Legislature(1997 - 1998)
03/10/1998 10:06 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 10, 1998
10:06 a.m.
MEMBERS PRESENT
Representative Mark Hodgins, Chairman
Representative Scott Ogan
Representative Norman Rokeberg
Representative Joe Ryan
Representative Con Bunde
Representative Tom Brice
Representative J. Allen Kemplen
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 393
"An Act relating to contracts with the state establishing payments
in lieu of other taxes by a qualified sponsor or qualified sponsor
group for projects to develop stranded gas resources in the state;
providing for the inclusion in such contracts of terms making
certain adjustments regarding royalty value and the timing and
notice of the state's right to take royalty in kind or in value
from such projects; relating to the effect of such contracts on
municipal taxation; and providing for an effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 393
SHORT TITLE: DEVELOP STRANDED GAS RESOURCES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/11/98 2280 (H) READ THE FIRST TIME - REFERRAL(S)
2/11/98 2281 (H) OIL & GAS, FINANCE
2/11/98 2281 (H) 2 FISCAL NOTES (DNR, REV)
2/11/98 2281 (H) GOVERNOR'S TRANSMITTAL LETTER
2/19/98 (H) O&G AT 11:00 AM CAPITOL 124
2/19/98 (H) MINUTE(O&G)
2/24/98 (H) O&G AT 10:00 AM CAPITOL 124
2/24/98 (H) MINUTE(O&G)
2/26/98 (H) O&G AT 10:00 AM CAPITOL 124
2/26/98 (H) MINUTE(O&G)
3/03/98 (H) O&G AT 10:00 AM CAPITOL 124
3/03/98 (H) MINUTE(O&G)
3/05/98 (H) MINUTE(O&G)
3/09/98 2578 (H) RES REFERRAL ADDED
3/10/98 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
HANK HOVE, Mayor of Fairbanks
1253 Chena Hot Springs Road
Fairbanks, Alaska 99712
Telephone: (907) 459-1000
POSITION STATEMENT: Testified on HB 393.
DAVID COBB, Mayor of Valdez
P.O. Box 1858
Valdez, Alaska 99686-1858
Telephone: NOT PROVIDED
POSITION STATEMENT: Testified on HB 393.
BENJAMIN NAGEAK, Mayor of North Slope Borough
P.O. Box 69
Barrow, Alaska 99723
Telephone: (907) 852-0200
POSITION STATEMENT: Testified on HB 393.
DAVE HIRE, North Slope Borough
Department of Administration
ADDRESS and TELEPHONE NOT PROVIDED
POSITION STATEMENT: Testified on HB 393.
LARRY OSTROVSKY, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division, Department of Law
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501
Telephone: (907) 269-5100
POSITION STATEMENT: Testified on HB 393.
ED FLANAGAN, Deputy Commissioner
Office of the Commissioner
Department of Labor
P.O. Box 21149
Juneau, Alaska 99802
Telephone: (907) 465-2700
POSITION STATEMENT: Testified on HB 393.
ACTION NARRATIVE
TAPE 98-20, SIDE A
Number 0001
CHAIRMAN MARK HODGINS called the House Special Committee on Oil and
Gas meeting to order at 10:06 a.m. Members present at the call to
order were Representatives Hodgins, Ogan, Rokeberg, Brice and
Kemplen. Representative Bunde arrived at 10:08 a.m. and
Representative Ryan arrived at 10:15 a.m.
HB 393 - DEVELOP STRANDED GAS RESOURCES
Number 0068
CHAIRMAN HODGINS announced the committee would hear HB 393, "An Act
relating to contracts with the state establishing payments in lieu
of other taxes by a qualified sponsor or qualified sponsor group
for projects to develop stranded gas resources in the state;
providing for the inclusion in such contracts of terms making
certain adjustments regarding royalty value and the timing and
notice of the state's right to take royalty in kind or in value
from such projects; relating to the effect of such contracts on
municipal taxation; and providing for an effective date." He
stated that the pipeline mayors, Mayor Hank Hove of Fairbanks,
Mayor Dave Cobb of Valdez and Mayor Benjamin Nageak of North Slope
Borough, would be testifying.
Number 0319
HANK HOVE, Mayor of Fairbanks, stated that they are prepared to
offer their bottom line. He stated that they have operated under
the premise that the commissioner of revenue has by statute the
power to defer municipal taxes, but not necessarily to (INDISC.--
coughing) pipeline owners from ad valorem taxes. They have
discussed this matter and have concluded that although they had
previously expressed an interest to take an equity position in the
pipeline equal to the amount of taxes deferred for the five years,
they have reconsidered. The conclusion is that perhaps there are
elements to that concept that may be troubling. He stated that one
problem is that their equity share would be exceedingly small and
in order to guarantee the constituents interest they would have to
have access to the financial records of the operating company. He
stated that the department of revenue is troubled by this, as it
would require disclosure of confidential financial records.
Number 0630
MAYOR HOVE stated that this problem also arises if the state took
an equity position, as there is the problem of
shareholder/regulator. He gave the example of an environmental
problem that would cause a conflict of interest in that
circumstance as the decision might represent the business interest
but be bad for the state of Alaska. They have come up with a
better plan which would be to defer the taxes on the pipeline for
the first five years and would have those taxes repaid by the
consumer price index and recalculated on January 1 of each year.
He stated that it would be repaid on a level basis and after year
ten it would just be the ad valorem taxes, which would be
applicable to the value of the pipeline that year. He stated that
at the end of year 10, the deferred taxes and all currently due
taxes would have been paid. He stated this would satisfy the
necessity to create an economic circumstance.
Number 1055
MAYOR HOVE stated that they have concluded that there might be a
significant social impact for communities as a result of the
construction. The most likely impact would be the construction of
school to accommodate the students that the construction workers
would be bringing with them. He stated that as a rule the
communities issue up to 30 year bonds for the construction of
schools and they are general obligation bonds repaid (INDISC.) the
general fund as tax revenues. He stated that in this circumstance
they feel, they need to be protected because of the possible
situation of, if they build schools to accommodate the influx of
residents into the communities and then for some reason the
pipeline construction stopped or did not deliver gas. They would
ask that for the first five years the state would hold them
harmless and guarantee the bonds so they will not be left holding
the bag should construction not occur. He stated that until
revenue is produced they are asking that the state guarantee any
bonds for that five-year-period. He stated that they also feel
that any petroleum related property that is presently subject to an
ad valorem tax should not be deferred. He stated that any property
tax on an ad valorem basis that may be converted from oil or an oil
related function and used as part of the gas project, should not
have the taxes deferred on them. The (INDISC.) of the taxes should
only apply to projects that require construction of the Trans-
Alaskan Natural Gas Pipeline and the facilities in existence before
should not have their taxes deferred.
Number 2055
MAYOR HOVE stated that communities that have an economic proximity
to the pipeline should have guaranteed access to sufficient
quantities of gas and have prices that are equal to the well head
value of gas plus the allocated transportation cost of the pipeline
connection for that community. He urged that the legislature
specify that a sponsor contract needs to be entered into by the
June 30, 2000.
TAPE 98-20, SIDE B
Number 0012
REPRESENTATIVE JOE RYAN asked if the gas, that he is talking about
for transportation is state royalty gas because otherwise, the
people that handle the gas in the interim or the people that
producing it would probably want to make a profit. He asked how it
would be differentiated.
Number 0030
MAYOR HOVE replied that they are not prepared to get involved in
the "nuts and bolts" matters and can not make those determinations.
He stated that they need this because it is time that Alaskans
participate and have access to a program and a product that is
fairly priced. Cheap energy, whether it comes from state royalty
gas or from other gas is of little importance to them. He stated
that Fairbanks has an oil pipeline that goes through the community
and has two refineries but the community is paying up to 7 cents
more per gallon for the product that they refine then what is
shipped to Anchorage. The transportation component is not
reflected in the price, the Fairbanks price should be less because
Anchorage requires it to be transported 350 miles. He stated that
they want to create a circumstance where that does not happen
again. He stated that there are all sorts of esoteric markets
reasons why this is so. He reiterated that they want to create the
circumstance where it is in statute that they will have a
competitive price for distribution in Fairbanks or for whoever is
able to bring a gas to the Trans-Alaskan Natural Gas Pipeline. He
stated that Fairbanks buys more B.T.U.s per year than any other
metropolitan are in the U.S., yet they pay more than any else per
B.T.U. A source of cheap energy is extremely important to them.
Number 0144
REPRESENTATIVE RYAN stated that coincidentally the price of gas
dropped 10 cents after the economic development meeting.
Number 0170
REPRESENTATIVE ALAN KEMPLEN referred to point 4 on the "Proposed
Amendments to HB 393 by Pipeline Mayors", in reference to schools
and bonding. He stated that there are a lot more impacts on local
municipalities than just kids coming in. He asked how he would
address those impacts and would he have the ability to address
those other impacts. He asked if the bonding ability is all he
needs.
Number 0207
DAVID COBB, Mayor of Valdez, responded that right now it is
difficult to pin point what those other impacts are going to be.
In Valdez there is the history with the past pipeline and with the
oil spill. He stated that with 100 families moving into Valdez a
new school is needed. He stated that as land is for sale, water
and sewers will become an issue. He pointed out that there is a
myriad of things that will have to be done to take care of the
impact. Bonds are one avenue to be able to do what is needed up-
front, with this and some guarantees from the state they have more
flexibility of the things that can be done in the communities.
Number 0272
BENJAMIN NAGEAK, Mayor of North Slope Borough, stated that they do
have some experience with the impacts. He stated that they are
short of health aides due to the influx of people. He stated that
they are addressing that within their budget and are looking for
ways to provide more services to people. He stated that if the
pipeline happens, there will be more impacts but they are unknown
at this time.
Number 0337
REPRESENTATIVE KEMPLEN stated that the pipeline mayors feel that
they will be able to meet the increased needs from the existing
sources in the communities and that the communities do not need to
address any mechanisms to assist with the operating budget. He
asked if this was correct.
Number 0362
MAYOR HOVE replied that in order to specifically answer his
question, it requires an element of judgement on their part without
a great deal of data available to them. It is their feeling that
the construction of the pipeline will result in people moving into
the communities, buying homes, so the tax base will increase on a
secondary basis. He stated that it is their judgement, that those
events will be sufficient to take care of the operational side. He
stated that the biggest problem is the capital requirement to build
a school. He stated that if there was legislation that was a means
for handling that problem then they think they can handle the rest
of the problems.
REPRESENTATIVE KEMPLEN stated that he was writing this down.
MAYOR HOVE reiterated that he feels that it will be the case,
although he did say they are operating without a lot of the facts.
He stated that they have been asked to keep this simple and make it
fundamental. He stated that this is a fundamental bottom line and
they hope that they will never have to appear before legislature
again. He asserted that he hoped the legislature would use the
desired amendments that they have articulated for the committee.
Number 0481
REPRESENTATIVE NORMAN ROKEBERG stated that he has not seen any
baseline data on the communities and would appreciate getting that
information. He asked what the combined population is of the North
Star Borough and the city of Fairbanks.
MAYOR HOVE replied 85,000
REPRESENTATIVE ROKEBERG asked what is the combined budget for
schools and operations for the borough and the city.
Number 0572
MAYOR HOVE replied approximately $195 million.
REPRESENTATIVE ROKEBERG asked how much is in debt service payments.
Number 0533
MAYOR HOVE replied that the only debt that they have is in relation
to schools and is largely taken care of by the state. He stated
that they have some debt in relation to a recently closed landfill
and the new one.
REPRESENTATIVE ROKEBERG asked if there are any rainy day account
funds.
Number 0565
MAYOR HOVE replied that the city has a permanent fund which
consists of the revenues derived from the sale of the telephone
utility, electric generating utility and sewer utility which totals
$87 million. He stated that it requires a super majority of the
vote to be able to remove that money. He stated that the general
fund balance in the Fairbanks North Star borough, which is not a
cash account as it moves back and forth, is around $8 to $10
million.
Number 0602
REPRESENTATIVE ROKEBERG asked Mayor Cobb what the population of
Valdez is.
MAYOR COBB replied 4,600.
REPRESENTATIVE ROKEBERG asked what the annual budget is of the
municipal services and the school.
MAYOR COBB replied $23 million.
Number 0617
REPRESENTATIVE ROKEBERG asked what the debt service is.
MAYOR COBB replied that there is 6 million in school debt.
REPRESENTATIVE ROKEBERG asked if the $23 million includes the local
contribution of University of Alaska community college.
MAYOR COBB replied that it does, about 700,000.
REPRESENTATIVE ROKEBERG asked if they have a rainy day and a
permanent fund account.
Number 0640
MAYOR COBB replied that they have both, the total being $60
million.
REPRESENTATIVE ROKEBERG asked Mayor Nageak the same questions.
Number 0649
MAYOR NAGEAK stated that the population is 8,000. The borough's
contribution to the seven village schools is $28 million out of the
operating budget for $169 million. He stated that they provide for
all the services: airports, clinics, fire department etc. He
stated that the budget would provide training for local hire to
work on the pipeline.
REPRESENTATIVE ROKEBERG stated that his information stated that the
total borough's budget is around $350 million including everything.
DAVE HIRE, North Slope Borough, Department of Administration,
stated that the debt service would be added on top of the operating
budget.
REPRESENTATIVE ROKEBERG stated his information states that the debt
service is about $110 million a year.
Number 0782
MR. HIRE stated that the operating budget is approximately $169
million and on top of that is the debt service repayment, which he
does not have the figure. He stated that the majority of their
debt is retired over the next ten and a half years as they do not
bond past an eleven year schedule.
REPRESENTATIVE ROKEBERG asked what the "mill" rate is in the
boroughs.
MR. HIRE replied that it is 18.5 mills.
Number 0845
REPRESENTATIVE ROKEBERG asked if there are any economic incentive
programs for development.
Number 0867
MAYOR COBB replied that Valdez is working with a Montana grain
company to try and get Valdez's grain elevators utilized. He
stated that they are always trying to find new economic development
within the community. He stated that the major problem is the high
electrical rates. He stated that when the rates are 19 cents a
kilowatt no one wants to come into the community.
Number 0967
REPRESENTATIVE ROKEBERG asked Mayor Cobb to tell the committee the
history of their bond issues for infrastructure during the oil
pipeline.
Number 0991
MAYOR COBB replied that they had bonded the dock infrastructure
through revenue sharing bonds that were paid buy the oil companies
and are still being paid off. He stated that it is not a debt to
the city as they are industrial revenue bonds.
Number 1035
REPRESENTATIVE ROKEBERG asked if there was any tax relief granted
to "Alyeska pipe" by the municipality.
Number 1043
MAYOR COBB replied that it was a 1 percent return.
Number 1080
REPRESENTATIVE ROKEBERG asked Mayor Hove if there was an inherent
benefit to the communities, if this gas was make available for
local generation. He stated that it is unusual that they are
asking for a further benefit.
Number 1122
MAYOR HOVE replied that he presumed his question arises from the
statement made regarding well head value plus allocable
transportation costs. He stated that if he thought it out,
Representative Rokeberg, would find that the return to the pipeline
owner and to the state, assuming it is royalty gas would be the
same if it had been liquefied and loaded into a tanker. He stated
that he would find that it would net out to the same amount. He
stated that they want to pay their fair share, they are not looking
for subsidized gas they are looking for gas that is priced the same
to them as it is to wherever it is going.
Number 1185
REPRESENTATIVE ROKEBERG asked if wouldn't the municipalities be
able to grant a franchise and/or have control over the distributor
and marketer of the gas, within their boundaries.
Number 1211
MAYOR HOVE replied no. He stated that they presently have a
privately owned gas distribution firm and that is hauling Liquefied
Natural Gas (LNG) by tanker truck up to the city and putting it
into the line. He stated that to the extent that they continue to
expand that distribution system, they will probably be the natural
gas distributors, that they will be using.
Number 1242
REPRESENTATIVE ROKEBERG stated that in this era of deregulation, as
natural gas transmission and distribution within the municipality
of Anchorage is totally deregulated. He stated that it is ironic
Mayor Hove would want to stipulate (UNDISC.) price.
Number 1286
MAYOR NAGEAK stated that he has to barge in fuel to all of the
communities. He stated that the borough subsidizes it because of
the high cost of transportation. He stated that they are trying to
find alternative energy ways due to the high cost of gasoline.
Number 1388
REPRESENTATIVE CON BUNDE stated that he was at the energy summit
and they are talking about $8 a barrel. He stated that proximity
of the gas pipeline and future uses are a soft word for him and
asked for the Mayor's definition.
Number 1462
MAYOR HOVE stated that he uses the word proximity advisably. He
stated that the Beluga Fields, are most likely, not going to be
able to supply the demand for gas in Southcentral. He stated that
it is conceivable that a smaller pipeline could transport gas to
South Central Alaska. He stated that to the maximum extent
possible Alaskans should benefit from Alaskan gas first, as long as
it is not on the subsidized basis. That is why they chose the word
proximity.
Number 1594
MAYOR HOVE stated that in regards to future use it is hard to
define. He stated that they are trying to make provisions for
future use, meaning the gas will be available to them when they
require it.
Number 1643
MAYOR COBB stated that in Valdez they look at it as an energy
source and it would be more then the community would ever use. He
stated that with 200 mega watts of surplus electricity sent up to
Southcentral Alaska, they could see electricity being produced in
the 2 to 4 cent range. He stated that electricity and the need for
an "inertia" becomes very viable to send the electricity back to
the rest of Alaska.
REPRESENTATIVE BUNDE stated that they can't do anything that cannot
be undone by a future legislature. He stated that in regards to
the bottom line, he asked how would they be able to commit future
municipal administrations to what would be their bottom line.
Number 1784
MAYOR HOVE stated that they operate under the same rules. He
stated he could not obligate a successor. When considering things
of this sort, they are usually not easily modified. He stated that
there will be point where these events will not be able to be
reversed.
Number 1920
MAYOR COBB stated that he perceives this to be the bottom line,
however, anything is negotiable and they could discuss this with
any party involved.
Number 1979
CHAIRMAN HODGINS referred to the bond issues and asked if the
communities have a special assessment district for roads and sewer
lines etc.
MAYOR HOVE responded yes.
Number 2008
REPRESENTATIVE ROKEBERG stated that's what troubles him, is that
there is not provision for any front-loaded monies to respond to
the actual impact. He stated that there are not impact funds.
Number 2118
CHAIRMAN HODGINS asked what type of dollars are they speculating on
and what would the bonding needs be over the five years.
Number 2137
MAYOR HOVE replied that it is difficult to answer until more
information is known about the scope of project, such as how many
people are coming. He stated that in response to impact funding,
it could be said that this is their contribution to the project.
TAPE 98-21, SIDE A
Number 0031
MAYOR HOVE stated that it either comes from the state of Alaska or
it comes from the sponsor group of the gas pipeline. He stated
that acknowledging that the project is economically marginal seems
to be troubling. He stated that if they were to place a price on
the impact funding in total, they might tip the project upside
down. He stated the sum would be significant and would exceed the
amount of the deferred taxes for the first five years.
Number 0284
REPRESENTATIVE ROKEBERG stated that he is troubled by the statement
that sum of impact would exceed the amount of deferred taxes. He
stated that it might not be the case that the impacts are going to
be extraordinary.
Number 0327
MAYOR HOVE replied that the only way that they have to look at the
pipeline is to take the $12 billion figure, back out the cost of 14
LNG tankers and reveal only the Alaska component of the
construction of the pipeline, including what might incur on the
North Slope and Valdez. He stated that what would occur in those
communities is greatly in excess of what will occur in Fairbanks.
He stated that in the first year there will be zero tax deferred
because the taxes will not be due until the following year. He
stated that the construction phase will last until year 3. The
full taxable value of the pipeline will not occur until year 5 or
6. He stated that considering the time table the amount of taxes
that would be deferred will not be as much as the impacts that are
likely to occur in the communities. He stated that the impacts are
both negative and positive. He stated that Anchorage will have
many positive impacts, the construction of industry's building,
which are under the local real estate tax laws.
Number 0712
MAYOR COBB stated that they have a team put together that will be
evaluating this as more information is available and will be
looking at every aspect. He stated that until what the project
consists of is known, it is very difficult to determine what the
impacts are going to be.
Number 0838
MAYOR NAGEAK responded (INDISC. -- STATIC on TAPE).
Number 1009
REPRESENTATIVE TOM BRICE stated that his biggest concern is that
the municipalities need to rely on the state to make sure they are
not going to be left out.
Number 1207
REPRESENTATIVE KEMPLEN referred to statements about inadequate
information and stated that it would be appropriate to insert a
subsection into the legislation that asks the sponsor group to
address the issue of community impacts, since they will know the
phasing and details of the project. He stated that they should be
the ones to present the solution to the impacts to local
communities.
CHAIRMAN HODGINS stated that we need to remember that we need to
keep this project profitable.
REPRESENTATIVE KEMPLEN stated that lets encourage creativity.
Number 1552
REPRESENTATIVE RYAN stated that the bill does not preclude a
municipality from enacting a sales (INDISC. -- TAPE STATIC).
TAPE 98-21, SIDE B
Number 0040
CHAIRMAN HODGINS thanked the pipeline mayors and stated that the
committee will consider their thoughts.
LARRY OSTROVSKY, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division, Department of Law, stated that any
discussion of Alaska hire is related to Article 4 of the U.S.
Constitution which provides that the citizens of each state shall
be entitled to all privileges and immunities of citizens in the
serval states. He stated that the Alaska Supreme Court has
construed the purpose of this provision being to prevent states
from enacting measures which discriminate against nonresidents for
reasons of economic protectionism. He stated that a past court
case had shown that some deference is due to the state of Alaska
when it functions in a propriety capacity because that statute
involves public construction of the project. He stated that the
court also decided that classification among people affects a
fundamental right and it must for a permissible purpose be narrowly
tailored to achieve that purpose. He stated that it affected a
vast majority of construction projects in the state. He stated
that the Alaska Supreme Court held that the purpose to exclude
nonresidents, so that more jobs would be available to Alaskans, was
an impermissible purpose. The reason being because the privileges
and immunities clause applies to all states.
Number 0202
MR. OSTROVSKY stated that the other constitutional provision that
is relevant, is that the Alaskan Constitution provides that "all
persons are equal and entitled to equal rights, opportunities and
protection under the law." He stated that this was a provision
construed in a local hire case which involved a statute involving
the preference for individuals residing in areas determined by the
Commissioner of Labor to be a zone under employment. He stated
that the court found that "the (INDISC.) treatment of unemployed
workers in one region in order to confer an economic benefit on
similarly situated workers in another region is not an legitimate
legislative goal." The court found that a nonresident worker in a
less distressed zone might be unfairly disadvantaged. He stated
that the bill tries to not cross the line in order to not enter
into unconstitutionality.
Number 0282
CHAIRMAN HODGINS asked can we or can't we have local hire.
Number 0347
MR. OSTROVSKY replied that local hire could be encouraged but it
would be very easy to cross the line into unconstitutionality.
Number 0359
CHAIRMAN HODGINS asked if the Department of Law has done a legal
analysis of the bill.
Number 0368
MR. OSTROVSKY replied that they have not done a formal legal
analysis of the bill.
CHAIRMAN HODGINS asked if the local hire issues in the bill work.
MR. OSTROVSKY replied that the department believes that they work.
Number 0375
REPRESENTATIVE KEMPLEN stated that Alaska has licencing
requirements and courses need to be taken regarding Arctic and sub-
Arctic conditions. He asked if there were problems with those type
of requirements.
Number 0406
MR. OSTROVSKY replied that he is assuming he means occupational
licensing.
Number 0414
REPRESENTATIVE KEMPLEN asked if it would be constitutional if the
legislation were to include language that required participants in
the construction of the gas pipeline, to attend an accredited
Alaskan institution in order to acquire knowledge that is relevant
to Arctic and sub-Arctic environmental conditions.
Number 0457
MR. OSTROVSKY stated that he has not considered that approach. He
stated that he thought that if there is a legitimate purpose for
that requirement and not one that is for the sole purpose of
weeding out nonresidents, it would be legitimate. For example a
dentist or a doctor needs accreditation. He reiterated that if it
is transparent that it is to eliminate nonresidents it would not be
legitimate.
Number 0485
REPRESENTATIVE KEMPLEN stated that there is no other state that has
winters as long as Alaska's which necessitates additional knowledge
and training requirements. He stated that it would take time for
someone to acquire that training.
Number 0517
REPRESENTATIVE RYAN stated that contractually there are a lot of
things that can be done that can't be done statutorily.
MR. OSTROVSKY stated that it is correct to distinguish what an
individual can do and what a governmental entity can do. He stated
that is why the courts have said that there will be greater
deference when the state is acting like a private citizen in a
proprietary capacity.
Number 0604
REPRESENTATIVE RYAN stated that there are lots of local preference
laws and asked if it would be possible to give a local hire
preference. He stated that the state of Alaska is nothing more
than its residents and the resource is owned by the people. He
stated that if he needed a carpenter he would be able to choose the
carpenter that he wanted. He asked how this project is any
different.
Number 0683
MR. OSTROVSKY replied that admittedly it is not a very bright line
because the court has acknowledged, that the greater deference is
to the state acting in a propriety capacity. He stated that it
could be argued that this project is distinguishable from the
others as this is just one project. He stated that it would be
difficult to say with any certainty whether it has crossed the line
or not.
Number 0752
REPRESENTATIVE RYAN asked if it was conceivable to have a
contractual arrangement for provisions protecting Alaskans for hire
than to do so statutorily.
Number 0776
MR. OSTROVSKY stated that it is probably better if it is not a
function of legislature. He stated that this process would go
through a level of negotiation when the sponsors and the
commissioners form the contract. He stated that there could be
stronger contractual terms and the less they are the product of
legislation the better the legal argument is.
Number 0848
REPRESENTATIVE BRICE asked if there were any other states that had
local hire provisions.
Number 0860
MR. OSTROVSKY replied yes, there have been a lot of cases. They
were different situations. He referred to South Dakota and stated
that the state owned a cement plant and gave a preference to
residents to purchase cement. He stated that it was upheld because
the state was acting in its propriety capacity. He stated that
Boston had a local preference for public construction project and
it was challenged under the commerce clause of the U.S.
Constitution which prohibits restraints on commerce. It survived
the challenge as the state was acting as proprietor but it might
not have survived the challenge under the privileges and immunities
clause.
Number 0945
REPRESENTATIVE BRICE stated that it was his understanding that
there were some areas in the Pacific Northwest that have been able
to seek relief from Congress in establishing local hire provisions
for the timber industry.
MR. OSTROVSKY stated that he would look into it.
Number 0998
CHAIRMAN HODGINS stated that on page 15, Section 3, defines an
Alaska resident to be someone who received a permanent fund
dividend check or has obtained two items from a list which includes
drivers license and voter registration. He stated that this means
that anyone can become a resident in close to an hour.
Number 1042
MR. OSTROVSKY stated that he would change the language to read
"voter registration card and". He would delete drivers license and
motor vehicle registration. He stated that with these changes the
other requirements require a years residency.
Number 1102
CHAIRMAN HODGINS asked if that would stand the test.
Number 1109
MR. OSTROVSKY replied that it is as it is an accountability method,
for purposes of this project.
Number 1144
CHAIRMAN HODGINS asked if it would be possible to come up with a
level of participation and local hire to give incentives to certain
companies.
Number 1158
MR. OSTROVSKY replied that is an interesting question but incentive
is the flip side of disincentive. He stated that he would imagine
it could provide an incentive for a royalty reduction. However,
favoring one over another would be coercing resident hire at the
expense of nonresident hire.
Number 1213
CHAIRMAN HODGINS asked if he could present the committee with some
language, understanding what the committee would like to do.
Number 1235
MR. OSTROVSKY stated that it is important to distinguish between
employers and employees. He stated that an incentive program may
not act as a bar to an employer coming in because all employers
would be able to bid and if they met certain local hire
requirements they would then get an incentive. He stated that the
bill was drafted thinking that it was as far as the department
could constitutionally go. He stated that the changes he suggested
would change the requirement to essentially a year.
Number 1371
REPRESENTATIVE ROKEBERG asked if the Department of Law has recently
defended that definition of what a resident is.
Number 1424
MR. OSTROVSKY replied that he is not aware of a recent case and in
a sense the definition of resident is not the constitutional
problem here. It is how it is implemented. He stated that the
state can call a resident anything they want to, it is just the
exclusionary measures that brings debate.
Number 1466
REPRESENTATIVE ROKEBERG asked if a one year residential requirement
is constitutional and defendable.
MR. OSTROVSKY stated that it is defendable as long as it is in this
bill as long as it does not act as a bar...
CHAIRMAN HODGINS asked as long as it is never applied.
MR. OSTROVSKY replied as long as it does not act as a bar to
someone seeking employment. He stated that accountability is at
the heart of this. He stated that the industry will have to
disclose their hired Alaskan residents and as private contractors,
they can do a lot things that the state cannot make them do. The
bill would provide the information for everyone to consider this in
a contemporaneous way.
Number 1560
REPRESENTATIVE ROKEBERG asked if the qualification for the
permanent fund dividend has ever been tested in the courts.
MR. OSTROVSKY stated that he is sure it has.
REPRESENTATIVE ROKEBERG referred to Representative Ryan's idea that
it could be held in contract and asked if it is better to not have
the definition of Alaska residency in the bill.
Number 1642
MR. OSTROVSKY replied that there is nothing wrong with defining an
Alaskan but the individual contracts are better suited to further
mandate Alaskan hire.
Number 1743
REPRESENTATIVE BRICE asked what is the longest term of an Alaskan
resident.
Number 1781
MR. OSTROVSKY replied that as far as he knows it is a year.
Number 1805
REPRESENTATIVE BRICE stated that he keeps bringing up the
distinction between a bar to employment verses accountability and
asked if he could go into depth.
Number 1820
MR. OSTROVSKY replied that because of the constitutional
constraints, accountability gives the incentive for producers to
have local hire because they come to the legislature for many
things. He stated that it would seem to be a powerful tool.
Number 1916
REPRESENTATIVE RYAN suggested the longevity bonus and the pioneer
home as criteria.
Number 1998
REPRESENTATIVE ROKEBERG in regards to pioneer homes it has been
lowered to one year.
TAPE 98-22, SIDE A
Number 0031
ED FLANAGAN, Deputy Commissioner, Office of the Commissioner,
Department of Labor, stated that the big key is that the industry
voluntarily agrees to adopt the language to hire residents. He
stated that within that context there could be the definition of a
resident. He stated that there has been a matrix of indicators
that can be used. He stated that it is in the eye of the beholder
looking at the data to decide what a resident is. He stated that
British Petroleum gives a very detailed report every three years on
their workers.
Number 0138
REPRESENTATIVE KEMPLEN asked page 15 the bill refers to
"qualified." He asked if the Department of Labor has given any
sort of hard thinking to future demand of qualified Alaskans for
this project and whether there is in the current labor pool
sufficient numbers of qualified Alaskans to meet the projected
demand for the project.
Number 0170
MR. FLANAGAN replied that not for this project but on a more
tangible basis there is a projected large amount of work for 1999
and 2000 on the North Slope. He stated that the Oil and Gas
working group has done a skills and projected labor needs
assessment with the industry for that period. They have tried to
identify the training needs for that demand. He stated that if
they address that need and meet it, it would roll-over and take
care of this project.
Number 0226
REPRESENTATIVE KEMPLEN stated that there was a suggestion to
solidify the connection between the industries need for trained
labor and the provision of that trained labor was the notion "of
payment in lieu of taxes". The suggestion was that there could be
a credit against that "payment in lieu of taxes". For example, an
oil company could train their labor force and get a benefit which
would be a credit against that "payment in lieu of taxes". He
asked if he was saying that the energy industry in Alaska is
already solid and that connection has already been established. He
asked if this notion of a credit is not to be needed.
Number 0280
MR. FLANAGAN responded that he would not say that. He thought that
the efforts to date have probably identified the needs. This
incentive, he did not believe has been discussed but would merit
consideration.
Number 0306
REPRESENTATIVE BRICE referred to page 13, line 30 and the
requirements for local hire and stated that one of the provisos is
competitive priced labor. He asked that it is competitively priced
compared to what.
Number 0325
MR. FLANAGAN replied that he could not place that in context for
him.
CHAIRMAN HODGINS stated that the bill would be held over.
ADJOURNMENT
Number 0355
CHAIRMAN HODGINS adjourned the House Special Committee on Oil and
Gas meeting at 12:00 p.m.
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