Legislature(1993 - 1994)
02/24/1993 08:00 AM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ 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
RECOMMENDATIONS
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
RECOMMENDATION
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
SHORT TITLE: STATE SHARE OF FEDERAL GAS ROYALTIES
BILL VERSION: CSHB 116(FIN)(TITLE AM)
SPONSOR(S): REPRESENTATIVE(S) HANLEY,Phillips,Larson,Green,
Parnell,Navarre
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
SHORT TITLE: DEFINITION OF VALUE FOR FISHERIES TAX
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,
OLBERG
02/17/93 360 (H) -REVENUE FISCAL NOTE (REV)
2/17/93
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
concluded.
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
sort.
Number 400
VICE CHAIR HUDSON made a MOTION to ADOPT CSHB 116, and asked
for unanimous consent. Without objections, IT WAS SO
ORDERED.
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
state.
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
REPRESENTATIVE GAIL PHILLIPS, MEMBER, HOUSE SPECIAL
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
PAUL DICK, JUNEAU OPERATIONS, INCOME AND EXCISE AUDIT
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
taxable.
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
associations.
Number 656
REPRESENTATIVE BUNDE asked whether fishermen encouraged the
processors to disclose information on bonuses and other
payments.
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
enforcement.
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.
ANNOUNCEMENTS
CHAIRMAN WILLIAMS announced there would be no meeting of the
House Resources Committee on Friday, February 26, 1993, or
on Monday, March 1.
ADJOURNMENT
There being no further business to come before the House
Resources Committee, Chairman Williams adjourned the meeting
at 8:53 a.m.
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