Legislature(2007 - 2008)SENATE FINANCE 532

11/06/2007 09:00 AM FINANCE


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Audio Topic
09:14:39 AM Start
09:17:34 AM SB2001
10:11:31 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- AGENDA UPDATED --
+= SB2001 OIL & GAS TAX AMENDMENTS TELECONFERENCED
Heard & Held
Understanding Alaska's Current Production
Tax -- How and Where Does the Cash Flow?
-- Testimony <Invitation Only> --
                    SENATE FINANCE COMMITTEE                                                                                    
                        November 6, 2007                                                                                        
                           9:14 A.M.                                                                                            
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Bert Stedman convened the meeting at 9:14:39 AM.                                                                     
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Kim Elton                                                                                                               
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
Senator Fred Dyson                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator Thomas Wagner; Senator Gary Stevens; Steve Porter,                                                                      
Legislative Consultant, Legislative Budget and Audit Committee,                                                                 
Legislative Affairs Agency                                                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 2001 "An Act relating to the production tax on oil and gas                                                                   
         and to conservation  surcharges on oil; relating  to the                                                               
         issuance of  advisory  bulletins and  the disclosure  of                                                               
         certain information relating  to the production  tax and                                                               
         the  sharing between  agencies  of  certain  information                                                               
         relating to the production tax and to oil and gas or gas                                                               
         only leases; amending  the State Personnel Act  to place                                                               
         in the exempt service certain state oil and gas auditors                                                               
         and their immediate supervisors; establishing an oil and                                                               
         gas tax  credit fund and  authorizing payment  from that                                                               
         fund; providing  for retroactive application  of certain                                                               
         statutory  and regulatory  provisions  relating  to  the                                                               
         production  tax   on  oil   and  gas   and  conservation                                                               
         surcharges on  oil;  making  conforming amendments;  and                                                               
         providing for an effective date."                                                                                      
                                                                                                                                
         SB 2001 was HEARD & HELD in Committee for further                                                                      
         consideration.                                                                                                         
SENATE BILL NO. 2001                                                                                                          
                                                                                                                                
     "An Act  relating to the production  tax on oil and  gas and                                                               
     to conservation surcharges on oil;  relating to the issuance                                                               
     of  advisory   bulletins  and  the  disclosure   of  certain                                                               
     information relating  to the production tax  and the sharing                                                               
     between  agencies of  certain  information  relating to  the                                                               
     production  tax and  to  oil  and gas  or  gas only  leases;                                                               
     amending  the State  Personnel Act  to place  in the  exempt                                                               
     service  certain  state  oil  and  gas  auditors  and  their                                                               
     immediate  supervisors;  establishing  an oil  and  gas  tax                                                               
     credit  fund   and  authorizing  payment  from   that  fund;                                                               
     providing for  retroactive application of  certain statutory                                                               
     and regulatory provisions relating  to the production tax on                                                               
     oil  and  gas and  conservation  surcharges  on oil;  making                                                               
     conforming  amendments;  and   providing  for  an  effective                                                               
     date."                                                                                                                     
                                                                                                                                
     Understanding  Alaska's Current  Production  Tax  - How  and                                                             
     Where Does the Cash Flow?                                                                                                
                                                                                                                                
9:17:34 AM                                                                                                                    
                                                                                                                                
STEVE  PORTER,  LEGISLATIVE  CONSULTANT, LEGISLATIVE  BUDGET  AND                                                               
AUDIT COMMITTEE,  LEGISLATIVE AFFAIRS  AGENCY, outlined  his work                                                               
experience in  the oil and gas  industry.  He worked  in both the                                                               
private sector as well as in government.                                                                                        
                                                                                                                                
Mr. Porter  emphasized that models  are not designed  as specific                                                               
solutions  to problems,  but provide  an order  of magnitude  for                                                               
understanding  of issues  and the  relative relationship  between                                                               
the elements  of the models. He  added that the model  is only as                                                               
good as  the quality of  the data  input. He further  pointed out                                                               
that accuracy begins to diminish as  the model is used to project                                                               
further in the future.                                                                                                          
                                                                                                                                
9:21:19 AM                                                                                                                    
                                                                                                                                
Mr. Porter addressed the model page  1 of handout titled "PPT Tax                                                               
Calculation".                                                                                                                   
                                                                                                                                
Mr.  Porter  referenced  the  DOR  Spring  Resource  Book,  which                                                               
contained  a broad  statement of  how PPT  works. There  are four                                                               
main elements:  value -  costs x  tax -  credits.   He emphasized                                                               
that  these four  elements will  be a  part of  future discussion                                                               
regarding their effect on the revenue stream.                                                                                   
                                                                                                                                
9:23:03 AM                                                                                                                    
                                                                                                                                
Mr. Porter addressed pricing and  referenced the spring forecast,                                                               
which was $54.72 per barrel  of oil; the current projections from                                                               
DOR  is $71.65.   Future  projections are  raised by  $15 to  $20                                                               
dollars in  out years.  The long-term forecast,  2013 -  2014, is                                                               
still closer to $40 per barrel. These are only projections.                                                                     
                                                                                                                                
9:24:38 AM                                                                                                                    
                                                                                                                                
Senator Elton questioned why the  Department of Revenue's numbers                                                               
differed from  Mr. Porter's.   He asked  if this was  because Mr.                                                               
Porter was using  a higher price per barrel  cost projection. Mr.                                                               
Porter did not know what the Department used for assumptions.                                                                   
                                                                                                                                
9:26:00 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  directed attention  to the calculations  in the                                                               
regarding Alaska North  Slope (ANS) well head value.   He pointed                                                               
out that the ANS well head price is he $14.9 billion.                                                                           
                                                                                                                                
Mr. Porter clarified that the  department uses the ANS West Coast                                                               
price for their calculations, which  is the production tax value.                                                               
He explained that he was  addressing the total gross value before                                                               
deducting transportation costs.                                                                                                 
                                                                                                                                
Mr. Porter pointed  out, with regards to  futures projections, it                                                               
is important  to understand  why the  Department of  Revenue over                                                               
estimates on volume  and under estimates price.  He explained the                                                               
Department  of  Revenue  is  very   conservative  on  price.  The                                                               
Department does  not raise  their projections  as quickly  as the                                                               
price  rises. Therefore,  revenues  projections  are often  lower                                                               
than actual  when there is  a fast  rising price, resulting  in a                                                               
"surplus". The  Department also lags  behind as price  drops, but                                                               
not as  bad. The Department  of Revenue generally  over estimates                                                               
volume.  Volume estimates do  not take into account problems. The                                                               
Department also has a tendency to move production dates.                                                                        
                                                                                                                                
9:29:10 AM                                                                                                                    
                                                                                                                                
Mr. Porter  noted that  the gross value  calculated on  the chart                                                               
does include transportation  costs. Later in chart  (line 25) the                                                               
itemized cost is deducted out.                                                                                                  
                                                                                                                                
Senator Huggins asked about royalty  tax and the different rates,                                                               
commenting that  it was his  understanding that there is  a range                                                               
from 12.5%-16%                                                                                                                  
                                                                                                                                
9:30:11 AM                                                                                                                    
                                                                                                                                
Mr. Porter responded  by saying the older leases  such as Prudhoe                                                               
Bay and  Kuparuk are at  the 12.5% rate. He  went on to  say that                                                               
newer leases  operate under a  higher royalty rate.  He explained                                                               
that there  are also net profit  share leases, which have  a very                                                               
specific calculation  increasing the  royalty rate.  He explained                                                               
that the vast majority of leases  are 12.5; a blended late may be                                                               
closer to +13 percent.                                                                                                          
                                                                                                                                
9:31:09 AM                                                                                                                    
                                                                                                                                
Senator   Huggins  emphasized   that  when   analyzing  the   tax                                                               
structure, it is  important to consider the impact  on those with                                                               
a higher  royalty rate. Mr.  Porter concurred and  underlined the                                                               
point by  mentioning Pioneer's Oooguruk unit  had a substantially                                                               
higher number of net profit share leases.                                                                                       
                                                                                                                                
9:32:34 AM                                                                                                                    
                                                                                                                                
Mr. Porter addressed  the calculation for net royalty  value.  He                                                               
pointed  out  that royalty  barrels  are  not taxed.  He  further                                                               
explained  that royalty  barrels  are taken  out  before the  net                                                               
value  is  established. What  remains  from  the calculation  are                                                               
taxable barrels.                                                                                                                
                                                                                                                                
9:33:21 AM                                                                                                                    
                                                                                                                                
Mr. Porter  explained that the  ANS wellhead price  is determined                                                               
post deduction of transportation costs.                                                                                         
                                                                                                                                
9:34:14 AM                                                                                                                    
                                                                                                                                
Senator Thomas asked  for a summary of  transportation costs. Mr.                                                               
Porter pointed  to the  list on the  chart noting  the downstream                                                               
costs and added  that there are also upstream  costs. He deferred                                                               
to the Administration for further clarification.                                                                                
                                                                                                                                
9:35:05 AM                                                                                                                    
                                                                                                                                
Mr. Porter explained  that the number under  other deductions and                                                               
adjustments was  manipulated to  reflect a  .50 cent  change from                                                               
the spring forecast number.                                                                                                     
                                                                                                                                
9:36:02 AM                                                                                                                    
                                                                                                                                
Mr. Porter explained  that the numbers, with  relationship to the                                                               
value   equation   should   remain  consistent   throughout   the                                                               
discussion for all proposals before the legislature.                                                                            
                                                                                                                                
He addressed  the cost  portion of  the handout.  He acknowledged                                                               
there  has been  some debate  as to  how to  manage the  cost but                                                               
clarified that  his presentation  would focus  on what  the costs                                                               
are and how they impact the overall tax.                                                                                        
                                                                                                                                
Mr. Porter explained  that under PPT operating  and capital costs                                                               
are subtracted out  after value is captured.  The total operating                                                               
and capital costs  are projected to be $4.3  billion. He observed                                                               
that $4.3  billion was the  number that concerned  the Department                                                               
of  Revenue  because  it represents  a  significant  increase  in                                                               
costs.   He said the Committee  will need to deal  with the issue                                                               
very specifically  to understand  why the costs  went up  and how                                                               
the increase will impact tax.                                                                                                   
                                                                                                                                
9:37:58 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman reminded the Committee  that Econ One would give                                                               
a presentation  and will address  the operating and  capital cost                                                               
increases.                                                                                                                      
                                                                                                                                
9:38:29 AM                                                                                                                    
                                                                                                                                
Senator  Huggins indicated  that  the costs  are unknown  because                                                               
allowable  costs have  not been  established. He  maintained that                                                               
the numbers  representing costs are  those of the  producers, not                                                               
necessarily what the state would allow.                                                                                         
                                                                                                                                
9:39:09 AM                                                                                                                    
                                                                                                                                
Mr.  Porter  affirmed.  He  indicated   that  one  important  and                                                               
substantial  element  within  the legislation  is  collection  of                                                               
data.  The collection of  data will provide the state information                                                               
that will help in understanding current and future costs.                                                                       
                                                                                                                                
Mr. Porter  explained the  variables that  went into  the revenue                                                               
projection  for  the  original  PPT.   He  made  clear  that  the                                                               
department  underestimated  price, overestimated  production  and                                                               
underestimated costs.  Mr. Porter  maintained that price  was the                                                               
most  significant  variable  in  the inaccuracy  of  the  revenue                                                               
projection equation.                                                                                                            
                                                                                                                                
9:41:11 AM                                                                                                                    
                                                                                                                                
Senator Elton  reiterated the assessment by  Mr. Porter regarding                                                               
revenue projections.  He asked  if Mr. Porter was suggesting that                                                               
the department's latest presentation was also a miscalculation.                                                                 
                                                                                                                                
9:42:02 AM                                                                                                                    
                                                                                                                                
Mr. Porter  did not  know what the  Department had  presented. He                                                               
emphasized that  though numbers are  important in a model,  it is                                                               
necessary to look for an  understanding of the order of magnitude                                                               
in relative relationship, not for  an answer. He pointed out that                                                               
he used  the current numbers  that he  was given by  the modelers                                                               
and was confused why the numbers differed.                                                                                      
                                                                                                                                
Co-Chair Stedman stated that the  intention of the meeting was to                                                               
provide  understanding of  the flow  of the  dollars through  the                                                               
system, not so much the  exact variables. He reiterated that Econ                                                               
One,  Legislative Budget  and  Audit  consultants, are  currently                                                               
working  with  the  Administration.   When  the  projections  are                                                               
looked at  in detail the  legislative consultants along  with the                                                               
Department  of Revenue  will  be  in sync  on  the  numbers.   He                                                               
maintained  that the  purpose  of  the meeting  was  to lay  some                                                               
ground work  to understand the  interlinking of variables  and to                                                               
understand  the  magnitude  of impact  in  manipulating  any  one                                                               
piece.                                                                                                                          
                                                                                                                                
Mr.  Porter  observed  that  the  intent of  law  and  intent  of                                                               
gathering  information  is to  be  closer  to those  numbers.  He                                                               
pointed out that the Department  of Revenue, statistically, comes                                                               
closer to the right price  projection than the national modelers.                                                               
He further clarified  that though the modelers had  some level of                                                               
accuracy  in price  projection the  reasons were  incorrect.   He                                                               
pointed  out   that  the  other  two   variables  in  forecasting                                                               
projections,  production and  costs  are  more easily  determined                                                               
than  price.   With regards  to production,  he said,  this is  a                                                               
"fairly tight"  number, but further acknowledged  that with older                                                               
fields the  number is a  bit more  difficult to determine  due to                                                               
the amount  of "down time" and  an aging facility.   Costs can be                                                               
more easily determined through a  clear understanding, by the tax                                                               
payer,  of what  is  deductable.   He  maintained  that the  more                                                               
definition  that  is  provided   to  determine  costs,  the  more                                                               
accurate the calculation of costs will be.                                                                                      
                                                                                                                                
9:45:40 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman noted  the  Departments  presentation from  the                                                               
previous meeting  used FY  2009 numbers.  He reiterated  that the                                                               
purpose  of  Mr. Porter's  presentation  is  to provide  a  brief                                                               
summary of "how things flow through".   He further noted that the                                                               
details will be  presented for discussion by Econ  One which will                                                               
provide the same model and the same derivatives.                                                                                
                                                                                                                                
Mr. Porter  explained that the  reason the Department  changed to                                                               
FY 09  numbers after using  FY 08 numbers  is to provide  a clean                                                               
analysis free of partial years as  well as other issues unique to                                                               
FY  08.   He stressed  the importance  of understanding  that the                                                               
numbers changed because the numbers  used at the start of Special                                                               
Session were the FY 08 and  currently the FY 09 numbers are being                                                               
used.                                                                                                                           
                                                                                                                                
9:47:20 AM                                                                                                                    
                                                                                                                                
Mr. Porter addressed  the production tax value and  noted that it                                                               
is important  in all future equations.   He pointed out  that the                                                               
ACES proposal and PPT use the  same number.  He explained that it                                                               
is the  number used  to get  the per  barrel calculation  that is                                                               
applied against  the progressivity and  is used to  calculate the                                                               
tax.  The  net tax is calculated against the  equation of value -                                                               
costs  =  net.    The  tax  rate  is  applied  against  the  net.                                                               
Establishing net is the first step of the tax equation.                                                                         
                                                                                                                                
9:48:12 AM                                                                                                                    
                                                                                                                                
Mr. Porter  discussed the progressivity  portion of  the handout.                                                               
He explained that  the progressivity trigger point of  $40 is not                                                               
the West  Texas intermediate  or ANS wellhead  price is  $40. The                                                               
trigger of  $40 represents cash  flow: cash flow per  barrel. The                                                               
price  is  determined by  the  equation:   Production  tax  value                                                               
divide  by the  total taxable  barrels  = per  barrel cash  flow.                                                               
Every barrel of  oil produced on the North Slope  receives $40 of                                                               
cash flow before  the progressivity tax is applied.   He stressed                                                               
the importance of this when  looking at the relative relationship                                                               
with the  costs of oil on  the North Slope.   In-fill drilling is                                                               
very profitable  and productive and  costs are low. As  a result,                                                               
the $40 cash flow kicks in  sooner than Westsak, which has higher                                                               
costs.                                                                                                                          
                                                                                                                                
9:50:21 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman asked  Mr.  Porter to  explain  the columns  on                                                               
right  hand side  of the  handout.  Mr. Porter  said the  columns                                                               
track  the cash  flow  as the  different pieces  of  the tax  are                                                               
calculated. When there is a  deduction, cost or credit, the right                                                               
column  illustrates the  resulting allocation  to the  State, the                                                               
federal government and the producer.                                                                                            
                                                                                                                                
9:52:41 AM                                                                                                                    
                                                                                                                                
Mr. Porter explained  that the elements of  the progressivity tax                                                               
are the  trigger, which is the  start point.  The  next number is                                                               
the rate  per price Index Dollar  at .25% (ACES is  set at .20%).                                                               
The slope of the line  illustrates how quickly the remaining cash                                                               
flow, shared at  50/50, will be reached.  The  current PPT cap is                                                               
set  at  47.5%   because  the  of  22.5%  tax   and  25%  maximum                                                               
progressivity.   The  ACES  proposal has  a 25%  tax  with a  25%                                                               
maximum on progressivity, hence the 50%.                                                                                        
                                                                                                                                
Mr. Porter addressed the per  barrel tax value and reiterated the                                                               
equation:  total production  tax value  divided by  total barrels                                                               
equals the  per barrel  cash flow. He  referenced the  numbers on                                                               
the chart.  The result of  a price forecast at $71.65 and current                                                               
production projections, there  is a $46.05 per  barrel cash flow.                                                               
With  the trigger  at  $40, the  progressivity  tax rate  (1.51%)                                                               
would  be applied  on  $6.05  of cash  flow.    He concluded  the                                                               
section by underlining that the 1.51%  is a tax on the net, which                                                               
equates to  $160,480,575.00 as  shown in  the revenue  column and                                                               
deducted from the producer column.                                                                                              
                                                                                                                                
9:55:51 AM                                                                                                                    
                                                                                                                                
Mr.  Porter went  on to  say that  by adding  the base  tax, plus                                                               
progressivity,  the result  is approximately  $2.5 billion.  This                                                               
amount is  subtracted from the  production tax value.  The amount                                                               
that remains represents the Pre-Credit Adjusted Revenue.                                                                        
                                                                                                                                
Mr. Porter referred again to the  formula saying that the Value -                                                               
costs x tax, portion has been addressed.                                                                                        
                                                                                                                                
The  next  part  of  the presentation  addressed  exclusions  and                                                               
credits.  There is  a  30% per  barrel  exclusion, against  total                                                               
taxable  barrels.   He noted  that this  represents approximately                                                               
$69 million.                                                                                                                    
                                                                                                                                
Senator Stedman recalled a number  of $30 million from Resources,                                                               
but thought the 30% exclusion represented $70 million.                                                                          
                                                                                                                                
Mr. Porter pointed  out that the presentation is  not designed to                                                               
get into  details of  each of  the credits,  but stated  he could                                                               
provide detail if it was the desire of the Committee.                                                                           
                                                                                                                                
He  continued his  presentation with  the Credits  section noting                                                               
that  the projections  used are  from Department  of Revenue.  He                                                               
stated  that  the   capital  credits  are  20%   of  the  capital                                                               
expenditures.   The  capital expenditures  are  outlined.   Every                                                               
dollar  of capital  costs is  deductable with  the addition  of a                                                               
credit.   He  emphasized that  the 20%  credit is  of substantial                                                               
value to the explorer and  the producer providing an incentive to                                                               
spend capital in the state of Alaska and reinvest in the state.                                                                 
                                                                                                                                
Mr. Porter  explained that the  net operating losses (NOL)  are a                                                               
credit though there are no  specific projections in the model. He                                                               
explained that there is no  analysis because, from the Department                                                               
of   Revenue  standpoint,   the  operating   losses  are   an  in                                                               
determinant number.   He  further stated  that the  net operating                                                               
loss would not be large.                                                                                                        
                                                                                                                                
9:59:17 AM                                                                                                                    
                                                                                                                                
Mr.  Porter  addressed  the Transitional  Investment  Expenditure                                                               
(TIE) noting  that the  chart illustrates  a one  year projection                                                               
for  FY 08.  The  credit would  last  for the  next  5 years.  He                                                               
explained  that  the TIE  credits  are  based  on the  amount  of                                                               
capital  expended  between  April  2001  and  April  2006.    The                                                               
applicant could take up  to 20% of the amount in  a credit in the                                                               
future.    The  requirement  to  receive the  20%  credit  is  an                                                               
investment  against  10%  of current  capital  expenditure.    He                                                               
explained that  the $213  million on the  chart is  a calculation                                                               
representing  the  assumption  of  10%   of  the  FY  08  capital                                                               
expenditures.                                                                                                                   
                                                                                                                                
In  response  to  a  question by  Co-Chair  Stedman,  Mr.  Porter                                                               
indicated that the statute says 10%  per year, but to capture the                                                               
full  credit  in  the  5  years available,  because  of  how  the                                                               
calculation  works, producers  would need  to  spend 2  for 1  to                                                               
receive the credit.                                                                                                             
                                                                                                                                
Co-Chair  Stedman  said the  Committee  would  explore the  issue                                                               
because  of   price  appreciation  on  capital   expenditure  and                                                               
operating  expenditures.  He recalled  that  during  work on  PPT                                                               
there  was  an expectation  of  2  for  1 of  additional  capital                                                               
expenditures, not just inflation push to capture it.                                                                            
                                                                                                                                
Senator Huggins recalled  that there must be  production to claim                                                               
TIE credits.                                                                                                                    
                                                                                                                                
10:01:53 AM                                                                                                                   
                                                                                                                                
Mr. Porter  confirmed that there  must be production in  order to                                                               
claim  the  TIE credits.    He  further  clarified that  the  TIE                                                               
credits  are not  transferable,  but frozen  until production  is                                                               
realized.                                                                                                                       
                                                                                                                                
Senator Huggins stated  that the TIE credits are  an incentive to                                                               
produce. Mr. Porter concurred.                                                                                                  
                                                                                                                                
Mr. Porter  said that credits  are in AS 43.55.023,  AS 43.55.024                                                               
and  AS 43.55.025.  He noted  that anytime  there is  a statutory                                                               
reference to  these sections, it is  a reference to credits.   He                                                               
also informed  that AS 43.55.024 outlines  small producer credits                                                               
of $12  million.  He related  that DOR assumes up  to 4 producers                                                               
may  claim the  credit, which  would represent  $48 million.   He                                                               
said it  is an order  of magnitude what  can be expected  in that                                                               
category.                                                                                                                       
                                                                                                                                
10:03:35 AM                                                                                                                   
                                                                                                                                
Mr. Porter stated  that exploration credits are the  same way, an                                                               
explorer can capture between 20%  and 40% in credits depending on                                                               
where the exploration  takes place.  If the well  is further than                                                               
3  miles of  any other  well, and  further than  25 miles  from a                                                               
unit,  the  explorer   can  acquire  a  40%   credit  on  capital                                                               
expenditures.    He  commented that  the  interesting  impact  of                                                               
having a 20% capital expenditure  credit is that the explorer can                                                               
not receive both. The explorer  can prove the capital expense and                                                               
receive  the  20% credit  or  spend  the  time  to apply  to  the                                                               
Department  of Natural  Resources  (DNR) for  the exploration  AS                                                               
43.55.025    credit.     He    pointed    out     that    because                                                               
producers/explorers  have an  option of  applying for  capital or                                                               
exploration  credits, different  conclusions can  be drawn.   For                                                               
example, he  noted that though  a company may be  exploring, they                                                               
may  opt to  apply  for  40% capital  credit  rather  than a  20%                                                               
exploration credit.   He  concluded that  if the  capital credits                                                               
are a  greater amount than  exploration credits it should  not be                                                               
assumed that there is an absence of exploration.                                                                                
                                                                                                                                
Mr. Porter pointed  out that the conclusion  of calculations from                                                               
the formula  result in a  percentage of  take for the  State, the                                                               
producers, and the federal government.                                                                                          
                                                                                                                                
Senator Elton  asked for an  explanation of state  take including                                                               
the municipal  property tax.  The state take  is less  than 39.98                                                               
percent with the municipal take subtracted.                                                                                     
                                                                                                                                
10:07:27 AM                                                                                                                   
                                                                                                                                
Mr. Porter said that was  correct when determining what goes into                                                               
the Permanent Fund for the municipalities.                                                                                      
                                                                                                                                
10:07:50 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman stated  that 65.6 million is  the current number                                                               
for FY 08 in property tax  that goes to the state as unrestricted                                                               
funds. He  pointed out that  all property tax is  aggregated even                                                               
though some goes directly to the boroughs.                                                                                      
                                                                                                                                
Senator  Elton  asked  if the  municipalities  are  getting  $300                                                               
million.                                                                                                                        
                                                                                                                                
10:08:47 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman  responded  that  there  is  an  analysis  that                                                               
illustrates how much  each borough receives and  offered to share                                                               
it with Senator Elton after the meeting.                                                                                        
                                                                                                                                
10:10:00 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman asked Mr. Porter to make slight modifications                                                                  
to the handout                                                                                                                  
                                                                                                                                
10:10:41 AM                                                                                                                   
                                                                                                                                
In conclusion, Mr. Porter emphasized that models are based on                                                                   
assumptions of two principals: order of magnitude and relative                                                                  
relationship.                                                                                                                   
                                                                                                                                
10:11:12 AM                                                                                                                   
                                                                                                                                
CS HB 2001 (FIN) am was HELD in Committee for further                                                                           
consideration.                                                                                                                  
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:11:31 AM.                                                                                     
                                                                                                                                
                                                                                                                                

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