Legislature(2013 - 2014)SENATE FINANCE 532

03/14/2013 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved CSSB 38(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 21(FIN) Out of Committee
                 SENATE FINANCE COMMITTEE                                                                                       
                      March 14, 2013                                                                                            
                         9:09 a.m.                                                                                              
9:09:21 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Meyer  called the Senate Finance  Committee meeting                                                                    
to order at 9:09 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
David  Scott,  Staff,  Senator  Donny  Olson;  Kris  Curtis,                                                                    
Legislative  Auditor, Division  of Legislative  Audit; Diane                                                                    
Burnham,  Audit  Manager,  Division  of  Legislative  Audit;                                                                    
Elizabeth   Nudelman,    Director,   School    Finance   and                                                                    
Facilities, Department  of Education and  Early Development;                                                                    
Tom Begich,  Policy Director,  Citizens for  the Educational                                                                    
Advancement of  Alaska's Children; Bruce  Johnson, Executive                                                                    
Director, Alaska  Council of School  Administrators; Suzanne                                                                    
Armstrong,  Staff, Senator  Kevin Meyer;  Michael Pawlowski,                                                                    
Advisor,  Petroleum Fiscal  Systems, Department  of Revenue;                                                                    
Barry Pulliam,  Managing Director, Econ One  Research, Inc.;                                                                    
Roger Marks, Legislative  Consultant, Legislative Budget and                                                                    
Audit  Committee; Bruce  Tangeman, Deputy  Commissioner, Tax                                                                    
Division,  Department  of  Revenue; Senator  Lesil  McGuire;                                                                    
Senator Bert Stedman; Senator  Cathy Giessel; Senator Hollis                                                                    
French; Senator Bill Wielechowski, Senator Peter Micciche.                                                                      
PRESENT VIA TELECONFERENCE                                                                                                    
Ed Hall,  Physician Assistant  and Former  President, Alaska                                                                    
State    Medical    Board,   Anchorage;    David    Herbert,                                                                    
Superintendent,  St.  Mary's  School District,  St.  Mary's;                                                                    
Scott   Jepsen,   Vice   President  of   External   Affairs,                                                                    
ConocoPhillips;  Bob Heinrich,  Vice  President of  Finance,                                                                    
ConocoPhillips; Damian  Bilbao, Head of Finance,  BP Alaska;                                                                    
Dan Seckers, Tax Counsel, Exxon Mobil.                                                                                          
SB 21     OIL AND GAS PRODUCTION TAX                                                                                            
          CSSB  21(FIN) was  REPORTED  out  of committee  as                                                                    
          "amended"  with  a  "do pass"  recommendation  and                                                                    
          with  two   new  fiscal  impact  notes   from  the                                                                    
          Department  of Revenue  and one  new indeterminate                                                                    
          fiscal  note   from  the  Department   of  Natural                                                                    
SB 38     EXTEND STATE MEDICAL BOARD                                                                                            
          CSSB 38(FIN) was REPORTED out of committee with a                                                                     
          "do pass" recommendation and with a previously                                                                        
          published fiscal impact note: FN1(CED).                                                                               
SB 62     SCHOOL CONST. GRANTS/SMALL MUNICIPALITIES                                                                             
          SB 62 was HEARD and HELD in committee for further                                                                     
SENATE BILL NO. 38                                                                                                            
     "An Act extending the termination date of the State                                                                        
     Medical Board; and providing for an effective date."                                                                       
9:11:12 AM                                                                                                                    
Senator  Olson appreciated  the committee  hearing the  bill                                                                    
and  stated that  it was  important to  the state's  medical                                                                    
DAVID  SCOTT, STAFF,  SENATOR DONNY  OLSON, stated  that the                                                                    
bill extended the  sunset of the Alaska  State Medical Board                                                                    
from  June 30,  2013  to  June 30,  2020.  He discussed  the                                                                    
makeup of the Alaska State  Medical Board and shared that it                                                                    
was   responsible  for   the   licensing,  regulation,   and                                                                    
discipline    of   physicians,    podiatrists,   physician's                                                                    
assistants,  and paramedics  in Alaska.  He related  that an                                                                    
audit,  which  had  recently   been  conducted  through  the                                                                    
Division  of  Legislative  Audit had  recommended  that  the                                                                    
sunset  be extended.  He indicated  that  there was  someone                                                                    
present from the division to  answer questions regarding the                                                                    
9:13:41 AM                                                                                                                    
Co-Chair  Kelly  MOVED  to   ADOPT  the  proposed  committee                                                                    
substitute  for  SB  38,  WORK  DRAFT  28-LS0391\U  (Martin,                                                                    
3/12/13). There being NO OBJECTION,  the CS was ADOPTED as a                                                                    
working document.                                                                                                               
KRIS  CURTIS, LEGISLATIVE  AUDITOR, DIVISION  OF LEGISLATIVE                                                                    
AUDIT, stated  that during the  past year, the  division had                                                                    
conducted a sunset audit (copy  on file) of the Alaska State                                                                    
Medical Board  with the purpose  of determining  whether the                                                                    
board  was  serving  the public's  interest  and  should  be                                                                    
extended. She  indicated to the  committee that  her manager                                                                    
would continue reading her talking points.                                                                                      
DIANE  BURNHAM,  AUDIT   MANAGER,  DIVISION  OF  LEGISLATIVE                                                                    
AUDIT, stated that the division  recommended that the Alaska                                                                    
State Medical  Board's termination date be  extended 7 years                                                                    
until  June 30,  2020. The  recommendation was  1 year  less                                                                    
than  the 8-year  maximum in  recognition of  1 new  finding                                                                    
related to  continuing medical education (CME)  reviews. She                                                                    
shared that during  the audit period, the  medical board had                                                                    
gone through 2  bi-annual licensing cycles and that  in 1 of                                                                    
those  cycles, the  Division of  Corporations, Business  and                                                                    
Professional  Licensing (DCBPL)  had  failed  to review  CME                                                                    
requirements   in    accordance   with    the   regulations;                                                                    
regulations had required that 208  or 5 percent of licensees                                                                    
be  reviewed, but  the staff  had  only reviewed  172, or  4                                                                    
percent  of  licensees.  She  expounded  that  the  division                                                                    
recommended  that   the  DCBPL  director  ensure   that  the                                                                    
quantity of  licenses selected for  review meet  the minimum                                                                    
required by regulations.                                                                                                        
Ms.  Burnham  stated  that  the  report  also  included  two                                                                    
ongoing recommendations,  the first of which  was associated                                                                    
with   deficiencies   in   the  DCBPL   investigative   case                                                                    
management system;  the deficiencies  were noted  in several                                                                    
FY11  special  audits and  sunsets  audits;  this audit  had                                                                    
found  that several  investigative  cases  reviewed for  the                                                                    
medical  board were  missing key  information in  the system                                                                    
such  as priority  codes, case  open dates,  and resolutions                                                                    
codes.  She  continued that  the  deficiencies  in the  case                                                                    
management  system   hampered  the  division's   ability  to                                                                    
provide  adequate investigative  support  to  the board  and                                                                    
shared  that  the division  had  also  taken steps  to  make                                                                    
improvements by  forming a task forum  to identify necessary                                                                    
corrective action.                                                                                                              
Ms.  Burnham   shared  that  the  report's   second  ongoing                                                                    
recommendation  was  for  the DCBPL  director  to  implement                                                                    
procedures to  ensure that  board disciplinary  actions were                                                                    
reported in accordance  with state and federal  law; the law                                                                    
required that  disciplinary actions be reported  to national                                                                    
data banks.  She expounded that  a previous audit  had found                                                                    
that not  all disciplinary  actions were being  reported and                                                                    
that some  were being reported  after the 30-day  limit. She                                                                    
explained  that   the  division's  review  had   found  some                                                                    
improvement  in that  all the  disciplinary actions  that it                                                                    
reviewed were report  to the data banks;  however, none were                                                                    
reported within the 30-day limit.                                                                                               
Senator Olson  surmised that  the existence  of a  CME issue                                                                    
did not  necessarily compromise any licensee  or health care                                                                    
provider  and  inquired  if that  was  correct.  Ms.  Curtis                                                                    
replied   that   the   Division   of   Legislative   Audit's                                                                    
recommendation  had been  addressed  to the  DCBPL staff  to                                                                    
review  the applications  for renewal  and did  not indicate                                                                    
that there was any type of abuse occurring.                                                                                     
Senator Olson commented that the  Alaska State Medical Board                                                                    
and DCBPL had done a superb job in the last 12 years.                                                                           
Co-Chair Meyer CLOSED public testimony.                                                                                         
9:18:54 AM                                                                                                                    
Co-Chair Meyer  noticed that the  bill proposed  an increase                                                                    
for the  Alaska State  Medical Board's  executive secretary.                                                                    
He  noted  that  the  increase   would  be  program  receipt                                                                    
supported and  that was  not too concerned  about it  if the                                                                    
sponsor was not; however he  requested an explanation of the                                                                    
increase.  Mr. Scott  responded  that the  sponsor had  been                                                                    
approached  by the  president of  the  Alaska State  Medical                                                                    
Board's regarding  the increase.  He related that  the scope                                                                    
and volume of the work  being done by the executive director                                                                    
was not  on parody  with other similar  boards and  that the                                                                    
state medical board  had requested the sponsor  to offer the                                                                    
increase. He stated  that Ed Hall, who was  the president of                                                                    
the  state  medical  board,  should   be  online  to  answer                                                                    
Vice-Chair  Fairclough  inquired  what  the  current  salary                                                                    
scale was  for the  position, as well  as what  the proposed                                                                    
increase was. Mr. Scott replied  that the current salary was                                                                    
a range 17 and that it was being increased to a range 23.                                                                       
Vice-Chair Fairclough noted that  the difference in pay from                                                                    
a range 17  to a range 23  was a big jump  and inquired what                                                                    
that increase  represented in dollar  terms. She  noted that                                                                    
the increase would  use program receipts and  queried if the                                                                    
the  president was  acting on  behalf of  the state  medical                                                                    
board when  he had made  the request. She observed  that the                                                                    
position was for a full-time  executive secretary and not an                                                                    
executive director.                                                                                                             
Senator Olson  clarified that the  president of  board would                                                                    
be the best suited to answer the question.                                                                                      
9:21:28 AM                                                                                                                    
ED HALL,  PHYSICIAN ASSISTANT  AND FORMER  PRESIDENT, ALASKA                                                                    
STATE MEDICAL BOARD,  ANCHORAGE (via teleconference), stated                                                                    
that the medical board had  collectively discussed the range                                                                    
increase and  recognized that the responsibilities  that had                                                                    
been  placed  on  the board's  executive  administrator  had                                                                    
continually  increased;  furthermore,  over this  time,  the                                                                    
range of the position had  not been increased. He understood                                                                    
that the  position was currently  at a range 18  and related                                                                    
that the Board of Public  Accountancy (CPA Board) had passed                                                                    
a bill to  bring its executive administrator to  a range 23.                                                                    
He  offered  that  a  range  18  was  the  equivalent  of  a                                                                    
legislative front  desk receptionist  and conveyed  that the                                                                    
board   had   collectively   agreed   that   its   executive                                                                    
administrator's  responsibilities  far  exceeded that  of  a                                                                    
receptionist's;       furthermore,      the       position's                                                                    
responsibilities   and   the   number  of   licensees   were                                                                    
increasing and  the board  had concerns  regarding retention                                                                    
of the  medical providers  in the  state. He  expounded that                                                                    
the medical  board needed to  continue to keep up  pace with                                                                    
the   processing  of   applications,  which   the  executive                                                                    
administrator was an  integral part of. He  related that the                                                                    
fiscal  costs  for  the  increase   would  be  paid  by  the                                                                    
licensees, but  that he did  not think it would  represent a                                                                    
significant hit to  the licensing fees. He  pointed out that                                                                    
for the past several years,  the board had been rolling over                                                                    
more  than $1  million,  which was  why  it was  comfortable                                                                    
asking for  the range  increase. He  discussed the  need for                                                                    
the   medical  board   to  maintain   a  quality   executive                                                                    
administrator and shared  that licensing examiners' salaries                                                                    
were not on  parody either; DCBPL was trying  to improve the                                                                    
examiners'  salaries to  address retention  issues and  high                                                                    
attrition rate.                                                                                                                 
9:25:56 AM                                                                                                                    
Vice-Chair  Fairclough pointed  out for  the record  that it                                                                    
was  her  experience  that  front   desk  positions  in  the                                                                    
legislature were usually around a range 14.                                                                                     
Co-Chair Meyer  inquired how many  staff members  there were                                                                    
total and observed that the  fiscal note showed 2. Mr. Scott                                                                    
responded that there were two  staff members, but that there                                                                    
was other support that the  board received through DCBPL and                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development.  He  added  that   Mr.  Habegar,  who  was  the                                                                    
director  of  DCBPL,  could  probably  answer  the  question                                                                    
Senator  Olson  stated  that  some   of  the  support  staff                                                                    
included investigators.                                                                                                         
9:27:49 AM                                                                                                                    
AT EASE                                                                                                                         
9:29:13 AM                                                                                                                    
9:29:21 AM                                                                                                                    
Vice-Chair Fairclough pointed  to page 8 of  the Division of                                                                    
Legislative Audit's report and inquired  if Mr. Hall had the                                                                    
report on  hand. Mr. Hall replied  that he did not  have the                                                                    
document in front of him.                                                                                                       
Vice-Chair Fairclough  read from  a paragraph  on page  8 of                                                                    
the report:                                                                                                                     
     ..Deficiencies in the division's investigative case                                                                        
     management system have not been addressed.                                                                                 
Vice-Chair  Fairclough continued  to discuss  page 8  of the                                                                    
Division  of Legislative  Audit's report.  She related  that                                                                    
the  report  discussed a  medical  board  special audit  and                                                                    
pointed out that while the  board was coming into compliance                                                                    
slowly,  it appeared  as if  there were  still a  few issues                                                                    
being raised; she inquired if  Mr. Hall could speak to those                                                                    
issues. Mr.  Hall replied  that investigative  processes had                                                                    
changed and  that the  board had a  better system  of checks                                                                    
and balances  to make  sure that  reporting to  the National                                                                    
Practitioner Data  Bank had improved.  He observed  that Mr.                                                                    
Habegar  may  be better  suited  to  speak to  investigative                                                                    
staff issues.                                                                                                                   
Vice-Chair  Fairclough   noted  that  it   was  specifically                                                                    
recommended on page  8 of the legislative  audit report that                                                                    
the  state   medical  medical  board   establish  regulatory                                                                    
timeliness  for processing  complaints and  inquired if  the                                                                    
board had discussed this. Mr.  Hall responded that the issue                                                                    
had  been addressed  and that  timely reporting  was another                                                                    
responsibility that had been given  to the board's executive                                                                    
Vice-Chair Fairclough  inquired if  the same  individual who                                                                    
had been  the executive administrator  in the past  would be                                                                    
continuing forward  in the  position with  a pay  raise. Mr.                                                                    
Hall  replied that  the board  hoped that  was the  case and                                                                    
added that he did not think  that the person was planning on                                                                    
moving on soon despite what the  board saw as a disparity in                                                                    
the position's pay-range level.                                                                                                 
Vice-Chair Fairclough inquired if  the position's hours were                                                                    
being expanded. Mr. Hall replied  that he was not certain if                                                                    
the position's hours  had been expanded, but  that the board                                                                    
did  have that  individual  attend the  Federation of  State                                                                    
Medical Boards' meeting, which was  an annual occurrence, as                                                                    
well as other appropriate trainings that were necessary.                                                                        
9:32:43 AM                                                                                                                    
Vice-Chair  Fairclough  stated  that  she  did  not  have  a                                                                    
problem  with   the  advancement  of  the   medical  board's                                                                    
executive assistant's  pay range; however, if  the issue was                                                                    
that  the same  person who  was working  the same  amount of                                                                    
hours could  not accomplish the  task because they  were not                                                                    
being  paid enough,  then  she had  problem  with that.  She                                                                    
observed that  someone should be doing  their job regardless                                                                    
and wondered  if, given the  limited number of hours  in the                                                                    
day and the large raise,  the board might need another staff                                                                    
member;  however, she  supported the  board's extension  and                                                                    
would leave it  up to the board itself and  Senator Olson to                                                                    
make sure  the appropriate  tools were available  to address                                                                    
the  issues that  auditors had  identified as  weaknesses in                                                                    
the program.                                                                                                                    
Senator Olson  agreed with  Vice-Chair Fairclough's  line of                                                                    
questioning  and noted  that he  was  also cautious  because                                                                    
from his  perspective, the salary  raise would  represent an                                                                    
increase  to  his  annual  fees   and  licensure  costs.  He                                                                    
understood that  there was turnover within  the "department"                                                                    
because  the   salary  was   not  commensurate   with  other                                                                    
executive  administrators and  inquired if  that was  one of                                                                    
the reasons that  the increase had been  requested. Mr. Hall                                                                    
responded that during his tenure,  the medical board had two                                                                    
executive  administrators and  that the  recognition of  the                                                                    
position's work for the board was continually increasing.                                                                       
Mr.   Hall   addressed  Vice-Chair   Fairclough's   comments                                                                    
regarding  hours spent.  He shared  that, unofficially,  the                                                                    
person currently in  that position did their  job within the                                                                    
8-hour work  day, but also  worked beyond that.  He surmised                                                                    
that the  board's executive administrator  had not  "seen an                                                                    
8-hour  day" in  quite  a while.  He  stated that  regarding                                                                    
turnover, both  of the  executive administrators  during his                                                                    
tenure had been very dedicated  to the medical board and its                                                                    
business and  explained that despite a  dissatisfaction with                                                                    
the range level, the employees  had been committed for other                                                                    
9:36:03 AM                                                                                                                    
Co-Chair Kelly MOVED  to REPORT SB 38 out  of committee with                                                                    
individual  recommendations  and   the  accompanying  fiscal                                                                    
note. There being NO OBJECTION, it was so ordered.                                                                              
CSSB 38(FIN) was REPORTED out  of committee with a "do pass"                                                                    
recommendation  and  with   a  previously  published  fiscal                                                                    
impact note: FN1(CED).                                                                                                          
9:36:39 AM                                                                                                                    
AT EASE                                                                                                                         
9:39:56 AM                                                                                                                    
SENATE BILL NO. 62                                                                                                            
     "An Act relating to grants for school construction."                                                                       
9:40:02 AM                                                                                                                    
Senator Olson stated that time  was of the essence regarding                                                                    
the bill because  of the school construction  that was going                                                                    
on, particularly  related to  the small  municipalities, and                                                                    
scheduling problems related to the funding.                                                                                     
Mr.  Scott introduced  SB 62  and stated  that it  allowed 5                                                                    
school  districts be  become eligible  to  use the  Regional                                                                    
Educational  Attendance  Area   (REAA)  School  Construction                                                                    
Fund,  which  had  been  established in  2010  by  the  26th                                                                    
Legislature in SB 237. He  explained that the impetus behind                                                                    
the REAA Fund was the Kasayulie Case.                                                                                           
Mr. Scott  presented a brief  sectional analysis.  He stated                                                                    
that  Section   1  added  the  words   "to  small  municipal                                                                    
districts" to the  name of the REAA Fund.  Section 2 defined                                                                    
what a  small municipal  school district  was, which  was "a                                                                    
district in the  state that has an  average daily membership                                                                    
(ADM) of  not more than 300  and the full value  per ADM was                                                                    
not more  than $500,000."  Section 3 added  "small municipal                                                                    
districts"  to the  name  of  the REAA  Fund  and Section  4                                                                    
delineated  that small  municipal school  districts had  the                                                                    
definition that was pointed out in Section 2.                                                                                   
9:43:11 AM                                                                                                                    
Vice-Chair  Fairclough   observed  that  the   fiscal  notes                                                                    
appeared to propose  $35 million per year.  She inquired why                                                                    
the  appropriation  was  not  standing  alone  and  why  the                                                                    
Kasayulie  case  was  part  of  the  discussion.  Mr.  Scott                                                                    
replied that  there was a  new revised fiscal note  and that                                                                    
he  would try  to answer  the question.  He shared  that the                                                                    
REAA Fund dealt with the  Kasayulie case regarding how there                                                                    
was  inconsistent  funding  for Rural  Alaskan  schools  and                                                                    
pointed out that  there was formula in law, which  was in AS                                                                    
14.11.025(b) and Section 1 of  the bill, that determined the                                                                    
$35 million  amount; the  formula used  the total  amount of                                                                    
annual  debt  service  divided  by  the  percentage  of  the                                                                    
schools that were located in  the district and multiplied by                                                                    
a .244 quotient.                                                                                                                
Vice-Chair Fairclough  thought that  the Kasayulie  case was                                                                    
resolved with setting up the  REAA funds. She understood the                                                                    
issue, but  did not  understand why  the Kasayulie  case was                                                                    
being  discussed in  reference  to a  bill  that was  adding                                                                    
additional aid.                                                                                                                 
Co-Chair  Meyer noted  that Senator  Hoffman knew  the issue                                                                    
Senator  Hoffman   stated  that   the  Kasayulie   case  was                                                                    
legislation that  he had worked  on for about 10  years, and                                                                    
believed  that he  had piggy  packed on  a bill  of Co-Chair                                                                    
Meyer's in  order to  resolve the case.  He stated  that the                                                                    
Kasayulie  case was  brought forward  for  REAAs, but  noted                                                                    
that there continued  to be school districts  in Alaska that                                                                    
were  not REAA's  and  did  not have  the  capacity to  sell                                                                    
bonds; furthermore,  Tanana and St. Mary's  were first class                                                                    
cities that did not have  this designation or authority, but                                                                    
still  had  a  responsibility   to  build  new  schools.  He                                                                    
explained that  the 2  cities had led  the way  in accepting                                                                    
the responsibly in  funding education, but did  not have the                                                                    
foresight to realize that they  would be responsible for new                                                                    
school construction.  He furthered  that the  Kasayulie case                                                                    
had been  primarily addressed to REAA  Rural Alaskan schools                                                                    
and pointed out  that the case had been  decided against the                                                                    
State  of Alaska;  the judgment  basically  stated that  the                                                                    
difference  in funding  between REAA  and urban  schools was                                                                    
arbitrary and inadequate.                                                                                                       
Senator  Hoffman continued  to speak  to the  Kasayulie case                                                                    
and related  that the  focus of  SB 237  was to  address the                                                                    
plaintiffs' issues  of inadequate funding for  REAA schools;                                                                    
however, there  was still an  issue of  contention regarding                                                                    
how  the  governor  had submitted  his  capital  budget  the                                                                    
previous year. He explained that  as required, there was $32                                                                    
million or  $33 million  that went into  the REAA  fund, but                                                                    
that  that  during the  negotiations,  there  were 10  rural                                                                    
schools  that  needed to  be  addressed  prior to  the  fund                                                                    
kicking  in; between  2010 and  the  last year,  7 of  those                                                                    
schools had  been funded directly  through the  General Fund                                                                    
mechanism. He  related that the prior  year, the legislature                                                                    
had changed the way the  governor had approached the funding                                                                    
for the Kasigluk  and Emmonak schools to  have those schools                                                                    
be funded  through General Funds.  He observed  the governor                                                                    
trying to do the same thing  with the last school, which was                                                                    
Nightmute and  noted that  he was  planning on  meeting with                                                                    
Mr. Begich and Co-Chair Meyer  in order to rectify the issue                                                                    
the same way  as the previous year. He pointed  out that the                                                                    
REAA case was settled for REAA  schools, but that it did not                                                                    
address  the  other  5  school   districts  in  SB  62  that                                                                    
ultimately  had the  responsibility to  fund those  schools;                                                                    
furthermore,  these  5  school districts  were  small  rural                                                                    
districts  that  did not  have  the  capacity to  build  the                                                                    
Senator Hoffman  pointed out that instead  of addressing the                                                                    
issue in  a different way,  Senator Olson was  proposing the                                                                    
change  in the  SB 62,  which seemed  reasonable. He  stated                                                                    
that  the  problem  he  had was  that  the  individual  REAA                                                                    
schools that  had brought the  Kasayulie case  forward could                                                                    
potentially experience a dilution in  REAA funds as a result                                                                    
of the  additional 5  smaller schools.  He noted  that rural                                                                    
schools had a  cost between $30 million and  $50 million and                                                                    
that the  plaintiffs of  the REAA case  would in  essence be                                                                    
sharing the  settlement with the smaller  schools districts;                                                                    
however,  he  did  not  have   much  "heartburn"  with  that                                                                    
approach if  the state could  at least fund the  last school                                                                    
with  general funds.  He  opined that  the  issue should  be                                                                    
addressed without  having to open  up the  Kasayulie lawsuit                                                                    
9:50:54 AM                                                                                                                    
Vice-Chair  Fairclough  supported  making  sure  that  rural                                                                    
schools  were  treated with  fairness  and  agreed that  the                                                                    
Kasayulie case  should be closed.  She added that  her issue                                                                    
was  that the  Kasayulie case  should be  closed period  and                                                                    
that the state  should look at equitable  funding across the                                                                    
state  "with  that  lens."   She  shared  Senator  Hoffman's                                                                    
concern  that   adding  other   schools  could   dilute  the                                                                    
compromise  of Kasayulie  case and  observed that  the money                                                                    
contribution  would be  annual, which  represented a  win in                                                                    
the end.                                                                                                                        
Co-Chair  Meyer noted  that Senator  Hoffman  had taken  his                                                                    
good  bill and  made it  better and  requested that  Senator                                                                    
Hoffman refresh the  committee on how he had  dealt with the                                                                    
Kasayulie case  in the legislation. Senator  Hoffman offered                                                                    
that he  had taken a good  bill and made it  much better. He                                                                    
related  that  the  bill  had been  in  the  Senate  Finance                                                                    
Committee   at   the   time    and   recalled   asking   the                                                                    
administration  for  assistance  in  developing  a  formula,                                                                    
which never  developed. He relayed  that the  committee knew                                                                    
the state  was on the  hook for 70  percent of the  funds to                                                                    
pay for urban  schools and that the committee  had written a                                                                    
formula  on a  percentage basis  of  how much  the State  of                                                                    
Alaska was  paying for urban  schools; a percentage  of that                                                                    
was  taken  to pay  for  rural  schools.  He shared  that  a                                                                    
problem had been  that the first 10  schools had substantial                                                                    
construction costs and that there  was an understanding that                                                                    
those schools  would be funded  so that the  smaller schools                                                                    
could be addressed. He thought  that if the Nightmute school                                                                    
was addressed through the current  year's capital budget and                                                                    
this legislation  was changed,  the state  would be  able to                                                                    
get  to the  St. Mary's  school this  next year.  He offered                                                                    
that St. Mary's was the only  school on the list, but others                                                                    
could  submit evaluations  and be  evaluated;  all of  these                                                                    
schools were  funded on  an evaluation  basis on  which ones                                                                    
were  in  the  most  need   of  repair  or  replacement.  He                                                                    
commented  that  there were  no  provisions  to address  the                                                                    
major maintenance issue.                                                                                                        
9:54:15 AM                                                                                                                    
Vice-Chair  Fairclough  stated  that  she  was  100  percent                                                                    
behind appropriate  funding for  Rural Alaskan  schools, but                                                                    
did not understand why there  was not a road between Toksook                                                                    
Bay and Nightmute. She pointed  out that the road was needed                                                                    
for public  safety issues,  but also  because the  state was                                                                    
building  2 schools  that were  in very  close proximity  to                                                                    
each other.  She understood that  Toksook Bay  and Nightmute                                                                    
were 2 distinct communities  that wanted to remain distinct,                                                                    
but observed that  as money started to  constrict those were                                                                    
decisions   that  the   state  would   have  to   make.  She                                                                    
acknowledged  that  a  road would  be  expensive  and  might                                                                    
create  too many  public safety  issues, but  that it  could                                                                    
connect  that  community  to  a   school  that  was  already                                                                    
Senator  Hoffman  stated  that  he  agreed  with  Vice-Chair                                                                    
Fairclough and related that he  had recently been discussing                                                                    
additional  ways to  save to  money for  rural schools  with                                                                    
Senator Dunleavy.  He stated that there  were several issues                                                                    
in  both rural  and  urban schools  that  continued to  need                                                                    
attention   such  as   increased  education   opportunities,                                                                    
increased scores, and possible ways to save.                                                                                    
Senator  Olson observed  that many  school districts  in his                                                                    
district were  single-school districts that did  not qualify                                                                    
as REAAs; however,  some of the districts  were dealing with                                                                    
the same situation that had  been addressed in the Kasayulie                                                                    
Case,   particularly  Galena.   He  discussed   inconsistent                                                                    
funding  of certain  school needs  in  Alaska. He  concluded                                                                    
that  the intent  of  the  bill was  to  ensure that  school                                                                    
districts across  the state were not  overlooked and rectify                                                                    
the  problem   in  districts  where   this  may   have  been                                                                    
Co-Chair  Meyer  recalled Vice-Chair  Fairclough's  comments                                                                    
regarding the  possibility of building  a road  from Toksook                                                                    
Bay  to Nightmute  instead of  building  another school  and                                                                    
inquired what  the distance was  between the  2 communities.                                                                    
Vice-Chair  Fairclough thought  that the  distance was  less                                                                    
than 5 miles.                                                                                                                   
Senator Olson thought  that the distance was  about 7 miles,                                                                    
but  that  the route  would  have  to  cross the  river.  He                                                                    
pointed out that  the rising tide was a factor  on the river                                                                    
delta and  that building a  bridge would be  complicated. He                                                                    
opined that  the state would have  to consider a way  to get                                                                    
the 2 communities connected, not  only for schools, but also                                                                    
for needs like electricity.                                                                                                     
Senator Hoffman noted  that the villages on  the river delta                                                                    
were now represented Senator Gary Stevens.                                                                                      
9:59:44 AM                                                                                                                    
DAVID HERBERT,  SUPERINTENDENT, ST. MARY'S  SCHOOL DISTRICT,                                                                    
ST.  MARY'S  (via  teleconference),  voiced  the  district's                                                                    
strong support of  SB 62. He related that  St. Mary's School                                                                    
District  had originally  been part  of the  Kasayulie case,                                                                    
which had recognized  that the method of  funding new school                                                                    
construction  in  Alaska's schools  needed  to  be fair  and                                                                    
equitable. He  reported that  during the  final negotiations                                                                    
of the settlement,  the St. Mary's School  District had been                                                                    
excluded  from the  list of  schools that  were eligible  to                                                                    
receive funds  through the Kasayulie funding  mechanism; the                                                                    
exclusion was due to the  fact the St. Mary's was considered                                                                    
a  first  class city  school  district  instead of  an  REAA                                                                    
district.  He  explained  that a  first  class  city  school                                                                    
district  such as  St. Mary's  required the  city to  make a                                                                    
mandatory  local contribution  to the  school district  each                                                                    
fiscal year to  help offset the costs of  running the school                                                                    
district;   whereas,  REAAs   did  not   have  a   mandatory                                                                    
contribution  requirement. He  stated  that  St. Mary's  was                                                                    
surrounded by  REAA school  districts that  were benefitting                                                                    
from  the  Kasayulie  new   school  construction  funds.  He                                                                    
expressed  that St.  Mary's was  disappointed  to have  been                                                                    
excluded from the  settlement during the final  hours of the                                                                    
negotiations  because  it  was  the only  first  class  city                                                                    
school district in the lawsuit.                                                                                                 
Mr. Herbert related that the  St. Mary's School District had                                                                    
then taken the  necessary steps to improves  its position on                                                                    
the new  school construction list through  the Department of                                                                    
Education and  Early Development  and had written  a quality                                                                    
application; additionally, the district  had been frugal and                                                                    
fiscally  responsible  in  order   to  make  the  additional                                                                    
investments   needed  to   improve   the   quality  of   its                                                                    
application and  had followed all  the steps to  ensure that                                                                    
it met  all requirements to  move up to  the top of  the new                                                                    
school  construction list.  He pointed  out that  currently,                                                                    
St. Mary's was  the only small municipal  school district on                                                                    
the  school construction  list that  SB 62  would apply  to;                                                                    
therefore, the  impact of the  legislation would  be minimal                                                                    
to  the state,  but would  be greatly  important to  the St.                                                                    
Mary's  School  District  because   without  the  bill,  the                                                                    
district's   chances  of   being  funded   for  new   school                                                                    
construction would be greatly diminished.                                                                                       
Mr. Herbert  related that currently, most  municipalities in                                                                    
the  state  had  bonding  capacity, which  meant  they  were                                                                    
eligible  to  pass  bonds  and  receive  up  to  70  percent                                                                    
reimbursement  from the  state for  new school  construction                                                                    
projects.  He   stated  that  the  Kasayulie   case  funding                                                                    
mechanism  in SB  237 provided  a funding  source for  Rural                                                                    
Alaskan schools that  did not have the capacity  to bond and                                                                    
were  REAA schools;  however,  there was  1  small group  of                                                                    
school districts  that were not  included with the  urban or                                                                    
REAA  groups,  which  was  the group  that  were  the  small                                                                    
municipal school districts  as outlined in SB  62. He opined                                                                    
that  the St.  Mary's School  District had  demonstrated its                                                                    
ability to  provide quality education  in Rural  Alaska, had                                                                    
outperformed    surrounding   schools    academically,   had                                                                    
demonstrated sound fiscal management,  and was ensuring that                                                                    
its  students became  contributing and  productive citizens.                                                                    
He urged the committee to pass the legislation.                                                                                 
Co-Chair Meyer CLOSED public testimony.                                                                                         
10:06:15 AM                                                                                                                   
Co-Chair Meyer  inquired if the administration  supported SB
ELIZABETH   NUDELMAN,    DIRECTOR,   SCHOOL    FINANCE   AND                                                                    
FACILITIES, DEPARTMENT  OF EDUCATION AND  EARLY DEVELOPMENT,                                                                    
responded  that the  administration  did not  have a  formal                                                                    
position  on   the  legislation.  She  furthered   that  the                                                                    
administration had  reviewed the  bill and  did not  see any                                                                    
outstanding unanswered questions.                                                                                               
Co-Chair  Meyer inquired  if Ms.  Nudelman had  prepared the                                                                    
fiscal note. Ms. Nudelman responded  in the affirmative. Co-                                                                    
Chair  Meyer  noted  that  the  bill's  estimated  cast  was                                                                    
$618,000  and requested  an explanation  of the  amount. Ms.                                                                    
Nudelman  responded that  the  Department  of Education  and                                                                    
Early  Development  (DEED)  had spoken  to  the  Legislative                                                                    
Finance Division and  had made a revised fiscal  not for the                                                                    
presentation.  She  shared  that  the  calculation  for  the                                                                    
funding for  the REAA Fund  was the annual school  debt that                                                                    
the  state spent,  divided  the  percentage of  municipality                                                                    
schools in  Alaska, multiplied by  a constant of  .244; this                                                                    
created the  proportion of funding  that supported  the REAA                                                                    
funding  stream.   She  explained  that  the   $618,000  was                                                                    
generated when  5 of  the municipal  school were  moved into                                                                    
the REAA  group, which changed the  percentage slightly; the                                                                    
existing funding  was about $35 million  annually, which the                                                                    
bill would change by about $600,000.                                                                                            
Co-Chair  Meyer  inquired  if  the funds  would  be  in  the                                                                    
capital budget.  Ms. Nudelman  responded in  affirmative and                                                                    
pointed out  the funds being  capital was one of  items that                                                                    
the Division of  Legislative Finance had pointed  out in the                                                                    
original draft of the fiscal note.                                                                                              
Co-Chair Meyer  inquired if the  $618,000 was on top  of the                                                                    
$35  million that  was already  in the  capital budget.  Ms.                                                                    
Nudelman  responded in  the affirmative  and added  that the                                                                    
$35 million in  the capital budget would  become about $35.6                                                                    
Co-Chair Meyer noted  that the fiscal was  unclear, but that                                                                    
Ms. Nudelman had had clarified things.                                                                                          
10:08:53 AM                                                                                                                   
AT EASE                                                                                                                         
10:11:50 AM                                                                                                                   
Vice-Chair Fairclough wondered what  items were currently on                                                                    
the  major maintenance  list. She  recalled that  before the                                                                    
Kasayulie  case had  been settled,  there  had been  schools                                                                    
across the state that were  trying to compete on the state's                                                                    
list and  that there  had been  a bottleneck  at the  top of                                                                    
list  of  the  schools,  which  were  predominantly  in  the                                                                    
Kasayulie case,  that needed to  be funded; as a  result, no                                                                    
other  schools across  the state  could  match the  criteria                                                                    
that was  already established with those  schools waiting to                                                                    
be  funded.  She  wondered  what   was  left  on  the  major                                                                    
maintenance  list  and  understood that  St.  Mary's  School                                                                    
District was  number 2 on  the remaining priority  list. She                                                                    
noted that someone  was copying a draft of the  list so that                                                                    
the committee could examine the issue.                                                                                          
Co-Chair    Meyer   voiced    agreement   with    Vice-Chair                                                                    
Fairclough's request  and stated that his  office would make                                                                    
sure that all the members received a copy of the list.                                                                          
Vice-Chair  Fairclough  requested  that  the  administration                                                                    
provide  the  list  of  major  maintenance.  Co-Chair  Meyer                                                                    
agreed that  it would be  better if  the list came  from the                                                                    
administration.  Ms.   Nudelman  replied  that   DEED  would                                                                    
provide  the  requested  information   and  added  that  the                                                                    
department prioritized  a list  for major maintenance  and a                                                                    
list for construction  each year, both of which  were on the                                                                    
department's website.                                                                                                           
Vice-Chair  Fairclough   hoped  that  the   committee  would                                                                    
receive both  lists because  both were  important to  all of                                                                    
Co-Chair Meyer noted Mr. Begich  was heavily involved in the                                                                    
Kasayulie case and requested his thoughts on the record.                                                                        
10:14:18 AM                                                                                                                   
TOM BEGICH,  POLICY DIRECTOR,  CITIZENS FOR  THE EDUCATIONAL                                                                    
ADVANCEMENT OF  ALASKA'S CHILDREN,  noted that  Citizens for                                                                    
the  Educational Advancement  of Alaska's  Children was  the                                                                    
plaintiff group that had brought  the Kasayulie suit forward                                                                    
and that  it represented  21 of the  53 school  districts in                                                                    
the state;  furthermore, it represented  12 of 19  REAAs. He                                                                    
reassured  Vice-Chair  Fairclough  that  the  bill  did  not                                                                    
attempt reopen litigation, but that  it attempted to fix the                                                                    
gap.  He pointed  out  that there  were  schools that  could                                                                    
utilize  the Municipal  Debt  Reimbursement  Fund and  those                                                                    
that  were covered  under the  REAA  funding mechanism,  but                                                                    
that there  were a number  of small schools that  had fallen                                                                    
through the  cracks that did  not have the capacity  to bond                                                                    
or  were  not  REAAs.  He  explained  that  the  legislation                                                                    
ensured  that  that  any  districts   that  fell  under  the                                                                    
criteria  of not  having the  capacity to  bond or  were not                                                                    
REAAs  would have  access to  the REAA  funds. He  addressed                                                                    
Senator Hoffman's comments  regarding possible concerns from                                                                    
REAAs  about  a  dilution  of   funding  REAA  funding,  but                                                                    
asserted that as the plaintiff  group in the Kasayulie case,                                                                    
the  Citizens for  the Educational  Advancement of  Alaska's                                                                    
Children  had made  SB 62  its highest  legislative priority                                                                    
with  the  recognition  that some  of  the  other  plaintiff                                                                    
member districts  had not been  addressed. He  reassured the                                                                    
committee not to  worry about a feeling that  the bill would                                                                    
diminish the REAA Fund.                                                                                                         
Mr. Begich discussed the  administration's priority list for                                                                    
major   maintenance  and   construction  and   related  that                                                                    
although  St. Mary's  could  currently  qualify for  funding                                                                    
through the  General Fund,  the REAA  Fund was  designed for                                                                    
schools exactly  like St. Mary's.  He added that  the bill's                                                                    
particular formula  was adopted to minimize  the impact that                                                                    
the legislation would  have on the REAA Fund,  which was why                                                                    
it used  a combination of value,  divided by ADM and  had an                                                                    
ADM  number  of  300;  this method  ensured  that  only  the                                                                    
districts that could not bond  would have access to the REAA                                                                    
Fund. He  explained that if  a city's tax base  expanded, it                                                                    
could cause a district to  be no longer eligible for funding                                                                    
because eligibility  was based on  a formula and not  on the                                                                    
named  communities; the  formula  was  aimed at  continually                                                                    
focusing on equity regarding how schools were funded.                                                                           
10:17:47 AM                                                                                                                   
Senator  Hoffman recalled  a  previously  mentioned list  of                                                                    
schools and stated  that Nightmute was the  last school that                                                                    
was to be funded with  General Funds. He recalled fixing the                                                                    
funding for  "the 2  schools" the  prior year  and switching                                                                    
the funding mechanism to General  Funds. He pointed out that                                                                    
the  governor was  again trying  to build  schools with  the                                                                    
REAA Fund and  offered that the legislature  felt that those                                                                    
top  10 schools  should  be funded  with  General Funds;  he                                                                    
requested Mr.  Begich to address these  comments. Mr. Begich                                                                    
responded that  there were  5 schools  named in  the consent                                                                    
decree, 2  of which were put  in the prior year's  budget by                                                                    
the governor  to be  funded by  the REAA  Fund; furthermore,                                                                    
the  Citizens for  the Educational  Advancement of  Alaska's                                                                    
Children and the governor had  a disagreement regarding what                                                                    
the consent  decree stated. He  explained that  the Citizens                                                                    
for  the   Educational  Advancement  of   Alaska's  Children                                                                    
thought that intent of the  consent decree was to fund these                                                                    
schools that  were extraordinary  in costs with  the General                                                                    
Fund  because it  would otherwise  wipe out  the REAA  Fund;                                                                    
furthermore, this was also the  position taken by the Senate                                                                    
the prior  year. He explained  that the prior year,  both of                                                                    
"those schools" had  been shifted from the REAA  Fund as the                                                                    
funding sources  to the General  Fund and that  both schools                                                                    
had   been  funded   and  supported   by  the   governor  in                                                                    
consistency with the consent decree.                                                                                            
Mr. Begich  continued to address Senator  Hoffman's comments                                                                    
and related that  the in the current year,  the governor had                                                                    
introduced the Nightmute and  Quinhagak schools both drawing                                                                    
from  the REAA  Fund. He  shared that  the Citizens  for the                                                                    
Educational Advancement  of Alaska's Children  believed that                                                                    
the Nightmute school should be  funded through General Funds                                                                    
and not through  the REAA Fund, but that  this represented a                                                                    
decision the legislature would have  to make. He pointed out                                                                    
that if the Nightmute were  funded through General Funds and                                                                    
the  legislation passed,  it would  ensure  that St.  Mary's                                                                    
would draw from the REAA Fund  this year and would help free                                                                    
up the clogging of the list  that had occurred over time. He                                                                    
pointed out that  there was 1 large school left  on the list                                                                    
that was  not involved in  the Kasayulie case and  that once                                                                    
it was funded, the list could be cleared rapidly.                                                                               
10:20:32 AM                                                                                                                   
Co-Chair  Meyer inquired  how  much money  was  in the  REAA                                                                    
fund.  Mr. Begich  replied that  the prior  year, about  $35                                                                    
million had  been appropriated to  the fund and that  in the                                                                    
current  year,  there  would  be  about  an  additional  $35                                                                    
million. He  noted that the  fund was capped at  $70 million                                                                    
and that  even if the  legislation added $600,000 it  had no                                                                    
effect  once  the cap  was  reached.  He clarified  that  if                                                                    
nothing was spent out of the  REAA fund in the current year,                                                                    
the  next year's  deposit would  be virtually  nothing; even                                                                    
though  an appropriation  was required,  the  fund would  be                                                                    
maxed out.                                                                                                                      
Senator Olson inquired why St.  Mary's did not qualify as an                                                                    
REAA  school  district   and  expressed  concerns  regarding                                                                    
potentially making the same mistake  with some of the school                                                                    
districts that  he represented. Mr. Begich  replied that the                                                                    
St. Mary's had  chosen to organize and tax,  which took care                                                                    
of a lot  of local education and other  needs; however, what                                                                    
the district  had not addressed when  it became incorporated                                                                    
as a  city was  having to build  schools. He  explained that                                                                    
St.  Mary's did  not have  the property  tax base  needed to                                                                    
bond and  pointed out  that bonding  agencies looked  at raw                                                                    
numbers and  values; in  this instance,  St. Mary's  did not                                                                    
have property tax  base that any bonding  agency would allow                                                                    
it to issue bonds with.                                                                                                         
Senator Olson queried  why St. Mary's had  not been included                                                                    
and  wondered   if  what  was   part  of   the  negotiators'                                                                    
reasoning.  Mr.  Begich  replied   that  the  mechanism  for                                                                    
getting the  plaintiff and  the state to  come to  the table                                                                    
and negotiate  was proposed in  2010. He explained  that the                                                                    
mechanism was  a complex bill  that was attached  to another                                                                    
complex  bill and  referenced earlier  comments by  Co-Chair                                                                    
Meyer and  Senator Hoffman; additionally, the  bill had been                                                                    
at risk  of not passing. He  shared that he could  not speak                                                                    
to what occurred  during negotiations, but that  it had been                                                                    
simpler  to  look  at  the REAA  number  versus  the  bonded                                                                    
numbers  by   those  who  were   actually  working   in  the                                                                    
legislature on  that bill; a  result, a compromise  had been                                                                    
reached. He  shared that at the  time in 2010, "we  all" had                                                                    
brought up  the question about  the bonded schools  and that                                                                    
people   had  hoped   to  correct   the  issue   before  the                                                                    
legislation  came into  play; however,  this simply  did not                                                                    
happen.  He stated  that the  Citizens  for the  Educational                                                                    
Advancement of  Alaska's Children had  pursued SB 62  on St.                                                                    
Mary's  behalf,  as well  as  other  the schools,  and  were                                                                    
hopeful that the legislation would pass.                                                                                        
10:24:42 AM                                                                                                                   
Senator Bishop  inquired if the legislation  would close the                                                                    
donut hole  on any  other schools.  Mr. Begich  responded in                                                                    
the affirmative.                                                                                                                
BRUCE JOHNSON, EXECUTIVE DIRECTOR,  ALASKA COUNCIL OF SCHOOL                                                                    
ADMINISTRATORS,  stated that  the membership  was supportive                                                                    
of the legislation.                                                                                                             
Senator  Olson inquired  what the  consequences of  the bill                                                                    
not  passing  in  a  timely manner  would  be.  Mr.  Johnson                                                                    
replied  that  if  the  bill  did not  pass,  the  5  school                                                                    
districts  that were  being considered  would  be unable  to                                                                    
have  some  of  their   needs  addressed  regarding  capital                                                                    
projects  because  they  did  not  have  the  money  or  the                                                                    
capacity  to  raise  it  through a  bond  because  of  their                                                                    
limited taxing authority.                                                                                                       
10:27:45 AM                                                                                                                   
AT EASE                                                                                                                         
10:30:14 AM                                                                                                                   
Co-Chair Meyer noted that the bill represented a lot of                                                                         
money and that the committee would have further discussion                                                                      
on the legislation.                                                                                                             
SB 62 was HEARD and HELD in committee for further                                                                               
10:31:04 AM                                                                                                                   
3:17:16 PM                                                                                                                    
SENATE BILL NO. 21                                                                                                            
     "An  Act relating  to  appropriations  from taxes  paid                                                                    
     under the  Alaska Net Income  Tax Act; relating  to the                                                                    
     oil and gas  production tax rate; relating  to gas used                                                                    
     in the state; relating  to monthly installment payments                                                                    
     of the oil and gas  production tax; relating to oil and                                                                    
     gas  production  tax  credits for  certain  losses  and                                                                    
     expenditures; relating  to oil  and gas  production tax                                                                    
     credit  certificates; relating  to nontransferable  tax                                                                    
     credits based  on production; relating  to the  oil and                                                                    
     gas tax  credit fund; relating to  annual statements by                                                                    
     producers and explorers;  relating to the determination                                                                    
     of annual  oil and gas production  tax values including                                                                    
     adjustments  based on  a percentage  of gross  value at                                                                    
     the  point   of  production  from  certain   leases  or                                                                    
     properties;    making   conforming    amendments;   and                                                                    
     providing for an effective date."                                                                                          
3:18:31 PM                                                                                                                    
Co-Chair Kelly MOVED to ADOPT the proposed committee                                                                            
substitute for SB 21, Work Draft 28-GS1647\Y (Bullock,                                                                          
Senator Hoffman OBJECTED for the purpose discussion.                                                                            
SUZANNE ARMSTRONG, STAFF, SENATOR KEVIN MEYER, referred to                                                                      
"Proposed Changes in Senate Finance CS SB 21 Version 28-                                                                        
GS1647\Y" (copy on file).                                                                                                       
     Maximum Base Tax Rate:                                                                                                     
     Established in Section 9 (page 4, lines 30-31 and page                                                                     
     5, lines 1-11)                                                                                                             
          January 1, 2014 - December 31, 2016: 35 percent                                                                       
          Effective January 1, 2017: 33 percent                                                                                 
     Repeals Progressivity:                                                                                                     
          No Change from Senate Resource Version                                                                                
          No Change from Governor's Version                                                                                     
     Per Bbl Allowance: $5.00/bbl                                                                                               
     Established in Section 23                                                                                                  
     Gross Revenue Exclusion:                                                                                                   
     Established in Section 30 (part of Section 12 as                                                                           
     Payment of Tax)                                                                                                            
        · Produced from a lease or property not within a                                                                        
          unit on January 1, 2003: 20 percent                                                                                   
         In Senate Resources Version at 30 percent                                                                              
          In Governor's Version at 20 percent                                                                                   
        · Produced from a participating area established                                                                        
          after December 31, 2011: 20 percent                                                                                   
         In Senate Resources Version at 30 percent                                                                              
          In Governor's Version at 20 percent                                                                                   
        · Produced from a well that has been accurately                                                                         
          metered and  measured by an operator  and that DNR                                                                    
          has certified  was not contributing  to production                                                                    
          before   January   1,  2013   (certified   through                                                                    
          required POD): 20 percent                                                                                             
     Net Operating Loss, Monetizable:                                                                                           
     Section 16, Section 17, Section 19                                                                                         
          Monetizable or carry forward annual loss credit                                                                       
          (in the amount equivalent to production tax                                                                           
          January 1, 2014 - December 31, 2016: 35 percent                                                                       
          January 1, 2017: 33 percent                                                                                           
     Manufacturing Credit against State Corporate Income                                                                        
     Established in Section 7                                                                                                   
          Provides  for   a  manufacturing   credit  applied                                                                    
          against   a   taxpayer's  corporate   income   tax                                                                    
          liability  for a  qualified  oil  and gas  service                                                                    
          industry expenditure that occurs in the state.                                                                        
        · The total amount of credit may not exceed the                                                                         
          lesser of 10 percent of expenditures or $10                                                                           
        · Must be a taxpayer to qualify for the credit.                                                                         
        · Non-transferable                                                                                                      
        · The expenditure cannot be the basis of another                                                                        
          deduction under the Corporate Income Tax Law                                                                          
        · Reduces the shelf life of the credit to five                                                                          
     Eliminates Qualified Capital Expenditure Credit: For                                                                       
     Expenditures after 1/1/2014                                                                                                
     Exploration Incentive Credit:                                                                                              
          Not extended to 2022                                                                                                  
          Will sunset July 1, 2016                                                                                              
     Small Producer Tax Credits:                                                                                                
          Not extended to 2022                                                                                                  
          Will sunset 2016                                                                                                      
          *Small  producers   that  currently   receive  the                                                                    
          credit.   If  production  started  after April  1,                                                                    
          2006, then  the small producer is  allowed to take                                                                    
          the  credit  for  9  years   after  the  start  of                                                                    
          commercial  production.    Very likely  that  even                                                                    
          though the  credit sunsets in 2016,  there will be                                                                    
          companies that  are allowed to take  the credit in                                                                    
          years after 2016.                                                                                                     
     Interest Rate for Delinquent Taxes:                                                                                        
          Amended under Section 4                                                                                               
          Adjusts   how  the   interest  is   calculated  on                                                                    
          delinquent  taxes: 3  percentage points  above the                                                                    
          annual rate  charged member banks for  advances by                                                                    
          the 12th Federal  Reserve District. Alternative to                                                                    
          the  greater than  approach  (current statute)  or                                                                    
          the lesser than approach (in Version 28-GS1647\P)                                                                     
          Slide by Barry Pulliam of Econ One - 3/12/2013                                                                        
          Conforming Sections:  1, 3, 5,  6, 8, 14,  20, 31,                                                                    
          32, 33                                                                                                                
     Community Revenue Sharing Provision:                                                                                       
          Removes reference and tie  to corporate income tax                                                                    
          receipts.  Does not  change how the formula works,                                                                    
          or distribution of funds.                                                                                             
3:24:47 PM                                                                                                                    
Co-Chair Meyer requested an explanation of the fiscal note.                                                                     
MICHAEL  PAWLOWSKI,   ADVISOR,  PETROLEUM   FISCAL  SYSTEMS,                                                                    
DEPARTMENT  OF  REVENUE,  spoke to  the  fiscal  note  dated                                                                    
3/14/13  at  12:10   PM.  He  related  that   while  he  had                                                                    
participated in  the development of  the fiscal note  from a                                                                    
review  standpoint,   he  had  not  developed   the  numbers                                                                    
himself; however,  he could  walk committee  members through                                                                    
the components in the fiscal note  in relation to the CS. He                                                                    
looked  at page  1 of  the fiscal  note. He  pointed to  the                                                                    
inclusion of  a $100,000 line  item in the  services section                                                                    
for  2014 that  was for  the revision  in the  interest rate                                                                    
that was in  the CS and stated that  although the Department                                                                    
of Revenue (DOR) was moving  towards the adoption of the tax                                                                    
revenue management system, there  was still work that needed                                                                    
to  be done  on  the  existing tax  systems  to reflect  the                                                                    
change in the  interest rate and the way it  was levied with                                                                    
the tax system; the $100,000  was the cost of the department                                                                    
to implement the change in the interest rate.                                                                                   
Mr. Pawlowski spoke to page 4  of the fiscal note, which was                                                                    
the  table that  itemized  the 10  different  pieces in  the                                                                    
legislation  that had  a fiscal  impact. He  noted that  the                                                                    
fiscal impact in the note  did not include potential revenue                                                                    
impacts from potential increases  in productions; the fiscal                                                                    
note  was based  entirely on  the revenue  forecast and  the                                                                    
forecasted price of oil across  the time period in the table                                                                    
on  page 4.  He pointed  to FY15  on the  second column  and                                                                    
related  that it  was  the  first full  fiscal  year of  the                                                                    
impact of the  bill as the effective dates  were designed in                                                                    
the CS; line 1 showed  the revenue impact of eliminating the                                                                    
progressive portion  of the tax,  which was $1.5  billion in                                                                    
FY15. He furthered  that line 2 showed that  the increase of                                                                    
the bas tax  rate from 25 percent to 35  percent would raise                                                                    
an additional $1.075 billion  and would essentially generate                                                                    
$425  million  less  than what  was  being  collected  under                                                                    
Mr. Pawlowski  continued to  speak to page  4 of  the fiscal                                                                    
note. He discussed line 4,  which depicted a further revenue                                                                    
increase  to  the  state  with  the  limitation  of  credits                                                                    
qualified capital  expenditures (QCE)  for the  North Slope;                                                                    
this line represented the credits  that were claimed against                                                                    
a tax  liability and was  projected to result  in additional                                                                    
revenues to the  state of $700 million in FY14.  He spoke to                                                                    
the net  operating loss  credit increase  to 35  percent for                                                                    
calendar years  2014 through  2016 and  33 percent  for 2017                                                                    
that  was on  line 4;  these increases  were refundable  and                                                                    
were dealt with below in  the operating budget component. He                                                                    
relayed that  the gross  revenue exclusion  (GRE) on  line 5                                                                    
was  provided as  range, which  was reflective  of the  fact                                                                    
that in order  to qualify for the GRE in  the CS, there were                                                                    
some  portions  that  the Department  of  Natural  Resources                                                                    
(DNR) needed to certify to DOR;  there was a burden of proof                                                                    
by  the industry  and work  that  was conducted  by DNR.  He                                                                    
pointed  out  that  the  team  at  DOR  had  identified  the                                                                    
possible  potential   range  of  projects  that   might,  in                                                                    
"perhaps the worst  case scenario," qualify for  a GRE based                                                                    
on DNR's certification;  in that year, it ranged  from a low                                                                    
side of $25 million to a high side of $175 million.                                                                             
Mr.  Pawlowski continued  to address  page 4  of the  fiscal                                                                    
note. He pointed to line  6 and the provision requiring that                                                                    
credits  that were  taken  over 2  years  be eliminated.  He                                                                    
explained  that  the credits  were  reflected  in FY14,  but                                                                    
because the North Slope capital  credits were not continued,                                                                    
the issue  did not  add to  the revenue  impact in  the note                                                                    
after  that  fiscal  year;  these   credits  were  based  on                                                                    
expenditures in FY13 that would  be taken over 2 years under                                                                    
the  existing  Alaska's  Clear and  Equitable  Share  (ACES)                                                                    
system.  He pointed  to line  7 and  related that  the minus                                                                    
$250 million in FY14 was  bringing an impact that would have                                                                    
been  spread into  FY15 in  order to  close out  the state's                                                                    
obligation based  on the expenditures.  He related  that the                                                                    
next substantive  change in the  fiscal note was on  line 8,                                                                    
which reflected  the $5 per taxable  barrel (bbl) allowance;                                                                    
this would be  a reduction in state revenue  of $825 million                                                                    
in  FY14. He  stated  that  the credit  under  AS 43.20  for                                                                    
qualified   oil   and    gas   industry   expenditures   was                                                                    
indeterminate, but  the more stringent language  that Senate                                                                    
Finance Committee  had adopted  limited the  potential range                                                                    
of  companies  that  could  qualify  in  expenditures;  this                                                                    
effect  dropped  to $25  million  and  the credits  were  no                                                                    
longer  transferable, but  accrued  directly  to tax  paying                                                                    
entity.  He  discussed line  10  and  the reduction  in  the                                                                    
interest rate from federal funds  rate plus 5 percent, or 11                                                                    
percent,  to the  federal  funds rate  plus  3 percent;  the                                                                    
effect of this was indeterminate,  but was projected to be a                                                                    
$25 million reduction that would  possibly rise over time as                                                                    
delinquent taxes or true-ups carried  a bigger interest rate                                                                    
over a time period.                                                                                                             
Mr.  Pawlowski continued  to discuss  page 4  of the  fiscal                                                                    
note  and  stated that  the  total  revenue impact  in  FY15                                                                    
ranged from  $575 million  to $775  million. He  pointed out                                                                    
that   the  range   of  the   revenue  impact   reflected  a                                                                    
combination  of  the impact  of  the  GRE being  applied  to                                                                    
potential projects  that were not currently  contributing to                                                                    
production within existing units,  the qualified oil and gas                                                                    
industry  expenditures,   as  well  as  the   interest  rate                                                                    
provision; this was  offset to a degree by  the reduction in                                                                    
the next section and was  an impact in the operating budget.                                                                    
He  expounded  that  because qualified  capital  expenditure                                                                    
credits would no longer be  offered on the North Slope under                                                                    
the current  version of the  bill, DOR projected  that about                                                                    
$150 million less  would need to be appropriated  to the tax                                                                    
credit  fund   for  the  reimbursement  of   those  credits;                                                                    
additionally, the subsequent reduction  was an impact of the                                                                    
increase  in  the  net  operating loss  credit  rate  to  35                                                                    
percent and then  33 percent. He reported  that the increase                                                                    
in the net  operating loss credit rate was  projected to add                                                                    
an additional $40  million to the operating  budget and that                                                                    
the net operating impact was  actually $110 million; DOR had                                                                    
wanted  to reflect  that  increasing the  rate  for the  net                                                                    
operating  loss credit  did have  a cost.  He discussed  the                                                                    
bottom of  page 4, which  depicted a total fiscal  impact of                                                                    
$465 million to $665 million in FY15.                                                                                           
3:33:52 PM                                                                                                                    
Co-Chair  Meyer  noted that  the  fiscal  note reflected  an                                                                    
increase in  the 3rd  year out, which  was partially  due to                                                                    
the reduction in  "base rate from 35 percent  to 33 percent;                                                                    
on the other  hand, the fiscal note did not  include any new                                                                    
oil. Mr. Pawlowski  confirmed that the note  did not include                                                                    
possible new oil. He stated that  the "bump" in FY14 of "775                                                                    
to 875"  was really  the addition  of line 6  on page  4, as                                                                    
well  as the  $150 million  in the  operating budget,  which                                                                    
combined represented  an additional  $400 million  impact to                                                                    
close  out  the  outstanding qualified  capital  expenditure                                                                    
credits that  were accrued based on  expenditures before the                                                                    
effective date  of the  act. He  stated that  Co-Chair Meyer                                                                    
was  correct that  the  note's increases  in  the out  years                                                                    
reflected  additional  potential   GRE  eligible  production                                                                    
along with the decrease in the base rate.                                                                                       
Mr. Pawlowski  directed the committee's attention  to page 5                                                                    
of  the fiscal  note and  related that  it was  the standard                                                                    
scenario  sheet   that  used   to  walkthrough   the  fiscal                                                                    
presentation that was  given on the previous  CS; he offered                                                                    
that members  would recognize the  same scenarios,  but that                                                                    
based on  the request of the  committee, DOR had made  a few                                                                    
modifications.   He   stated   that   the   "At   Forecasted                                                                    
Production"  was depicted  at different  prices and  that at                                                                    
$90  per bbl,  the state  would see  roughly $75  million in                                                                    
additional revenue  under the prosed  CS over ACES  in FY14;                                                                    
this number  rose to  $325 million  at $90  per bbl,  but in                                                                    
FY15  at $120  per bbl,  that  the CS  would represent  $925                                                                    
million less  revenue than ACES;  these revenue  impacts did                                                                    
not include other  impacts of the bill, such  as the removal                                                                    
of  the  credit split,  the  impact  of the  elimination  of                                                                    
qualified capital expenditure credits,  or the net operating                                                                    
loss credits.                                                                                                                   
Mr.  Pawlowski continued  to address  page 5  of the  fiscal                                                                    
note and pointed to scenario  B. He stated that the scenario                                                                    
represented  4 rigs  being added  within  the legacy  units,                                                                    
which were  each drilling 4  wells that each  produced 1,000                                                                    
bbl  at the  begging  of  production with  a  decline of  15                                                                    
percent.  He  explained  that  perhaps  50  percent  of  the                                                                    
incremental   production  might   not  be   contributing  to                                                                    
production, so  the table for  scenario B assumed  that half                                                                    
of the  oil qualified for the  GRE; however, if oil  did not                                                                    
qualify  for the  GRE,  "this" number  would  be higher  and                                                                    
"lower at the higher prices."                                                                                                   
Mr. Pawlowski discussed  scenario C on page 5  of the fiscal                                                                    
note and  stated that it  kept the same GRE  application for                                                                    
the  4 rigs,  but  also applied  the GRE  to  the large  new                                                                    
development;  the scenario  assumed  and  showed the  fiscal                                                                    
impact of  a large  new development in  a legacy  field that                                                                    
received the  GRE. He stated  that the scenario  showed that                                                                    
even at a price of $120 per  bbl of oil, the revenues to the                                                                    
state  would surpass  what would  have been  collected under                                                                    
ACES   by  2018   if  ACES   continued  at   the  forecasted                                                                    
3:37:32 PM                                                                                                                    
Co-Chair Meyer remarked that 2018,  or maybe slightly before                                                                    
that, was the  breakeven point and inquired how  many bbl of                                                                    
oil scenario  C assumed. Mr.  Pawlowski was unsure  how many                                                                    
bbl  it  would  be  in  that year  and  explained  that  the                                                                    
scenarios did  not assume a  set number of bbl,  but instead                                                                    
built  decline curves  to mimic  actual production  within a                                                                    
field. He  further explained that  rigs would be  drilling a                                                                    
well  that  declined at  15  percent  a  year and  that  the                                                                    
scenario C was  more reflective of a  realistic scenario. He                                                                    
added that the scenarios were  modeled based on activity and                                                                    
production curves,  but that he could  provide the committee                                                                    
with that information. He stated  that the reason the tables                                                                    
on page  5 were provided over  a range of oil  prices was to                                                                    
show the  sensitivity of revenues  to price. He  pointed out                                                                    
that scenario B at the $100  per bbl price from FY15 through                                                                    
FY19  showed  increases  and  related  the  scenario  showed                                                                    
revenue increases of $225 million  in FY15 at that price. He                                                                    
concluded  that   determining  the  state  revenues   was  a                                                                    
function  of  the price  of  oil,  the production,  and  the                                                                    
Senator  Hoffman looked  at page  5 of  the fiscal  note and                                                                    
concentrating  on  2017  through  2019 because  it  was  the                                                                    
period  that would  show the  long-term implications  of the                                                                    
maximum base  tax rate.  He pointed out  that the  price was                                                                    
currently at $110  per bbl, but wondered if DOR  had an idea                                                                    
of what the  price would be in 2019;  furthermore, the range                                                                    
between  "425 and  1.3"  was  a wide  range  and the  prices                                                                    
depicted  went  from  $100  per  bbl to  $120  per  bbl.  He                                                                    
wondered what "those" impacts would  be at the current price                                                                    
of about $110  per bbl. Mr. Pawlowski responded  that he did                                                                    
not know offhand what the $110  per bbl number would be, but                                                                    
that he  could have  the number run  for the  committee; the                                                                    
reason that the  $120 per bbl number was  chosen was because                                                                    
the range  in the forecast  period rose in that  time period                                                                    
in FY19 to about $118.29 per bbl.                                                                                               
3:40:44 PM                                                                                                                    
Senator  Hoffman stressed  that  the  information about  the                                                                    
impacts  at   current  prices  was  very   critical  to  the                                                                    
committee and that  it would not be  doing its due-diligence                                                                    
unless it saw those numbers from the department.                                                                                
Senator  Hoffman  addressed scenario  A  on  page 5  of  the                                                                    
fiscal note and directed  the committee's attention to FY19,                                                                    
which was  when the  base rate  would be  at 33  percent; he                                                                    
inquired what DOR thought the  state would be pushing across                                                                    
the  table  in  scenario  A if  it  assumed  the  forecasted                                                                    
production of a 50 million bbl  field at a price of $110 per                                                                    
bbl  if only  one 50  million bbl  field was  developed. Mr.                                                                    
Pawlowski responded that  he would have to run  the $110 per                                                                    
bbl number.                                                                                                                     
Senator Hoffman  observed that the same  question applied to                                                                    
scenario B and C in order  to help the committee do its due-                                                                    
diligence before the legislation was moved on.                                                                                  
Senator Hoffman  directed the committee's attention  to page                                                                    
4 of  the fiscal note and  FY17 through FY19; he  noted that                                                                    
that  the  maximum base  tax  kicked  in  at 33  percent  in                                                                    
January 1,  2017. He pointed to  the bottom lines of  the FY                                                                    
17, FY18,  and FY19  columns and observed  that at  the high                                                                    
end, there was  about $1.25 billion being  pushed across the                                                                    
table in  FY17; this  number increased in  FY18 and  FY19 to                                                                    
$1.3 billion.  He acknowledged that  intent of  stemming the                                                                    
decline  and offered  that  he was  willing  to take  risks;                                                                    
however,  more  information, particularly  regarding  "these                                                                    
other numbers,"  would be required  because the  stakes were                                                                    
tremendous at the high end.  He expressed desire to see more                                                                    
oil,  but  warned  that  the risks  needed  to  be  assessed                                                                    
because the  numbers were staggering. He  requested that the                                                                    
numbers be  depicted at a price  of $110 per bbl  of oil and                                                                    
opined  that   the  numbers  looked   good  when   you  only                                                                    
considered  prices of  $90  per  bbl and  $100  per bbl.  He                                                                    
offered that the price of oil  had continued to rise for the                                                                    
last 6 years.                                                                                                                   
Co-Chair Meyer  thought that  it would be  easy to  find the                                                                    
point in  between $100 per  bbl and  $120 per bbl  and asked                                                                    
the  department to  provide the  requested information.  Mr.                                                                    
Pawlowski responded  that he  would do  so. He  directed the                                                                    
committee's attention to the fiscal  line on the bottom page                                                                    
4  of the  fiscal  note, which  stated  that the  forecasted                                                                    
price  ranged from  $109.61 per  bbl in  FY14 to  $118.29 in                                                                    
FY19  and explained  that the  generated  number would  look                                                                    
very similar to the trend that was in the fiscal note.                                                                          
3:45:39 PM                                                                                                                    
Senator Hoffman  offered that at  a price $110 per  bbl, the                                                                    
impacts  in FY18  and FY19  would  probably be  north of  $1                                                                    
billion.  Mr. Pawlowski  responded that  this would  be true                                                                    
for the forecasted production table  in scenario A on page 5                                                                    
of the fiscal  note, but that DOR would  generate the number                                                                    
for  scenarios B  and C  where  additional production  would                                                                    
come into  play. He added  that it  was a fair  question and                                                                    
that DOR would generate the numbers.                                                                                            
3:46:35 PM                                                                                                                    
AT EASE                                                                                                                         
3:46:56 PM                                                                                                                    
3:47:00 PM                                                                                                                    
Senator Hoffman  wondered if  the numbers  for when  the GRE                                                                    
kicked in after 2019 could be  run by DOR because he thought                                                                    
they would  be significant. He acknowledged  that normally a                                                                    
5-year  outlook  was presented,  but  offered  that the  GRE                                                                    
could  very  substantially;  furthermore,  the  number  that                                                                    
included the effect of GRE  needed to be considered, but was                                                                    
not  included  in  the  charts   before  the  committee.  He                                                                    
observed that the fiscal note  had indeterminate amounts all                                                                    
the  way across  and  that  it would  be  nice  to have  the                                                                    
additional   information  when   considering   a  piece   of                                                                    
legislation so large.                                                                                                           
Co-Chair  Meyer  acknowledged  that fiscal  notes  typically                                                                    
looked  5 years  out and  thought  that it  would be  pretty                                                                    
speculative to  ask DOR  to forecast  the note  much farther                                                                    
out.  He asked  Mr. Pawlowski  if Senator  Hoffman's request                                                                    
was doable. Mr.  Pawlowski stated that he  would confer with                                                                    
some of  people at  DOR who generated  those numbers  in the                                                                    
long-term   forecast    and   see   what   the    range   of                                                                    
"comfortabilities"  was  in   providing  those  numbers.  He                                                                    
recalled an answer that was  generated by DOR for Vice-Chair                                                                    
Fairclough that  had a breakdown  of the  under development,                                                                    
under  evaluation,  and   currently  producing  bbl  looking                                                                    
forward  that would  or could  potentially  qualify for  the                                                                    
GRE; furthermore, the way the  Senate Finance Committee's CS                                                                    
was drafted, there  was a burden of proof  within the legacy                                                                    
units to come  to DNR to demonstrate  through geological and                                                                    
geoscience  means that  "that" oil  was not  contributing to                                                                    
production in  order to  qualify for  the GRE.  He expressed                                                                    
that DOR  wanted to careful not  to assume that too  much or                                                                    
not enough  applied to the  GRE, but  that it was  trying to                                                                    
over-assume  what would  apply for  the GRE  in order  to be                                                                    
clear with the  committee and public and  put serious fiscal                                                                    
impacts  on   table  for  the  committee   to  consider.  He                                                                    
concluded that he would look at  the request and get back to                                                                    
the committee with a response.                                                                                                  
3:50:34 PM                                                                                                                    
Co-Chair  Meyer expressed  frustration. He  stated that  the                                                                    
committee had been  working on the bill  during mornings and                                                                    
afternoons for 2 weeks and  that DOR could have prepared the                                                                    
analysis  past 5  years  out if  it had  known  that it  was                                                                    
Senator Hoffman WITHDREW his OBJECTION.                                                                                         
There being  NO further OBJECTION,  the CS was ADOPTED  as a                                                                    
working document.                                                                                                               
3:51:58 PM                                                                                                                    
6:16:22 PM                                                                                                                    
Co-Chair Meyer observed that  Senators Stedman, Giessel, and                                                                    
Wielechowski were present in the committee room.                                                                                
6:18:02 PM                                                                                                                    
SCOTT   JEPSEN,   VICE   PRESIDENT  OF   EXTERNAL   AFFAIRS,                                                                    
CONOCOPHILLIPS  (via   teleconference),  addressed  possible                                                                    
confusion regarding  a presentation that  ConocoPhillips had                                                                    
conducted on February  28 and offered that there  might be a                                                                    
misinterpretation  that   the  comments  about   the  future                                                                    
development   activities   that   were  mentioned   in   the                                                                    
presentation  referenced  a  new  initiative;  however,  the                                                                    
referenced  activities  were  not  incremental  and  were  a                                                                    
continuation  of what  the company  had already  been doing.                                                                    
Furthermore,   the   presentation's   activities   did   not                                                                    
represent a new  initiative and was not  something above and                                                                    
beyond  what ConocoPhillips  had been  previously doing.  He                                                                    
referred to a graph on  slide 2 of a PowerPoint presentation                                                                    
titled  "Senate Finance  Committee CSSB21"  (copy on  file);                                                                    
the graph  demonstrated that investment followed  upside. He                                                                    
pointed  out that  Alaska  had resources,  but  that it  was                                                                    
hampered  by  the ACES  tax  regime;  furthermore, the  high                                                                    
progressivity  in  ACES  was   a  tremendous  impediment  to                                                                    
increasing investment  in Alaska. He offered  that the graph                                                                    
showed  that ConocoPhillips  had a  constant budget  of $900                                                                    
million per  year the  last 3 years  in Alaska  and compared                                                                    
this  to Lower-48,  which had  high upside;  ConocoPhillips'                                                                    
investment  in  the  Lower-48  had  grown  from  about  $1.5                                                                    
billion  to  close to  $5  billion  during the  same  3-year                                                                    
period. He reminded the committee  that these investments in                                                                    
the  Lower-48 were  in  oil  plays and  not  in natural  gas                                                                    
plays;   furthermore,   ConocoPhillips  was   focusing   its                                                                    
attention on oil plays like the Bakken and Eagle Ford.                                                                          
6:22:44 PM                                                                                                                    
BOB  HEINRICH,  VICE  PRESIDENT OF  FINANCE,  CONOCOPHILLIPS                                                                    
(via teleconference), spoke in  support of CSSB 21(FIN), but                                                                    
indicated  that  his  company still  had  several  areas  of                                                                    
concern  regarding the  bill. He  discussed  slide 3  titled                                                                    
"Changes to  ACES to  Improve Alaska's  Investment Climate."                                                                    
He related  that ConocoPhillips had been  advocating for the                                                                    
elimination of  progressivity from  the tax system,  as well                                                                    
as the creation of a flatter  tax rate over a broad range of                                                                    
prices; the third  thing the company was  advocating for was                                                                    
establishing  a tax  structure  that  created an  attractive                                                                    
investment climate for  Alaska. He discussed the  need for a                                                                    
competitive  tax  rate  and potential  incentives  for  both                                                                    
legacy  and new  field development  that would  help balance                                                                    
Alaska's  high-cost environment.  He  related that  although                                                                    
ConocoPhillips' analysis  of CSSB  21(FIN) was in  its early                                                                    
stages, the progressivity and flatter  tax rate concerns had                                                                    
been addressed well  in the bill; however,  there were still                                                                    
several areas of concern. He  opined that CSSB 21(FIN) still                                                                    
represented  a tax  increase at  lower prices,  which was  a                                                                    
result of the higher base  tax rate; furthermore, the second                                                                    
issue surrounded the  mechanics of how the  new GRE language                                                                    
would apply  within the legacy fields.  He recalled comments                                                                    
that  ConocoPhillips' CEO  had  made the  previous week,  in                                                                    
which he  had stated  that ConocoPhillips  would do  more in                                                                    
Alaska  with  the right  tax  framework.  He concluded  that                                                                    
ConocoPhillips was doing  what it could in  Alaska under the                                                                    
existing structure,  but saw  that it could  do more  if the                                                                    
appropriate changes were made.                                                                                                  
Co-Chair Meyer  inquired if the  bill had reached  the point                                                                    
where it would  create a climate that  would spur additional                                                                    
investment  and hopefully  more  production  in Alaska.  Mr.                                                                    
Heinrich  replied   that  although   CSSB  21(FIN)   was  an                                                                    
improvement  over ACES  that ConocoPhillips  was pleased  to                                                                    
see,  the  company  would  have to  examine  projects  on  a                                                                    
project-by-project  basis;   furthermore,  because   of  the                                                                    
current structure  of the legislation,  ConocoPhillips could                                                                    
not say that the opportunity  slate would improve across the                                                                    
board. He explained that some  projects would be improved as                                                                    
a result of  the bill, while others may  not improve because                                                                    
of the loss of the tax credit structure.                                                                                        
6:26:10 PM                                                                                                                    
Co-Chair  Meyer  recalled  a graph  that  had  depicted  the                                                                    
breakeven  point  to be  70,000  bbls  per day  (bbl/d)  and                                                                    
offered  that another  graph would  show that  figure to  be                                                                    
closer to  55,000 to 60,000  bbl/d. He noted that  the state                                                                    
would be looking  at where it would find  the additional new                                                                    
bbl of  oil and hoped  that the industry would  provide some                                                                    
encouragement that the changes  in CSSB 21(FIN) would result                                                                    
in 55,000, 60,000, or more  bbl/d. Mr. Jepsen responded that                                                                    
ConocoPhillips was not at the  point where it could tell the                                                                    
committee how much  it would do differently  if CSSB 21(FIN)                                                                    
was passed;  additionally, CSSB 21(FIN) was  a step backward                                                                    
from the previous version of  the bill. He acknowledged that                                                                    
CSSB  21(FIN)  was  an  improvement   over  ACES,  but  that                                                                    
ConocoPhillips  could  not  currently state  which  projects                                                                    
would  happen and  which ones  would  not; whether  projects                                                                    
went forward would depend on  whether the investment climate                                                                    
in  Alaska   was  sufficient  to  attract   significant  new                                                                    
investment dollars. He concluded  that some elements of CSSB
21(FIN) would take more analysis  to determine their impacts                                                                    
on investment decisions and spoke  about the need to further                                                                    
examine the way the GRE was described in the bill.                                                                              
Senator Hoffman asked how long  it would take ConocoPhillips                                                                    
to determine  whether the  bill would spur  it to  invest in                                                                    
Alaska, as  well as  what the size  of the  investment might                                                                    
be. Mr.  Jepsen replied  that the  company would  make those                                                                    
decisions  as projects  matured  to a  funding decision.  He                                                                    
recalled  that ConocoPhillips  had  stated  that there  were                                                                    
certain  things it  could do  if HB  110 had  passed because                                                                    
that bill  had provided  a high  degree of  confidence about                                                                    
the  competiveness of  Alaska projects  over  a broad  price                                                                    
range and  offered that  "this one  does not."  He expounded                                                                    
that ConocoPhillips  would have to  look at projects  in the                                                                    
context of the  price outlook at the time  of funding, other                                                                    
opportunities  for  investment,  and   how  it  competed  on                                                                    
margin. He  concluded that some  projects would  fare better                                                                    
under CSSB 21(FIN), while others would not.                                                                                     
Senator Bishop  remarked that the committee  had worked hard                                                                    
on the bill, had done heavy  lifting, and had moved the base                                                                    
tax rate almost 7 percentage  points down. He understood the                                                                    
position  of the  oil industry,  but  offered that  industry                                                                    
needed to understand his position  with constituents and the                                                                    
people  of  Alaska.  He  thought  that  the  ConocoPhillips'                                                                    
presentation  would  have had  an  additional  slide with  a                                                                    
check mark on the "increased activity box."                                                                                     
6:30:52 PM                                                                                                                    
DAMIAN   BILBAO,   HEAD   OF   FINANCE,   BP   ALASKA   (via                                                                    
teleconference),  spoke  in  support of  CSSB  21(FIN),  but                                                                    
expressed concerns  that the bill's  base tax  rate remained                                                                    
too high.  He referred  to his prior  testimony on  March 5,                                                                    
2013 and  recalled asking a  question regarding  whether the                                                                    
current  CS  to  SB  21 made  Alaska  more  competitive  for                                                                    
investment. He  explained that when BP  made decisions every                                                                    
year about where to invest,  there were many global options;                                                                    
furthermore, these options competed  against each other on a                                                                    
fiscal  basis for  investment. He  reported that  currently,                                                                    
Alaska trailed  other investment alternatives and  failed to                                                                    
compete globally for investment  and offered that PFC Energy                                                                    
had testified  that a base  rate of  30 percent with  the $5                                                                    
per  bbl   credit  took   Alaska  from   a  lower   tier  of                                                                    
competiveness to an average level  of competition. He opined                                                                    
that CSSB 21(FIN)  raised the base rate back  to 35 percent,                                                                    
which  was well  above  the  ACES rate  of  25 percent,  and                                                                    
lowered  it to  33  percent  after a  few  years; this  made                                                                    
Alaska  less  than  average   in  competing  for  investment                                                                    
globally.  He stated  that although  the base  rate in  CSSB
21(FIN)  remained  too high,  it  made  2 significant  steps                                                                    
forward in  making Alaska more  competitive; the  first step                                                                    
was the elimination of  progressivity, which was fundamental                                                                    
as an obstacle to  making Alaska competitive for investment.                                                                    
The second  positive change  that CSSB  21(FIN) made  was to                                                                    
the  GRE,   which  would  be  applicable   to  legacy  field                                                                    
opportunities as the bill was currently written.                                                                                
Mr.  Bilbao stated  that BP  had always  testified that  the                                                                    
base rate of 25 percent under  ACES was too high and offered                                                                    
that consultants  had shown  that ACES  had made  Alaska not                                                                    
competitive;  over the  last 7  years,  investment had  gone                                                                    
elsewhere  and  production  had  continued  to  decline.  He                                                                    
concluded that  Alaska currently failed to  compete globally                                                                    
for investment and  that BP welcomed that  positive shift in                                                                    
the conversation to a policy  focused on Alaska's future. He                                                                    
offered that CSSB  21(FIN) could work and  that it addressed                                                                    
1  concern regarding  the GRE;  however, the  base tax  rate                                                                    
remained too high in the legislation.                                                                                           
6:35:12 PM                                                                                                                    
Senator  Dunleavy requested  an explanation  of the  comment                                                                    
that the  base tax  was still too  high. Mr.  Bilbao replied                                                                    
that the  base tax  rate would  be too  high to  compete for                                                                    
investment  and  that   the  legislature's  consultants  had                                                                    
stated  that Alaska  did not  currently compete.  He offered                                                                    
that  under the  25 percent  base tax  rate of  ACES, Alaska                                                                    
trailed  other   global  alternatives  for   investment  and                                                                    
reiterated  his   prior  comments  regarding   PFC  Energy's                                                                    
testimony;  furthermore, CSSB  21(FIN)  took  the base  rate                                                                    
from 30 percent  back up to 35 percent or  33 percent, which                                                                    
was  less   than  average   relative  to   alternatives  for                                                                    
Senator  Dunleavy asked  if the  base rate  was too  high to                                                                    
compete and  thus too high for  BP to invest in  Alaska. Mr.                                                                    
Bilbao  responded that  CSSB 21(FIN)  did provide  some good                                                                    
steps forward  to making Alaska  more competitive,  but that                                                                    
BP felt  that it did not  go far enough to  attract the type                                                                    
of  meaningful  investment that  was  required  to make  the                                                                    
future look different  than the last 7 years  or the current                                                                    
Senator  Bishop asked  what the  appropriate  number on  the                                                                    
base   tax  rate   should  be.   Mr.  Bilbao   answered  the                                                                    
legislature's consultants  had shown what a  30 percent base                                                                    
tax rate would  look like and had shown that  at 30 percent,                                                                    
Alaska would  be in the middle  of the pack. He  stated that                                                                    
Alaska had 2 fundamental challenges:  the 1st was the fiscal                                                                    
policy that  was not  competitive and the  2nd was  the high                                                                    
cost environment;  therefore, if  Alaska was  simply average                                                                    
on fiscal  policy, the high  cost of operating in  the state                                                                    
made it  less than  competitive globally. He  concluded that                                                                    
Alaska would have  to move beyond the middle of  the pack in                                                                    
order to  compete for  investment and  opined that  this had                                                                    
also  been asserted  by PFC  Energy, Roger  Marks, and  Econ                                                                    
Senator Bishop observed that  consultants were not producing                                                                    
the oil  in Alaska and  inquired what BP's  preferred number                                                                    
was.  Mr. Bilbao  replied that  the consultants  had done  a                                                                    
good  job analyzing  how an  average  industry player  would                                                                    
look at  "this" and offered  that the issue involved  all of                                                                    
the  players, not  just the  large  producers. He  furthered                                                                    
that the  numbers that the consultants  were presenting were                                                                    
showing  a  very good  picture  of  what  it would  take  to                                                                    
attract  an investment  and explained  that the  most recent                                                                    
analysis  by PFC  Energy  reflected how  BP  would view  the                                                                    
investment opportunities; a 30 percent  base tax rate with a                                                                    
$5  per bbl  credit  still  failed to  move  the needle  for                                                                    
significant new investment.                                                                                                     
Senator Hoffman  asked for verification that  Mr. Bilbao had                                                                    
stated  that a  25 percent  base tax  rate was  too high  to                                                                    
compete  for investment.  Mr. Bilbao  replied that  under an                                                                    
ACES structure, the  25 percent rate was too  high, which is                                                                    
why   Alaska  did   not  currently   compete  globally   for                                                                    
6:39:40 PM                                                                                                                    
DAN SECKERS, TAX COUNSEL,  EXXON MOBIL (via teleconference),                                                                    
spoke  in support  of  CSSB 21(FIN),  but  offered that  the                                                                    
bill's base  tax rate was  still too  high. He spoke  to the                                                                    
need  for  Alaska to  create  a  stable fiscal  regime  that                                                                    
attracted  the needed  and desired  investments and  offered                                                                    
that it was most critical  issue facing the state. He opined                                                                    
that  while CSSB  21(FIN) made  Alaska more  attractive than                                                                    
ACES,  the state  needed  to make  itself  as attractive  as                                                                    
possible; being  in the  middle of  the pack  was desirable,                                                                    
but  Exxon Mobile  thought that  being attractive  should be                                                                    
the  target. He  reported that  Alaska faced  challenges and                                                                    
obstacles  that  other states  did  not  and that  the  more                                                                    
attractive   the  state   could   make   itself,  the   more                                                                    
investments would flow. He believed  that CSSB 21(FIN) was a                                                                    
remarkable  improvement  over  ACES  and  made  Alaska  more                                                                    
competitive  and  that  the  removal  of  progressivity,  by                                                                    
itself, was  a significant  improvement over  ACES; however,                                                                    
Exxon Mobile  was concerned that  the base tax rate  in CSSB
21(FIN) remained  too high. He offered  that consultants had                                                                    
shown that  Alaska was not  competitive and that  the fiscal                                                                    
regime was  broken and  needed to be  fixed. He  pointed out                                                                    
that imitation was  the sincerest form of  flattery and that                                                                    
he was  not aware  of any  regime that  had copied  the ACES                                                                    
structure or any part of  it. He expressed that Exxon Mobile                                                                    
was concerned  that while CSSB  21(FIN) was  encouraging, it                                                                    
might  also be  a  regime that  others  would not  duplicate                                                                    
because  the base  rate  was still  too  high. He  supported                                                                    
efforts of  the committee and  hoped that it  would continue                                                                    
working to make Alaska as attractive as possible.                                                                               
Vice-Chair Fairclough  remarked for the record  that a major                                                                    
producer would  not pay 35 percent  and that the $5  per bbl                                                                    
of oil  exclusion produced  a reverse  progressivity factor;                                                                    
the effective  tax rate was  much lower than the  35 percent                                                                    
base tax rate.  She stated that the committee  was doing the                                                                    
math and understood that the  industry wanted projects to be                                                                    
competitive;  however, she  wanted  the public  to be  aware                                                                    
that  even  though the  base  tax  rate  was 35  percent,  a                                                                    
company  that  was  producing  oil   would  have  a  reduced                                                                    
effective tax rate.                                                                                                             
6:44:47 PM                                                                                                                    
Co-Chair  Meyer  noted that  the  committee  had heard  from                                                                    
industry  that   it  was  uncertain  if   CSSB  21(FIN)  was                                                                    
significant  enough to  increase  investment  in Alaska.  He                                                                    
pointed  to  a  PFC Energy  PowerPoint  presentation  titled                                                                    
"Senate  Finance  CS SB21  Analysis"  dated  March 14,  2013                                                                    
(copy on  file). He  turned to  slide 13  titled "Government                                                                    
Take Competitiveness  - $100/bbl"  and noted that  it showed                                                                    
Alaska's government  take competitiveness under the  bill at                                                                    
approximately 65  percent for existing  producers at  the 35                                                                    
percent  base tax  rate with  the $5  per bbl  allowance. He                                                                    
offered that  the slide's chart  appeared to show  Alaska as                                                                    
being pretty  competitive. He  acknowledged that  Alaska had                                                                    
disadvantages  related   to  high  costs,   permitting,  and                                                                    
weather conditions,  but thought  that it appeared  that the                                                                    
current version of  the bill put Alaska in  the ballpark; he                                                                    
requested Mr.  Pulliam and Mr.  Marks to comment  on whether                                                                    
CSSB 21(FIN) put Alaska in the "ballgame."                                                                                      
BARRY PULLIAM,  MANAGING DIRECTOR, ECON ONE  RESEARCH, INC.,                                                                    
referenced a slide that he  had presented the prior day that                                                                    
had contained  a series of  investment metrics, such  as the                                                                    
net  present  value,  the  internal   rate  of  return,  the                                                                    
government take,  as well  as the  margin and  depicted them                                                                    
across  SB   21,  CSSB  21(RES),   and  CSSB   21(FIN);  the                                                                    
conclusion he had drawn was  that CSSB 21(FIN) put Alaska in                                                                    
the ballgame.  He explained that CSSB  21(FIN) represented a                                                                    
very  positive  change that  should  cause  quite a  bit  of                                                                    
excitement  regarding Alaska's  fiscal system,  particularly                                                                    
if  it  was  viewed  in conjunction  with  a  commitment  to                                                                    
stability.  He opined  that CSSB  21(FIN)'s changes  did put                                                                    
Alaska in  the ballgame and  in a very  attractive position.                                                                    
He pointed  out that Alaska had  a lot of resources  left to                                                                    
offer and had  billions of bbl of oil.  He acknowledged that                                                                    
Alaska had  some cost challenges,  but offered that  many of                                                                    
the areas  that it  was competing  against globally  had the                                                                    
same cost issues. He concluded  one could not find very low-                                                                    
cost oil these  days, but that it was all  high-cost oil and                                                                    
involved  challenges;  the  easy  oil, for  most  part,  had                                                                    
already been taken.  He pointed out that the  North Sea, the                                                                    
Lower-48,  and Alaska  struggled  with the  same issues  and                                                                    
believed that  when everything was  put in context,  CSSB 21                                                                    
(FIN) would  put Alaska  in a good  position to  attract the                                                                    
capital it was looking for.                                                                                                     
Senator  Dunleavy  inquired  what  Mr.  Pulliam  had  stated                                                                    
regarding  excitement.  Mr.  Pulliam  responded  that  there                                                                    
should be  excitement over CSSB  21(FIN)'s changes  from the                                                                    
standpoint  of  the  investors, which  would  be  ultimately                                                                    
measured  in what  investors actually  did. He  offered that                                                                    
the  last   3  speakers  had  expressed   a  combination  of                                                                    
excitement  and  a  desire  for  a  better  deal,  which  he                                                                    
understood as a  tax payer. He opined that it  would be nice                                                                    
to hear from other entities  pursuing projects in Alaska and                                                                    
thought that Armstrong  Oil and Gas would be  a good company                                                                    
to  talk  to.  He  offered  that  Armstrong  Oil  and  Gas's                                                                    
testimony in  both the Senate  Resources and  Senate Finance                                                                    
Committees had been very positive  about the changes in CSSB
21(RES)  and  CSSB 21(FIN).  He  referenced  changes in  the                                                                    
United Kingdom and the excitement  it had generating for the                                                                    
industry and  opined that they  were similar to  the changes                                                                    
in SB 21.  He reiterated that the success of  the bill would                                                                    
ultimately  be  measured  in what  actually  happened  as  a                                                                    
ROGER MARKS, LEGISLATIVE  CONSULTANT, LEGISLATIVE BUDGET AND                                                                    
AUDIT COMMITTEE,  referenced the  first presentation  he had                                                                    
provided to the committee (copy  on file) related to getting                                                                    
Alaska's fair  share; he  had defined  "fair share"  as what                                                                    
one could get  in a competitive environment.  He stated that                                                                    
he had used  the government take metric for  his paradigm as                                                                    
the  best  apples to  apples  comparison.  He reported  that                                                                    
government  take  reflected  the  percentage  of  one's  net                                                                    
income  that went  to government  and that  it automatically                                                                    
adjusted. He  explained that government take  reflected high                                                                    
costs or  low costs  and expounded that  if there  were high                                                                    
costs, there  would be a lower  net income. He pointed  to a                                                                    
PFC  Energy PowerPoint  presentation titled  "Senate Finance                                                                    
CSSB 21  Analysis" dated March  14, 2013 (copy on  file) and                                                                    
slide  16  titled   "Government  Take  Competitiveness."  He                                                                    
thought  that the  slide's peer  group  was appropriate  and                                                                    
represented  the  jurisdictions  that Alaska  was  competing                                                                    
with  on  a  number  of parameters.  He  reported  that  his                                                                    
initial   thought   when   looking  across   the   competing                                                                    
jurisdictions  was that  Alaska  wanted to  be  at about  62                                                                    
percent  government  take and  pointed  out  that the  slide                                                                    
showed that  under CSSB 21(FIN),  low cost fields  in Alaska                                                                    
were at  about 60  percent government  take, while  the high                                                                    
cost fields  were at about  64 percent. He thought  that you                                                                    
would  get more  investment at  a  lower tax  rate and  less                                                                    
investment at a high tax  rate; furthermore, he thought that                                                                    
the  tax  rates  under  CSSB  21(FIN)  would  lead  to  more                                                                    
investment  and production  than  under  ACES. He  estimated                                                                    
that  each percentage  point of  government  take was  worth                                                                    
about $140  million to the  producers as whole  annually and                                                                    
pointed  out that  each percentage  was important;  however,                                                                    
there  was a  lot variability  in these  numbers and  it was                                                                    
impossible  to  be  pinpoint  exact.  He  stated  that  CSSB
21(FIN)  would result  in more  investment than  the current                                                                    
regime  and  it  may  result   in  more  investment  in  new                                                                    
development in  the legacy fields  because of the  4 percent                                                                    
difference. He  concluded that he  judged that  CSSB 21(FIN)                                                                    
was in  the competitive ballpark  of where Alaska  needed to                                                                    
6:54:31 PM                                                                                                                    
Co-Chair  Meyer pointed  to  Mr.  Marks' breakeven  analysis                                                                    
from the prior day and  offered that it asserted that Alaska                                                                    
needed about 70,000  bbl/d of new oil. He asked  if the bill                                                                    
would get the state another  70,000 bbl/d. Mr. Marks replied                                                                    
that the analysis had covered  how much increased production                                                                    
the  state would  need over  a 20-year  period to  breakeven                                                                    
with ACES on total  petroleum revenues, including royalties,                                                                    
production tax, property tax, and  income tax; however, that                                                                    
analysis had been predicated on  the CS that had been before                                                                    
the committee the prior morning,  which had 30 percent rate.                                                                    
He expounded that the breakeven  point had changed to 50,000                                                                    
bbl  in CSSB  21(FIN) because  of  its 33  percent base  tax                                                                    
rate;  furthermore, he  had made  no  representation in  the                                                                    
analysis that  the state  would get  the additional  bbl. He                                                                    
pointed  out that  70,000  bbl/d was  really  not that  much                                                                    
given  the resource  base of  10  billion bbl  on the  North                                                                    
Slope. He could not guarantee  that the per-bbl target would                                                                    
happen, but that it was  a very reasonable target that could                                                                    
be exceeded,  which would  result in  the state  making more                                                                    
money than under ACES.                                                                                                          
Mr. Pulliam pointed to slide  2 of a PowerPoint presentation                                                                    
titled "Comments on Senate Finance  CS SB21" dated March 14,                                                                    
2013 (copy  on file).  He spoke to  slide 2  titled "Average                                                                    
Government Take and Effective Tax  Rate ACES v. SFIN CS SB21                                                                    
for all  existing producers (FY2015-FY2019)"  and referenced                                                                    
comments  by Vice-Chair  Fairclough regarding  the effective                                                                    
tax rate  being lower than the  base tax. He pointed  to the                                                                    
bottom chart  on the  slide and stated  that at  the current                                                                    
price of about $110 per bbl  of oil, CSSB 21(FIN), which was                                                                    
depicted by  the green  line, had an  effective tax  rate of                                                                    
about  28 percent  when the  per-bbl allowance  was factored                                                                    
in. He reported  that at a price of about  $150 per bbl, the                                                                    
effective tax rate  under the CSSB 21(FIN) would  top out at                                                                    
about a  30 percent; these  numbers were important  to think                                                                    
about because  one could not  divorce the nominal  rate from                                                                    
the allowance, but the 2 were  designed to work in tandem to                                                                    
create the  flat to slightly regressive  curve on government                                                                    
take that was depicted in  the slide's top chart. He offered                                                                    
that CSSB  21(FIN) was right  about where ACES was  in terms                                                                    
of  government take  at  $80 per  bbl,  but had  significant                                                                    
lower government  take than  ACES at  the higher  prices; he                                                                    
offered  that these  kind of  numbers put  Alaska in  a good                                                                    
6:59:42 PM                                                                                                                    
Mr.  Pulliam  discussed  slide 3  titled  "Projected  Fiscal                                                                    
Impact  of  SFIN  CS  SB21  Assuming  No  Production  Change                                                                    
(FY2014  - FY2043)."  He related  that the  slide's analysis                                                                    
examined  the question  of what  it would  take in  terms of                                                                    
additional production to make up  for the fiscal impact that                                                                    
was projected  by DOR if  a tax system was  instituted based                                                                    
on CSSB  21(FIN); furthermore, the  slide showed  the fiscal                                                                    
impact  for  the  6  years  that  DOR  calculated  and  then                                                                    
extended that out in time  for another 30 years. He reported                                                                    
that  DOR  was projecting  a  fiscal  impact of  about  $5.7                                                                    
billion total, which was represented  by the years that were                                                                    
above  the line  on the  slide's  table; he  noted that  the                                                                    
department's fiscal impact assumed  no production change and                                                                    
offered that there should be  a production change with lower                                                                    
taxes.  He opined  that  if you  carried  that $5.7  billion                                                                    
total  over  30  years,  the  total  impact  was  about  $20                                                                    
billion. He  stated that because the  impacts were happening                                                                    
over  time, the  slide  depicted money  in  current or  real                                                                    
dollars, as  well as nominal  dollars and reported  that the                                                                    
second column showed  what the future dollars  were worth in                                                                    
today's dollars;  the $19.9 billion projection  over the 30-                                                                    
year  period  actually  reflected  about  $14.8  billion  in                                                                    
today's money.                                                                                                                  
Mr.  Pulliam spoke  to slide  4  titled "Additional  Volumes                                                                    
Need to Offset  Projected Fiscal Impact of SFIN  CS SB21 (FY                                                                    
2014 -  FY 2043)."  He related  that the  slide used  the 50                                                                    
million  bbl  field  development  model that  Econ  One  had                                                                    
development and looked at the  revenues that the state could                                                                    
expect at  DOR's forecasted prices,  which worked out  to be                                                                    
about $105  per bbl  over time in  2012 dollars.  He pointed                                                                    
out  that most  of the  expected new  production would  fall                                                                    
under the  1/6 royalty range,  which was 16.67  percent; the                                                                    
older fields would  have a 12.5 percent royalty.  he had run                                                                    
the slide's analysis for both  rates. He offered that all of                                                                    
the production for the 16.67  percent would probably qualify                                                                    
for  the 20  percent  GRE  and pointed  out  that the  slide                                                                    
assumed that  the 33 percent base  tax rate, the $5  per bbl                                                                    
allowance,  and the  20  percent GRE  would  apply; it  also                                                                    
assumed development  costs of about  $20 per bbl.  Under the                                                                    
slide's assumptions, every bbl  that was developed was worth                                                                    
about  $35  to  the  state,  which was  about  $25  in  2012                                                                    
dollars.  He  reiterated  that the  fiscal  impact  in  2012                                                                    
dollars was  just under $15  billion, which  would translate                                                                    
to about  590 million  bbl that would  need to  be developed                                                                    
over the next  30 years in order for the  state to breakeven                                                                    
on  a revenue  basis with  ACES; this  meant that  the state                                                                    
would need about  20 million bbl per year  in additional oil                                                                    
to bridge the revenue gap between CSSB 21(FIN) and ACES.                                                                        
7:04:48 PM                                                                                                                    
Co-Chair  Meyer inquired  what the  daily  equivalent of  20                                                                    
million bbl per year was.  Mr. Pulliam responded that adding                                                                    
20  million bbl  of oil  per  year equated  to about  55,000                                                                    
bbl/d. He  offered that when  thinking about  whether 55,000                                                                    
bbl  of  additional  oil  per  day  was  realistic,  it  was                                                                    
important  to think  about the  remaining resource  base and                                                                    
observed   that  there   were   about  3   billion  bbl   of                                                                    
undiscovered conventional  oil on state lands  in Alaska; 20                                                                    
million bbl  represented a  little less  than 1  percent per                                                                    
year of the undiscovered resource.  He concluded that over a                                                                    
30-year period,  the 1 percent  still represented  less than                                                                    
30  percent  of the  remaining  resources  and that  from  a                                                                    
technical standpoint,  55,000 bbl/d in  new oil should  be a                                                                    
reasonable thing to accomplish.                                                                                                 
Senator Dunleavy inquired if Mr.  Pulliam would be surprised                                                                    
to  learn  that in  3  years,  there was  little  additional                                                                    
investment   in   Alaska   above  maintenance   or   routine                                                                    
investment.  Mr. Pulliam replied  that he would be surprised                                                                    
if  CSSB  21(FIN)'s  changes  did  not  have  an  impact  on                                                                    
attracting new investment.                                                                                                      
Senator Dunleavy  inquired what  Mr. Pulliam's  advice would                                                                    
be to the committee if CSSB  21(FIN) passing did not lead to                                                                    
noticeable  new investment.  Mr.  Pulliam  answered that  if                                                                    
increased  investment didn't  occur, he  would look  hard at                                                                    
what was still  standing in the way  of increased investment                                                                    
in Alaska. He  pointed out that there were  some things that                                                                    
were  not   under  the  state's  control   such  as  federal                                                                    
permitting  issues  and that  those  types  of issues  could                                                                    
potentially  get in  the way.  He noted  that the  state was                                                                    
looking within itself  to examine all of the  things that it                                                                    
had control over  and opined that the state did  well on the                                                                    
permitting  process.  He  thought  that  Alaska  was  pretty                                                                    
responsive  in  the  areas  that   it  had  the  ability  to                                                                    
Senator  Dunleavy pointed  out  that the  discussion on  the                                                                    
bill the last several weeks  had been centered on tax policy                                                                    
and how  it would dictate investment.  Mr. Pulliam responded                                                                    
that at the  current price of oil,  CSSB 21(FIN) represented                                                                    
a change in  government take of about  10 percentage points,                                                                    
which was  a significant shift  and stated that  he expected                                                                    
that  the   bill  would  attract  interest   and  additional                                                                    
investment; if this  did not occur in Alaska, it  would be a                                                                    
"head scratcher."                                                                                                               
7:09:44 PM                                                                                                                    
Senator Dunleavy inquired  if it would be  a head scratcher,                                                                    
a surprise, or  a shock if nothing happened in  3 years as a                                                                    
result of the  bill. Mr. Pulliam responded that  he would be                                                                    
a  little of  all of  those and  that he  might be  shocked;                                                                    
furthermore, if this occurred, he  would want to take a look                                                                    
at why  additional investment had  not result from  the bill                                                                    
passing. He added that other  variables might be standing in                                                                    
the way  of investment and  that permitting issues  would be                                                                    
applicable to  both the ACES  and the CSSB  21(FIN) systems;                                                                    
these other  variables needed to  be taken into  account. He                                                                    
concluded  that, outside  of other  variables, there  was no                                                                    
reason to believe  that the kind of changes  in CSSB 21(FIN)                                                                    
would not increase investment.                                                                                                  
Senator Hoffman  remarked that the committee  had just heard                                                                    
from 3 of the major  Prudhoe Bay investors and recalled that                                                                    
the  commissioner of  DNR  had been  very  excited when  the                                                                    
dialogue for  the bill had  started; he recalled  making the                                                                    
statement that if  the majors were not as  excited, it would                                                                    
be very difficult for the committee  to pass a bill that had                                                                    
close to a  $10 billion revenue impact at the  high end over                                                                    
a  6-year period.  He pointed  out that  it had  been stated                                                                    
that  the major  producers "wanted  more" and  wondered when                                                                    
these  companies would  stop saying  they  wanted more.  Mr.                                                                    
Pulliam  replied  that he  was  unsure  if they  would  stop                                                                    
saying   that  they   wanted  more   and  acknowledged   the                                                                    
situations that the  oil companies were in;  they wanted the                                                                    
best  possible rates  that they  could get  and at  the same                                                                    
time, were reluctant to offer a hard number.                                                                                    
Senator Hoffman  pointed out that  he had been  present when                                                                    
the Economic Limit Factor (ELF)  had been discussed, as well                                                                    
as  the   other  tax  structures  since;   furthermore,  the                                                                    
committee had  heard from the  majors during  the discussion                                                                    
of ACES  that the rates  were too  high and that  they would                                                                    
not come and  invest in Alaska. He continued  that the rates                                                                    
were  substantially  lower  in  CSSB 21(FIN)  and  that  the                                                                    
majors  were  still  stating that  they  would  not  conduct                                                                    
additional  investment in  Alaska;  furthermore, the  majors                                                                    
"had kept their word at the  other end" and he found it hard                                                                    
to  believe that  they would  say anything  else other  than                                                                    
what they believed. He pointed  out that Mr. Pulliam had his                                                                    
opinion, but that  there were billions of  dollars at stake.                                                                    
He  pondered  whether the  committee  should  listen to  the                                                                    
majors, "that told  us the truth" during  the discussions on                                                                    
ACES,  or if  it should  "ignore  them" today  and pass  the                                                                    
money  across the  table because  Mr. Pulliam  believed that                                                                    
being "south  of the  middle of the  pack" would  prompt the                                                                    
majors to come  forward; he opined that this seemed  to be a                                                                    
very high-stakes  gamble and inquired  if Mr.  Pulliam would                                                                    
have the same opinion if  he were representing the people of                                                                    
7:15:15 PM                                                                                                                    
Mr. Pulliam responded that he  appreciated the position that                                                                    
the committee  was in and noted  that it had to  do the best                                                                    
it could by  the citizens of Alaska  in developing resources                                                                    
and  maximizing them  for the  benefit of  the citizens.  He                                                                    
pointed  out  that  he  had been  working  with  Alaska  for                                                                    
several decades  and that  although he did  not live  in the                                                                    
state, he  felt a strong  connection with it; the  health of                                                                    
Alaska was extremely important to  him and he had approached                                                                    
the issue as an economist. He  pointed out that the tools of                                                                    
economics  dealt  with motivations,  financial  motivations,                                                                    
and what  drove investment and  noted that the  companies in                                                                    
Alaska were trying to make  money. He asserted that it would                                                                    
be  economically  irrational  to  think that  the  kinds  of                                                                    
changes in CSSB  21(FIN) would not improve  and attract more                                                                    
investment that in turn would  lead to higher production. He                                                                    
reiterated  that he  approached the  issue an  economist and                                                                    
examined markets  and economic  motivation. He  offered that                                                                    
he  had heard  2 things  from major's  testimony and  opined                                                                    
that  each of  the  3  majors had  said  something a  little                                                                    
different; he felt that it would  be good to hear from "some                                                                    
of the  other folks, such as  the Armstrong Oil and  Gas and                                                                    
Repsol; these companies  had been very active  over a number                                                                    
of years  in acquiring leases  in Alaska and  moving towards                                                                    
development. He  offered that Armstrong Oil  and Gas, Brooks                                                                    
Range  Petroleum, and  Repsol viewed  the bill's  changes as                                                                    
very  positive. He  concluded that  he could  not offer  the                                                                    
committee any guarantees, but could  only provide economic a                                                                    
sound  analysis;  in  conclusion,  CSSB  21(FIN)  would  put                                                                    
Alaska in a good competitive  position and ought to generate                                                                    
a response.                                                                                                                     
7:20:01 PM                                                                                                                    
Senator  Hoffman noted  that if  the bill  passed, it  was a                                                                    
guarantee  that billions  of dollars  would move  across the                                                                    
table and  that the 3  major corporations had  been truthful                                                                    
during discussions over ACES. He  was unsure if those majors                                                                    
were not  being truthful during the  current proceeding, but                                                                    
knew for  a fact  that billions of  dollars would  cross the                                                                    
Senator Dunleavy inquired  if it would be an  anomaly if the                                                                    
investment that  Econ One's models  predicted did  not occur                                                                    
and  further  queried  if there  were  instances  where  the                                                                    
modeling had failed. Mr. Pulliam  replied in the affirmative                                                                    
and expounded  that there were instances  where modeling had                                                                    
not  predicted  exactly   what  would  happen;  furthermore,                                                                    
modeling  did not  typically get  the  direction wrong,  but                                                                    
sometimes  got the  magnitude incorrect.  He explained  that                                                                    
Econ One put its best  efforts in and applied its experience                                                                    
to the modeling; however, he  admitted that there could be a                                                                    
different outcome  than what was  predicted. He  pointed out                                                                    
that DOR tried to be  very diligent regarding its forecasts,                                                                    
but that  numbers were different  from what  was forecasted,                                                                    
which  was part  of the  process of  forecasting. He  stated                                                                    
that Econ One would be  extremely "shocked" if the direction                                                                    
of  its modeling  regarding CSSB  21(FIN) was  incorrect. He                                                                    
expounded that the bill made  investment more attractive and                                                                    
that  if investment  either stayed  flat or  went the  other                                                                    
way,  it would  be like  "turning the  laws of  economics on                                                                    
their head."                                                                                                                    
Mr.  Pulliam discussed  slide 5  titled "Additional  Volumes                                                                    
Need to Offset  Projected Fiscal Impact of SFIN  CS SB21 (FY                                                                    
2014 -  FY 2019)" and related  that it looked at  the dollar                                                                    
amount that was in the fiscal  note rather than the full 30-                                                                    
year  period;   the  amount  was  $5.7   billion  and  would                                                                    
represent  about  a  200  million  bbl  need  in  additional                                                                    
production,  which   was  a  little  bit   bigger  than  the                                                                    
Nikaitchuq field.                                                                                                               
Co-Chair Kelly inquired  how many bbl/d the  200 million bbl                                                                    
equated to.  Mr. Pulliam  replied that it  worked out  to be                                                                    
about 90,000 bbl/d for a 6-year window.                                                                                         
Co-Chair  Meyer expressed  confusion  and  thought that  the                                                                    
target was  50,000 bbl/d.  Mr. Pulliam  replied that  he was                                                                    
trying to compress  the previous slide into  a 5-year window                                                                    
and examine  how much production  was needed to  recover the                                                                    
fiscal  note's cost  in 5-years.  He stated  that 4  Mustang                                                                    
developments  or little  bit more  than  1 Nikaitchuq  field                                                                    
would be what the state needed.                                                                                                 
7:24:18 PM                                                                                                                    
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.                                                                       
BRUCE   TANGEMAN,   DEPUTY   COMMISSIONER,   TAX   DIVISION,                                                                    
DEPARTMENT   OF  REVENUE,   indicated  that   he  would   be                                                                    
addressing  some  the prior  questions  that  were asked  in                                                                    
committee.  He  provided  a PowerPoint  presentation  titled                                                                    
"DOR Additional  Information Requested: Prepared  for Senate                                                                    
Finance:  March  14, 2013"  and  shared  that first  several                                                                    
slides addressed questions that  were raised regarding lease                                                                    
expenditures and  how DOR  forecast and  listed them  in the                                                                    
Revenue Sources Book.                                                                                                           
Mr.  Tangeman discussed  slide 3  titled "Lease  Expenditure                                                                    
Forecast Methodology."                                                                                                          
   · Request capital and operating lease expenditure                                                                            
     projections from North Slope unit operators in the                                                                         
     fall and the spring of each year in writing for the                                                                        
     next five years from the current year                                                                                      
   · Meet with and request spending projections from                                                                            
     companies that are not currently producing but have                                                                        
     announced drilling and/or development plans                                                                                
   · Review and coordinate with production forecast                                                                             
     regarding anticipated developments outside the five-                                                                       
     year time horizon received from operators                                                                                  
   · Update long-term capital and operating expenditure                                                                         
     projections based on new information                                                                                       
Mr. Tangeman  spoke to slide  3 and related that  the second                                                                    
bullet point was  critical under the net  tax system because                                                                    
there were companies in Alaska  that were not producing, did                                                                    
not have a tax liability, but were spending in the state.                                                                       
Mr. Tangeman spoke to slide 4 titled "North Slope Projects                                                                      
Included in Fall 2012 Lease Expenditures Forecast."                                                                             
   · Currently producing legacy fields                                                                                          
        · Includes ongoing cost of operating fields &                                                                           
          maintenance capital                                                                                                   
        · Includes facility upgrades and debottlenecking                                                                        
        · Includes new wells and projects in legacy fields                                                                      
             · Targeting new oil not in reach of production                                                                     
             · Work-overs of existing wells                                                                                     
             · Advanced EOR projects                                                                                            
   · Four new fields in Fall 2012 production forecast                                                                           
        · Point Thomson                                                                                                         
        · CD-5 (Alpine West)                                                                                                    
        · Mustang                                                                                                               
        · Umiat                                                                                                                 
   · Exploration work at other prospects                                                                                        
        · Includes primarily announced exploration work                                                                         
        · Includes spending plans announced by companies                                                                        
          like Repsol, Great Bear, and others                                                                                   
        · Does not include costs for development of                                                                             
          possible discoveries                                                                                                  
Mr. Tangeman spoke to slide 4 and pointed out that it                                                                           
directly related to page 35 of the Revenue Sources Book                                                                         
where FY13 and FY14 were depicted.                                                                                              
7:27:55 PM                                                                                                                    
AT EASE                                                                                                                         
7:38:40 PM                                                                                                                    
Co-Chair Meyer resumed chairing the meeting.                                                                                    
Mr. Tangeman continued to discuss slide 4.                                                                                      
Co-Chair  Meyer welcomed  Senators McGuire  and Micciche  to                                                                    
the committee room.                                                                                                             
Mr.  Tangeman   discussed  slide   5  titled   "North  Slope                                                                    
Operating  Expenditures"   and  stated  that  it   used  the                                                                    
operating  expenditures for  FY12, and  forecasted for  FY13                                                                    
through  FY19;  additionally,  the numbers  themselves  were                                                                    
included on  the slide  of the packet.  He pointed  out that                                                                    
there were  2 lines on  the slide;  1 line showed  the total                                                                    
operating  expenditures  while  the other  showed  only  the                                                                    
operating expenditures  that were associated  with companies                                                                    
that had a tax liability.                                                                                                       
Mr. Tangeman  discussed slide 6 titled  "North Slope Capital                                                                    
Expenditures"  and  reported  that  it  showed  the  capital                                                                    
expenditures in the  same format at the  previous slide from                                                                    
FY12,  as  well FY13  through  FY19;  additionally, on  both                                                                    
slide  5  and 6,  FY12  had  been prepared  using  unaudited                                                                    
company-reported estimates.                                                                                                     
Mr.  Pawlowski  looked at  slide  8  titled "Additional  Oil                                                                    
Production  Amounts."  He  related  that there  had  been  a                                                                    
previous  question regarding  the  production scenarios  and                                                                    
asking to  expand the  price ranges and  the data  points at                                                                    
which they  were run; what was  included in slide 8  was the                                                                    
actual  numbers that  went along  with the  production built                                                                    
into the scenarios. He reminded  the committee that scenario                                                                    
A was the  addition of one 50 million bbl  field and related                                                                    
that the  development took some  time; the ramp up  began at                                                                    
2017  and peaked  at 10,000  bbl/d in  2019. He  shared that                                                                    
scenario B  showed the addition  of the 4 new  rigs drilling                                                                    
within the legacy fields; each  rig was drilling 4 wells per                                                                    
year, was producing  1,000 bbl/d, and had a  decline rate of                                                                    
15 percent. He  continued to address scenario  B and related                                                                    
that the production  decline was why the  production was not                                                                    
32,000 bbl/d even though the  initial production in FY14 was                                                                    
16,000  bbl/d;  "that"  work   continued  in  that  scenario                                                                    
through  till  the  end,  and  what  was  depicted  was  the                                                                    
incremental  production added  above  the  forecast by  that                                                                    
Mr. Pawlowski continued to speak  to slide 8. He stated that                                                                    
scenario C was the addition of  4 rigs working in the legacy                                                                    
fields   and  the   expansion  of   the  large   development                                                                    
opportunity; what was depicted was  "that" layered on top of                                                                    
the activity  of the  4 rigs.  He pointed  out that  the top                                                                    
chart showed  the Fall 2012 Production  Forecast numbers; it                                                                    
showed 538,400  bbl/d in FY12  for scenario C,  declining to                                                                    
421,600 bbl/d  in FY19. He  relayed that Scenario B,  on the                                                                    
other hand, would go from  554,400 bbl/d to 472,000 bbl/d by                                                                    
FY19  and  explained that  DOR  had  wanted to  provide  the                                                                    
production  data  behind the  fiscal  analysis  in order  to                                                                    
allow members to  see that there was built-in  time and ramp                                                                    
up  in decline  in the  additional and  increased production                                                                    
that was used to build the slide's scenarios.                                                                                   
Mr.  Pawlowski  discussed  slide  9  titled  "Scenarios:  At                                                                    
forecasted production" and related  that "these" would match                                                                    
page 5 of the fiscal note  and the scenarios; at the earlier                                                                    
hearing, DOR was  asked to run the numbers at  $110 and $130                                                                    
per  bbl and  provide the  fiscal impact.  He reported  that                                                                    
slide 9 included no increased production.                                                                                       
Mr. Pawlowski spoke to slide  10 titled "Scenarios: Scenario                                                                    
A" and pointed out that  the scenario only added 3,300 bbl/d                                                                    
in  2017, 6,700  bbl/d in  2018, and  10,000 bbl/d  by 2019;                                                                    
there  was   relatively  little  fiscal  impact   from  that                                                                    
additional production because it was minor in scale.                                                                            
Mr.   Pawlowski  discussed   slide  11   titled  "Scenarios:                                                                    
Scenario  B."   He  relayed  that  scenario   B  represented                                                                    
opportunities  in  the  legacy  fields and  that  the  slide                                                                    
showed the different  impacts of that at $110  per bbl, $120                                                                    
per bbl,  and $130 per barrel.  He reported that at  a price                                                                    
of  $110  per  bbl  and  with  the  additional  activity  in                                                                    
scenario B,  the spread would  go from $275 million  less in                                                                    
revenue  in  FY14 and  would  maintain  roughly that  amount                                                                    
throughout  the period  of the  projection; furthermore,  it                                                                    
was important to  note that these scenarios  did not include                                                                    
some of  the other items that  were in the fiscal  note such                                                                    
as the  reduced operating  expenditures associated  with the                                                                    
capital credits  that the state  would not be  paying, which                                                                    
would reduce  any of those  lines by about $110  million per                                                                    
Mr. Pawlowski  addressed slide  12 "Scenarios:  Scenario C."                                                                    
He  shared that  scenario  C was  the additional  production                                                                    
scenario  plus the  additional  pad. He  added  that it  was                                                                    
important when viewing  the scenarios, to keep  in mind that                                                                    
they  represented discrete  production models  that did  not                                                                    
take into  account additional work  beyond those  things and                                                                    
that  they  were  intended to  show  committee  members  how                                                                    
production flowed through at the  different price levels and                                                                    
the different analyses.                                                                                                         
Senator  Hoffman directed  the committee  attention back  to                                                                    
slide 9. He acknowledged that  the slide did not include any                                                                    
new production, but that FY17,  FY18, and FY19 were when the                                                                    
state would  slide back to  a 33  percent base tax  rate. He                                                                    
thought that when  ACES had been discussed,  the range "back                                                                    
then" had looked at  $70 per bbl to $100 per  bbl of oil and                                                                    
that there had  not been any real  contemplation of anything                                                                    
north of that;  however, the price had gone as  high as $140                                                                    
per bbl. He observed that  the slide's formula showed a cost                                                                    
to the  treasury in  the neighborhood of  $2 billion,  or "a                                                                    
little south of that," in FY17,  FY18, FY19 at $130 per bbl;                                                                    
even  at  $90 per  barrel  "that's  substantially less."  He                                                                    
offered that the price of  oil was always an unknown factor,                                                                    
which had  been the problem  during the discussions  on ACES                                                                    
and   pointed   out  for   the   record   that  the   fiscal                                                                    
ramifications of any formula, as  well the amount of revenue                                                                    
the state would receive, was  probably more dependent on the                                                                    
price of oil than on oil production.                                                                                            
7:48:10 PM                                                                                                                    
Mr.  Tangeman  turned to  slide  14  titled "Forecasted  Oil                                                                    
Production on  the North Slope"  and related that  the final                                                                    
question DOR  would be addressing related  to the production                                                                    
forecast. He thought that Senator  Hoffman had requested the                                                                    
administration to extend  the fiscal note a  number of years                                                                    
farther, but pointed  out that note included  a forecast for                                                                    
the current budgeted  year, which was FY14  and 5 additional                                                                    
years;   furthermore,  this   was  the   standard  operating                                                                    
procedure with fiscal  notes. He shared that  the reason DOR                                                                    
did not  include the  forecast farther  out was  because oil                                                                    
production forecasting  was speculative  and became  more so                                                                    
the further  out one tried  to forecast. He pointed  out for                                                                    
example  that  when  ACES  was   being  debated,  the  price                                                                    
forecast  was projected  to be  around $60  per bbl  for the                                                                    
following   5  years   through  FY12   and  production   was                                                                    
forecasted to be 675,000 bbl in  FY12, which was a "miss" of                                                                    
100,000 bbl. He  pointed out that DOR and  DNR's Division of                                                                    
Oil  and Gas  had  taken  great strides  to  tighten up  the                                                                    
production forecasts  going forward; his example  showed how                                                                    
far off a production forecast could  be with a just a 5-year                                                                    
outlook.  Furthermore, the  5-year  outlooks were  developed                                                                    
with  the  best information  that  the  state had  available                                                                    
through discussions  with the producers. He  believed that a                                                                    
5-year  extension of  the fiscal  note itself,  particularly                                                                    
relating to  the scenarios on page  5 of the note,  would be                                                                    
incredibly speculative; the scenarios  were included as good                                                                    
examples  of possible  developments that  were realistic  in                                                                    
Alaska's future.                                                                                                                
Mr.  Tangeman continued  to speak  to slide  14 and  related                                                                    
that the information  came directly from page  43 of Revenue                                                                    
Sources  Book.  The  slide showed  the  different  types  of                                                                    
production that  were included  in DOR's  10-year production                                                                    
forecast; currently  producing was the first  column and was                                                                    
the   category  that   DOR  had   the  most   confidence  in                                                                    
forecasting.  The decline  rates  were  depicted and  ranged                                                                    
from  10 percent  to 7  percent.  He relayed  that the  next                                                                    
column represented the risk adjusted  new oil, which was the                                                                    
under development and under evaluation  pools that were much                                                                    
more speculative;  furthermore, in order to  account for the                                                                    
speculative  nature  of  this  type of  oil,  DOR  had  risk                                                                    
adjusted it  in its current forecast,  which would hopefully                                                                    
steer the forecast away from "100,000 bbl misses."                                                                              
Mr. Tangeman spoke to slide  15 titled "Crude Oil Production                                                                    
-Forecast" and related  that it came directly  from page 105                                                                    
of the  Revenue Sources Book;  the slide gave a  little more                                                                    
detail of field  levels over a 10-yuear period  and was good                                                                    
information  regarding where  the  bulk of  the  oil on  the                                                                    
North Slope was coming from.                                                                                                    
Mr. Pawlowski  discussed slide 16 titled  "North Slope Lease                                                                    
Expenditures Fall 2012 Revenue  Forecast" and stated that it                                                                    
gave  the  data  behind  the actual  operating  and  capital                                                                    
expenditures   that   had   been  given   earlier   in   the                                                                    
presentation.  He reiterated  the comments  of Mr.  Tangeman                                                                    
that  given the  timing  of the  request,  that running  the                                                                    
forecast  for  the  scenarios an  additional  several  years                                                                    
would require  DOR to  work with the  committee to  design a                                                                    
consensus around  what levels  or additional  projects would                                                                    
be put  in that type  of scenario analysis; in  other words,                                                                    
DOR  was not  going to  put  that information  on the  table                                                                    
without  first coming  to an  agreement  with the  committee                                                                    
regarding  the details.  He concluded  that given  that time                                                                    
was a factor,  DOR had attempted to be as  responsive to the                                                                    
committee as it could.                                                                                                          
7:52:43 PM                                                                                                                    
Co-Chair Meyer  thought that Mr. Pawlowski  and Mr. Tangeman                                                                    
had both  done an  excellent job preparing  the presentation                                                                    
in the  short period of  time that  they had been  given. He                                                                    
reiterated  that  if "this"  had  been  known earlier  as  a                                                                    
concern, the committee would  have requested the information                                                                    
several weeks prior.                                                                                                            
Senator Hoffman  pointed to slide  16 [He most  likely meant                                                                    
to say  slide 15.]  and noted that  it showed  Point Thomson                                                                    
kicking in  some bbl of  oil in  2016. He inquired  if there                                                                    
was no  anticipation in the production  forecast during this                                                                    
time for  CD-5 or Mustang  to produce any oil  through 2022.                                                                    
Mr. Pawlowski  believed that the categories  were aggregated                                                                    
to  protect  confidential  tax payer  information  regarding                                                                    
specific projects  and project related  production; however,                                                                    
DOR had  additional support online  that could  answer which                                                                    
one of the buckets that might or might not fall into.                                                                           
Senator Bishop thanked DOR for its time and work.                                                                               
Mr. Pawlowski  responded to  Senator Hoffman's  question and                                                                    
related that CD-5  was in the Alpine section  because it was                                                                    
part of the Colville River Unit.                                                                                                
7:55:15 PM                                                                                                                    
AT EASE                                                                                                                         
8:02:56 PM                                                                                                                    
Co-Chair Meyer addressed the CS and pointed to Amendment 1.                                                                     
Co-Chair Kelly  MOVED to  ADOPT Amendment  1, 28-GS1647\Y.7,                                                                    
Nauman/Bullock, 3/14/13 (copy on file).                                                                                         
Vice-Chair   Fairclough   OBJECTED   for  the   purpose   of                                                                    
SENATOR   LESIL   MCGUIRE,   related  that   the   amendment                                                                    
represented  a concept  that was  in CSSB  21(RES) that  had                                                                    
been  a  part of  many  conversations  in the  building  for                                                                    
several  years  as  the  legislature  was  trying  to  gauge                                                                    
Alaska's  competitive with  respect  to other  jurisdictions                                                                    
globally;  the amendment  created  a competitiveness  review                                                                    
board  in  Alaska  that would  provide  an  opportunity  for                                                                    
Alaska to continually reflect on  its position globally with                                                                    
respect  to its  competiveness in  oil and  gas. She  shared                                                                    
that the  idea for  the amendment had  occurred to  her when                                                                    
she  had been  president of  the Pacific  Northwest Economic                                                                    
Region, which  was a collection  of western states,  as well                                                                    
as provinces and territories in  Canada and U.S. that worked                                                                    
collectively to develop their  natural resources and improve                                                                    
their  economies;  furthermore,  the  province  of  Alberta,                                                                    
which shared  many similarities with  Alaska and  was almost                                                                    
exclusively  dependent  on  its natural  resources  for  its                                                                    
budget, had  undergone a very  similar lifecycle  to Alaska.                                                                    
She  reported that  when Alberta  had  instituted what  they                                                                    
referred to  as a "windfall  profit tax," which was  ACES in                                                                    
Alaska's  case, it  had  seen  the bottom  fall  out of  its                                                                    
economy; this was similar to  what many believed happened to                                                                    
Alaska, at least in part, as  a result of adopting ACES. She                                                                    
explained  that as  a  result of  the  windfall profit  tax,                                                                    
Alberta  had   seen  the  investors  that   had  been  major                                                                    
supporters  of   its  economy  leave  the   jurisdiction  to                                                                    
Saskatchewan,  British  Columbia,  and other  parts  of  the                                                                    
globe.  In  response  to  investment  leaving,  Alberta  had                                                                    
established the  Alberta Competiveness Council;  she pointed                                                                    
to a  report that was  in members  packets from May  of 2011                                                                    
from  that council.  She  concluded that  the  model of  the                                                                    
Alberta Competiveness Council gave  her the idea that Alaska                                                                    
could benefit from something similar.                                                                                           
Senator  McGuire  continued  to  address  Amendment  1.  She                                                                    
discussed  a  report  from  May of  2011  from  the  Alberta                                                                    
Competiveness  Council  and  shared that  it  was  important                                                                    
because Alaska had changed its  fiscal regime 3 times in the                                                                    
last 6  years. She pointed  out that in  in every case  of a                                                                    
fiscal  regime  change,  the impetus  had  been  politically                                                                    
motivated and had been a  source of stress; furthermore, the                                                                    
changes were made in a  compressed time period, in which law                                                                    
makers  were   working  under  accelerated   timelines.  She                                                                    
expounded that  law makers  did not often  have a  chance to                                                                    
examine all  of the factors  that may  go into what  made an                                                                    
economy  competitive. She  referenced earlier  comments made                                                                    
by Mr. Pulliam  in response to questions  by Senator Hoffman                                                                    
and Senator Dunleavy regarding what  would happens if Alaska                                                                    
did  not  see investment  responses  in  3 years  after  the                                                                    
passage  of  the  bill.  She   offered  that  Mr.  Pulliam's                                                                    
response  that  been  that  he  would  be  shocked  from  an                                                                    
economic point  of view,  but that  if nothing  occurred, it                                                                    
would be up  to the state to look at  other factors, such as                                                                    
permitting  and  regulation;  furthermore, this  is  exactly                                                                    
what had  happened with  the Alberta  Competiveness Council.                                                                    
She  expounded  that with  its  review  status, the  Alberta                                                                    
Competitiveness   Council   had   been   able   to   provide                                                                    
recommendations to  its jurisdictions  that went  far deeper                                                                    
than  fiscal  regime  recommendations, which  was  what  the                                                                    
legislature was  tasked with;  rather than  examining taxes,                                                                    
the  competitiveness  review  board   would  be  looking  at                                                                    
structural  things,  such  as regulations,  permitting,  and                                                                    
infrastructure   in   order   to  identify   how   to   stay                                                                    
competitive. She read  an excerpt from the  May, 2011 report                                                                    
from the Alberta Competitiveness Council:                                                                                       
     A   competitive   economy   attracts   industries   and                                                                    
     investment  to  the  province, which  create  jobs  and                                                                    
     opportunities  for  Albertans.  A  competitive  Alberta                                                                    
     also   leads  to   healthy   and  strong   communities.                                                                    
     Businesses  that  call   Alberta  home  make  important                                                                    
     contributions  to  their   communities  and  they  help                                                                    
     finance  public   services,  like   education,  health,                                                                    
     infrastructure,   and  environmental   protection.  Our                                                                    
     province's  competitive   position,  anchored   by  our                                                                    
     abundant natural  resources has  fueled our  growth and                                                                    
     prosperity   over  the   last   decade;  however,   our                                                                    
     continued prosperity  is not  assured. Alberta  faces a                                                                    
     growing  number of  competitors  and shifting  economic                                                                    
     forces stand  to impact our  future success.  We cannot                                                                    
     rest  on   our  past   success  and   passively  except                                                                    
     opportunities to keep coming to our province.                                                                              
Senator  McGuire  offered  that  Alaska  could  be  inserted                                                                    
instead  of  Alberta everywhere  it  appeared  in the  above                                                                    
excerpt.  She pointed  out  that  Amendment 1's  competitive                                                                    
review board setup would consist  of 9 members that included                                                                    
the   commissioners  of   DNR,   DOR,   the  Department   of                                                                    
Environmental Conservation,  as well  as the Alaska  Oil and                                                                    
Gas Conservation  Commission; the  other 5 members  would be                                                                    
from the public and would  be appointed by the governor. She                                                                    
explained the  experience preferences of the  public members                                                                    
of the competitiveness review board  and related the board's                                                                    
members  would  serve  without compensation,  but  would  be                                                                    
eligible  for  per diem  and  travel  expenses; the  board's                                                                    
duties  would   be  to   review  historical,   current,  and                                                                    
potential  levels  on  investment   in  Alaska  to  identify                                                                    
factors that  affect investment in  oil and gas, as  well to                                                                    
make recommendations annually to  the legislature that would                                                                    
potentially increase Alaska's  competitiveness; she reminded                                                                    
the  committee   that  any  action   would  be  up   to  the                                                                    
legislature    as   lawmakers.    She   opined    that   the                                                                    
competitiveness  review board  would  spark an  interesting,                                                                    
reasonable, and thorough dialogue  that would be ongoing and                                                                    
force the  conversation each year,  hopefully in a  way that                                                                    
was non-political and less emotionally  charged than the tax                                                                    
debates in recent years.                                                                                                        
8:10:39 PM                                                                                                                    
Co-Chair Meyer apologized and  acknowledged that the concept                                                                    
for Amendment  1 had  been CSSB  21(RES). He  had originally                                                                    
thought that  the competitiveness  review board was  a great                                                                    
idea,  but  had  thought  that it  might  be  better  served                                                                    
outside  of  SB  21;  however,  he  understood  the  linkage                                                                    
between the Amendment 1 and SB 21 now and was fine with it.                                                                     
Vice-Chair   Fairclough    recalled   that   one    of   the                                                                    
considerations  when the  committee  had  fist received  the                                                                    
bill  was that  the competitiveness  review board  had to  a                                                                    
$1.8 million fiscal note attached  to it; however, Amendment                                                                    
1  was  much  less  intrusive  financially.  She  hoped  the                                                                    
committee would consider adding the amendment the bill.                                                                         
Co-Chair  Meyer  thought that  Amendment  1  had now  had  a                                                                    
fiscal  impact of  $34,000  for the  first  year, which  was                                                                    
better than the previous request.                                                                                               
Senator  Olson  asked  what  the   results  of  the  Alberta                                                                    
Competitiveness  Council had  been. Senator  McGuire replied                                                                    
that the  results had been  positive and that if  you looked                                                                    
at when Alberta's  decline rate had started in  2009 on Econ                                                                    
One's  and PFC  Energy's  presentations, you  could see  the                                                                    
that the  curve had  been redirected.  She related  that the                                                                    
parliament in  Alberta acting on the  recommendations of the                                                                    
Alberta  Competitive Council  had been  directly responsible                                                                    
for redirected  the decline curve;  besides the  tax policy,                                                                    
Alberta  had established  measures  to  regulate and  access                                                                    
Alberta's  regulatory performance  in the  areas of  oil and                                                                    
gas  and had  increased weight  limits to  provide the  safe                                                                    
transportation of  higher density modules. Alberta  had also                                                                    
identified  new  economic   opportunities  to  commercialize                                                                    
innovative  technologies in  the  area of  the  oil and  gas                                                                    
industry and  workforce development. She concluded  that the                                                                    
Alberta Competitiveness Council had been very effective.                                                                        
8:13:30 PM                                                                                                                    
Senator  Olson  noted  that initially,  the  competitiveness                                                                    
review board  had been slated to  meet 4 times per  year and                                                                    
inquired how often it would  meet under Amendment 1. Senator                                                                    
McGuire replied that the board  would meet once annually and                                                                    
would issue  1 annual report,  which was in  fact consistent                                                                    
with  the Alberta  Competitiveness  Council; this  reduction                                                                    
had affected the fiscal impact.  She noted that she had been                                                                    
delighted to work on that compromise with the co-chairs.                                                                        
8:14:13 PM                                                                                                                    
AT EASE                                                                                                                         
8:15:18 PM                                                                                                                    
Co-Chair  Meyer asked  for  additional  comments related  to                                                                    
Amendment 1.                                                                                                                    
Vice-Chair  Fairclough WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 1 was ADOPTED.                                                                                  
Co-Chair Meyer  pointed to  the 3  fiscal notes  attached to                                                                    
the bill.                                                                                                                       
Co-Chair  Kelly   MOVED  to  REPORT  CSSB   21(FIN)  out  of                                                                    
committee  as amended  with  individual recommendations  and                                                                    
the accompanying fiscal notes.                                                                                                  
CSSB  21(FIN) was  REPORTED out  of  committee as  "amended"                                                                    
with  a "do  pass" recommendation  and with  two new  fiscal                                                                    
impact  notes from  the Department  of Revenue  and one  new                                                                    
indeterminate  fiscal note  from the  Department of  Natural                                                                    
Co-Chair  Meyer discussed  the  schedule  for the  following                                                                    
8:18:25 PM                                                                                                                    
The meeting was adjourned at 8:18 p.m.                                                                                          

Document Name Date/Time Subjects
SB 62 - ADM and Full Values by Muni.pdf SFIN 3/14/2013 9:00:00 AM
SB 62
SB 62 - Kasayulie v. Alaska Consent Decree and Settlement Agreement.pdf SFIN 3/14/2013 9:00:00 AM
SB 62
SB 62 - Sectional.docx SFIN 3/14/2013 9:00:00 AM
SB 62
SB 62 - Sponsor Statement.docx SFIN 3/14/2013 9:00:00 AM
SB 62
SB062-EED-ESS-3-1-13.pdf SFIN 3/14/2013 9:00:00 AM
SB 62
CS SB 38.pdf SFIN 3/14/2013 9:00:00 AM
SB 38
SB 38 - AS 08.64.PDF SFIN 3/14/2013 9:00:00 AM
SB 38
SB 38 - LB&A Sunset Review.PDF SFIN 3/14/2013 9:00:00 AM
SB 38
SB 38 - Sponsor Statement.doc SFIN 3/14/2013 9:00:00 AM
SB 38
SB 38 - State Medical Board Fact Sheet.PDF SFIN 3/14/2013 9:00:00 AM
SB 38
SB 38 - State Medical Board Website.PDF SFIN 3/14/2013 9:00:00 AM
SB 38
SB062-EED-FundTransfer-3-13-13 (3).pdf SFIN 3/14/2013 9:00:00 AM
SB 62
SB 21 - CS (FIN) Version Y.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
SB021CS(FIN)-DNR-DOG-3-12-13.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
SB021CS(FIN)-DOR-TAX-03-14-13.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
Econ One Presentation For Senate Finance (3-14-13).pdf SFIN 3/14/2013 9:00:00 AM
SB 21
PFC SFIN 14 March 2013.pptx SFIN 3/14/2013 9:00:00 AM
SB 21
SB 21 Conoco Phillips SFIN 031413.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
SB 21 DOR Presentation CostFcastSFIN_v4_edjt_20130314.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
SB 21 Amendment 1 Kelly Y.7.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
SB021CS(FIN)-DOR-COMM-03-14-13.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
SB 21 summary sheet changes for new SEN FIN.pdf SFIN 3/14/2013 9:00:00 AM
SB 21
PFC SFIN 17 March 2013.pdf SFIN 3/14/2013 9:00:00 AM
SB 21