Legislature(2005 - 2006)SENATE FINANCE 532
07/24/2006 01:30 PM Senate SPECIAL COMMITTEE ON NATURAL GAS DEV
| Audio | Topic |
|---|---|
| Start | |
| SB3002 | |
| Jim Baldwin, Counsel to the Office of the Attorney General | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB3001 | TELECONFERENCED | |
| += | SB3002 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON NATURAL GAS DEVELOPMENT
July 24, 2006
2:04 p.m.
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Gary Wilken
Senator Con Bunde
Senator Fred Dyson
Senator Kim Elton
MEMBERS ABSENT
Senator Lyda Green
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Senator Thomas Wagoner
Senator Ben Stevens
Senator Albert Kookesh
COMMITTEE CALENDAR
SENATE BILL NO. 3002
"An Act relating to the Alaska Stranded Gas Development Act;
relating to municipal impact money received under the terms of a
stranded gas fiscal contract; relating to determination of full
and true value of property and required contributions for
education in municipalities affected by stranded gas fiscal
contracts; and providing for an effective date."
HEARD AND HELD
SENATE BILL NO. 3001
"An Act relating to the production tax on oil and gas and to
conservation surcharges on oil; relating to criminal penalties
for violating conditions governing access to and use of
confidential information relating to the production tax;
amending the definition of 'gas' as that definition applies in
the Alaska Stranded Gas Development Act; making conforming
amendments; and providing for an effective date."
SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB3002
SHORT TITLE: STRANDED GAS AMENDMENTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
07/12/06 (S) READ THE FIRST TIME - REFERRALS
07/12/06 (S) NGD
07/13/06 (S) NGD AT 9:00 AM SENATE FINANCE 532
07/13/06 (S) Heard & Held
07/13/06 (S) MINUTE(NGD)
07/14/06 (S) NGD AT 9:00 AM SENATE FINANCE 532
07/14/06 (S) Heard & Held
07/14/06 (S) MINUTE(NGD)
07/24/06 (S) NGD AT 1:30 PM SENATE FINANCE 532
WITNESS REGISTER
JIM BALDWIN
Counsel to the Office of the Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Testified on SB 3002 and answered
questions.
ACTION NARRATIVE
CHAIR RALPH SEEKINS called the Senate Special Committee on
Natural Gas Development meeting to order at 2:04:29 PM. Present
at the call to order were Senators Fred Dyson, Con Bunde, Gary
Wilken, Kim Elton and Chair Ralph Seekins.
SB 3002-STRANDED GAS AMENDMENTS
2:04:29 PM
CHAIR SEEKINS announced SB 3002 to be up for consideration. He
highlighted Section 2, amending AS 43.82.505.
^Jim Baldwin, Counsel to the Office of the Attorney General
JIM BALDWIN, Counsel to the Office of the Attorney General,
Department of Law, indicated Section 2 came from SB 2004,
considered by this committee in the second special session. It
establishes the method by which impact funds payable under the
fiscal contract are anticipated and appropriated into a
permanent account, established within the Department of
Commerce, Community and Economic Development (DCCED) under
Section 3 of the bill. To avoid the prohibition against
dedicated funds, this $125 million for local impacts will be
available and the legislature may appropriate it.
2:07:56 PM
SENATOR BUNDE pointed out that subsection (c) of Section 3 talks
about a nonprofit organization serving the unorganized borough.
CHAIR SEEKINS indicated that organization was identified earlier
as the Tanana Chiefs.
SENATOR BUNDE asked how closely this treads on tribal issues.
CHAIR SEEKINS acknowledged it as a good question.
MR. BALDWIN related his understanding of how the Municipal
Advisory Group (MAG) designed this: Among affected communities
in the area, there would be one sponsoring group, the Tanana
Chiefs. He said this was related in testimony during the last
special session, which considered an identical provision.
SENATOR BUNDE voiced concern that many nonprofit organizations
in Alaska could convince someone that there had been an economic
impact, even in regions remote from the pipeline.
CHAIR SEEKINS asked whether Senator Bunde was suggesting
specifically designating that it be a single entity.
SENATOR BUNDE indicated flexibility as to how it is handled, but
expressed concern that it is wide open.
2:10:08 PM
MR. BALDWIN explained the genesis of Section 3. The
administration received it as a proposal from MAG during the
second regular session; the language closely followed the
existing National Petroleum Reserves-Alaska (NPR-A) grant
program. During hearings in the second special session, it came
out that modifications were needed. Thus this committee made
changes with respect to the transparency of the grant-making
process, including subsections (e) and (f), the latter being
where the public notice requirements are imposed for grants
received. Public notice is also required for the intention to
make grants, which must sit 30 days before final awards are
made. Another change is a tighter standard for determining the
amount of impact that qualifies for a grant, or whether a
particular impact qualifies; thus on page 3, line 3, it requires
a direct or severe impact from gas-pipeline construction.
He noted "direct or severe impact" is defined on page 4,
line 18, to give a standard for eligibility decisions by the
granting agency. It requires a clearly demonstrable effect on a
community that proximately contributes to a material change to
transportation, infrastructure, law enforcement, emergency
services, health and human services, education or labor force.
Mr. Baldwin reminded members that these changes, meant to
provide more accountability and transparency, were in the
version passed by this committee and were favorably received by
the Senate as a whole.
He also recalled testimony in this committee on the purposes for
which grants may be made; those purposes, proposed by MAG,
appear in subsection (e), lines 16-19. Mr. Baldwin pointed out
that whereas MAG had proposed "or for socio-cultural impacts",
this committee had changed "or" to "and" in the previous
legislation.
SENATOR BUNDE restated his concern, that all Alaskans in the
unorganized borough will have some socio-cultural impact from
this multibillion-dollar construction project.
2:16:30 PM
SENATOR WILKEN expressed satisfaction that the changes to
SB 2004 were retained in SB 3002; he pointed out that the big
change between the two is in Sections 1-14, not relating to
municipalities. Returning to the grants, he requested
confirmation that they are restricted to $125 million, that this
program doesn't continue as long as the pipeline exists, but
ends as soon as the impact fund is depleted.
MR. BALDWIN affirmed that, explaining that based on the law,
there is no other source of money for this particular fund.
Although the proposed changes to AS 43.82.505 set up a conduit;
the statute could sit there as a "dead letter," he noted.
CHAIR SEEKINS surmised there would be attempts to make it
ongoing.
SENATOR WILKEN recalled proposed state and federal legislation
to put impact funds in place, to be funded by the revenue
streams, but said that is a discussion for another day.
MR. BALDWIN pointed out that AS 43.82.505 talks about a contract
term that provides for the impact fund.
SENATOR BUNDE inferred the impact would begin when there is some
activity relating to construction. However, Sections 1 and 2
are retroactive to January 1, 2004. Saying it seems like
another large, open door, he asked why that length of
retroactivity was proposed.
MR. BALDWIN replied that the January 2004 date is intended to
cover the period during which the administration has been
negotiating to place these kinds of terms in the fiscal
contract. Thus the fact that this term was negotiated and that
this structure was set up would be retroactively covered. It
isn't intended to create any eligibility other than what has
already been negotiated.
SENATOR BUNDE said that seems reasonable, but perhaps there
should be clarification that retroactivity doesn't include
claims for any activity prior to actual construction.
CHAIR SEEKINS asked the reason for making the terms retroactive
under the Alaska Stranded Gas Development Act ("Stranded Gas
Act").
MR. BALDWIN replied that he believed retroactivity was more
legally significant for some contract provisions in previous
legislation.
CHAIR SEEKINS suggested it was SB 2003.
MR. BALDWIN said for this particular contract provision,
retroactivity isn't as important; it was made that way because
it was negotiated during that period of time. The goal is to
ensure what was done is covered against a potential claim.
2:22:07 PM
CHAIR SEEKINS recalled discussion in the Senate Judiciary
Standing Committee, which he chairs. He gave his understanding
that the contract must be negotiated to meet the purposes of the
Stranded Gas Act, not necessarily to comply with the Act itself
to the letter, and that it will meet a loose interpretation of
establishing fiscal terms to get this stranded gas to market.
He opined that if the legislature authorized signing of a
contract, likely the language would include the following:
"Notwithstanding any other provision of law, the legislature
hereby authorizes the administration to execute the attached
contract." Chair Seekins asked whether any exercises to make
the Stranded Gas Act retroactive would just be extra work.
MR. BALDWIN replied he'd thought about the need for
retroactivity while working on these bills over time. He
acknowledged Chair Seekins' point as a good one, that perhaps
this has been "overlawyered" to preclude potential for someone
to reach back and allege that whatever was done was without
proper authority. The question will be whether the operative
effect of the contract and the attending obligations are
properly authorized after the contract is signed. Thus
retroactivity might not be needed.
He further responded that the state and other parties to the
contract will be concerned with whether the contract is valid
and enforceable under state law from the date when their
obligations come due. Drafters of these provisions, including
himself, have worried that, as part of the whole development of
the contract under the Stranded Gas Act, the administration has
had to depart from the Act in the kind of terms proposed for
consideration by the public and the legislature. Thus there has
been concern about covering this retroactively, though
Mr. Baldwin reiterated that he doesn't believe it is absolutely
legally necessary. He also pointed out that there are vote
requirements and so forth in the legislature.
He requested the ability to reflect on this matter and come back
before the committee prior to a decision on whether to
eliminated retroactivity. Mr. Baldwin cautioned it could have
serious effects if there were no retroactivity, and suggested it
might not help, but probably wouldn't hurt.
CHAIR SEEKINS acknowledged this contract doesn't meet the letter
of the law, but said that is why it is a proposed contract, and
why the legislature needs to decide whether to change the law to
accommodate some of those deviations. He emphasized the
legislature's ability to squelch any claim that the contract
doesn't comply with the law, by changing the law accordingly.
2:28:53 PM
SENATOR BUNDE observed it is easier to hit a bull's eye if the
target is drawn after the shot is made. That might be the
attempt here, he suggested.
MR. BALDWIN turned to Section 4, noting it was requested by MAG
to extend MAG's life until after final distribution of the
impact money. That group is given an advisory role for the
grant program as well, in the preceding section, and he said it
makes sense that MAG be around. Existing law needed to be
changed, since MAG was set to expire on the date of final action
on the application for which the group was appointed.
SENATOR BUNDE asked whether the intent is that the expenses for
reimbursement are limited to typical per diem given to other
advisory groups.
MR. BALDWIN said he believed that to be "our understanding."
SENATOR BUNDE interpreted that to be the intent for the record.
2:31:58 PM
MR. BALDWIN explained that Section 5 fixes a problem in how the
Foundation Formula is calculated. He said Eddy Jeans, who
testified 6/5/06 on SB 2004 but wasn't available today,
understands its inner workings. A problem had been raised
because a payment in lieu of taxes (PILT) is considered by the
state assessor to be a contractual payment, not a tax; without
other direction from the legislature, this effectually changes
how the assessor calculates the full and true value for purposes
of the Foundation Formula.
He reminded members that this problem was identified for two
municipalities in particular: Valdez and the North Slope
Borough. Mr. Baldwin said it involves the way they are allowed
to determine the required local contribution for purposes of
calculating their public school funding. Section 5 allows
development of regulations so the PILT is treated the same as
the tax. The effort is to leave the parties in basically the
same position as before the fiscal contract entered the picture.
He indicated he'd been advised that with this authority, they
could fix the problem identified by the state assessor.
Referring to a two-page spreadsheet from Steve Van Sant, State
Assessor, labeled "Local School Funding Worksheet" and provided
during discussion of Amendment 14 to SB 2004 on 6/5/06,
Mr. Baldwin requested its incorporation into the record, since
it outlines the impact of failure to fix this problem.
CHAIR SEEKINS highlighted the need to cross-reference some
issues with SB 2004. He requested a definition of "community."
MR. BALDWIN replied it isn't in this bill, but there are various
definitions in the statutes relating to DCCED.
CHAIR SEEKINS suggested perhaps part of Senator Bunde's concern
relates to what constitutes a community and whether it gets to
the question of tribal communities versus incorporated
communities. For example, does a large family qualify for
impact funds under this section because of proximity? He
offered details relating to impacts from pipelines in Alaska and
Canada, highlighting the need to define community and socio-
cultural impacts.
SENATOR BUNDE recalled a couple who'd worked on the oil pipeline
and then later requested assistance in readjusting to a normal
salary in Anchorage. He said it needs more definition.
2:39:59 PM
MR. BALDWIN expressed willingness to look at more specific
language to satisfy the aforementioned concern, but stated the
intention: to provide a means of meeting impacts on
unincorporated communities that lack the structure or
recognition by the state as a municipality or borough, to reach
villages and other communities that aren't under the traditional
government structure recognized in Title 29.
SENATOR BUNDE remarked that any group with 10 students can
qualify as a school, and reiterated the need to flesh out the
definition of "community." He also suggested this is a great
opportunity to encourage incorporation.
CHAIR SEEKINS asked whether the concern is mitigating the fact
that communities might have to pay more in wages to keep public
employees from leaving their jobs to work on the pipeline
construction.
MR. BALDWIN answered by referencing the broadly stated purpose
in subsection (e), page 3, of SB 3002, requiring a showing of a
direct and proximate result of development of the gas pipeline.
If that case can be stated and proved, he said, it seemed there
could be impact funds for such a purpose.
CHAIR SEEKINS asked what happens when the impact fund is
depleted and a community must find another funding source to pay
its police and firefighters at the inflated wage.
MR. BALDWIN surmised they'd have to resolve it some way.
CHAIR SEEKINS asked whether impact funds would be required, for
instance, to provide a transition to a lower wage.
SENATOR BUNDE said as he reads it, the one who has to be
convinced of an impact is the commissioner.
MR. BALDWIN agreed that the commissioner is the ultimate
decision maker, as clearly stated in the bill. Because of how
the process works, however, the commissioner must make these
decisions in the light of day, giving notice of the grant
proposals received and the proposed awards, and waiting 30 days
before actually making the awards. It is the transparency this
committee thought was important during the second regular
session, Mr. Baldwin recalled, noting it was an amendment
proposed by Senator Wilken.
SENATOR BUNDE expressed concern that other impact money has been
used to provide community centers, for instance. He suggested
it is preferable to tighten it up, even to the point of being
"overlawyered," since ultimately one person will make the
decision.
2:45:44 PM
SENATOR WILKEN suggested perhaps striking "community" on page 4,
line 19, in subsection (j), and inserting "municipalities or
nonprofit organizations serving the unorganized borough", since
"community" only appears in that one place; he opined that might
clear up the need for a definition.
He also cautioned that the impact money won't last long, if past
municipal grant programs are any indication. While this was
modeled after NPR-A, it will serve far more people. Senator
Wilken surmised the $125 million would be gone in the first year
or two, leaving communities to deal with impacts on their own.
At the same time, however, those places would have an enhanced
tax base because of expansion.
MR. BALDWIN pointed out there is a payment schedule covering
more than two years, laid out in the fiscal interest finding
(FIF) and the contract. It starts six years out and goes for a
period after that. He offered to get that information.
SENATOR WILKEN asked whether it is metered out per year.
MR. BALDWIN affirmed that.
SENATOR WILKEN asked how the retroactive effective date of
January 1, 2004, raised as an issue by Senator Bunde, relates to
the FIF.
2:49:40 PM
MR. BALDWIN answered that retroactivity has no bearing on it, to
his belief, because this will occur in the future. The $125
million won't become available all at once. He recalled it will
start at project sanction, though he wasn't certain. It relates
to when construction actually begins, and comes in annually for
a period after that. There are provisions for inflation if it's
delayed and goes beyond nine years. Mr. Baldwin added that
retroactivity is an issue being considered because of the
question of whether there was power at the time to negotiated
that kind of provision; he suggested it is a lawyers' issue.
SENATOR WILKEN announced he would look at the FIF.
MR. BALDWIN, in response to Senator Bunde, said the contract
states that if payment of the money is delayed because the
project is delayed somewhat - beyond nine years, as he recalled
- then an inflation factor applies after the ninth year. Until
that date, however, the $125 million isn't inflated.
SENATOR BUNDE suggested if the project is delayed, however,
there won't be any money; it will be moot.
2:52:35 PM
SENATOR ELTON recalled testimony from MAG and offered his
understanding that the changes in this bill reflect MAG's
recommendations. He suggested it would be helpful at a future
meeting to have someone from MAG answer the questions raised by
Senator Bunde, for example, or provide a letter affirming their
comfort with the language in the bill.
CHAIR SEEKINS related his understanding that MAG is strictly an
advisory group, and that the commissioner doesn't have to comply
with MAG's advice. He held SB 3002 over.
The committee took an at-ease from 2:52:56 PM to 3:00:48 PM.
CHAIR SEEKINS discussed the committee's schedule.
There being no further business to come before the committee,
Chair Seekins adjourned the Senate Special Committee on Natural
Gas Development meeting at 3:06:57 PM.
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