Legislature(2003 - 2004)

04/16/2004 07:08 AM W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                         April 16, 2004                                                                                         
                           7:08 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Hawker, Chair                                                                                               
Representative Dan Ogg                                                                                                          
Representative Ralph Samuels                                                                                                    
Representative Max Gruenberg                                                                                                    
Representative Carl Moses                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bruce Weyhrauch, Vice Chair                                                                                      
Representative Vic Kohring                                                                                                      
Representative Norman Rokeberg                                                                                                  
Representative Peggy Wilson                                                                                                     
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Paul Seaton                                                                                                      
Representative Beth Kerttula                                                                                                    
Representative Ethan Berkowitz                                                                                                  
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 441                                                                                       
"An  Act   amending  the  oil   and  gas   properties  production                                                               
(severance) tax as it relates to  oil to require payment of a tax                                                               
of  at least  five percent  of the  gross value  at the  point of                                                               
production before  any price adjustments authorized  by this Act,                                                               
to modify the  mechanism for calculating the  effective tax rate,                                                               
to provide for  adjustments to the tax when  the prevailing value                                                               
of the oil  exceeds $20 per barrel or falls  below $16 per barrel                                                               
and to  limit the  effect of the  adjustments, to  exempt certain                                                               
kinds of  oil from application  of the adjustments, and  to waive                                                               
and  defer  payment of  portions  of  the  tax  on oil  when  its                                                               
prevailing value  falls below $10  per barrel; and  providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 493                                                                                                              
"An Act relating  to adoption and revision of  a long-term fiscal                                                               
plan for the State of Alaska."                                                                                                  
                                                                                                                                
     - MOVED CSHB 493(W&M) OUT OF COMMITTEE                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 441                                                                                                                  
SHORT TITLE: MODIFICATION OF OIL SEVERANCE TAX                                                                                  
SPONSOR(S): REPRESENTATIVE(S) GARA                                                                                              
                                                                                                                                
02/05/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/05/04       (H)       W&M, O&G, RES, FIN                                                                                     
02/16/04       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
02/16/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (H)       W&M, RES, FIN                                                                                          
03/29/04       (H)       O&G REFERRAL ADDED AFTER W&M                                                                           
04/14/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
04/14/04       (H)       Heard & Held                                                                                           
04/14/04       (H)       MINUTE(W&M)                                                                                            
04/16/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
                                                                                                                                
BILL: HB 493                                                                                                                  
SHORT TITLE: LONG TERM FISCAL PLAN                                                                                              
SPONSOR(S): REPRESENTATIVE(S) HARRIS                                                                                            
                                                                                                                                
02/16/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (H)       W&M, FIN                                                                                               
02/25/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
02/25/04       (H)       Heard & Held                                                                                           
02/25/04       (H)       MINUTE(W&M)                                                                                            
03/03/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
03/03/04       (H)       Heard & Held                                                                                           
03/03/04       (H)       MINUTE(W&M)                                                                                            
03/19/04       (H)       W&M AT 8:00 AM HOUSE FINANCE 519                                                                       
03/19/04       (H)       -- Meeting Canceled --                                                                                 
03/24/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
03/24/04       (H)       Scheduled But Not Heard                                                                                
04/16/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                              
DAN DICKINSON, Director                                                                                                         
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 441                                                                  
and answered questions.                                                                                                         
                                                                                                                                
REPRESENTATIVE LES GARA                                                                                                         
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of HB 441.                                                                            
                                                                                                                                
CHUCK LOGSDON, Chief Petroleum Economist                                                                                        
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 441                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-24, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR MIKE HAWKER called the  House Special Committee on Ways and                                                             
Means  meeting to  order at  7:08 a.m.   Representatives  Hawker,                                                               
Samuels, Gruenberg,  Moses, and Ogg  were present at the  call to                                                               
order.   Representatives  Seaton,  Kerttula,  and Berkowitz  were                                                               
also present.                                                                                                                   
                                                                                                                                
HB 441-MODIFICATION OF OIL SEVERANCE TAX                                                                                      
                                                                                                                              
Number 0145                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  first order of business would be                                                               
SPONSOR SUBSTITUTE FOR  HOUSE BILL NO. 441, "An  Act amending the                                                               
oil and gas  properties production (severance) tax  as it relates                                                               
to oil to  require payment of a  tax of at least  five percent of                                                               
the  gross value  at the  point  of production  before any  price                                                               
adjustments authorized by  this Act, to modify  the mechanism for                                                               
calculating the  effective tax rate,  to provide  for adjustments                                                               
to the tax  when the prevailing value of the  oil exceeds $20 per                                                               
barrel or falls  below $16 per barrel and to  limit the effect of                                                               
the adjustments, to exempt certain  kinds of oil from application                                                               
of the  adjustments, and to  waive and defer payment  of portions                                                               
of the tax  on oil when its prevailing value  falls below $10 per                                                               
barrel; and providing for an effective date."                                                                                   
                                                                                                                                
Number 0230                                                                                                                     
                                                                                                                                
DAN  DICKINSON, Director,  Tax  Division,  Department of  Revenue                                                               
(DOR), said  that after [HB  441] was introduced in  February the                                                               
governor commented  that he would like  DOR to take a  long, hard                                                               
look at  the economic  limit factors  (ELF), and  as Commissioner                                                               
Corbus stated at the previous  meeting, DOR is not suggesting any                                                               
changes at this  time.  He spoke of a  document labeled April 16,                                                               
from  DOR that  all of  the  committee members  should have,  and                                                               
related  that the  first  four slides  in  that document  provide                                                               
background information about  the ELF.  The  first slide, "Alaska                                                               
oil production  between 1965  and 2020", shows  that in  the past                                                               
Prudhoe Bay oil production was "the name of the game," he said.                                                                 
                                                                                                                                
CHAIR HAWKER explained the color markings on the graph.                                                                         
                                                                                                                                
MR. DICKINSON continued  to explain that Prudhoe  Bay and Kuparuk                                                               
constituted almost all of the  revenues the state received in the                                                               
first quarter  century of  production from the  North Slope.   He                                                               
said it  is important to  note that  what was appropriate  in the                                                               
past may  not be appropriate in  the future.  Tax  regimes should                                                               
reflect what they  are taxing, and the situation  has changed, he                                                               
noted.                                                                                                                          
                                                                                                                                
CHAIR HAWKER asked when the last tax change was.                                                                                
                                                                                                                                
MR. DICKINSON replied  that the last major change was  in 1989 as                                                               
a consequence of  when the second exponent was added  to the ELF,                                                               
the field  size factor.   He said  that in earlier  testimony the                                                               
notion was  made that  even though  there had  only been  a major                                                               
legislative change,  there had been frequent  regulatory changes.                                                               
He opined  that that was only  half true in the  sense that there                                                               
have been  regulatory changes and  a measure of clarity  has been                                                               
brought through those changes.                                                                                                  
                                                                                                                                
Number 0857                                                                                                                     
                                                                                                                                
MR. DICKINSON, turning to the  second slide, said that it follows                                                               
up on  the first slide and  translates barrels to dollars.   This                                                               
curves shows all of the ups and downs of oil prices.                                                                            
                                                                                                                                
CHAIR HAWKER  asked Mr. Dickinson  if he is quoting  Alaska North                                                               
Slope (ANS).                                                                                                                    
                                                                                                                                
MR.  DICKINSON replied  yes.   He noted  an important  aspect not                                                               
visible  in  the  slide.    Since 1988  prices  have  been  on  a                                                               
continuous  rise, which  is  offsetting much  of  the decline  in                                                               
production.   However, the slide  clearly shows a decline  in oil                                                               
revenue as a whole, he said.                                                                                                    
                                                                                                                                
CHAIR  HAWKER  asked why  the  projected  revenues consist  of  a                                                               
smooth line with no jagged highs and lows.                                                                                      
                                                                                                                                
MR. DICKINSON  replied that the  actual projection will  not look                                                               
like that.  It will be just as  jagged.  The graph is showing the                                                               
average range over the next 15-17 years, he explained.                                                                          
                                                                                                                                
Number 1129                                                                                                                     
                                                                                                                                
MR.  DICKINSON said  that slide  three is  a summary  of all  the                                                               
fields  on the  North Slope  and the  daily production  needed to                                                               
calculate the ELF.  He pointed  out that Prudhoe Bay is producing                                                               
roughly 1  million barrels a  day, which  is about 40  percent of                                                               
the total production, with an ELF  of roughly .9, and the average                                                               
productivity is  about 493 barrels  a day.  The  critical factors                                                               
are the size  of the field and the average  number of barrels per                                                               
well produced, he said.   He contrasted several other fields such                                                               
as Alpine and Northstar, both of which have a high ELF.                                                                         
                                                                                                                                
MR.  DICKINSON pointed  out that  it takes  Kuparuk 460  wells to                                                               
produce  about 160,000  barrels a  day as  opposed to  Alpine and                                                               
Northstar together, which  have 36 wells.  The  Kuparuk wells are                                                               
about  one-tenth as  productive as  the wells  that are  found in                                                               
Alpine  and Northstar,  and as  a consequence,  their ELF  is .2.                                                               
There are three fields that have  an ELF close to .9, which means                                                               
that their production  tax rate would be .9 times  15 percent, or                                                               
12.5 percent  for the two new  fields.  All the  other fields are                                                               
at .2  or below,  and so  they'll have a  production tax  rate of                                                               
under 3  percent.  Most of  those small fields have  a production                                                               
tax rate of zero, he added.                                                                                                     
                                                                                                                                
Number 1627                                                                                                                     
                                                                                                                                
MR. DICKINSON  reported that  slide four shows  the ELF  for Cook                                                               
Inlet  Fields,  most  of  which  have  considerably  lower  daily                                                               
production rates than  any of the fields in the  North Slope.  It                                                               
shows  the contrast  between  the  zero ELF  in  these fields  as                                                               
compared to  the North Slope, he  said.  Slide five,  "Oil ELF of                                                               
Select Oil  Fields", shows the  weighted average for  all fields.                                                               
The average  ELF jumped from  .8 up  to almost 1,  Kuparuk jumped                                                               
from .55 to .85,  and Prudhoe Bay jumped from .8  up to 1 because                                                               
the  second  exponent  was  added   to  the  ELF,  he  explained.                                                               
However, the graph then shows  how the ELF declines as production                                                               
falls.   "As the parameters  or the  input into the  ELF equation                                                               
fall, because  of the exponential relationship  between them, you                                                               
can drive the ELF  down much quicker than you would  if you had a                                                               
simpler additive  or multiplicative  relationship," he said.   He                                                               
pointed to  Northstar as an  example of a field  whose production                                                               
will fall roughly in half and at  the same time whose ELF will go                                                               
from .8  down to under  .1, essentially removing that  field from                                                               
the tax  roles.  The same  pattern is true for  Alpine fields, he                                                               
noted.                                                                                                                          
                                                                                                                                
Number 2129                                                                                                                     
                                                                                                                                
CHAIR HAWKER  stated that the  ELF formula actually has  a double                                                               
exponentiation in  it.  He asked  Mr. Dickinson if his  point was                                                               
that  "the double  exponentiation  was designed  to create  these                                                               
precipitous declines in the ELF  in relation to a somewhat lesser                                                               
decline or less proportionate decline in actual production."                                                                    
                                                                                                                                
MR. DICKINSON said he thinks that  is correct, and that they were                                                               
also designed  to make  very large  fields have  a very  high tax                                                               
rate.                                                                                                                           
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if the  ELF is working as  it was                                                               
intended when it was established.                                                                                               
                                                                                                                                
MR. DICKINSON  replied that there is  a lot of debate  about what                                                               
it was intended to establish.   Mathematically there have been no                                                               
surprises, he opined.   Small fields pay almost no  tax and there                                                               
is a proliferation of small fields.   He questioned if that would                                                               
have happened  anyway.  He  suggested that the parameters  in the                                                               
ELF formula should be looked at closely.                                                                                        
                                                                                                                                
Number 2359                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA   said,  "I  think  that   some  of  the                                                               
interaction  that's   causing  this  drop  is   because  when  we                                                               
instituted the ELF it was  really done before Alaskan fields were                                                               
mature and  we didn't  take into account  that the  new satellite                                                               
fields  were going  to  use the  existing  infrastructure as  has                                                               
occurred.  Is that part of  why the PEL [presumed economic limit]                                                               
isn't maybe accurate today or as accurate as it should be?"                                                                     
                                                                                                                                
MR. DICKINSON  said he thinks  so in the  sense that an  ELF that                                                               
ignores  production  facilities,  which are  among  the  greatest                                                               
single determinants of  the economics, would seem to be  a bit of                                                               
a misnomer.   "The kinds  of satellites  that we have  now simply                                                               
weren't contemplated," he added.                                                                                                
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked Mr. Dickinson to  explain why the                                                               
proliferation of satellites has had an unintended consequence.                                                                  
                                                                                                                                
MR. DICKINSON turned back to slide  three, the summary of the Elf                                                               
for 2003, and pointed to the  left hand column called "Unit".  At                                                               
the Colville River Unit (CRU), Alpine  is the only field, and all                                                               
production goes through  one facility, he said.   The bottom nine                                                               
fields make up  the Prudhoe Bay Unit (PBU) where  there are seven                                                               
integrated production  facilities, and  the Prudhoe Bay  field is                                                               
produced through six of those  [facilities].  Production from the                                                               
smaller satellites is  not used to calculate the  overall ELF and                                                               
each satellite  has its  own ELF calculated,  he explained.   "If                                                               
you  had taken  all those  satellite developments,  put them  all                                                               
together  in a  single  calculation, what  would  happen is,  the                                                               
overall ELF  ... there would be  a higher ELF and  the satellites                                                               
that currently  have no ELF  would jump to  an ELF very  close to                                                               
that of the  mother field, the Prudhoe Bay field,  at about .89,"                                                               
he explained.   One of the  problems is that the  definition that                                                               
defines what is  and is not a field preceded  the addition of the                                                               
second exponent.   He  said that  the question  that needs  to be                                                               
answered is:   Is granting  of this  ELF approval more  likely to                                                               
lead to  development and production?   And the answer is  yes, as                                                               
long  as there  are small  satellites that  are not  part of  the                                                               
mother field  calculations, they  will have a  low ELF,  he said.                                                               
If  they are  viewed as  extensions of  the mother  field or  the                                                               
focus  is  on how  they  are  produced,  there  might be  a  very                                                               
different answer, he concluded.                                                                                                 
                                                                                                                                
Number 3025                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA,  responding to the statement  that it is                                                               
more likely  to lead  to development,  asked if  that was  out of                                                               
statute or  regulation.  She asked  if that would always  lead to                                                               
giving a  lower ELF  because low  tax would  always lead  to more                                                               
development.                                                                                                                    
                                                                                                                                
MR. DICKINSON  replied that it is  in regulation.  In  statute it                                                               
is called  "economic interdependence".   He said he  believes the                                                               
criteria, as applied now, are  appropriate and reflect the intent                                                               
of the initial ELF.                                                                                                             
                                                                                                                                
REPRESENTATIVE KERTTULA  asked if  zero tax  would always  be the                                                               
best for spurring development, but may not be appropriate.                                                                      
                                                                                                                                
MR.  DICKINSON said  that  there are  several  criteria, and  one                                                               
would have to  ask, "Would granting it be sufficient  to stop the                                                               
project as opposed to not granting it?"                                                                                         
                                                                                                                                
REPRESENTATIVE KERTTULA said she would look at the regulations.                                                                 
                                                                                                                                
CHAIR HAWKER noted the arrival of Representative Berkowitz.                                                                     
                                                                                                                                
Number 3257                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON wondered  what the  definition of  a field                                                               
is, and  asked for clarification  of whether a well  at different                                                               
depths could be considered different fields.                                                                                    
                                                                                                                                
MR. DICKINSON  replied that Representative Seaton  has discovered                                                               
"the dirty  little secret  in the  ELF debate."   He  pointed out                                                               
that  the   word  "fields"   does  not   appear  in   statute  or                                                               
regulations.  Instead, "a lease or  property" is used.  A problem                                                               
is  getting to  a fundamental  definition  of "what  it is  we're                                                               
looking at," he  said.  There is interplay between  the legal and                                                               
geological considerations, which is a problem, he opined.                                                                       
                                                                                                                                
CHAIR  HAWKER stated  that there  is clearly  statutory authority                                                               
for the  segregation of  these leases or  properties into  two or                                                               
more parts.                                                                                                                     
                                                                                                                                
Number 3620                                                                                                                     
                                                                                                                                
MR. DICKINSON  replied that there is  clearly statutory authority                                                               
provided  that the  state's  economic  interdependence is  there.                                                               
You could argue the definition,  but the regulation has attempted                                                               
to come close to legislative intent, he said.                                                                                   
                                                                                                                                
MR.  DICKINSON, continuing  with  the discussion  of the  slides,                                                               
referred to  the "Spring  2004 Projection  of Oil  Revenue" slide                                                               
[page 7].   He pointed  out that the  numbers on the  fiscal note                                                               
reflect DOR's  fall forecast, whereas  the numbers on  this slide                                                               
more accurately  reflect the spring  forecast.  He said  that the                                                               
governor  has established  a goal  of  increasing production,  "a                                                               
goal  we  all share",  for  eventual  revenues.   There  are  two                                                               
possible effects worth analyzing looking  at the effect of HB 441                                                               
on  future revenues,  he said.   The  slide shows  the effect  of                                                               
changing the  ELF parameters as  found in  the bill.   The bottom                                                               
section  is the  total  revenue of  oil and  gas  found in  DOR's                                                               
spring  forecast, and  above that  are  the additional  projected                                                               
revenues from HB  441, he said.  Prices are  well above the long-                                                               
term average in 2005 and 2006,  and starting in 2007 the price of                                                               
$22 a  barrel is used,  which is the predicted  long-run average,                                                               
he explained.   The first two years show an  increase of about 18                                                               
percent of  the total  revenues that would  be generated,  but by                                                               
2020 it is only a 3 percent increase.                                                                                           
                                                                                                                                
Number 4128                                                                                                                     
                                                                                                                                
MR. DICKINSON  continued to explain that  the second possibility,                                                               
which Alaska  Oil and Gas  Association (AOGA) spoke about  at the                                                               
previous  meeting, is  that a  tax increase  "could be  the straw                                                               
that  broke  the  camel's  back"   because  it  would  crowd  out                                                               
investment  and prevent  production.   The question  would be  if                                                               
[the state] would end up with less revenue than before, he said.                                                                
                                                                                                                                
CHAIR HAWKER  asked about  the variable  and fixed  components of                                                               
the  matrix Mr.  Dickinson is  using.   He asked,  "Is production                                                               
presumed to be fixed and the only variable, price?"                                                                             
                                                                                                                                
MR. DICKINSON  replied, "Everything in  there is exactly  what it                                                               
is in  our spring forecast".   It is a price  variation the first                                                               
two  years and  $22 a  barrel  thereafter, and  the volumes  will                                                               
decline.                                                                                                                        
                                                                                                                                
CHAIR HAWKER  said it is an  interactive model of both  price and                                                               
volume.                                                                                                                         
                                                                                                                                
MR.  DICKINSON said  yes,  and  it is  comparable  to the  spring                                                               
forecast.                                                                                                                       
                                                                                                                                
CHAIR HAWKER reported that he is  seeing some head shaking in the                                                               
room from  industry members.   He  asked Mr.  Dickinson if  he is                                                               
certain  that  this is  a  model  that  reflects both  price  and                                                               
volume.                                                                                                                         
                                                                                                                                
MR. DICKINSON replied  that he believes it does and  all that has                                                               
been changed  are the ELF  parameters.  He  said it is  the total                                                               
revenue received, so  that it does include  royalty dollars going                                                               
to the  permanent fund, "but that  would just be the  very bottom                                                               
layer," he said.   Referring to the oil  industry's comments from                                                               
the  previous meeting  about breaking  down where  these revenues                                                               
would come from, Mr. Dickinson pointed  to the slide to show that                                                               
the dollars  from Prudhoe  Bay start  out being  very significant                                                               
due to  high volume and  high price and  then tend to  fade away.                                                               
The new fields,  Alpine and Northstar, generate  high dollars and                                                               
then,  as  the  price  falls  to $22  a  barrel,  less  money  is                                                               
generated, he  said.  He pointed  out that there is  an ELF floor                                                               
in HB  441, and if a  field is above  the floor, the bill  has no                                                               
effect on  the amount collected at  a normal price.   There would                                                               
be very  few dollars that  come out  of Alpine and  Northstar for                                                               
about  ten years  until they  hit the  ELF floor,  and then  more                                                               
dollars would be collected.                                                                                                     
                                                                                                                                
Number 4549                                                                                                                     
                                                                                                                                
MR. DICKINSON reported that the  category [on page 7], "Currently                                                               
producing  low ELF  fields", concerns  mostly  Kuparuk and  other                                                               
satellite fields,  and said that  a fair amount of  dollars would                                                               
be picked up  from them.  The  very top line deals  with how much                                                               
new revenue  would come  from new  oil, investments  that haven't                                                               
been made  yet, he explained.   There is  no change in  the first                                                               
couple  of years,  but over  several  years tens  of millions  of                                                               
dollars will be generated from this  source under this bill.  The                                                               
question  is,  "Are  those  numbers   ones  that  are  likely  to                                                               
discourage investment at the margin?" he asked.                                                                                 
                                                                                                                                
TAPE 04-24, SIDE B                                                                                                            
Number 4626                                                                                                                     
                                                                                                                                
MR. DICKINSON, turning  to slide eight, "New Oil  as a Percentage                                                               
of  Projected  Oil", reported  that  by  2015, one-third  of  the                                                               
production  will  come  from  new   fields.    Slide  nine  is  a                                                               
historical record  of how much is  invested and how much  will be                                                               
needed just to  meet the production forecast, he  explained.  The                                                               
amount goes from  under a billion dollars, up to  over $2 billion                                                               
in  order to  make the  production  forecast come  out, he  said.                                                               
"Are the  incremental dollars  produced under  [HB 441]  going to                                                               
discourage production?" he  asked.  He said that  is the question                                                               
that both Representative Gara and the oil industry were framing.                                                                
                                                                                                                                
MR. DICKINSON  pointed out  that one of  the shortcomings  of the                                                               
current production tax is that  fact that none of the investments                                                               
shown  on  slide  9 affects  the  amount  of  tax  paid.   It  is                                                               
calculated on  the gross  value of the  production, which  is how                                                               
much it is sold  for, less the cost of getting it  there.  All of                                                               
the  upstream  production facilities  are  not  included in  that                                                               
deduction,  he  said.    "So   there's  billions  of  dollars  in                                                               
investments that  are required and  we don't recognize it  in our                                                               
production tax  system," he reported.   "We are fairly  unique in                                                               
the world  in doing that.   Most places  encourage reinvestment,"                                                               
he added.   "It doesn't make sense to simply  raise taxes so that                                                               
the folks  harvesting and  not reinvesting are  going to  pay the                                                               
same  additional  tax burden,  and  under  this bill  that  would                                                               
happen," he opined.                                                                                                             
                                                                                                                                
CHAIR  HAWKER  asked Mr.  Dickinson  to  define and  discuss  the                                                               
"point of production" concept.                                                                                                  
                                                                                                                                
MR. DICKINSON explained that the  point of production is when the                                                               
oil is fully processed into a  quality that can be delivered to a                                                               
pipeline after  the water, gas,  and oil  are separated out.   He                                                               
mentioned Representative  Gara's discussion  about Tarn  Field at                                                               
the last  meeting and noted  that the  well fluids coming  out of                                                               
Tarn go  through a pipe  for miles  before getting hooked  into a                                                               
production facility  to be produced.   None of the  investment in                                                               
that  process is  deductible because  it is  all upstream  of the                                                               
point  of  production   and  does  not  form  part   of  the  tax                                                               
calculation, he  explained.   Tarn's production  point is  at the                                                               
Kuparuk production  facility, and  only when  Tarn oil  goes into                                                               
the Kuparuk pipeline  is it taxable.  The same  thing is true for                                                               
many of  the satellites,  he said.   About  $10 billion  worth of                                                               
investment on  the North Slope that  is upstream of the  point of                                                               
production, he added.                                                                                                           
                                                                                                                                
Number 4000                                                                                                                     
                                                                                                                                
CHAIR HAWKER asked Mr. Dickinson about  the amount of time in the                                                               
past that he has spent defining point of production.                                                                            
                                                                                                                                
MR. DICKINSON said  it was an issue in several  royalty cases and                                                               
in several  tax cases.   "It becomes critical when  you're trying                                                               
to define the distinction between gas  and oil, at what point you                                                               
have gas  produced from  oil," he  explained.  He  said a  lot of                                                               
dollars are  tied up  with this definition,  which is  not always                                                               
clear  because  of  problems with  language  in  older  statutes.                                                               
Technology  has  moved  at  a  more rapid  pace  than  the  legal                                                               
documents and the statutory underpinnings, he concluded.                                                                        
                                                                                                                                
CHAIR HAWKER cautioned that it is not a precise science.                                                                        
                                                                                                                                
MR. DICKINSON agreed  that it is not.  He  referred next to slide                                                               
ten, which  shows how the  price factor  is involved in  the ELF.                                                               
"The price mechanism in this bill  makes a lot of sense if you're                                                               
looking  for   ways  of  taking  advantage,   currently,  of  the                                                               
extraordinary high  prices we have  now," he said.   DOR's fiscal                                                               
system does not  reflect price sensitivity, which  is what drives                                                               
profits  found  in  many  international   systems.    Before  the                                                               
volumetric portions  of the  ELF are applied,  the "red  line" on                                                               
the  graph shows  how  much  tax would  be  added  per barrel  at                                                               
various prices.   As prices increase, the state  would take more,                                                               
he related.  At prices in the  $17 range, there would be no price                                                               
adjustment, at  lower prices less  would be taken, and  at higher                                                               
prices,  more  tax  would  be  taken.    On  paper  that  appears                                                               
symmetrical, but in realty it is not, he added.                                                                                 
                                                                                                                                
Number 3517                                                                                                                     
MR.  DICKINSON,  turning  to  slide  11,  reported  that  in  the                                                               
members' packets is  a longer version of this slide.   He focused                                                               
on the second paragraph of  the slide that says, "Chief Executive                                                               
Lord Browne said that a $20  oil price would allow the company to                                                               
meet  its capital  requirements and  pay a  progressive dividend,                                                               
and that all the free cash  generated when the oil price is above                                                               
that level  would be returned to  shareholders through buybacks."                                                               
Mr.  Dickinson said  that what  [Lord Browne]  is saying  is that                                                               
[British Petroleum  (BP)] can get  all of the  investments needed                                                               
to  continue to  grow and  pay a  dividend at  $20 a  barrel, and                                                               
anything   above   that  amount   could   be   returned  to   the                                                               
shareholders.   He said that his  point is that BP  believes that                                                               
the prices of  oil today are so extraordinary that  it warrants a                                                               
change in their  relationship with their shareholders.   He noted                                                               
that  in 2004,  BP  has spent  $1.25  billion repurchasing  their                                                               
shares.   He stated that  companies are looking at  these current                                                               
prices and saying,  "Do our old policies work?"   He opined it is                                                               
appropriate that the committee also ask those questions.                                                                        
                                                                                                                                
Number 3207                                                                                                                     
                                                                                                                                
CHAIR HAWKER asked Mr. Dickinson to  talk about the other side of                                                               
the equation - if the market were to go way down.                                                                               
                                                                                                                                
MR. DICKINSON  replied that if  the market  were to go  way down,                                                               
the  state would  not get  much  revenue.   Because the  upstream                                                               
production costs  are not  considered part  of the  deduction for                                                               
the severance  tax and are fixed,  but are part of  the deduction                                                               
for  royalties,  there  is  a situation  where  even  though  the                                                               
company will be  making no money on the field,  the state will be                                                               
taking 105  percent of  the profits from  that field  because the                                                               
production  tax looks  only  at what  the oil  sold  for, less  a                                                               
deduction  for some  of the  costs, he  explained.   The property                                                               
tax,  because it  looks at  the  value of  the asset  and at  the                                                               
probability that the  price will rebound, is not  written down to                                                               
zero.   The income  tax will be  lower when the  price of  oil is                                                               
low,  but because  of  the way  the tax  works  and because  some                                                               
companies are  integrated, the downstream activities  such as gas                                                               
stations  and  refining  operations   are  included  and  may  be                                                               
profitable,  he related.   "Mechanically,  speaking,  at the  low                                                               
end, we are a terrible place to do business," he concluded.                                                                     
                                                                                                                                
Number 2907                                                                                                                     
                                                                                                                                
CHAIR HAWKER  asked Mr.  Dickinson to  explain more  about taxing                                                               
the downstream  activities and  whether only  those in  the state                                                               
are taxed.                                                                                                                      
                                                                                                                                
MR. DICKINSON replied,  "Not just in the state."   He pointed out                                                               
that  there are  no ExxonMobil  Corporation gas  stations in  the                                                               
state, but  Alaska shares in  some of the profitability  of those                                                               
gas stations.   Alaska  looks at  Exxon's worldwide  profits, and                                                               
then taxes  only those products from  that pool that are  made in                                                               
Alaska, he explained.   There is an  apportionment formula, which                                                               
looks  at  production  factors   such  as  property,  sales,  and                                                               
production, and  weights them equally,  averages them,  and comes                                                               
up with  a factor which is  applied to the world-wide  income, he                                                               
continued.  It  does not recognize that the assets  in Alaska are                                                               
primarily production assets, he added.                                                                                          
                                                                                                                                
CHAIR HAWKER called it the "income  tax factor in the state's tax                                                               
regime."                                                                                                                        
                                                                                                                                
MR. DICKINSON agreed.                                                                                                           
                                                                                                                                
REPRESENTATIVE  KERTTULA  asked  if  the  cost  of  the  upstream                                                               
development is part of the royalty.                                                                                             
                                                                                                                                
Number 2459                                                                                                                     
                                                                                                                                
MR. DICKINSON  replied, "What you  have in Prudhoe Bay  is what's                                                               
called a field cost factor."  It  is used to figure out the value                                                               
of the royalties  at a point similar to the  point of production,                                                               
and then  deducts a straight amount  of 88 cents per  barrel.  He                                                               
said that the  new fields don't have a field  cost factor because                                                               
of negotiations with the Department of Natural Resources (DNR).                                                                 
                                                                                                                                
REPRESENTATIVE KERTTULA asked, in  terms of the new apportionment                                                               
system, what is allowed for deductions on a worldwide basis.                                                                    
                                                                                                                                
MR. DICKINSON  replied that  anything that  is allowed  under the                                                               
federal income tax  code is allowed for deduction.   The upstream                                                               
costs are  deductible for the purposes  of the income tax.   "The                                                               
important point here is, if  ... a multinational company spends a                                                               
dollar in  operation costs  in Alaska upstream,  and a  dollar in                                                               
their operations  in Kazakhstan, that  dollar will have  the same                                                               
effect  on the  Alaska  income tax,"  he noted.    All costs  are                                                               
recognized, he added.                                                                                                           
                                                                                                                                
REPRESENTATIVE KERTTULA asked, "All costs everywhere?"                                                                          
                                                                                                                                
MR.  DICKINSON  said, "That's  correct."    The way  profits  are                                                               
calculated worldwide is that worldwide  costs are subtracted from                                                               
worldwide revenues.                                                                                                             
                                                                                                                                
Number 2215                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if  one of  the three  factors is                                                               
employment.                                                                                                                     
                                                                                                                                
MR. DICKINSON said no  it isn't, but it used to  be, and for non-                                                               
oil  and  gas  companies  that   is  the  third  factor  and  the                                                               
traditional way  it was  done up until  recently in  most states.                                                               
When  the  state shifted  from  separate  accounting to  modified                                                               
apportionment, the  payroll factor was removed  and replaced with                                                               
the production factor, he said.                                                                                                 
                                                                                                                                
Number 2133                                                                                                                     
                                                                                                                                
REPRESENTATIVE LES  GARA, Alaska  State Legislature,  speaking as                                                               
the  sponsor   of  HB  441,   pointed  out  that   former  deputy                                                               
commissioner Vogt's opinion at the  previous meeting was that one                                                               
of the  importance's of focusing  on the production tax  was that                                                               
the  corporate tax  has become  irrelevant.   He noted  that last                                                               
year there were about $600  million in production taxes, but only                                                               
$150  million in  corporate  taxes.   He  posited a  hypothetical                                                               
situation where BP invests in  a very large project in Kazakhstan                                                               
and asked  if BP gets  to deduct  those expenses from  the Alaska                                                               
corporate tax.                                                                                                                  
                                                                                                                                
MR. DICKINSON  said, "They  get to deduct  those costs  when they                                                               
calculate  their  worldwide  income,  and  then  their  worldwide                                                               
income is translated into Alaska tax  ... so it's not a deduction                                                               
for  their Alaska  taxes,  but  it is  a  deduction  that can  be                                                               
calculated in  their worldwide income  that feeds into  the tax."                                                               
He observed  that there is a  bit of circularity here.   "We say,                                                               
gee, we  shouldn't focus on the  income tax because it's  a minor                                                               
part  of the  picture,  and then  we  also say,  gee,  we have  a                                                               
regressive  tax that  should become  more  progressive.   There's                                                               
nothing written in stone that says  we have to get three times as                                                               
much from our  production tax as from our income  tax."  He noted                                                               
that the  production tax could  be made more progressive.   "Part                                                               
of what  we've done  here is  try to make  the 9.4  percent apply                                                               
across  the board  to oil  and gas  companies, as  well as  other                                                               
companies,"  he  added.    A   consequence  of  that  is  a  less                                                               
progressive system than is possible, he concluded.                                                                              
                                                                                                                                
REPRESENTATIVE GARA  opined that  many people  feel that  the 9.4                                                               
percent income tax  is much lower in  real terms.  He  said he is                                                               
looking at  Mr. Logsdon's  sheet of what  oil company  profits on                                                               
North  Slope  oil are,  and  he  asked  what last  fiscal  year's                                                               
average annual ANS oil price was.                                                                                               
                                                                                                                                
MR. DICKINSON said $28.15.                                                                                                      
                                                                                                                                
REPRESENTATIVE  GARA said  at $28  [a  barrel] corporate  profits                                                               
were  about $2.8  billion from  North Slope  oil last  year.   He                                                               
supposed  that if  there was  a flat,  true corporate  income tax                                                               
that  just reflected  Alaska corporate  profits, the  state would                                                               
have taken in $280 million in corporate taxes.                                                                                  
                                                                                                                                
MR. DICKINSON  said he has not  done the math and  wished to look                                                               
something up.                                                                                                                   
                                                                                                                                
Number 1800                                                                                                                     
                                                                                                                                
CHUCK   LOGSDON,  Chief   Petroleum   Economist,  Tax   Division,                                                               
Department of  Revenue (DOR), replied that  Representative Gara's                                                               
figures sound about right at 9.4 percent.                                                                                       
                                                                                                                                
REPRESENTATIVE GARA  said he  is just trying  to figure  out what                                                               
the true  corporate income tax  is, and he calculated  the amount                                                               
to be  only about a "5  percent corporate income" if  only Alaska                                                               
profits were taxed.   He asked Mr. Logsdon if that  is a fair way                                                               
to look at it.                                                                                                                  
                                                                                                                                
MR. LOGSDON  replied, "It would  be one way, however,  you've got                                                               
to be very careful in making  that direct comparison."  The final                                                               
number seen  in the books really  is affected by a  lot of timing                                                               
issues.   The companies  make estimated  payments on  a quarterly                                                               
basis and there are  carry-forwards, amendments, and adjustments,                                                               
he explained.                                                                                                                   
                                                                                                                                
MR.  DICKINSON added  that in  2001, for  example, the  total was                                                               
$338 million [in corporate taxes].                                                                                              
                                                                                                                                
MR. LOGSDON  continued to  explain that it  is difficult  to make                                                               
that straightforward  calculation because there is  not a perfect                                                               
symmetry between expenditures and  revenues statewide, as opposed                                                               
to worldwide.  That doesn't occur,  he said.  He pointed out that                                                               
when  the law  was changed  in 1981  to go  to the  apportionment                                                               
method, it  was recognized that  a modified  apportionment method                                                               
would  have  less  fiscal horsepower  than  separate  accounting.                                                               
That  was  one  reason  that  the rate  on  severance  taxes  was                                                               
increased to 15 percent for older  fields.  The change in the ELF                                                               
in 1989 caused some evening out over time, he concluded.                                                                        
                                                                                                                                
CHAIR HAWKER asked Mr. Dickinson to  follow up on the point about                                                               
the difficulty and fallacy of looking  at the numbers for a given                                                               
year and presuming that they  reflect the actual operation of the                                                               
industry for that year.                                                                                                         
                                                                                                                                
Number 1300                                                                                                                     
                                                                                                                                
MR. DICKINSON  related that the  numbers in the graph  are fiscal                                                               
year numbers  and are different  from what happens in  a calendar                                                               
year when a company has to  make four annual payments, which show                                                               
up  on the  state  books.   From  year  to  year, companies  make                                                               
estimated   payments,   sometimes    overpaying   and   sometimes                                                               
underpaying,  adjusting every  quarter.    The other  interesting                                                               
thing that  is happening, which  makes it very dangerous  to look                                                               
at corporate numbers  from the last three to four  years, is that                                                               
the three largest tax payers,  the three largest lease holders in                                                               
the  state, have  all undergone  significant merger  activity, he                                                               
explained.   In  a merger  the factors  change and  the pool  may                                                               
double, but the Alaska factor may  remain the same, he added.  He                                                               
listed several  mergers where this  has happened.  "Trying  to do                                                               
analysis from  the annual  receipts over  the last  several years                                                               
isn't  necessarily going  to lead  you to  good conclusions,"  he                                                               
opined.                                                                                                                         
                                                                                                                                
REPRESENTATIVE GARA,  referring to  the earlier  discussion about                                                               
whether the  PEL has a  fair relation to economic  reality, asked                                                               
about Kuparuk,  the second  largest field in  North America.   He                                                               
mentioned that  Kuparuk pays  only about  a 3  percent production                                                               
tax, and wondered if that suggests  to Mr. Dickinson that the ELF                                                               
needs to be updated.                                                                                                            
                                                                                                                                
MR. DICKINSON noted  that on slide four  Kuparuk's production per                                                               
well  is 343  barrels per  day  and the  PEL is  designed at  300                                                               
barrels a day to pay no tax, so  it is very close to that margin.                                                               
"I believe that  something that focuses on  the well productivity                                                               
and  ignores the  assessment needed  for the  production facility                                                               
shouldn't be called  an economic limit factor  because it doesn't                                                               
deal with true economics," he said.                                                                                             
                                                                                                                                
Number 0805                                                                                                                     
                                                                                                                                
MR. DICKINSON  turned to  the last slide  [page 12],  which shows                                                               
the ELF under  the current system and under the  proposed HB 441.                                                               
He observed  that in HB  441, in the  first two years,  the price                                                               
drives  the  ELF higher,  and  after  that  the two  ELFs  remain                                                               
essentially parallel.  What you see  is a decline in Prudhoe Bay,                                                               
and North Star  and Alpine go on unabated.   The problem in terms                                                               
of  oil and  gas revenues  continuing to  fall will  continue, he                                                               
said.   He wondered if companies  will invest if they  don't know                                                               
what the tax system is going to  be.  He emphasized that the part                                                               
of  the reform  that  is  needed to  get  the  extra billions  of                                                               
investment  dollars  to   meet  the  forecast  or   to  meet  the                                                               
governor's goal  of increasing production,  is stability  in [the                                                               
state's] fiscal  environment.  He  suggested thinking  about this                                                               
bill  in  terms  of  an  overall fiscal  plan,  which  will  make                                                               
investment more likely, he opined.                                                                                              
                                                                                                                                
Number 0519                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  asked for  clarification about  slide ten.                                                               
He wondered if  at $36 a barrel  the tax per barrel as  it is now                                                               
would be $4 and it would be $8 under HB 441.                                                                                    
                                                                                                                                
MR.  DICKINSON said  that is  correct.   "Roughly speaking  where                                                               
there is $4  on the lower line,  it would be closer to  $7 on the                                                               
upper line," he explained.                                                                                                      
                                                                                                                                
REPRESENTATIVE  GARA  said  he  appreciates  the  fact  that  Mr.                                                               
Dickinson has said for years that  the state needs a fiscal plan.                                                               
He imagined that a miracle happened  and the state came up with a                                                               
sustainable  fiscal plan  that  let the  oil  companies know  the                                                               
state  had enough  revenue  coming into  the  state from  non-oil                                                               
sources and a  major change to the tax structure  like HB 441 was                                                               
made.   He asked if  that would stabilize the  investment climate                                                               
in the state.                                                                                                                   
                                                                                                                                
MR. DICKINSON,  turning back  to slide seven  to show  what might                                                               
happen if there  are new developing fields, said  he thinks there                                                               
is  a fair  argument to  be  made "if  you compare  that to  some                                                               
notion  of fiscal  certainty  and  you might  get  a more  stable                                                               
environment."  He said he  believes that one that also recognizes                                                               
the investments  that need  to be made  and discriminates  in the                                                               
tax  system,  encouraging  the investment  and  discouraging  the                                                               
expatriation  of profit,  is  more likely  to  have a  beneficial                                                               
effect on the investment environment.                                                                                           
                                                                                                                                
REPRESENTATIVE GARA said that one of  the points that he made the                                                               
other day was that some of  the largest fields in the country are                                                               
some of  the zero production fields  like Endicott.  He  said his                                                               
point the other day was that it  seemed "out of whack" to have no                                                               
production tax on these large fields.   One of the fields that he                                                               
mentioned,  he said,  was  a  heavy oil  field,  West Sak,  which                                                               
should be paying a  zero percent tax.  He said  he didn't mean to                                                               
include heavy  oil fields in  his statement.  However,  there are                                                               
too  many zero  production  tax  fields that  are  not heavy  oil                                                               
fields, he emphasized, such as Endicott and Tarn.                                                                               
                                                                                                                                
TAPE 04-25, SIDE A                                                                                                            
Number 0023                                                                                                                     
                                                                                                                                
REPRESENTATIVE GARA spoke about the  indecision to exempt the oil                                                               
fields south of  Cook Inlet and said he had  hoped there would be                                                               
more  hearings on  the bill  to resolve  that question.   Another                                                               
question  that needs  to be  resolved  is, "Does  a zero  percent                                                               
production tax  make sense  on heavy  oil," he  said.   Those two                                                               
issues are not  that complex and won't have  a significant impact                                                               
on  the   bill,  he  opined.     Referring  to   Mr.  Dickinson's                                                               
presentation,  Representative Gara  stated,  "He's doing  exactly                                                               
what he has  to do, which is,  we have to forecast  what we think                                                               
the projected prices  are going to be in the  future, so that all                                                               
the charts from  DOR assume a $22  a barrel real oil  price."  He                                                               
related that  the prediction from  the Department of  Energy that                                                               
in the next 20 years oil will be $50 a barrel was unexpected.                                                                   
                                                                                                                                
CHAIR HAWKER  noted that  there was a  newspaper article  to that                                                               
effect in the members' packets.                                                                                                 
                                                                                                                                
REPRESENTATIVE  GARA  continued  to  say  that  assuming  [$50  a                                                               
barrel] to  be correct,  there would  be many  more years  in the                                                               
future at  high oil  prices with an  imbalance of  higher company                                                               
profits and  lower state  revenue.  The  revenue generated  by HB                                                               
441 would be much larger,  assuming that the Department of Energy                                                               
is correct.   He stated,  "I've been  here for fifteen  years and                                                               
watched every  single oil price  projection be wrong, so  I think                                                               
it's  fair to  assume that  every  oil price  projection will  be                                                               
wrong."                                                                                                                         
                                                                                                                                
MR. DICKINSON  recalled an  article from  fifteen years  ago that                                                               
predicted that oil prices would be over $100 a barrel now.                                                                      
                                                                                                                                
CHAIR HAWKER  recalled that  the great topic  of debate  30 years                                                               
ago was, "What are we going to do  in ten years when the oil runs                                                               
out?"    He  noted  that  Representative  Samuels  had  raised  a                                                               
question about the Alaska oil-taxing  regime.  He asked how other                                                               
major gas and oil states approach the same issues.                                                                              
                                                                                                                                
Number 0405                                                                                                                     
                                                                                                                                
MR.  DICKINSON deferred  to Mr.  Logsdon for  the specifics,  but                                                               
said that  no other state is  nearly as dependent on  the oil and                                                               
gas  revenues as  Alaska is.   The  other states  tend to  have a                                                               
broad range of taxes, he added.                                                                                                 
                                                                                                                                
MR. LOGSDON  replied that Alaska  is very similar to  the systems                                                               
in other  states.  Thirty-eight  states have oil  severance taxes                                                               
with  multiple rate  structures,  and most  have property  taxes.                                                               
Not too  many states have  the amount  of state land  that Alaska                                                               
has  so the  royalties in  many other  states are  often paid  to                                                               
private  landowners, not  public  landowners, he  related.   Most                                                               
states have corporate  income taxes, he added.  He  said that the                                                               
main difference is that not many  other states have a Prudhoe Bay                                                               
in their back yard on state  land and are incredibly dependant on                                                               
the money that oil generates.                                                                                                   
                                                                                                                                
Number 0600                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SAMUELS  asked  if  other states  have  the  same                                                               
mechanisms for calculating their income taxes.                                                                                  
                                                                                                                                
MR. LOGSDON  said yes, most of  them do.  They  have some version                                                               
of a corporate  income tax that uses apportionment  factors.  The                                                               
factors may vary, he added.                                                                                                     
                                                                                                                                
CHAIR   HAWKER  asked   if  the   other   states  use   worldwide                                                               
apportionment or something more narrowly focused.                                                                               
                                                                                                                                
MR.  LOGSDON  deferred to  Mr.  Dickinson,  but  said it  is  his                                                               
understanding that  most of  them use what  is called  a "water's                                                               
edge" approach.                                                                                                                 
                                                                                                                                
MR.  DICKINSON said  that  is correct.   Only  a  few states  use                                                               
worldwide apportionment.   He said he  is not aware of  any other                                                               
state that has  a separate set of allocation factors  for oil and                                                               
gas.                                                                                                                            
                                                                                                                                
Number 0803                                                                                                                     
                                                                                                                                
CHAIR HAWKER shared  his concluding thoughts on HB 441.   He said                                                               
that the  last two days  of hearings have identified  the breadth                                                               
and depth of  the complexities of this issue.   He summarized the                                                               
presentations and  thanked Representative Gara for  his extremely                                                               
productive presentation.                                                                                                        
                                                                                                                                
CHAIR HAWKER announced that the hearing  on HB 441 was closed and                                                               
that the bill would be held over.                                                                                             
                                                                                                                              
HB 493-LONG TERM FISCAL PLAN                                                                                                  
                                                                                                                                
Number 1120                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  final order of business would be                                                               
HOUSE BILL NO. 493, "An Act  relating to adoption and revision of                                                               
a long-term fiscal plan for the State of Alaska."                                                                               
                                                                                                                                
REPRESENTATIVE  GRUENBERG,  speaking  as cosponsor,  stated  that                                                               
there  is a  new  committee  substitute (CS)  for  HB 493,  which                                                               
requires   the   legislature  in   future   years   to  adopt   a                                                               
comprehensive long-range  fiscal plan.  The  proposed CS attempts                                                               
to  incorporate  comments  from   Representative  Ogg  and  Chair                                                               
Hawker, he noted.  He  said a concurrent resolution introduced by                                                               
Representative  Whitaker in  the  previous  legislature was  also                                                               
looked at and parts were included in the proposed CS.                                                                           
                                                                                                                                
Number 1220                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to adopt  the proposed CS  for HB                                                               
441,  Version 23-LS1765\H,  Utermohle,  3/18/04,  as the  working                                                               
document.                                                                                                                       
                                                                                                                                
REPRESENTATIVE WEYHRAUCH objected for discussion purposes.                                                                      
                                                                                                                                
REPRESENTATIVE  GRUENBERG  explained  that  [Section  1]  of  the                                                               
proposed  CS  lists a  number  of  the constitutionally  required                                                               
state mandates, including, but not  limited to, public health and                                                               
welfare,  providing for  public education,  and the  utilization,                                                               
development,  and  conservation  of  natural  resources.    Other                                                               
requirements indicated,  as well,  are that the  state government                                                               
must provide for public safety,  the construction and maintenance                                                               
of public  facilities and transportation,  and the  protection of                                                               
the  environment, he  said.   A lot  of that  language came  from                                                               
Representative Whitaker's resolution, he noted.                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG referred  to page 2, lines 6  and 7, and                                                               
said,  "to  carry  out  the  responsibilities,  we  must  have  a                                                               
reasonable  level of  expenditures  to finance  the operation  of                                                               
state government."  He paraphrased  the language in [paragraph 3]                                                               
was  made   more  accurate   as  a   result  of   Chair  Hawker's                                                               
suggestions, and  he paraphrased, "significant  disparity between                                                               
the   revenue   sources   currently  being   utilized   and   the                                                               
expenditures necessary  to maintain  a reasonable level  of state                                                               
services."   In [paragraph 4]  the original language  "by drawing                                                               
against the  balance of  the budget reserve  fund" was  added, he                                                               
said.   In  [paragraph  5] it  says the  budget  reserve fund  is                                                               
rapidly declining  and [the state]  needs to have a  sound fiscal                                                               
plan, and in [paragraph 6] it  says there's not a simple solution                                                               
and that  [the state]  must have  [a plan]  that is  balanced and                                                               
fair to  all Alaskans, he  related.   He noted that  the language                                                               
was  made a  little more  accurate.   [Paragraph 7]  says that  a                                                               
long-range fiscal  plan will  encourage the  discipline necessary                                                               
to insure  the budget remains  balanced and properly  planned for                                                               
the future,  and finally, [paragraph  8] says  the implementation                                                               
of  a comprehensive  long-range fiscal  plan will  help stabilize                                                               
the state's economy and level  out its historical pattern of boom                                                               
and bust cycles, he said.                                                                                                       
                                                                                                                                
Number 1408                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG explained that  Section 2, which was the                                                               
heart  of the  bill,  was beefed  up  a little  bit.   The  first                                                               
sentence remains the same except it  is made clear that it is the                                                               
current  fiscal year  and the  next four  fiscal years,  he said.                                                               
The  next  two   sentences  [lines  27-31]  are   new,  he  said.                                                               
[Subsection (b) on  page 3] was left pretty much  the way it was,                                                               
except that  [paragraph (3)] is broken  out so it reads  a little                                                               
clearer  dealing with  the  permanent  fund, inflation  proofing,                                                               
dividend, and  the flexibility to  determine the  appropriate use                                                               
of the remaining earnings of the fund, he reported.                                                                             
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  withdrew  his  objection  to  adopting                                                               
Version  H.   There being  no  further objection,  Version H  was                                                               
adopted as the working document.                                                                                                
                                                                                                                                
CHAIR HAWKER requested that the members take Version H                                                                          
into consideration for a future meeting.                                                                                        
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked that the committee  move the bill                                                               
today.                                                                                                                          
                                                                                                                                
CHAIR  HAWKER replied  that he  is personally  uncomfortable with                                                               
the unspecific language regarding  adopting and annually revising                                                               
a long-range fiscal  plan.  He said he is  still not certain what                                                               
that would  be and who would  be responsible for that.   He noted                                                               
that  it takes  five affirmative  votes  to move  this bill  from                                                               
committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested that  it takes the majority of                                                               
the members present as long as there is a quorum.                                                                               
                                                                                                                                
CHAIR HAWKER deferred to Representative Gruenberg's judgment.                                                                   
                                                                                                                                
Number 1740                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  moved  to   report  CSHB  493  out  of                                                               
committee with individual recommendations.                                                                                      
                                                                                                                                
CHAIR HAWKER objected.                                                                                                          
                                                                                                                                
Number 1920                                                                                                                     
                                                                                                                                
A roll  call vote was  taken.  Representatives  Weyhrauch, Moses,                                                               
Samuels, and  Gruenberg voted  in favor of  the motion  to report                                                               
CSHB 493 out  of committee.  Representative  Hawker voted against                                                               
it.   Therefore, CSHB 493 was  reported out of the  House Special                                                               
Committee on Ways and Means by a vote of 4-1.                                                                                   
                                                                                                                                
CHAIR HAWKER  noted that this  motion is  subject to a  ruling on                                                               
how many members it takes to report a bill out of committee.                                                                    
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  said he plans  to check "amend"  on the                                                               
report  because the  bill is  more  similar to  a resolution,  as                                                               
opposed to a statute, he opined.                                                                                                
                                                                                                                                
[Due to  a majority of  committee members not being  present, the                                                               
motion to report  CSHB 493 was rescinded and voted  upon again on                                                               
April 21, 2004.]                                                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee on  Ways and  Means meeting  was adjourned  at                                                               
9:00 a.m.                                                                                                                       

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