Legislature(2021 - 2022)ANCH LIO SANFORD Rm
09/09/2021 10:00 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB3007|| HB3008 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB3007 | TELECONFERENCED | |
| *+ | HB3008 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 3007-OIL & GAS PER BARREL TAX CREDIT
HB 3008-PERMANENT FUND DIVIDEND; 25/75 POMV SPLIT
10:04:48 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 3007, "An Act relating to nonrefundable tax
credits against the oil and gas production tax; and providing
for an effective date." and HOUSE BILL NO. 3008, "An Act
relating to use of income of the Alaska permanent fund; relating
to the amount of the permanent fund dividend; relating to the
duties of the commissioner of revenue; and providing for an
effective date."
CHAIR SPOHNHOLZ provided introductory remarks concerning the
fiscal instability in Alaska and the different proposed
legislation currently before the legislature.
10:09:50 AM
CHAIR SPOHNHOLZ, as prime sponsor, presented HB 3007 and HB 3008
by means of a PowerPoint presentation. She began with HB 3008,
which proposes an updated permanent fund percent of market value
(POMV) split of 25/75 percent. She directed attention to slide
3, which shows updated information on the projected deficits of
various split formulas that had been presented to the House
Special Committee on Ways & Means by the Division of Legislative
Finance on 9/1/21. [The chart on slide 3 shows the
surplus/deficit for various formulas for fiscal year 2022 (FY
22) through FY 30.] A category for "before" the permanent fund
dividend (PFD) shows numbers in the black; however, Chair
Spohnholz said she does not think anyone wants to do away with
the PFD completely. She said the 50/50 POMV split proposed by
the governor would widen the fiscal gap. She advised that a 33
percent POMV to [67 percent] PFD plan would produce a fiscal gap
in FY 22-FY 26, but various revenue measures could solve that,
including a 1 percent income tax.
CHAIR SPOHNHOLZ said the option for a 25/75 percent split
proposed under HB 3008, would result in [diminishing] deficits
in FY 22-24 and then a surplus starting FY 25. As shown on
slide 4, she specified that HB 3008 would rewrite the dividend
formula such that the 5 percent POMV will be split as follows:
25 percent to dividends and 75 percent to "all else." She then
highlighted information shown on slide 5, which indicates that
under HB 3008, the amount of the PFD for a recipient would be
$1,248 in FY 23 and increasing incrementally to $1,575 in FY 28.
She introduced her staff to present the sectional analysis.
10:13:17 AM
ROSE FOLEY, Staff, Representative Ivy Spohnholz, Alaska State
Legislature, presented a sectional analysis of HB 3008 on behalf
of Representative Spohnholz, prime sponsor. She said Section 1
amends AS 37.13.140, and she clarified that the amount available
for appropriation may not exceed the balance of the earnings
reserve account (ERA). She said this language existed
previously in statute, and there is "a repealer" in Section 8
relocating this language. She said Section 2 amends AS
37.13.145(b) to allow appropriation from the ERA in accordance
with the POMV statute, AS 37.13.140(b), as follows: 25 percent
to the PFD and 75 percent to the state's general fund (GF). She
said Section 3 amends AS 37.13.145(c) to clarify that an
appropriation is required to move funds from the ERA to the
principle of the Alaska permanent fund for the purpose of
inflation-proofing. She explained that currently the statutory
language refers to a transfer, and Wielechowski v. State of
Alaska identifies that an appropriation is required.
MS. FOLEY said Section 4 amends AS 37.13.145(d) to stipulate
that the funds associated with "the Amerada Hess settlement" are
not included in the calculation of the POMV. Section 5 amends
AS 37.13.300(c) to specify that income from the Alaska Mental
Health Trust Fund is not included in the calculation of the
POMV. She related that Section 6 amends AS 37.14.031(c) to
require the Alaska Permanent Fund Corporation to calculate the
net income of the Alaska Mental Health Trust Fund annually on
the last day of the fiscal year, "excluding any unrealized gains
or losses." She said Section 7 amends AS 43.23.025(a) to
clarify that funds must be appropriated to the dividend fund
rather than transferred, as she had previously noted. She
stated that Section 8 repeals AS 37.13.145(e) and (f); these
sections restricted appropriations from the ERA to the GF to
"not more than is available for appropriation." She noted that
similar language is now found in Section 1 of the bill.
10:16:10 AM
REPRESENTATIVE JOSEPHSON asked whether the bill includes a
repeal of the 1982 dividend formula.
MS. FOLEY answered that it dedicates 25 percent of the POMV to
be paid to dividends; "it does not repeal the underlying
statute."
10:17:00 AM
REPRESENTATIVE PRAX noted that because of the Wielechowski v.
State of Alaska decision, statutes require appropriation "and
the legislature doesn't have to follow them." He recommended
repealing the preexisting dividend formula to clarify that "it's
an annual fight and not any sort of a predictable formula."
CHAIR SPOHNHOLZ conveyed her intent was to propose a new
dividend formula law for adoption, one that would reduce the
fiscal gap, allow for transparency, and offer certainty for the
people of Alaska. She opined that HB 3008 could "go in tandem
with" HJR 1, to which she shared she had supported an amendment
that would have included a dividend that is provided by law,
thus creating an obligation to follow the law.
10:20:13 AM
REPRESENTATIVE PRAX said he appreciated the intent [of HB 3008];
however, he opined that the unfortunate reality was that the
political pressure would continue, and the legislature would run
out of money to spend, putting it back where it was in 2016.
CHAIR SPOHNHOLZ pointed to previously shown slide 3, to the
information from the Division of Legislative Finance that a
25/75 split would create a surplus by FY 25. Based on that, she
countered that this plan would create fiscal certainty for the
state and reduce the likelihood of revisiting this decision in
the future.
10:22:03 AM
REPRESENTATIVE SCHRAGE said he thinks the legislature has been
following the law technically, but proffered that from the
public's perception it is an issue when "you have two statues in
conflict, and you choose to ignore one." He said he thinks
there is a strong desire to change the formula, but disagreement
on how to do so. He indicated that the 25/75 split is a law
that could be followed, but there would still be a conflict with
the prior statute; therefore, he suggested repealing the statute
and letting "this be the new dividend statute."
CHAIR SPOHNHOLZ said she agrees and thinks HB 3008 would need to
be amended such that the 1982 statute is repealed.
10:23:44 AM
REPRESENTATIVE JOSEPHSON asked Representative Prax whether he
would support the governor's 50/50 constitutional amendment and,
if so, why he would not support [HB 3008].
CHAIR SPOHNHOLZ clarified that HB 3008 was not proposing a
constitutional amendment; it is a statutory formula.
REPRESENTATIVE JOSEPHSON then asked if there was any reason why
this statute couldn't be constitutionalized; he posited that the
math involved would not change.
CHAIR SPOHNHOLZ expressed her concern about constitutionalizing
the dividend formula because it would create "an equal playing
field for the payment of a dividend with our obligation to
provide for the health, education, and safety of Alaskans." She
stated her belief in following the law but that the law should
be statutory. She reiterated her desire for more flexibility to
meet the state's fiscal responsibility, as well as meet the
needs of Alaskans, and she said a statute rather than a
constitutional amendment offers that flexibility.
10:27:25 AM
REPRESENTATIVE JOSEPHSON discussed finding a "sweet spot" upon
which 60 legislators can agree. He said he would entertain
"constitutionalizing this sort of thing," especially "in
combination of new revenue." He questioned the idea of a 50/50
split.
10:28:52 AM
REPRESENTATIVE SCHRAGE expressed his appreciation for the desire
to constitutionalize the formula so that it would be followed,
and he believed ad hoc draws were made because the formula
wasn't compatible with the state's fiscal reality; however, the
legislature would not have the same need to disregard the
statute if it were updated, and that would give the legislature
more incentive to follow the law, which would provide more
public trust. He expressed hesitancy in constitutionalizing a
formula because he doesn't know what the state's [fiscal
situation] will look like in 100 years.
10:30:53 AM
REPRESENTATIVE STORY opined that a 25/75 split would still
produce a healthy dividend and echoed the ideas expressed about
public trust. She said she hoped there would be "more
discussion about this going forward with more legislators."
10:32:25 AM
REPRESENTATIVE EASTMAN sought to confirm that the certainty,
confidence, and consistency previously mentioned is resting on
the ability to garner a three-quarters vote in the legislature.
CHAIR SPOHNHOLZ clarified that HB 3008 proposes a statutory
change, which would require a majority vote rather than a three-
quarters vote. In further response to Representative Eastman,
she explained that her intention was to introduce a sustainable
formula that the state could afford to pay on a regular basis to
make it easy to follow the law. She said the problem has been
that the state has had structural fiscal gaps for the last seven
or eight years and has been unable to balance the budget without
"spending down" the capital budget reserve (CBR). She said HB
3008 would still provide a robust dividend, as well as get the
state back on track to fund a backlog of needed services.
10:35:32 AM
REPRESENTATIVE GEORGE RAUSCHER, Alaska State Legislature, stated
that he has spent more time arguing about the size of the PFD
than arguing about health care, education, or the budget. He
emphasized that he is neither for nor against the proposed
legislation but believes "something in the past" needs to be
fixed and the legislature needs to "come up with something
moving forward."
10:38:20 AM
REPRESENTATIVE JOSEPHSON said he partially agrees with
Representative Rauscher; however, he characterized the debate
this year as "out of control." He said he believed that
Representative Prax' position [regarding the legislature finding
itself back where it was in 2016] was reasonable; however, he
opined that the governor's plan will create a massive deficit
and relies on hope. He mentioned the governor's borders and
said he, too, has a border. He said serious vetting is
necessary beyond FY 30.
10:41:09 AM
CHAIR SPOHNHOLZ said her priorities are for a balanced plan; she
said she could support a 50/50 split if there was enough revenue
to fill the gap, which is a massive amount. She said it would
essentially increase taxes on Alaskans by refusing to introduce
a fiscal plan now. She offered her understanding that committee
members' positions have evolved through discussions, which she
appreciates.
REPRESENTATIVE JOSEPHSON recollected that a spreadsheet he had
seen from the governor's plan did not show a deficit in FY 29
and 30.
CHAIR SPOHNHOLZ explained that the governor's 10-year fiscal
plan includes "unspecified revenue in the future and unspecified
cuts." Conversely, the analysis from the Division of
Legislative Finance "does ... not do that," and the projections
shown on the presentation are from assumptions derived by the
Fiscal Policy Working Group. She observed that no revenue
measures have been proposed by the governor, and it is week
three of the Third Special Session.
REPRESENTATIVE JOSEPHSON underlined that legislators were called
to the Third Special Session by the governor.
10:45:04 AM
CHAIR SPOHNHOLZ resumed the presentation at slide 6 to speak
about HB 3007, which is the second part of the proposed fiscal
plan to balance the state's budget and would reduce the per
barrel oil tax credit. She highlighted a sampling of the
numbers on the chart on slide 7 that [shows current oil values
and tax credits compared to oil values and tax credits proposed
under HB 3007], a bill that proposes a reduction of the per
barrel oil tax credit. She explained that the current oil
values and tax credits range from an $8 tax credit for oil
valued at less than $80 to a $1 credit for oil valued at [$140
or less than $150]. The proposed legislation would remove tax
credits for oil valued at $110 or higher and give a smaller
scale of credits for oil valued under $110. She discussed slide
8, which provides a chart showing a comparison of proposed
fiscal plan elements. The numbers forecasted under HB 3007 are
$174 million in FY 23, [$297.7 million] in FY 24, a peak of
[$460.6 million] in FY 25, and [$386.7 million] in FY 26 and 27.
She said HB 3007 proposes a modest change to the oil tax
structure that would allow for a higher PFD while balancing the
state's budget. She noted that slide 8 shows the cumulative
effect of adopting four bills: HB 3007; HB 3008; HB 189,
employment tax for education; and HB 104, motor fuel tax and
vehicle registration fees. The amounts would be a deficit of
approximately $70 million in FY 23, and changing to $322.8
million in the black by FY 24, [with modest increases showing in
FY 25, 26, and 27]. She asked Ms. Foley to present the
sectional analysis for HB [3007].
10:48:21 AM
MS. FOLEY explained that Section 1 of HB 3007 is illustrated in
the aforementioned chart on slide 7. Section 2, she said, is
the effective date [of 1/1/22].
10:49:17 AM
REPRESENTATIVE JOSEPHSON said he thinks the industry will
question the policy call and compare the proposed legislation to
Senate Bill 21 [passed during the Twenty-Eighth Alaska State
Legislature]. He opined that the authors of Senate Bill 21 made
the mistake of using the term "per barrel credit," because the
phrase suggests that the state is incentivizing production,
which he said was not the intent. Much of oil and gas
production is "legacy" production, and he questioned why the
state would incentivize legacy production, because "it's going
to happen." He said that in that respect, the reform under this
proposal makes sense; however, he predicted that the industry
would see this as random.
10:51:46 AM
REPRESENTATIVE EASTMAN asked for confirmation of whether his
understanding is correct that the sale of oil and gas should
coincide with a high market; therefore, it doesn't matter
whether it is a legacy field.
CHAIR SPOHNHOLZ explained that the major capital investments
have already been expended and recouped in the legacy fields
which she described as being in "harvest mode." Whereas, in
newer fields, there is still the need to pay back the massive
investment that has been made to produce the oil. She said HB
3007 does not propose a total restructure of the oil tax
structure; other bills are being introduced for that purpose.
She said the existing tax credit structure was added in at the
last minute to Senate Bill 21, and the state can no longer
afford that level of subsidy, especially for fields that are in
harvest mode. In response to a follow-up question from
Representative Eastman, she said in harvest mode, the North
Slope field produces a profit after $40 per barrel; therefore,
continuing to provide a per barrel tax credit at the [lower] oil
prices rather than the [higher] ones makes more sense. She
added that when Senate Bill 21 was passed, the price of oil was
high; now the spring forecast is $71 per barrel, and HB 3007
would result in a $4 per barrel tax credit under this scenario.
10:56:32 AM
REPRESENTATIVE PRAX remarked that HB 3007 is a simple bill with
a complex and unpredictable impact. He mentioned a seminar on
government tax policy and his experience in investing in oil
production, as well as working in the oil industry. He advised
speaking with those in the industry. He clarified that the
companies must keep reinvesting in wells in legacy fields to
produce as much as they can, and that that investment decision
is made based on projected return; increasing the tax would
affect their decision whether to invest in more development
wells in the legacy fields. He indicated that [HB 3007] would
reduce the initial returns of those companies, and he offered
his understanding that the primary concern of oil companies is
in recovering their initial investments as quickly as possible.
He stated that HB 3007 will affect the decision to spend. He
said with Alaska's Clear and Equitable Share (ACES), the State
of Alaska received a windfall from the wells that were already
drilled, but it "killed investment in new wells"; subsequently
there was "a precipitous drop in revenue because production was
declining even though prices were high." He expressed concern
that the same thing is likely to happen and that in five years
the state would lose more money in royalties and production
taxes than it will gain "in the short run by increasing the tax
on the industry." He warned that HB 3007 would result in a loss
of money for the state and reiterated his advice to speak with
members of the industry.
11:02:22 AM
CHAIR SPOHNHOLZ emphasized that HB 3007 was not proposing "a
massive increase in oil taxes." She noted that the oil industry
has expressed a desire for fiscal certainty, and she opined that
resolving the state's fiscal situation is critical in creating
that certainty, not only for the oil companies but for all
Alaskans. She said the plan outlined in HB 3007 should not come
as a surprise to oil companies, because there have been "behind-
the-scenes" conversations about this model, including her own
discussions with members of the Alaska Oil and Gas Association
(AOGA). She emphasized that the oil in the North Slope belongs
to Alaska, and under Article 6 of the Constitution of the State
of Alaska, the state is obligated to seek the best value from
all its natural resources for the maximum benefit of the people
of Alaska.
11:04:53 AM
REPRESENTATIVE JOSEPHSON pointed out that there was evidence
against the suggestion that ACES caused a slowdown in interest
in exploration and development. He offered his understanding
that prior to the state's fiscal crisis, it had paid over $1
billion in tax credits, and that started prior to ACES. He
stated, "If it were true that this reform would slow growth, it
would suggest that we should ... increase the per barrel credit,
because that should increase growth and expansion." He
reiterated his point that [the legislature] is looking for "a
reasonable sweet spot."
11:06:43 AM
REPRESENTATIVE PRAX responded that he doesn't disagree with that
theory and stated that he would not be surprised if "they're
willing to trade some money for stability." He indicated that
[the committee] was "arguing in a vacuum," and he reemphasized
the importance of having a conversation with the industry.
CHAIR SPOHNHOLZ noted that this was the initial hearing on both
bills and there would be opportunities for public testimony
moving forward.
11:08:13 AM
REPRESENTATIVE JOSEPHSON expressed appreciation for the creation
of the House Special Committee on Ways and Means and for the
work the committee has done. He opined that the 50/50 proposal
[of the governor] is unrealistic and would require a large
income and sales tax to pay for it. He speculated there is
probably a way to constitutionalize a dividend and give people a
guarantee, and he said, "I'm starting to see that it's
possible."
CHAIR SPOHNHOLZ expressed appreciation for the comment and for
the involvement of other committee members in the process. She
said there could be other elements of a fiscal plan that could
be considered. She remarked that after hearing Mr. Painter's
presentation on 9/1/21, she thinks there is "a pretty clear path
forward" in creating fiscal stability. She said she could
support a larger PFD formula if there is revenue to support it,
but at this time, "this particular plan provides some certainty
moving forward for the State of Alaska" to support businesses,
local jurisdictions, and the state constitution. She spoke of
the hardship on Alaskans due to fiscal uncertainty and that
uncertainty being the cause of outward migration from the state
and business instability within the state.
11:12:56 AM
REPRESENTATIVE EASTMAN thanked Representative Prax for his work
on the Fiscal Policy Working Group.
CHAIR SPOHNHOLZ echoed that appreciation.
11:13:49 AM
REPRESENTATIVE STORY said she thinks HB 3007 would bring revenue
to the state with a modest change that she said she thinks will
be affordable for oil companies.
[HB 3008 and HB 3007 were held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 3007 Fiscal Note.pdf |
HW&M 9/9/2021 10:00:00 AM |
HB3007 |
| HB 3008 Fiscal Note.pdf |
HW&M 9/9/2021 10:00:00 AM |
HB3008 |
| HB 3008 and 3007 Presentation.pdf |
HW&M 9/9/2021 10:00:00 AM |
HB3008 |