01/13/2006 09:02 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Pers/trs Funding | |
| HB63 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
January 13, 2006
9:02 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Norman Rokeberg
Representative Ralph Samuels
OTHER LEGISLATORS PRESENT
Representative Berta Gardner
Representative David Guttenberg
COMMITTEE CALENDAR
OVERVIEW(S): PERS/TRS FUNDING
- HEARD
HOUSE BILL NO. 63
"An Act relating to the oil and gas properties production
(severance) tax as it applies to oil; establishing a minimum
rate of tax for certain fields of five percent; providing for an
adjustment to increase the tax collected when oil prices exceed
$20 per barrel and to reduce the tax collected when oil prices
fall below $16 per barrel; and providing for relief from the tax
when the price per barrel is low or when the taxpayer
demonstrates that a reduction in the tax is necessary to
establish or reestablish production from an oil field or pool
that would not otherwise be economically feasible."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 63
SHORT TITLE: OIL SEVERANCE TAX
SPONSOR(S): REPRESENTATIVE(S) GARA
01/12/05 (H) READ THE FIRST TIME - REFERRALS
01/12/05 (H) W&M, O&G, RES, FIN
03/18/05 (H) W&M AT 8:30 AM CAPITOL 106
03/18/05 (H) Heard & Held
03/18/05 (H) MINUTE(W&M)
01/13/06 (H) W&M AT 9:00 AM CAPITOL 106
WITNESS REGISTER
GARY MILLER, Southeast Chapter Chair
Retired Public Employees of Alaska (RPEA)
Alaska Public Employees Association/Alaska Federation of
Teachers (APEA/AFT)
Juneau, Alaska
POSITION STATEMENT: Made suggestions for improving the PERS/TRS
funding liability issue.
REPRESENTATIVE LES GARA
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as the sponsor of HB 63.
DEBORAH VOGT
Haines, Alaska
POSITION STATEMENT: Testified in support of HB 63.
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 9:02:10 AM. Representatives
Weyhrauch, Seaton, Wilson, and Moses were present at the call to
order. Representative Gruenberg arrived as the meeting was in
progress. Representatives Gardner and Guttenberg were also
present.
^OVERVIEW(S): PERS/TRS FUNDING
CHAIR WEYHRAUCH announced that the first order of business would
be the overview on the Public Employees' Retirement
System/Teachers' Retirement System (PERS/TRS) funding.
9:03:26 AM
GARY MILLER, Southeast Chapter Chair, Retired Public Employees
of Alaska (RPEA), Alaska Public Employees Association/Alaska
Federation of Teachers (APEA/AFT), provided the committee with
written testimony and offered the following suggestions to
reduce the cost of healthcare: set up a wellness program;
provide health insurance for one physical per year; have nurse
practitioners provide basic care and have people see doctors
only for major care; have the State of Alaska, versus Aetna,
process insurance claims and set up its own pharmacies; have
Aetna team up with the State of Alaska in order to pay moving
and start-up costs to help recruit physicians to Juneau should
they agree to become preferred providers; limit the amount of
money an attorney receives in a medical malpractice case if
he/she loses a case; change contribution rates to the PERS/TRS
pension plans from fixed to variable in order to adjust for
market and health-cost fluctuations; and give the Alaska
Retirement Management (ARM) Board the authority to set the
employee and employer contribution rates on a yearly basis.
9:06:10 AM
CHAIR WEYHRAUCH acknowledged that healthcare costs are one of
the biggest problems of the [PERS/TRS] unfunded liability.
HB 63-OIL SEVERANCE TAX
9:07:02 AM
CHAIR WEYHRAUCH announced that the only order of business would
be HOUSE BILL NO. 63, "An Act relating to the oil and gas
properties production (severance) tax as it applies to oil;
establishing a minimum rate of tax for certain fields of five
percent; providing for an adjustment to increase the tax
collected when oil prices exceed $20 per barrel and to reduce
the tax collected when oil prices fall below $16 per barrel; and
providing for relief from the tax when the price per barrel is
low or when the taxpayer demonstrates that a reduction in the
tax is necessary to establish or reestablish production from an
oil field or pool that would not otherwise be economically
feasible."
9:07:21 AM
REPRESENTATIVE LES GARA, Alaska State Legislature, sponsor of HB
63, mentioned that his slide presentation includes updated
forecasts from the Department of Revenue (DOR) that show oil
company profits and the state's share under existing tax laws,
and relayed that Deborah Vogt has updated information to share
as well.
9:08:25 AM
DEBORAH VOGT explained that she has worked on oil tax matters in
both the DOR and the Department of Law (DOL) for about 20 years.
She said she feels HB 63 is long overdue, and characterized the
current tax structure, including the severance tax, as "way out
of wack." Additionally, she opined, the economic limit factor
(ELF) changes that were passed in 1989 were appropriate at the
time but are now "allowing vast sums of money to escape the
state."
MS. VOGT offered her understanding that Article VIII of the
Alaska State Constitution mandates that the natural resources
belonging to the state be developed "for the maximum benefit of
its people." She opined that this mandate is not being carried
out, and that the industry hired to produce Alaska's oil is
being benefited to the detriment of Alaska's residents.
MS. VOGT indicated her belief that HB 63 would change the
respective shares the state and the industry receive. She
explained that under the current tax structure, DOR projections
for fiscal year 2007 (FY 07) show that the oil industry will
take $7.25 billion in net profit from oil production out of
Alaska assuming prices stay at today's $60/barrel level. The
state's share at the same price, she said, would be just under
$4 billion. Over the years, she remarked, many policy makers,
including the late Governor Jay Hammond, have suggested that the
state should be retaining as large a share of the state's oil
wells as the industry takes.
MS. VOGT also noted DOR projections for 2006 show that under
today's law, with oil prices at $47/barrel - the price the
federal Energy Information Administration (EIA) projects over
the long-term - the industry would net $5.8 billion and the
state would net $3.5 billion. Under HB 63, these amounts would
change to $4.9 billion for the industry and $4.7 billion for the
state, a much more equitable share.
MS. VOGT relayed her belief that HB 63 would not drive the oil
industry out of Alaska. For example, according to DOR
projections, following passage of HB 63, the industry's net
profit would be 35 percent at the $47/barrel price;
profitability at the $60/barrel price would be higher. Even
with oil prices reverting to $20/barrel, she claimed, the net
profit for the industry would be 21.4 percent. The questions to
consider, she suggested, are: who should spend the wealth from
Alaska's natural resources, and where should it be spent. Right
now, it is the oil industry that decides the answers to those
questions, she added.
MS. VOGT read from correspondence written by former
Representative Hugh Malone to the Kenai Chamber of Commerce in
1981, in which he emphasized that the real question is not
whether taxes [to the industry] are unfair, but rather who
should have control in "how to use money from Alaska to benefit
Alaskans." Ms. Vogt remarked that 25 years later the question
remains, "who should determine the use of the wealth from our
natural resources."
9:17:09 AM
MS. VOGT, in response to questions, relayed that Representative
Gara could provide the committee with the statistics she'd used.
9:18:14 AM
REPRESENTATIVE GARA opined that just within the last three
years, the state has given out $4 billion in unjustified tax
breaks, and that the money allowed to leave the state could be
better spent within the state by addressing concerns such as
reducing classroom size, building roads, and making communities
stronger.
REPRESENTATIVE GARA explained that HB 63 addresses the
production tax, which is affected by the ELF, and that last year
the state took in approximately $800 million in production
taxes. Additionally, Representative Gara explained, under the
ELF, which determines how much of the "15 percent production
tax" oil fields pay, only three oil fields in the entire state
are paying any substantial production tax: Prudhoe Bay [Unit],
Northstar [Unit], and Alpine.
REPRESENTATIVE GARA offered his belief the state is charging
nothing to "blockbuster" fields. For example, he noted the
Kuparuk River [Unit], the second largest field in the United
States, is paying .1 percent in production taxes, and the Milne
Point [Unit], the thirteenth largest field in the United States,
is paying zero percent production tax. He expressed his belief
that this would make sense at $10/barrel, but not at $60/barrel.
9:23:09 AM
REPRESENTATIVE GARA posed the question of what current oil taxes
have done for Alaskans. According to DOR estimates, he noted,
the oil companies took in $13 billion in gross revenue and $5.2
billion in profits with a 40 percent profit margin; the state's
share was 60 percent at $3.2 billion. Six months into the
current fiscal year, Representative Gara relayed, the DOR
projects oil companies will take $16 billion in gross revenue,
with profits somewhere over $7 billion and a profit margin of 43
percent. Furthermore, he continued to explain, should the cost
of oil go down again to $22/barrel, oil companies would receive
a 25 percent profit margin well above the 15 percent profit
margin oil companies have indicated they wish to achieve over
the long run.
REPRESENTATIVE GARA offered his understanding that the oil
companies have stated they need incentives in order to build a
gas pipeline. He then pointed out that within a three-month
period in 2005, "Exxon, BP, and Conoco" took in $20 billion in
"pure profit," enough to build the entire gas pipeline.
9:29:12 AM
REPRESENTATIVE GRUENBERG asked for information regarding how the
[Alaska] system and profit margins work compared to other
governmental systems.
REPRESENTATIVE GARA replied that according to a confidential
report which the legislature commissioned the consulting firm
Wood Mackenzie to do, Alaska allows a much higher profit margin
[to industry] than most other taxing jurisdictions worldwide.
Additionally, Representative Gara said, [similar] comparisons
are addressed in a December 10, 2005, article from The
Economist.
9:31:18 AM
REPRESENTATIVE GRUENBERG opined that information regarding
[profit margins] should be available to the public.
CHAIR WEYHRAUCH noted that members' packets contain a letter
dated January 9, 2006, submitted by the Alaska Oil and Gas
Association (AOGA).
[HB 63 was held over.]
The committee took an at-ease from 9:32 a.m. to 9:33 a.m.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:34 a.m.
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