Legislature(2015 - 2016)BARNES 124
03/14/2016 06:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB247 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 247 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G
6:00:46 PM
CO-CHAIR NAGEAK announced that the only order of business is
HOUSE BILL NO. 247, "An Act relating to confidential information
status and public record status of information in the possession
of the Department of Revenue; relating to interest applicable to
delinquent tax; relating to disclosure of oil and gas production
tax credit information; relating to refunds for the gas storage
facility tax credit, the liquefied natural gas storage facility
tax credit, and the qualified in-state oil refinery
infrastructure expenditures tax credit; relating to the minimum
tax for certain oil and gas production; relating to the minimum
tax calculation for monthly installment payments of estimated
tax; relating to interest on monthly installment payments of
estimated tax; relating to limitations for the application of
tax credits; relating to oil and gas production tax credits for
certain losses and expenditures; relating to limitations for
nontransferable oil and gas production tax credits based on oil
production and the alternative tax credit for oil and gas
exploration; relating to purchase of tax credit certificates
from the oil and gas tax credit fund; relating to a minimum for
gross value at the point of production; relating to lease
expenditures and tax credits for municipal entities; adding a
definition for "qualified capital expenditure"; adding a
definition for "outstanding liability to the state"; repealing
oil and gas exploration incentive credits; repealing the
limitation on the application of credits against tax liability
for lease expenditures incurred before January 1, 2011;
repealing provisions related to the monthly installment payments
for estimated tax for oil and gas produced before January 1,
2014; repealing the oil and gas production tax credit for
qualified capital expenditures and certain well expenditures;
repealing the calculation for certain lease expenditures
applicable before January 1, 2011; making conforming amendments;
and providing for an effective date."
CO-CHAIR NAGEAK re-opened public testimony on HB 247.
6:01:38 PM
MERRICK PEIRCE testified in support of HB 247. He said it is a
very good piece of legislation and is a good start to fix the
significant errors and problems that are within Senate Bill 21
[passed in 2013 by the Twenty-Eighth Alaska State Legislature].
He posited that a $4 billion deficit has been created as the
partial consequence of Senate Bill 21's passage, a significant
deficit that threatens the future of the state. The current
throughput in the Trans-Alaska Pipeline System (TAPS) is roughly
515,000 barrels a day at a price of $35 [per barrel]. This
comes out to about 187 billion barrels of oil pumped on an
annual basis, worth a total of $6.5 billion. Alaska's current
severance structure as a consequence of Senate Bill 21 results
in a net negative on the state's severance structure and makes
Alaska look like a "banana republic" where it does not even
collect a severance on its valuable resource. He said HB 247
makes the first modest steps at trying to fix some of the errors
within Senate Bill 21. Mr. Peirce recalled that years ago when
Mr. Hugh Malone was commissioner of the Department of Revenue
there was a fight regarding the simple interest that was paid on
deficient or delinquent oil taxes to Alaska. That was fixed to
be a compound rate of return to the state and was an inducement
for oil companies to get their taxes paid. A horrible provision
of Senate Bill 21 is the 4 percent simple interest calculation.
This provides no incentive for oil companies to pay their taxes
because they can get an 11-12 percent internal rate of return.
Under HB 247 this provision of simple interest would be fixed.
MR. PEIRCE said he is an investor so he pays attention to some
of the publically traded companies that do business in Alaska.
He said the state has gone completely overboard on credits and
HB 247 takes some modest steps towards addressing some of the
giveaway provisions within the credits. The magnitude and the
giveaways of the credits are shielded from the Alaska public.
Some of his own research shows that the credits the State of
Alaska has paid are far more than the value of the resource in
question. For example, the Henry Hub price of natural gas is
about $2 per million British Thermal Units (BTUs); the amount
Alaska is paying in the credits is exponentially more than the
value of the resource at around $70-$80 per million BTUs. At
the end of the day after paying multiples beyond what the value
of the resource is worth, the State of Alaska does not even own
the gas. He stated his support for HB 247. Responding to
Representative Josephson, Mr. Peirce said he is an investor and
that he owns some of these major oil companies because from an
investment perspective they are good companies to invest in.
6:07:17 PM
LOIS GILBERT offered her support for HB 247 and for higher taxes
on oil. She said the state constitution requires that the
state's resources be developed for maximum benefit of the
public, but that is not happening. Alaska would not be in this
situation if it was getting the same price for its oil that
Norway is getting for its oil. She recalled a talk by Senator
Wielechowski about how little Alaska is getting for its oil
compared to other countries and other states, and at that time
the oil companies were making a profit of $20-some per barrel on
Alaska oil and making $2 per barrel on Iraqi oil. The companies
do not have to dodge bullets in Alaska like they do in Iraq.
Alaska needs to start getting a fair price for its oil. She
noted that she is disabled and said people with disabilities are
having the benefits for their needs severely cut back. There is
no need for this, she maintained, because Alaska has the
resource that can be paying for these needs.
6:09:22 PM
The committee took an at-ease from 6:09 p.m. to 6:19 p.m.
6:19:23 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony.
TOM LAKOSH stated it appears in HB 247 that the production tax
credit may still reduce the tax liability of producers down to
$0, which is clearly an inappropriate reduction in taxes to the
extent the state loses the value of the oil being sold on the
market to an unacceptably low level, whereas if left in the
ground the oil might actually accrue more value. There should
clearly be a higher alternative minimum production tax placed on
the oil sold so that the state does not have to rely solely on
royalties. He urged that HB 247 be amended to show a higher
minimum production tax such that credits cannot be applied to
make a tax liability of zero. He said committee members might
want to extend the buy-ability of tax credits out for a longer
period of time and added that the public's oil should not be
sold on the market if there is such a low return. The oil
should be left in the ground until its value accumulates to the
point where value can be gotten out of it. Responding to Co-
Chair Nageak, Mr. Lakosh stated he is a 33-year resident of
Alaska and is testifying on his own behalf.
6:22:06 PM
KEITH LIPSE urged that the oil companies not be taxed because
they are already overtaxed. If the government wants to raise
more money then maybe it should tax the people who are working
here. A large number of people work in the state but do not
live here, they take money and leave the state while complaining
about how much their home state taxes them. The oil companies
should not be taxed when they are not drilling for oil anymore.
Three more rigs are being shut down and he will be out of a job
in April because of that. More bad than good is being done.
Other ways should be found to get money than taxing oil
companies, such as taxing the workers who are taking money out
of the state.
6:24:02 PM
GEORGE PIERCE stated that HB 247 was introduced to fix the mess
of Senate Bill 21. It is plain to see how legislators given in
to big oil, he said, but these are the residents' resources.
Why don't legislators represent the voters more than the big oil
companies? It should be maximum yield for Alaskans, not
corporations. This bill is a start, but needs some fixing. The
4 percent floor in Senate Bill 21 should be fixed and Alaska's
resources should stop being given away. The production tax is
how the state gets revenue. The downsizing of oil was fully
ignored and now the state is reduced to paying the industry to
takes the state's resources. He stated his disagreement with
Senate Bill 21 and said all production tax receipts have been
based on the minimum 4 percent tax and Senate Bill 21 is one-
fifth of the state's budget money. He thanked Governor Walker
and the Tax Division for the impact report regarding the effects
of Alaska's current tax policy. The state is in a deficit and
the oil and gas industry is suspending its production due to the
oil prices. Industry cannot afford to do business and the state
cannot afford to give credits. Senate Bill 21 was supposed to
result in more production and more employment and has not done
either one, but industry sure gets its tax breaks. He said he
cannot believe all the credits that legislators have supplied
for the oil companies. Alaska's current tax policy was modeled
and drafted in 2013 with oil prices between $80 and $100 a
barrel. Senate Bill 21 does not address anything under $80 a
barrel and that is absurd. He said HB 247 analyzes Senate Bill
21 and it shows Alaskans that the state's current tax policy
does not work like Alaskans were led to believe. The
legislature created this mess and the legislature needs to fix
it and quit charging residents for the legislature's mistakes.
Legislators need to step up to the plate and represent Alaska,
not these corporations. If oil companies do not like the tax
structure they can pack their bags and leave. Alaska is not for
sale, but it seems like Alaska's legislators are. He supported
HB 247, but said to adjust it and get rid of Senate Bill 21.
6:28:48 PM
The committee took an at-ease from 6:28 p.m. to 6:32 p.m.
6:32:35 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony on HB 247.
KAITLIN VADLA said HB 247 is long and complicated so she will
address only that portion related to the cash credits. The bill
is not perfect, she added, but it is needed. The state cannot
afford the current system and she would like to ask where it is
planned to get the money to pay the cash credits. She offered
her understanding that this year the state will pay out
somewhere between $500 and $700 million and she does not think
the system is going to work. She questioned whether the credits
are necessary for exploration and noted that the price of oil
cannot be controlled. The industry is contracting now even with
this cash credit system, so maybe the state can experiment with
not having it. She thanked the committee for its work.
REPRESENTATIVE OLSON thanked Ms. Vadla for calling in.
6:35:36 PM
The committee took an at-ease from 6:35 p.m. to 6:43 p.m.
6:43:14 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony on HB 247.
NELMA TREIDER testified that she opposes continuing in the
current tax credit structure. She said the heart of the matter
is that refineries are a business and she does not believe it is
customary to give tax credits, especially of this enormity, to
the regular small businesses on the street. So, why are tax
credits being given to businesses that deal internationally and
have a very healthy bottom line? Businesses open knowing that
some years might be leaner than others and do not expect
monetary help during a lean year from the citizens living in the
location of the business. The legislature has said that
everybody must tighten their belts and most citizens understand
that and are willing to do their part, but not as long as oil-
related businesses are given vast amount of money that is then
passed along to their shareholders, most of whom do not live in
Alaska. These tax credits amount to taking necessary state
funding that benefits all Alaskans, such as education and public
safety, and sends those funds to the bank accounts of refinery
shareholders. It seems utterly and totally wrong to think that
this is an appropriate way to distribute funding.
6:46:12 PM
The committee took an at-ease from 6:46 p.m. to 6:57 p.m.
6:57:52 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony on HB 247.
RAMI JASSER stated his opposition to the proposed increase in
oil and gas taxes at this point, saying his opposition is for
the sake of North Slope jobs. Given the current situation on
the North Slope, he said he would be hesitant in doing any more
to shut down more rigs and have less oil in the pipeline.
6:59:14 PM
The committee took a brief at ease.
7:00:40 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony on HB 247.
LISA REIDER noted she is an engineer employed in the oil
industry and is an independent consultant. The numbers and the
percentages that are changing are complicated, she said, but she
can comment that there certainly seems to be a lot of changes in
the tax which makes it very difficult for industry employers to
maintain any stable planning and business models. She said she
is unhappy to see Senate Bill 21 be overturned by HB 247. The
climate right now is very uncomfortable for those people
employed in this industry as there are multiple layoffs. The
decreasing supply of oil obviously affects everybody, but
increasing the taxes to accommodate the decreasing revenues due
to the decreasing [price] and decreasing volume does not make it
a good climate for industry employers to operate. All of her
peers are very uncomfortable with the current unsettled
situation. It does not bode well for the residents of Alaska
who are employed in the industry or the other industries that
rely on the oil industry. The big picture is that HB 247 would
take away all of the things that were put in place by Senate
Bill 21 and she does not approve.
7:03:34 PM
REPRESENTATIVE SEATON noted that HB 247 has two components: one
would raise the tax and harden the floor and the other would cut
the amount of cash credits the state pays. He asked whether
Ms. Reider sees those as the same or two different things. In
response to Ms. Reider he clarified that that the cash credit
segment is money that the state pays out and the other segment
would raise the minimum tax from 4 percent to 5 percent. He
asked whether Ms. Reider sees a difference in perspective of
raising taxes versus cutting the state's expenditures.
MS. REIDER responded that reducing the credits also has an
impact because many of her peers in the industry are employed by
some of the smaller companies and she knows from conversations
that the credits are important to them, so [reducing the
credits] makes their viability less stable. She said her
understanding is that the raising of the other taxes affects the
larger companies which is where the majority of the people are
employed and there are quite a few layoffs going on. So, she
continued, she cannot see that one is better than the other and
she does not like either one.
REPRESENTATIVE SEATON understood that Ms. Reider is opposed to
raising taxes on the industry and said he was making sure
committee members understood whether Ms. Reider is talking about
all components of the bill or just raising taxes.
MS. REIDER answered all components, including the credits,
because those benefit the smaller companies.
7:06:25 PM
JAMES "HOTAI" WILLIAMS testified that raising taxes on the oil
companies must be done intelligently. He urged members to
research what the Europeans have done, Norway and Iceland have
raised taxes the oil companies are still there. Alaska got
bamboozled when the oil companies got the giveaway of a year or
so ago; they were going to protect jobs and promptly fired 400
people. The state must tax the oil companies as much as they
can pay because the Lower 48 and the rest of the world buys
Alaska's oil and gas and that is the money the state lives on.
He does not work for the oil companies, but he used to. He is
not against the oil companies, but they need to be paying their
fair share. The oil industry will use lobbyists and scare
tactics on legislators to keep the state from taxing them at
all. Tax the oil companies but use good common sense, he urged.
The oil companies should be taxed intelligently and should be
made to pay for the goods they take out of the ground that
belong to the state.
7:09:11 PM
The committee took an at-ease from 7:09 p.m. to 7:19 p.m.
7:19:28 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony on HB 247.
MARY LEE GUTHRIE offered her support for HB 247, saying the bill
addresses issues of scale, focuses on a minimum tax floor, has
transparency, and provides transition. It is understandable
that having enjoyed the world's best incentive program, these
changes may be met with an outcry of a world of hurt. But, it
is really important for legislators and for Alaska citizens to
take care of the legacy capital that is the product of Alaska's
natural resources and the state's hardworking oil and gas
industry, and this is not being down now. The tax credits and
incentives have grown into a gigantic "pick, click, give"
program that Alaska's residents are involuntarily participating
in. Contributing $500-$700 million a year to one sector exceeds
what is spent on 10 agency budgets in unrestricted general
funds; the scale is out of line. She urged that the committee
consider HB 247 with a sense of respect for the oil and gas
industry and respect for good use of Alaska's legacy capital
that is essential to the state's future. She further urged that
the state's capital not be burned on a bridge to nowhere.
7:22:15 PM
The committee took a brief at-ease.
7:22:59 PM
CO-CHAIR NAGEAK called the meeting back to order and continued
public testimony on HB 247.
ELSTUN LAUESEN related that he has heard a number of industry
folks talk about how essential the tax credits program is to the
development of the state's oil and gas. However, he is put off
by that because critical programs are being cut and everyone
must share this burden together, including the oil and gas
industry. He offered his understanding that the other body has
cut $500,000 from disabled senior citizens services, yet he also
understands that in 2015 Hilcorp Alaska, LLC, received $130
million in credits and then gave a $100,000 bonus to every
employee nationwide at the end of 2015. Five of those bonuses
could have paid for the cut to disabled senior citizens. If the
purpose of these credits is to ensure that capital investment is
being made in Alaska and putting Alaskans to work, then audits
must be done on the use of those credits to ensure that the
credits are being used for the stated purposes. A "but for"
criteria must also be applied - "but for" those funds a company
could not have made that investment. That is essential to
protect the integrity of the state's budget and legislators'
fiduciary responsibility to the people of the state of Alaska,
not the corporate persons. He urged that the committee give
positive consideration to the governor's proposals.
7:26:29 PM
The committee took an at-ease from 7:26 p.m. to 7:54 p.m.
7:54:56 PM
CO-CHAIR NAGEAK called the meeting back to order and adjourned
the hearing.
[HB 247 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HSE RES 3.15.16 HB 247 LOS.pdf |
HRES 3/14/2016 6:00:00 PM |
HB 247 |
| HSE RES 3.15.16 HB 247 Oppose Communications.pdf |
HRES 3/14/2016 6:00:00 PM |
HB 247 |