Legislature(2007 - 2008)SENATE FINANCE 532

05/08/2007 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 80 OIL & GAS PRODUCTION TAX: EXPENDITURES TELECONFERENCED
Moved CSSB 80(FIN) Out of Committee
+= SB 27 MEDICAL ASSISTANCE ELIGIBILITY TELECONFERENCED
Moved CSSB 27(FIN) Out of Committee
+= SB 116 UNIFORM MONEY SERVICES ACT TELECONFERENCED
Moved CSSB 116(FIN) Out of Committee
+ Bills Previously Heard/Scheduled 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                                                                     

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