Legislature(2003 - 2004)
05/12/2003 09:12 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 12, 2003
9:12 AM
TAPES
SFC-03 # 88, Side A
SFC 03 # 88, Side B
SFC 03 # 89, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:12 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Robin Taylor
Senator Ben Stevens
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: SENATOR FRED DYSON; REPRESENTATIVE MIKE CHENAULT;
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of
Revenue; JASON HOOLEY, Staff to Senator Dyson; MIKE BARTON,
Commissioner, Department of Transportation and Public Facilities;
TOM BOUTIN, Deputy Commissioner, Department of Revenue; JAY HOGAN,
Deputy Director, Office of Management and Budget, Office of the
Governor;
Attending via Teleconference: From Anchorage: VICKY HALCRO,
Director, Public Affairs and Marketing, Planned Parenthood of
Alaska; From an offnet location: KEN SURA, Landrum and Brown; KIP
KNUDSON, Deputy Commissioner of Aviation, Department of
Transportation and Public Facilities; CHARLES LOGSDEN, Chief
Petroleum Economist, Tax Division, Department of Revenue; DOUG
THEIRWECHTER, Marathon Oil Company; JOHN BARNES, Manager of Alaska
Operations, Marathon Oil Company;
SUMMARY INFORMATION
HB 90-TAX CREDIT:SALMON DEVELOPMENT/UTILIZATION
The Committee heard from the Department of Revenue, adopted a
committee substitute and reported the bill from Committee.
SB 30-ABORTION: INFORMED CONSENT; INFORMATION
The Committee heard from the sponsor and Planned Parenthood of
Alaska. The bill moved from Committee.
SB 216-INTERNATIONAL AIRPORTS REVENUE BONDS
The Committee heard from the Department of Transportation and
Public Facilities, the Department of Revenue and a consulting firm
contracted by the Department of Transportation and Public
Facilities. The bill moved from Committee.
HB 243-EVALUATION OF AGENCY PROGRAMS
The Committee heard from the Office of Management and Budget, and
the bill moved from Committee.
HB 61-OIL & GAS TAX CREDIT FOR EXPLORATION/DEV
The Committee heard from the sponsor, the Department of Revenue,
and Marathon Oil Company. An amendment was offered but no action
was taken. The bill was held in Committee.
CS FOR HOUSE BILL NO. 90(FIN)
"An Act relating to a salmon product development tax credit
and a salmon utilization tax credit under the Alaska fisheries
business tax; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken reminded that this bill, "recommended by the Salmon
Task Force, provides two tax credits: one for salmon product
development and another for salmon utilization. The purpose of the
measure is to encourage industry to invest in the production of new
value-added salmon products to improve marketability. It has a
retroactive clause to January 1, 2003."
Senator B. Stevens moved for adoption of SCS CS HB 90, 23-LS0525\B,
as a working draft.
Senator B. Stevens detailed the changes proposed in the committee
substitute clarifying the definitions of qualified expenditures for
salmon utilization. He informed that efforts were underway by the
Governor's Office, himself, and industry representatives to ensure
the costs could be contained to their intended purposes.
Senator Bunde asked if agreements were entered into that require
the retroactivity of this legislation.
Senator B. Stevens responded that this legislation was drafted in
November 2002 with the anticipation that it would have been passed
into law earlier than May 2003. If the bill had been enacted in
February 2003, he pointed out the retroactivity would have been
limited to one month.
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of
Revenue, stated he was not involved in matters relating to the need
for the provisions of this legislation to be retroactive. He
surmised that affected taxpayers could have made business decisions
based on the passage of this bill early in the calendar year. He
did not expect the retroactivity to have a significant effect since
the salmon fishing season does not start until the spring.
There was no objection to the adoption of Version "B" as a working
draft and the committee substitute was ADOPTED.
Senator B. Stevens offered a motion to report HB 90 from Committee
with individual recommendations and accompanying fiscal note.
Without objection SCS CS HB 90 (FIN) MOVED from Committee with
fiscal note #1 for $49,300 from the Department of Revenue.
AT EASE 9:19 AM / 9:20 AM
CS FOR SENATE BILL NO. 30(JUD)
"An Act relating to information and services available to
pregnant women and other persons; and ensuring informed
consent before an abortion may be performed, except in cases
of medical emergency."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill, "places in statute a current
regulation that states an abortion may not be performed unless the
patient gives informed consent. In addition, SB 30 directs the
Department of Health and Social Services to develop a website
designed to inform a pregnant women regarding her reproductive
choices."
SENATOR FRED DYSON, sponsor, testified that regulations require
that doctors provide for informed consent and that this bill would
make the requirements statutory. He stated that since introduction,
this legislation has been "extensively modified and improved"
incorporating recommendations from the Department of Law and the
Department of Health and Social Services. He explained that under
the provisions of this bill, a doctor would not be required to
utilize the information supplied by the State, and could instead
continue to use information compiled by the doctor. He noted the
information supplied by the Department of Health and Social
Services would be continually updated and available on the Internet
in several languages. He suggested this would allow the doctor to
have current information on support and services available. He
informed that a doctor who chooses to utilize the information
provided by the Department would be exempt from the liability of
not providing adequate informed consent.
Senator Olson asked the affect of this legislation on the normal
operations of practitioners. He spoke as a physician of the many
existing requirements placed on doctors and opposed the imposition
of additional complexities.
Senator Dyson relayed testimony from doctors that they are "already
doing a good job of informing their patients of the risks and
choices that they have." He stated that doctors already providing
informed consent would only be required to keep a record of such in
a patient's file. He predicted that the utilization of the
Department supplied information would simplify the process for
doctors, as the information would be kept up to date. He cited the
"very few botched abortion operations" in Alaska as indicating the
most practitioners are performing adequately.
Senator Olson expressed concern about the additional burden of
compliance in the event of a medical emergency.
Senator Dyson noted existing regulations require informed consent
for all medical procedures, which would not change. He suggested
that "no competent practitioner" would perform "a somewhat invasive
procedure like abortion" without having reviewed the matter with
the patient.
Co-Chair Wilken directed the discussion to focus on fiscal issues
related to this legislation and not "too much of the mechanics
part". He indicated opportunity would be provided for further
discussion on other aspects of the bill.
Senator Olson asked the anticipated financial impact of the
requirement to keep records of informed consent.
Senator Dyson expected no additional financial impact, as
documentation of informed consent is already required.
Senator Olson asked the penalties to a physician for failure to
comply with the statute.
JASON HOOLEY, Staff to Senator Dyson, responded that the physician
would be civilly liable for compensatory and punitive damages.
Senator Olson asked if this differs from current regulations.
Mr. Hooley answered that the civil liability provision is not
stipulated in the regulations.
VICKY HALCRO, Director, Public Affairs and Marketing, Planned
Parenthood of Alaska, testified via teleconference from Anchorage,
against the bill on behalf of Anna Franks, Executive Director. She
read a statement into the record as follows.
I strongly urge you to oppose SB 30. This proposed legislation
would create excessive obstacles resulting in undue burden for
the women of Alaska who are seeking to obtain an abortion. One
such obstacle proposed by SB 30 includes requiring that only
physicians verbally, individually and in a private setting,
present patients the information necessary to provide informed
consent. A second troublesome obstacle proposed by SB 30 is a
mandated 24-hour waiting period requiring that this
information be provided to a patient 24 hours in advance of an
abortion.
In tandem, the ramifications of these two mandates multiply,
especially when taking into consideration the geographic
uniqueness of our State. The 24-hour waiting period, along
with the requirement that a physician is the only person
eligible to relate particular information will result in many
patients having to visit a clinic three times: once for the
pregnancy test, a second time for the physician to provide the
information to the patient - many times the physician will not
be available the moment the patient receives their test
results, and a third visit for the procedure. Adding a third
visit translates into increased expenses, risks and stress.
Three visits means more time off from work, a possible
increase in risk - any delay can carry medical risks,
especially if a doctor is not available for a second or third
appointment for a week or more, and increased stress resulting
in additional time away from family and jobs.
Women from rural communities who must travel to Anchorage or
Fairbanks for medical care will feel these burdens the most,
possibly making an abortion prohibitive. The intent of SB 30
is clear: restricting physicians as the only information
provider to patients, misappropriates valuable physician
resources. Rather than allowing a physician the option of
delegating this responsibility to another trained staff
member, a physician's availability to perform abortions is
limited, therefore reducing the women of Alaska's access to
abortion.
Moreover, physicians and clinics are already required and do
provide to the patients the necessary information to ensure
that they are able to make an informed decision regarding any
surgical procedure, including abortion. SB 30 unjustly singles
out abortion and imposes numerous additional requirements that
are not only unfair to the women of Alaska, but also
unconstitutional.
Once again, I strongly urge you to vote against SB 30.
Senator Dyson asked if reason why the required information could
not be provided to a patient at time of the pregnancy test.
Ms. Halcro responded that the physician might be unavailable for a
consultation at the time of the pregnancy test. She suggested
authorization to allow the physician to delegate the responsibility
to a trained staff member.
Senator Dyson commented this would be reasonable.
Co-Chair Green offered a motion to move SB 30 from Committee with
individual recommendations and accompanying fiscal notes.
There was no objection and CS SB 30 (JUD) MOVED from Committee with
two fiscal notes from the Department of Health and Social Services:
fiscal note #1 for $20,000 from the Maternal, Child and Family
Health component, and fiscal note #2 for $30,000 from the Bureau of
Vital Statistics component.
SENATE BILL NO. 216
"An Act relating to international airports revenue bonds; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
AT EASE 9:36 AM / 9:37 AM
Co-Chair Wilken stated that this bill introduced by the Senate
Rules Committee at the request of the Governor "increases the
authorization for international airport revenue bonds by $70.6
million for capital improvements for the Anchorage and Fairbanks
international airports."
MIKE BARTON, Commissioner, Department of Transportation and Public
Facilities, testified this bill would provide the necessary bonding
authorization to complete the C Concourse of the Terminal
Redevelopment Project begun in 1999. He emphasized the revenue
bonds would be repaid from revenues generated by the airport
facilities and would not be an obligation of the State. He informed
that in the event of a default insurance would become the "ultimate
payer" to the bondholders.
Mr. Barton have a history of the projects, noting that the Ted
Stephens Anchorage International Airport and the Fairbanks
International Airport are included in the State's international
airport system (AIAS) and operated together, with costs and
revenues polled. He stated that the Airport Operating Agreement
governs the two facilities and he defined the Agreement as a
contract between the airports and airlines that establishes the
business relationship and obligates the airlines to pay the costs
of operating and maintaining the airports, including capital
projects and bonded indebtedness. He furthered that the Agreement
obligates the airport to secure agreement on costs for operating
the airports, including capital projects. He continued that in
1997, the airlines agreed to finance the terminal redevelopment
project and that two previous bond issues have occurred in 1999 and
2002. He stated that the proposed issuance "follows the same
format" as the earlier issuances. He told of the agreement with the
airlines that Terminal C must be completed, which this bond
issuance would allow.
Mr. Barton cited the bond issuance amount at $76.6 million, with
approximately $50 million of the amount for actual construction
costs. He stated that $13.5 million would be used to secure federal
funds and the remaining funds would be utilized for bond financing
costs.
Mr. Barton warned that the cash supply would be depleted by
September 2003 without this authorization. He stated the project's
expected completion date is approximately one year from the current
date.
Senator Taylor clarified this legislation does not relate to
additional construction, but rather to "clean up cost overruns" of
an existing project undertaken during the previous gubernatorial
administration.
Commissioner Barton responded that the additional costs result from
three sources, $33 million in "design problems and differences in
interpretation of seismic codes", $20 million resulting from the
Transportation Safety Administration (TSA) security requirements
resulting from the events of September 11, 2001, and the reminder
for additional space requested "post design". He stated that the
additional space request was agreed upon with the intent that it
would be financed with interest from the bonds.
Senator Hoffman asked the total cost of the project including the
amount included in this legislation.
Commissioner Barton gave the estimated cost of Concourse C at $308
million.
Senator Hoffman asked the total cost of "all retrofitting" and
modification to the airport building.
Commissioner Barton replied that a definitive figure would not be
known until the design is completed, although he estimated the
amount to be approximately $110 million.
Senator Hoffman asked the likelihood that the Department would
request additional funds given that a definitive amount is not
available.
Commissioner Barton clarified any request would be for additional
bonding authority.
Co-Chair Wilken understood $418 million would fund the completion
of Concourse C.
Commissioner Barton detailed that $308 million would fund the
completion of Concourse C and that $110 in bonding authority would
be requested in the future to upgrade Concourse A and Concourse B.
Co-Chair Wilken asked the amount of funds authorized in this
legislation would be allocated to the Anchorage project and the
amount allocated to the Fairbanks project.
Commissioner Barton replied that the majority of the funds would be
appropriated to the Concourse C project in Anchorage and that $3.5
million would be utilized as matching funds to secure federal funds
for use in Fairbanks.
KEN SURA, Landrum and Brown, testified via teleconference from an
offnet location that he had prepared a presentation.
Co-Chair Wilken requested a brief overview.
Mr. Sura informed that the firm prepared a feasibility study in the
year 2002 based on key statistics: enplanements or passenger
activity and operations of aircraft and airline schedules. He
stated that passenger activity and cargo tonnage are the "two most
important drivers at Anchorage" and is two-percent higher than
forecast in 2002. As a result, he surmised the debt capacity for
the additional bond issuance is sufficient.
Senator Olson commented on the "impressive amount of work" invested
in the project. He asked if the projections were accurate.
Mr. Sura affirmed.
Senator Olson asked if therefore the cost overruns are the result
of unforeseen obstacles. He noted declining passenger revenues and
subsequent employee layoffs and reduced flight schedules, as well
as the inability for airlines to fund airport improvements. He
asked how the economic difficulties were affecting the airport
projects.
Mr. Sura assured that the projects are "conservative by design"
given the "potential investors". He noted that other airports are
undergoing improvements and expansions and that airport funding
comprises only five to six percent of airlines' operating expenses.
He acquiesced that some airlines had made adjustments in certain
markets; however, "in a market as strong as Anchorage and
Fairbanks" future scheduling does not indicate significant
reductions in flight frequency and number of seats.
Senator Taylor understood the Ted Stevens Anchorage International
Airport is the single largest economic driving faction in
Anchorage, much of which is derived from Asian cargo. He supported
the expansion efforts. He indicated other communities would benefit
from funding to construct roads throughout the State.
Mr. Barton expressed he would welcome such funding for roads,
although no general funds are involved in the airport projects,
which are instead paid by the airlines through rates and fees.
Co-Chair Wilken informed of the proposed $2.5 billion funding for
roads under consideration at the congressional level.
Senator Bunde pointed out airline passengers, not the airlines
themselves pay the airport construction costs and that if extra
roads were constructed the "people of Alaska" would pay those
expenses as well.
Senator Hoffman stated he had concerns when the Anchorage airport
project was first proposed. He requested from the Department,
passenger forecasts as well as the commitments made by each
affected carrier.
Co-Chair Wilken referenced a handout provided by the Department
titled, "Alaska International Airports System Business Planning
Information, Presentation to State of Alaska Legislature, May 9,
2003" [copy on file] that includes the information requested by
Senator Hoffman. He noted this handout was prepared for a
presentation to the House Finance Committee and he suggested the
Department make a presentation on the matter to the joint finance
committees in January 2004. Co-Chair Wilken then corrected that
cargo carriers pay the majority of the construction costs rather
than the passengers. He was concerned that advancing airline
technology allowing planes to fly farther, as well as the opening
of airport facilities in Russia could result in lesser revenues to
the airports in Alaska with which to repay the bonds. He emphasized
the need to have the bonds paid before this time to ensure the
costs are not transferred to passengers.
Co-Chair Wilken further referenced the handout as detailing the
projected traffic and landing fees in conjunction with the bonding
debt.
SFC 03 # 88, Side B 10:00 AM
Co-Chair Wilken commented to the importance to adequately
understand this issue, although he pointed out the amount of time
remaining in the legislative session is insufficient to do so.
Senator Hoffman requested supporting documentation for the
information contained in the handout. He wanted to know the date
the data was last updated to reflect changes incurred relating to
the events of September 11, 2001.
KIP KNUDSON, Deputy Commissioner of Aviation, Department of
Transportation and Public Facilities, testified via teleconference
from an offnet location that this information would be provided to
the Committee.
Senator Olson asked the amount of outstanding bonds and the effect
the proposed bonds would have on the existing balance.
Mr. Sura noted this information is included in the handout and he
listed the total amount of outstanding bonds for the AIAS at $379
million, $368 million of which is outstanding principal remaining
on those bonds. He informed that rating agencies and potential
investors request future forecasts of other projects contemplated
for the system.
Senator Olson asked if the debt repayment is on schedule, ahead of
schedule or behind schedule.
Mr. Sura replied that the schedule is set when the bonds are sold
with a prescribed schedule for each series of bonds. He qualified
that it has been advantageous to refinance some of the debt to
realize economic savings. He furthered that airlines and airports
would sometimes agree to retire a particular series of bonds in the
event of an ability to make a "lump sum payment"; however, he noted
that airlines prefer to debt finance airport capital projects due
to the relation of repayment to the useful life of the facility.
Senator Olson again asked if the debt repayment is progressing as
scheduled.
Mr. Sura affirmed and noted funds are transferred monthly to the
trustee.
TOM BOUTIN, Deputy Commissioner, Department of Revenue, told of the
"refunding opportunity" that the bond committee would undertake
concurrently if this bill passes into law.
Senator Olson calculated that this legislation would result in
doubling amount of bond debt. He was concerned that the proposal
contains no assurances that the current situation would not result
again. He referenced Co-Chair Wilken's emphasis on the need for
business plans. Senator Olson challenged that with the exception of
"some verbal nods", a business plan has not been presented to his
satisfaction. He spoke to recent rental increases imposed on
airlines that had invested in hangers.
Co-Chair Wilken requested the Department address the business plan,
specifically the involvement of user groups.
Mr. Barton told of the process of the "signatory airlines" for the
airport operating agreement that occurs every five years. He
explained the process involves negotiations and discussions with
the airlines about necessary capital projects and identification of
potential sources of revenue to finance the cost of projects. He
stated this agreement operates as the business plan.
Co-Chair Wilken understood that all parties of the airport
operating agreement must agree to support the revenue bonds.
Mr. Barton affirmed and furthered on the formal process involving a
balloting system.
Co-Chair Wilken asked the extent that terminal lessees participate
in the agreement.
Mr. Knudson replied that most of the lessees, those that occupy the
majority of terminal space are the signatory airlines. He informed
that the few concessionaires who also lease space comprise a small
portion.
Senator Hoffman referenced the landing fees data cited in the
handout and asked when the initial feasibility study was conducted
and the reason for the variance between it and the revised
forecast.
Mr. Sura replied that the initial detailed study was conducted in
April 2002 and the revised forecast was prepared specifically for
this legislation approximately two weeks ago. He pointed out the
initial study was completed approximately six months after
September 11, 2001 and reflected a conservative approach, as the
recovery cycle of cargo and passenger activity was unknown. He
stated that the primary difference between the two forecasts is
that the earlier study did not include the bond issuance requested
in this legislation.
Senator Hoffman was concerned that the figures differ by over 40
percent for the year 2010 and remarked that a difference of as
little as two percent would have a significant impact on a project
of this magnitude.
Co-Chair Wilken calculated the landing fees of a loaded Boeing 747
aircraft to be $1,300.
Senator Bunde commented that although this project is necessary, he
has "never met State projects that couldn't go over budget."
Co-Chair Green offered a motion to report SB 216 from Committee
with individual recommendations and accompanying fiscal note.
Co-Chair Wilken stated that Senator Bunde's concerns are currently
under scrutiny.
There was no objection and SB 216 with accompanying fiscal note #1
for $7,813,000 from the Department of Revenue MOVED from Committee.
CS FOR HOUSE BILL NO. 243(STA)
"An Act establishing state agency program performance
management and audit powers in the Office of the Governor for
the evaluation of agency programs; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill, sponsored by the House Rules
Committee at the request of the Governor, "reestablishes an audit
function in the Office of the Governor and funding will be provided
by reallocation of existing Office of the Governor funds."
JAY HOGAN, Deputy Director, Office of Management and Budget, Office
of the Governor, testified that he began working for the State in
1970 and at that time internal auditing was conducted within the
Department of Administration. In 1983, he noted, the Office of
Management and Budget was created and the internal audit functions
were assigned to it along with numerous other activities. He
continued that since that time, "the functions have been scoped
down" with the elimination of the audit function in the middle
1990s. Governor Murkowski intends to "reemphasize," "recreate" and
"broaden" the internal audit function, according to Mr. Hogan. Mr.
Hogan explained the expansion would include program evaluations to
determine their current usefulness.
Mr. Hogan stated that the Governor's FY 04 budget request includes
funds to undertake the internal auditing functions. He noted that
the House of Representatives and the Senate have approved this
funding.
Mr. Hogan expressed that this legislation is a result of the
"realization" that although internal audits had been conducted in
the past, no statutory direction exists to require them. This bill
would create the statutory direction, he said.
Mr. Hogan stated that in the undertaking of an internal audit it is
appropriate that the information is kept confidential. He informed
that testimony relevant to an audit is sometimes discovered but for
various reasons must be kept confidential. He noted this
legislation allows access to this information by auditors, similar
to the authority granted to the Division of Legislative Audit. He
pointed out a difference in that the information secured by the
Division of Legislative Audit is kept confidential until the
Legislative Budget and Audit Committee and affected State agencies
review the audit, at which time the information is released. By
contrast, he explained the information gathered in audits conducted
by the Office of Management and Budget would remain confidential
until it is released by direction of the governor.
Mr. Hogan emphasized the Office of Management and Budget would be
unable to conduct audits similar to the Division of Legislative
Audit, but rather could only conduct audits on activities within
the Executive Branch.
Senator Hoffman saw the need for this function; however he was
concerned with the absence of a defined date in which completed
audits must be released. He surmised from the witness' testimony
that the governor could determine whether the information is never
released. Senator Hoffman suggested language in the bill to provide
for timelines for release to ensure the legislature and the public
would have access to the outcome of the audits.
Mr. Hogan pointed out that no specific release date is required for
legislative audits. He predicted situations in which such releases
would not be advisable, exampling a personnel audit conducted as a
result of alleged impropriety involving "matters of delicacy". He
expressed that it would be conceivable that an audit might never be
completed although the problem itself was resolved.
Co-Chair Wilken clarified the witness would prefer not to specify a
date certain in this bill.
Mr. Hogan remarked that "great effort" was taken to follow the
legislative audit process, which he opined has worked well since
statehood. He surmised that the Governor would prefer to use
discretion.
Senator Hoffman countered that despite information held
confidential until release, members of the legislature could review
that information. In contrast, he stated this legislation would not
provide the same option.
Mr. Hogan relayed that the House State Affairs Committee discussed
the issue and determined that language in Section 3 amending AS
44.19.147. Internal audit records., on page 2, lines 5-9 of the
committee substitute, satisfied the concerns of the Division of
Legislative Audit. This language reads as follows.
…However, internal audit work papers and other related
supportive material containing information, data, estimates,
and statistics obtained during the course of an audit
conducted under AS 44.18.145(a) may be kept confidential only
to the extent required by law applicable to the agency from
which the material is or was obtained.
Senator Taylor offered a motion to report the bill from Committee
with individual recommendations and accompanying fiscal note.
Without objection CS HB 243 (STA) MOVED from Committee with zero
fiscal note #2 from the Office of the Governor.
SENATE CS FOR CS FOR HOUSE BILL NO. 61(RES)
"An Act establishing an exploration and development incentive
tax credit for operators and working interest owners directly
engaged in the exploration for and development of gas for sale
and delivery without reference to volume from a lease or
property in the state; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill, "allows a tax credit equal
to ten percent of qualified capital investment as well as annual
labor, seismic and associated costs related to gas exploration and
development south of the Brooks Range."
REPRESENTATIVE MIKE CHENAULT testified that this bill creates a new
income tax credit to encourage increased exploration and
development of natural gas reserves south of the Brooks Range. He
informed that to qualify for the tax credit, operators must
successfully drill and develop new reserves that produce natural
gas for sale and delivery. He pointed out that no credits would be
given for "dry holes."
Representative Chenault remarked that Cook Inlet and other areas of
the State have "great potential" for additional natural gas
development; however, the combination of exploration risk and high
development costs have created a disincentive to drill for new
reserves compared to other areas of the world. He predicted that
providing this tax credit more exploration would occur in southern
Alaska, leading to "much needed" new natural gas reserves, which
would benefit residents of those communities as well as all
residents of the State and businesses.
Representative Chenault furthered that in addition to the benefits
of developing new gas reserves increased drilling would also aid
general economic status of the Kenai Peninsula, Anchorage and other
areas of Alaska.
Representative Chenault opined that increased revenues from gas
production would offset any fiscal impact of the proposed credit.
Senator Bunde noted the fiscal note indicates zero fiscal impact of
this legislation, and asked how this would be possible given the
proposed tax credit.
CHARLES LOGSDEN, Chief Petroleum Economist, Tax Division,
Department of Revenue, testified via teleconference from an offnet
location, that the tax credit requires successful discovery and
development. He informed that the Cook Inlet produces approximately
210 billion cubic feet (bcf) annually and hypothetically a new
discovery of an additional 100 bfc would generate approximately $50
million per year in general fund revenue. He stated that the
unknown amount of gas that would be discovered is an uncertainty
for the Department of Revenue in estimating the fiscal impact of
this bill. He explained the tax credit would be the "State's
participation" in the risk of exploration and development, which
would only be realized if the exploration were successful. He
qualified that the proposed tax credit is not risk free for the
State, in that the marketplace could become such as to provide
incentive for exploration and development.
Co-Chair Wilken referenced a handout titled, "House Bill No. 61,
Gas Exploration and Tax Credit" prepared by Marathon Oil Company
[copy on file], which details the matter further on pages 13 and
14.
Senator Bunde stated for the record that the tax credit would not
be extended without successful discovery. However, he stressed that
after discovery, the State could receive less revenue than if the
tax credit were not enacted, although "it may be a very good
bargain." He predicted the impact would be beneficial as
exploration would occur in new areas and because the State would
receive no revenue without exploration efforts. He opined that the
fiscal note should reflect negative revenue.
Senator B. Stevens relayed that Representative Hawker and a
representative from Marathon Oil Company gave a presentation on
this bill before the Senate Resources Committee, on which Senator
B. Stevens serves. He directed attention to page 13 of the
aforementioned handout, a spreadsheet titled "Fiscal Impact to
State of Alaska". He detailed a hypothetical project with $100
million development costs that discovered a producible reserve,
which would generate $500 million in gross revenues, 12.5 percent
royalty of $62,500,000, a 7.5 percent severance tax of $37,500,000,
and a property tax increase of $4.2 million, totaling $104 million
in taxes collected by the State. He emphasized this revenue would
only be generated if the $100 million exploration and development
investment were made. He clarified the ten percent tax credit would
be applicable to the corporate tax income.
Senator B. Stevens continued that after review by the Senate
Resources Committee, he concluded this legislation provides a
"success tax credit". He furthered that the tax credit would have
no negative impacts because if the exploration is unsuccessful and
new revenue is not generated the tax credit would not apply.
Senator Bunde stated that a $10 million impact would be realized.
He surmised that a $100 million return on a $10 million investment
is "wise" and emphasized he does not oppose the program. However,
he disagreed that "there is a free lunch" and he questioned the
zero fiscal note.
Senator B. Stevens and Senator Bunde continued to debate the point.
DOUG THEIRWECHTER, Marathon Oil Company, testified via
teleconference from an offnet location in Houston, Texas, to answer
questions.
JOHN BARNES, Manager of Alaska Operations, Marathon Oil Company,
testified via teleconference from an offnet location that the
proposed tax credit is an opportunity to "level the playing field"
in favor of the State of Alaska. He explained that corporations
have the ability to invest funds around the world and that this
legislation would "draw more capital" to Alaska. He pointed out
that corporations participating in the exploration and development
efforts would expend ten times the amount received in tax credit
and the State should receive up to ten times the amount in
additional revenues. Therefore, he remarked that Marathon Oil
Company supports this legislation.
Senator Taylor asked why the tax credit is necessary for gas
exploration when that is the "business" of Marathon Oil Company. ,
Mr. Barnes agreed that part of every producer's business is to
explore for oil and gas in various parts of the world. However, he
stressed that Alaska "is disadvantaged in many areas when it comes
to seeking investment opportunities, or drawing other companies in
to invest in the State of Alaska." He gave an analogy of a sale at
a retail store to provide incentive to attract customers.
Mr. Barnes reported that although the need exists for additional
gas exploration "has been noted in the marketplace", industry
activity has been insufficient in Cook Inlet to replace the
declining reserves.
Senator Taylor asked if the witness were asserting that Alaska's
tax structure "is so high" as to impede industry investment and
that a ten percent discount would guarantee investment.
Mr. Barnes testified that investments are not occurring for various
reasons, including the tax structure, and that this credit would
"hopefully be seen as a positive sign by industry and result in
additional activities south of the Brooks Range in Alaska."
Co-Chair Wilken asked if Alaska currently has "a zero exploration
tax credit" and whether any other government has the same.
Mr. Logsden clarified that two exploration tax credits currently
exist in Alaska. He explained that the commissioner of the
Department of Revenue could issue a tax credit to cover up to 50
percent of the cost of an exploration well, which could be applied
to royalties, severance tax or corporate income tax. He qualified
that this provision has not been invoked for the past eight years.
Senator Hoffman asked if the Kenai Peninsula Borough has considered
granting a property tax credit as well.
Representative Chenault had not discussed the issue with Borough
officials. He pointed out however, that the Borough assesses
approximately 11 mils of the 20 mils collected, allowing the
remainder to be paid to the State. He compared this to other
communities, specifically the North Slope Borough, which collects
the entire 20 mils.
Amendment #1: This amendment inserts, "east of meridian 156
degrees" into Section 1, Sec. 43.20.043. Gas exploration and
development tax credit. The amended language on page 3, lines 10
through 14 reads as follows.
(f) A taxpayer is not entitled to a credit under this
section for expenditures that are made or incurred for the
qualified capital investment or for qualified services made
for exploration and development of gas that occur in the area
of Alaska lying north of 68 degrees North latitude and east of
meridian 156 degrees or that are made or incurred to transport
gas from reserves located in the area of Alaska lying north of
68 degrees North latitude and east of meridian 156 degrees.
Senator Olson moved for adoption, asserting that this prevents
one area of the State from being "singled out". He opined, "If
it's good for the rest of Alaska it ought to be good for places
like Point Hope, Point Lay, Wainright."
Co-Chair Wilken requested an explanation of the areas included in
the provisions of the amendment.
Senator Olson directed attention to a map showing the areas west of
th
the 156 meridian, which includes the aforementioned villages plus
Cominco."
Co-Chair Wilken asked for an explanation of the amendment itself.
Senator Olson stated the amendment would extend the tax credit to
the additional areas, although not to the entire State.
SFC 03 # 89, Side A 10:48 AM
Co-Chair Wilken and Senator Olson established the locations that
would receive the credit.
th
Co-Chair Wilken asked whether the 156 meridian has been used as a
line of demarcation in other legislation or matters relating to oil
and gas.
Senator Olson was unsure.
Co-Chair Wilken requested the sponsor's comments on the amendment.
Representative Chenault relayed concerns about the possibility of
shallow gas located near the Red Dog Mine. He stated that
previously adopted legislation relating to taxation of oil and gas
development utilized 68 degrees latitude as a delineation.
Co-Chair Wilken interjected to ask if the sponsor favors or opposes
the amendment or whether it should be addressed in separate
legislation.
Representative Chenault indicated it should be addressed in
different legislation.
Senator Taylor commented that this amendment raised the question of
the need for a ten percent tax credit to stimulate the economy in
one geographic region of the State, although other locations where
gas reserves have been identified are not developed because
producers are unwilling to construct a pipeline to transport the
gas to tidewater.
Co-Chair Wilken ordered the bill HELD in Committee. [The motion to
adopt Amendment #1 was subsequently TABLED.]
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:51 AM
| Document Name | Date/Time | Subjects |
|---|