Legislature(2011 - 2012)SENATE FINANCE 532
03/30/2012 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB91 | |
| SB119 | |
| HB65 | |
| HB104 | |
| SB192 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 284 | TELECONFERENCED | |
| += | HB 285 | TELECONFERENCED | |
| += | SB 192 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 91 | TELECONFERENCED | |
| += | SB 119 | TELECONFERENCED | |
| += | SB 182 | TELECONFERENCED | |
| += | HB 65 | TELECONFERENCED | |
| += | HB 104 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
March 30, 2012
9:04 a.m.
9:04:54 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:04 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lesil McGuire, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Senator Linda Menard; Shyan Ely, Intern, Senator Lesil
McGuire; Senator Kevin Meyer; Christine Marasigan, Staff,
Senator Kevin Meyer; Senator Kevin Meyer; Edra Morledge,
Staff, Senator Meyer; Timothy Clark, Staff, Representative
Bryce Edgmon; Darwin Peterson, Staff, Senate Finance
Committee; Diane Barrans, Executive Director, Postsecondary
Education Commission, Department of Education; Janak Mayer,
Manager, Upstream and Gas, PFC Energy; Senator Cathy
Giessel; Senator Joe Paskvan
SUMMARY
SB 91 SPORT FISHING GUIDING SERVICES
SB 91 was REPORTED out of committee with a "do
pass" recommendation and with the accompanying
previously published fiscal note: FN2 (DFG).
SB 119 ATHLETIC TRAINER LICENSING
SB 119 was REPORTED out of committee with a "do
pass" recommendation and with accompanying new
fiscal impact note from the Department of
Commerce, Community and Economic Development; and
new zero fiscal note from the Department of
Administration.
SB 182 PUPIL TRANSPORTATION FUNDING
SB 182 was REPORTED out of committee with a "do
pass" recommendation, attached Letter of Intent
from the Department of Education and Early
Development and with a new fiscal impact note
from the Department of Education and Early
Development.
HB 65 SENIOR CITIZEN HOUSING DEV. FUND GRANTS
HB 65 was REPORTED out of committee with a
"do pass" recommendation and with a new zero
fiscal note from the Department of Revenue.
CS HB 104(RLS)
ALASKA PERFORMANCE SCHOLARSHIPS
CS HB 104(RLS) was REPORTED out of Committee
with individual recommendations and with a new
fiscal impact note from the Senate Finance
Committee for the Department of Education and
Early Development, a new fiscal impact note from
the Department of Education and Early
Development, a new zero fiscal note from the
Department of Education and Early Development,
and an indeterminate fiscal note from the
Department of Revenue.
SB 192 OIL AND GAS PRODUCTION TAX RATES
SB 192 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 91
"An Act amending the termination date of the licensing
of sport fishing operators and sport fishing guides;
and providing for an effective date."
9:06:51 AM
SHYAN ELY, INTERN, SENATOR LESIL MCGUIRE, highlighted SB
91. Senate Bill 91 will ensure the continuation of Alaska's
sport fish guide licensing and reporting program.
Legislation authorizing the program was passed in 2004 and
the program has proven beneficial to both the sport fishing
industry and resource managers. With more than 1.8 million
clients, 88 percent of whom are nonresidents, taking more
than 460,000 guided fishing trips in Alaska annually;
guided sport fishing has become an integral part of
Alaska's tourism economy. In fact, a study commissioned by
the Alaska Department of Fish and Game estimated that
nonresident spending on sport fishing was more than $650
million in 2007. Since the program's inception, an average
of 1,670 sport fishing business licenses and 1,981 sport
fishing guide licenses have been sold annually. She stated
that 90 percent of license holders are Alaska residents and
the professionalization of the sport fishing guide industry
has benefitted both the industry and the resource. The data
collected through the program provides the information
state and federal managers need to sustainably manage sport
fish populations. The program also allows Alaska to receive
an exemption from the National Saltwater Angler Registry; a
federal program that would begin levying fees for
registration in 2011. Recognizing the importance of the
program, the Alaska legislature extended the program's
termination date for one year in 2010; SB 91 proposes to
amend the program's associated termination language in
existing statutes in order to allow this valuable program
to continue serving Alaskans and their valuable fishery
resources.
Co-Chair Stedman noted the one previously published fiscal
impact note from the Department of Fish and Game.
Co-Chair Hoffman MOVED to report CS SB 91 (FIN) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ORDERED.
SB 91 was REPORTED out of committee with a "do pass"
recommendation and with the accompanying previously
published fiscal note: FN2 (DFG).
SENATE BILL NO. 119
"An Act relating to the licensing and regulation of
athletic trainers."
9:10:26 AM
CHRISTINE MARASIGAN, STAFF, SENATOR KEVIN MEYER, explained
that SB 119 would amend current statutes to establish
licensing and regulation of athletic trainers in the State
of Alaska. Athletic Trainers are certified, health care
professionals who practice in the field of sports medicine.
This profession plays a significant role in the management,
prevention, recognition and rehabilitation of injured
athletes under the supervision of a licensed physician. As
people become increasingly more active, athletic trainers
are a vital resource in administering immediate emergency
care as well as injury prevention and treatment programs.
The National Athletic Trainer's Association (NATA), which
was founded in 1950, is the professional membership
association for certified athletic trainers. According to
NATA, Alaska is one of the few states that do not currently
license athletic trainers. Should SB 119 pass, athletic
trainers would be required to have a license to practice in
the State of Alaska.
Co-Chair Stedman pointed out one zero fiscal note from the
Department of Administration (DOA); and one fiscal note
from the Department of Commerce, Community and Economic
Development (DCCED) for $26.5 million in receipt supported
services in FY 13, and $1.8 million in the out-years.
Co-Chair Hoffman MOVED to report CS SB 119 (L & C) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ORDERED.
SB 119 was REPORTED out of committee with a "do pass"
recommendation and with accompanying new fiscal impact note
from the Department of Commerce, Community and Economic
Development; and new zero fiscal note from the Department
of Administration.
SENATE BILL NO. 182
"An Act amending the amount of state funding provided
to school districts for pupil transportation."
SENATOR KEVIN MEYER, explained that school districts in the
state of Alaska are facing shortfalls in overall funding,
in part due to the rising cost of pupil transportation
programs. It is costing more each year to transport our
students safely to and from school. Senate Bill 182 changes
the pupil transportation funding, which allows school
districts to keep more of their foundation funding in the
classroom. Currently most districts have to subsidize their
pupil transportation programs, which takes foundation
formula dollars out of the classroom. This legislation
recalibrates the funding for pupil transportation based on
the most recent audits by the Department of Education and
Early Development. The amounts will be adjusted annually
according to the Consumer Price Index (CPI) for Anchorage.
This change allows the funding to match the amounts agreed
to in their most recent contract negotiations, providing a
more realistic figure for the actual cost of pupil
transportation. Although pupil transportation is an
indirect cost of education, it is extremely important in
Alaska. Road conditions are often dangerous, daylight
during the school year is minimal, and sometimes the
distance of transporting students is immense.
Co-Chair Stedman noted the new fiscal impact note from the
Department of Education and Early Development.
Senator Olson wondered how many school districts would be
impacted by the bill. Senator Meyer replied that the bill
would benefit every school district that currently offered
school transportation.
EDRA MORLEDGE, STAFF, SENATOR MEYER, furthered that the
bill represented 49 school districts out of 53 in the
state.
Senator Olson surmised that the bill applied to the school
districts that currently provided transportation services.
Ms. Morledge agreed. She added that if the four school
districts that did not currently provide transportation
decided to provide transportation in the future, those
districts would benefit from the proposal.
Co-Chair Hoffman MOVED to report CS SB 182 (EDC) out of
committee with individual recommendations, attached letter
of intent, and the accompanying fiscal note. There being NO
OBJECTION, it was so ORDERED.
SB 182 was REPORTED out of committee with a "do pass"
recommendation, attached Letter of Intent from the
Department of Education and Early Development, and with a
new fiscal impact from the Department of Education and
Early Development.
HOUSE BILL NO. 65
"An Act making regional Native housing authorities
eligible to receive grants through the Alaska Housing
Finance Corporation from the senior citizens housing
development fund."
9:16:10 AM
TIMOTHY CLARK, STAFF, REPRESENTATIVE BRYCE EDGMON,
highlighted the features of HB 65. He stated that HB 65
would benefit senior citizens across the state by including
regional housing authorities among the entities eligible
for grants through the Alaska Housing Finance Corporation's
Senior Citizens Housing Development Fund (SCHDF). The SCHDF
contributed funding to organizations that develop quality
housing for older Alaskans, who make up the fastest growing
segment of our population. While SCHDF grants had been
available to municipalities and 501 c(3) and (4) nonprofits
since the fund's inception, Alaska's regional housing
authorities had not been eligible. House Bill 65, which had
the support of the Alaska Housing Finance Corporation
(AHFC), will correct that omission. IN most cases, grants
through the SCHDF complement funding from a variety of
other sources. Often and ACHDF grant was the final piece of
the puzzle that allowed a project to go forward. Funds can
be put toward pre-development expenses and new construction
as well as acquisition of properties, accessibility
modifications, and rehabilitations. Alaska's 14 regional
housing authorities span from Ketchikan to Barrow and were
among the state's most experience developers of affordable
housing. Making housing authorities eligible for grants
would not increase spending through the SCHDF. It may,
however, widen the selection of projects competing for
grants and increase AHFC's ability to more effectively
allocate funding.
Co-Chair Stedman pointed out the one zero fiscal note from
the Department of Transportation and Public Facilities
Co-Chair Hoffman MOVED to report HB 65 out of committee
with individual recommendations and the accompanying fiscal
note. There being NO OBJECTION it was so ORDERED.
HB 65 was REPORTED out of committee with a "do pass"
recommendation and with a new zero fiscal note from the
Department of Revenue.
9:19:06 AM
AT EASE
9:24:21 AM
RECONVENED
CS FOR HOUSE BILL NO. 104(RLS)
"An Act renaming the Alaska performance scholarship
and relating to the scholarship and tax credits
applicable to contributions to the scholarship;
relating to AlaskAdvantage education grant funding and
to Alaska performance scholarship funding;
establishing an account and fund for those purposes;
making conforming amendments; and providing for an
effective date."
Co-Chair Hoffman MOVED to ADOPT the proposed committee
substitute for CS HB 104 (RLS), Work Draft 27-GH1893\S
(Mischel 3/28/12). Co-Chair Stedman OBJECTED for the
purpose of discussion.
9:25:31 AM
DARWIN PETERSON, STAFF, SENATE FINANCE COMMITTEE, explained
the changes in the Work Draft. He explained the changes
between committee substitute versions R and S. He stated
that page 2 of the work draft, lines 9 and 10 inserted the
words, "an institutional accrediting body recognized by the
United States Secretary of Education." He looked at page 2,
lines 23 and 24 that added the words, "Alaska residents who
have attained an Alaska high school diploma by examination
after January 1, 2011." He explained that the phrase "high
school diploma by examination" was the proper way to refer
to students who had received their General Education
Development (GED). Page 3, line 7 added the exception for
provisions of subsection C, which were the new high school
diploma by examination component. Page 3, line 9 made an
exception for subsection D, which was the waiver of the
core academic requirements. Page 4, lines 3 through 30 was
the new grace period language. He stated that the new grace
period language was taken directly from the regulations,
and was only slightly modified. The grace period that was
in regulation expired with the graduating class of 2012, so
the new language continued the grace period, so the
Commissioner can waive the requirements. He quoted the
grace period language:
The Commissioner shall waive the core academic
requirements for a high school graduate, if the
student submits and application providing proof the
student was unable the academic requirements because
of illness or disability or because those courses were
not available in the student's school district. The
Commissioner has thirty days to approve or deny an
application for waiver. High school graduates who
receive the waiver will then have twelve months to
finish the core academic requirements in a school
district that sponsors that student.
Mr. Peterson stated that GED graduates would have 24 months
to complete the core academic requirements.
Mr. Peterson stated that page 5, lines 5, 11, and 17 had
deleted the word, "diploma", because it was considered
incorrect terminology. He looked at page 7, line 19, which
changed the date from October 1 to September 1 of each
fiscal year. Page 7, lines 21 through 25 inserted new
language:
If an insufficient number of qualified applicants are
awarded grants before the end of the fiscal year, the
commissioner shall redeposit the remaining funds into
the Alaska Higher Education Investment Fund.
Mr. Peterson explained that, of the earnings from the
principal of the $400 million fund, two-thirds would go
into scholarships, and one-third would go to grants. If
there were not enough students that could use all of the
scholarship funding that was available, the remaining
balance of the funding will go into the grants. If there
were not enough students to use all the available grant
funding, whatever was leftover at the end of the year will
be deposited into the overall Higher Education Investment
Fund to be used in the subsequent fiscal year.
Mr. Peterson looked at page 7, line 26. He stated that it
was not a change, but was the small school carve-out
provision that was staying in the bill. Page 8, lines 6 and
7 was a change that stated, "the commission shall redeposit
the remaining amount back into the fund from which it
originated."
Mr. Peterson looked at page 16, lines 24 through 26, which
displayed transition language that identified that the $400
million that was appropriated to the AHFC in the year
prior, and would be used to capitalize the new Alaska
Higher Education Investment Fund. Page 17, at the request
of the department, made changes to the effective dates in
order to make the program easier to manage.
Mr. Peterson looked at page 9, lines 2 through 5, which was
the payout mechanism in the legislation.
Co-Chair Hoffman wondered if there was a consideration to
accommodate the grant portion by adding additional funds,
in order for the fund to be more stable. Mr. Peterson
replied that Legislative Finance applied that consideration
of a block for additional deposits.
Co-Chair Stedman felt that the principle would not be
considered until 20 years had passed. He felt that over
time, it may be seen that performance may be substantially
different than what was anticipated.
Co-Chair Hoffman commented that he did not want to work on
the problem in 20 years.
Senator Thomas wondered if the GED examination was the only
acceptable alternative to the high school diploma. Mr.
Peterson deferred that question to the Department of
Education and Early Development.
Co-Chair Stedman WITHDREW his OBJECTION. Seeing NO further
OBJECTION Work Draft 27-GH1893\S was ADOPTED.
9:36:46 AM
DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION
COMMISSION, DEPARTMENT OF EDUCATION, expressed concern
regarding some additions and changes to the committee
substitute. She stressed that the governor remained
committed to the program, and that the program needed to be
strong without a dilution of the message behind the Alaska
Performance Scholarship.
Co-Chair Stedman pointed out one zero fiscal note from
Department of Revenue (DOR), one zero fiscal note from
Department of Education and Early Development (DEED), one
fiscal impact note from the Alaska Commission on Post-
Secondary Education for the Alaska Advantage Education
Grants, and one fiscal impact note from the Senate Finance
Committee.
Co-Chair Hoffman MOVED to report CS HB 104(RLS) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION it was
SO ORDERED.
CS HB 104(RLS) was REPORTED out of Committee with a "do
pass" recommendation and with a new fiscal impact note from
the Senate Finance Committee for the Department of
Education and Early Development, a new fiscal impact note
from the Department of Education and Early Development, a
new zero fiscal note from the Department of Education and
Early Development, and an indeterminate fiscal note from
the Department of Revenue.
9:38:42 AM
AT EASE
9:49:18 AM
RECONVENED
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax;
and providing for an effective date."
JANAK MAYER, MANAGER, UPSTREAM AND GAS, PFC ENERGY,
displayed a PowerPoint presentation titled, "Discussion
Slides: Alaska Senate Finance Committee. March 30, 2012."
Mr. Mayer discussed slide 2, "Difficulties in Existing
Fiscal Structure."
The incorporation of progressivity into the Profit-
Based Production Tax (Net) in ACES creates two
significant problems:
Large-scale gas production at low gas prices could in
the future significantly reduce production tax revenue
from existing oil production.
-Resolving this problem within the framework of ACES
requires significant complexity.
-Approach to decoupling in CSSB 192 requires ability
to split costs between oil and gas production,
creating high degree of administrative burden, and
limiting capacity of state to effectively audit.
Options for incentivizing new production are limited,
and relatively complex.
-Proposed incentives within existing framework focus
on either allowances to reduce Production Tax Value,
or revenue exclusions (tax holiday).
Mr. Mayer spoke to slide 3, "Summary of Progressive
Severance Tax (Gross) Structure."
A Progressive Severance Tax (Gross) option would
instead remove progressivity from the Profit-Based
Production Tax (Net), instead levying this tax at the
flat, base rate of 25 percent.
To retain an element of progressivity, a new
Progressive Severance Tax (Gross) would then be added
to the system. The tax would:
-Be non-deductible for Profit-Based Production Tax
purposes.
-Be levied on gross production (net of royalties).
-Be levied solely on oil.
-The tax would use a progressivity structure not
dissimilar to that under the current system, with
progressivity coefficients that apply at different
thresholds.
Mr. Mayer discussed slide 4, "Summary of Progressive
Severance Tax (Gross) Options."
The first option for the Progressive Severance Tax
would use the following parameters:
1. No severance tax below $65 Gross Value at Point of
Production (GVPP).
2. Progressivity of .25 percent commencing at a
threshold of $65 GVPP.
3. At $125 GVPP, a tax rate of 15 percent is reached.
At this point, progressivity is reduced to 0.05
percent.
4. Progressivity is capped 20 percent
A second option, which would freeze government take at
70 percent at $100/bbl might look like this:
1. No severance tax below $60 Gross Value at Point of
Production (GVPP).
2. Progressivity of .25 percent commencing at a
threshold of $60 GVPP.
3. At $100 GVPP, a tax rate of 10 percent is reached.
At this point, progressivity is reduced to 0.03
percent.
4. Progressivity is capped 20 percent.
9:56:07 AM
Mr. Mayer explained slide 5, "Benefits of Progressive
Severance Tax (Gross) Structure."
By removing progressivity from the Profit-Based
Production Tax (Net), and having the progressive
element of the structure be a Progressive Severance
Tax (Gross), two things become much easier to achieve.
-The issue of gas production reducing production tax
revenue ceases to be a problem without progressivity
in the Profit-Based Production Tax. Complex provisions
to split costs between oil and gas production under
CSSB 192 are thus no longer required.
-Significant incentives can be provided to new
production, by eliminating or reducing the Progressive
Severance Tax (Gross) for new production.
A wide range of levels of government take can be
achieved using this structure, depending on the
parameters applied.
Mr. Mayer discussed slide 6, "WTI Light Sweet Crude-Forward
Curve." He stated that the WTI marker, because was
considered the most liquid. He stated that WTI currently
traded at a discount. In terms of spot prices, there may be
a ten or more dollar differential. The important point was
the shape of the curve, and the fact that 2020 delivery
dates could be below $90/bbl. He stated that the curve
represented March 29, 2012 contract prices for delivery
from everything from May 2012 to November 2020.
Mr. Mayer explained slide 7, "FY 2013 Revenue Comparison."
He stated that the chart had been extended from the
$150/bbl level to the $200/bbl level, and added a second
severance tax option. Severance tax option 1 displayed
progressivity continuing up to $125/bbl; and severance tax
option 2 stopped at $100, but kicked in at a slightly lower
level, and would "freezes" take at the 70/30 split for FY
13. He stressed that the displayed revenues were slightly
than the first option that was presented the day prior,
however the revenues were broadly similar to those under
the Alaska Clear and Equitable Share Act (ACES).
10:00:37 AM
Co-Chair Stedman asked for a clarification on the two
different severance tax options, specifically regarding
severance tax option 2. Mr. Mayer looked at slide 8, "FY
2013 Revenue Comparison." He looked at the difference
between the total state revenue from production tax on the
left and the cash to companies on the right hand side. He
stated that there was a main divergence showed a slight
change around the $120/bbl level that came from the
different progressivity coefficient that is applied under
CS SB 192: .35 percent rather than .4 percent. When the
level is taken $120/bbl to $200/bbl, there is a small split
displayed, as the cap in CS SB 192 is applied. He stressed
that below $200/bbl, there was very little difference. He
stated that the blue line represented severance tax option
1. The scenario was based on progressivity on the
progressive severance tax would kick in at a rate of
$65/bbl, and be progressive at a rate .25 percent up to a
level of $125/bbl. From that point on, it would continue at
a rate of .05 percent until a cap of 20 percent was
reached.
Co-Chair Stedman noted that the chart did not include the
$400 million in 20 percent capital as reflected on slide 7.
Mr. Mayer replied in the affirmative and that all of the
2013 numbers were prepared consistent with DOR methodology,
where their production tax forecasts did not reflect the
credits. The credits were calculated separately in the
state budget. The reason the $400 million was not included,
was because those credits were entirely exogenous to the
economic model that produces the numbers.
10:04:53 AM
Co-Chair Stedman stated that the $400 million was used to
calculate in the 2013. He wanted to be clear in the future
whether the credits represented $400 or $800 million. He
wondered why the $400 million was not included in the
chart. Mr. Mayer responded that he did not include the $400
million because it was attributed to projects that were not
necessarily producing. The additional $400 million in
credits were not subject to production tax.
Co-Chair Stedman stated that he would like to see the
credits shown in the chart. He observed that the committee
would like to look at the whole gross value and not just
adjusted numbers.
Senator Thomas observed that a 1 percent tax at $120/bbl,
could result in about $170 million. He stressed that $400
million or $800 million was a "big swap in cash."
Co-Chair Stedman looked at the severance tax option 2 on
slide 7, and surmised that the concept was to hold the tax
flow constant at $100/bbl and below. However, more cash
would be moved to industry at $100/bbl and above. Mr. Mayer
responded that there was a 70/30 percent split in both
state and federal governments. He stated that the 70/30
split, under this proposal, would make every additional
dollar above $100/bbl be broken, so 30 percent would to the
company, and 70 percent would go to the combined federal
and state governments.
Co-Chair Stedman asked if the price was frozen at $100/bbl
Mr. Mayer responded in the affirmative.
Co-Chair Stedman wondered if the price could be set at
$125/bbl. Mr. Mayer did not respond.
10:12:11 AM
Mr. Mayer displayed slide 9, "FY 2013 Revenue Comparison",
which compared the total state take with the total
government take.
Mr. Mayer explained slide 10, "ACES (FY 2013)." He stated
that the slide outlined the dollars to the treasury for
each of the components of the system, for each of the
regimes.
Co-Chair Stedman noted that the committee had not had a
chance to review the slides. He looked at slide 10, and
wondered if the revenue forecast was with or without the
additional $400 million in credits. Mr. Mayer responded
that the slide did not include the additional $400 million
in credits.
Co-Chair Stedman felt that information about whether or not
the $400 million was represented should be "footnoted" in
some of the slides, in order to reduce confusion. He
remarked that the numbers were homogenized, but without the
$400 million applied. He felt that a homogenized analysis
should include all credits, especially $400 million,
specifically all credits applied against the treasury: net
cash back on the table. Mr. Mayer replied that in order to
produce the numbers for a model, it was imperative to look
at credits that came from existing production, so one could
examine the estimate of the costs associated with the
production would be. He remarked that the reason the
presentation was in its current form, was for consistency
with the DOR figures and the current state budget
structure.
10:17:19 AM
Mr. Mayer discussed slide 11, "CSSB 192 (FY 2013)." When
looking at the overall government take figures, there was
not much difference from the current structure. The reason
there was not much change, the 60 percent cap did not bind
at a price level of $230/bbl. He furthered that if there
was an examination of a range of years, across the project
life span, the impact of inflation would display a
difference. The only difference that is showcased, was the
impact of the .35 percent rather than the .4 percent
progressivity coefficient.
Mr. Mayer explained slide 12, "Severance Tax-20 percent
Maximum (FY 2013) .25 percent progressivity from $65 to
$125, then.10 percent progressivity." He explained that the
two graphs displayed the difference between a .25 percent
progressivity and a .10 percent progressivity from $65/bbl
to $125/bbl.
Mr. Mayer discussed slide 13, " Severance Tax - 20 percent
Maximum (FY 2013) .25 percent progressivity from $60 to
$100, then .03 percent progressivity." He explained that
the two graphs displayed the difference between a .25
percent progressivity and a .03 percent progressivity from
$60/bbl to $100/bbl.
Co-Chair Stedman asked for a clarification on slide 7 and
asked if option was a $100 million. Mr. Mayer replied in
the affirmative and declared that it was a function of
progressivity kicking in at the $60/bbl level, rather than
the $65/bbl level. He furthered that, under severance tax
option 2, total state take was almost identical to what it
would be under CS SB 192.
Co-Chair Stedman noted that the sharing relationship would
increase, if there was an increase to $110 million. Mr.
Mayer agreed.
Mr. Mayer discussed slide 14, "Incentives for New
Production."
Significant incentives can be provided to new
production, by eliminating or reducing the Progressive
Severance Tax (Gross) on any combination of:
-Production from new areas.
-Production from new plans of development (determined
through the regulatory process to be for "new
production").
-Production above a fixed decline rate.
Here, a reduced rate of Progressive Severance Tax has
been modeled, using the following parameters for new
production:
-Base rate of 0 percent
-Progressivity of .05 percent commencing at a
threshold of $65 (gross value at point of production).
-Progressivity is capped 5 percent.
Following slides show a new, high-cost 10 mb/d
development under
-The regular rate.
-The reduced rate (with a time limit of 7 years).
-The reduced rate (with no time limit).
10:23:11 AM
Mr. Mayer explained slide 15, "Noted on Impact of
Inflation."
Under ACES, thresholds and coefficients for
progressivity are specified in nominal terms, without
indexation.
-As a result, when economics over the long-term rather
than just 2013 are examined, we see the effects of
'bracket creep' or 'stealth tax.'
-In real terms, as prices increase, thresholds for
progressivity decrease, and the higher take that comes
with progressivity occurs at lower and lower price
levels.
Severance tax options are also currently shown
assuming nominal thresholds.
-As a result, in the charts, the impact of the
severance tax can be seen below the $60/$65 level at
which it applies - a result of bracket-creep over the
lifetime of a project.
It is strongly worth considering the application of
price indexation to thresholds for progressivity.
Mr. Mayer discussed slide 16, "ACES (New Development)." He
remarked that the new development under ACES had negative
NPV at every price level, with a rate of return of
approximately 10 percent at the $100/bbl level. It faced
government take, over the project life cycle, of around 78
percent at the $10 level, and rising to $85 percent at the
high $200/bbl levels.
Mr. Mayer explained slide 17, "CSSB 192 (New Development)."
He stated that under CSSB 192, the reduced progressivity
coefficient had a small impact. The rate of return for the
project did not shift, but there was growth from a slightly
negative number to a slightly positive number at $100/bbl.
With the impact of inflation at the higher levels,
government take was brought down to north of approximately
$180/bbl.
10:26:25 AM
Mr. Mayer discussed slide 18, "Severance Tax-20 percent
Maximum (New Producer) .25 percent progressivity from $65
to $125, then .10 percent progressivity." He pointed out
the leveling of the life-cycle, including factoring the
impact of inflation at the $100/bbl to $110/bbl level with
a 76 percent split moving up the price deck.
Mr. Mayer explained slide 20, "Severance Tax-20 percent
maximum, (New Development)." He explained that the slide
represented what a project would look like under the
severance tax option 2, where progressivity kicked in at
$60/bbl and extends to $100/bbl.
Mr. Mayer looked at slide 22, "Severance Tax - 20 percent
Maximum with first 7 years at 5 percent (New Producer) .25
percent progressivity from $60/bbl to $100/bbl, then .03
percent progressivity." He explained that the slide
displayed the same factors as slide 20, but applied a time
limit of seven years.
10:31:30 AM
Mr. Mayer discussed slide 23, "20 Year Revenue Impact of
Reduced Rate of New Production (Using Severance Tax Option
1)." He stated that he redid the analysis of the possible
20-year revenue of a reduced rate for new production. He
ran the numbers again, but he realized he was attempting to
pull together a large amount of data in a short period of
time.
Co-Chair Stedman wondered if the chart included credits.
Mr. Mayer replied that the charts included the credits for
the existing production.
Co-Chair Stedman furthered that the chart should reflect
the impact of the legacy fields. Mr. Mayer responded in the
affirmative.
Mr. Mayer looked at slide 24, "Regime Competitiveness:
Relative Government Take." He stated that the number was
not too bad for government take at $60/bbl.
Co-Chair Stedman felt that Alaska would be more attractive
than North Dakota at $60/bbl. Mr. Mayer agreed, but
reiterated that Alaska was not more attractive than North
Dakota at current prices.
Mr. Mayer discussed slide 25, "Regime Competitiveness:
Relative Government Take." He pointed out that at $80/bbl,
ACES for existing producers was below other regimes, other
than Norway.
Mr. Mayer looked at slide 26, "Regime Competitiveness:
Relative Government Take." At $120/bbl, the gap started to
widen.
10:37:39 AM
Mr. Mayer looked at slide 29, "Regime Competitiveness:
Relative Government Take." At $140/bbl, ACES and CSSB 192
were basically the same as Norway, while the two severance
tax options were significantly more competitive. At
$160/bbl, ACES and CSSB 192 was nowhere near the top of the
regimes.
Mr. Mayer discussed slide 30, "Regime Competitiveness:
Relative Government Take." He stressed that at $180/bbl, a
split could be seen between ACES and CSSB 192.
Mr. Mayer spoke to slide 31, "Regime Competitiveness:
Relative Government Take." He pointed out that at $200/bbl,
ACES was matched with Algeria and other high taxing
regimes.
Co-Chair Stedman looked at the remaining slides, and noted
that they displayed a 7 year time horizon. Mr. Mayer
responded that the second set of slides represented
economics for new development, rather than an existing
producer.
10:40:52 AM
Mr. Mayer highlighted slides 36-39. He remarked that north
of $180 to $200 for new development, ACES was at the top of
the very high price levels.
Co-Chair Stedman remarked that Alaska was more stable than
Syria. Mr. Mayer agreed.
Co-Chair Stedman noticed calculations and net present value
in pricing displayed in slides 41 through 43. He requested
a brief description of those slides. Mr. Mayer responded
that the generic view of ACES was useful in the initial
analysis. Now, that there was a micro-level of detail, the
FY 13 numbers were more useful.
Mr. Mayer pointed out slide 41, "CSSB 192 (Existing
Producer)." The slide displayed the 79 percent maximum for
CSSB 192.
Mr. Mayer discussed slide 42, "Severance Tax - 20 percent
maximum (Existing Producer) .25 percent progressivity from
$65 to $125, then .10 percent progressivity." He stated
that severance tax was frozen at current prices, so from
$120/bbl and up would allow for a steady 72 percent
government take.
Mr. Mayer highlighted slide 43, "Severance Tax - 20 percent
maximum (Existing Producer) .25 percent progressivity from
$60 to $100, then .03 percent progressivity." He stated
that the slide displayed the freezing at $100/bbl with a 69
to 70 percent from that point on.
SB 192 was HEARD and HELD in committee for further
consideration.
Co-Chair Stedman discussed housekeeping.
ADJOURNMENT
10:46:05 AM
The meeting was adjourned at 10:46 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 192 Alaska Senate Finance - March 30.pdf |
SFIN 3/30/2012 9:00:00 AM |
SB 192 |
| HB 104 work draft version S.pdf |
SFIN 3/30/2012 9:00:00 AM |
HB 104 |