, 50
thousand bbls/day was worth $100 million in revenue. He
relayed that the Department of Natural Resources (DNR)
could provide a reasonable estimate of how to adjust.
2:00:07 PM
Representative Wilson was looking at the Revenue Sources
Book for the fall. She relayed that the official forecast
was 490,289. She asked if 523,686 was the correct number
for an estimate. Commissioner Hoffbeck responded that it
was the estimate to the end of the fiscal year. The number
reflected the current date up to two weeks prior with an
estimate to the end of the year.
Representative Wilson referred to the fall revenue book and
asked for further clarification about the 12 percent
decrease. Commissioner Hoffbeck replied that the 12 percent
decrease was a comparison between the current number and a
legacy number from the fall forecast for FY 18 with a
slight adjustment. He would have to consult with his staff
regarding the 1 percent adjustment. The department was
forecasting a 4 percent to 5 percent decline, a more
reasonable decline going into FY 18. He indicated that DNR
could further address the production forecasting.
Representative Wilson stated that at the beginning of the
presentation he had a 7 percent increase and a 1 percent
increase. She wondered why the numbers did not match.
Commissioner Hoffbeck encouraged Representative Wilson to
look at the FY 17 number, which reflected the 7 percent
increase. He referred to slide 5 where it read 523.7
thousand bbls/day ANS oil production [Column titled: Spring
2017 Forecast). He drew attention back to slide 12 where
the same number could be found under the forecast for 2017.
Again, the commissioner referred to slide 5. In the fall
[2016] forecast 490.3 bbls/day thousand was projected. The
difference between 490.3 thousand and 523.7 was a 7 percent
increase. The 7 percent increase was imbedded into the
number on slide 12. The 2018 number included 1 percent.
Representative Wilson asked if the 1 percent went with
523,686. Commissioner Hoffbeck responded that it went with
the 490,000 in the fall forecast. The one percent went
against the 455,000 from the fall forecast.
Representative Wilson asked about the current oil
production rate per day. Commissioner Hoffbeck responded
550 [thousand].
Representative Wilson asked about the accuracy of the
numbers based on the gains the state had seen. Commissioner
Hoffbeck indicated the answers could be found on the
following slide, slide 13.
2:04:17 PM
Commissioner Hoffbeck continued to the chart on slide 13:
"PRODUCTION HISTORY: FY15 -FY17 Production Comparison." He
highlighted the green dashed line that showed the FY 15
actual production. The black dashed line showed FY 16 and
the solid red line reflected FY 17 to-date. The state had
heard since early in the year that production was up from
the previous year. However, he pointed out that in the
first 2 months there was not a major turnaround of the
facilities during 2016. There was a head start on
production for the beginning of the fiscal year. It fell
behind the prior year's production in September and October
and remained behind FY 16 until December. In the fall, when
the revenue forecast was being done, the state was well
below the prior year's forecast. The state had more
production than in the prior year, but on a daily basis,
the state was below. There had been a bump by not having
the turn-a-round. In December, the production became more
consistent - greater than the prior 2 years. There was a
greater upswing in February and March. He believed the
numbers would change in the summer because turbines were
not nearly as efficient in warm weather. He expected
production to drop dramatically. On the North Slope,
maintenance took place with warmer temperatures. He
anticipated the number being low for FY 2018 and would need
to be adjusted. He reported that DNR estimated an increase
in production of about 20 thousand to 30 thousand.
Representative Wilson asked what 550,000 bbls/day would
equate to in additional revenue for 2018. Commissioner
Hoffbeck responded that an additional 100,000 thousand
barrels would be about $200 million.
Vice-Chair Gara referred to the dips in the prior 2 years.
He explained that the state normally had a partial field
maintenance shutdown. He wondered if there was not a dip
because there was not a shutdown. Commissioner Hoffbeck
replied that in the two prior years they had done
substantial maintenance turn-arounds. However, a decision
was made that a significant turn-around was not necessary
in 2016. He suggested being several months away from the
start of the maintenance process in Prudhoe Bay. The state
was several months away from the steep downturn that
accompanied the turn-around. However, it would roll over
and start to decline as temperatures warmed up.
Vice-Chair Gara asked that if there had been a stem on the
decline and an increase and whether particular fields were
responsible. Commissioner Hoffbeck answered that CD5 was
driving the increase because it had stemmed the decline in
Prudhoe Bay over the previous couple of years. It was an
anomaly and a remarkable achievement by BP. Otherwise, CD5
would have shown up as a flattening of the decline.
However, because BP was able to keep Prudhoe Bay at a
relatively stable level, CD5 showed up as an increase in
production.
Vice-Chair Gara noted that several years prior in the
Revenue Sources Books it indicated that by FY 17 the
production decline was projected at 2 percent per year. He
wondered how the actual decline compared.
Commissioner Hoffbeck reported that the decline was
relatively flat. He suggested obtaining an exact decline
rate from DNR.
Representative Guttenberg asked if the chart would look any
different if the comparison was made for a 6-year period
rather than a 3-year period. Commissioner Hoffbeck
answered affirmatively. He indicated that everything would
move up slightly because production was higher in previous
years. The turn-around in the summer, the roll over in the
springtime as production declined, and the wobbliness
through the winter could be seen.
2:10:24 PM
Representative Pruitt wanted to clarify that he should
direct his questions regarding methodology to DNR.
Commissioner Hoffbeck replied, "That's correct."
Representative Pruitt asked if the commissioner felt that
in 2026 the state would have 326,000 barrels coming out of
the line. He wondered if the state had considered all
factors. Commissioner Hoffbeck would be able to answer his
question by going to slide 14. He could address what was
not included.
Commissioner Hoffbeck turned to slide 14: "PRODUCTION
FORECAST: ANS." He reported that the slide showed the bulk
of production coming from the legacy fields rather than the
new fields.
Commissioner Hoffbeck reviewed slide 15: "PRODUCTION
FORECAST: Excluded from Forecast":
Characteristics:
Unknown first-oil date/estimated greater than 5 years
Discovery (contingent resource) or just prospects
(prospective resource)
Uncertain finances (e.g., sourcing for private equity)
Facilities incomplete or nonexistent
Projects in Appraisal
Technological Uncertainty
Environmental/Permitting Uncertainty
Economic Uncertainty
Examples: Pikka, Ugnu, Placer, Tofkat, Pt Thomson (MGS
or full-cycling), Liberty, Fiord West, Smith Bay
Commissioner Hoffbeck elaborated that if an oil date were
more than 5 years out it would not be factored into the
forecast. The decision to exclude the information was based
on fields typically coming online late. He used the example
of the Liberty field, which was incorporated into the
forecast 15 years prior and was still not online. He added
that some fields could be online within 6 or 7 years.
However, they were outside of the forecast window. He
indicated that the department could provide an estimate
that assumed certain fields coming online 5 to 7 years from
the present. He reiterated that those figures would not be
a part of the official forecast.
2:13:39 PM
Representative Pruitt commented on the discussions
regarding the restructuring of the Permanent Fund and
highlighted that DOR had done modeling out to 2041. He
appreciated the department being conservative with the
forecast. However, he thought that not having enough money
was driving the conversation. He suggested that the
department use similar long-term projections for oil and
gas. Commissioner Hoffbeck responded that speculative
numbers could be provided with the caveat that they were
strictly estimates. He commented that forecasting
investment returns was fraught with peril and forecasting
production was even more so. There were so many moving
parts to production including price, a producer's financing
issues, and the quality of a field. He noted that, although
he was willing to do some estimating, he would be hesitant
to do any robust budgeting based on those numbers.
Mr. Alper added that DOR had made a presentation 2 years
prior to the House Resources Committee that looked
speculatively at what revenues from Alaska National
Wildlife Refuge (ANWR) would be out to 2070. The
information included a 60-year full field development with
certain assumptions based on different studies, the number
of fields, and the position of the fields. He agreed the
information would need to be heavily caveated.
2:17:41 PM
Representative Ortiz wondered how much the graph would
change on slide 14 if 7 of the 9 fields came online in 5
years. He thought his example might be optimistic.
Commissioner Hoffbeck agreed that it would be very
optimistic.
Representative Ortiz restated his question.
Commissioner Hoffbeck thought production would stop
declining and the graph would begin to curve up. He
provided a hypothetical scenario as to how much new
production would be needed to solve the state's fiscal
problem. He suggested that at $60 /bbl oil the state would
need 1.6 million barrels produced per day. Currently,
550,000 barrels were produced per day. The fields ranged
from 20,000 to 200,000 bbls/day. The graph would reflect an
increase in production if all of the fields came on
together. However, they would not get the state close to
solving its fiscal problem.
Representative Ortiz asked if it was safe to deduct that
the state would not return to above 500,000 bbls/day.
Commissioner Hoffbeck thought it was possible if several
fields came online. However, looking at the present
decline, if PICA (100,000 - 150,000 bbls/day field) came
online in 5 years in 2022 and production was currently at
440,000 bbls/day production would bump to about 600,000
bbls/day.
Representative Thompson understood the importance of being
conservative because the state had not made accurate
projections in the past. He thought that some of the new
fields, such as PICA, looked more promising at coming
online than the Liberty field. He did not think the two
fields were a fair comparison. Commissioner Hoffbeck stated
that there were different issues associated with bringing
the fields online. He thought PICA could be challenged with
the issue of obtaining capital with a prolonged oil price
environment of $50 to $55 /bbl. The industry was currently
capital constrained. It might take a while before finances
would be available to bring on a field that appeared to be
robust. It would require some production facilities in
order to get to production. Some fields were technically
challenged. He noted that Liberty was going to be offshore;
the producers planned to build an island. However, the plan
changed due to other challenges.
2:21:51 PM
Representative Thompson asked if HB 111 [Legislation passed
in 2017 - Short Title: OIL & GAS PRODUCTION TAX; PAYMENTS;
CREDITS] had been factored into the forecasts. Commissioner
Hoffbeck responded in the negative.
Representative Thompson asked if the administration thought
HB 111 would increase or decrease the amount of oil getting
through the line. Commissioner Hoffbeck responded that a
stable oil and gas tax system was needed. If there were a
full fiscal plan in place, the governor would support
paying off the old oil and gas tax credits. A tremendous
amount of capital would be injected into the fields, which
could help with production. He posed the question whether
higher taxes would increase production and indicated they
would not. The larger question to ask about HB 111 was
whether it made Alaska non-competitive elsewhere.
Representative Thompson thought the current tax system was
successful in that the state had increased production and
increased revenues. He wondered if changing the system
would reduce investment. He was concerned with hearing
feedback about a poor atmosphere.
2:24:03 PM
Representative Grenn referred to slide 14. He asked if
there were specific fields that fell under the categories
of under development (orange) or under evaluation (grey).
Commissioner Hoffbeck confirmed that there were and that in
the presentation of the fall forecast there had been a more
detailed discussion on the topic. He would be happy to
provide Representative Grenn the information.
Representative Pruitt relayed that the administration was
predicting that the petroleum corporate income tax would
double. He wondered if it had to do with the effects of HB
247 limiting the ability of corporations to use their
credits for corporate income tax. Mr. Alper referred to the
same table. He was unclear where Representative Pruitt was
getting his numbers. He relayed that the issue with the
corporate income tax was that there was a lot inherent lag
and delay in it. For instance, the 2016 number was
negative, in part, because of large estimated tax payments
that were paid in 2014. The price of oil went down so much
that the oil companies lost money or owed much less taxes
than they thought when they were paying their quarterly
estimated taxes. They ended up paying large refunds in the
fall of 2015, which was part of the FY 16 cash flow even
though it was part of a 2014 tax. There was an inherent
lag. The tax for 2017 was largely based on 2015 company
performance. He thought a mild creeping up of oil had been
seen from the $30 range from the previous session to the
$50 range presently.
Commissioner Hoffbeck advanced to slide 17: "PRICE
FORECAST: Nominal ANS Price Distribution." He reported that
the new data was projected in the slide. The slide
reflected the 50 percent line across the board for the fall
forecast. Oil Producing and Exporting Countries (OPEC)
reached an agreement to limit production. Prices jumped
about $5 /bbl shortly after the fall forecast was released.
In putting the spring forecast together, the department
moved to the 60 percent line for the current year but had
not adjusted the other years going forward. They still
seemed to be in line with other forecasting agencies.
Commissioner Hoffbeck continued to slide 18: "PRICE
FORECAST: Impact of other prices in FY 2017." He relayed
that the slide showed the price by month and the effect of
various price points until the end of the fiscal year. The
price forecast was $50.05, which would result in $50 to $55
/bbl for the remainder of the year. He continued that if
prices averaged $55 /bbl the average would be $50.56. If
they only averaged $50 /bbl, the state would average at
$49.31. The department was forecasting an average of about
$53 /bbl until the end of the year.
2:28:06 PM
Commissioner Hoffbeck continued to slide 19: PRICE
FORECAST: Historical ANS West Coast Price 2015+." He
highlighted that the slide showed the impact of the OPEC
production cuts, which had flattened the price dramatically
in the previous few months more than in the last two years.
Representative Guttenberg assumed that the spikes on slide
19 were associated with certain events. He wondered if
there was a correlation between spikes or if the
assumptions created the spikes. He wondered what caused the
spike to go down on August 15th when Saudi continued to
produce record oil. Commissioner Hoffbeck responded that,
in hindsight, it was the best estimate about what was
driving the volatility. Obviously, it would have been nice
to be able to forecast them. It was important to look back
at the point in which the price turned to evaluate what
changed.
Commissioner Hoffbeck reported on slide 21: "COST FORECAST:
North Slope Capital Lease Expenditures." He indicated that
the slide showed the forecast for capital lease
expenditures declining for the remainder of 2017 and at the
beginning of 2018. The expenditures would increase in 2019
and 2020. They would drop again in 2021 to stabilize with
the long-term forecast. The slide was based on additional
information the department received from the producers and
developers since the fall forecast.
Commissioner Hoffbeck continued to slide 22: "COST
FORECAST: North Slope Operating Lease Expenditures." He
relayed that the slide showed the operating lease
expenditures based on updated information provided by the
producers.
2:30:39 PM
Representative Pruitt referred to slide 21. He asked about
the difference in the spring forecast versus the fall
forecast. He wondered how it translated into additional
barrels. Commissioner Hoffbeck responded that DNR could
discuss the issue with more authority. He noted concern
about the limited amount of capital monies being spent in
the fields currently. He suggested that it would eventually
manifest itself in reduced production.
Mr. Alper suggested that there was also an inverse
relationship because the tax was a net profit based
production tax. He suggested that a decrease in spending
could result in an increase in revenue for the short term
because the companies were slightly more profitable.
Representative Pruitt commented that subsequently the
state's expectation regarding revenue was that if they
decided to make up for it later, an inverse would take
place unless money came into the general fund. He asked if
he was understanding correctly. Mr. Alper responded in the
affirmative. He elaborated that if a company were to spend
and increment of money it would reduce their profitability
and their tax collections.
Commissioner Hoffbeck addressed slide 24: "CREDITS
FORECAST: Compared with Production Tax" and slide 25:
"CREDITS FORECAST: Compared with Unrestricted Petroleum
Revenue." He specified that slide 24 showed the impact of
tax credits against a severance tax. Slide 25 showed the
impact of credits against total oil and gas revenues. He
reported that in FY 16 after deducting credits against
liability and repurchased credits the state was in the
negative. In FY 17 and FY 18, the state was positive after
applying the deduction of credits. He noted that the
figures were based on the statutory payment levels for the
credits. He estimated an underlying credit liability that
would reach an estimate of $1.04 billion by the end of FY
18 in the form of unredeemed credit certificates.
2:33:32 PM
Representative Wilson asked how much pertained to Cook
Inlet versus the North Slope. Mr. Alper replied that on the
revenue side it was nearly all the North Slope. Very little
revenue came in from Cook Inlet oil and gas production. He
pointed to the credit against liability (the gap between
the blue and the orange lines) which was almost entirely
North Slope. There was very little Cook Inlet liability to
offset. The credits paid were limited because of the
limited appropriation. About 60 percent was going to Cook
Inlet because of the nature of the backlog. The data
applied primarily to the North Slope, give or take a
rounding error. The credits that were owed in the amount
of approximately $1 billion was a 50/50 split - 50 percent
North Slope and 50 percent Cook Inlet.
Representative Wilson asked if the state's liability was
reflected in the charts. Mr. Alper replied that the blue
bar represented revenue and the orange bar represented the
actual revenues collected after the credits were applied to
offset the liability. The grey bar represented the cash
that was appropriated to buy credits. However, the grey bar
did not reflect the credits that had not been paid which
totaled about $1.04 billion.
Representative Wilson asked if the outstanding credits were
equally split between the North Slope and Cook Inlet. Mr.
Alper replied the numbers were approximate. The department
would follow up with precise amounts.
Vice-Chair Gara asked for clarification regarding what the
blue bar encompassed. Mr. Alper replied that the per-barrel
credit was the largest of the credits used against
liability. The orange represented the actual revenue - the
amount of money in the door. The blue bar represented what
the amount would have been before the per-barrel credit was
accounted for. He added that of the $1.04 billion in
outstanding credits $592 million applied to North Slope
liability and $451 million to non-North Slope liability.
Vice-Chair Gara did not count the per-barrel credit as a
real credit and would focus on the orange bar. He referred
to a report that had been generated by Dan Stickel earlier
in the year wondering if the information remained accurate.
He asked if companies would generate more credits than were
owed placing the state in a negative position. Mr. Stickle
had replied in the affirmative. He asked if that was still
the case. Mr. Alper replied that the department would have
to revisit the analysis. He added that the anticipated
number of credits earned in FY 18 would not change much.
However, the revenue in FY 18 was expected to be slightly
higher.
2:37:45 PM
Mr. Alper addressed slide 27: " REVENUE FORECAST: Advisory
Bulletin Impacts":
DOR Advisory Bulletin (2017-1)
· Clarification of existing regulation regarding the
application of per-taxable-barrel credits for non-GVR
oil (024(j))
· If a company applies 024(j) credits, they cannot use
other credits to reduce below minimum tax
· A company can forego their use of the 024(j) credits
and use other credits to reduce below minimum tax (if
allowed)
· Estimated Impacts:
· 2014 to 2016 Tax Years: ~ $50 - $100M tax due to
the State
· 2017 and 2018 small UGF increases
· Credit transfers decrease in FY 2018, thus less
are used against tax liability. This increases
both tax revenue and balance of credits
outstanding.
Mr. Alper mentioned having briefly spoken with the chairman
when discussing HB 111 about the advisory bulletin
published by DOR about two weeks previously. The bulletin
related back to the passage of SB 21 [Legislation passed in
2013 - Short title: OIL AND GAS PRODUCTION TAX]. The bill
had a late amendment that hardened the floor specifically
to the per-barrel credit for legacy oil (O24J Credit). The
way the amendment was worded was that the credit could not
be used to reduce tax payments below the minimum tax. He
continued that regulations were drafted to implement the
provision and to interpret the testimony by the sponsor of
the amendment and the House Resources Committee. Over the
past year, contradictory information had been given in
different forms. There were certain taxpayers that had
treated the circumstances differently. The department had
seen cases where the per-barrel credit had been used to go
to the minimum tax (4 percent) level and then some other
credit might be used to reduce taxes further to zero. He
noted that the other credit could be a carry-forward loss
credit or a small producer credit, or a per-barrel credit
for a gross value reduction (GVR) eligible oil. It turned
out that the state's regulations, drafted in 2013 as part
of SB 21, were clear that an entity could not reduce taxes
below the minimum tax level by combining per-barrel credits
with other credits for North Slope production. He listed
the specific regulation: 15 AAC 55.335(g). He explained
that when faced with the reality that the state had
released inconsistent information to the public it had to
act quickly to publish the advisory bulletin (2017-1). The
department's goal was to release the bulletin by late March
prior to the due date of the 2016 tax payments. The
bulletin included the story he just relayed and the fact
that the per-barrel credit could not be combined with other
credits. The alternative, at low prices, was that a company
could choose not to use any per-barrel credits but to use
other credits potentially down to zero. The other credits
were not hardened to the floor. He argued that it was not
necessarily a hardship at $40 oil because, typically, a
company would not earn any per-barrel credits in that
circumstance. As the price of oil lowered, the ability of
companies to use the per-barrel credit became more limited
as the 4 percent minimum tax became a larger part of the
tax calculation. Therefore, some companies would be able to
forego their minimum tax still paying zero and some would
have to re-file their taxes not using all of their small
producer credits. He indicated that 2014, 2015, and 2016
taxes would be affected. He relayed that the main impact in
the Revenue Sources Book was in 2018. As of the fall
forecast, the department was forecasting with the
assumption that there were a lot of credits for which money
had not been appropriated to re-purchase them. The thought
was that there would be more of a secondary market
developing where companies would purchase those credits and
use them to offset their taxes.
2:41:22 PM
Mr. Alper pointed to the chart on slide 28: " REVENUE
FORECAST: Advisory Bulletin Impacts." He continued to
explain that what the department learned in researching the
advisory bulletin was that a purchased credit could not be
used in conjunction with O24J credits to go below the
minimum floor. The most prominent revision the department
needed to make between the fall and spring forecast was to
take $100 million out of the system. The result was that it
reduced the number of credits being used against liability
and therefore increased by $100 million the number of
available credits that were awaiting state appropriation.
It also increased the production tax revenue by $100
million. The production tax revenue line in the Revenue
Sources Book was about $240 million, but the fall forecast
was only about $90 million. He furthered that of the $150
million difference, $100 million was from the single item.
Representative Wilson surmised the state was going to make
the companies go back to 2014 taxes to make the
corrections. She wondered how much it would cost companies
to correct an error the state made. Mr. Alper replied that
if the department made a mistake it was in communication.
The regulations underwent a public review process and
companies were given the opportunity to read and comment on
them. He indicated that no one ever commented on that
particular provision during the public review process of
regulations for SB 21. Some companies would have to refile
their 2014 and 2015 taxes. The numbers were not huge: the
sum total of the older tax returns were about $50 million
in aggregate among multiple companies and multiple tax
returns.
Representative Wilson commented that companies would have
to pay to make the changes. Mr. Alper responded that any
company that used other credits to pay below the minimum
tax while also claiming a per-barrel credit would have to
re-file their taxes. Several companies misinterpreted the
law and would have to refile their returns.
Representative Wilson commented that many of the companies
had highly paid experts that did taxes all of the time. She
thought that if the state's regulations had been clear the
specific mistake would not have been made. She wondered if
companies had interpreted the law one-way and the
department went back and interpreted it another way, the
result of which would provide the state $100 million in
additional revenues and lost credits for companies.
2:45:09 PM
Mr. Alper replied that when he first had the issue brought
to his attention he was in denial. Once he reread the
regulation, he thought it was very clear that the intent of
the regulation was to harden the floor. The regulation was
written with the expectation that it was interpreting the
intent of the legislature based on the provision debate. He
reiterated it came in the form of an amendment introduced
in the House Resources Committee. He could not speak to why
the corporations misinterpreted the law. He pointed out
that the $100 million seen on slide 28 was not being taken
from any particular company. It simply stayed in the pool
of credits that the state owed and would have to pay back
at some point. The credits would not be sold from one of
the small explorers to one of the major producers. The
major producers did not have the capacity to purchase the
credits and use them against their taxes to go below the
floor.
Representative Wilson responded that it explained why the
state should not be writing oil tax law.
Vice-Chair Gara clarified that Mr. Alper had reviewed the
regulations and found them to be clear although he missed
it originally. Mr. Alper responded that the regulations
were clear and had been written 4 years ago. He had not
been working at DOR at the time. It was done in a previous
administration to implement a bill passed in 2013. It was
possible that companies would disagree with the
department's interpretation, which could end up in an
appeal process.
Commissioner Hoffbeck added that in the audit process it
was common that parties interpreted statutes and
regulations differently than the state. The advisory
bulletin would provide direction to head off such
circumstances.
Representative Pruitt asked if the interest provisions
applied to companies that would have to re-file. Mr. Alper
responded affirmatively.
Representative Pruitt wondered if some of the companies,
not necessarily the ones that received the credits, who
purchased them from another company would have to re-file.
Mr. Alper stated that there might be a couple of
circumstances in 2016 regarding purchased credits. However,
there had not been a robust market for second-hand tax
credits in Alaska because the state used to buy them all.
He reported that when the issues were happening in 2014 and
2015 companies were not buying and selling credits. The
circumstances were limited to producer created credits.
Mr. Alper turned to slide 29: REVENUE FORECAST: Advisory
Bulletin Impacts: Spring 2017 Forecast Credits Available
for Purchase." He pointed out that the slide showed the
relative impact of the advisory bulletin versus the credit
obligation. The credit obligation was heavy in 2018 because
the value that was vetoed was rolled forward and a new
value was accumulating at the higher rate prior to the
impact of HB 247. He highlighted that what was a little
over $1 million was a little under $1 billion without the
guidance memo of the advisory bulletin. The numbers were
relatively smaller and closer to neutral in 2019 and
beyond.
Co-Chair Foster reviewed a list of people available for
additional questions.
2:50:35 PM
Representative Wilson wanted a better understanding of the
numbers per barrel and the difference between the spring
and fall forecast.
CHANTAL WALSH, DIVISION DIRECTOR, OIL AND GAS, DEPARTMENT
OF NATURAL RESOURCES, introduced herself.
Representative Wilson brought up that the state was
producing about 550,000 bbls/day. She did not see the
number reflected in the forecast for 2018.
Ms. Walsh indicated that the 2018 numbers were not
adjusted. The spring forecast involved inserting the actual
available data. The department entered real production
numbers and adjusted the annualized average number in 2017.
The numbers for 2018 were untouched.
Representative Wilson asked why the department would not
make the adjustment for 2018.
ED KING, SPECIAL ASSISTANT, DEPARTMENT OF NATURAL
RESOURCES, agreed that the state should adjust the numbers.
Unfortunately, the state did not have the resources to
conduct an entire new forecast twice per year. The
Department of Natural Resources absorbed the responsibility
of producing a fall forecast from the DOR consultant. The
number reflected in FY 18 presently was the forecast number
from the previous December.
Representative Wilson asked if the consultant completed the
fall and spring forecast or just the fall forecast. Mr.
King responded that when the consultants were doing the
forecasts, they did not do an entirely new forecast in the
spring. They made some adjustments incorporating the actual
data since the fall forecast. If there were room left in
the consultants' contract, they would update the particular
fields that needed adjusting. He confirmed that the state
had never had two full forecasts per year: the state had
one in the fall and an update in the spring.
Representative Wilson argued that the current year was
different. In the current year, the state was looking to
take money out of the pockets of Alaskans because of a gap
the state might or might not have. She also noted that the
difference was that the state did not see the decrease that
it had seen, but rather, an increase. She thought it was
important to show whether there was more oil in the
pipeline. Ms. Walsh concurred. She indicated the department
would provide a range but would not be able to provide a
full reassessment of the fall approach to the forecast.
Mr. King added that the department knew that the number did
not reflect the data from the Kuparuk and Alpine fields and
Prudhoe Bay. He expected the number to change substantially
in the fall. He encouraged Representative Wilson to ask DOR
to plug in a number she thought was more realistic to see
the resulting number. Unfortunately, it was the best number
DOR had at the time to insert into their model. However,
the department could easily determine what an additional
30,000 or 40,000 bbls/day of oil would potentially generate
in revenue.
2:55:00 PM
Representative Wilson appreciated the information. However,
it was her understanding that it was up to DNR rather than
DOR. She asked if he could look at the totals for January
through April comparing the previous year to the current
year to determine a better range. She understood the number
would be an estimate. Mr. King thought 480,000 barrels was
a reasonable number. The number was a rough estimate of
what might happen and how the forecast might be adjusted.
He thought she should run some scenarios to see what
500,000 or 520,000 looked like. He thought that if the
numbers were plugged in and everything else was held
constant the state could see another $50 to $00 million in
potential revenue. He also encouraged her as she was going
through the process and looking at what might happen in the
future that she acknowledge the other uncertainties that
were in the forecast looking at the entire range. He
thought it was important that the legislature did not
overcommit itself to budgeting to something that might not
come to fruition.
Representative Wilson commented that it was not her job to
make those calculations. However, it was her job to be able
to provide those numbers to her constituents.
2:57:22 PM
Representative Pruitt thought the numbers had actually
changed more than reported. The numbers appeared to
decrease in the out years beginning in 2019. He observed
that the number was reduced by 1 percent in 2019, 2 percent
in 2020, 1.8 percent in 2021, 2.3 percent in 2022, and 2.3
percent in 2023. He continued to provide the percentage
adjustments. He wondered why the department would publish
lower numbers if the numbers were not changing much and
there was recognition that there was something wrong with
the data. He did not believe the numbers correlated. Mr.
King reported that the department had not made any changes
to the base forecast, which encompassed all of the
producing fields and a field-by-field analysis. However,
one adjustment was made to one of the fields expected to
come online in the following couple of years. The start-up
date of that field was changed in the model. He realized
the small change created some confusion but advised that it
should not be interpreted as a new forecast.
Representative Pruitt asked why there was a spring forecast
if the legislature was going to rehash the fall numbers
with changes that were known for the current year
Ms. Walsh reported that the spring forecast was adjusted to
show reality. In the past, adjustments had been made in the
opposite direction. Therefore, rather than having more
revenue, it was less revenue. The information was pertinent
because of closing up the year. It was important to have
real data. The spring forecast had never been a total re-
run of the forecast in the out years. The current year was
a particularly sensitive year. Revenues in 2018 were also
very critical. It lent itself to needing a better
guestimate of what was going on in the 2018 timeframe.
Mr. King added that there should have been a change to the
forecast. However, the department did not have the
resources to do a full forecast. As the department looked
into the fall forecast, reviewed the forecast
methodologies, looked at where the errors were made, and
made necessary adjustments, it would figure out a way to be
more accommodating in the following year.
Representative Pruitt commented that the state was faced
with the same challenges from the previous year. In the
previous year, there was an effort to ensure that the
legislature received something earlier, March 21st. He
wondered if in the previous year the early push resulted in
an adjusted fall forecast that included reality numbers. He
thought the concern of the department to produce a forecast
earlier had evaporated. Mr. King responded that DNR had not
been involved with the spring forecast in the previous
year. The department took over in the spring. He suggested
the representative redirect his questions to DOR.
Representative Pruitt mentioned that the state had decided
to use DNR to produce the forecast rather than using an
outside consultant. He asked if the decision would result
in a cost savings to the state. He asked about what the
consultant was paid. He noted that DNR individuals were
currently doing the work, which also cost the state money.
He wondered if it was a better investment to use an outside
consultant. Mr. King responded that he did not know what
the contract amount was with the consultant. He pointed out
that DNR had absorbed all of the costs and the workload
related to doing the forecast. The department was trying to
give the legislature the best answers possible and the best
pulse on what was going on. He indicated it was up to the
legislature whether it wanted to pay for a consultant.
Ms. Walsh noted the oil companies underestimated their
field productions in the current year. Production was flat
or up in fields that had not been so before.
Representative Pruitt asked her to elaborate. Ms. Walsh
reported the fields on the North Slope, on average, had
declined 4 percent to 6 percent per year with high activity
levels. She thought it was reasonable to expect the same
pattern to continue into the future. She thought it spoke
to innovative and creative ways that the companies had
managed the fields. Even their own experts in their
companies underestimated the production of the fields.
3:05:30 PM
Representative Pruitt asked if DNR would continue doing the
forecasts. If so, he wondered what the legislature should
expect going forward. Mr. King answered that it was the
first year DNR had done the forecast. There would be
lessons learned from the process over the previous year.
The department would take the data for the year, review the
previous forecast, and look at how it could improve. He
would expect DNR would continue doing the forecast if an
appropriation for a consultant was not included in the
budget.
Representative Thompson thought it seemed that the hired
contractor that had done the production forecasting was
paid about $50,000 per year. Their forecasts had been
accurate. He valued the accuracy of the production
forecast.
Co-Chair Seaton suggested having someone from DOR respond.
3:07:43 PM
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, reported having been involved in the
revenue forecasting process for the previous 13 years. In
that time, the state had used two different consulting
firms. The previous year was the last in which the state
used a consultant. The contract amount was for $100,000.
The state had never had the consultant do 2 complete
forecasts in a year. The department had had systematic
overproduction analysis for a number of years because
certain fields had been included. For example, for 10 years
in a row the department had included Point Thompson 5 years
out and eventually stopped. The department switched to a
risk-based analysis. There had been a number of changes
over time. The Department of Natural Resources did the
forecasting for the first time in the current year due to
budget reductions. The department had access to the
information and a professional staff that could do an
excellent job of generating the production forecast. The
forecast was not updated in the spring and DOR did not know
what it should have been. He confirmed that DOR and DNR
worked closely together and would take all of the comments
provided seriously. He added that the forecasts that were
provided were 93 percent accurate.
Vice-Chair Gara did not think any of the people at DNR or
DOR should be put on the defensive for the work they were
doing. He reviewed that Mr. King had made it clear that the
state was doing once-a-year forecasts in the fall. He gave
kudos to the departments for dealing with the budgets they
were given. He understood that there would be a full
forecast in the fall and that the interim spring forecast
was inaccurate. Mr. King responded that he was correct.
Vice-Chair Gara thought the state could spend additional
monies on forecasting but they had never been accurate. He
did not want to spend more money on a forecast. He asked if
reality would kick in and production would be declining in
the summer months and increasing in the winter months. Mr.
King responded in the affirmative.
Vice-Chair Gara referred to the statement that the state
might or might not have a budget gap. If production went up
the amount would not equal the budget gap of $2.9 billion.
Mr. King indicated the representative was correct.
3:12:00 PM
Co-Chair Seaton thought the state had to take into
consideration the reductions that had been made within
departments. He added that anticipating a greater number of
forecasts was illogical. He appreciated the estimate of an
increase of 30,000 bbls/day. He indicated that an
additional 50,000 bbls/day would equate to $100 million, a
figure helpful to the legislature in making its estimates.
He remembered being frustrated with forecasts that were
high because all of the fields that might come online were
factored in. The numbers were never accurate and the
legislature had to consider a lesser number. He appreciated
changes to avoid over-forecasting. The legislature would
know in the fall whether the new change would result in a
more accurate forecast. He was pleased that oil companies
had embraced new technologies, which resulted in greater
production. He was glad to know that even if oil production
increased by 50,000 bbls/day, it did not fill the gap. He
appreciated the department's work and particularly the P50,
P90, and P10 ranges. It provided probability and was
helpful to policy makers. He thanked both departments for
coming up with the best forecast with the resources allowed
by the legislature.
Co-Chair Foster indicated the committee had 6 more bills to
address and would be powering through them.
3:15:45 PM
Representative Guttenberg recalled consultants coming into
the room over the years admitting that most of them were
wrong most of the time. Otherwise, they would be taking
care of their own business rather than being consultants to
other people. He thought there was a certain amount of
uncertainty built into forecasting. He had been troubled
that the state did not have the expertise from within, as
Alaska was primarily an oil state. He was glad the state
was doing the work in-house presently. If the state rehired
the consultant, it could challenge their answers. He
highlighted the observation that was made about the
industry being wrong about some of their estimates. It was
not only about what was being pumped out of the ground. He
provided several examples of unpredictable circumstances
that could arise that could potentially affect a production
forecast. He thought the accuracy of 93 percent was very
good but could be better. He encouraged the department to
keep working on it. He was the chair of DNR's finance
subcommittee and indicated there would be more discussion
on the topic in the following year.
3:19:44 PM
Representative Pruitt asked how much the state paid the
consultant to write the tax structure being proposed. Mr.
Burnett relayed that the consultant was hired and paid
through the Department of Law but thought it was about
$80,000 to $100,000.
Representative Pruitt wondered what was used as the basis
for revenue for any of the models other than the PF
information. He specifically asked what Mr. Teal used. Mr.
Burnett was uncertain which part of the model
Representative Pruitt was referring.
Representative Pruitt responded, "The revenue aspect of the
model." He asked if it was the fall forecast. Mr. Burnett
answered in the affirmative.
Representative Pruitt concluded that the legislature was
making decisions about how the state would move forward
based on a very key piece, the fall forecast. Mr. Burnett
replied, "Correct."
Representative Pruitt continued that $85,000 was spent on a
gentleman to write a tax system instead of spending that
money on making sure the state had the appropriate
information to make the right decisions regarding revenue.
He asked about the decision making process of hiring
someone to write the tax system. Mr. Burnett responded that
it had not been his decision.
Representative Pruitt highlighted that there was money that
could have been appropriated to hire someone to do the
forecasting but the money was spent elsewhere. He opined
that when the legislature started talking about $100
million as if it were "chump change" and pushing it aside,
it had lost touch with reality. He thought it was important
to be as accurate as possible, especially when making
decisions about going into people's pocketbooks.
Representative Ortiz understood that the state was
producing more than 500,000 bbls/day at present. He
asserted that it was unlikely in the year 2025 that the
state would be about 500,000 bbls/day. He asked if he was
correct.
Mr. Burnett relayed that based on what was known and the
forecast of prices he thought it would be very unlikely.
Co-Chair Foster stated that the committee would be taking a
10-minute break. He reviewed the order in which the bills
would be heard.
3:23:22 PM
AT EASE
3:37:42 PM
RECONVENED
HOUSE BILL NO. 103
"An Act relating to the practice of optometry."
3:37:42 PM
Co-Chair Foster MOVED to ADOPT Amendment 1:
Page 2, line 27, following "practice.":
Insert "(a)" 3
Page 2, following line 30:
Insert new subsections to read:
"(b) A licensee may not perform ophthalmic
surgery unless the procedure is
(1) within the scope of the licensee's
education and training from an accredited
school of optometry; and
(2) authorized by regulations adopted by the
board.
(c) In this section, "ophthalmic surgery" means
an invasive procedure in which human tissue is
cut, ablated, or otherwise penetrated by
incision, laser, or other means to treat diseases
of the human eye, alter or correct refractive
error, or alter or enhance cosmetic appearance;
"ophthalmic surgery" does not include the
procedure described under AS 08.72.273."
Representative Wilson OBJECTED.
REPRESENTATIVE IVY SPOHNHOLZ, SPONSOR, explained the
amendment. She decided to advance an amendment in response
to some of the concerns expressed about the potential that
optometrists might work outside of their scope of practice.
The amendment would do two things to clarify and further
codify the restrictions the original bill stated. She read
directly from the amendment (See above). She conveyed that
the definition of surgery provided in the amendment was
borrowed from Washington state law and preferred by the
ophthalmologists. They would not practice any of the items
unless they were clearly trained in them by an accredited
school of optometry. It would ensure that there would not
be fly-by-night optometry trainings offered in hotel
conference rooms that could result in unsafe care.
Vice-Chair Gara wanted it on record that if either
amendment passed there was an ophthalmic surgery
definition. The amendments were different. His
understanding was that, regardless of her definition, it
would allow optometrists to continue doing things they were
doing presently. He did not want to limit their ability to
perform procedures they were currently allowed to do. He
asked her to comment. Representative Spohnholz responded
that there were two amendments. Amendment 1 would continue
to allow optometrists to practice as they did currently. It
was her understanding Amendment 2 would not. The second
amendment would roll back some of the authorization that
optometrists had to practice. She thought a member of the
Board of Optometry was available online.
Vice-Chair Gara did not want the amendment to stop
optometrists from doing the procedures they had already
been authorized to perform. He asked if the amendment was
aimed at future things that optometrists were thinking
about doing. Representative Spohnholz responded that the
language in Amendment 1 stipulated clearly that a licensee
could not perform ophthalmic surgery unless the procedure
was within their scope of education and training. Anything
that they were currently practicing were items they had
already received training in at an optometry school. The
amendment allowed them to continue with their practices.
Vice-Chair Gara wanted to get on record that the amendment
should not be interpreted in a way that would somehow erase
their ability to practice what they were already
practicing.
Co-Chair Foster relayed the list of testifiers available.
3:43:05 PM
Representative Kawasaki asked about removing foreign
bodies. He wanted to make sure they would be able to
continue to perform the surgery. Representative Spohnholz
responded in the affirmative because it was within the
scope of their training and licensure.
Representative Kawasaki mentioned the 40 schools of
optometry and asked if any of them taught Lasik surgery.
Representative Spohnholz thought Lasik surgery was not
within the scope of practice for optometrists. She deferred
to the doctor online for clarification.
DR. BARNEY, BOARD OF OPTOMETRY, responded that Lasik was
not taught at any optometry school in the US.
Representative Wilson commented that the definitions were
the same. She was concerned that optometrists wanted to do
surgery. She was unclear of the purpose of the amendment.
She wondered what the amendment would do to change what
optometrists could do without the amendment. Representative
Spohnholz responded that the amendment codified some things
that had been verbally expressed on the record but not
explicitly stated in statute and the original bill. She
felt the amendment might give people more comfort and
clarity that there would not be a dramatic scope of
practice change. She emphasized the importance of
specifying that education and training needed to come from
an accredited school of optometry. The amendment clarified
that drive-by-night trainings in Lasik surgery offered at
hotels by non-accredited institutions and rammed through a
board of optometry was not possible.
Representative Wilson asked what procedure optometrists
could currently perform that fit within the definition
provided in the amendment. Representative Spohnholz
deferred to Dr. Barney. Dr. Barney provided a list of
procedures optometrists could currently perform that met
the definition of surgery as written in the amendment. The
list included corneal foreign body removal, rust ring
removal, epithelial debridement, removal of corneal
filament, and draining a hidrocystoma.
Representative Wilson wondered if all of the procedures he
mentioned had been taught at an accredited school. Dr.
Barney responded affirmatively.
3:48:41 PM
Representative Wilson was trying to address concerns that
were brought to her attention via email. She understood
there was a difference between the two groups concerning
surgery. She wanted to make sure people remained safe. She
had heard in testimony that they [optometrists] did not
want to do surgery. However, they were already doing what
was considered surgery based on the definition in the
amendment. She did not understand the purpose of the
amendment. Representative Spohnholz clarified that
accreditation was done by a separate nationally recognized
body which was true for all accredited universities. The
Alaska board was not in charge of accrediting universities
that offered optometric education.
Representative Wilson thought that the board could require
all training to be from an accredited university. Under
regulation, they [optometrists] could already perform
defined services. She believed the legislation allowed
providers to go beyond the scope of their training. She
would be voting based on the testimony she heard and
received.
Co-Chair Seaton thought that regulations required training
to be obtained by an accredited institution. He added that
the board could implement the same requirement. However, he
believed the amendment clarified that the training would
have to be obtained by an accredited school of optometry.
He thought the definition of surgery was too broad, based
on feedback from the entire medical field. He provided an
example of an optometrist removing a fishhook from a
person's eyes and it being considered a surgical procedure.
He indicated he was comfortable with the amendment.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 1 was ADOPTED.
3:52:35 PM
Representative Wilson WITHDREW Amendment 2.
Vice-Chair Gara commented that he thought the bill should
be decided with a floor vote. Therefore, he would not
object to moving the bill from committee.
Vice-Chair Gara reviewed that there was one fiscal note:
Office of Management and Budget (OMB) component number 2360
in the amount of $5,100 for the drafting and implementation
of regulations.
Representative Wilson clarified that the amount would be
paid for with program receipts rather than general fund
dollars.
Co-Chair Seaton MOVED to report CSHB 103 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSHB 103 (FIN) was REPORTED out of committee with a "do
pass" recommendation and with a previously published fiscal
impact note: FN2 (CED).
3:54:48 PM
At EASE
3:55:31 PM
RECONVENED
HOUSE BILL NO. 76
"An Act relating to the mariculture revolving loan
fund and loans from the fund; and providing for an
effective date."
3:55:40 PM
REPRESENTATIVE DAN ORTIZ, SPONSOR, mentioned that about 6
weeks prior US Senator Dan Sullivan addressed the Alaska
State Legislature. In his address, he spoke of the robust
fishing industry ($6 billion/year) existing in Alaska. He
spoke about how the State of Alaska provided about 60
percent of the seafood sold within the U.S. He had also
spoken about the need to do everything possible to protect
and enhance the fishing industry. He relayed that HB 76
looked to provide a small jump-start to a potential part of
the fishing industry growing it by another $1 billion/year.
In the previous year, the governor appointed a mariculture
task force with the intent of exploring ways in which to
develop mariculture along the coastal communities of
Alaska.
Representative Ortiz read the sponsor statement:
This bill amends the existing Alaska Mariculture
Revolving Loan Fund to allow up to forty percent of
the fund to be used for loans to permitted shellfish
hatcheries for planning, construction and operation.
Alaska shellfish farms currently do not have a stable
supply of seed for the propagation of oysters, and no
regular, in-state source of seed for resident aquatic
plants and other shellfish. A stable supply of seed is
one of many hurdles the industry must overcome to grow
and become a viable Alaskan industry.
This bill will amend the program to shift its focus
and eligibility from individual mariculture farmers to
include shellfish hatcheries that would market stock
to local Alaskan mariculture farmers.
The mariculture industry in Alaska is not yet fully
developed, and is extremely high risk, from a
financial standpoint. These obstacles make private
financing difficult to obtain, but this bill will
enable Alaskans to maintain their businesses and grow
Alaska's mariculture industry.
Co-Chair Foster relayed a list of available testifiers.
3:59:37 PM
Vice-Chair Gara was hesitant about expanding the use of
hatcheries in the state because of the possible
contamination of wild fish. However, in the legislation
being discussed he only saw changes to the eligibility and
the use of the loan fund, not changes to the ability to
engage in mariculture. He wondered if his assessment
accurate. Representative Ortiz responded that he was
correct.
Representative Wilson asked if the bill offered up to $1
million per year for an applicant.
ELIZABETH BOLLING, STAFF REPRESENTATIVE DAN ORTIZ,
explained that the $1 million per year limit only applied
to the 40 percent (non-profit associations and enhancement
projects). She expounded that the cap for one loan would be
$1 million. However, she did not believe it was likely for
people to ask for $1 million loans due to the collateral
requirements.
Representative Wilson wanted to know the number of loans
that were $1 million. She pointed to page 5, lines 27-31 of
the bill. It stated that the department could defer the
principle of and interest on a loan made under the terms of
the bill for a period of up to 11 years after the loan was
made. She argued that it was a long time. It also appeared
that the state could deter the interest between 6 years and
11 years. She wondered if the terms were based on an
outside model. She thought many people would like the terms
of such a loan. Ms. Bolling replied that the deferred
interest was accrued on individual farmers in the 40
percent category. The 6 years to 11 years was consistent
with the finfish fund, a fund that had been very
successful. She noted that additional deferments applied to
the non-profit associations.
Representative Wilson did not understand the difference
between an individual receiving the loan and a non-profit.
She wondered what type of non-profit would apply for the
loan. Ms. Bolling responded that it was very expensive to
operate a seed supply organization. The payoff was small
and only came over a long period. She suggested it would be
unreasonable to expect a short-term payback. The reason the
bill was needed and why there was a bottleneck in the
growing industry was because there was no substantial gain
from participating in just the seed supply. She opined that
it was necessary for the state to get involved due to the
riskiness of the developing industry. She noted that it was
unlikely to be able to find financing in the private
sector.
Representative Wilson asked Ms. Bolling if she was
concerned that an entity could get into the process and not
be able to pay the money back to the state. Representative
Ortiz deferred to the Department of Commerce, Community and
Economic Development.
BRITTENY CIONI-HAYWOOD, DIRECTOR, DIVISION OF ECONOMIC
DEVELOPMENT AND COMMERCE, DEPARTMENT OF COMMERCE,
introduced herself and asked Representative Wilson to
repeat her question.
Representative Wilson suggested that the bill would allow
her to borrow $1 million with a plan. She could obtain $100
thousand in grant funding to develop her plan. The
committee had just heard that the industry was difficult to
get started and to see returns. She asked if the department
had concerns that the payments would not begin for 11
years. Ms. Cioni-Haywood indicated that the department was
diligent about properly collateralizing the loans to
protect the state's assets. She was more concerned about
the loan fund and its ability to be revolving in the first
decade. Once the payments started returning a revolving
loan fund would be available for the industry.
Representative Wilson asked Ms. Cioni-Haywood about the
number of loans. Ms. Cioni-Haywood responded there were
currently 5 loans all of which were loans made to
individual farmers rather than hatcheries.
Representative Wilson asked about the balances. She had a
figure of approximately $4.5 million in the fund. Ms.
Cioni-Haywood answered that Representative Wilson was
correct.
4:05:53 PM
Representative Pruitt reported that it had been 3 years or
4 years since he had visited one of the farms in Ketchikan.
He recalled that most of the seed was coming from the Puget
Sound area. He wondered if he was correct. Representative
Ortiz responded that there was an organization called
Oceans Alaska in the Ketchikan area that provided seed that
was not in business 4 years previously.
Ms. Bolling added that per a regulation from the Department
of Fish and Game (DFG) all native plants and marine aquatic
shellfish that were produced in the State of Alaska were
required to come from seed created in Alaska.
Representative Pruitt noted that 3 years or 4 years ago
South or Southeast was a great place for this emerging
industry. He asked if some of the seed could be utilized
outside of Alaska. He wondered if the intent was to grow
the industry in Alaska or to possibly to provide seed to
places outside of Alaska to make a profit. Representative
Ortiz responded that the intent of the bill was to promote
local mariculture farms. He understood that the demand for
seed was strong enough that it would like be used up in
Alaska. In the case of Oceans Alaska, he understood they
could not produce seed fast enough for the demand within
the state.
Representative Pruitt asked if there was a market. He
wondered if there would be a challenge to pay the funds in
the future. Representative Ortiz thought it was
appropriate, as it was a developing industry. However,
there was an element of risk. He did not see a way to
develop the industry to get to the point where there was a
viable industry without getting through a period of
relatively high risk.
4:10:05 PM
Representative Pruitt asked if the expansion of the loan
fund - by adding another group - would create a problem
with pressure on the fund at a future time. Ms. Cioni-
Haywood responded that it explained the reason for the
construction of a 40/60 split. She noted that 60 percent of
the fund would remain available for individual farmers. The
remaining 40 percent (set at a particular time so it would
not be in flux) would be available for hatchery and
enhancement projects.
Representative Kawasaki asked about the 40/60 split. He
wondered if the 60 percent portion would be enough for the
remaining mariculture businesses that were originally
listed. Representative Ortiz replied that to-date the fund
had been underutilized. There were currently 5 loans with a
balance of just under $5 million in the fund. The initial
funding amount was $5 million. The industry recognized that
the supply of seed was a problem. If the state were to see
an increase in the manufacturing of seed resulting from the
40/60 split, then it was possible there would also be an
increase in the number of farmers interested in getting
into the business. There would likely be an increase on the
demand of the remaining 60 percent. He noted Ms. Cioni-
Haywood talking about the fund initially not having a
revolving nature because of the funds being expended. He
thought it was better to have a fund that was being used
rather than underutilized.
Co-Chair Seaton noted that there was a shellfish hatchery
in Seward focused on a King Crab project. He reported that
the oyster farms in the area were having difficulty getting
seed. He clarified that seeds other than oyster seeds could
not be brought into Alaska. Oyster seeds were grandfathered
in. Currently, because of warm waters, the State of
Washington's seed production was down significantly.
Farmers in Alaska had to have new seed each year if they
were harvesting annually. He concluded that without a good
seed supply, the business model would not work. He wanted
to make sure to report that the bill was not only related
to Southeast Alaska. He mentioned another bill that had
passed regarding Geoducks. It was 9 years to 11 years
before Geoducks were harvestable. He suggested that putting
off the payment of principle and interest was necessary. He
pointed out that a farmer might have a valuable product
with a lengthy cycle. He mentioned that previously Geoducks
could not be planted or farmed anywhere outside of
Southeast Alaska. It did not make sense because they did
not reproduce naturally further North. However, North could
provide a great growing area. He cited a village
corporation project in the Port Graham area.
4:15:42 PM
Co-Chair Foster OPENED Public Testimony.
4:16:05 PM
TAMSEN PEEPLES, LEAD ALASKA OPERATIONS, BLUE EVOLUTION,
JUNEAU, spoke in favor of HB 76. Blue Evolution was a
company developing commercial seaweed maricultures in
Alaska. The previous August she constructed and operated
the first commercial kelp hatchery in the state located in
Juneau, Alaska, at the University of Alaska Southeast in
the Anderson Building. She produced over thirty thousand
feet of seeded line and distributed it to three independent
Alaskan growers: two out of Kodiak and one out of
Ketchikan. The first harvest of material would occur the
following week. The company aimed to collect over thirteen
thousand pounds of kelp that grew from its independent
farmer from seed material produced in Juneau. Her company
would be purchasing the product from the farmer, drying it,
and making added value products such as a seaweed pasta.
Her company was already producing the pasta and selling it
online. As Representative Ortiz mentioned, seed was a huge
choke point in production even within her own company. All
three independent farmers applied to increase their farm
space substantially. The company would be going over 500
percent production from the past year. She relayed that
having access through the mariculture revolving loan fund
to the hatcheries would greatly increase Blue Evolution's
production but all other shellfish and seaweed hatcheries
throughout the state. As an Alaskan and marine biologist,
she whole-heartedly supported the industry in its entirety.
4:18:00 PM
JULIE DECKER, ALASKA FISHERIES DEVELOPMENT FOUNDATION,
JUNEAU, spoke in support of HB 76. She explained that her
organization broadly represented the seafood industry from
harvesters, processors, and support sector businesses. The
foundation had a vision to grow a $1 billion industry in 30
years. The foundation believed that there was a major
opportunity in developing mariculture in the State of
Alaska including wild fishery enhancement, aquatic farming,
and restoration of shellfish and aquatic plants. She
mentioned that finfish farming was off the table and not
allowed in the state. The organization believed there was
serious opportunity available. She mentioned examples in
the State of Washington and provided some statistics. She
also noted an announcement in a publication that China was
making a $200 million investment in Eastern Russia to grow
sea cucumbers, mussels, and scallops - three species
present in Alaska. The foundation firmly believed there was
an opportunity. In addition to supporting HB 76, she
offered that the following bill, HB 128, was also a part of
the building blocks needed to develop the industry
efficiently. The governor's mariculture task force agreed
that the two bills were necessary and supported both bills.
There was also a list of 16 other organizations from across
the state that supported the bills. She also mentioned the
support of the farmers because they needed a consistent
source of seed. She thanked the committee.
4:20:20 PM
TOMI MARSH, BOARD MEMBER, OCEANS ALASKA, KETCHIKAN (via
teleconference), spoke in support of HB 76 and HB 128.
Oceans Alaska was a non-profit shellfish hatchery. The
company started producing oyster seed prior to 2015 and
wanted to expand into seaweed and geoduck seed. It went
from producing 5.0 thousand oyster seeds to about 10.0
million oyster seeds. The non-profit's ability to produce
seeds would allow more expansion by existing and new
Alaskan businesses and farmers and would help with
rehabilitation and enhancement. She reported that the
Ketchikan Gateway Borough had invested over $600 thousand
of economic development funds to Oceans Alaska. Many
individual board members had also contributed. There was a
significant amount of local support for the hatchery. She
indicated that if the bill passed Oceans Alaska would
pursue a loan from the Mariculture revolving loan fund,
which would help stabilize its existing operations and
allow for expansion.
4:22:06 PM
ERIK O'BRIEN, SOUTHWEST ALASKA MUNICIPAL CONFERENCE
(SWAMC), ANCHORAGE (via teleconference), spoke in favor of
HB 76. He was an independent farmer and intended to apply
for a mariculture loan. He thought kelp mariculture was a
stepping-stone into other mariculture activities. He also
planned on participating in hatchery operations.
4:23:33 PM
DOUG GRIFFIN, SOUTHWEST ALASKA MUNICIPAL CONFERENCE,
ANCHORAGE (via teleconference), spoke in support of HB 76.
He explained that about 4 years prior SWAMC had become
interested in mariculture as a development initiative to
increase economic activity. It was seen as a perfect fit in
communities that were experiencing a loss of fisheries
access. Coastal communities were well placed to succeed in
the mariculture industry. The bottleneck for development
was access to capital to get into what was considered by
regular banks as a speculative industry. The initiative
SWAMC started 4 years ago had not gained momentum for the
reasons he mentioned. He opined that Mariculture was
complimentary to other fisheries and would be a great
initiative of job creation. He relayed that high value
products in demand worldwide would come from the industry.
He asserted that along with the initiative the state would
need to move to marketing and other items. He noted that
Kodiak was actively looking at permitting and access to
capital within the mariculture industry.
Co-Chair Foster CLOSED Public Testimony.
Co-Chair Foster relayed that amendments were due in his
office by Tuesday, April 17th.
HB 76 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 128
"An Act relating to management of enhanced stocks of
shellfish; authorizing certain nonprofit organizations
to engage in shellfish enhancement projects; relating
to application fees for salmon hatchery permits; and
providing for an effective date."
4:27:17 PM
REPRESENTATIVE ORTIZ, SPONSOR, thanked the committee for
hearing HB 128. He noted Ms. Decker had mentioned pieces of
a puzzle being put together to help spur the development of
Alaska's mariculture industry. He opined that HB 128 was
one of the pieces of the puzzle. He read the sponsor
statement:
Enhancement of Alaska's shellfish industry holds the
potential of expanded economic opportunities in
Alaska's coastal communities and increased resilience
of the State's fisheries portfolio.
To tap this potential HB 128 allows qualified non-
profits to pursue enhancement and/or restoration
projects involving shellfish species including red and
blue king crab, sea cucumber, abalone, and razor
clams.
The bill creates a regulatory framework with which
Alaska Department of Fish and Game can manage
shellfish enhancement projects and outlines criteria
for issuance of permits. It sets out stringent safety
standards to ensure sustainability and health of
existing natural stocks. The Commissioner of ADFG must
also make a determination of substantial public
benefit before a project can proceed.
In addition, the bill sets the application fee for a
shellfish enhancement project at $1,000 and amends the
application fee for a salmon hatchery permit,
increasing the fee from $100 to $1,000.
HB 128 plays an important role in the development of
mariculture in Alaska by providing a method to
increase the available harvest of shellfish for public
use in an environmentally safe manner.
Co-Chair Foster reviewed the available testifiers in the
room and online.
Vice-Chair Gara asked about Representative Ortiz's
reference to a provision in the legislation about
protecting against contamination or danger to wild species.
He asked if the representative was referring to wild
shellfish or wild fish also. Representative Ortiz asked if
Vice-Chair Gara was talking about salmon.
Vice-Chair Gara responded affirmatively. He wanted to make
sure there were provisions in place to ensure that there
was no danger of contamination that would spread to wild
fish or shellfish. Representative Ortiz deferred to DFG.
His understanding was that a totally different enhancement
process was being discussed. He thought the shellfish were
staying in one area without intermixing. He asked DFG to
add to his comments.
4:31:34 PM
FORREST BOWERS, DEPUTY DIRECTOR, DIVISION OF COMMERCIAL
FISHERIES, DEPARTMENT OF FISH AND GAME, explained that the
enhancement or rehabilitation projects that would be
promoted under the bill would target existing stocks. For
example, there was a King Crab stock around Kodiak. The
abundance level was too low to harvest. The efforts that
would be undertaken with the bill would attempt to restore
the stock to a level where fisheries could occur. The bill
would allow for a restoration of native existing stocks
rather than introducing a new species into an area where
they were not native.
4:32:42 PM
MARY HAKALA, STAFF, REPRESENTATIVE DAN ORTIZ, added that a
definition was provided on page 9, line 3 of the bill. The
bill specifically spoke to shellfish. The definition
detailed that shellfish was exclusively indigenous to state
waters. She highlighted a provision on page 5, line 11
regarding collecting brood stock. The permit holder would
be directed to (where feasible) first take shellfish native
to the area in which the shellfish would be released. She
continued that in some case where an entity was restocking
depleted stock it could take from another area. She thought
there were strong directives in the bill.
Vice-Chair Gara was mainly concerned with protecting native
stock. He asked if the bill authorized hatcheries beyond
the relocation of shellfish from one area to another or if
it had more to do with enhancement that did not involve
hatcheries. Mr. Bowers responded that hatcheries could be
used as tools for enhancements. However, there were other
methods available.
Vice-Chair Gara asked if there were rules in place to avoid
contaminating native fish with hatchery species. Mr. Bowers
replied that all of the shellfish that would potentially be
involved in one of the projects would undergo pathological
testing for disease. The department had a genetics policy
that ensured that genetic diversity of native stocks was
maintained. In addition, the department had fishery
management policies dealing with harvest rates to avoid
overexploiting stocks.
Vice-Chair Gara remarked that he was not a scientist. He
asked for assurance that there were rules in place to do no
harm to native stocks. Mr. Bowers responded that the
department's directive was to do no harm. The department's
interest was in conserving the wild resources of the state,
enhancing them if they became depleted, or rehabilitating
them. The department would not permit a project if it
thought it would do harm.
4:36:17 PM
Representative Wilson asked how the issue was different
from mixing wild salmon with farmed salmon. She wondered if
the state would be raising shellfish in a separate way and
then mixing them with wild shellfish. Mr. Bowers answered
that there were a number of ways in which enhancement could
occur. One approach to shellfish enhancement was to take,
for example, female King Crab bred and fertilized naturally
in the wild, brought into a hatchery where they would span.
The juvenile crab would be raised up to a certain size and
released into the wild. Essentially, they would be
naturally produced organisms that had been helped to
survive a vulnerable life stage. They would not be a
hatchery-produced fish. They would be native and placed
back into their native habitat. He suggested that other
approaches might include moving organisms such as abalone
closer together. Speculations had been made that their
reproduction was limited because the individuals were
geographically too far apart to breed successfully. There
were other approaches as well including back planning
hatchery-produced organisms to speed up natural recruitment
to allow fisheries to happen more quickly. In the case of
the fish Representative Wilson mentioned, some interior
hatcheries were non-native species like Rainbow Trout. He
noted that triploid organisms could not reproduce
naturally. They were introduced into areas such as land-
locked lakes where they could not interact with wild
salmonids.
Representative Wilson discussed the general concern about
releasing them [enhancement fish] into the wild potentially
causing issues with the population. She wondered how to
address the concern. She asked for clarification.
4:40:12 PM
Mr. Bowers responded that the native organisms would be
placed back into the area where they would have been
produced in the wild. He cited the example of Kodiak Red
King Crab. The department was not moving organisms into
places where they were not native. He noted that the
existing hatchery programs were situated in areas where the
department believed straying and interbreeding between
hatchery and naturally produced fish would be minimized.
There were protections in place. He reemphasized he was
speaking about native organisms.
Representative Wilson asked if any other states had similar
programs. Mr. Bowers was not aware of any.
Representative Guttenberg reiterated the information Mr.
Bowers had provided. He asked if there had been lessons
learned regarding overharvesting issues that would help in
avoiding recreating problems from the past.
Mr. Bowers replied that in the case of Red King Crab, some
of the declines were due to over fishing. There had also
been changes in the North Pacific eco system that made the
environment less favorable for shellfish than it was 30
years to 40 years ago. The department had learned a
significant amount about conservative management of
shellfish stocks because of their volatile history. In
general, the department's harvest policies were much more
conservative at present then they were 30 years or 40 years
ago. The department has spent a significant amount of time
working on the issue with the Alaska Board of Fisheries.
The department's stock assessment was better than it used
to be. With regard to other research, the department
believed some of the stocks had not rebuilt because they
were recruitment limited. In other words, there were not
enough juvenile crab being produced to overcome predation
and natural mortality to rebuild the stock to levels where
harvests could be sustained. The intent of the bill was to
overcome the recruitment limitation in order to get the
stocks back to a sustainable level. Enhancement would help
to provide additional harvest opportunity.
4:44:52 PM
Representative Guttenberg asked if the department would be
able to monitor the habitat changes to determine the
success of the harvest. Mr. Bowers indicated that the major
benchmark of success would be abundance or stock size,
which was measured through annual surveys. Even fisheries
that had been closed for several years, such as Kodiak Red
King Crab stocks, were still surveyed annually.
Representative Ortiz furthered that in addition to
overharvesting being a contributing factor to decreasing
stocks in shellfish in Southeast Alaska, sea otters and
other predators have influenced stock levels.
Representative Guttenberg referred to page 9, Section 6 of
the bill. He asked about the definition of a shellfish
facility. He thought the definition was placed within the
definition of farmed fish. He asked for clarity. Mr. Bowers
answered that the section simply adds shellfish to the
exemption provided in the farmed fish definition. The
existing language exempted salmon hatcheries from the
farmed fish definition and added shellfish operations to
the exemption under the bill, as they were wild fish.
4:48:58 PM
Representative Guttenberg asked if shellfish hatcheries
were being added. Mr. Bowers responded that a hatchery
could be used. It was one tool for enhancement or
rehabilitation. Shellfish produced in a hatchery or any
other enhancement operation that would be permitted under
the bill would not be considered farmed fish.
Co-Chair Seaton spoke of segments of shoreline in his area
that did not have clam populations return after an
earthquake. He wondered if the state had been successful in
reestablishing subsistence and sport harvest areas that had
reduced stocks such that they were not available for
harvest. He also wondered about an overly large population
of pink salmon interfering with other stocks. He wondered
if the bill would apply to his examples. He wondered if
there were concerns about filter feeders. Mr. Bowers
appreciated Co-Chair Seaton bringing up his question about
clams in South Central Alaska. They were stocks that had
declined significantly over the previous several decades.
They would be candidate stocks for rehabilitation under the
bill.
Co-Chair Seaton clarified that he was talking about the
harvest of stocks from beaches and repopulating the beaches
- not bringing in stocks from another area. Mr. Bowers
answered in the affirmative. He relayed that the department
would look for the nearest available stock that had surplus
biomass available which would be used as brood stock. He
was unaware of concerns that had been raised by increasing
any shellfish populations to their native or historical
biomass levels. It would be a reasonable part of sustaining
eco system diversity.
Representative Pruitt made a joking remark. Representative
Ortiz responded in kind.
Co-Chair Foster OPENED Public Testimony for HB 128.
4:53:34 PM
GINNY ECKERT, ALASKA KING CRAB RESEARCH, REHABILITATION AND
BIOLOGY PROGRAM, JUNEAU, spoke in support of HB 128. She
was a fisheries professor at the University of Alaska
Fairbanks. She provided additional background information
indicating her shellfish expertise in Alaska. She had been
doing research on King Crab since 2007 to investigate the
feasibility of rehabilitation. She had learned a
significant amount about King Crabs in their early years of
life. She was convinced that one bottleneck was their early
life history. For example, in Kodiak when she went looking
for small baby King Crab she did not find them in the
places they had been historically. She had worked on
methods to rear King Crab in a hatchery. She had also
conducted experimental out-plantings to determine which
habitat would best promote survival for juveniles. She also
looked at predation. She reported that she had not done any
experiments in areas where there were wild stocks. She
indicated that some of the concerns that had been discussed
such as genetic issues were real and viable. However, crabs
were very different from salmon and other fish. King Crabs
were reproducing in the wild. She reported that the goal
was to increase the survival of offspring that had been
produced in the wild. She noted that in some cases the
rehabilitation could increase genetic diversity through the
process. She reported examples of hatchery production in
the wild to restore wild stocks including a huge effort on
the east coast to restore wild oysters and an effort on the
west coast to restore Abalone.
4:57:16 PM
TOMI MARSH, OCEANS ALASKA, KETCHIKAN (via teleconference),
spoke in support of HB 76 and HB 128. She believed HB 128
was very important because it allowed an infrastructure in
order to enhance some of the wild stocks that needed
rehabilitation due to predators or environmental changes.
She emphasized that Oceans Alaska supported both pieces of
legislation.
4:58:34 PM
ANGEL DVOBNICA, ALEUTIAN PRIBILOF ISLAND COMMUNITY
DEVELOPMENT ASSOCIATION (APICDA), reported she was also a
member of the Mariculture Task Force. The association had
submitted letters of support on both of the mariculture
bills. The Aleutian Pribilof Island Community Development
Association was one of six groups in the Community
Development Quota Program and represented six communities
in the Aleutian Pribilof Region. She provided additional
information regarding the association. She opined that HB
128 was necessary to bring a certain program out of its
research phase into implementation. The association saw
tremendous opportunity in mariculture in Western Alaska for
increasing access to commercial and subsistence fisheries
and to better understand in impacts of climate related
ocean changes on important fisheries species and building
resiliency to those changes. The communities of APICDA were
heavily invested in fisheries and were very interested in
mariculture development. Such development could play an
important role in diversifying the existing seafood
operations. She indicated that both mariculture bills had
wide support throughout Western Alaska and thought both
were necessary. She added that on a personal note as a
Dungeness crab fisherman in the Southeast she would support
Representative Pruitt's amendment.
5:01:08 PM
Co-Chair Foster CLOSED Public Testimony on HB 128.
Co-Chair Foster indicated amendments for HB 128 were due on
Tuesday, April 18, 2017 by 5:00 p.m.
HB 128 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster relayed that there were two additional
bills to be heard before the end of the meeting.
SENATE BILL NO. 3
"An Act relating to the regulation of wastewater
discharge from small commercial passenger vessels in
state waters; relating to art requirements for certain
public facilities; and providing for an effective
date."
5:02:01 PM
Co-Chair Foster invited Senator Stedman and his staff to
the table.
SENATOR BERT STEDMAN, SPONSOR, thanked the committee for
the opportunity to present his bill. He read the sponsor
statement:
HCS SB 3(TRA) addresses marine vessels operating in
Alaska waters. This legislation reinstates the
statutory exemption from large cruise ship discharge
requirements for small commercial passenger vessels.
Small commercial passenger vessels and ferries with
capacity to accommodate between 50 and 249 overnight
passengers have been covered by a statutory exemption
from the treatment system and discharge requirements
for large cruise ships in Alaska. Instead they have
operated under Best Management Practices (BMP) plans
that are submitted to and approved by DEC. Operation
under these plans has dramatically improved the
quality of wastewater discharged from these vessels
since the program was established.
The exemption became law in 2004 and had a sunset date
of January 1, 2016. Support for the exemption was
provided by a 2004 DEC report on small cruise ships
and Alaskan ferries that found meeting the terms for
large cruise ships would be financially and feasibly
prohibitive.
SB 3 is necessary to reinstate the exemption, which
was automatically repealed on January 1, 2016. Without
the exemption, small cruise ships and ferries would be
required to install and operate Advanced Wastewater
Treatment Systems, which would be cost and space
prohibitive. Department of Transportation and Public
Facilities estimates the cost to retrofit ferries is
over $5 million.
Senator Stedman remarked that the bill was an extension of
policy put in place by the legislature. He noted that it
would be very difficult for the smaller ship if they did
not get the proposed exemption. He wanted to see the
industry encouraged to grow, as it was good for commerce in
coastal Alaska. He opined that forcing smaller ships out of
the market place was not good for anyone. In terms of the
Alaska Marine Highway system, there was a budget struggle.
The state was trying to operate a transportation system in
the rail belt and on the coast. The state had an old fleet
it was attempting to modernize. There were a couple of new
vessels under construction presently. He believed that
trying to make the older smaller vessels to comply rather
than obtain extensions would not work. He was available for
questions.
Co-Chair Foster reviewed the available testifiers.
Representative Kawasaki asked how many boats the
legislation would apply to in the state.
5:07:27 PM
AT EASE
5:07:52 PM
RECONVENED
Senator Stedman responded that there were about ten of the
smaller ships. There was a list in the packets provided to
members.
Representative Kawasaki asked about any sunset provisions.
Senator Stedman thought it was the first sunset. He
recalled that there had been considerable debate regarding
cruise ship discharge. In the process, a sunset date was
included. He thought it should be dealt with right away.
Representative Kawasaki asked if there was a current sunset
in the bill. Senator Stedman responded in the negative.
Representative Kawasaki asked if a new boat would
automatically comply with requirements and, therefore, not
need an exemption. Senator Stedman deferred to a
representative from the Division of the Alaska Marine
Highway System respond.
5:10:28 PM
MICHAEL A. NEUSSL, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES, responded that it did
not apply to the two Alaska class ferries for the marine
highway. The vessels had a Type 3 marine sanitation devise
that held all discharge waters onboard discharging ashore.
The legislation would apply to the proposed MV Tustumena
replacement vessel, which met the standards for a small
passenger vessel. The vessel was designed under the
provisions of the best management practices statute. It had
a MSD type 2 system to put an advanced wastewater treatment
system onboard to comply with large cruise ship discharge
standards. It would not fit in the marine sanitation devise
room. It was three times the size and three times the
weight of the system. The ship would need a redesign to
accommodate it, which would be costly.
Representative Kawasaki asked about the original exemption
in 2004 and why there was a sunset in 2016. Mr. Neussl
suggested the question be directed to Michelle Hale,
Division of Water, Department of Environmental Conservation
(DEC).
Vice-Chair Gara suggested having the Senator's staff review
the changes in the bill. Senator Stedman indicated he would
be returning to the Senate Resources Committee. His staff
could answer member's questions.
Vice-Chair Gara asked about the differences of the current
version of the bill and the version of the bill the
committee previously heard.
DAVE SCOTT, STAFF, SENATOR BERT STEDMAN, responded that the
changes were minor. House Bill 151 had a retroactivity
effective date, whereas, the Senate version did not. He
reported that when he spoke with DEC, the department did
not have a problem with the bill not having a retroactivity
clause.
Representative Pruitt mentioned that the bill previously
had a different title and contained an additional piece.
He inquired as to why the piece was removed. He noted there
had been a discussion about 1 percent of monies for art on
the ferries and another discussion relating to the cost of
the new ferries.
Mr. Scott spoke to the 1 percent for art. He indicated the
amount was removed by the House Transportation Committee.
There were three sections removed that all dealt with the 1
percent for art. He reported that the MV Taku was for sale
and the FVF Chenega was tied up. The art in both vessels
would be removed and placed on the new Alaska class
ferries.
Co-Chair Foster OPENED Public Testimony.
5:15:18 PM
JAMEY CAGLE, ALASKAN DREAM CRUISES, SITKA (via
teleconference), spoke in support of the bill as amended.
He thought it was an integral part to the operation of his
vessels.
5:15:58 PM
PETER BUTZ, ALASKAN DREAM CRUISES, SITKA (via
teleconference), spoke in support of the bill with the
amendment being passed. The legislation was necessary for
the continuation of his company's small fleet to operate
out of Sitka.
5:16:38 PM
Co-Chair Foster CLOSED Public Testimony.
Representative Wilson asked if the bill was going to be
moved.
Co-Chair Foster was open to moving the bill if the
committee members did not have amendments.
Vice-Chair Gara agreed with Representative Wilson.
Representative Wilson relayed that there were two zero
impact fiscal notes [OMB Component Number 2062 from the
Department of Environmental Conservation and OMB Component
Number 2604 from the Department of Transportation and
Public Facilities].
5:18:10 PM
AT EASE
5:18:36 PM
RECONVENED
Co-Chair Foster invited Mr. Neussl to review the new fiscal
note for OMB Component Number 2604.
Mr. Neussel explained that the new fiscal note was an
update of the previous fiscal note. The previous fiscal
note covered the bill when it had both the 1 percent for
art and the wastewater discharge provisions in it. The
department striped out the 1 percent for art language from
the fiscal note. The note remained a zero fiscal impact
note and contained the same language regarding the
wastewater discharge bill.
Representative Pruitt asked if there was enough artwork for
the vessels. Mr. Neussel responded that the artwork
salvaged from the MV Taku and the FVF Chenega would be
sufficient for the new Alaska class ferry.
Representative Pruitt relayed that the original fiscal note
stated that there was approximately $2.37 million for the
future MV Tustumena replacement vessel. He asked if the
money was still necessary. Mr. Neussl responded that
regarding the 1 percent for art portion, the MV Tustumena
replacement vehicle was not currently under contract,
therefore, did not apply. He detailed that $2.37 million
was the estimated cost of 1 percent for art. He did not
think the department could spend that much on art for the
vessel. It was a large amount for artwork on a vessel. The
department planned to salvage the art off of the existing
MV Tustumena to reuse on its replacement and supplemented
as necessary with a small increase.
Representative Pruitt thought that using the art from the
MV Tustumena was the right thing to do. He wondered if
there was a statutory requirement concerning the amount
spent on art. Mr. Neussel relayed that there were some
concerns about the 1 percent for art account being a
dedicated fund and unconstitutional. Therefore, it was
removed from the bill.
Representative Pruitt asked if there was an expectation
that the state spent an additional amount on art. He
wondered if additional language was necessary. Mr. Neussel
did not believe additional language to deal with the issue
of the 1 percent for art. The new vessel would have reused
art. Any additional monies for art would come from funding
from within the construction project. He did not believe it
would be 1 percent.
Representative Wilson MOVED to report HCSSB 3 (TRA) out of
Committee with individual recommendations and the
accompanying fiscal notes.
HCSSB 3 (TRA) was REPORTED out of committee with a "do
pass" recommendation and with a new zero fiscal note by the
Department of Transportation and Public Facilities and with
a previously published zero fiscal note: FN1 (DEC).
5:23:05 PM
AT EASE
5:27:01 PM
RECONVENED
HOUSE BILL NO. 167
"An Act relating to performance reviews, audits, and
termination of executive and legislative branch
agencies, the University of Alaska, and the Alaska
Court System."
5:27:23 PM
REPRESENTATIVE GABRIELLE LEDOUX, SPONSOR, explained that
the bill would repeal the requirement for performance
audits. She reported that performance audits had not been
funded for the previous couple of years. She thought their
costs ran over $1 million. The audits were typically 800 to
1000 pages in length. She doubted anyone had ever read any.
Someone had requested that she introduce the bill to
eliminate the requirement.
Representative Wilson did not agree with the reason for the
proposed elimination. She wondered if the legislature was
taking the wrong approach to finding efficiencies and
measuring programs. She wondered if there was a better
approach to take rather than requiring performance audits.
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, replied that she believed there was an
expectation gap in terms of the definition of a performance
audit. Performance audits were not in place to cut the
budget. She continued that a very small piece of the audits
had to do with the budget. Departments were asked to submit
10 percent reductions in their general funds and the
consultant was asked to evaluate whether the reductions
were in line with their findings of the reviews. She
explained that a performance review included looking at the
agency's mission and evaluating how it conducted its
business. The performance reviews were not intended to help
solve the state's budget crisis. The inherent problem with
the audit reviews was that they had not been read. If the
expectation was the performance reviews were going to help
solve the budget, it was not valid. If the legislature
chose to fund audits in the future, many changes should be
made to make them effective. She had been asked to provide
a summary of suggested changes. However, she did not have
the resources to do so at present. She suggested it might
be possible in the off-season. She added that if
performance audits were to continue at the request of the
legislature, some tweaks would need to be made to the
process.
5:31:53 PM
Vice-Chair Gara commented that the largest department had
already been reviewed - the Department of Health and Social
Services. He wondered if was correct. Ms. Curtis confirmed
that DHSS had been audited.
Vice-Chair Gara imagined that the DHSS audit would have
been the most expensive audit process. He recalled that the
department made the changes that seemed rational on the
audit report. He could not say there was no value to the
reports. However, the goal of the original bill was to
review internal practices in the hopes of achieving 10
percent reductions wherever possible. He did not see the
need for future audit reports.
Representative Wilson thought only a portion of the
Department of Health and Social Services had been audited.
She asked if she was accurate. Ms.
Curtis replied that the process called for Legislative
Audit to help draft a scope of work. The scope was then
provided to the committee, they approved it, and
contractors were hired. The audit had been focused on the
overall organization of the department, long-term care, and
another piece that she did not recall in the moment.
Representative Wilson thought that the entire department
was going to be audited and noted her disappointment. She
stated that if there was a possibility to tweak the program
to achieve the original intent of the legislation at a
lower price.
5:35:07 PM
Ms. Curtis responded that she would have to receive
guidance from policy makers on what they wanted to see from
the bill. She clarified they were not audits, but reviews.
The budget request was so high because the University was
included in the list of departments to be reviewed. The
cost was contingent on the size of the department.
Representative Pruitt asked when the legislature's review
had been scheduled. Ms. Curtis answered that it was
scheduled the year it was defunded. The legislature, the
Office of the Governor, and the Alaska Court System were
scheduled in the same cycle.
Representative Pruitt asked if there was harm to revising
the program. He referred to a memorandum in members'
packets. He wondered if there was a problem with leaving
the law on the books. Ms. Curtis responded that the only
problem had to do with the uncertainty of staffing. She
detailed it was difficult to determine whether staff would
be available. It had taken a lot to get the program
running. If it was the will of policy makers, she could
provide feedback on some of the obstacles in getting the
reports to lawmakers to make a difference. She had feedback
if individuals were interested in continuing the program.
If it were left on the books, she would have to come before
the legislature each year to request the funding.
5:38:34 PM
Representative Pruitt thought the reviews were
misunderstood. He believed there was an understanding by
legislators and the public that the audits were to assist
in finding efficiencies. He referenced suggestions made by
Mr. Alexander and asked if the items he highlighted would
assist in addressing inefficiencies in government. Ms.
Curtis responded that she did not believe the problem with
the program was how it had been structured. She offered
that the current statutes provided direction for looking
for efficiencies within departments and essentially
providing a grade to an agency for accomplishing its
mission. She believed it [the review process] had been well
set up; however, using it as a tool to cut the budget
appeared to be the expectation. She indicated that she was
not in agreement with some of Mr. Alexander's suggestions.
She reported that if the expectation were to use the review
process to help an agency cut its budget, some tweaks
should be made. She suggested that the Office of Management
and Budget, because they have oversight of the agencies,
might be a better source for suggested reductions. It was
left to the departments to recommend cuts; however, some
did not provide any feedback. She mentioned some other
problems with the structure of the reports that limited
their effectiveness. For instance, the reports came out in
December, a time of the year when the Legislative Finance
Division was busy with reviewing the budget. There was not
much time to get the information to legislators, and the
legislature lacked a working group to vet the report. There
was also a lack of feedback as to what to include in the
reports or any kind of follow-up mechanism.
Ms. Curtis indicated that she struggled with how to get the
legislature's attention. She posed the question as to who
was responsible for implementing items. In the Legislative
Budget and Audit Annual Report, the Legislative Finance
Division was required to report on the savings. She shared
that DHSS had reported over $1 million in savings from one
of the recommendations in the report. She opined that there
had been gems in the report. She noted that there was
information in the Department of Corrections report about
booking fees, parole fees that were on the books but not
being collect. However, there was no one to gather the
information. She claimed there were real problems with the
way things were set up. She speculated that it was not a
good use of funds to generate a report if the information
was not used. She had a neutral position, but it was
disappointing, based on the effort that went into
generating the reports, not to see the material utilized.
5:43:00 PM
Representative Guttenberg discussed that in the past the
legislature had spent significant time defining missions
and measures for the departments that he believed had been
forgotten. The administration was required to produce a
tool that would help the legislature in determining where
to make reductions. He reported people did not like that
the tool revealed certain places where additional monies
should be spent. He cited an example of a mission and
measure in the Recorder's Office. He thought the
legislature had not had a vested interest in the report. He
expressed concerns about eliminating the report in its
entirety. He was glad Ms. Curtis pointed out some of the
recommendations. He asked how often the recommendations had
been taken up by the departments.
5:46:01 PM
Ms. Curtis did not know of a mechanism in place to track
implementation. She urged members to look at the Department
of Education and Early Development's performance review.
She characterized the report as a phenomenal report and
encouraged all members to review it. She highlighted that
the reports depended on a contractor, an expert in the
field, being hired. In managing the reports, contractors
had a vested interest in having additional studies done.
She suggested contractors would always recommend conducting
additional studies. She thought it was one obstacle. She
added that it was important that the relationship between
the department and the contractor remained professional.
She shared that her staff had attended every meeting with
the contractor. There were many lessons that had been
learned that she believed could be applied in the future.
Co-Chair Seaton reported that the House Finance
Subcommittee for the Legislature's budget met on February
23rd and decided to ask the House Rules Committee to
introduce a bill that would eliminate the provision of
reviewing all of the departments in a 10-year cycle. The
cost included $1 million and 3 full-time positions. The
legislature did not fund the amount. He thought that
routine performance reviews were not being used enough to
justify the expense. He would rather that the legislature
request a specific audit for a department when needed. He
believed the committee should move the bill and get
something off the books that required full-time positions
to be hired.
5:49:53 PM
Representative Wilson disagreed. She believed the
legislature was partially at fault. She thought finance
should have had a subcommittee review the reports. She also
recommended reviewing a lesser number of departments each
year. She had read the reviews and believed they contained
good information. She found that some of the departments
had done better than other ones. If the legislature were
more involved, agencies would be more cooperative knowing
they would be held accountable. She believed that
accountability was a missing link. She thought that based
on the times, the legislature should be taking a deeper
look beyond a 90-day or 120-day session. She spoke to the
importance of finding efficiencies. She thought follow-
through was important to put into place without any
additional costs. Members of the legislature could be
appointed to review the reports. She believed the situation
was a disservice to Legislative Budget and Audit. She did
not support rushing the bill through when she thought the
review process could be saved.
Co-Chair Seaton surmised that Representative Wilson wanted
to fund the reviews and to fund the three positions.
Representative Wilson believed the legislature could not
afford three positions. She thought that spending money on
the University to conduct the review did not make sense.
She suggested that maybe the issue could be addressed over
the interim and that the state could pay for one review.
5:53:00 PM
Representative Guttenberg was concerned that if the
required audits were eliminated in statute, institutional
memory could potentially be lost. In reference to the
university, he thought one of its problems was in looking
at its self.
Co-Chair Foster asked committee members if they wanted to
take action on the bill. He would provide more time for
members to think about the bill. He indicated that the
deadline for amendments was on Tuesday, April 17, 2017 at
5:00 p.m.
Co-Chair Foster OPENED Public Testimony on HB 167.
Co-Chair Foster CLOSED Public Testimony on HB 167.
HB 167 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day
and recessed the meeting to a call of the chair [Note: the
meeting never reconvened].
ADJOURNMENT
5:57:15 PM
The meeting was adjourned at 5:57 p.m.