Legislature(2003 - 2004)
03/17/2003 01:50 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 16
"An Act amending the standards applicable to
determining whether, for purposes of the Alaska
Stranded Gas Development Act, a proposed new investment
constitutes a qualified project, and repealing the
deadline for applications relating to the development
of contracts for payments in lieu of taxes and for
royalty adjustments that may be submitted for
consideration under that Act; and providing for an
effective date."
Co-Chair Williams began discussion on the bill, and
introduced the Sponsor. He indicated that discussion had
previously occurred on Amendment #2, 23LS0101/Q3, introduced
by Representative Whitaker on 10/10/03.
REPRESENTATIVE HUGH FATE, SPONSOR, indicated that, per
discussions through Representative Whitaker's staff,
Representative Whitaker had conveyed that he had no
objection to withdrawing Amendment #2. Representative Fate
referred to changes proposed in a subsequent amendment
(Amendment #3 -- 23 LS0101/Q.6).
Co-Chair Harris noted that the MOTION to adopt Amendment #2
was still pending.
A roll call vote was taken on the motion to adopt Amendment
#2.
IN FAVOR: Croft
OPPOSED: Chenault, Hawker, Meyer, Stoltze, Harris, Williams
Representatives Foster, Moses, Joule and Whitaker were not
present for the vote.
The motion FAILED on a vote of 6-1
Co-Chair Harris MOVED to ADOPT Amendment #3:
23-LS0101\Q.6
Chenoweth
A M E N D M E N T
OFFERED IN THE HOUSE
TO: CSHB 16(RES)
Page 1, line 8, following "terms;":
Insert "providing a statement of intent for the Act
relating to reopening of contracts;"
Page 1, following line 9:
Insert a new bill section to read:
"* Section 1. The uncodified law of the State of
Alaska is amended by adding a new section to read:
LEGISLATIVE INTENT. It is the intent of the
legislature that each contract for payments in
lieu of taxes and for royalty adjustments entered
into under the Alaska Stranded Gas Development Act
contain a provision by which the contract may be
reopened by any party to the contract. The
subject matter of the reopening may be dealt with
through the use of arbitration proceedings agreed
on by the parties."
Page 1, line 10:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill sections accordingly.
Page 2, line 29:
Delete "15"
Insert "10"
Page 2, line 31:
Delete "25"
Insert "15 [25]"
Representative Croft OBJECTED.
Representative Fate addressed the amendment. He summarized
that it intended to accomplish three things: change the net
worth requirement for qualified sponsors from fifteen to ten
percent [of the project cost], change the available credit
requirement from twenty-five to fifteen percent [of the
project cost], and add intent language allowing reopening
provisions for payment contracts.
Responding to a question from Representative Croft,
Representative Fate stated that the current cost estimate
for the project cost was $9 billion, and explained that
changing the net worth requirement would allow the
commissioner to qualify more sponsors to participate in the
project.
Representative Croft clarified that sponsors previously
needed $1.5 billion to participate. With the amendment a
sponsor would need slightly under $1 billion.
Representative Fate confirmed that this was true, adding
that the figure might vary depending on how many sponsors
the commissioner qualified.
There being no Objection, Amendment #3 was ADOPTED.
Representative Croft MOVED to ADOPT Amendment #4:
AMENDMENT
OFFERED IN THE HOUSE FINANCE COMMITTEE
BY REPRESENTATIVE CROFT
TO: CS HB 16 (RES)
Page 3, line 7, insert:
"Sec. 4. AS 43.82.210 is amended to read:
AS 43.82.210. Contract Terms Relating to Payment in
Lieu of One or More Taxes.
(a) If the commissioner approves an application and
proposed project plan under AS 43.82.140 , the
commissioner may develop proposed terms for inclusion
in a contract under AS 43.82.020 for periodic payment
in lieu of one or more of the following taxes that
otherwise would be imposed by the state or a
municipality on the qualified sponsor or member of a
qualified sponsor group as a consequence of
participating in an approved qualified project:
(1) oil and gas production taxes and oil surcharges
under AS 43.55;
(2) oil and gas exploration, production, and pipeline
transportation property taxes under AS 43.56;
(3) [Repealed, Sec. 6 ch 34 SLA 1999].
(4) Alaska net income tax under AS 43.20;
(5) municipal sales and use tax under AS 29.45.650 -
29.45.710;
(6) municipal property tax under AS 29.45.010 -
29.45.250 or 29.45.550 - 29.45.600;
(7) municipal special assessments under AS 29.46;
(8) a comparable tax or levy imposed by the state or a
municipality after June 18, 1998;
(9) other state or municipal taxes or categories of
taxes identified by the commissioner.
(b) If the commissioner chooses to develop proposed
terms under (a) of this section, the commissioner
shall, if practicable and consistent with the long-term
fiscal interests of the state, develop the terms in a
manner that attempts to balance the following
principles:
(1) the terms should, in conjunction with other factors
such as cost reduction of the project, cost overrun
risk reduction of the project, increased fiscal
certainty, and successful marketing, improve the
competitiveness of the approved qualified project in
relation to other development efforts aimed at
supplying the same market;
(2) the terms should accommodate the interests of the
state, affected municipalities, and the project
sponsors under a wide range of economic conditions,
potential project structures, and marketing
arrangements;
(3) the state's and affected municipalities' combined
share of the economic rent of the approved qualified
project under the contract should be relatively
progressive; that is, the state's and affected
municipalities' combined annual share of the economic
rent of the approved qualified project generally should
not increase when there are decreases in project
profitability, or decrease when there are increases in
project profitability;
(4) the state's and affected municipalities' combined
share of the economic rent of the approved qualified
project under the contract should be relatively lower
in the earlier years than in the later years of the
approved qualified project;
(5) the terms should allow the project sponsors to
retain a share of the economic rent of the approved
qualified project that is sufficient to compensate the
sponsors for risks under a range of economic
circumstances;
(6) the terms should provide the state and affected
municipalities with a significant share of the economic
rent of the approved qualified project, when discounted
to present value, under favorable price and cost
conditions;
(7) the method for calculating the periodic payment in
lieu of certain taxes under the contract should be
clear and unambiguous; and
(8) while cost calculations for the approved qualified
project under the contract should be based on amounts
that closely approximate actual costs, agreed-upon
formulas reflecting reasonable economic assumptions
should be used if possible to promote administrative
certainty and efficiency.
(c) Except as provided in (b) of this section, the
commissioner's discretion under this section in
developing proposed terms for a contract under AS
43.82.020 is not limited to consideration of the
economic rent of the approved qualified project.
(d) Nothing in this chapter shall be construed to
permit the state to suspend or contract away the power
of taxation.
Renumber accordingly.
The amendment is designed to increase certainty by
forestalling any argument or court challenges based on
the claim that there is some hidden escape hatch to the
sovereignty provision of the Alaska Constitution. If
the supporters of this legislation believe it really
requires a constitutional amendment, then they should
go that route, rather than creating all sorts of
uncertainty for future legislatures
Co-Chair Williams OBJECTED.
Representative Croft explained that the amendment was
intended to support a clear prohibition against signing away
the State's power of taxation. He maintained the need to
clarify this constitutional mandate.
Co-Chair Williams asked if the intent of the amendment was
to restate constitutional mandates. He speculated that this
might be cumbersome with other legislation, and disagreed
with the need for the amendment.
Representative Croft maintained that rarely did legislation
play so close to the constitutional line.
Co-Chair Harris concurred with Co-Chair Williams' question
of the need for the amendment. He asked former Senator
Parnell to address the question.
SEAN PARNELL, DIRECTOR, STATE AND GOVERNMENT RELATIONS,
CONOCOPHILLIPS ALASKA, INC., spoke in opposition to the
amendment. He expressed his company's desire for a clean
bill. He also noted the need for legislation that
contributed to certainty in the negotiation process. He
contended that nothing appeared in the legislation that
would surrender the powers of taxation. He argued that the
legislation merely determines the amount of taxation at the
project's inception.
Co-Chair Williams requested that the Department of Law be
consulted to address the issue.
RANDY RUARO, STAFF, REPRESENTATIVE WILLIAMS, responding to a
question by Co-Chair Williams, observed the difference
between designating the amount of tax and the actual power
to tax. He maintained that no authority was given away by
the legislation.
Representative Croft noted the importance of discussion on
this matter, and suggested that industry's objection to the
amendment indicated the need for the amendment. He
suggested that the goal of fiscal certainty approximated a
state agreement never to change tax policy. He cited vague
commitments on the part of industry such as "moral
obligation". He maintained the imperative not to negotiate
away the power of future legislatures to change tax policy.
Co-Chair Williams agreed that clarity was necessary.
However, he expressed the desire to show support for those
negotiating the project contracts, and to trust that they
would adhere to the constitution at all times.
Representative Croft WITHDREW the amendment. He noted that
he would submit the amendment to the Attorney General's
office to receive further feedback.
Representative Foster MOVED to report HB 16 out of Committee
with the accompanying fiscal notes.
There being no OBJECTION, it was so ordered.
CS HB 16 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with previously published fiscal
impact note (CED #1), and a new fiscal impact note by the
Department of Revenue.
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