04/05/2016 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing | |
| SB130 | |
| Continuation of Dor Overview of Alaska Oil and Gas Tax Reform | |
| SB129 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 247 | TELECONFERENCED | |
| += | SB 130 | TELECONFERENCED | |
| *+ | SB 129 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 5, 2016
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Peter Micciche
Senator Bert Stedman
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Dan Ortiz
COMMITTEE CALENDAR
CONFIRMATION HEARGING
Alaska Gasline Development Corporation
Joey Merrick
- CONFIRMATION ADVANCED
HOUSE BILL NO. 247
"An Act relating to confidential information status and public
record status of certificates from the oil and gas tax credit
fund; relating to a minimum for gross value at information in
the possession of the Department of Revenue; relating to
interest the point of production; relating to lease expenditures
and tax credits for municipal applicable to delinquent tax;
relating to disclosure of oil and gas production tax credit
entities; adding a definition for "qualified capital
expenditure"; adding a definition for information; relating to
refunds for the gas storage facility tax credit, the liquefied
"outstanding liability to the state"; repealing oil and gas
exploration incentive credits; natural gas storage facility tax
credit, and the qualified in-state oil refinery repealing the
limitation on the application of credits against tax liability
for lease infrastructure expenditures tax credit; relating to
the minimum tax for certain oil and expenditures incurred before
January 1, 2011; repealing provisions related to the gas
production; relating to the minimum tax calculation for monthly
installment monthly installment payments for estimated tax for
oil and gas produced before payments of estimated tax; relating
to interest on monthly installment payments of January 1, 2014;
repealing the oil and gas production tax credit for qualified
capital estimated tax; relating to limitations for the
application of tax credits; relating to oil and expenditures and
certain well expenditures; repealing the calculation for certain
lease gas production tax credits for certain losses and
expenditures; relating to limitations for expenditures
applicable before January 1, 2011; making conforming amendments;
and nontransferable oil and gas production tax credits based on
oil production and the providing for an effective date."
alternative tax credit for oil and gas exploration; relating to
purchase of tax credit
- <PENDING REFERRAL>
SENATE BILL NO. 130
"An Act relating to confidential information status and public
record status of certificates from the oil and gas tax credit
fund; relating to a minimum for gross value at information in
the possession of the Department of Revenue; relating to
interest the point of production; relating to lease expenditures
and tax credits for municipal applicable to delinquent tax;
relating to disclosure of oil and gas production tax credit
entities; adding a definition for "qualified capital
expenditure"; adding a definition for information; relating to
refunds for the gas storage facility tax credit, the liquefied
"outstanding liability to the state"; repealing oil and gas
exploration incentive credits; natural gas storage facility tax
credit, and the qualified in-state oil refinery repealing the
limitation on the application of credits against tax liability
for lease infrastructure expenditures tax credit; relating to
the minimum tax for certain oil and expenditures incurred before
January 1, 2011; repealing provisions related to the gas
production; relating to the minimum tax calculation for monthly
installment monthly installment payments for estimated tax for
oil and gas produced before payments of estimated tax; relating
to interest on monthly installment payments of January 1, 2014;
repealing the oil and gas production tax credit for qualified
capital estimated tax; relating to limitations for the
application of tax credits; relating to oil and expenditures and
certain well expenditures; repealing the calculation for certain
lease gas production tax credits for certain losses and
expenditures; relating to limitations for expenditures
applicable before January 1, 2011; making conforming amendments;
and nontransferable oil and gas production tax credits based on
oil production and the providing for an effective date."
alternative tax credit for oil and gas exploration; relating to
purchase of tax credit
- HEARD & HELD
SENATE BILL NO. 129
"An Act creating the oil and gas infrastructure development
program and the oil and gas infrastructure development fund in
the Alaska Industrial Development and Export Authority; relating
to the interest rates of the Alaska Industrial Development and
Export Authority; relating to the sustainable energy
transmission and supply development and Arctic infrastructure
development programs of the Alaska Industrial Development and
Export Authority; relating to dividends from the Alaska
Industrial Development and Export Authority; and adding
definitions for 'oil and gas development infrastructure' and
'proven reserves.'"
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 130
SHORT TITLE: TAX;CREDITS;INTEREST;REFUNDS;O & G
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) RES, FIN
04/04/16 (S) RES AT 3:30 PM BUTROVICH 205
04/04/16 (S) Heard & Held
04/04/16 (S) MINUTE(RES)
04/05/16 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 129
SHORT TITLE: AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/16 (S) READ THE FIRST TIME - REFERRALS
01/19/16 (S) RES, FIN
04/05/16 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
JOEY MERRICK
Eagle River, Alaska
POSITION STATEMENT: Appointee to the Alaska Gasline Development
Corporation (AGDC).
RANDALL HOFFBECK, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions on SB 130.
KEN ALPER, Director
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Continued the overview of Alaska oil and gas
tax reform and commented on SB 130.
JOHN SPRINGSTEEN, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Anchorage, Alaska
POSITION STATEMENT: Presented SB 129.
GENE THERRIAULT, staff
Alaska Industrial Development and Export Authority (AIDEA)
Anchorage, Alaska
POSITION STATEMENT: Commented on SB 129.
FRED PARADY, Deputy Commissioner
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions on SB 129.
ACTION NARRATIVE
3:30:51 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Stedman, Stoltze, Coghill, Wielechowski, and
Chair Giessel.
^Confirmation Hearing
Confirmation Hearing
Alaska Gasline Development Corporation
3:31:47 PM
CHAIR GIESSEL announced consideration of the governor's
appointment to the Alaska Gasline Development Corporation (AGDC)
and invited Joey Merrick to review his work history as it
relates to the AGDC Board.
3:31:53 PM
JOEY MERRICK, Eagle River, Alaska, appointee to the Alaska
Gasline Development Corporation (AGDC), said his background in
gas and oil-related work started in 1989 when he was an
apprentice through the Laborers' Union. He worked on many
pipelines on the North Slope ranging from gas to water to oil at
every stage of development. He was there to unload the pipe and,
at the end of the day, to hydro test and complete the entire
project.
3:33:10 PM
SENATOR COSTELLO joined the committee.
MR. MERRICK said he also worked a lot on the TransAlaska
Pipeline System (TAPS) from Pump Station 1 to Valdez, and ended
up in Valdez for a number of years overseeing several major
projects from 2000 to 2001. Mr. Merrick said he is also very
involved in workforce development; he is a trustee on both the
Laborer's Training Trust and on the Pipeline Training School in
Fairbanks. He is president of both the Alaska Petroleum Joint
Craft Council (APJCC) and the District Council of Laborers. He
covers the North Slope as well as the pipeline, refinery, power
plants, and everything else in the construction industry.
He negotiates contracts with industry and the AGDC and knows how
important it is that everybody gets a fair deal at the end of
the day. Some of his strengths relate to knowing how to put
those good deals together. Mr. Merrick said it's an honor to
serve on the board and to work on getting the best project for
Alaskans.
CHAIR GIESSEL said many of them know Mr. Merrick who has an
impressive resume. She knows that the AGDC board takes a lot of
one's time and asked how he manages to balance that with his
family life and other commitments.
MR. MERRICK responded that he has a very busy life. His three
kids are very involved in athletics and school. He said it is
also true that his job at the Laborers' Union is demanding. He
has a good team both at work and at home. He thinks this is the
most important thing he could be doing for the members that he
represents, the people of Alaska, and his family. He wants to
make sure that they have the same opportunities he has been
afforded.
CHAIR GIESSEL, finding no one to testify on Mr. Merrick's
appointment, closed public testimony.
SENATOR STOLTZE reflected on the skill balance of the other
members and asked what strengths and skills Mr. Merrick brings
to the board that the others lack.
MR. MERRICK answered that his construction experience
complements other expertise on the board. His negotiating skills
would also be an asset to the board, as well as his history with
workforce development.
3:40:19 PM
SENATOR STOLTZE said it seems like the bulk of his petroleum-
related work was done from 1991 to 2003 and asked him to
specifically elaborate on his experience in petroleum-related
work. He noted Mr. Merrick might have worked with a mutual
acquaintance, Wade Blasingame.
MR. MERRICK said he worked with Wade Blasingame with Houston
Contracting and Houston NANA, H.D. Price, and Price Ahtna. He
has worked at every project stage: as a laborer on the ground,
as a foreman and general foreman on the crew, as the
superintendent, and as a manager in Valdez. He worked at Alpine
and actually put in a mile-long pipe under the Coleville River,
one of the biggest bores ever done under a river at the time. He
has been on numerous jobs on the North Slope with a lot of
different pipelines. Later on in 2000-2002 he worked in Valdez.
MR. MERRICK said most of his work was done on the North Slope;
he worked at Atigun Pass during the reroute and was the general
foreman doing the bypass of Pump Station 3. He worked on big
projects in Valdez including the fire water system and ballast
water projects, berth work, valve replacement, and tearing down
tanks and bringing them back up.
SENATOR STOLTZE related that he knew Mr. Merrick who had been a
great community contributor in youth sports and other community
activities.
CHAIR GIESSEL said in accordance with AS 39.05.080 the Resources
Committee reviewed and recommends forwarding the following
appointment to a joint session for consideration: the Alaska
Gasline Development Corporation Board of Directors: Joey Merrick
II, Eagle River, appointed 9/14/2015, term expires 9/13/2020.
This does not reflect an intent by any of the members to vote
for or against the confirmation of the individual during any
further sessions.
CHAIR GIESSEL recognized Representative Ortiz in the audience.
SB 130-TAX CREDITS;INTEREST;REFUNDS;O & G
[Contains discussion of HB 247.]
3:45:00 PM
CHAIR GIESSEL announced consideration of SB 130 and invited Mr.
Alper to continue the Department of Revenue's presentation that
will begin on slide 31.
^Continuation of DOR overview of Alaska Oil and Gas Tax Reform
RANDALL HOFFBECK, Commissioner, Department of Revenue (DOR),
Juneau, Alaska, said Director Alper will continue the
presentation, but he was available for questions on SB 130.
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
Juneau, Alaska, said slide 31 has the title "Impact on Specific
Industry Sectors." Slide 32 points out how particular sectors of
the oil and gas economy would be impacted by the specific
provisions of the bill at different price points. He said the
provisions of SB 130 do not impact the North Slope major
producer at higher prices (generally above $85/barrel where the
minimum tax kicks in). Below that level is where the minimum tax
tends to take precedence over the 35 percent net tax. The bill
attempts to raise the minimum tax from 4 percent to 5 percent.
In a period of very low prices such as now, and especially into
a second consecutive year, the issue of using net operating loss
(NOL) credits to reduce payments below the minimum tax floor
comes into play, and SB 130 would prevent that from happening.
It would cause those additional NOL credits to be rolled forward
and be added to the stack of NOL credits for use in a future
year after the price has recovered.
CHAIR GIESSEL asked at what price the 12.5 percent royalty
begins to spiral upward to over 100 percent.
MR. ALPER answered that happens when the profits begin to be
very constrained at anywhere less than $50/barrel.
3:48:23 PM
SENATOR STEDMAN asked what taking the floor from 4 to 5 percent
means in dollars and what the trigger point is to get out of it.
At some point, he also wanted a discussion on the per-barrel
sliding credit when the floor gets triggered, which the Senate
hadn't heard, because it was put in by the House. He also wanted
to know if they had NOL credit figures for FY15/16/17 and what
the expectations are for them getting paid off.
MR. ALPER explained that he would try to "unpack" Senator
Stedman's questions. First off, he would deliver details of
raising the floor from 4 to 5 percent and the trigger point in
his follow-up presentation tomorrow, but under the current
system, $78 is the cross-over point of existing the minimum tax.
Because of the way the cost and tax curves work the higher the
minimum tax gets, the higher the cross-over gets. It's in the
high $70s at the 4 percent level and it will be in the $80s at
the 5 percent level.
The fiscal note to the original bill did not delve into stacking
up of net operating loss (NOL) credits, because the numbers
didn't became apparent until the spring revenue forecast. An
updated fiscal note currently attached to the House companion
bill, CSHB 247, has numbers for both the original bill and the
amended bill. Hardening the floor raises revenue by $150 to $200
million a year at these prices, but the NOL that is forced to be
carried over due to the floor hardening and raising goes up to
about $700 million in a couple of years and to about $1.5
billion by 2019/20.
SENATOR STEDMAN followed up saying a verbal answer is kind of
okay, but it would be beneficial for the committee to see the
current NOL operating and capital numbers for FY16/17 on paper.
Lawmakers, as policy makers, need to clearly recognize the
magnitude of what they are dealing with. He also needs help with
how much of the non-deductible capital costs are applicable to
the carry-forward credits, and a clear understanding of how Cook
Inlet and Middle Earth are being treated differently than the
North Slope.
MR. ALPER said Mr. Stickle was back in the office taking notes
as they speak, and the stacking up of the NOL credits is in the
most current fiscal note, which is on BASIS. He clarified when
he says $700 million or $1.5 billion, that's in credits - after
the multiplication of whatever the much larger loss was,
multiplying times the credit percentage.
3:54:19 PM
Slide 33 shows that the North Slope new or smaller producers
that have built the newer fields will see no change at higher
oil prices, but a more substantial impact below the 85 percent
range. Because of the nature of the GVR, the new oil tax
provisions of SB 21, their per-barrel credit is allowed to drop
taxes to zero (the production from those fields is not
susceptible to the minimum tax). SB 130 attempts to harden the
floor by making new oil susceptible to the minimum tax, as well.
So, effectively there is an increase in some cases from a zero
to a 5 percent gross tax that would substantially impact the
smaller producers more than the major producers. Likewise, if
the company is an operating loss, the gross value reduction
(GVR) that is used for the benefit of new oil cannot be used to
increase the size of an NOL. The intent is that the NOL would be
limited to 35 percent of the actual cash flow loss and not the
more synthetic calculated loss that includes the GVR.
SENATOR STEDMAN asked if a company has a $27 million credit for
FY17, if any interest accrues. How is it treated once it exists
and is not turned into cash?
MR. ALPER answered that he wasn't sure what provision he was
referring to, but the floor hardening and the requirement of
having an operating loss carry forward for the major producers
is very much deferring of an obligation (because it would still
need to be issued; the deductions would simply be taken in a
future year), but the third bullet on slide 33 would be the
elimination of a benefit (it would not roll forward). If that
number is $27 million, it means that the companies in question
would have an operating loss credit that would be $27 million
less than it would be if they were able to use the GVR in that
calculation.
3:57:10 PM
Slide 34 talks about the impacts to a new project developer on
the North Slope building its first oil field but not currently
producing oil and gas. The NOL credit is baked in at 35 percent
as a provision of SB 21. That is not changed. The credit is
earned, and the question then becomes how to cash it out. Here
there is a little fork in the road. If it's a large company with
global revenues in excess of $10 billion, the state won't cash
out that credit. They can sell it to another company or they can
hold it until they have a liability. For the smaller companies
with revenues below $10 billion, an annual cap of $25 million
per company that would be paid out in a single year is being
proposed. Any credits in excess of that number would be
effectively rolled forward to a future year and continue adding
to the stack of unpaid credits.
SENATOR STEDMAN said he assumed they would see some modeling on
credits under both the current statute and under the proposed
changes, so they can visualize how the treasury was going to
deal with the NOLs two or three years out.
MR. ALPER said he is talking about two different stacks of NOLs:
the ones that are not refundable, because they are owned by the
major producers, a number that gets quite high, and the earned
credits that are cashable, but capped annually, stacking up
alongside them. He would bring a slide tomorrow that would put
some numbers on it. He explained that the fiscal note has a
negative number in savings in some years. That is the result of
credits being earned in one year and the state saving money by
not cashing them out since cashable credits are capped at $25
million/year, roll forward to be paid out in another year.
However, there are circumstances in years three or four, based
on available information, when the state is cashing out more
credits than it otherwise would have under the status quo,
because some of the older ones that rolled forward stack up on
top of each other.
SENATOR STEDMAN rephrased his previous question; when he talked
about the creation of NOL carry forwards, he was talking about
companies with less than $10 billion in one category and the
others in another category, but the Revenue Sources Book lumps
them all together.
MR. ALPER said he will provide those numbers to him, and the Tax
Division would help get him whatever he is looking for.
4:02:13 PM
He explained that in Cook Inlet, (slide 35) the existing
producer who is selling oil and gas generally to the Anchorage
bowl and the Southcentral utility market is paying low to zero
taxes due to the tax caps that have been in place since 2006 and
will be there through 2021. Those companies are currently
eligible for repurchase of their QCE and WLE credits in the 20-
40 percent range. A typical project is around 30 percent, so the
state is effectively paying 30 percent of that spending.
SB 130 repeals those specific credits. In a broad sense if a
company is not in an operating loss situation, it's perfectly
reasonable that they pay zero tax, but refunding the credits to
the company that is paying zero tax while earning a profit seems
a little bit unnecessary, or possibly even excessive, given the
state's current fiscal situation. They are not looking to touch
upon the tax caps themselves, which remain on the books through
the end of 2021.
4:03:46 PM
Slide 36 captures the new Cook Inlet field developer that
currently gets a 25 percent NOL credit that gets stacked along
with what he described for the producers in the previous slide.
Those two credits taken together tend to mean the state is
providing reimbursement in the neighborhood of 50-60 percent for
ongoing work in the Cook Inlet right now. By repealing those
capital and well credits, the intent of the legislation is to
reduce the state's level of ongoing support to 25 percent.
MR. ALPER explained that the 50 percent level seems excessive
given the fiscal realities and the need to prioritize. The
choice was made to prioritize the operating loss credit and
continue the support at 35 percent. Of that 25 percent NOL
credit, the same limitations on repurchase kick in as those on
the previous slide. The larger companies, should that kind of
multi-national be operating in Cook Inlet, would not be able to
cash those certificates and the smaller companies would be
limited by the $25 million annual cap. Everything in excess of
that gets carried forward.
4:05:17 PM
Slide 37 covered the Interior/Frontier area, or Middle Earth,
that is getting 65 percent credits for exploration. That means
the 40 percent exploration credit under most circumstances and a
25 percent NOL. In development they are in the same paradigm as
the Cook Inlet folks: the 25 percent NOL plus the weighted
average of the capital and well credits. By repealing the
capital credits the developer, once they are proven and have
found something, fall under the same 25 percent category that
the Cook Inlet developer does. However, because there is a need
to find that resource in the first place and because there has
been a previous legislative decision made to encourage people to
find and explore for oil and gas in the Interior basins, the
exploration credits have been previously extended through 2022.
That is not being touched in the legislation before them, which
means the state will continue to support exploration work at the
65 percent level in Nenana and Glennallen.
4:06:25 PM
SENATOR COGHILL said these credits have been pretty much dormant
and the expectation is the other credits that apply within the
Cook Inlet have been more valuable.
MR. ALPER said these credits are the ones that have been used.
The dormant ones are the super credits (80 percent for the
Interior and 75 percent for seismic) that were created in 2012
and those are scheduled for sunset. Although one explorer, the
Ahtna Corporation, has talked about an extension.
SENATOR STEDMAN asked what other basins are doing in response to
the lower prices and what kind of credits or fiscal health they
have extended to the industry over the last several years. He
also wanted some comparative work done on Texas or North Dakota.
CHAIR GIESSEL replied that enalytica had responded to similar
questions in other committees and she would ask them to provide
that information to this committee.
SENATOR COSTELLO wanted to know the driving principles behind SB
130.
COMMISSIONER HOFFBECK explained that they looked at the credits
in three categories: ones that weren't used, ones that were used
differently than intended, and ones that had worked well. The
ones that didn't work the way they were intended were either
credits that weren't used or when the focus of the use was not
where it was intended. A prime example is some of the Cook Inlet
Recovery Act credits that were put in place to try and deal with
energy security in Southcentral Alaska, but were equally applied
to oil exploration and development. Everything was done to
preserve the Net Operating Loss Credit, but with some caps on
it. There are no taxes on oil in Cook Inlet and there is no
energy security issue there now, either.
SENATOR COSTELLO asked if the administration's other revenue
generating bills have an overall driving principle. Were
decisions made based on modeling that was done first?
COMMISSIONER HOFFBECK answered that the entire reason behind
these bills is revenues and being able to afford the credits.
4:11:27 PM
SENATOR WIELECHOWSKI said the real behavior they have tried to
incentivize is gas exploration in Cook Inlet, the Interior and
the frontier areas to have gas for local communities, but what
seems to be happening is that a lot of money is being used for
oil exploration and development and asked if it is possible to
develop a system that provides incentives for gas only?
MR. ALPER answered it's doable. They started looking at it this
year when the question started to be asked about the oil versus
gas split. The department looked through historic Cook Inlet
credits and came up with roughly a two-thirds/one-third metric.
Sometimes it's a question of the bill's construction; it has to
be worded in a way that focuses on gas. That is when the
drafters get nervous, because there is a tendency "to not ring-
fence." It's similar to cost allocation issues on the North
Slope and why the gross value reduction is structured the way it
is as part of gross rather than part of net. The most
technically complicated maneuver is how to divide up the lease
expenditures. In some ways, it is a more solvable problem in
Cook Inlet because the taxes are already broken out by field
(it's a multiplier by field), more like the ELF was structured
on the North Slope in the past. It's a challenge, but it's not
impossible, he said.
SENATOR WIELECHOWSKI asked for rough numbers on how much the
state would save if they would allow the continuation of gas
credits but not oil credits in Cook Inlet.
MR. ALPER answered that the overall savings would be about one-
third of that amount because about two-thirds of the money is
currently supporting gas. That changes from year to year and
scenario to scenario.
COMMISSIONER HOFFBECK said this has almost become a backward
looking analysis of the credits, because going forward when
people look for gas, sometimes they find oil and vice versa, and
generally they find them together. So, there would have to be
some kind of allocation of the credits based on the productions.
4:14:21 PM
MR. ALPER said slides 38 & 39 are a very high level summary of
some of the fiscal note information for both the original
version and the latest modifications based on the spring
forecast. So, at the time they introduced the bill they
estimated it to be about a $500 million piece of legislation, at
least in its initial year. Of that, about $200 million in
reductions comes from the repeal of certain provisions as well
as the elimination of "loopholes or unforeseen circumstances in
statute." A second $200 million comes from deferred payments on
credits. The great bulk of that was in the $25 million caps and
similar provisions that said companies are going to be earning
certificates but the state was not going to be fully funding
them in the first year. A couple of other provisions fall in
that category. Finally, there is additional revenue in the
neighborhood of about $100 million between strengthening the
minimum tax, which was worth about $50 million, and then the
increase to 5 percent from 4 percent brings in about another $50
million.
MR. ALPER said a little bit of additional revenue comes from the
proposed interest rate reform, but interestingly, only the
revenue from non-oil and gas taxes. He explained that the
interest rate statutes are in the general revenue statutes that
apply to all 24 taxes. If that change is made and the state gets
a little bit more interest money from a cigarette tax or a
corporate income tax, that show up in the fiscal note going to
the General Fund (GF), but the oil and gas tax assessments end
up going into the Constitutional Budget Reserve, so they aren't
in the fiscal note as going to the GF.
MR. ALPER said the department did a much more granular model
once they had the spring forecast and prepared a fiscal note in
a table format more comparable to what the previous
administration did during the SB 21 hearings and this model is
very much a work in progress. Based on that and the latest
information on some revised company spending information
including in Cook Inlet, the actual elimination part was only
going to eliminate about $50 million a year at first, but then
the deferral went up to $550 million. This is from a lot of
ongoing work in larger projects that would get capped at the $25
million level. That's about $600 million in immediate revenue
savings with some of that rolling into future years.
A big reason for the jump in NOL credits is that some companies
were losing more money than they thought they were going to
lose. A second big reason, which took them a little bit by
surprise, was that the exploration numbers for last year were
far larger than originally anticipated. And that is simply
because of the credit sunsetting. If people were planning on
exploration work in the next five or 10 years, it was worth
their while to front-load that work and get it done now, because
on the North Slope, in particular, the state has 85 percent
credit support for exploration work. Companies leapt at the
opportunity.
Meanwhile, on the revenue side, Mr. Alper said, hardening of the
floor would bring in about $185 million, about $50 million more
than thought, mainly because more of the major producers have
operating losses and will therefore pay more money above that to
get to the minimum tax that the department had calculated six
months ago.
4:18:10 PM
Now the state is seeing a bill of well over $700 million,
although that number drops off dramatically in the next couple
of years. Part of that is because of the inadequacies of their
credit forecasting. They simply don't know what companies are
going to be doing workwise two or three years from now, because
the companies themselves don't know. The department uses the
same somewhat conservative methodology that goes into its
production forecast based on what companies tell them. They go
out to them twice a year and ask what wells they are going to
drill and what projects they are going to do and try to build
that into some sort of a forecast both of spending and revenue
production. It's all tied together in the same data set along
with the credit forecast.
4:18:38 PM
SENATOR MICCICHE joined the committee.
MR. ALPER said the bill was written with an effective date of
July 1, 2016, essentially next fiscal year, but honoring all
existing credits meant they would be paid in full prior to the
effective date, and the department wants to make sure there is
adequate funding to pay for those credits before messing around
with any caps or changes.
He recapped that there is the $200 million through the credit
veto from the previous session when the Governor limited the
credit repurchase to $500 million. The department's revised
estimate for FY17 is $575 million in credits ($575 million plus
the $200 million carry over) that will be fully paid before any
of the provisions of the bill kick in. Anything earned in the
first half of this calendar year prior to the effective date
would also come in under the old system, and therefore, enough
money is needed to pay those.
The bill contemplates a $1 billion transition fund in a one-time
appropriation to the Tax Credit Fund. The number $926,575,000 is
in a fund cap fiscal note attached to this bill. There is no
magic to that number; it is simply the difference between the
$73.4 million in the operating budget and around $1 billion. The
expectation is, were the bill fully implemented as written, the
annual cost of refundable tax credits would be in the
neighborhood of $100 million and could be part of the regular
appropriation process going forward.
4:20:47 PM
SENATOR STEDMAN asked the difference in making the effective
date of July 1, 2016, January 1, 2016 or January 1, 2017, since
January 1, 2016, is extremely retroactive.
COMMISSIONER HOFFBECK responded that the thought process on a
fairly immediate effective date was to prevent a flight to
credits with a January 1, 2017 effective date. They have heard a
lot of testimony in the last few committees about the importance
of the summer season particularly in Cook Inlet, and the July 1,
2016 effective date may have been too aggressive. Having the
retroactive effective date was not seen as being useful in the
process.
MR. ALPER added that he got some push back from his staff based
on changing anything in other than a calendar year. He explained
that for parts of the bill that are referred to when a credit is
earned for an activity (capital credit, for example), any date
on the calendar is fine as long as they get the work done and
can effectively show receipts. However, those that impact the
overall tax calculation - changes to operating loss credits and
that sort of thing - is where there is tremendous resistance to
anything other than a calendar year based change, because of the
nature of the production tax filings. There have been a couple
of years when the department had to effectively split a
company's tax returns in two and do them both in parallel,
because of a tax change in the middle of the calendar year.
SENATOR WIELECHOWSKI asked if the state would be honoring the
existing estimated $625 million in credits to be earned and
payable in FY17.
COMMISSIONER HOFFBECK answered that those credits were already
earned in CY15 and come due on July 1, 2016, which is FY17.
4:24:05 PM
MR. ALPER said slide 44 shows how this fits into the Governor's
overall fiscal plan. He explained that the Governor introduced
10 bills at the beginning of this session: 8 traditional tax
bills: the income tax, the 3 consumption taxes (tobacco,
alcohol, motor fuel), 3 business taxes (fish, mining, and the
cruise ship head tax), plus the Permanent Fund Protection Act,
and the Alaska Industrial Development and Export Authority
(AIDEA) loan bill. The intent of those bills taken together with
the budget cuts were proposed to balance the budget for FY19 -
to transition the state from the structural deficits it is in
now to something where it can consistently have a balanced
budget in place by two years from now - based on projections, at
least, at the time last fall when they were putting this
together. This broader package, specifically this tax credit, is
looking at some sort of certainty. Industry knows the current
situation is unstable and they know something is going to
change. The administration wants to change it and get it over
with and let them have a little bit of certainty going forward.
Likewise, Mr. Alper said, the governor's fiscal plan offers some
funding certainty to the financing community if there is a big
delta between what the state is offering in credits and what it
will be able to repay. They learned that last year with just the
line item veto and it could potentially get a lot worse if the
situation doesn't get better. Meanwhile, as the state is
withdrawing some support for ongoing development, they thought
this companion AIDEA loan bill (SB 129) would be an important
feature. It creates a fourth fund at the AIDEA to concentrate on
oil and gas development loans.
MR. ALPER said that AIDEA has given loans in the oil and gas
industry; it invests throughout Alaska's economy. But the
Revolving Loan Fund attempts to be a diversified portfolio that
touches upon all sectors of the economy. Oil and gas loans tend
to be quite large and a diversified portfolio could very easily
become unbalanced with them. The thought was to create a new
fourth fund in addition to the Revolving Loan Fund, the Energy
Transmission Fund, and the Arctic Infrastructure Fund. Quite
specifically, development loans are for proven reserves not
exploration. They envision that the resource, itself, the value
in the ground, would be part of the collateral that could be
offered on those loans.
A fiscal note capitalizes the fund with $200 million to make the
first loans. One of the features in that legislation is that all
repayments could be deferred for several years, the idea being
to make a loan for building an oil field, for instance, which
might take five years. Once it is in production, they would be
able to start making payments, and it's a revolving fund so that
money could come back and be used to make other loans. That is
how the fiscal plan ties together with SB 130 as one of the 10
pieces.
4:27:53 PM
Meanwhile the DOR must administer all of this. It has a fairly
complex and comprehensive Tax Revenue Management System that is
in its final stages of development. Its portal is called
"Revenue Online" and it allows for online filing. All of the tax
types are currently functional within what is called "TRMS." He
thanked the legislature, particularly Senator Stedman, who
chaired Senate Finance at that moment in 2011 when $34 million
got appropriated to buy the system. It has been very much a
successful software megaproject for the State of Alaska.
So, talking to the software developer about the legislation and
the many changes before them, they are estimating it will take a
little over $1 million in a one-time cost - for programming,
testing, and use of staff. They don't anticipate any additional
changes to administer the program; staffing needs will not
change. A fairly robust amendment process will start this summer
to implement any changes in this legislation as well as some
other oil and gas regulatory changes that have been building up
over the last couple of years.
4:29:31 PM
Finally, he said, all their presentations are out on BASIS where
staff has access to them.
4:30:27 PM
SENATOR STEDMAN remarked that the Senate had never been asked to
look at other committee presentations before, particularly ones
in the House.
MR. ALPER said he would provide the presentations to Chair
Giessel so that they could be put online as part of this
committee's record and be easy to find for everybody.
CHAIR GIESSEL, finding no further questions, said SB 130 would
be held in committee.
4:31:18 PM
At ease
SB 129-AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND
4:32:36 PM
CHAIR GIESSEL announced consideration of SB 129.
JOHN SPRINGSTEEN, Executive Director, Alaska Industrial
Development and Export Authority (AIDEA), Anchorage, Alaska
introduced himself.
GENE THERRIAULT, staff, Alaska Industrial Development and Export
Authority (AIDEA), Anchorage, Alaska, introduced himself.
FRED PARADY, Deputy Commissioner, Department of Commerce,
Community and Economic Development (DCCED), Anchorage, Alaska,
introduced himself.
MR. SPRINGSTEEN said the focus of SB 129 is adding tools to
AIDEA to support oil and gas developers. This bill requests
creating an Oil and Gas Infrastructure Development Program/Fund
to support the oil and gas industry by making investments in
supporting infrastructure to include roads, pads, gathering
system, camps, and other facilities. This bill is not to make
investments in wells and reservoir development.
The infrastructure would provide support to increase oil and gas
production, bring new fields on line, attract new investment,
increase future state revenues, royalties and taxes, and support
energy security for the state.
4:34:50 PM
SENATOR WIELECHOWSKI said this is supporting the basic
infrastructure that nobody else wants to do, because they don't
get a return on it, and asked what kind of return AIDEA gets on
a road, for instance, that they invest in.
MR. SPRINGSTEEN answered that returns are deal by deal, but it
ranges from 6 percent to 12 percent, or potentially more
depending on what partner they are working with and what is on
the other side.
SENATOR WIELECHOWSKI asked why AIDEA would not invest in wells,
for example.
MR. SPRINGSTEEN answered there is "an expression of disinterest"
by oil and gas developers for AIDEA to participate below the
ground in the reservoir development.
SENATOR WIELECHOWSKI said that didn't make sense to him, because
that's where the money is, and asked why the state would want to
take away its ability to make extraordinary rates of return.
MR. SPRINGSTEEN answered that AIDEA provides a lot of support
for industrial developments in the State of Alaska and has other
vehicles for making those kinds of returns through royalty and
tax revenue.
SENATOR WIELECHOWSKI asked if he would object to an amendment
that allowed AIDEA the ability to invest in those sorts of
things.
MR. SPRINGSTEEN answered that it's a measure of what risks AIDEA
would engage in, what type of collateral is available for the
project, and what type of partners they have on the financing
side. There could be potential for that kind of participation,
but generally it's been AIDEA's role to provide support for
industrial development in Alaska rather than the actual
development itself. The Red Dog Mine road to port, for example,
is a partnership between the state and the Teck mining company,
where they focus on the resource development, because they have
specific expertise in it. AIDEA supports the infrastructure
consisting of the road, the port system, and the warehousing
system.
4:37:28 PM
SENATOR MICCICHE asked if AIDEA has any commercial industrial
loans with a variable rate based on profitability of the
person/company holding the loan.
MR. SPRINGSTEEN answered that AIDEA has entered into
transactions where they finance a deal and adjust the rate
considering the types of risks and collateral, but in deference
to its 735,000 shareholders, they need to be conservative in
their stewardship of the AIDEA funds.
SENATOR MICCICHE said he specifically asked about a variable
return rate based on profitability, which is a little different
than risk.
MR. SPRINGSTEEN replied that generally AIDEA enters into fixed
rate loans, but in the case of the Red Dog Mine road and port
facility, an annual assessment is part of the arrangement; there
is also some participation in terms of a kicker for an uptick in
zinc prices, for instance. It is gauged to the metrics of the
particular industry rather than the profitability of the
company, which is out of their control.
SENATOR MICCICHE said he would like to learn more of whatever
AIDEA can share about the difference between risk and
profitability for the Red Dog arrangement.
MR. SPRINGSTEEN responded that he will provide what is
publically available and, under their confidentiality statute,
they can provide additional information as long as he complies
with the statute.
4:39:50 PM
MR. SPRINGSTEEN said in his view, AIDEA has roughly 735,000
shareholders, the population of the State of Alaska, who are
represented by the Alaska State Legislature, an institutional
shareholder in the governor, a seven-member board appointed by
the institutional shareholder, and the AIDEA staff managing the
day-to-day business. AIDEA currently has three funds and two
special appropriation projects. Today the majority of AIDEA's
core day-to-day business of providing capital and partnering
with industry to help drive the state's economic engines is done
through its Revolving Loan Fund. He explained that the Revolving
Loan Fund has investments across the state, which are relatively
aligned with industry and commerce in the state.
CHAIR GIESSEL said that Senator Micciche noted that he left the
Kenai Peninsula off of his map of investments.
SENATOR STOLTZE noted that was to ensure the fish could reach
the Mat-Su area.
MR. SPRINGSTEEN said he would adjust that. He said the Revolving
Loan Fund has a diversified portfolio of investments and Alaska
businesses and operates under the prudent investor rule. It has
historically made select investments that support oil and gas
development in the state: a loan for a drill rig in Cook Inlet
with Blue Crest, road and pad construction on the North Slope,
and a loan for a camp in Deadhorse. Additional investments by
the Revolving Loan Fund in projects that support oil and gas
development could outweigh what is currently a diversified
portfolio.
4:41:39 PM
SENATOR MICCICHE said he was unaware that AIDEA had invested in
a car wash.
MR. SPRINGSTEEN replied that there are multiple Alaska Laser Car
Washes and many are in Anchorage; they participate through their
loan participation program primarily. He said the oil and gas
industry continues to be a crucial contributor to the state and
for AIDEA to continue supporting it, it would be beneficial for
it to have a separate tool and fund solely focused on supporting
oil and gas development by making investments in infrastructure.
Infrastructure investment means roads, camps, pads, processing
facilities, gathering systems, and similar above-the-ground
assets. Among the criteria AIDEA uses to qualify projects, the
infrastructure investment must be for a field with proven
reserves, because that serves as part of the collateral.
He said the definition in the bill uses the Society for
Petroleum Engineers definition. Representative Hawker and
industry representatives want this definition aligned with
Alaska statute and the SEC definition.
4:43:36 PM
MR. SPRINGSTEEN said SB 129 has an opt-out provision in section
12. If a developer uses this program, he would opt out of
certain tax credits going forward. He knew from conversations
with industry representatives that they are resistant to this
provision. However, use of the program would be at their option.
SENATOR COSTELLO asked if that provision exists for companies
that are accessing AIDEA loans in the diversified portfolio.
MR. SPRINGSTEEN replied that it does not exist currently.
SENATOR COSTELLO asked if there are federal guidelines dictating
what a diversified portfolio has to look like.
4:45:12 PM
MR. SPRINGSTEEN answered the fund is managed using conversations
with their chief financial officer, ratings agencies and the
board about maintaining a well-diversified portfolio following
the prudent investor rule; it's not a strict federal guideline.
CHAIR GIESSEL said he alluded to the "proven reserves" term and
asked if it was correct that companies asked to use the state
statute definition.
MR. SPRINGSTEEN answered yes; they were asked to align with
existing statutory definitions.
CHAIR GIESSEL asked if they had not offered any amendment to the
legislation in the other body.
MR. SPRINGSTEEN said that is correct. He said that it's
important for AIDEA to evaluate the risks of a project, itself,
in terms of interest rates. Among these are: the operating
performance of the field, the size of the field, projected costs
and cash flow, capabilities of the operation, borrower credit
worthiness, commitments by the owner and by financing partners
who are backing the field development, their expectation of
financial returns, collateral to be made available to AIDEA, and
the benefit to the state, including tax and royalty revenue, and
employment.
CHAIR GIESSEL asked what capacity AIDEA has to evaluate the
project itself under review for investment.
MR. SPRINGSTEEN answered because AIDEA has a broad portfolio of
investments throughout the state, it has some amount of limited
expertise, but sometimes they call in specific technical
expertise for reservoir evaluation and evaluation of the plans
for development that don't exist within AIDEA.
SENATOR COSTELLO said language on page 5, section 9, makes it
sound like AIDEA can have different interest rates for each
program, and his explanation made it sound like the entire fund
would have a particular interest rate. She asked if there was a
problem with the language.
MR. SPRINGSTEEN responded that the interest rates are based on
each particular project, but that language would be clarified.
4:48:39 PM
He said language in the Sustainable Energy Transmission and
Supply (SETS), the Arctic Infrastructure Development
Program/Fund and the oil and gas infrastructure programs allow
investment of up to 50 percent or guarantee of a loan up to $25
million for an eligible project. The SETS and Arctic
Infrastructure current limits are 33 percent or $20 million with
legislature approval for amounts above that. He handed the
presentation over to Mr. Therriault to do a sectional analysis.
4:49:13 PM
MR. THERRIAULT said the real meat of the bill in setting up the
new fund is in section 12. Sections 1-3 add the new fund to
AIDEA's existing suite of funds with respect to calculation of
the dividend to the state.
Sections 4-9 also add the new fund into the sections of statute
that talk about the interest that is to be charged for the
different programs. Sections 4-8 are all existing statutory
language. Section 9 is where specific language is added to give
AIDEA the flexibility through regulations to set interest rates
reflecting the risk on the particular project they are being
asked to invest in.
4:50:54 PM
CHAIR GIESSEL noted that the Working Group spoke with ING and
Bank of America last summer, and that is something they take
into account as well.
MR. THERRIAULT said sections 10-11 propose to adjust existing
limits for SETS and the Arctic development Program/Fund. Right
now the limits are for projects above 33 percent participation
or a loan guarantee above $20 million. For the new fund they are
proposing a limit of up to 50 percent or a loan guarantee of up
to $25 million. AIDEA thinks there is some benefit to having
consistent limitations across the different investment tools
just for ease in understanding where the limits are. However,
this is a separate policy call for the legislature to make.
Section 12 establishes the new fund. The statutory framework
follows along with the framework that was used when the
legislature established the SETS Fund and the Arctic
Infrastructure Development Program/Fund. A provision specific to
this fund is the requirement that a project proposer would have
to select between using this loan mechanism and continuing to
access oil and gas credits. That is also spelled out in this
section.
Section 13 provides definitions. Fleshing out the definition of
"proven reserve" is one of the things they anticipate doing by
taking proposed language back to the House Resources Committee.
He explained that a concern with the SEC definition of "proven
reserves" is that it looks at the previous 12-year price for
commodities. Some House members also want to look forward at
what the anticipated price is going to be, if in fact the
reserves are going to be used as part of the collateral for the
loan. The final portion of section 13 says the definition of oil
and gas infrastructure is surface infrastructure and for proven
reserves. That is the end of the bill.
4:55:03 PM
CHAIR GIESSEL found no questions on the sectional analysis.
MR. SPRINGSTEEN said AIDEA performs its due diligence process
prior to investment. These include technical due-diligence,
reviewing the field and reserves, the operator, the development
plan, what type of infrastructure is being requested to support
the developments, financial due diligence, which includes a look
at credit worthiness, commitments, collateral, project
economics, and financial stress testing. Equally important are
benefits to the state for job creation and revenue. In addition
to AIDEA staff, they hire financial and technical experts and
the AIDEA board makes the final investment decision.
He explained the four phases of their decision-making process:
1. Suitability assessment for alignment with AIDEA's mission
2. Project feasibility analysis
3. Structuring a deal and performing detailed due diligence for
the project.
4. Finalizing closing agreements and contracts.
4:56:28 PM
In terms of financing repayment generally, Mr. Springsteen said,
upon the establishment of the fund, AIDEA makes investments
based on market rates to reflect project risk and benefits to
the state. Loans are repaid with interest and AIDEA pays a
dividend to the state.
He walked them through AIDEA's general framework for best-fit
products (slide 15). On the bottom axis was the project stage
going from concept to development to construction to operation.
The left axis is risk and cost of capital (which generally run
together). The curve represents the idea that as one moves
through the different project stages, the risk is being reduced,
so one should be eligible for less expensive sources of capital.
The line on the top bar represents early stage projects
(generally equity heavy) and late stage projects (can
accommodate more debt).
The orange boxes on the curve delineate the different types of
capital available at different stages of the project. In the
concept stage there is seed capital, which can take the form of
grants or equity. Then as a project is de-risked, it becomes
available for venture finance, which is still very expensive,
but for projects going through concept to development maybe less
expensive than the initial equity. Further down in the
construction stage a project may be eligible for a private
equity investment and, as it moves through the process, be
eligible for longer term construction loans and long-term debt
and bonds, which can be less expensive.
The big blue box illustrates what AIDEA looks for in a best fit
project near the construction stage. So, generally these six
factors are: operation experience, capital contribution (stuff
that has been done previously), final design (plans and
specifications), complete permits, signed purchase agreements,
and signed sales agreements. It's generally much easier for
developers with signed sales agreements to raise capital,
because they have a destination for a product as opposed to an
"if you build it they will come" type of approach.
4:59:07 PM
In summary, Mr. Springsteen said, this bill will support a
specific program in AIDEA to finance oil and gas infrastructure.
The fields for which infrastructure would be built must have
proven reserves and meet AIDEA's criteria based on its due
diligence process. Finance terms would be market-based
considering the project risks, commitments, and benefits to the
state.
He said that AIDEA originally submitted a zero fiscal note
saying it would absorb program costs with existing resources,
but they understand the legislature is considering HB 247 and SB
130, which if approved, would direct $200 million to this
program. The board believes that the program in and of itself is
valuable, but any capitalization would just make it more
effective.
CHAIR GIESSEL, referring to slide 15, asked if oil companies
have signed sales agreements.
MR. SPRINGSTEEN answered that would be one of the first things
that AIDEA would look at for other industries and developers.
It's less of an issue in this circumstance with a commodity
market able to sell at ANS West Coast price or some similar
price. Slide 15 illustrated the general framework for vetting of
all projects.
SENATOR MICCICHE said when one thinks about overall state risk,
he wondered with the two bill numbers right next to each other,
why SB 129 wasn't a piece of SB 130. Because SB 129 risks the
legislature encumbering the state with another $200 million, but
not touch credits. Did they consider that as another risk to the
state, because he does?
MR. SPRINGSTEEN answered, on behalf of the board, that there is
an interest in having this be a separate program, because of the
increasing balance and diversification issues in their Revolving
Loan Fund. Having this program move forward was an important
step for the Authority, the funding being a separate question.
SENATOR MICCICHE asked if AIDEA has the ability to do everything
in this bill without the carrot on page 8, lines 15-22 (Section
12), and why, because it would have been a simpler bill to move
this section into SB 130. He was trying to understand the
strategy.
5:02:38 PM
FRED PARADY, Deputy Commissioner, Department of Commerce,
Community and Economic Development (DCCED), Juneau, Alaska, said
he serves on AIDEA's board, and explained that the package of
bills arose out of board direction. AIDEA monitors what is in
slide 4 in the context of diversification of their portfolio.
The basic premise is that with oil and gas risk tipping up over
14 percent, it's become the dominant factor in their
diversification. The block for mining, which represented 20
percent of the fund, is almost exclusively the Red Dog Project,
which is a maturing concern, and does not pose the same risk
profile. The idea was to create a separate fund so the risk
could be separate and not have it overwhelm the Revolving Loan
Fund.
MR. SPRINGSTEEN added that the Revolving Loan Fund supports some
other very important programs for the state including their
Commercial Finance Program, where they engage in loan
participations. A federal credit union or a commercial bank
works directly with borrowers and AIDEA can provide very cost
effective financing for up to 90 percent of a loan.
SENATOR MICCICHE said he didn't want to remotely sound
confrontational, but the percentage of total existing, approved
capacity projects has several sectors in the 10-11 percent
range.
MR. PARADY said looking forward, and seeing the turmoil in the
oil and gas industry, and the kind of projects coming in the
door for evaluation, this sector appears to be significant to
the board. AIDEA has already been working with Brooks Range
Petroleum on the Mustang Project, and BlueCrest Energy on the
Cosmopolitan Project. AIDEA has already been involved in this
sector. The opportunity is significant, as well, but they don't
want to unbalance the basic composition of the Revolving Loan
Fund.
SENATOR MICCICHE said he didn't have a problem with the concept,
but he worries that with AIDEA some things have gone good and
some things have gone bad. It's the nature of the business. He
is trying to understand the focus and worries about the state's
additional exposure.
CHAIR GIESSEL said the fiscal note is dated April 1, and the
last sentence is, "Capitalization of the fund is contingent on
the passage of SB 130 or HB 247." She said the $200 million was
not in a fiscal note before and asked if the $200 million is
still in the other two bills.
MR. SPRINGSTEEN answered yes.
5:07:03 PM
CHAIR GIESSEL asked if they could pull $200 million from SB 130
because it's actually in SB 129.
MR. THERRIAULT explained that the original fiscal note that came
with the bill from AIDEA was zero, because it was just setting
up the mechanism and they know AIDEA can absorb all of that
cost, because it has been through the process twice with SETS
and the Arctic Fund. The modified fiscal note was to acknowledge
that there was this other legislation out there, plus a proposed
budget amendment that would actually appropriate money into the
fund. But that appropriation is clearly a separate policy call.
This new updated fiscal note acknowledges that the cost of
setting up the fund is still zero, but through other action the
legislature takes, money may be put into the fund. AIDEA
believes there is value to the creation of the fund, itself. If
money is put into the fund it becomes a more valuable tool.
SENATOR COGHILL asked if the 50 percent in sections 10 and 11 is
for all three funds and if there had been pressure to go from
one-third to 50 percent in the other funds and it there is an
actual project out there looking for 50 percent participation.
5:09:04 PM
MR. SPRINGSTEEN answered the conversations are for AIDEA to be
an equal partner rather than a minority partner in program
development, whether it's Arctic infrastructure, SETS, or oil
and gas infrastructure development.
SENATOR WIELECHOWSKI said the bill mentions Arctic development
and asked how "Arctic" is defined.
MR. SPRINGSTEEN answered that it runs along the Yukon and down
to the Aleutian Chain roughly. It is a line through the middle
of the state. However, a provision under the Arctic
Infrastructure Development Program/Fund supports financing of
port developments in south Alaska that support Arctic
development.
5:10:33 PM
SENATOR WIELECHOWSKI asked if he means all of Alaska.
MR. SPRINGSTEEN answered "sort-of."
CHAIR GIESSEL said it sounds like the federal Arctic Policy
Commission definition of the Arctic is being used, but somewhere
something is written down that it includes the reach of
infrastructure outside of that defined Arctic area.
MR. SPRINGSTEEN said yes. The idea that ports are not
necessarily independent of each other that there is cooperation
between the different types of facilities that ultimately ports
in Southeast Alaska are beneficial and can support the Arctic
area.
CHAIR GIESSEL added that Seward was an example of an industrial
port and Vigor operates a shipyard in Ketchikan.
5:11:50 PM
SENATOR MICCICHE said he needed to go to another meeting and
wanted to make a final statement. He worries about what the
executive director of the Alaska Municipal Bond Bank told them
at the last Finance Committee meeting: that Alaska's bonding
capacity is maxed out. He worries about being further encumbered
with the current $4.1 billion problem they are dealing with and
has become extremely conservative on creating new funds.
However, he would keep an open mind.
MR. SPRINGSTEEN mentioned that AIDEA has a long history of
issuing conduit revenue bonds where AIDEA is named as the
issuer, but the bonds themselves are backed solely by the
project revenue. Those were the first tools used by AIDEA before
it had an account of its own. AIDEA's Revolving Loan Fund is
separate from the state and it has maintained its AA-plus bond
rating, a fact that was recently affirmed by Standard and
Poor's.
SENATOR MICCICHE thanked him for the explanation and said he was
more worried about the initial fund capitalization.
5:13:33 PM
SENATOR COGHILL said Alaska would be doing oil and gas
development for a long while, but he struggles with the reach
into SB 130 and asked about industry's perspective.
MR. SPRINGSTEEN answered there was resistance from industry
representatives to not being eligible for tax credits going
forward if the AIDEA program was utilized.
SENATOR WIELECHOWSKI said he sees that AIDEA gets two things out
of this investment: the return on the investment, which is 6 to
12 percent, but also potential jobs being created and new oil.
He asked if Mr. Springsteen had some sort of analysis on how
much other benefits the state has accrued from AIDEA's
investments and a forward-looking forecast.
MR. SPRINGSTEEN responded that they do track jobs that come
along with AIDEA funding as well as the returns it receives.
They have not performed an analysis of additional taxes and
royalties, but they could do that.
SENATOR WIELECHOWSKI said the sooner he could get that
information the more helpful it would be to his case.
MR. THERRIAULT added that he will supply a definition of
"Arctic." He clarified that SB 129 sets up the fund. The fiscal
note acknowledges a proposal to put money into it, but passage
of this legislation by itself doesn't endow it with the $200
million. That is contingent on other policy calls.
SENATOR COSTELLO followed up on her earlier question about using
the "program" in section 5, because the SETS Fund and the Arctic
Fund are referred to in statute as "the AIDEA programs," and
said she found that "program" was used correctly.
5:17:34 PM
CHAIR GIESSEL adjourned the Senate Resources Standing Committee
meeting at 5:17 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AGDC Board Factsheet.pdf |
SRES 4/5/2016 3:30:00 PM |
AGDC Board |
| AGDC-Resume-Joey Merrick.pdf |
SRES 4/5/2016 3:30:00 PM |
AGDC Board |
| SB129 ver A.PDF |
SRES 4/5/2016 3:30:00 PM |
SB 129 |
| SB129 Transmittal Letter.pdf |
SRES 4/5/2016 3:30:00 PM |
SB 129 |
| SB129 Sectional Analysis.pdf |
SRES 4/5/2016 3:30:00 PM |
SB 129 |
| SB 129 Presentation to SRES 4.5.16.pdf |
SRES 4/5/2016 3:30:00 PM |
SB 129 |
| DOR Presentation to SRES-4-2-2016.pdf |
SRES 4/5/2016 3:30:00 PM |
SB 130 |
| SB129 Fiscal Note-DCCED-AIDEA-04-01-16.pdf |
SRES 4/5/2016 3:30:00 PM |
SB 129 |