Legislature(2005 - 2006)BELTZ 211
04/20/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB171 | |
| HB229 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 171 | TELECONFERENCED | |
| + | HB 229 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
April 20, 2005
1:32 p.m.
MEMBERS PRESENT
Senator Gary Stevens, Chair
Senator Bert Stedman
Senator Thomas Wagoner
Senator Johnny Ellis
Senator Albert Kookesh
MEMBERS ABSENT
COMMITTEE CALENDAR
SENATE BILL NO. 171
"An Act amending the National Petroleum Reserve - Alaska special
revenue fund; and establishing the Special Legislative Oil and
Gas NPR-A Development Impact Review Committee and defining its
powers and duties."
HEARD AND HELD
HOUSE BILL NO. 229
"An Act relating to the reinstatement of Native corporations;
and providing for an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 171
SHORT TITLE: NPR-A COMMUNITY GRANT PROGRAM
SPONSOR(s): SENATOR(s) WILKEN
04/12/05 (S) READ THE FIRST TIME - REFERRALS
04/12/05 (S) CRA, FIN
04/20/05 (S) CRA AT 1:30 PM BELTZ 211
BILL: HB 229
SHORT TITLE: REINSTATEMENT OF NATIVE CORPORATIONS
SPONSOR(s): REPRESENTATIVE(s) FOSTER
03/22/05 (H) READ THE FIRST TIME - REFERRALS
03/22/05 (H) CRA, FIN
03/31/05 (H) CRA AT 8:00 AM CAPITOL 124
03/31/05 (H) Moved Out of Committee
03/31/05 (H) MINUTE(CRA)
04/01/05 (H) CRA RPT 4DP
04/01/05 (H) DP: LEDOUX, SALMON, OLSON, THOMAS
04/04/05 (H) FIN AT 1:30 PM HOUSE FINANCE 519
04/04/05 (H) Moved Out of Committee
04/04/05 (H) MINUTE(FIN)
04/05/05 (H) FIN RPT 8DP 1NR
04/05/05 (H) DP: HAWKER, HOLM, WEYHRAUCH, STOLTZE,
MOSES, FOSTER, MEYER, CHENAULT;
04/05/05 (H) NR: KELLY
04/08/05 (H) TRANSMITTED TO (S)
04/08/05 (H) VERSION: HB 229
04/11/05 (S) READ THE FIRST TIME - REFERRALS
04/11/05 (S) CRA, STA
04/20/05 (S) CRA AT 1:30 PM BELTZ 211
WITNESS REGISTER
Senator Gary Wilken
Alaska Capitol Building
Juneau, AK 99801
POSITION STATEMENT: Sponsor of SB 171
Susan Burke, Attorney
Gross & Burke
224 Fourth Street, Suite 3
Juneau, AK 99801
POSITION STATEMENT: Pointed out legal problems associated with
SB 171
Brian Labolle
Staff to Representative Richard Foster
Alaska Capitol Building
Juneau, AK 99801
POSITION STATEMENT: Introduced HB 229 for the sponsor
ACTION NARRATIVE
CHAIR GARY STEVENS called the Senate Community and Regional
Affairs Standing Committee meeting to order at 1:31:36 PM.
Present were Senators Stedman, Wagoner, and Chair Gary Stevens.
Senators Kookesh and Ellis arrived during the course of the
meeting.
SB 171-NPR-A COMMUNITY GRANT PROGRAM
CHAIR GARY STEVENS announced SB 171 to be up for consideration.
1:32:08 PM
SENATOR WILKEN read the sponsor statement into the record to
frame the PowerPoint presentation:
Senate Bill 171 examines the National Petroleum
Reserve - Alaska (NPR-A) Mitigation Grant Program
administered by the Department of Commerce, Community,
and Economic Development (DCCED) and modifies the
selection process to provide for active oversight by
the legislature.
The bounty of NPR-A is thought by many to match or
exceed the oil and gas deposits found at Prudhoe Bay
or Kuparuk. As was mentioned in the Anchorage Daily
News, February 15, 2005, "(The) Bureau of Land
Management estimates NPR-A northeast corner could hold
more that 2 billion barrels of crude oil and 3.5
trillion cubic feet of natural gas."
All Alaskans look forward to the time when they can
enjoy the benefits of reasonable and responsible
development of these natural resources.
When members of the United State Congress authorized
competitive leases in NPR-A in 1980, they recognized
that development in the petroleum reserve might
severely impact communities in or near the area. The
federal legislation directed that the revenue
generated through NPR-A development be used first to
mitigate direct impacts, if any, to municipalities,
and then by the rest of the State of Alaska. This
federal directive in 1980 created two troubling issues
that today pose significant problems.
First, the federal legislation is in direct conflict
with the Alaska State Constitution. The State of
Alaska receives from the federal government 50 percent
of royalties and lease payments from the oil and gas
development in NPR-A. As required by federal law,
these funds are available, before consideration of any
other public purpose, to communities that demonstrate
impact from resource development in NPR-A. This
directive is at odds with Article IX, Section 15 of
our constitution.
At least twenty-five per cent of all mineral
lease rentals, royalties, royalty sale
proceeds, federal mineral revenue sharing
payments and bonuses received by the State
shall be placed in a permanent fund.
Senate Bill 171 recognizes this unsettling conflict,
but does not overtly address or remedy the conflict
between our State Constitution and federal law. This
issue, while bothersome, is set aside for another day.
Instead, this legislation speaks to the second
troublesome issue of how the federal NPR-A payments
are distributed to Alaska communities that may be
severely impacted by oil and gas development within
the National Petroleum Reserve. With the sizeable
increase in NPR-A lease payments since 2000 and with
the clear expectation of future and profitable growth,
now is the time to revisit how the NPR-A payments are
distributed and why. It is the charge of the
legislature to devise a method to fairly allocate the
financial benefits of NPR-A to all citizens of Alaska
while, at the same time, recognize and mitigate the
direct impact of development on certain communities as
required by federal law.
In response to a 1986 Alaska Superior Court decision,
Senate Bill 171 sets in place a system to grant impact
assistance to municipalities most directly or severely
impacted by oil and gas activity within the National
Petroleum Reserve - Alaska. First, the Department of
Commerce, Community, and Economic Development shall
review and conduct a preliminary evaluation of each
grant application to determine whether the community
can demonstrate "extraordinary municipal and
educational operating expenditures attributable to oil
and gas development in NPR-A that are beyond the
municipality's reasonable capability to meet." (See
SB 171, page 3, lines 3-6) The department will submit
a list of all qualifying projects to the legislature.
Second, the Special Legislative Oil and Gas NPR-A
Development Impact Review Committee, composed of three
Senate finance members and three House of
Representative finance members, will review the
submitted applications and within 45 days forward the
committee's recommendation to the respective finance
committees for possible funding.
Third, twenty-five percent of the NPR-A payments will
be deposited to the principal of the Alaska Permanent
Fund and .5 percent to the Public School Trust Fund,
as required in AS 37.14.110. If the amounts awarded
to qualified municipalities as grants exceed the
available money, each deposit in the previously
mentioned funds and each grant will be reduce
proportionately.
And last, a successful grantee shall submit to the
Department of Commerce, Community, and Economic
Development a financial report and a copy of an
independent audit or review covering any previous
grants before any subsequent grants are awarded.
1:37:41 PM
SENATOR WILKEN gave a PowerPoint presentation titled, "NPR-A
Impact Mitigation Program" [copy in file] as follows:
Page 1
"The duty imposed by the federal government ultimately
falls upon the Alaska Legislature..."
Barrow vs. State
Judge Walter Carpeneti, March 18, 1986
Page 2
Alaska Constitution vs. Alaska Statute
· Impact mitigation program as seen today
· The importance of the word "impact"
· Senate Bill 171
1:38:42 PM
SENATOR WILKEN showed the location of NPR - A.
Page 3
National Petroleum Reserve - AK, the Alaska Wildlife
Refuge, the Trans-Alaska Pipeline, Native owned lands,
oil fields and other reference points.
· 23.5 million-acre petroleum reserve is about
the size of Indian
· The area between the Brooks Range and the
Arctic Ocean
1:39:09 PM
Page 4
History of NPR
1923 - Navel Petroleum Reserve established by
President Warren Harding
1976 - The Department of Interior assumed jurisdiction
and changed the name to National Petroleum Reserve -
AK
1980 - Congress addressed changes
1:39:31 PM
Page 5
Changes to NPR-A were made in Congress in 1980
· Competitive leases were authorized in 42
U.S.C. Sec. 6508
· Federal law cleared the way for the private
development of NPR-A resources
· State of Alaska and the federal government
agree to split the revenues.
1:40:01 PM
Page 6
The Legislature responded
To the new federal law: "The State is required to
give priority to communities 'most directly or
severely impacted' by development."
Establishing a special revenue fund within the
Department of Revenue (CS SB 835 am H, 1982)
Half the NPR-A receipts appropriated to
communities affected by leasing
Half the receipts are available for state
appropriation
1:40:37 PM
Page 7
But Governor Hammond vetoed June 24, 1982
"The dedication of such federal monies appears to be
inconsistent with the dedication of revenue to the
Alaska Permanent Fund."
Alaska State Constitution
Article IX Section 15
Alaska Permanent Fund
"At least twenty-five percent of all mineral lease
rentals, royalties, royalty sale proceeds, federal
mineral revenue sharing payments and bonuses received
by the State shall be placed in a permanent fund."
(Adopted in 1976)
SENATOR WILKEN said that few are aware that four communities and
one borough have "jumped ahead: of deposits into the Alaska
Permanent Fund in receiving appropriations. Most Alaskans assume
the royalties are shared equally. He said that some would argue
that the royalties are "received: after the four communities are
allotted a portion. He contended that the funds should be
considered "received" once the federal government appropriates
them.
1:41:05 PM
Page 8
And so the legislature...
Without a specific state law on the books...
· Received $48.6 million during the early
1980s
· Deposited half of the State's share into the
Permanent Fund and .5 percent to the Public
School Fund
· Deposited the remainder of the funds in the
General Fund
1:41:16 PM
Page9
Calculation by Alaska Constitution
In 1982, the Legislature appropriated the NPR-A
receipts according to the Alaska State Constitution
NPR-A Receipts $48,600,000
50% of gross receipts to Perm Fund (24,300,000)
.5 of gross receipts to Public School
Trust (243,000)
Available to General Fund for
Impacted Communities
24,057,000
1:41:35 PM
Page 10
But what about the federal law?
· In 1985, the North Slope Borough and NPR-A
communities sued the state
· The plaintiffs wanted:
1. A "rational process" for
communities to apply for the
grants
2. Declaration that all NPR-A funds
be automatically deposited into
the special revenue fund and
available for grants
3. A system to separately account the
receipt of NPR-A funds and to
reconstitute the special revenue
fund
SENATOR WILKEN emphasized the reference to a revenue fund as
opposed to the Alaska Permanent Fund. The special revenue fund
is not unlike the Alaska Mental Health Trust fund, he said.
1:42:16 PM
Page 11
The Superior Court said...
Barrow v. State, Alaska Superior Court, Judge Walter
Carpeneti, March 18, 1986
1. The State is required to establish a system to
grant impact assistance to subdivisions most
directly or severely impacted by NPR-A activity.
2. Automatic deposits into the Permanent Fund and
General Fund violates the federal law.
3. Under the supremacy clause of the federal
constitution, federal law controls.
1:43:00 PM
In 1986 HB 491 established the impact mitigation program and
authorized the department to adopt regulations to set up
criteria for awarding NPR-A grants.
The Legislature appropriated $24.5 million to reconstitute the
NPE-A special revenue fund.
1:43:25 PM
Page 12
The Legislature listened
· Adopted legislation to implement the court
findings (CS HB 491 (FIN), 1986)
· Established the Impact
Mitigation Program
· Authorized DCCED to adopt
regulations setting eligibility
criteria for NPR-A grants
· Appropriated $24.5 million to
the NPR-A special revenue fund
Judge Carpeneti ruled that the NPR-A special
revenue fund be reconstituted. The $24.5
million payment was in response to this ruling.
Page 13
Where did the money go?
First and foremost, grants to four impacted
communities
After that…
1. 50 percent to the principal of the Perm Fund
2. .5 percent to the Public School Trust Fund
3. Remaining amounts to the General
Note: In 1999, HCS CSSB 157 (FIN) am H (1999) passed
the Legislature and requires a 25% deposit to the
Permanent Fund and allows a deposit to the Power
Cost Equalization fund before the General Fund.
1:43:47 PM
Page 14
Calculation by Alaska Statute (AS 37.05.530 (g))
Conforms with 1980 federal law which conflicts with
our Alaska Constitution
NPR-A Federal Receipts
$31,623,800
Grants to NPR-A Communities (DCCED Rec)
(24,706,500)
Net NPR-A Receipts
6,917,300
25% of Net Receipts to Permanent Fund
(1,729,300)
.5% of Net Receipts to Public School Trust
(34,600)
Available Receipts for PCE (May be approp.)
5,153,400
Remainder Available for General Fund if any
(Example uses requested FY 06 numbers)
1:44:47 PM
Page 15
Comparison of Two Methods
AK Constitution vs. AK Statutes
AK Constitution AK Statutes
Art. IX, Sec. 15 (per federal law)
NPR-A
Fed Rcpts $31,623,800 $31,623,800
25% of Gross
Rcpts to
Perm Fund (7,906,000)
.5% of Gross
Rcpts to
School Fund (158,100)
Grants to
Communities
(DCCED Rec) (23,559,700) (24,706,500)
25% Net to
Perm Fund 1,729,300)
.5% Net to
School Fund (34,600)
Available for PCE
(May Approp) 0.0 5,153,400
Available for
GENERAL FUND 0.0 Remainder
if any
Example uses requested FY 06 amount.
SENATOR WILKEN said this demonstrates the conflict between the
Constitution and statute and the affect is "shorting my
grandkids by 80 percent" of the amount stipulated by the
Constitution. "The future is being shorted by this federal law"
that provides the Permanent Fund could receive NPR-A receipts
only after the requests of four communities That issue is not
addressed in this bill, he said. It is a matter for future
consideration.
Page 16
NPR-A Impact Mitigation Program
Alaska Constitution vs. Alaska Statute
Current Impact Mitigation Program
Importance of "Impact"
Senate Bill 171
1:48:20 PM
Page 17
The Current Mitigation Program
Committee Substitute for House Bill 491 (FIN), 1986
U.S. Dept of Interior notifies Dept. of Commerce,
Community and Economic Development regarding possible
NPR-A Federal Receipts
Flow Chart demonstrating subsequent process as
follows: NPR-A Communities
1. Public Notice & Request for Applications
DCCED
2. Requests
Review Committee
3. Evaluate & Recommend Proposals
Legislature
4. Commissioner Requests Funding
DCCED
5. OK Funding
1:49:16 PM
Page 18
Where are the Communities?
[Map of NPR-A and surrounding area with four
communities identified as follows:
Barrow
Population - 4,300
Median Household Income - $67,000
City Responsibilities - Bingo, Community
Center, Roller and Ice Rink, Teen and
Recreation Center, Housing, City Hall,
Little Dribblers, Taxis, Summer Youth
Employment, Gravel Sales
City of Wainwright
Population - 531
Median Household Income - $54,000
City Responsibilities - None listed
City of Atqasuk
Population - 218
Median Household Income - $66,607
City Responsibilities - Bingo, Room Rentals,
Community Center, Recreation, Cable TV
City of Nuiqsut
Population - 430
Median Household Income - $48,036
City Responsibilities - Community Hall,
Dock, Cable TV
Source: DCCED and Alaska Municipal League -
Alaska Municipal Officials Directory
1:50:13 PM
Page 19
Total Distribution to Date
...and FY07 projections
Bar graph showing amount of the Grant Awards in
amounts between $0 and $50,000 for the years 1980
through 1986 and FY 87 through FY 08. A notation
states: FY 06 is the requested amount. FY 07 is the
projected amount from the proposed NPR-A summer lease
sales.
Since 1980, a total of $117,249,388 has been awarded
to 4 communities.
(Total includes the FY 06 requested amount of
$24,706,500)
(FY 87 and FY 91 include 5 communities)
1:51:35 PM
Page 20
A Perspective in Statewide Terms
What if ... the FY 06 requested grant amount was
computed on a per person basis, what would that mean
for other AK communities?
SENATOR WILKEN said that if broken down per capita, the current
year distribution would represent $4,500 per person. This is a
grant program with no match. This analysis is the spirit of the
law versus the letter of the law. He suggests that the spirit of
the law was not to pass out this kind of money to a certain part
of the population.
1:54:04 PM
SENATOR WAGONER asked about the federal side of ledger. He
assumed that 50 percent of everything that's been divided on
projects is federal and isn't touched by the formula.
SENATOR WILKEN replied, "We never see it. It just stays in the
federal budget. We would only see it as it flows through federal
appropriations. It stays in Washington and they send us 50
percent."
1:54:49 PM
The importance of the word "impact." Alaska law says the
municipality may use NPR-A funds only for services to alleviate
the impact of oil and gas development within NPR-A. According to
regulations put in place, "impact" means "reasonably
attributable to NPR-A oil and gas activities under the federal
law."
1:55:48 PM
Page 21
Where is NPR-A oil and gas activity?
Wainwright is 220 miles from NPR-A development, Barrow
is 160 miles away, Atqasuk is 160 miles away and
Nuiqsut is six miles down the road.
1:56:42 PM
Page 22
Where is the NPR-A O&G activity?
[Map of northern Alaska showing NPR-A, the Alaska
National Wildlife Refuge, the Trans-Alaska Pipeline,
Native lands, certain oil fields and other points of
reference.
Proximity to Current NPR-A Oil and Gas Activity
Wainwright - 220 miles
Barrow - 160 miles
Nuiqsut - 6 miles
Atqasuk - 160 miles
Page 23
And the main O&G Activity?
[Map showing area of North Slope O&G Activity between
the eastern boundary of the National Petroleum Reserve
- Alaska and the western boundary of the 1002 Area of
ANWAR.
Highlighted are: Units, Drill Pad, Town Location,
Dalton Highway, Trans-Alaska Pipeline, Oil
Accumulations, and Gas Accumulations.
1:57:29 PM
Page 24
Today "IMPACT" is rated as a minimum consideration
FY 01 NPR-A
Impact Mitigation Program
Basis for Recommendation
Description - 15 points
Impact - 50 points
Budget - 15 points
Readiness - 15 points
Capability - 5 points
FY 03 NPR-A
Impact Mitigation Program
Basis for Recommendation
Description - 30 points
Impact - 30 points
Budget - 20 points
Readiness - 15 points
Capability - 5 points
FY 05 NPR-A
Impact Mitigation Program
Basis for Recommendation
Description - 25 points
Impact - 25 points
Budget - 20 points
Readiness - 20 points
Capability - 10 points
As administered by the DCCED
Page 25
What does the law say?
· Federal Law - 42 U.S.C. 6508
· In allocation of the NPR-A funds, the
State shall give priority to use by
subdivisions of the State most directly
or severely impacted by the development
of oil and gas leased in NPR-A.
· Alaska State Law - AS 37.05.530
· A municipality may use the NPR-A funds
only for services to alleviate the
impact of O&G development within NPR-A.
· Alaska Regulations - 3 AAC 150.050
· Impact means an effect reasonably
attributable to NPR-A O&G activity
under 42 U.S.C. 6508.
Page 26
Regs Define Impact to Mean
Reasonably attributable to NPR-A O&G activities on the
following (3 AAC 150.050):
· Population
· Employment
· Finances
· Social/Cultural Values
· Air & Water Quality
· Fish & Wildlife Habitat
· Ability to Provide Services
· Other Demonstrable Things
Page 27
Impact is the First Criteria
[Flow chart following a project request as follows.
Impacted?
Municipality?
Directly or severely impacted?
Reasonably attributable to...?
No - Application Rejected
Yes - Application Scored
Description
Budget
Sustainability
Capability
No - Request not Funded
Yes - Funded
Appropriation by the Legislature]
The State shall give priority to
subdivisions of the State most directly or
severely impacted (42 U.S.C. 6508)
2:01:25 PM
Page 28
An example for review
Wainwright Lagoon Boat Launch - $525,000 - To replace
or renovate the Wainwright Lagoon Boat Ramp
"Impact" on Population
Applicant
"Construction of the oil production
infrastructure and pipeline has driven up
the growth of population."
But...
The population of Wainwright has increased
from 492 to 546 in 1990 - 2000.
"Impact" on Employment and Finances
Applicant
"Due to decline in property tax revenues
from aging O&G infrastructure. The borough
cannot financially help the community."
But...
The reduction in revenue is not due to NPR-A
development.
In fact, NPR-A development will increase the
borough revenues.
Page 29
...and to continue
Wainwright Lagoon Boat Launch - $525,000
"Impact" on Social and Cultural Values
Applicant
"The social disruption prompted by oil and
gas development affects many traditional
activities."
But...
Wainwright is 220 miles from NPR-A
development.
"Impact" on Fish and Wildlife Habitat
Applicant
"Access to hunting areas would change in oil
development reduces the availability of
subsistence resources."
But...
Past experience at Prudhoe Bay has shown
that O&G activities and wildlife can co-
exist.
Question: Were the listed impacts reasonably
attributable to O&G development within NPR-A?
A review committee of three rated "Impact" only 20
points out of 100, the project was recommended.
Page 30
And another example...
City of Barrow Impound and Disposal Site Project -
$174,389
"Impact" on Visual Resources
Applicant
"Many of the abandoned vehicles that the
City of Barrow has allowed people to dump on
city land were brought to Barrow during the
oil boom in the last quarter of the 20th
century."
But...
The "oil boom" discussed was outside NPR-A.
The impact must be "reasonably attributable"
to oil and gas development within NPR_A.
No other impact was stated by the applicant.
Question: Was the listed impact reasonably
attributable to O&G development within NPR-
A?
The review committee rated "Impact" between 20 - 24
points out of 100; the project was recommended.
Page 31
And another one...
Roller Rink Renovation Feasibility Study - $63,556 -
to identify the costs to renovate the Barrow Roller
Rink
"Impact" on Employment
Applicant
"Although an estimated 4,000 jobs exist on
the North Slope in the O&G industry only a
fraction are held by Inupiat."
But...
The vast majority of the jobs in the O&G
industry are not reasonably attributable to
NPR-A development.
"Impact" on Unemployment
Applicant
"As the economic benefits of O&G development
begin to decline, it leaves members less
able to survive..."
But...
The decline in O&G development is not in
NPR-A; this petroleum reserve is just
beginning to be explored.
Pate 32
...and to continue
City of Barrow Roller Rink Renovation Feasibility
Study - $63,556
"Impact: on Social and Cultural Values
Applicant
"The decline in subsistence resources due to
NPR-A O&G development negatively impacts the
Inupiat culture."
2:04:53 PM
But...
Studies are currently undertaken to
determine the impact to wildlife, if any, to
Barrow residents 160 miles from Alpine.
"Impact" on Public Services
Applicant
Although the population has had a small, net
loss in the previous five years, the burden
on the City of Barrow has not been reduced.
But...
Most of the workers connected with NPR-A
development reside on the oil company's
production sites and not in local towns.
Question: Were the listed impacts reasonably
attributable to O&G development within NPR-A:
A review committee of three rated "Impact" between 15
- 25 points out of 100; the project was recommended.
2:06:06 PM
Page 33
Additional Concerns
· Grants are all funded as capital projects and the
dollars do not lapse (AS 37.25.020)
· But less than 40% of the grants are for
capital projects (the majority of
grants are for operating expenses)
· Funds are approved before old grants for the same
purpose are expended...
· As an example of many grants, only 15%
of an FY 04 group-operating grant of
$1,759,484 to survey wildlife is
disbursed, but an FY 06 grant for
$2,461,368 is recommended for the same
purpose.
2:07:12 PM
Page 34
To continue
· Few grants follow timelines
· Only 40% of grant funds scheduled for
completion on 6/30/05 has been spent
· Awards are not based on successful completion of
previous grants
FY 00 - Nuiqsut Cultural Center Construction
- $939,800 - Not Started as of 4/26/05
But
FY 02 - Nuiqsut Cultural Center Operating -
$288,000
These grant funds will be used for new projects
without notice to or approval from the Legislature.
2:09:20 PM
Page 35
NPR-A
Impact Mitigation Program
Alaska Constitution vs. Alaska Statute
Current Impact Mitigation Program
Importance of "Impact"
Senate Bill 171
Page 36
Now is the time
To listen to the Alaska Superior Court (Barrow v.
State, March 18, 1986):
"The duty imposed by the federal government ultimately
falls upon the Alaska Legislature and it includes the
duties to examine the claimed needs of the
subdivisions arising from oil and gas development
impacts, to evaluate them and, it the claimed needs
are found to exist, to rate them in order of priority,
and to meet the out of NPR-A revenues."
Page 37
Legislature has authority...
1. To examine the claims for financial assistance
2. To evaluate and rank the grant requests
3. To determine the appropriate amount of NPR-A
revenue for use by impacted municipalities
4. To determine the specific projects that are
funded
Legal Services memorandum, March 18, 2005
2:10:42 PM
Page 38
Senate Bill 171
"It is the intent of the legislature to provide
temporary emergency financial assistance to
municipalities for the purpose of meeting certain
extraordinary operating and capital improvement
expenditures necessitated by NPR-A oil and gas
development." (Section 1. LEGISLATIVE INTENT in
the proposed legislation.)
· Establishes a Legislative Impact Review
Committee (composed of 3 finance members of
each body)
· Consults with DCCED and then
approves and forwards grant
recommendations to respective
finance committees.
Page 39
And to continue
· Deposits to unique funds are based on the
total federal NPR-A receipts
· Perm Fund and Public School Trust
· Grants are awarded for one year, unless
otherwise noted
· Lapse money is appropriated to the Permanent
Fund, School Trust, or General Fund
Page 40
Now is the time...
To consider SB 171
...and establish a method to fairly allocate
the financial benefits of NPR-A to all
Alaskans while, at the same time, mitigate
the direct impact of development on certain
communities as required by federal law.
SENATOR WILKEN concluded the presentation.
2:12:36 PM
CHAIR GARY STEVENS recapped that under this proposal it would
take two legislators from each body to agree so nothing could
happen without the four votes out of the six members.
SENATOR WILKEN explained the proposed review committee is
modeled after the legislative conference committee process.
Two members of the majority and one member of the minority
party from each body would serve and two affirmative votes
from each body would be required to fund an award. This
standing committee would review all requests and submit
recommendations to the full finance committees for
inclusion in the annual capital appropriation.
SENATOR WAGONER asked why there would be no federal
participation since it's a federal program.
SENATOR WILKEN told him to write his Congressman. He continued
to say, "I don't think there's any question that these
communities are like any other community in our state. They get
lots of federal help."
SENATOR ALBERT KOOKESH questioned whether there is a federal
definition of "impact" or whether it had been entirely up to the
Senate and House to determine the definition of "impact."
SENATOR WILKEN said that's how he viewed it and originally it
appears that the Legislature asked the department to define
"impact."
CHAIR GARY STEVENS asked how the proposal would handle grants
differently than they are handled currently.
SENATOR WILKEN replied the department would send out notices as
it does today asking whether the community has impact according
to certain criteria. The department would handle the
applications administratively. Following a filtering process,
the applications would be submitted to the new committee. That
committee would score the applications and report to the
respective Finance Committees. "The final say on funding would
be the Finance Committees in the Capital Budget."
2:16:26 PM
SENATOR KOOKESH asked if there was ever any leftover money.
SENATOR WILKEN acknowledged that was a good question and he
would get the numbers, but he didn't think any money had ever
dropped to the General Fund.
2:17:51 PM
CHAIR GARY STEVENS called a brief at ease from 2:18:45 PM to
2:19:15 PM
CHAIR GARY STEVENS called Susan Burke forward.
2:19:27 PM
SUSAN BURKE, Attorney representing the North Slope Borough, said
she would like to speak to some of the legal issues associated
with the NPR-A grant program - particularly as it relates to SB
171.
MS. BURKE continued:
There is one primary source and one secondary source
of the legal issues. The primary one of course is the
federal statute that Senator Wilken pointed out in his
presentation. As he suggested to you, you have all
sworn an oath to uphold the Alaska Constitution.
...You've also sworn to uphold the U.S. Constitution.
The reason I bring that to your attention is because
of the provision in the U.S. Constitution called the
Supremacy Clause. It says if any federal law is
supreme, any state law or state constitution not
withstanding. So to the extent that there are
conflicts between the federal law that has been
described to you and provisions of our state
constitution such as the Permanent Fund minimum 25%
deposit, the federal law takes precedence. Judge
Carpeneti ruled that, the Attorney General's Office
has opined to that effect and Legislative Legal has
opined to that effect as well.
I want to talk a little bit about the Permanent Fund
issue and I want to talk about some of the other
issues that relate to the grant process and the scope
of the grants as it relates to the federal act.
...Judge Carpeneti clearly ruled that whatever
percentage amount you apply ... that percentage has to
be applied after all the municipal grants have been
taken care of. That's what he ruled. I believe he was
correct. The State didn't appeal his ruling and as far
as I'm concerned, is bound by that ruling. ... I don't
think there's very much more that can be said about
that except as Senator Wilken told you. If you're not
happy with it you must write your Congressman about it
because that's what the federal law requires and
that's how our local court has interpreted the federal
law's requirement. I view that as a closed issue.
Once the municipal grants have been dealt with, can
you appropriate extra money to the Permanent Fund?
Sure you can but whatever percentage you choose, it
has to be after all the municipal grants have been
considered and the appropriations dealt with.
MS. BURKE passed out a sectional analysis pointing out the legal
problems with SB 171 - particularly as it relates to the scope
of the grants. [Copy in file.]
The federal law is pretty clear that in allocating the
state's share of these NPR-A revenues it's 50%.
There's a mandatory duty to give priority to the
impacted municipalities. ... This mandatory duty
includes the duty to examine the claimed needs of the
subdivisions, to evaluate them, and it they are found
to exist - to rank them in order of priority.
If the needs are found to exist, then there is a duty
to satisfy them out of NPR-A funds regardless of other
perceived needs there are in other areas of the state.
Regardless of one's desire to put more money into the
Permanent Fund. Again because this is what a federal
law requires.
2:24:24 PM
Section 1 is intent language and we all know intent
language isn't binding as such but it would at least
be used as a court interpreting other substantive
provisions of the bill. The intent language says it's
the intent to provide temporary emergency financial
assistance for the purposes of meeting extraordinary
operating and capital improvement expenditures
necessitated by NPR-A development.
I'd like to say two things about that. First, from
what Senator Wilken has told you, this is language
that was drawn almost word for word from impact
legislation in the mid 1970s. No federal law within
that, that is something that was entirely within the
Legislature's discretion to formulate what the money
would be used for.
In this instance we have a federal act that provides
for very broad uses of NPR-A money - planning,
construction maintenance and operation of essential
public facilities and other necessary provisions of
public service.
To the extent that SB 171 is intended in its
substantive provisions to narrow the permissible uses
under the federal act, I would contend it's in
conflict with the federal act. The permissible uses
that can be put to NPR-A funds can't be any narrower
under state law than they are under the federal act.
2:26:14 PM
Section 2 establishes the legislative committee.
That's perfectly fine. I would suggest a couple of
things to you though. I don't think future
Legislatures wouldn't necessarily be bound by what's
in essence an organizational provision. There's
nothing in the provision that sets up the legislative
committee that tells it the rules it's supposed to
follow. We know there are rules that must be follow
from Judge Carpeneti's decision. The duties of
examining the claimed needs, evaluating them, ranking
them in order of priority and if the committee fines
that they have been met, to recommend to the Finance
Committees that they be funded. The Legislature is
just as much bound by the requirements of the federal
act as the department is in its review of these
grants.
I would suggest to you - if you're going to switch the
initial review process from the Executive Branch to
the Legislative Branch - [that] you need to have the
standards by which the Legislative Branch is going to
evaluate those grants in the statutes somewhere.
Section 3 makes several changes in the existing
statute that governs the allocation of NPR-A revenues.
I didn't understand what was contemplated. On page 3,
lines 3-7 - reading it with the new language and the
existing language - it talks about the department
adopting regulations under which municipalities that
are most directly and severely impacted by NPR-A
development.
That does not track the federal statute. The federal
statute says, "directly or severely." To me those are
two very different things. At a minimum, if that new
language were to stay in there, I think to be
consistent with the federal act those two words would
have to be in the alternative rather than the
cumulative as they are here.
There's an additional one that says "or that
demonstrate extraordinary municipal and educational
operating expenditures attributable to oil and gas
development in NPR-A that are beyond the
municipalities reasonable capability to meet from
growth in receipts from current municipal revenue
sources."
I'm not sure what the intent here is. If the intent
was to limit municipal grants from all sources to
address extraordinary municipal and educational
operating expenditures, I would suggest that is in
conflict with the federal act. If you look at the
kinds of things the federal act says that
municipalities and the state for that matter, can use
NPR-A revenues for it's very, very broad - planning,
construction and maintaining essential public
facilities and the provision of necessary services.
To the extent that's it's intended to be an
alternative to that, I don't thing you need it because
the federal act is broad enough to cover not only
extraordinary municipal and educational operating
expenditures, but regular ones it they can be shown to
have reasonable connection with impacts from NPR-A
development. While we're looking at the word
"development" and in looking at the slides Senator
Wilken prepared, it seemed to be looking at actual
wells and actual drilling.
2:30:57 PM
One of the arguments the state made in the 1985
litigation - which I was involved in representing the
North Slope Borough - the state said, 'These
municipalities aren't entitled to any money until
there's actually development and commercial production
from the NPR-A. Judge Carpeneti said, 'No, development
can mean many things." Furthermore, if you only look
at current development you are also misconstruing what
the federal statute says. Remember, one of the things
you can use it for is planning. To me planning
suggests that you're looking forward to future
development. Development isn't just sucking oil out of
the ground from oil well. It's seismic, it's
exploration - there are all kinds of things that go on
throughout the whole region that can have impact far
in advance of actual development and commercial
production.
2:31:56 PM
On page 3, lines 21 - 27 the bill would delete the
language that in my view is what provides compliance
with the federal act under the current law. If you
take that out, I'm not sure what you're left with in
terms of compliance. It deletes the language that
there be a requirement to give priority in the
allocation of grants to municipalities that are
experiencing or will experience the most direct or
severe impact from NPR-A development. That's straight
out of the federal act. That's a mandatory trust
responsibility. These are trust funds. It's like the
Mental Health Trust in that sense.
Secondly, it would delete the requirement that the
department shall fund all meritorious grant
applications out of the money appropriated to it.
Judge Carpeneti said that among the mandatory trust
duties that the State of Alaska including the
Legislature has is that once you go through the
evaluation process and you determine that a need is
there and has merit, there's a duty to fund it. ... If
you think it's unfair, again, it's a write your
Congressman issue. That's what the federal act
requires. You get this money in from NPR-A, but it's
subject to this trust condition.
2:33:53 PM
Section 4, page 4, lines 23 -2 4 would add a provision
to existing law to prohibit municipalities from using
any NPR-A money for basic government operations.
That's not defined in the bill and I'm not sure what
was intended to be covered. To the extent that's it's
just basic government operations, I would suggest that
a prohibition against use of NPR-A funds for those
purposes would again be in conflict with the federal
act, which permits NPR-A funds to be used for
planning, construction of essential public facilities
or any necessary provisions of public service. To me
that sounds a lot like basic government operations.
Again, there's going to have to be some reasonable
demonstration of cause and effect between NPR-A
activities.
2:35:07 PM
Section 5 ... says grants may not be used directly or
indirectly to reduce current municipal tax rates. I
think that is very likely in conflict with the federal
act as well. There's nothing in the federal act that
says, 'We're only going to allocate NPR-A funds to
poor communities. We're only going to allocate NPR-A
funds for things that they absolutely cannot afford
otherwise. It's an impact program and if the grant
request is reasonably related to impacts from NPR-A
activity there's a duty to fund them and I honestly
don't know how you're going to tell whether something
is indirectly reducing the mil rate. I think what
you're going to end up with is municipalities that are
otherwise eligible to apply for NPR-A funds never to
be able to reduce their mil rate under any
circumstances for fear they'll lose their eligibility
for NPR-A grants. So I'm not sure in practice how
that's going to work.
2:36:22 PM
[Section 6] The last thing I want to mention, and this
is the only way I read SB 171 that the Permanent Fund
issue is directly implicated and that has to do with
if you've got more meritorious requests than you've
got NPR-A money to cover them then you ratchet
everything down on a pro-rata basis. That, to me, is
clearly in conflict with the federal law because
you're putting the impact grants for municipalities on
an absolutely equal footing - that's what pro-rata
means - with the Permanent Fund deposits in the Public
School Trust Fund deposits and the federal law clearly
tells us that the municipal grants have to be given
priority over any other state uses.
2:37:23 PM
MS. BURKE concluded her remarks saying she is not conversant
with particular grant programs on a day-to-day basis. Although
she couldn't speak to particular grants, she could address legal
questions.
2:37:49 PM
SENATOR WAGONER questioned whether she said municipalities could
use the funds to do seismic and exploration.
MS. BURKE clarified her point was that the area of potential
impact is broader than the area in which an oil well is located
or drilling occurs.
SENATOR STEDMAN remarked that under the strict interpretation,
not much could be excluded.
MS. BURKE disagreed saying reasonable minds could conclude that
any number of things could be excluded because they have nothing
to do with NPR-A impact. However, without looking at individual
grant applications she couldn't make specific comments.
SENATOR STEDMAN opined that in reviewing lists from previous
years, it appears as though the system has been abused.
MS. BURKE said she couldn't comment because it isn't a legal
issue. He was referring to judgments the department made.
SENATOR STEDMAN stated that it's apparent that something needs
to be done. He would expect to see applications equivalent to
available funds and that's not the case.
MS. BURKE disagreed saying there is no obligation for
applications to meet a particular percentage of the total but
because the state is acting as a trustee, it must make a good
faith evaluation of the projects. The uses of the funds under
the federal law are very broad and if that's unacceptable then
it's a matter of going to Congress to carry on the discussion.
"Having Congress enact this law and impose upon you - this trust
obligation - you're stuck with having to fulfill it."
SENATOR KOOKESH asked if the state or an affected municipality
would have to go to court to get a clarifying interpretation
since these are federal lands and it's a federal program.
MS. BURKE agreed they are federal lands and that's why the
federal government keeps the revenue. She explained that under
the old federal mineral-leasing act the state received 90
percent of the revenue, but for NPR-A the state receives just 50
percent of the revenue. She suggested that if the Legislature
were to enacted new NPR-A allocation legislation that the
communities believed to be in violation of the trust obligation
it's likely that there would be a lawsuit.
CHAIR GARY STEVENS asked for a brief description of the trust
agreement.
MS. BURKE replied this is a trust obligation that was imposed by
it is receiving the federal money. Certainly it's not absolutely
clear and that's the reason behind the 1985 court case. Judge
Carpeneti did put some sideboards on it but every question was
not answered and it's still not absolutely clear. However, from
the community perspective, the program has been working the way
they believe Congress intended.
2:47:17 PM
CHAIR GARY STEVENS noted there were no further questions or
testimony. He held SB 171 in committee.
HB 229-REINSTATEMENT OF NATIVE CORPORATIONS
2:47:39 PM
CHAIR GARY STEVENS announced HB 229 to be up for consideration.
PAUL LABOLLE, Staff to Representative Richard Foster, Sponsor,
described the bill as a one-time window for village Native
corporations to reincorporate after involuntary dissolution. If
a corporation doesn't reincorporate, it wouldn't own the same
assets granted in the Native Alaska Lands Claims Settlement.
CHAIR GARY STEVENS noted there were no questions and held HB 229
in committee.
There being no further business to come before the committee,
Chair Gary Stevens adjourned the meeting at 2:49:10 PM
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