Legislature(2021 - 2022)ADAMS 519
03/03/2022 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB158 | |
| HB287 | |
| HB246 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 158 | TELECONFERENCED | |
| + | HB 246 | TELECONFERENCED | |
| + | HB 287 | TELECONFERENCED | |
| += | HB 281 | TELECONFERENCED | |
| += | HB 282 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 287
"An Act making an appropriation for oil and gas tax
credits; and providing for an effective date."
9:24:54 AM
REPRESENTATIVE GEORGE RAUSCHER, SPONSOR, thanked the
committee for hearing the legislation. He introduced the
bill with prepared remarks:
House Bill 287 provides the $60 million that is still
owed for the oil tax credits that were overlooked in
the 2022 state budget. A promise made should be a
promise kept and a statute written should be a statute
followed. An oversight occurred for the legislators in
2021 that while trying to decide the proper funding
source for the oil tax credits in the amount of $60
million, we ended the year with an amount owed to
certain companies in the oil industry that actually
never got paid. HB 287 rights that wrong and pays it
from the undesignated general funds. Hundreds of
millions of dollars were still owed certain oil
companies their portion of these oil tax credits, and
the state had an agreement to repay them by making our
installments each year from the budget. As we move
this state forward, we must protect our credit rating
and put confidence back in our investors by paying our
business partners what we owe them by law, we'll do
just that.
Last year we were $60 million short and by rights
we're behind in our payments today. HB 287 will
reverse that by paying this overdue note.
Representative Rauscher asked his staff to review the
sectional analysis.
9:27:10 AM
RYAN MCKEE, STAFF, REPRESENTATIVE GEORGE RAUSCHER, reviewed
the sectional analysis (copy on file):
Section 1:
This section appropriates $60,000,000 from the general
fund to the oil and gas tax credit fund (AS 43.55.028)
Section 2:
This section specifies that the appropriation made in
section 1 is for the capitalization of a fund and does
not lapse.
Section 3:
This section provides that this act would take effect
immediately under AS 01.10.070(c)
Mr. McKee listed other individuals available online to
speak to the bill.
9:28:11 AM
KARA MORIARTY, PRESIDENT AND CEO, ALASKA OIL AND GAS
ASSOCIATION (via teleconference), thanked the committee for
the opportunity to provide testimony.
AOGA is the professional trade association for the oil
and gas industry in Alaska and we do represent most of
the companies exploring, producing, refining, and
transporting oil and gas resources in our state. Our
mission is to advocate for the long-term viability of
the industry and one of our organization's main
priorities is to constantly advocate for the
industry's fiscal stability and consistency, which in
this case includes a long-term payment of the roughly
$600 million in outstanding liabilities for the
refundable tax credit program, which has been stated
has ended, but of course the payments remain.
Just as a reminder, the legislature created the oil
and gas tax credit program over a decade ago to
incentivize and encourage small producers to explore
and produce in Alaska. To be eligible for these
credits, companies had to have less than 50,000
barrels per day of production. I always like to
clarify that companies like ExxonMobil,
ConocoPhillips, and BP were never eligible for, nor
did they ever receive these credits, nor would they
receive any of the suggested $60 million appropriation
in the bill before you today.
Originally these credits were not cashable, but the
legislature later allowed for direct cash payments
after the program started and the program worked. We
had a number of small companies that came to Alaska.
Other existing small companies and refineries invested
money in exploration projects, production
enhancements, and refining upgrades and expansions.
These credits for those that remember, were originally
designed to bring new companies to Cook Inlet.
Especially, at a time when the Southcentral region was
preparing for natural gas shortages and were
conducting rolling brownout drills throughout the
Railbelt. Not only did the state benefit from
investors coming to Alaska, like Hilcorp did, to Cook
Inlet ten years ago, but the state also obtained data
from companies they would not have been privy to
before because companies needed to provide that
information to justify the expenditures to approve the
credits. So, the state gained by learning more about
the resources through these credits.
As the credit program was no longer feasible, given
the state's unfortunate fiscal position several years
ago, all of these investment-based cashable credits
for the North Slope and Cook Inlet were completely
phased out with the passage of House Bill 247 in 2016
and House Bill 111 in 2017. The gas storage facility
and refinery credits have also sunset. This means the
state no longer offers refundable or cashable oil and
gas tax credits. I think it's also important to note
that the money was spent by the companies prior to
being eligible for these credits. So, the liability
before you in this bill and the remaining balance is
for work that has long been done. While there are
other entities around the state that hold these credit
certificates awaiting payment such as the Interior Gas
Utility, almost half of my membership is impacted by
this outstanding balance. Including one in-state
refinery, Petro Star, which is a wholly owned
subsidiary of Arctic Slope Regional Corporation,
explorers like Repsol, which is a 49 percent owner of
the Pika Unit, and other small producers like Blue
Crest, ENI, Furie, HEX, and Glacier Oil and Gas, are
all part of the overall credit liability.
9:33:03 AM
Ms. Moriarty continued her prepared remarks:
I think the question today, as you all know, is not
whether the state should have offered this tax credit
program or not, but the question is really should the
state pay the minimum statutory payment as outlined in
AS 43.55.028 for the credits that have already been
earned. Statewide, hundreds of millions of barrels of
oil along with trillions of cubic feet of gas still
sit in the ground waiting to be developed. Many by the
very same companies influenced to invest here by the
state's tax credit programs.
Even Alaska focused companies rely on owners and
investors from all over the world and while prices are
certainly higher today than a month ago, let alone a
year ago, the fact is the industry is still trying to
come out of the pandemic. Our workforce has not
recovered, and we see more and more companies,
unfortunately, like AIG yesterday, announcing that
investors do not want to invest now or insure in the
Arctic.
This is an attempt, as Representative Rauscher
mentioned, to make the minimum payment whole. As we
know, there was an attempt to resolve this entire
outstanding debt in 2018 when the legislature passed
House Bill 331, a bond program. But unfortunately,
that program was deemed unconstitutional by the
supreme court and so we actually had a couple of years
while we were waiting for that court decision where
the legislature did not fund anything at all. In
positive news, the governor has included the minimum
statutory payment in his budget for FY 23. We at AOGA
recognize the structural fiscal challenges that the
State of Alaska is facing and so we are not advocating
for a full immediate payout of the credits nor for the
credit program to return. But we do support the state
funding the minimum statutory payment and I know many
of the committee members support that as well. We
thank you for the opportunity to testify today and for
your consideration of this bill.
9:35:21 AM
Representative LeBon referenced Ms. Moriarty's mention of
the list of tax credit holders. He asked if there was a
bank holding some of the credits.
Ms. Moriarty answered the state had updated its report
earlier in the year, but she did not have it on hand. She
stated it was likely a bank may hold the credits because a
company may have sold its credits as a note for financing.
She highlighted that the Department of Revenue (DOR) had a
list of the credit certificate holders.
Representative LeBon recalled from several budget cycles
past there was a bank holding some of the credits. He
explained the situation meant a bank had secured a loan
with the tax credits and the borrower was unable to pay the
loan back, and the bank now owned the credits. He stressed
that it was not a success.
9:36:56 AM
Representative Wool thought Ms. Moriarty likely could not
share the companies waiting for payment. He mentioned a
past document the committee had received showing prior
credits paid. He detailed it was possible to interpolate
about some of the companies on the list. For example, he
believed there were likely some natural gas developers and
providers from Cook Inlet. He asked if his statement was
fair.
Ms. Moriarty confirmed there were natural gas developers in
Cook Inlet that earned the credits. She did not know
whether the specific developers had been paid what they
were owed. She stated that DOR maintained the list and
published it annually. She did not have the list on hand.
Co-Chair Foster stated in the past there had been
significant focus on some of the companies being from out
of state as opposed to Alaskan. He pointed out that in the
current year there had been at least one Alaskan company
come to legislative offices to let legislators know there
were Alaskan companies on the list.
9:38:20 AM
Representative Josephson asked if any AOGA members had ever
indicated a preference on the payment source from the state
Treasury.
Ms. Moriarty replied that AOGA members did not have a
preference in regard to the fund source. She understood the
funding source had been part of the debate the previous
year when the legislature had been trying to determine how
to get the credits paid. She informed members that AOGA
recognized and appreciated the intent [to pay the credits]
was there.
Co-Chair Merrick stated she had offered an amendment in the
past to pay the credits in full, from the Constitutional
Budget Reserve (CBR). She asked about the rationale for
paying the credits at present versus the previous year.
Representative Rauscher recalled the difficulty the
legislature had trying to get the $60 million in credits
paid the previous year. He detailed that paying the credits
had bounced back and forth between different ideologies
over the funding source. He explained that the chosen
funding source had ultimately been the CBR, which had
caused a problem because many House members believed the
CBR was a savings account that had been robbed from $17
billion down to $1.5 billion and lower. He elaborated that
those members also believed that the money taken from the
CBR was never paid back as it should be according to
statute. He believed the difference in ideologies over the
CBR fund source had caused the payment to not be made. He
believed there had been an idea that there would be a
correction on the Senate side, but that had not occurred.
He speculated using the CBR as the fund source may pose the
same problem in the current year. He explained it was the
reason he had selected a different funding source in the
proposed legislation.
9:41:15 AM
Co-Chair Merrick asked if the ideology was that keeping
money in savings was more of a priority than paying the tax
credits.
Representative Rauscher disagreed with the phrasing. He
believed if the state had a checking account with
sufficient funding to pay, it should be used as the funding
source instead of a savings account that had not been
repaid as specified by law.
Vice-Chair Ortiz stated his understanding the bill would
provide a makeup payment for the [FY] 22 payment that had
not been made. He remarked that the $60 million funding in
the governor's budget was the FY 23 payment. He asked for
verification the intent of the bill was to makeup for the
payment that had not been paid the previous year.
Representative Rauscher confirmed the funding in the bill
made up for a payment that had never been made in FY 22. He
clarified that the funding in the governor's budget was for
the FY 23 payment.
9:43:28 AM
Co-Chair Merrick remarked that Co-Chair Foster noted the FY
23 operating budget contained $199 million to pay the
credits.
Representative Wool noted that the committee had put some
time into oil and tax credits the previous year. He
believed for the most part, the committee had been
supportive of the concept. He recalled that at one point
the funding would have come from Alaska Industrial
Development and Export Authority (AIDEA) reserves and he
believed an amendment proposed by Representative LeBon had
ultimately passed. He stated that at the end of the day the
committee wanted to pay the credits. He stated the
legislature had drawn from the CBR on multiple occasions.
He recognized that technically the CBR was owed over $10
billion. He referenced Ms. Moriarty's testimony that credit
holders did not care where the funds came from. He had been
somewhat surprised that many people had voted against the
bill on the floor the past year. He pointed out that some
of the companies were Alaskan, some were natural gas
companies in Cook Inlet, and some employ many Alaskans. He
highlighted the Statutory Budget Reserve (SBR) was another
savings account that had been used in the past to pay the
PFD. He asked if the same ideological issue existed around
the SBR as with the CBR.
9:45:37 AM
AT EASE
9:47:43 AM
RECONVENED
Representative Wool clarified his previous question. He
explained there had been objection to paying the oil tax
credits from the CBR the previous year. He recalled the
majority of the House Finance Committee members had wanted
to pay the credits. He asked if there would be a savings
account problem if the funds were taken from the SBR in the
future. He noted things had been paid from the SBR in the
past.
Representative Rauscher answered that he had not considered
the idea. He did not know the current balance of the SBR
and did not know what was funded by the SBR in the current
budget. He did not have enough information to answer the
question currently, but he would follow up.
Representative Carpenter directed a question to DOR. He
understood there was a forthcoming spring revenue update.
He stated his understanding that oil prices and revenue
were up. He stated the legislature could continue to
posture about what had taken place in the past or it could
ask whether there was sufficient funding in the General
Fund with higher prices of oil to pay debts from general
funds. Alternatively, he wondered whether debts needed to
be paid from savings due to insufficient general funds.
9:50:03 AM
COLLEEN GLOVER, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE (via teleconference), replied that the funding and
the budget was not really a Tax Division question. She
detailed that DOR had published a revised forecast showing
general fund receipts were expected to be much higher in FY
22 than projected in the fall forecast. She believed the
question pertaining to the budget could be better answered
perhaps by the Office of Management and Budget.
Representative Carpenter asked if there was $60 million in
additional revenue in excess of the amount projected in the
fall forecast that could be used to pay debts from the
previous year.
Ms. Glover replied affirmatively. She encouraged members to
look at projections from mid-February on the DOR website.
She reported that updated cashflows projected additional FY
22 General Fund revenues of $572 million.
Representative Carpenter stated the philosophical question
was whether to pay the state's debts from the General Fund
or savings account. He reasoned the state had plenty of
money to pay the debt from the General Fund.
Representative LeBon clarified that he had supported the
amendment to pay the $60 million out of the CBR, but he
believed the co-chair had offered the amendment. He asked
if it was inappropriate for a member of the committee to
amend HB 287 to pay the $60 million from the CBR.
Representative Rauscher replied that he did not oppose the
option; however, it had not worked the last time. He was
trying to eliminate the possibility of treading the same
ground over and getting the same result. He referenced an
earlier comment he had made that the previous year
legislators who had voted against the use of the CBR funds
had relied on the Senate to come up with a fix, which had
not occurred. He stated he had used the word "oversight"
related to the Senate. He apologized for any potential
misunderstanding about his remark.
9:53:27 AM
Representative LeBon directed a question to Ms. Moriarty.
He highlighted that the FY 23 budget currently included
almost $200 million for oil and gas tax credits. He asked
if the industry believed the dollar amount included the
missing $60 million from FY 22.
Ms. Moriarty answered that the $199 million in the
governor's FY 23 budget was the minimum calculation for FY
23 and did not include the unfunded $60 million from FY 22.
Co-Chair Foster stated his understanding that the minimum
amount could increase because it was driven by formula. He
explained that if the numbers in the spring forecast were
higher than the fall forecast, the amount owed for oil tax
credits in FY 23 could potentially be much higher than the
$199 million currently in the operating budget. He asked
Ms. Glover if his understanding was accurate.
Ms. Glover answered that the formula was based on projected
production tax revenue. She explained that as the
department was projecting increased tax revenue it would
[increase the amount in credits owed]. She relayed that the
current projections, released mid-February, were shown on
the department's website. She elaborated that the updated
number for the FY 23 tax credits owed was $263 million. She
informed the committee that the number could potentially
increase under the upcoming spring forecast.
9:56:11 AM
Vice-Chair Ortiz asked if including the $60 million for the
amount owed from the previous year in addition to the FY 23
amount owed for tax credits in the operating budget would
accomplish the intent of HB 287.
Representative Rauscher agreed.
Representative Carpenter stated his understanding that any
formulaic increase in the amount owed due to an increase in
revenue would only apply to the statutory minimum for FY
23. He asked for verification the increase would not apply
to the amount owed from the past year.
Ms. Glover answered that the statutory formula was for the
appropriation and the appropriation amount was at the
legislature's discretion. She explained it was at the
legislature's discretion to choose to add $60 million on
top of the amount owed based on the spring forecast. She
referred to a letter mentioned earlier in the meeting that
had been provided to the legislature the previous month and
showed the current outstanding tax credit balance at about
$565 million.
Representative Carpenter stated his understanding that if
there was a larger number for FY 23 tax credits, the
legislature would still have to appropriate an additional
$60 million to cover the past year's shortfall.
Ms. Glover replied affirmatively. She explained that the
formula for FY 23 only included the amount for FY 23. She
highlighted the $263 million owed for FY 23 based on the
updated February numbers and detailed that the $60 million
would need to be added to the figure if the legislature
wanted to make up the funds from the previous year.
Representative Carpenter asked Ms. Moriarty if industry
cared how the credits were paid via HB 287, the
supplemental budget, or the current budget bill.
9:59:44 AM
Ms. Moriarty replied in the negative. The industry did not
have a preference related to the funding source or
mechanism. She explained that the industry had long
advocated for the minimum statutory amount to be paid
annually.
Co-Chair Foster provided a summary pertaining to the
payments owed. He detailed that the $60 million for FY 22
was set; therefore, even if prices were up in the current
year, it did not mean the FY 22 number would increase. He
elaborated that the current committee substitute for the
operating budget included the governor's original request
of $199 million for FY 23. Once the spring forecast came
out in mid-March, any member could choose to offer an
amendment either in committee or on the House floor
(depending on the location of the budget bill) to increase
the number from $199 million to $263 million. Likewise,
legislators could also offer an amendment to bump up the FY
23 amount to account for the $60 million.
Representative LeBon asked Ms. Glover for the current value
of the CBR.
Ms. Glover responded that she would follow up with the
information.
Representative LeBon replied that it was not necessary for
Ms. Glover to follow up with the information. He referenced
earlier comments made by Representative Rauscher indicating
there had been some voter remorse by some legislators (who
had voted against the CBR draw to pay the tax credits) over
the expectation that the Senate would fix the oil and gas
tax credits payment.
Representative Rauscher thought Representative LeBon was
reading more into the statements he had made previously. He
believed the vote likely expected the Senate to fix the
situation. He was not certain where Representative LeBon's
word "remorse" came from and did not believe it fit. He
added that he agreed with part of Representative LeBon's
statement.
Representative LeBon stated that he had supported paying
the $60 million in credits from the CBR in the past. He
understood it had not been the preferred funding source
because it had failed on the House floor. He communicated
his preference and support for returning the funding source
to the CBR.
10:03:28 AM
CAROLINE SCHULTZ, POLICY ANALYST, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, answered that based on the
DOR forecast that had been updated in February, the
estimated CBR end balance for FY 23 was about $1.9 billion
and $2.9 billion in FY 24.
Representative Josephson asked what made the projected
numbers grow from $1.9 billion to $2.9 billion.
Ms. Schultz answered a considerable reason for the
projected growth was the increased revenue projection
included in the February numbers. She reported that the
revenue projection had increased from the fall forecast by
approximately $1 billion. She elaborated that given the CBR
estimate was based on the governor's budget, the $1 billion
increase in revenue was functionally projected to be
deposited into the CBR.
Representative Josephson asked if it was because until it
was allocated somewhere else, it would be swept. He
surmised it assumed the legislature would leave the funds
in the General Fund because the legislature had not
communicated otherwise.
Ms. Schultz agreed.
Co-Chair Merrick thanked Representative Rauscher for his
presentation.
HB 287 was HEARD and HELD in committee for further
consideration.
10:05:30 AM
AT EASE
10:13:50 AM
RECONVENED