Legislature(1993 - 1994)

02/24/1993 08:00 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               HOUSE RESOURCES STANDING COMMITTEE                              
                        February 24, 1993                                      
                            8:00 a.m.                                          
  MEMBERS PRESENT                                                              
  Representative Bill Williams, Chairman                                       
  Representative Bill Hudson, Vice Chairman                                    
  Representative Con Bunde                                                     
  Representative Pat Carney                                                    
  Representative John Davies                                                   
  Representative Joe Green                                                     
  Representative Jeannette James                                               
  Representative David Finkelstein                                             
  MEMBERS ABSENT                                                               
  Representative Eldon Mulder                                                  
  OTHER LEGISLATORS PRESENT                                                    
  Representative Gail Phillips                                                 
  Representative Mark Hanley                                                   
  COMMITTEE CALENDAR                                                           
  HB 116    "An Act directing the commissioner of natural                      
            resources to accept, under certain circumstances,                  
            the contract price agreed to between a lessee of                   
            federal land and a gas or electric utility as the                  
            value of the federal government's royalty share                    
            from natural gas production when royalty is                        
            payable to the state under applicable federal law;                 
            and providing for an effective date."                              
            MOVED OUT OF COMMITTEE WITH INDIVIDUAL                             
  HB 133    "An Act amending the definition of 'value' for                     
            purposes of administration of fisheries taxes; and                 
            providing for an effective date."                                  
            MOVED OUT OF COMMITTEE WITH A DO PASS                              
  WITNESS REGISTER                                                             
  Representative Mark Hanley                                                   
  Room 511, State Capitol                                                      
  Juneau, Alaska  99801-1182                                                   
  Phone:  465-4939                                                             
  Position Statement: Prime Sponsor of HB 116                                  
  Raga Elim, Special Assistant                                                 
  Department of Natural Resources                                              
  400 Willoughby Avenue                                                        
  Juneau, Alaska 99801-1724                                                    
  Phone:  465-2400                                                             
  Position Statement: Clarified comments related to HB 116                     
  Representative Gail Phillips                                                 
  Room 216, State Capitol                                                      
  Juneau, Alaska  99801-1182                                                   
  Phone:  465-2689                                                             
  Position Statement: Gave an overview of HB 133                               
  Paul Dick, Juneau Operations                                                 
  Income and Excise Audit Division                                             
  Department of Revenue                                                        
  P.O. Box 110420                                                              
  Juneau, Alaska  99811-0420                                                   
  Phone:  465-3691                                                             
  Position Statement: Supported HB 133                                         
  Ray Gillespie                                                                
  Aquaculture Association                                                      
  9478 River Bend Court                                                        
  Juneau, Alaska  99801                                                        
  Phone:  463-3375                                                             
  Position Statement: Supported HB 133                                         
  PREVIOUS ACTION                                                              
  BILL:  HB 116                                                                
  BILL VERSION:  CSHB 116(FIN)(TITLE AM)                                       
  SPONSOR(S):  REPRESENTATIVE(S) HANLEY,Phillips,Larson,Green,                 
  TITLE: "An Act amending the manner of determining the                        
  royalty received by the state on gas production, and                         
  directing the commissioner of natural resources to accept,                   
  under certain circumstances, the contract price agreed to                    
  between a lessee of federal land and a gas or electric                       
  utility as the value of the federal government's royalty                     
  share from natural gas production on federal land from which                 
  the state is entitled under applicable federal law to                        
  receive a share of the royalty on gas production; and                        
  providing for an effective date."                                            
  JRN-DATE     JRN-PG               ACTION                                     
  02/03/93       213    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/03/93       214    (H)   RESOURCES, FINANCE                               
  02/19/93              (H)   RES AT 08:00 AM CAPITOL 124                      
  02/24/93              (H)   RES AT 08:00 AM CAPITOL 124                      
  BILL:  HB 133                                                                
  BILL VERSION:                                                                
  SPONSOR(S):  SPECIAL COMMITTEE ON FISHERIES                                  
  TITLE: "An Act amending the definition of `value' for                        
  purposes of administration of fisheries taxes; and providing                 
  for an effective date."                                                      
  JRN-DATE     JRN-PG               ACTION                                     
  02/05/93       236    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/05/93       236    (H)   FISHERIES, RESOURCES, FINANCE                    
  02/17/93              (H)   FSH AT 09:00 AM CAPITOL 17                       
  02/17/93       360    (H)   FSH RPT  4DP                                     
  02/17/93       360    (H)   DP: MOSES, PHILLIPS, NICHOLIA,                   
  02/17/93       360    (H)   -REVENUE FISCAL NOTE (REV)                       
  02/24/93              (H)   RES AT 08:00 AM CAPITOL 124                      
  ACTION NARRATIVE                                                             
  TAPE 93-23, SIDE A                                                           
  Number 000                                                                   
  The House Resources Committee was called to order by                         
  Chairman Bill Williams at 8:10 a.m.  Members present at the                  
  call to order were Representatives Williams, Hudson, Bunde,                  
  Carney, Davies, and James.  Members absent at the call were                  
  Representatives Finkelstein, Green and Mulder.                               
  CHAIRMAN BILL WILLIAMS announced the first order of business                 
  would be HB 116, which was held over from a meeting on                       
  February 19, 1993.  He said the committee had since received                 
  a written explanation of the fiscal note, and noted a draft                  
  committee substitute (CSHB 133) was in members' packets,                     
  which incorporated the amendment adopted at the February 19                  
  meeting.  He said HB 133 would be heard after HB 116.                        
  HB 116:  STATE SHARE OF FEDERAL GAS ROYALTIES                                
  Number 068                                                                   
  REPRESENTATIVE MARK HANLEY, PRIME SPONSOR of HB 116,                         
  directed the members' attention to a letter from the                         
  Commissioner of the Department of Natural Resources (DNR).                   
  He explained the fiscal note was based on a price of $1.50                   
  per thousand cubic feet, which was the basis for the claim                   
  that $10.4 million was owed the state.  That figure was on                   
  the upper end of the range of what might be received if the                  
  federal government changed its mind and required a higher                    
  royalty.  The letter also discussed precedent, he explained.                 
  When the action was taken last time, he said, it was a                       
  prospective action, with notice given in 1985, and things                    
  being changed from then forward.  This time the action was                   
  retrospective, going back to negotiate a higher price after                  
  rates had been set and contracts signed.                                     
  CHAIRMAN WILLIAMS noted Representatives Finkelstein and                      
  Green had joined the meeting, and that Representative Gail                   
  Phillips was in attendance.  He also recognized former                       
  Senator John Sackett in the audience.                                        
  Number 126                                                                   
  REPRESENTATIVE JEANNETTE JAMES asked why the $10.4 million                   
  tentative royalty receipts would not qualify for the budget                  
  reserve account.                                                             
  Number 136                                                                   
  REPRESENTATIVE HANLEY responded that he was not sure it                      
  would not, since he had not looked into that question.                       
  Number 145                                                                   
  VICE CHAIRMAN BILL HUDSON raised the question of whether the                 
  state had the legal authority to not collect royalties for                   
  the permanent fund, which had a constitutionally established                 
  contribution.  Also, he asked if someone could provide a                     
  legal opinion on the question of collecting royalties today                  
  for something that was owned by someone else in the past.                    
  He expressed concern that the liability incurred in the past                 
  would be charged to present utility customers.                               
  Number 177                                                                   
  REPRESENTATIVE HANLEY was not sure where the money would go                  
  if it was collected.  He assumed there would be legal                        
  opinions if and when the money was collected.  Regarding the                 
  retroactive aspect of the collection, he remarked that the                   
  subject had not been decided, and he anticipated some legal                  
  action on the part of the utilities if the federal                           
  government changed its opinion and did not accept the                        
  contract price.  Whether it would be legal to place a                        
  surcharge on people who were not customers at the time in                    
  question was one of the legal issues yet to be addressed, he                 
  Number 207                                                                   
  REPRESENTATIVE JOHN DAVIES was troubled by the 1985/86                       
  change in the law.  He mentioned he would be affected by any                 
  potential surcharge, as he got power from Golden Valley                      
  Electric Association.  He noted the issue of benefitting one                 
  segment of the state at the expense of others around the                     
  state.  He called the issue a troubling moral question,                      
  although it was probably legal.  He was also troubled by the                 
  fiscal note.                                                                 
  Number 245                                                                   
  REPRESENTATIVE HANLEY remarked that if someone signed a                      
  contract, the state had the option of taking its royalties                   
  in-kind and doing what they wanted with it, whether selling                  
  it separately or doing a one-eighth charge on the value as                   
  it was sold.  With a 25-year contract, he explained, the                     
  state had the choice of either not getting any royalties, or                 
  waiting and signing a contract that had a higher value.  He                  
  also pointed out the difference in prices paid by ENSTAR                     
  compared to those paid by Chugach.  He commented on the                      
  concept of long-term contracts that were fairly priced at                    
  the time they were signed, and believed if a contract was                    
  signed with no coercion involved, then it should be honored                  
  at the agreed upon price.                                                    
  Number 295                                                                   
  REPRESENTATIVE DAVIES perceived the issue as whether the                     
  federal government should be tied to the same rules and                      
  regulations as the state.  He noted there had been cases in                  
  the past where the state had gone back and suggested the                     
  federal government had short-changed Alaska, and asked them                  
  to pay up the disputed revenues.                                             
  Number 313                                                                   
  REPRESENTATIVE JOE GREEN repeated his previous concerns                      
  about going back and saying an arm's length agreement was                    
  not good enough.  He emphasized one of the major goals of                    
  the 18th Legislature was to show the state's reliability in                  
  its business dealings.  He suggested by requesting                           
  retrospective payments, the state would be sending out a                     
  message that a deal was not a deal; that the state would not                 
  keep its word if something better came along.  He called                     
  such an approach "gouging."                                                  
  Number 340                                                                   
  REPRESENTATIVE JAMES concurred and added the state had to                    
  have a business attitude, not a gouging attitude.                            
  Number 350                                                                   
  REPRESENTATIVE CON BUNDE supported HB 116, but questioned                    
  the legal ramifications of the state's obligations to put a                  
  percentage of royalty revenues into the permanent fund.  He                  
  asked whether it was wise to proceed with HB 116 without                     
  seeking a legal opinion on the permanent fund aspect.                        
  Number 370                                                                   
  REPRESENTATIVE HANLEY referred to the 1985 legislation that                  
  established the contract price as the accepted price on                      
  state leases, and said he would seek a legal opinion since                   
  the question had been raised.  He added, however, that HB
  116 related to the leases between the federal government and                 
  the lessees, and the state's only involvement would be if                    
  there was a settlement, and the state's share would then be                  
  subject to provisions already established for distribution                   
  to the permanent fund.                                                       
  REPRESENTATIVE DAVID FINKELSTEIN agreed, saying the funds                    
  deposited in the permanent fund were just a matter of                        
  allocation.  He believed HB 116 related to the question of                   
  valuation for lease pricing, and suggested the only reason                   
  the permanent fund was mentioned in the DNR letter was                       
  because any valuation affected what went into the permanent                  
  fund.  He did not believe this was a legal issue of any                      
  Number 400                                                                   
  VICE CHAIR HUDSON made a MOTION to ADOPT CSHB 116, and asked                 
  for unanimous consent.  Without objections, IT WAS SO                        
  Number 418                                                                   
  REPRESENTATIVE PAT CARNEY concurred with the comments made                   
  by Representative Finkelstein.                                               
  Number 425                                                                   
  RAGA ELIM, SPECIAL ASSISTANT, DNR, clarified comments made                   
  regarding the commissioner's letter.  As noted in the                        
  letter, he referred to the precedent setting effect of HB
  116.  The first point in that regard, he said, had to do                     
  with the applicability of HB 116 to the federal government.                  
  Hypothetically, he explained, if the state accepted the                      
  contract price and subsequently the federal government                       
  sought a higher royalty based on the area pricing method, it                 
  was not clear to the DNR whether or not HB 116 would allow                   
  the state to accept that higher royalty if the federal                       
  government prevailed.                                                        
  MR. ELIM also raised the issue, regarding the precedent-                     
  setting nature of HB 116, of the retroactive application of                  
  the bill.  The $10.4 million the state claims it has a right                 
  to, was from the contract period from 1984 to 1987.  The                     
  state did not go back further, he said, because it would                     
  have required a very extensive audit to go back to 1959.                     
  Number 463                                                                   
  MR. ELIM addressed the question of the allocation of                         
  royalties and clarified the permanent fund allocation was                    
  now 50% of the revenues for any leases entered into since                    
  December 1, 1979.  Regarding the equity issue raised by                      
  Representative Hudson, Mr. Elim concurred with                               
  Representative Davies in saying it was not an uncommon                       
  practice to require payment today for expenses incurred in                   
  the past.  He said this was a question that the Alaska                       
  Public Utilities Commission had probably addressed, and                      
  there was likely a body of law on the subject.                               
  MR. ELIM then spoke in regards to the fiscal note                            
  accompanying HB 116, in response to a previous question by                   
  Representative Davies.  Mr. Elim commented that the DNR's                    
  initial response was to have a $10.4 million positive fiscal                 
  note.  They decided that would not be appropriate, since                     
  that figure was based on a claim that the state could not be                 
  certain it would ever realize.  He said the DNR had,                         
  therefore, submitted a zero fiscal note with descriptive                     
  narrative attached regarding the $10.4 million claim.                        
  MR. ELIM concluded his testimony with comments addressing                    
  concerns raised by Representatives Hanley, Green and James,                  
  regarding certainty for the business community.  Regarding                   
  the sentiment that if a deal was made, Mr. Elim noted                        
  everyone knew the rules at the time the deal was made, that                  
  the federal government had the ability to seek a higher                      
  royalty than the contract price.  He did not see the                         
  situation as one in which the rules were changed, and did                    
  not necessarily regard the circumstances as "bad business."                  
  The state, as part owner, was not negotiating in the deal,                   
  which created an odd dynamic where the state relied on the                   
  agreement reached between two other parties.                                 
  Number 511                                                                   
  VICE CHAIR HUDSON expanded on Mr. Elim's comments regarding                  
  the state's authority to collect the 90% share of federal                    
  lease royalties, and raised the question of whether the                      
  state might deny taking that 90%.                                            
  MR. ELIM responded that he had recently raised that                          
  hypothetical question with the Director of the Division of                   
  Oil and Gas.  He said that director had called and said he                   
  had given the question more thought and saw it as a good                     
  point.  Mr. Elim said he did not have any judgment on                        
  whether that could be clarified.                                             
  Number 520                                                                   
  REPRESENTATIVE HANLEY added the state's constitution                         
  provided that the state gets 90% of federal lease royalties,                 
  and he did not believe there was any question the state                      
  would take the money.  If the contract was re-negotiated, he                 
  said, this issue should not be a problem, but he offered to                  
  get a legal opinion since this was a unique situation.                       
  Number 535                                                                   
  REPRESENTATIVE JAMES expressed concern about Alaska's                        
  efforts to foster a good business climate, where business                    
  was based on identified, foreseen costs, and said the state                  
  needed to plug loopholes so that a deal was a deal.  Another                 
  concern she expressed, was that the state made a deal to                     
  accept the contract price on its leases, and the federal                     
  government had agreed to do the same; yet the state had                      
  taken action against the federal government for not                          
  collecting a royalty of which we got 90%.  She suggested the                 
  state might not even need this legislative direction, since                  
  it was unlikely the federal government would reverse its                     
  previous decision on the leases.                                             
  CHAIRMAN WILLIAMS asked whether there were any further                       
  comments or testimony on HB 116.  Hearing no response, he                    
  asked how the committee wished to proceed.                                   
  Number 565                                                                   
  REPRESENTATIVE BUNDE made a MOTION to MOVE CSHB 116 (RES)                    
  from committee with individual recommendations and ADOPT the                 
  DNR zero fiscal note.                                                        
  CHAIRMAN WILLIAMS, prior to asking for a vote on CSHB 116                    
  (RES), offered his comment in favor of moving the bill, but                  
  had personal reservations that the bill would benefit the                    
  railbelt at the possible expense of the permanent fund and                   
  the school fund, which both benefitted all the people of the                 
  Number 575                                                                   
  CHAIRMAN WILLIAMS asked for an indication of those in favor                  
  of the motion to move CSHB 116 (RES) from committee.                         
  Without opposition, the MOTION CARRIED.                                      
  HB 133:  DEFINITION OF VALUE FOR FISHERIES TAX                               
  Number 582                                                                   
  CHAIRMAN WILLIAMS announced the committee would next take up                 
  HB 133, which was sponsored by the House Special Committee                   
  on Fisheries.                                                                
  Number 588                                                                   
  COMMITTEE ON FISHERIES, PRIME SPONSOR OF HB 133, said the                    
  bill was similar to existing law, but restructured the                       
  definition of "value" used in administering fisheries taxes,                 
  in order to enhance clarity.  Also, HB 133 closed some                       
  loopholes in existing law.  She explained there was no known                 
  opposition to HB 133 from any parties, and the bill was                      
  supported by aquaculture organizations.  The background of                   
  the legislation stemmed from prior disputes among processors                 
  and fishermen over the definition of value in the payment of                 
  the raw fish tax and salmon enhancement tax.  The argument                   
  was that bonuses and delivery costs were not part of the                     
  actual amount paid fishermen for their fish.  That                           
  interpretation, she added, left an opening for processors to                 
  pay lower prices for the fish, and make up for the low price                 
  by giving bonuses for services such as delivery or handling,                 
  Number 593                                                                   
  REPRESENTATIVE PHILLIPS explained that HB 133 clarified                      
  exactly what services and forms of payment were subject to                   
  the taxes.  She added the bill had an effective date of                      
  January 1, 1994.                                                             
  Number 600                                                                   
  VICE CHAIR HUDSON asked for clarification that HB 133 would                  
  guarantee the treasury would collect the raw fish tax based                  
  on all prices paid to the fishermen, including bonus amounts                 
  and other in-kind contributions.                                             
  REPRESENTATIVE PHILLIPS confirmed that was correct.                          
  VICE CHAIR HUDSON then asked whether HB 133 included an                      
  incremental fiscal note showing anticipated revenues from                    
  the change in statute.                                                       
  REPRESENTATIVE PHILLIPS referred to the positive fiscal note                 
  from the Department of Revenue, showing anticipated                          
  additional revenue of $550,000.                                              
  Number 620                                                                   
  DIVISION, DEPARTMENT OF REVENUE (DOR), reiterated the                        
  comments of Representative Phillips.  He stated HB 133                       
  strengthened the position of the DOR by clarifying what was                  
  Number 630                                                                   
  VICE CHAIR HUDSON asked Mr. Dick how the DOR currently                       
  tracked the types of additional payments mentioned in HB
  133.  He asked whether processors and fishermen were                         
  presently required to disclose this information, and if so,                  
  how that information was obtained.                                           
  Number 642                                                                   
  MR. DICK replied there were presently two ways.  One was                     
  through voluntary filing, and the other was through the                      
  audit process of accounting records.                                         
  Number 651                                                                   
  RAY GILLESPIE testified on behalf of REGIONAL AQUACULTURE                    
  ASSOCIATIONS, including Cook Inlet, Prince William Sound,                    
  and two Southeast Alaska associations.  He stated HB 133 had                 
  the unanimous support of the boards of all these                             
  Number 656                                                                   
  REPRESENTATIVE BUNDE asked whether fishermen encouraged the                  
  processors to disclose information on bonuses and other                      
  Number 665                                                                   
  MR. GILLESPIE answered that yes, the majority of fishermen                   
  and processors complied with the law now, but there were                     
  small numbers in each region who tried to evade the taxes.                   
  He said HB 133 would help close loopholes and encourage                      
  TAPE 93-23, SIDE B                                                           
  Number 000                                                                   
  REPRESENTATIVE BUNDE made a MOTION to move HB 133 from                       
  committee with the positive fiscal note.                                     
  Number 017                                                                   
  CHAIRMAN WILLIAMS asked whether there were any objections to                 
  the motion, and hearing none, announced the MOTION CARRIED.                  
  CHAIRMAN WILLIAMS announced there would be no meeting of the                 
  House Resources Committee on Friday, February 26, 1993, or                   
  on Monday, March 1.                                                          
  There being no further business to come before the House                     
  Resources Committee, Chairman Williams adjourned the meeting                 
  at 8:53 a.m.                                                                 

Document Name Date/Time Subjects