Legislature(2005 - 2006)
01/11/2006 09:00 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Pers/trs Funding | |
| HB223 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
January 11, 2006
9:00 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Harry Crawford
Representative Eric Croft
Representative Berta Gardner
Representative Mike Kelly
COMMITTEE CALENDAR
OVERVIEW(S): PERS/TRS FUNDING
- HEARD
HOUSE BILL NO. 223
"An Act levying a tax on certain known resources of natural gas,
conditionally repealing the levy of that tax, and authorizing a
credit for payments of that tax against amounts due under the
oil and gas properties production (severance) tax if
requirements relating to the sale and delivery of the natural
gas are met; and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 223
SHORT TITLE: NATURAL GAS PIPELINE INCENTIVE/ GAS TAX
SPONSOR(S): REPRESENTATIVE(S) CROFT
03/17/05 (H) READ THE FIRST TIME - REFERRALS
03/17/05 (H) W&M, O&G, RES
04/25/05 (H) W&M AT 8:30 AM CAPITOL 106
04/25/05 (H) Heard & Held
04/25/05 (H) MINUTE(W&M)
01/11/06 (H) W&M AT 9:00 AM CAPITOL 106
WITNESS REGISTER
LINDSAY SOVDE, Vice President
Seattle-Northwest Securities
Seattle, Washington
POSITION STATEMENT: Testified in favor of pension obligation
bonds to address the PERS/TRS funding issue.
KEVIN RITCHIE, Executive Director
Alaska Municipal League (AML)
Juneau, Alaska
POSITION STATEMENT: Testified in support of pension obligation
bonds as a means for local governments to reduce their PERS/TRS
liability, and offered to provide clarification on the different
ways municipalities responded to the prior year's appropriated
PERS funds.
WALTER J. HICKEL
Anchorage, Alaska
POSITION STATEMENT: Speaking as a former governor of Alaska and
former United States Secretary of the Interior, testified in
favor of HB 223.
MARK MYERS
Anchorage, Alaska
POSITION STATEMENT: On behalf of Representative Croft, provided
information on the economic issues pertaining to HB 223.
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 9:00:57 AM. Representatives
Weyhrauch, Samuels, Seaton, and Moses were present at the call
to order. Representatives Wilson, Gruenberg, and Rokeberg
arrived as the meeting was in progress. Representatives
Crawford, Croft, Gardner, and Kelly were also in attendance.
^OVERVIEW(S): PERS/TRS FUNDING
9:01:24 AM
CHAIR WEYHRAUCH announced that the first order of business would
be the overview on the Public Employees' Retirement
System/Teachers' Retirement System (PERS/TRS). Chair Weyhrauch
noted that bills pertaining to PERS/TRS are currently being
drafted by Legislative Legal and Research Services, and should
be available within a few weeks.
9:06:31 AM
LINDSAY SOVDE, Vice President, Seattle-Northwest Securities,
presented her company as the leading underwriter of municipal
bonds in the Northwest, and one that crafted the pension
obligation financing solution which has been widely used in the
state of Oregon. She pointed out that there are many parallels
between the situation Alaska faces and Oregon faced several
years ago, and opined that the "pension obligation financing
should be one tool in the toolbox of the local governments in
Alaska." There are significant risks involved with pension
obligation bonds; however, she related her belief it is possible
to manage that risk and provide this opportunity to local
governments.
9:07:48 AM
CHAIR WEYHRAUCH inquired as to the benefit and cost of having a
pension obligation bond liability when in a climate of a
billion-dollar surplus.
MS. SOVDE opined that this would be a question for the
legislators to address as they determine where surplus funds are
allocated. Pension obligation bonds are an opportunity to
finance the liability at a lower rate than is currently being
charged; therefore, it is possible to reduce the costs
associated with those bonds and use that money for other
projects.
9:09:07 AM
MS. SOVDE, in response to Chair Weyhrauch, explained that the
savings depend upon the security associated with the bonds or
obligations issued. For example, the savings for a "highly
rated local government" such as the Municipality of Anchorage
and the City & Borough of Juneau, the State [of Alaska] is
currently charging 8.5 percent for their liability whereas the
current market for a "highly rated credit" would be closer to 6
percent or better. Based on the analysis Seattle-Northwest
Securities did for the City & Borough of Juneau, its savings
would be approximately $16 million to $17 million on its $70-
million liability. In further response to Chair Weyhrauch, Ms.
Sovde related her belief that there is an opportunity to fund
liabilities at both the state and local levels.
CHAIR WEYHRAUCH relayed that the issue of legal impediments for
local communities to invest in pension obligation bonds is
beyond the jurisdiction of this committee.
MS. SOVDE confirmed that some changes would need to be made.
9:10:42 AM
REPRESENTATIVE SEATON remarked that since the 8.25 percent rate
is "assumed" and not "fixed," he requested Ms. Sovde bring to
the House State Affairs Standing Committee meeting an analysis
of the potential liability a municipality would incur should the
state not achieve an 8.25 percent rate of return. He further
requested that Ms. Sovde let the committee know how firmly she
believes an institution can guarantee an 8.25 percent annual
return on investments over the next 25-year period.
9:16:44 AM
CHAIR WEYHRAUCH noted that some states have unsuccessfully
floated pension obligation bonds to satisfy their liability.
Significant risk is involved and should not be ignored, he said.
REPRESENTATIVE GRUENBERG expressed interest in the assurances
that Seattle-Northwest Securities will be able to honor its
obligation.
9:18:02 AM
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), announced AML's support of pension obligation bonds as a
potential tool for municipalities. He then offered to answer
any questions regarding the different ways municipalities
responded to the prior year's appropriated PERS funds with which
21 communities decided to continue paying an increased rate and
used the state money to offset their total liability. Not all
communities could afford this route, he mentioned.
9:21:01 AM
CHAIR WEYHRAUCH responded that there should be more discussion
on this topic because earlier testimony has related that some of
the communities receiving retirement debt relief did not use the
money for that purpose.
MR. RITCHIE pointed out that the appropriation language
specified that communities would pay 5 percent less because the
state [through debt relief] would take care of the remainder.
Therefore, he surmised that all the communities did what the
legislature asked, although 21 communities reduced their overall
liability with the [debt relief].
REPRESENTATIVE ROKEBERG disagreed, and opined that there was a
miscommunication as to the intent of the [debt relief].
REPRESENTATIVE SEATON voiced his hope that future legislation on
PERS/TRS will give municipalities and school districts credit
for reducing their long-term liability and for following the
intent of the legislation.
CHAIR WEYHRAUCH, referring to Mr. Ritchie's earlier mention of
AML's support of pension obligation bonds for municipalities,
stated he agreed that these bonds are a good idea, but asked
what's to say that a [community] isn't going to return to the
legislature for help. He further asked if [pension obligation
bonds] are really the solution.
MR. RITCHIE said he couldn't say, but if municipalities can
borrow money at a lower rate the taxpayers would save money.
This is all dependent on whether the estimates are accurate, and
therefore, communities face a risk assessment.
REPRESENTATIVE SEATON asked if AML has discussed the long-term
liability of municipalities per individual allowed in PERS.
MR. RITCHIE related that AML's advice is for every municipal
body to review the issue and decide.
CHAIR WEYHRAUCH announced that additional testimony on PERS/TRS
would continue at future meetings.
HB 223-NATURAL GAS PIPELINE INCENTIVE/ GAS TAX
9:33:08 AM
CHAIR WEYHRAUCH announced that the final order of business would
be HOUSE BILL NO. 223, "An Act levying a tax on certain known
resources of natural gas, conditionally repealing the levy of
that tax, and authorizing a credit for payments of that tax
against amounts due under the oil and gas properties production
(severance) tax if requirements relating to the sale and
delivery of the natural gas are met; and providing for an
effective date."
9:33:32 AM
WALTER J. HICKEL, former governor of Alaska, commended
Representatives Eric Croft and Harry Crawford for authorizing
the initiative [HB 223] that is forcing Alaska to look at a
reserve tax on Alaska's natural resources of the North Slope.
He related his belief that this legislation is absolutely
necessary and not a new concept. He recalled his time as former
United States Secretary of Interior in the late 1960's when he
was responsible for America's energy policy. He related that in
most cases, if an exploration company could not prove within
five years that it had adequately searched for resources, or
failed to produce those resources, its lease would expire. When
oil was discovered in Alaska's North Slope, this requirement was
not included in early leases; however, it was implied and
expected that if resources were found, they would be marketed.
MR. HICKEL then referred to E.L. "Bob" Bartlett's 1955 speech to
the Alaska Constitutional Convention in which he addressed the
danger of Alaska's natural resources being exploited as well as
the danger of postponing the development of those resources
until such time as outside interests see fit. [A copy of Mr.
Bartlett's speech is included in the committee packet.]
However, the state owns the North Slope and merely leases the
oil and gas resources with the expectation of development for
the maximum benefit of Alaskans. With regard to last week's
Anchorage Daily News article that characterized the reserves tax
as punishing the producers, Mr. Hickel related his belief that
such is the consequence for keeping what may be over $1 trillion
worth of [the state's] resources off the market for the benefit
of stockholders.
MR. HICKEL opined that the North Slope's natural gas is the
state's legacy resource. He further opined that if natural gas
was transported and processed in Alaska, it has the potential to
provide well-paid jobs in the state for generations. "The
proposed $1 billion a year penalty should be a minimum," he
said. He added that the only reason there is controversy
surrounding this is the undue influence of oil and gas producers
in the state's governmental process.
MR. HICKEL then turned to HB 223 and highlighted his
understanding that the producers merely have to build a pipeline
to avoid the penalty. The fastest way to start a pipeline is to
build the All-Alaska line. Mr. Hickel concluded by urging the
committee's support of HB 223 in a ballot initiative or to craft
stronger legislation, either of which would demonstrate the
legislature's pledge to uphold the Alaska State Constitution.
9:39:23 AM
MR. HICKEL, in response to Representative Rokeberg, recalled his
part in getting the pipeline built. He then emphasized the need
for Alaska to act as an owner state. In fact, he opined that
the state should build the [natural] gas pipeline and own it.
9:45:10 AM
REPRESENTATIVE WEYHRAUCH proceeded to announce the next witness
to testify on HB 223.
9:45:17 AM
MARK MYERS, drawing on his experience as former director,
Division of Oil & Gas, Department of Natural Resources (DNR),
explained that he was testifying at the request of the sponsor
of HB 223 to address the economics of a gas pipeline project.
He said his preference would be for the companies and the state
to honor the terms of the leases and the plans of development
for the fields. However, if the administration fails to enforce
the lease requirements after companies fail to act on them, then
it's worthy to discuss what other mechanisms are available. As
indicated earlier, one of the key questions is: what are the
economics of the gas pipeline. He opined that the gas pipeline
is economic. In fact, a report done by Econ One Research, Inc.
for the Alaska State Legislative Budget & Audit Committee on
August 31, 2005, [a copy of the report is included in the
committee packet] illustrates that the gas pipeline is economic
in a number of ways.
MR. MYERS, in summarizing some of the key points in the report,
noted the project is very economical at gas prices north of
$4.00/million British thermal units (mmbtu), and the market and
companies are predicting $7.00 to $8.00/mmbtu gas prices in
general. Typical project risks, such as low gas prices and
inadequate reserves, are not an issue, he noted. Mr. Myers
reviewed the various scenarios given by Econ One Research, Inc,
all of which illustrate that the project is economic. He then
referenced Figure 8-3, which illustrates that earlier production
of the gas pipeline versus later production is more economical
for the state.
9:57:34 AM
CHAIR WEYHRAUCH announced that further questions for Mr. Myers
regarding his testimony may be addressed at the January 18,
2006, meeting.
[HB 223 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:58 a.m.
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