01/22/2018 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB288 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 288 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
January 22, 2018
1:03 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
Representative Chris Tuck (alternate)
MEMBERS ABSENT
Representative Mike Chenault (alternate)
OTHER LEGISLATORS PRESENT
Representative Paul Seaton
COMMITTEE CALENDAR
HOUSE BILL NO. 288
"An Act relating to the minimum tax imposed on oil and gas
produced from leases or properties that include land north of 68
degrees North latitude; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 288
SHORT TITLE: OIL AND GAS PRODUCTION TAX
SPONSOR(s): REPRESENTATIVE(s) TARR
01/16/18 (H) READ THE FIRST TIME - REFERRALS
01/16/18 (H) RES, FIN
01/22/18 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
No witnesses to report
ACTION NARRATIVE
1:03:21 PM
CO-CHAIR ANDY JOSEPHSON called the House Resources Standing
Committee meeting to order at 1:03 p.m. Representatives
Josephson, Birch, Parish, Talerico, Rauscher, Tuck (alternate),
Johnson, Drummond, and Tarr were present at the call to order.
Also present was Representative Seaton.
HB 288-OIL AND GAS PRODUCTION TAX
1:04:11 PM
CO-CHAIR JOSEPHSON announced that the only order of business
would be HOUSE BILL NO. 288, "An Act relating to the minimum tax
imposed on oil and gas produced from leases or properties that
include land north of 68 degrees North latitude; and providing
for an effective date."
1:04:40 PM
CO-CHAIR TARR informed the committee HB 288, in a manner similar
to other proposed legislation, is before its first committee of
referral and many changes will be made as the bill is discussed.
She directed attention to a PowerPoint presentation entitled,
"House Bill 288 Fairness in Oil Taxes," [undated] and recalled
the House majority coalition announced last session there are
four pillars to its [fiscal plan]: strategic cuts; oil tax fix;
broad-based measure; percent of Market Value (POMV) [from the
Earnings Reserve Account of the Alaska Permanent Fund] (slide
2). She recalled the plan began [in 2017] with a major tax fix,
which was the removal of the cash credit system. Further, House
Bill 111 [passed in the Thirtieth Alaska State Legislature]
created a bicameral/bipartisan working group, which seeks to
continue working on oil tax structure.
REPRESENTATIVE JOHNSON urged for the aforementioned working
group to make recommendations regarding the proposed
legislation.
1:08:37 PM
CO-CHAIR TARR directed attention to slide 3, noting the
fundamentals of the current oil tax structure remain in place
[within HB 288] including the 35 percent tax base rate, the per
barrel credit, the gross value reduction, the minimum tax, and
the lease expenditure deductions. She pointed out [HB 288]
would change one calculation for the minimum tax, but the
working group will focus on the fundamental structure of
Alaska's oil tax because [legislative] consultants have made
recommendations to improve the fundamental oil tax structure
(slide 4). For example, consultants have noted the oil tax
functions as both a gross and net profits tax; she attributed
the decision to choose the system enacted by Senate Bill 21
[passed in the Twenty-Eighth Alaska State Legislature] to the
price of oil at that time, which was $100 per barrel. Since the
enactment of Senate Bill 21, when oil is at lower prices, the
state's tax structure functions as a gross tax, and when prices
are higher it functions as a net profits tax. Currently, the
tax structure is functioning as a gross tax, and she opined [the
minimum tax] should be between 10 percent and 18 percent instead
of 4 percent. Another challenge with the current system is it
has components of both a severance tax and a corporate income
tax and she explained that a severance tax is applied once to
the value of a nonrenewable resource; however, corporate income
tax allows oil companies to deduct for the same expenses in both
severance and corporate income taxes. Co-Chair Tarr advised the
working group will discuss a severance tax, carryforward losses,
and other components more typical of corporate income taxes. A
third challenge to the existing system is there are too many
components linked to price - for example, oil prices have
fluctuated by $25 to $50 in one year - and consultants suggested
a more appropriate link is to the production tax value (PTV).
Finally, the present system is too complicated, and she gave an
example. Co-Tarr stressed understanding oil tax revenue will be
integral to Alaska's budget for the foreseeable future.
1:14:42 PM
CO-CHAIR TARR continued to slide 5 and acknowledged at this time
the state has heard lots of good news related to exploration,
new development, the National Petroleum Reserve-Alaska (NPR-A),
and lease sales, but there are looming budget deficit issues.
She advised the announcements of good news should be followed by
three questions: How much profit per barrel, how many barrels
total, and how much revenue would there be to the state? (slide
6). She reviewed the current tax structure on expenditures and
costs - at oil prices ranging from $40-$140 per barrel of
taxable oil - and identified each component at a $60 per barrel
oil price (slide 7). She opined the impact of per barrel
credits at lower oil prices was not discussed during the debate
on Senate Bill 21: the net tax [at $60 per barrel of oil] is
negative.
1:18:54 PM
REPRESENTATIVE BIRCH pointed out revenue from royalty share is
not reflected on [slide 7]; in fact, if there is no oil
production, the state does not receive any royalty revenue, and
if revenue from royalty is not considered, [slide 7] is a
misrepresentation of the overall state revenues that are derived
from increased production.
1:20:12 PM
CO-CHAIR TARR said information on revenue from royalty shares
will be reflected on upcoming slide 9. She observed one of the
challenges to interpreting data is all companies differ related
to expenses and operations and Department of Revenue (DOR)
aggregate data is based on averages, thus "it doesn't tell the
full story." She noted a consultant recommended looking at the
tax as a percentage of PTV, not as a percentage of gross value
at the point of production (GVPP) or as a percentage of price.
This would be a true net profits tax system with allowable
expenses deducted before the tax is applied, and would result in
the current effective rate of 10 percent (slide 7).
Representative Tarr opined a 10 percent tax is not working in
Alaska's favor, and there are lessons to be learned about the
volatility of oil prices. She directed attention to slide 8,
which illustrated state oil tax revenue, using 20,000 barrels as
an example; this amount was used in the example because the
increase in oil production on the North Slope has been
approximately 20,000 barrels per day. She concluded increased
production of 1.2 billion barrels of oil is needed to equal the
budget shortfall of $2.5 billion.
1:24:34 PM
CO-CHAIR TARR continued to slide 9, which used the example of
20,000 barrels per day and a 12.5 percent royalty rate to
estimate royalty revenue. Calculating royalty uses GVPP, thus
with taxable barrels added to royalty share barrels, the state
would need to produce about 47 billion more barrels of oil [to
equal the budget shortfall of $2.5 billion]. She reviewed the
prospects of new discoveries and possible future increases to
oil production affected by property and corporate income taxes,
and related the industry has concerns about the lack of
stability, planning, and overdue unpaid oil tax credits. Co-
Chair Tarr continued to slide 10, which illustrated changes to
the revenue stream by increased minimum tax rates. Also shown
on slide 10 were the impacts of taxes at $60 oil prices on
legacy and new fields, and she provided examples. Co-Chair Tarr
suggested the committee discuss modest [minimum tax] adjustments
at a rate that could be made without jeopardizing investment,
and said there is no intent to rush the bill through the
committee. Further, proposals for other sources of income to
the state "seem to be off the table" which leaves the
legislature only with the options of oil taxes and fuel taxes.
1:32:48 PM
REPRESENTATIVE RAUSCHER questioned how the bill would cure
instability because the industry is currently operating
according to previous legislation.
CO-CHAIR TARR said the committee will hear testimony on the bill
from industry at an upcoming hearing. She related the industry
urges the state to diversify its revenue sources to those other
than oil and gas; however, there are few other options. She
pointed out the bill looks at a range of minimum taxes from 4
percent to 7 percent, [and seeks] to avoid threatening
investment and jobs. Co-Chair Tarr returned attention to slide
7 and said a 10 percent rate is not too low at $30 per barrel
prices; however, the crossover point is between $60-$80 per
barrel, which may be the short-term stable price for oil. The
working group will address the underlying structure of oil tax
policy and long-term oil prices.
1:36:03 PM
REPRESENTATIVE BIRCH asked whether the sponsors would have
introduced HB 288 if a broad-based income tax was passed during
[2017].
CO-CHAIR TARR, speaking for herself, said she preferred a fair
fiscal package; the passage of a tax would have [decreased] the
state's deficit outlook and, therefore, "the math would be
different."
1:37:31 PM
REPRESENTATIVE BIRCH advised there have been great increases to
oil production on the North Slope due to the present tax
environment. He asked how the proposed legislation would
contribute to three years of increased production and cautioned
the bill is "going the wrong direction."
CO-CHAIR TARR said from her perspective diversifying [state
revenue] would change the present situation but the legislature
must come to agreement. She returned to slide 2 and the four
pillars of a plan to [address the budget deficit], noting her
constituents seek to "spread the burden more evenly." She
restated her interest in comments from the industry and in
following the working group process. She returned attention to
slide 7 and observed there are different perspectives from those
who must provide state services and from those of an industry
that answers to its shareholders.
1:42:20 PM
REPRESENTATIVE BIRCH recalled last year the legislature created
a working group to address this issue, but the bill has been
introduced without the benefit of the working group. He
stressed the House Resources Standing Committee is a resource
committee that has a duty and responsibility to focus on
increasing production and recognizing the importance of revenue
earned by royalty oil. He directed attention to the sponsor
statement and expressed his belief that the bill appears to be a
bargaining chip in the issue of broad-based taxation.
Representative Birch said he does not support the bill; the
committee has a duty and obligation to increase production since
increased production is beneficial to all. He urged to return
to the process established through the working group.
1:44:43 PM
CO-CHAIR TARR acknowledged the legislation is not the only
option and she has no wish to repeat an extended oil tax
legislative session, thus the bill is limited in scope. In
further response to Representative Birch as to whether the
administration has embraced the bill, she said the
administration will testify during an upcoming hearing on
[1/26/18].
REPRESENTATIVE JOHNSON agreed the bill is a bargaining chip and
noted after House Bill 111 [passed in the Thirtieth Alaska State
Legislature], her desire was to address the issue of paying off
the tax credits, which is not being discussed. She strongly
opined introducing an oil tax bill to the committee at this time
is the opposite of stability and is again sending the wrong
message. She asked the following questions: How would the bill
bring stability to the industry; how is the bill not creating
"an oil tax session," how is the bill advancing ...? Lastly,
she disagreed that consultants supported the intent of the bill,
and asked which consultants are in support.
CO-CHAIR TARR, in response to the question of stability, said
without a diversified revenue stream the pressure for raising
revenue will always be on the oil and gas industry. She pointed
out there is instability created by a citizens' initiatives
regarding resource development policy, the use by the
legislature of the [Alaska Permanent Fund], and other issues.
She acknowledged consultants have not made recommendations about
specifics in oil policy, but they do urge for the state to make
fundamental changes such as taxing based on PTV. She stressed
legislation last year was not a fundamental rewrite of oil tax
policy.
1:51:15 PM
CO-CHAIR JOSEPHSON noted his support for paying down the tax
credits which will cost about $900 million; there is bipartisan
support to do so if a plan emerges. He agreed that a consultant
advised making a change to the state's tax structure. Regarding
["whiplash," caused by] the introduction of a new bill that
would increase the gross tax, he recalled the governor
recommended this legislation in January of 2016, and since then
the committee as seen this issue as a consistent theme.
REPRESENTATIVE PARISH questioned whether it is typical for an
oil company to utilize profits earned in Alaska for use by its
global business.
1:53:04 PM
CO-CHAIR TARR said data from the Department of Revenue is
limited and she cannot comment.
REPRESENTATIVE PARISH asked whether the 10 percent tax received
from severance taxes [shown on slide 7] is typical when compared
to other nations.
CO-CHAIR TARR said the percentage varies widely thus it is hard
to find a fair comparison. She restated her belief if Senate
Bill 21 [passed in the Twenty-Eighth Alaska State Legislature]
was written now, the [minimum] percentage would have been in the
13 percent to 18 percent range, but perhaps still linked to
price. However, at that time, the "new normal" was not
considered; discussion related to the percentage of minimum tax
has been ongoing for over ten years.
1:55:49 PM
REPRESENTATIVE PARISH read from the Alaska State Constitution as
follows:
Article VIII - Natural Resources
General Authority
The legislature shall provide for the utilization,
development, and conservation of all natural resources
belonging to the state, including land and waters, for
the maximum benefit of its people.
REPRESENTATIVE PARISH asked Co-Chair Tarr whether she believes
the state is securing maximum benefit for the people of Alaska.
CO-CHAIR TARR stated she is but one member of the collective
body of the legislature who seeks to debate the issue of the
minimum 10 percent tax in the present price environment. She
returned attention to slide 7 which illustrated several proposed
minimum tax percentages and expressed her personal hope that the
[state budget] can maintain a strong [Alaska Permanent Fund]
dividend and public safety.
CO-CHAIR JOSEPHSON, in further response to Representative
Parish, pointed out there are differing opinions as to how
maximum benefit can be achieved, such as increases to
[Alaskans'] salaries and to [oil and gas] production in Alaska.
REPRESENTATIVE PARISH opined the work of the committee is not
finished in regard to oil taxes and brought up points suggested
by various legislative consultants.
2:01:13 PM
REPRESENTATIVE RAUSCHER inquired as to the aforementioned
company that [transferred its Alaska profits to global
projects.]
REPRESENTATIVE PARISH offered to provide written information on
BP.
REPRESENTATIVE TALERICO recalled data from "those old [oil tax]
plans" resulted in an alarming 6-8 percent decrease in annual
production that inspired much of the ongoing work on various tax
plans. His concern is the current surges in production and
price should have taught a lesson that Alaska is subject to
pricing decisions made by the Organization of the Petroleum
Exporting Countries (OPEC). He said one of his biggest concerns
is how the bill would impact throughput, volumes, exploration,
and investment. He cautioned that although the bill is limited
to one subject, the bill may acquire creative amendments related
to, for example, changes to gross value reduction (GVR) or to
gross value at the point of production. Representative Talerico
said, "I do also appreciate though, the fact that you put ...
several different scenarios to look at because I think, I think
we should do that as we work forward ...."
CO-CHAIR TARR restated lessons learned from Senate Bill 21 and
from the original intent of the tax credits, which were intended
to encourage smaller independent and new companies in the
industry in Alaska. She questioned whether the intent to
diversify the North Slope was undermined. These are issues that
can be thoroughly evaluated by the working group process and
restated her concerns as above.
2:08:35 PM
CO-CHAIR JOSEPHSON asked whether the sponsor would have offered
the legislation had [oil] prices remained in the $45 [per
barrel] range.
CO-CHAIR TARR returned attention to slide 7. At the $60 price
range there is an approximate split of $18 of profit to the oil
company and $2 to the state, and she asked whether that is a
fair split of profit. In response to Representative Parish's
question as to when the committee would hear invited testimony
on the bill, she said state and industry representatives are
scheduled to provide testimony on [1/26/18].
REPRESENTATIVE JOHNSON asked whether the legislation would be
presented to the working group.
CO-CHAIR TARR said no. She clarified the working group will not
review proposed legislation, but will evaluate tax policy and
other state actions such as infrastructure investment. For
example, a permanent road system built by the state to replace
ice roads in oil development areas would be an opportunity for
the state. Representative Tarr pointed out portions the tax
credit program paid large sums of money for some projects that
did not lead to increased production, or new development, and
suggested a better use of state money may be infrastructure
development. Further, she stated her understanding a bill could
not be referred to the working group for a hearing to due to
public notice procedures.
REPRESENTATIVE JOHNSON urged for bill in general to be discussed
in the working group as is appropriate.
[HB 288 was held over.]
2:15:07 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:15 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB288 ver A 1.16.18.PDF |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 Fiscal Note DOR-TAX 1.20.18.pdf |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 Sponsor Statement 1.21.18.pdf |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 Sectional Analysis 1.21.18.pdf |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |