03/13/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB76 | |
| HB74 | |
| HB112 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 76 | TELECONFERENCED | |
| += | HB 74 | TELECONFERENCED | |
| *+ | HB 112 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 13, 2013
3:24 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Lora Reinbold, Vice Chair
Representative Mike Chenault
Representative Bob Herron
Representative Dan Saddler
Representative Andy Josephson
MEMBERS ABSENT
Representative Charisse Millett
OTHER LEGISLATORS PRESENT
Representative Kawasaki
COMMITTEE CALENDAR
HOUSE BILL NO. 76
"An Act relating to electronic filing of certain information
with the Department of Labor and Workforce Development; relating
to surcharges, rate increase reduction, prohibition on the
relief of certain charges, the unemployment trust fund account,
and the offset of certain unemployment compensation debt under
the Alaska Employment Security Act; relating to the definition
of 'covered unemployment compensation debt' in the Alaska
Employment Security Act; and providing for an effective date."
- HEARD & HELD
HOUSE BILL NO. 74
"An Act relating to development project financing by the Alaska
Industrial Development and Export Authority; relating to the
dividends from the Alaska Industrial and Export Authority;
authorizing the Alaska Industrial Development and Export
Authority to provide financing and issue bonds for a liquefied
natural gas production system and natural gas distribution
system; and providing for an effective date."
- HEARD & HELD
HOUSE BILL NO. 112
"An Act repealing the film production tax credit; providing for
an effective date by repealing the effective dates of secs. 31 -
33, ch. 51, SLA 2012; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 76
SHORT TITLE: UNEMPLOYMENT; ELEC. FILING OF LABOR INFO
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/18/13 (H) READ THE FIRST TIME - REFERRALS
01/18/13 (H) L&C, FIN
03/04/13 (H) L&C AT 3:15 PM CAPITOL 106
03/04/13 (H) AIDEA: LNG PROJECT; DIVIDENDS;
FINANCING
03/05/13 (H) L&C AT 8:00 AM BARNES 124
03/05/13 (H) -- Meeting Continued from 3/4/13 --
03/13/13 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 74
SHORT TITLE: AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/16/13 (H) READ THE FIRST TIME - REFERRALS
01/16/13 (H) L&C, FIN
02/08/13 (H) L&C AT 3:15 PM BARNES 124
02/08/13 (H) Heard & Held
02/08/13 (H) MINUTE(L&C)
03/04/13 (H) L&C AT 3:15 PM CAPITOL 106
03/04/13 (H) ** Meeting will Recess and Reconvene at
03/05/13 (H) L&C AT 8:00 AM BARNES 124
03/05/13 (H) -- Meeting Continued from 3/4/13 --
03/11/13 (H) L&C AT 3:15 PM BARNES 124
03/11/13 (H) Heard & Held
03/11/13 (H) MINUTE(L&C)
03/13/13 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 112
SHORT TITLE: REPEAL FILM PRODUCTION TAX CREDIT
SPONSOR(s): STOLTZE
02/11/13 (H) READ THE FIRST TIME - REFERRALS
02/11/13 (H) L&C, FIN
03/13/13 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
PAUL DICK, Director
Central Office, Division of Employment Security (DES)
Department of Labor & Workforce Development (DLWD)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 76.
BARBARA HUFF TUCKNESS, Director
Governmental and Legislative Affairs
Teamsters Local 959
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 76.
SARA FISHER-GOAD, Executive Director
Alaska Energy Authority (AEA)
Department of Commerce. Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 74.
MARK DAVIS, Deputy Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
PAUL GROSSI, Lobbyist
Alaska State Pipe Trades UA Local 375
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
JACK HEBERT, Member
Board of Directors
Alaska State Home Building Association (ASHBA)- Interior
President; Cold Climate Housing Research Center
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
TERRY DIZINSKI
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
REPRESENTATIVE STEVE THOMPSON
Alaska State Legislature
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
RICHARD GREEN, Member
Board of Directors
Alaska State Home Building Association (ASHBA) - Interior
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
AARON WELTERLEN, President
Alaska State Home Building Association (ASHBA) -Interior
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 74.
REPRESENTATIVE PETE HIGGINS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 74.
BRICE WARD, Mayor
City of North Pole
North Pole, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
JERRY CLEWORTH, Mayor
City of Fairbanks
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
LUKE HOPKINS, Mayor
Fairbanks North Star Borough (FNSB)
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
JOE BEEDLE, President and CEO
Northrim Bank; Member
Alaska Bankers Association (ABA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 74.
BILL BAILEY
Director, Public Relations
Fairbanks North Star Borough School District
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
HANK BARTOS, Member
Lowell Group
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
DENNIS GILLITZER
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
GARY ATWOOD
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 74.
DAVID GARDNER, Vice President of Marketing and Member Services
Golden Valley Electric Association (GVEA)
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
ROGER BURGGRAF
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 74.
WILLIAM MCAMIS
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
BYRAN IMUS, Member
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 74.
REPRESENTATIVE BILL STOLTZE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 112.
DANIEL GEORGE, Staff
Representative Bill Stoltze
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of HB
112, Representative Bill Stoltze.
ROBERTA GRAHAM, Assistant Commissioner
Office of the Commissioner
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 112.
ACTION NARRATIVE
3:24:54 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:24 p.m. Representatives Herron,
Reinbold, Josephson, and Olson were present at the call to
order. Representatives Chenault and Saddler arrived as the
meeting was in progress.
HB 76-UNEMPLOYMENT; ELEC. FILING OF LABOR INFO
3:27:15 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 76, "An Act relating to electronic filing of
certain information with the Department of Labor and Workforce
Development; relating to surcharges, rate increase reduction,
prohibition on the relief of certain charges, the unemployment
trust fund account, and the offset of certain unemployment
compensation debt under the Alaska Employment Security Act;
relating to the definition of 'covered unemployment compensation
debt' in the Alaska Employment Security Act; and providing for
an effective date."
3:28:27 PM
PAUL DICK, Director, Central Office, Division of Employment
Security (DES), Department of Labor & Workforce Development
(DLWD), offered a brief recap of HB 76. He stated that Section
1 allows the commissioner to allow electronic filing of
documents in place of paper filing. Section 2 would allow for
an appropriation into the unemployment (UI) trust fund and
Section 3 is a conforming section for federal provisions for
relief of charges for UI. Section 4 would repeal and reenact a
table to address the trust fund solvency and also would allow
for the UI trust fund solvency to be calculated at a more
precise percentage, to the hundredths of a percent instead of to
tenths of a percent. He related that Section 5 would allow the
commissioner of DLWD to suspend all or part of the increases of
the UI tax rates conditioned on an average high cost multiple of
.8 or greater. He stated that Section 6 would bring the state
into conformity with federal law by removing the department's
authority to waive collection of a penalty established due to a
misrepresentation. Additionally, this section would authorize
the department to deposit 30 percent of penalty collections into
the UI trust fund. Section 7 would authorize the department to
offset UI compensation debts through the federal treasury offset
program - which addresses individual income tax refunds - and
place them into the UI trust fund. Section 8 defines covered
employment compensation. He concluded his summary by stating
that Sections 9-11 relate to the effective date.
3:30:39 PM
BARBARA HUFF TUCKNESS, Director, Governmental and Legislative
Affairs, Teamsters Local 959, offered to touch on the important
points. She commended the department for requesting the bill
and offered support for the bill except for Section 5. She said
that the unemployment insurance tax formula has been in place
for 20-plus years and is a sound formula. She related that the
Teamsters Local 959 (Teamsters) represents about 7,000 working
teamsters around the state in almost every industry, except for
the tourism and fishing industries. She informed the committee
that the Teamsters Local 959 is also incorporated as an employer
so the Teamsters would be affected by the employer tax rates
under the bill. In 2012, as an employer, the Teamsters paid
$37,000 in UI taxes. Additionally, the Teamster's employees,
about 35 employees, paid approximately $8,300 in UI taxes. She
reported that Alaska is one of three states in the country with
employer and employee contributions going into the unemployment
insurance (UI) trust fund. The UI trust fund has been sound,
even during the recent U.S. recession, in which 33 states became
insolvent. In fact, the state has had a sound plan and has been
able to make contributions to employees who find themselves
unemployed.
3:34:00 PM
MS. HUFF TUCKNESS referred to questions the Teamsters asked the
department and said while the DLWD's answers don't clearly prove
the Teamsters point, they do raise some questions about Section
5 for the committee to consider as it deliberates HB 76. She
read the first question the Teamsters posed, which asked whether
employers and employees will be required to pay more than under
the earlier [UI tax] rate if it had not been suspended in a
situation in which the UI tax rate increases are suspended as
referenced in Section 5 of the bill and the average high-cost
multiple falls below the trigger. She related the department's
response that if rate increases are suspended, employers and
employees would be required to pay slightly more in UI taxes in
subsequent years than they would have if increases had not been
suspended in earlier years. However, over the long term, the
amount paid by employers and employees would be about the same
or slightly less than if increases were never suspended. Thus,
the department's view is the suspension would have the effect of
deferring suspended taxes that would be absorbed over multiple
years after the suspensions.
MS. HUFF TUCKNESS explained that the department's response
raises the question regarding whether the impact on employers
and employees will be significant enough to catch up over time,
assuming the department's information is from an actuary.
Granted, it's not a black and white issue as the UI tax rate is
a complicated one with a formula. After all, the current system
has worked. The department, she related, went on to respond
that the intent of the aforementioned provision is to provide
some flexibility so as not to overtax employers and employees in
a year in which it is not necessary to do so. She questioned
the definition of overtaxing and reminded members that the UI
trust fund's purpose is to pay compensation for employees who
are laid off from their jobs. In the event a substantial
recession occurs and the UI rate increase has been suspended,
she was unsure whether adequate funds will exist to cover UI.
Further, she questioned whether reducing UI taxes on employers
and employees might put the state into insolvency and
necessitate borrowing from the federal government to ensure the
UI trust fund has a sufficient balance. Additionally, if it
became necessary to borrow from the federal government, the
state would repay the loan with interest.
3:37:51 PM
MS. HUFF TUCKNESS related that in response to the Teamsters'
question inquiring as to the meaning of the average high-cost
multiple, the DLWD explained that the average high-cost multiple
is a measure of the UI Trust fund's solvency used primarily by
the federal government to compare state systems and to encourage
states to keep a healthy amount in reserve. This measure looks
at the state's recent history, the previous three national
recessions or 20 years, whichever is longer, to determine which
percentage of the employers' wages was paid out in unemployment
insurance claims. The three highest cost years, in terms of
percentages, are then averaged and compared to the current trust
fund balance. An average high-cost multiple of 1.0 means the
state has as much money in its trust fund as a percentage of the
total wages of employers covered by the state unemployment
insurance system as the average percentage was paid out during
those three higher cost years. Ms. Huff Tuckness related that
percentages are used rather than the actual amounts since a
larger economy would mean that more employees could potentially
file for unemployment benefits. She explained that this would
require a larger amount be paid out or required to be held in
the reserve and assumes a potential run on the UI trust fund
could occur in the event a large number of employees were
subsequently laid off.
3:39:37 PM
MS. HUFF TUCKNESS expressed another concern regarding whether
sufficient reserves could be built up if the UI tax rate is
reduced if Section 5 was adopted. For example, the multiple has
been nine-tenths of a percent for ten years and assuming the
economy changes and the rates can no longer be suspended, using
the contribution rate in 2011-12 - which increased by one-half
of one percent - it appears as though the department could only
collect three-tenths of one percent, which would be insufficient
to build up the reserves in the UI trust fund. In fact, if the
UI tax rates are suspended, she predicted the employer and
employee would ultimately pay more in order to replenish the UI
trust fund. The department responded that the suspension of a
tax increase would likely result in a slightly higher tax rate
in the next year or two since the current calculations in
statutes and unchanged by HB 76 would move the UI trust fund
balance back toward its desired rate between the 3.0-3.3 percent
of total wages paid by employers covered by the system. She
said the DLWD further predicted it is very unlikely that the UI
tax rates would rise dramatically from one year to the next.
However, this bill would delay the amount of time it would have
to build up the reserves in the UI trust fund. She was unsure
whether this proved the Teamster's point, but it highlights the
issue.
MS. HUFF TUCKNESS reminded members that the Teamsters would be
affected by the bill as both an employer and by its employees
[each of which make contributions]. She highlighted that this
raises the question on the proposed department flexibility on
the UI rates and whether the department would need to
subsequently catch up if it reduced rates [and an adverse
economy reduced the UI trust fund balance.] She questioned
changing the formula for a plan that has been working well for
years. Further, Alaska's UI trust fund has not become insolvent
as many states experienced when many employees in the Lower 48
became laid off and the states experienced a run on their funds.
Actually, these Lower 48 states had a lack of contributions from
employers and employees going into the funds to ensure when a
recession happens that the UI trust fund is adequately funded.
She asked the committee to consider Section 5, and to please
reconsider the impact of this section on employers and employees
over the long term.
3:43:20 PM
REPRESENTATIVE JOSEPHSON asked whether the letter she referenced
was from Mr. Rick Boyles [dated March 1, 2013.]
MS. HUFF TUCKNESS answered yes.
3:43:48 PM
REPRESENTATIVE JOSEPHSON asked whether the second document had
been distributed to the committee.
MS. HUFF TUCKNESS answered no. In further response, Ms. Huff
Tuckness repeated the definition of average high-cost multiple,
as follows:
The average high-cost multiple is a measure of the
trust fund's solvency used primarily by the federal
government to compare state systems and to encourage
states to keep a healthy amount in reserve. The
measure looks at the state's recent history, the
previous three national recessions or 20 years,
whichever is longer, to determine which percentage of
the employers' wages was paid out in unemployment
insurance claims. The three highest cost years, in
terms of percentages, are then averaged and compared
to the current trust fund balance. An average high-
cost multiple of 1.0 means the state has as much money
in its trust fund as a percentage of the total wages
of employers covered by the state unemployment
insurance system as the average percentage was paid
out during those three higher cost years.
3:45:15 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 76.
[HB 76 was held over.]
The committee took an at-ease from 3:45 p.m. to 3:46 p.m.
HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
3:46:59 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 74, "An Act relating to development project
financing by the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska Industrial
and Export Authority; authorizing the Alaska Industrial
Development and Export Authority to provide financing and issue
bonds for a liquefied natural gas production system and natural
gas distribution system; and providing for an effective date."
3:47:05 PM
REPRESENTATIVE JOSEPHSON referred to a letter from a Dalton
Highway trucker who expressed concern about traffic and safety
issues. He asked whether AIDEA has a response to this concern.
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), stated that AEA has consulted with the Department of
Transportation & Public Facilities (DOT&PF) with respect to the
Dalton Highway and has every indication that the anticipated
traffic is manageable with respect to the project.
3:48:07 PM
CHAIR OLSON asked whether the AEA could provide estimates on the
amount of traffic for the first roll out and again once
Fairbanks reaches 18,000 LNG customers.
MS. FISHER-GOAD replied that the initial traffic is anticipated
to be 25 trucks each way on the Dalton Highway. She offered to
provide an estimate on the further build out by the next
hearing.
3:48:45 PM
REPRESENTATIVE SADDLER asked how AIDEA calculated the $50
million in general fund funding necessary for the project to
reduce the cost of providing LNG to Fairbanks.
3:49:02 PM
MARK DAVIS, Deputy Director, Alaska Industrial Development and
Export Authority (AIDEA), Department of Commerce, Community &
Economic Development (DCCED), answered that AIDEA performed
modeling to determine impacts and determined $50 million would
be sufficient to reach the target of $10.33 Mcf in Fairbanks.
He explained that AIDEA estimated the cost of the potential LNG
plant at $200 million. He stated that AIDEA determined the $50
million plus the $125 million in the Sustainable Energy
Transmission and Supply Development Fund (SETS) loan with some
private capital could achieve that rate. He clarified the
figure represented the minimum amount of general funds to
accomplish the target rate.
3:50:18 PM
REPRESENTATIVE SADDLER asked for confirmation that the
capitalization for the SETS fund is $125 million.
MR. DAVIS replied that AIDEA is requesting to transfer to AIDEA
$125 million in addition to the existing $125 million
appropriated to the SETS fund last year.
REPRESENTATIVE SADDLER assumed last year's appropriation was for
the potential LNG project. He asked for the purpose of the
additional $125 million in SETS funding.
MR. DAVIS responded that the additional transfer of funds to
AIDEA from the Alaska Housing Finance Corporation (AHFC) with
passage of this bill would be used for a loan, as stated in
Section 10 of HB 74, at approximately three percent for this
project. In other words, the $125 million the legislature
appropriated last year in Senate Bill 25 would remain in the
fund. He clarified that AIDEA has divided the $125 million into
two segments: $100 million has been invested in long-term
instruments available for loan and bond guarantees that are
essentially credit back stops and $25 million has been invested
in shorter term instruments, which is available for loans that
could be made under the current SETS program.
3:51:49 PM
REPRESENTATIVE CHENAULT, referring to the fiscal note, related
that the bonds will be secured by a capital reserve fund. He
asked whether this refers to the SETS fund, such that the bonds
will be secured through the SETS fund.
MR. DAVIS responded that the $150 million in bonds AIDEA would
be authorized to issue under the bill will have a backup of $30
million based on the $100 million already in the SETS fund
available for credit back stops. These funds would only be used
in the event of a defalcation of the bonds, he said. In further
response to Representative Chenault, Mr. Davis explained the $30
million is currently in the SETS fund and the $125 million
transferred from AHFC would be used in total for the loan.
3:52:57 PM
REPRESENTATIVE CHENAULT asked for further clarification that
AIDEA does not intend to use more than $125 million of the SETS
fund to bring this project forward.
MR. DAVIS answered that the $125 million under HB 74 would only
be used if the proposed LNG project moves forward. The current
SETS fund would remain; however, the SETS fund might be used as
a credit backstop for the issuance of bonds, if bond were
issued. In further response to Representative Chenault, he
agreed [that such a credit backstop] would be the previously
mentioned $30 million.
REPRESENTATIVE CHENAULT referred to the fiscal note from AIDEA
for $125 million. He asked whether this would be needed since
$125 million is in the proposed operating budget for the SETS
program.
MR. DAVIS replied that he has been informed that the House
Finance Committee has approved a transfer; however, he opined
that those funds should probably be reflected in the fiscal
note.
3:54:44 PM
REPRESENTATIVE REINBOLD asked for the conversion costs for each
residence.
MR. DAVIS answered that two issues arise with the distribution
system. First, customers must hook up to the whole system,
which is estimated to cost $50 to $500 per customer. He
predicted that it would likely cost closer to $300 per customer.
Second, customers must convert from oil to gas for heating, but
these costs would depend on the age of the oil boiler.
Customers with relatively new boilers would need to change their
burning system, which would be a modest cost. However, if the
residence has an older system, the customer may need to replace
the entire boiler and system, which would basically be the cost
of a furnace.
3:56:10 PM
REPRESENTATIVE REINBOLD recalled that a friend paid $10,000 to
replace her boiler. She asked for an estimate of boiler
replacement costs, the party who will be responsible to pay for
the conversion costs, and whether AIDEA has assessed a
willingness from all of its customers to convert to gas.
MR. DAVIS, drawing from estimates from contractors in Fairbanks,
estimated that the [average] boiler replacement cost would
probably be close to $8,000. He said part of the bonds issuance
will be to ensure demand from customers.
REPRESENTATIVE CHENAULT again referred to AIDEA's fiscal note of
$125 million, which he said is in the governor's proposed FY 14
budget as a transfer from the Alaska housing capital corporation
fund. However, he recalled that in the operating budget the
funding source for the $125 million is the general fund.
3:57:47 PM
PAUL GROSSI, Lobbyist, Alaska State Pipe Trades UA Local 375,
stated that the plumbers and pipefitters believe this is a good
bill. He related that about half of the plumber and
pipefitter's membership lives in the Fairbanks area. He asked
members for their support and said this will be a great bill.
3:59:08 PM
JACK HEBERT, Member, Board of Directors, Alaska State Home
Building Association (ASHBA) - Interior; President, Cold Climate
Housing Research Center, stated that HB 74 is a fine bill for
the community. He said just a little light at the end of the
tunnel will change the atmosphere in Fairbanks. He added that
the Cold Climate Housing Research Center will look closely at
options on conversions and ways to affordably do so.
4:00:28 PM
TERRY DIZINSKI echoed Mr. Hebert's comments that this is
something that will really help Fairbanks stay alive. Fairbanks
needs a break in fuel costs. He predicted that conversion costs
from oil to gas will very quickly pay for itself since it will
be at such a reasonable cost. He urged members to pass HB 74
out of committee.
4:01:29 PM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, stated
that this project has taken a number of years, but the project
will cut heating costs by approximately 50 percent or more. He
predicted the bill would also help Bush and rural Alaska,
including lots of industrial projects that will start up with
reduction in energy costs. He said the community is excited
about this, as it has been a long time in coming and he would
appreciate the committee's support for HB 74.
4:02:18 PM
REPRESENTATIVE JOSEPHSON, in the event that HB 4 passes and a
pipeline project occurs with a spur to the Fairbanks North Star
Borough, asked whether the retrofitting and conversion would
still need to happen. He understood Fairbanks would move to
natural gas.
REPRESENTATIVE THOMPSON answered that trucking natural gas will
give Fairbanksans more immediate relief. He anticipated a
pipeline being built by 2020, which would bring less expensive
gas than trucking to the region; however, the community needs
immediate relief. He predicted that a five-year wait would
adversely impact the community since most of the people will
move from Fairbanks. He concluded that it is all natural gas,
the distribution system will be built out once the trucking
happens, and it will also enhance the pipeline project since the
distribution system will be built out and the community will be
ready to receive gas.
4:03:36 PM
RICHARD GREEN, Member, Board of Directors, Alaska State Home
Building Association (ASHBA) - Interior, stated he works for
Spenard Builders Supply in Fairbanks. He said he hadn't planned
on speaking but understood [the committee needed to hear from
Fairbanks]. He said Fairbanks is excited to get gas. He also
said that Fairbanks is not excited about having to truck the
gas; however, it is a band aid that will help the community and
give it a reprieve. He likened it to taking the best way a
person could take home if he/she was stranded. He reiterated
that the folks in Fairbanks want this [bill.]
CHAIR OLSON said he was pleased with an article that ran [not
specified] in the community.
REPRESENTATIVE HERRON offered his belief that the article [not
specified] energized people.
4:05:56 PM
AARON WELTERLEN, President, Alaska State Home Building
Association (ASHBA) - Interior, offered his total support of a
short-term solution to bring natural gas to Fairbanks since the
community needs it to alleviate high energy costs. He
understood [trucking gas from the North Slope] is a short-term
solution, but the long-term solution will be a natural gas
pipeline. He said he is completely in favor of HB 74.
4:06:41 PM
REPRESENTATIVE PETE HIGGINS, Alaska State Legislature, spoke in
support of the LNG project. He urged members to pass HB 74 out
of committee.
4:07:14 PM
BRICE WARD, Mayor, City of North Pole, asked to point out
several things. First, he referred to HB 74 as providing a step
project. The [LNG Plant and proposed trucking of gas to
Fairbanks] is not the end goal, but is a step in the right
direction. Second, this bill will allow the Fairbanks and North
Pole areas to build out their distribution network to allow a
larger diameter pipeline sufficient volume to not only make the
project viable, but also provide natural gas to residents.
Third, HB 74 would aid development of natural resources in the
state by providing North Slope stranded natural gas anywhere in
the state with truck access. Additionally, the LNG plant would
allow propane to travel throughout the state's river system to
rural villages, which is important since rural Alaska has much
higher energy costs. This approach [HB 74] contains a broader
approach than to just address Fairbank's needs since it can
address rural Alaska's needs, too. He emphasized that this
clean burning gas will be available statewide. While LNG would
be transported to Fairbanks, this gas could also be transported
to Tok, Cantwell, Delta Junction and other communities outside
Interior Alaska. Finally, he hoped this will be the catalyst to
build the distribution system. He stated that the North Pole
City Council recently passed a resolution in support of HB 74.
He encouraged the committee to pass the bill.
4:10:01 PM
JERRY CLEWORTH, Mayor, City of Fairbanks, said for the first
time since he could remember the community of Fairbanks feels
that the problems Fairbanks has been facing will be addressed
and he appreciated the effort taken on energy projects. He
explained that the package [in HB 74] is a series of loans that
will be repaid. He acknowledged lots of capital and equity will
be necessary for the build out of the distribution system to
serve residences [and businesses]. He predicted a huge
participation would be undertaken by Interior Alaska's
residents. He thanked the governor for requesting HB 74 and its
companion bill. He offered his appreciation for the work the
governor and AIDEA have taken on these measures.
4:11:24 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough (FNSB), stated
that this bill is very critical to Fairbanks's economy. He
pointed out that the Interior is being hammered by high space
heating costs. Additionally, he reported that energy costs are
even higher in rural Alaska. He said these loans will be repaid
by ratepayers, as indicated by AIDEA. He noted earlier
questions arose about conversion of residential and commercial
structures to gas. He acknowledged this is important due to
market penetration, but more importantly, the U.S. Environmental
Protection Agency (EPA)'s fine particle, PM2.5 designation for
air quality is still present. The air quality can be addressed
by the natural gas distribution, which will alleviate and remedy
the air quality problem in Fairbanks. He suggested the market
penetration anticipated at 90 percent will resolve the problems
with air quality without having the EPA take steps to enforce
air quality. Further, this bill would also encourage
development. He related that he often hears businesses state
they would be willing to operate in the community if cheaper
energy is available, but their business models are based on much
cheaper energy costs. In conclusion, he asked members to
consider the importance of HB 74 to the community and for
Alaska.
4:14:33 PM
JOE BEEDLE, President and CEO, Northrim Bank; Member, Alaska
Bankers Association (ABA), spoke in favor of HB 74 to allow
AIDEA to provide financing for a LNG production and distribution
system. He said from an atmospheric perspective, the Alaska
Bankers Association also supports the in-state gasline
development. He offered his belief that these projects are
complementary as is the enabling legislation. During the past
year, the banks have collectively and individually supported
AIDEA's Sustainable Energy Transmission and Supply Development
(SETS) funds. Additionally, he reported that the banks have
been working closely with AIDEA on the SETS program, which also
includes commercial buildings energy efficiency financing.
MR. BEEDLE said specifically, with respect to HB 74, the bankers
believe inherent manageable risks are associated with the LNG
project; however, many financial tools are needed to bring this
to fruition and attract investors and lenders. With respect to
the fiscal notes, as Representative Chenault discussed, the
bankers also want to ensure that Alaska retains the SETS
program, which was funded last year. He pointed out that the
SETS program addresses a different and more holistic need than a
single project. Thus, Alaska's bankers do not wish to see HB 74
detract from the SETS program. Alaska's bankers believe it is
possible for AIDEA to set aside the $100 to $125 million, which
can be leveraged four to five times. He detailed that the funds
are set aside in the form of a trust to get called upon in case
of a default for credit enhancement or guaranteed issues to
banks; however, it's not dollar for dollar. In fact, that
amount can accommodate $400 to $500 million in loans for SETS
and it could similarly help with other project development such
as the LNG project. He expressed caution on fiscal notes,
noting the banks are ready to work with the SETS program, this
program, and other programs such as the Brooks Range Petroleum
Corporation (BRPC) Mustang Oil Field Development Program. He
said Alaska's bankers are comfortable with AIDEA's roles and
promulgated regulations. In conclusion, he offered support for
HB 74 and asked the committee to ensure the fiscal notes can
accommodate both the SETS and project financing.
4:18:44 PM
BILL BAILEY, Director, Public Relations, Fairbanks North Star
Borough School District (FNSBSD), stated this bill is paramount
to the economic health of Interior Alaska and rural communities.
The FNSB School District provides heat and power to 34
buildings, of which 23 buildings use fuel oil. During the 2011-
2012 school year, the district burned 478,517 gallons of fuel
oil and spent approximately $4 million on electricity, he
reported. The school district supports the legislature's effort
to secure and supply affordable natural gas to the greatest
number of Interior residences and businesses in the shortest
amount of time possible. This bill would help expedite that
process. He recalled questions on the cost for conversion. He
reported that one elementary school in the district used 22,000
gallons of fuel oil last year. He estimated cost of that fuel
to be $39,000, based on the fuel equivalent of $2.67 per gallon.
The district estimates that the conversion from fuel oil to gas
would pay for itself in two years or less.
4:20:37 PM
HANK BARTOS, Member, Lowell Group, stated the Lowell Group has
worked for five years to try to develop a low cost energy
program for Fairbanks. He said that HB 74 is the way to go. He
asked members to consider this as a project that would bridge to
a pipeline. Currently, the cost of heating oil and gasoline is
over $4 per gallon. The cost of transportation diesel is $4.30
per gallon and a kWh is over 20 cents. Fairbanks energy costs
are some of the highest in the nation and have driven homeowners
to heat their homes with wood burning appliances. If fact, the
community has had record sales in wood burning appliances since
wood is the cheapest energy source for heating. However, the
use of wood for heating fuel has caused air quality issues.
During November through March, North Pole and Fairbanks had
significant numbers of unhealthy air days, with highs reaching
19-25 days for some months. He emphasized the only way to solve
the air quality issue is to switch to natural gas and such a
transition could reduce emissions by 90 percent. He cautioned
that the EPA can cut federal highway funding in Alaska due to
non-compliance with air quality. He urged members to solve the
problem by passing HB 74.
4:23:03 PM
DENNIS GILLITZER stated he and his wife are senior citizens and
have been affected by air quality issues, which has limited
their activities. Further, their daughter lives in North Pole
with small children in an area that is referred to as the
"rectangle of death." He said he can't imagine kids going
outside at recess in the elementary school across the street.
He offered his belief that natural gas will go a long way to
bring clean air to the area. He acknowledged he could leave the
state, but he wants to stay in the area.
4:24:19 PM
GARY ATWOOD said he is a 60-year resident who spent 20 years
driving a truck, and that he has also served as the business
manager for the Teamsters Local 959 during the pipeline days.
He urged members not to take any action that would slow down the
pipeline from the North Slope to Fairbanks. He highlighted that
this bill could set up the infrastructure and delivery system
[for use with a pipeline.] He predicted the pipeline could be
built in a couple years with local hire. He expressed concern
about delaying the pipeline and related that he has used all
types of energy from wood to electric, but the cost of oil
delivery is like picking up a second mortgage since it costs
about $1,200 every other month to heat his home.
4:26:50 PM
DAVID GARDNER, Vice President of Marketing and Member Services,
Golden Valley Electric Association (GVEA), stated that as a
major consumer of oil, GVEA strongly supports bringing lower
cost fuel such as LNG to the Interior. He said that GVEA
provides an essential service to more than 100,000 Interior
residents from Cantwell to Delta Junction. Due to the price
GVEA pays for fuel for its generators, this essential service -
electricity - comes with the highest cost of any utility in the
Railbelt. He predicted that burning natural gas in the North
Pole expansion power plant could potentially save customers
millions of dollars annually. In addition to cost savings, an
LNG trucking could reduce space heating costs, lower air
pollution levels, provide less expensive propane to villages
along the Yukon River, and provide LNG to Anchorage during
natural gas shortages. He concluded that GVEA is committed to
this project to mitigate costs to the Interior residents, looks
forward to working with AIDEA, and sharing its expertise and
work products to help facilitate completion of this project as
soon as possible. He urged the committee to support HB 74.
4:28:27 PM
ROGER BURGGRAF offered his support for HB 74. He stated that
the LNG plant and trucking proposal is a short or mid-term
proposal designed to bring reasonably priced gas to Fairbanks
and Interior Alaska. He said he has been waiting since 1958 for
Fairbanks to receive natural gas. When fuel oil costs were
lower Interior residents survived; however, times have changed
and electricity bills are very high with fuel costs typically
even higher. As previously mentioned Fairbanksans have turned
to wood to heat their homes, which has created air quality
problems. He related that diesel and fuel oil costs are over $4
per gallon, which is killing the community's ability to survive.
The cold climate in Fairbanks makes it even more difficult. He
said, "EPA is breathing down our necks because of air quality
problems and that can only be cured by getting natural gas." He
reiterated that he has been waiting 53 years for gas to arrive
in Fairbanks. He has not seen progress toward pipeline
construction and even if a pipeline is approved it would still
have an 8-10 year lag time. He concluded by stating, "We need
gas and we need it now." He hoped the committee will look
favorably on the proposal since Fairbanks's future is dependent
upon this support. He pointed out that Fairbanks has supported
other activities throughout the state and is now asking for
support [for HB 74] today.
4:31:02 PM
WILLIAM MCAMIS agreed with Mr. Burggraf that Fairbanks has been
waiting a very long time [for natural gas]. He stated that he
will be a 50-year resident this fall and has observed project
proposals over time, ranging from various gas pipelines and
dams, but nothing has happened. In fact, one project on Chena
Hot Springs Road was abandoned and has trees growing up at the
site. Since 1998, the cost of oil went from $1 to $4, which
means it has quadrupled in 15 years and the cost of electricity
has similarly increased, with propane and wood costs also
rising. Even though the LNG trucking project may not be
perfect, it can be done in the near term and will solve air
quality problems, decrease electricity, and space heating. He
surmised that due to sequestration, significant reductions may
happen at Eielson Air Force Base and Fort Wainwright. He
predicted that energy costs will factor into those decisions.
He thanked the committee.
4:32:50 PM
BYRAN IMUS, Member, Laborers Local 942, said his points have
already been made. He said, "Fairbanks is slowly dying on the
vine and this would just be a good start to get the momentum
rolling ... and improve the long-term outlook for Fairbanks.
People are not positive about the long-term viability of
Fairbanks. This would be a great step in that direction. Thank
you."
4:33:37 PM
[HB 74 was held over.]
4:33:59 PM
The committee took an at-ease from 4:33 p.m. to 4:35 p.m.
HB 112-REPEAL FILM PRODUCTION TAX CREDIT
4:35:04 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 112, "An Act repealing the film production tax
credit; providing for an effective date by repealing the
effective dates of secs. 31 - 33, ch. 51, SLA 2012; and
providing for an effective date."
4:35:10 PM
REPRESENTATIVE BILL STOLTZE, Alaska State Legislature, as
sponsor of HB 112, stated this bill would repeal the film
subsidy program with transition language to allow film credits
for those in the queue. While that effort adds cost, he felt it
was fair to transition the program for those in the queue.
Further, he offered his belief that the costs for the film
incentives do not relate to the benefits for this program. The
bill would also keep in place the state's film office. He
supported having businesses talk to Alaskans, whether it is in
the tourism industry or any other industry. In fact, the state
has previously had a film office, which was reenergized with the
advent of the initial film subsidy bill in 2008. Last year, the
[Alaska Film Production Tax Incentive Program] was extended with
a state commitment of $300 million. He acknowledged that he is
driven by his philosophy that this program isn't worth the money
[given in tax incentives]. He advised members that he did not
solicit people to testify on this bill since his district's
constituents are driven by their own philosophy and don't have
any financial stake in the program but speak as citizens. He
asked to read a letter.
4:38:12 PM
REPRESENTATIVE STOLTZE said there was a call to action out and
the subject was, "Urgent - Representative Stoltze to move to END
the Alaska film industry - Importance: high."
REPRESENTATIVE STOLTZE read Mr. Ron Holmstrom's letter, as
follows:
This is an emergency. It is the opening days of the
present 2013 legislature. Representative Bill Stoltze
has introduced HB 112, which will repeal the Alaska
film incentive program. This bill will effectively
end feature film production in Alaska. I urge
EVERYONE to write, call, or e-mail your legislators
immediately to stop this malignant move before it goes
any further. You can find your legislative contact
....
This bill is going to the House Labor and Commerce
Committee this week so now is the time to get
cracking. The hundreds of concerned businesses,
actors, crew, and crafts people who will be directly
affected by the death of the film industry. "Please
pass this along" and help stop this madness!
REPRESENTATIVE STOLTZE pointed out that the word "malignant" was
Mr. Ron Holmstrom's word. He recalled that Mr. Holmstrom is
also a news person. He said lots of people have a financial
interest in this and those who have an interest never want the
funding to end. He said this becomes apparent during the budget
deliberations, as well. He concluded that he expects to be
outnumbered today [by testimony in opposition to the bill]. He
suggested that many people who agree with him are at work or
driving but he wanted to frame the discussion for members to
better understand [the opposition to HB 112.] He offered his
belief the department would likely be neutral on the bill.
4:40:57 PM
REPRESENTATIVE REINBOLD thanked him for bringing up the bill and
indicated she would co-sponsor the bill.
REPRESENTATIVE STOLTZE concluded that he did not like to
artificially [create support or opposition on bills, but prefers
people spontaneously testify].
4:41:38 PM
REPRESENTATIVE SADDLER asked whether the tax incentive would be
the end of the film industry.
REPRESENTATIVE STOLTZE replied he thinks it would be the end of
the subsidy for the type of film industry that exists. He did
not think the film industry [in Alaska] is sustainable since it
is heavily subsidized. He said he doesn't use the term "tax
credits" since the film industry is not an industry that pays
taxes. He offered his belief that the term tax credits is
really a misnomer since the program is a film subsidy so he'd
appreciate the committee adopting the term, as well. He
acknowledged that the film industry has had some benefits, but
he did not think the cost pencils out. He suggested that many
people feel good about the scene being filmed in a stage or
studio in Anchorage instead of Los Angeles or in Alaska instead
of British Columbia, Canada. However, he asked at what cost
these benefits have to Alaskans. He wondered how many people
were truly excited about reality programs, such as Life's a
Tripp.
4:43:14 PM
REPRESENTATIVE HERRON asked whether he had considered any other
options or if this is the best fix.
REPRESENTATIVE STOLTZE responded that the committee could
decide. He offered his belief that this bill is an appropriate
fix, but the committee process will decide. He said he wants to
be sure programs are working and make sure the cost benefit
ratio is good. He said, "If there are better ideas out there -
I would be happy with stopping the bleeding while we still have
a good blood flow."
4:44:26 PM
REPRESENTATIVE HERRON related his understanding triage is
possible, but the sponsor believes it is better to end it now.
REPRESENTATIVE STOLTZE answered yes.
4:45:18 PM
REPRESENTATIVE JOSEPHSON recalled the sponsor saying the
committee would hear from those who have an economic interest
[in the film industry]. He understood the state encouraged the
aforementioned to have economic interest through 2023. He asked
what the legislature should do about that action [taken last
year.]
REPRESENTATIVE STOLTZE characterized [the film production tax
credit program] as a bad idea. He said that the state had a
different economic picture. He indicated [HB 112] has
transition language that would allow the industry an opportunity
to find a "cash cow" somewhere else. He suggested that some
people are really enamored with the film industry, but he is
not. He offered his belief the program should be stopped before
the state has given out more benefits. He further suggested
that the program was a mistake and should be ended.
4:46:42 PM
REPRESENTATIVE SADDLER asked the sponsor to elaborate on the
transition language, phase out of the program, and auditing
provisions.
REPRESENTATIVE STOLTZE deferred to the department.
4:47:26 PM
REPRESENTATIVE JOSEPHSON recalled reading an article by
Representative Costello that indicated the amendments and
reforms were great. He asked whether some members still support
this industry.
REPRESENTATIVE STOLTZE declined to speak for Representative
Costello. He suggested the article could be interpreted on its
face. He was unsure of Representative Costello's position on HB
112. He recalled some of the political issues the committee
faced last legislature. He further recalled that last year's
bill was improved during the process last legislature.
4:48:35 PM
DANIEL GEORGE, Staff, Representative Bill Stoltze, Alaska State
Legislature, on behalf of the sponsor, Representative Bill
Stoltze, stated that the Senate bill that passed last
legislature increased the state's obligation by $300 million.
The fiscal note explains HB 112 would basically stop the
expenditures granted by the Department of Commerce, Community &
Economic Development (DCCED) by the expiration of the current
program, which ends July 1, 2013. The total amount would be $83
million, he said. Thus, the potential savings to the state in
2013-2023 would amount to $217 million. He emphasized that film
producers operated in Alaska prior to the program also went on
the record to say they would operate in Alaska without the
incentives. He further recalled an article in which "Denby's
Catch" actually stated that fact. He concluded by saying,
"There's a lot more here than meets the eye."
4:49:49 PM
REPRESENTATIVE STOLTZE said this bill is about Alaska's fiscal
situation. He expressed concern about last year's bill. He
stated that he supported the bill since it had other measures
attached to it. Further, he also supported last year's measure
since the bill supported economic development in Alaska of a
more real and tangible nature.
REPRESENTATIVE SADDLER asked him to expand on other elements in
last year's film bill.
REPRESENTATIVE STOLTZE did not recollect, but he thought perhaps
the bill contained Nenana Basin tax credits, corporate tax
credits, and LNG storage credits.
4:51:38 PM
REPRESENTATIVE SADDLER asked whether DCCED has a position on the
bill.
4:52:21 PM
ROBERTA GRAHAM, Assistant Commissioner, Office of the
Commissioner, Department of Commerce, Community & Economic
Development (DCCED), said the DCCED is neutral on the bill. She
highlighted that the transition language recognizes the
importance of continuity for the companies, actors, and
businesses that need it. Ironically, the existing statutes
which will go into effect July 1 and transfer the Film
Production Tax Incentive Program from DCCED to the Department of
Revenue (DOR) does not contain any transition language. Thus,
according to legal opinions the DCCED has received, the 55-plus
productions in the queue that have been prequalified for a tax
credit will not be grandfathered in and will need to re-qualify
under a new tax credit regime. This means budgets which have
been approved would essentially need to be retooled, which may
present some legal and financial issues she said. She clarified
that HB 112 contains transition language which recognizes [the
companies in the queue.]
4:54:12 PM
REPRESENTATIVE SADDLER asked for a brief description of the
transition process and timeline for it.
MS. GRAHAM answered that under the existing standards if a
production has not completed its work by June 30 the statute
would be repealed and the new statute goes into effect. Once
the statutes are repealed, the prequalified firms would be in
limbo until they re-qualify with DOR under the new statutes,
which also would include the new tax credit percentages. She
explained that the aforementioned will impact at least 55-plus
another 10 to 15 productions that will go through the
prequalification process between now and June 30, 2013. The
DCCED has been working with the DOR on regulations and the
proposed transfer program to the DOR. Additionally, the DCCED
will retain the function of promoting and marketing the film
industry as a destination.
4:55:40 PM
REPRESENTATIVE HERRON recalled the sponsor anticipates
opposition in the form of e-mails on HB 112 and he noted he has
also been receiving them. He asked whether the department has
received e-mails on HB 112.
MS. GRAHAM said she has not seen them, but imagined the
department has received them. In further response, she agreed
to provide a summary of the e-mails.
4:56:39 PM
REPRESENTATIVE JOSEPHSON referred to page 2, line 17, of HB 112,
which identifies an effective date of July 1, 2013. He asked
whether the effective date would preserve the 55 programs in the
system so they can finish their production and receive the
credits.
MS. GRAHAM replied that she presumed so. The transition
language would allow the Alaska Film Office to proceed to
process the tax incentive credits as they are received, she
said.
[HB 112 was held over.]
4:57:50 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:57 p.m.