Legislature(2007 - 2008)SENATE FINANCE 532
05/08/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB80 | |
| SB27 | |
| SB116 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 80 | TELECONFERENCED | |
| += | SB 27 | TELECONFERENCED | |
| += | SB 116 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
May 8, 2007
9:12 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:12:26 AM.
PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Kim Elton
Senator Joe Thomas
Senator Fred Dyson
Senator Donny Olson
Also Attending: SENATOR TOM WAGONER; MARY JACKSON, Staff to
Senator Wagoner; KEVIN BANKS, Acting Director, Division of Oil
and Gas, Department of Natural Resources; TOM OBERMEYER, Staff
to Senator Davis; JANET CLARKE, Assistant Commissioner, Finance
and Management Services, Department of Health and Social
Services; JESSE KIEHL, Staff to Senator Elton;
Attending via Teleconference: JOHN IVERSEN, Director, Tax
Division, Department of Revenue.
SUMMARY INFORMATION
9:12:32 AM
SB 80-OIL & GAS PRODUCTION TAX: EXPENDITURES
The Committee heard from the sponsor, the Department of Natural
Resources, and the Department of Revenue. One amendment was
adopted and the bill was reported from Committee.
SB 27-MEDICAL ASSISTANCE ELIGIBILITY
The Committee heard form the sponsor. A committee substitute was
adopted and the bill was reported from Committee.
SB 116-UNIFORM MONEY SERVICES ACT
The Committee heard form the sponsor. A committee substitute was
adopted and the bill was reported from Committee.
9:13:07 AM
CS FOR SENATE BILL NO. 80(RES)
"An Act relating to allowable lease expenditures for the
purpose of determining the production tax value of oil and
gas for the purposes of the oil and gas production tax; and
providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
9:13:27 AM
Senator Thomas asked for an explanation of changes in the Senate
Resources Committee substitute from the original version of the
bill. He observed that subsection (C) of subparagraph (19) added
to AS 43.55.165(e) by Section 1 of the bill did not appear in
the current version, and asked if that was an amendment
recommended by the sponsor.
9:15:08 AM
MARY JACKSON, Staff to Senator Tom Wagoner, informed that
Senator Wagoner had opposed the majority of the amendments made
to this bill, including the deletion of the former subsection
(19)(B).
9:16:04 AM
Senator Thomas asked why Senator Wagoner had objected to the
revisions.
Ms. Jackson qualified that subsections (19)(A), (B) and (C) were
all amended by the Senate Resources Committee. She could not
speak to the reasoning behind those modifications, but
maintained Senator Wagoner's objection.
9:16:41 AM
Senator Huggins shared that he had proposed the amendment based
on testimony form the Alaska Oil and Gas Conservation Commission
(AOGCC) that the shut down of operations of a pipeline was a
policy call. He referenced an analogy to airplane maintenance,
in that cost-benefit and risk analysis would be assessed to
determine whether to ground a plane to perform maintenance, thus
losing revenues but increasing safety. Prohibiting a company
from writing off costs associated with a shutdown to conduct
maintenance would create a disincentive to perform that
maintenance.
9:17:49 AM
Ms. Jackson affirmed the AOGCC's statement, adding that when the
amendment was presented in the Senate Resources Committee the
Department of Natural Resources and Department of Revenue were
not consulted as to the Palin Administration's position on the
amendment. Representatives from those departments were available
to speak to the issue.
9:18:42 AM
KEVIN BANKS, Acting Director, Division of Oil and Gas,
Department of Natural Resources characterized the airplane
analogy as "apt". He opined that in the case of an emergency, a
producer would first address the safety concern without regard
to the tax ramifications. Speaking as an economist, he allowed
that the impact tax incentives could have on behavior was
difficult to detect. He reiterated his expectation that oil and
gas producers would react swiftly to abate any problems that
arose, and "worry about" the tax consequences later.
9:21:14 AM
Senator Thomas understood the intent of the amendment to allow
tax deductions for corrosion control activities or corrosion-
related shut-downs, expenses that were not deductible under the
original version of the bill.
9:22:04 AM
Mr. Banks understood that the current version of the bill would
disallow deductions both for costs to bring a facility "back
online" if it was shut down for maintenance reasons, and for
costs related to diminished production of a field due to
maintenance or repair issues.
9:23:10 AM
Senator Elton asked if Mr. Banks would agree with the analysis
provided by John Norman, commissioner and chairman of the AOGCC.
9:23:36 AM
Mr. Banks had not read the opinion submitted by Mr. Norman, but
understood Mr. Norman to imply that the removal of subsection
(B) created an incentive keep a facility operational in the
event that a shut-down was necessary to repair a fault. Mr.
Banks disagreed with that premise.
9:24:02 AM
Senator Huggins surmised that subsection (19)(A) of Section 1 of
the bill would prohibit a company from taking a tax deduction
for any expenses related to repairing improperly maintained
equipment, regardless of whether the expense could be construed
as an operating cost. He relayed that Mr. Norman warned against
any provision that may act to discourage a company from
performing maintenance, and that this provision appeared to have
that effect.
9:25:11 AM
Senator Thomas assumed that subsection (19)(A) would prohibit
the award of a tax credit for expenses related to corrosion
control. If that understanding was shared by the entire
Committee, he would be satisfied with the language of the bill.
9:26:00 AM
Senator Dyson asked that Mr. Iverson be allowed to testify.
9:26:12 AM
JOHN IVERSEN, Director, Tax Division, Department of Revenue,
testified that Mr. Norman had stated in his letter: "denial of
operational capability maintenance costs could discourage
operators from shutting down when in fact a complete shut-down
is the most prudent course of action." Mr. Iverson aligned
himself with Mr. Banks' position, and questioned whether the tax
effect would impact an operator's decision to shut down. The
immediate impacts in terms of safety concerns and equipment
damage would be more important factors in the determination to
shut a facility down than would the tax implications.
9:27:37 AM
Senator Dyson asked the practical impact of the amendment that
was made to the bill in the Senate Resources Committee.
9:28:01 AM
Mr. Iversen replied that subsection (19)(A) was "very broad",
while the former subsection (B) referred to the costs of
"keeping a facility warm" while the facility was shut down due
to improper maintenance. Under the original bill subsection (B)
would have excluded those specific costs. This policy decision
was left to the legislature to determine if the specific
language was required, or if those costs would be included under
subsection (A).
9:29:38 AM
Mr. Banks hypothesized a power failure due to improper
maintenance. Under subsection (A), the costs of replacing the
electrical equipment would not be deductible if the failure was
determined to have been caused by improper maintenance. Under
subsection (B), the cost of a generator that was procured to
enable continued operations of the facility during the
electrical repairs would likewise be ineligible for tax
deductions.
9:30:33 AM
Senator Elton asked why the generator costs would not be
addressed by subsection (A).
9:31:17 AM
Mr. Banks responded that the difference was due to the
"proximity" of the expense to the issue.
9:31:38 AM
Senator Dyson shared that he had performed equipment maintenance
for BP in Prudhoe Bay for ten years, during which time it was
his job to ensure that operations did not cease due to
mechanical malfunctions. During that time in the 1970s and early
1980s, tremendous profits were made by producers and it was
"unthinkable" that operations would be interrupted due to
equipment failure. He recommended rescinding the action taken by
the Senate Resources Committee with regard to subsection (19) of
the bill.
9:33:56 AM
Co-Chair Stedman suggested Senator Dyson offer an amendment.
9:34:06 AM
Senator Dyson and Co-Chair Stedman discussed the content of the
amendment.
9:35:55 AM
Ms. Jackson informed that the sponsor supported all of the
changes made by the Senate Resources Committee with the
exception of the deletion of subsection (B). She suggested the
reinsertion of that subsection.
9:36:37 AM
Amendment #1: This conceptual amendment inserts the language of
AS 43.55.165(e)(19)(B) amended by Section 1 of SB 80 on page 3
lines 25 through 27 to the language of AS 43.55.165(e)(19)
amended by Section 1 of CS SB 80(RES) on page 3 following line
26. The inserted language reads as follows.
(B) incurred to maintain the operational
capability of facilities or equipment shut down
because of improper maintenance of property or
equipment; or
Senator Dyson moved for adoption.
9:37:19 AM
Senator Huggins objected, explaining that he had supported the
amendment offered in the Senate Resources Committee, but now
supported rescinding that action. He removed his objection.
9:38:18 AM
Senator Olson asked if a representative from the oil and gas
industry was available for comment.
Co-Chair Stedman objected for the purpose of a comment by the
industry.
Senator Olson stated that the oil and gas industry would be the
affected party, and thus should be allowed to speak to the
amendment.
9:38:49 AM
Ms. Jackson corrected that Senator Dyson read the amendment as
"capacity" rather than "capability" as contained in SB 80.
Senator Dyson affirmed that the correct language was
"capability".
9:39:32 AM
Co-Chair Stedman removed his objection, as no comment was
forthcoming from the industry.
Without further objection the amendment was ADOPTED.
9:39:50 AM
Co-Chair Stedman commented that the legislature was concerned
with the methodology used to evaluate improper maintenance and
problems due to old infrastructure. He sought to ensure that
producers would not employ "creative accounting" to abuse tax
credits offered by the State. He asked that the Department of
Natural Resources and the Department of Revenue review the oil
basin infrastructure and report back to the Committee the
following legislative session to determine if the 30 cent per
barrel deduction was appropriate, or if adjustments were
necessary.
9:42:17 AM
Co-Chair Hoffman offered a motion to report CS SB 80 (RES), as
amended, from Committee with individual recommendations and new
and accompanying fiscal notes.
There was no objection, and CS SB 80 (FIN) was MOVED from
Committee with previous zero fiscal note #1 from the Department
of Administration, zero fiscal note #2 from the Department of
Environmental Conservation, fiscal note #3 in the amount of
$124,900 from the Tax Division of the Department of Revenue, and
new zero fiscal note from the Oil Gas Division of the Department
of Natural Resources dated 5/08/07.
9:43:02 AM
CS FOR SENATE BILL NO. 27(HES)
"An Act relating to eligibility requirements for medical
assistance for certain children, pregnant women, disabled
persons, and persons in medical or intermediate care
facilities; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
9:43:17 AM
Co-Chair Hoffman moved to adopt CSSB 27 25-LS0211\E, as a
working document.
There was no objection, and Version "E" was ADOPTED as a working
document.
TOM OBERMEYER, Staff to Senator Bettye Davis, informed that this
version of the bill would change income eligibility requirements
for individuals nineteen years of age and younger from 200
percent of the federal poverty level to 175 percent of that
level. It would also revert the income eligibility requirements
for the elderly to an income level not to exceed $1,656 per
month, rather than 300 percent of the supplemental security
income benefit as called for in the original version of the
bill. The fiscal impact of these changes was explained in the
new fiscal notes and summary accompanying the committee
substitute. These changes in the bill resulted in the Denali Kid
Care program being the only program listed as an impact in the
bill summary, at a cost of $2,691,500. He assumed that the
federal contribution of $1,907,400 represented a 70 percent
share. The changes were designed to retain Denali Kid Care
coverage for children who would otherwise not qualify for this
program.
9:46:46 AM
JANET CLARKE, Assistant Commissioner, Finance and Management
Services, Department of Health and Social Services informed that
the three fiscal notes related to the bill were accompanied by a
summary. The changes made in the current version of the bill
caused a significant reduction in cost. The general fund
expenditures in the original bill totaled $4.6 million, and the
current version had reduced that number to less than $800,000.
The total estimated cost of the legislation was $2,691,500 with
general fund expenditures of $783,500. Two of the fiscal notes
related to the Medicaid program, and a third was an
administrative fiscal note.
9:48:23 AM
Senator Thomas observed that the fiscal note indicated that
approximately one half of the number of children would receive
services under this version of the bill as compared to the
original version.
Ms. Clarke affirmed, explaining that the current eligibility
level was approximately 154 percent of the federal poverty
level, and the current version of the bill would increase that
to 175 percent, adding an additional 1277 children to the
program. If the eligibility was increased to 200 percent, as was
originally proposed, the increase in children served would be
double the current increase.
9:49:16 AM
Co-Chair Hoffman moved to report CS SB 27, 25-LS0211\E, from
Committee with individual recommendations and new and
accompanying fiscal notes.
Co-Chair Stedman objected for the purpose of discussion.
Senator Dyson thanked the Committee for assisting in the
drafting of a bill he would support.
Co-Chair Stedman removed his objection.
There was no further objection and CS SB 27 (FIN) was MOVED from
Committee with previous fiscal note #4 from the Department of
Health and Social Services Senior and Disabilities Medicaid
Services for $5,130,100 and previous zero fiscal note #5 from
the Department of Corrections Office of the Commissioner, as
well as new fiscal notes from the Department of Health and
Social Services for Medicaid Services in the amount of
$2,195,400 dated 5/08/07, Behavioral Health Medicaid Services
for $455,900 dated 5/08/07 and Public Assistance Field Services
in the amount of $40,200 dated 5/08/07.
AT EASE 9:50:55 AM/9:51:09 AM
CS FOR SENATE BILL NO. 116(L&C)
"An Act relating to the Uniform Money Services Act, to
money transmission services, and to currency exchange
services; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
9:52:19 AM
Senator Elton moved to adopt CS SB 27, 25-LS0508\N, as a working
document.
There was no objection and Version "N" was ADOPTED.
Senator Elton informed that the new version of the bill
contained minor definitional changes.
9:53:03 AM
JESSE KIEHL, Staff to Senator Kim Elton, testified that Section
06.55.103 added by Section 1 of the committee substitute
clarified that an individual who received a money services
license and was licensed in another state with similar laws to
Alaska had the right to appeal if the application in Alaska was
denied. The second change appeared under Definitions Section
06.55.990 added by Section 1 of the committee substitute and
would add a provision to the definition of "bank". Banks would
be exempt from the requirements of this bill, as they were
regulated elsewhere in statute. This modification would bring
the State into compliance with the recent U.S. Supreme Court
decision in Watters v. Wachovia.
9:54:33 AM
Co-Chair Hoffman moved to report CS SB 116, 25-LS0508\N, from
Committee with individual recommendations and accompanying
fiscal note.
There was no objection and CS SB 116 (FIN) was MOVED from
Committee with previous $80,000 fiscal note #1 from the
Department of Commerce, Community and Economic Development
Banking and Securities Division.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 9:58:56 AM
| Document Name | Date/Time | Subjects |
|---|