Legislature(2005 - 2006)SENATE FINANCE 532
02/25/2006 10:00 AM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB488 || SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 305 | TELECONFERENCED | |
HB 488-OIL AND GAS PRODUCTION TAX
SB 305-OIL AND GAS PRODUCTION TAX
CHAIR THOMAS WAGONER called the joint meeting of the Senate and
House Resources Standing Committees to order at 10:16:06 AM.
Present at the call to order were Senators Kim Elton, Ralph
Seekins, Bert Stedman, Albert Kookesh and Chair Thomas Wagoner;
Representatives Jim Elkins, Paul Seaton, Mary Kapsner, Kurt
Olson, Gabrielle Le Doux and Co-Chairs Ralph Samuels and Jay
Ramras.
10:16 at ease 10:17
CHAIR WAGONER announced that they would receive testimony on the
Governor's PPT proposal introduced in the House as HB 488 and in
the Senate as SB 305. He asked John Winther to begin.
JOHN WINTHER, Windstar Petroleum and Ultra Star Exploration,
said his companies hold over 24,700 acres on the North Slope and
hoped to become a producer. He and his partner were instrumental
in getting decisions in the charter for development that was in
the merger agreement between BP and Arco. He recounted, "Without
a doubt, I can say that without these provisions, there wouldn't
be an opportunity for independents on the North Slope today."
Partly because of his and his partner's efforts in Washington,
D.C., Arco's assets in Alaska had to be sold off, which led to
Phillips Petroleum coming to Alaska. He and his partner both
felt that at least three majors had to be on the Slope to insure
competition. They contracted with Arco to drill the only
independent Alaskan oil well on the North Slope. They were not
daunted when all they found was water and have gone on to
negotiate with BP to drill another well at Pt. McIntyre.
MR. WINTHER urged the committee to leave the oil production tax
at 20 percent and keep the $73 million annual deduction. Raising
the tax would discourage exploration and development by the
majors. He related how he didn't know much about big oil except
that they made big money and pumped a lot of oil, but after
dealing with them, he has a better understanding of how they
work and why they do things the way they do. He advised:
I think the most important thing to remember is they
have more opportunities to drill oil around the world
than they have money for. So, they have to pick and
choose their projects. It is a well-known fact that
Alaska is the most costly place to do business, but it
is also the most politically stable oil supply for the
United States and the world. While we may think Alaska
is the place they must do business, I doubt they think
that way. This 20 percent is what they agreed to and I
think it should not be raised.
We who were in Alaska before oil knew what kind of
economy we had and it wasn't what you would call
robust. I think that the state budget in 1967/68 was
$98 million. Our oil production is declining every
year, so why discourage development by increasing the
20 percent tax?
The $73 million deduction is something that heavily
favors the independents and really doesn't do much for
the majors, because of their high profits. So, I urge
you to keep this in the bill along with the tax
credit....
DEBORAH VOGT said she retired from the Department of Revenue as
Deputy Commissioner in 1999 and was an assistant attorney
general for many years before that and dealt with oil and gas
tax matters. She praised the administration for recognizing the
problems in the ELF and that HB 488 was a good fundamental
approach, but had a seriously flawed execution. While allowing
producers to recover their sub costs before they pay taxes was a
modern and common approach throughout the world, she said, "It
gives far too much away and unnecessarily so." She contrasted
that money to the revenues needed by communities in Alaska
because of seriously reduced revenue sharing.
She pointed to the deduction in the current legislation for
capital expenditures coupled with the tax credit for the same
expenditures as being incredibly generous and surmised that the
general public would like to be able to use something like that
on their own income tax returns. But, she said:
If the bill stopped right there, I think we'd have a
generous competitive piece of legislation, so long as
the tax rate were appropriate, but the bill goes on to
grant what, I believe, are totally unnecessary give-
aways to the taxpayer.
MS. VOGT listed the $73 million pre-tax allowance to all
producers whether they need it or not, and whether they are
investing that money in Alaska or not, and the clawback
provisions as unnecessary. According to Roger Marks' testimony,
the allowance would cost about $40 million a year, which she
thought could be better spent elsewhere. And the clawback
provision does not fit with incentives as it is impossible to
incent activities that took place a half-decade ago. This
provision would cost the state $170 million in each of the next
six years if the price of oil goes above $40. "This provision
should be deleted."
Repealing the surcharges of 2 cents and 3 cents a barrel that
were passed after the Exxon Valdez oil spill was another
provision Ms. Vogt opposed. She said that the Department of
Revenue projected that this legislation only raises money for
two years. She opined:
Certainly a tax structure that plunges to worse than
what we have now at $25 a-barrel oil is absurd. At
$25, these companies are making plenty of money and
the DOR numbers show that at that price they would
clear about $1.7 billion under the current tax
structure. This bill would take all of that, the
severance tax component of that, money away from the
state - about $400 million if the price were to go
back to $25 oil, which a couple of years ago we
considered a really decent price for oil.
What's the right rate? Certainly the 25 percent
originally proposed by the Governor would be better.
Dr. Van Meurs' study is based on this rate and shows
that Alaska would be very competitive at this rate.
10:30:51 AM
JAMES GILBERT, Sunny River resident, said this legislation was
part of an agreement between BP, Exxon and Conoco and
represented a balanced package that would support the producers'
strategy to develop the oil and gas resources on the North
Slope. Any further tax increase would jeopardize that future. He
emphasized, "Alaska fiscal policies should encourage investment
and focus on growing the pie rather than taking an increased
share of a shrinking pie."
He argued that while new developments, like Oooguruk, needed
royalty relief to move forward, they also required the
infrastructure that is owned by the majors. Existing business
must be healthy in order to provide development opportunity for
the gas industry.
10:34:24 AM
CO-CHAIR JAY RAMRAS said he had heard of Mr. Gilbert's
activities with the Alaska Support Industry Alliance and asked
what he thought of Dr. Van Meurs' comment that the 25/20 and
20/20 were similar and that they would both work.
MR. GILBERT replied that the Alliance hadn't discussed the
percentage amounts that much and his testimony was strictly as
an individual and not related to his activities with the Alaska
Support Industry Alliance. He supported the 20/20 and the $73
million allowance in the proposed legislation in particular.
JIM SYKES, Oil and Gas Advisor for the Green Party of Alaska,
said he was the founder of Oil Watch Alaska that made sure the
state got a fair share of its resources. He admitted that Dr.
Van Meurs was a very bright man, but he felt that people still
didn't have enough information.
He said it was not clear how well the state would come out in
the big picture, but oil companies have been allowed to deduct
their transportation fees up to now, and if transportation fees
were allowed to be deducted as part of net profits, that would
mean billions for the gasline owners and the state would be left
only millions - depending on the price.
He said the tax credit was appealing because it gave people the
opportunity to explore and develop and invited smaller companies
in, but the problem was that it looked like a complete loss if
you didn't seek to recover it in some way. It would be
reasonable to give a credit when people are trying to find
something and the credit sticks only if they don't find it. But
when they begin to produce what they found, the credit should be
treated more as a loan so that they replace the credit they were
given. That's the only way it becomes fair.
The other problem with the credit was that a smaller company,
like Conoco, had to sell out at Milne Point before it merged
because it was not an owner of the pipeline and couldn't afford
to compete because it was at such a tremendous disadvantage on
the tariff. That problem would continue to exist if credits were
given to just the smaller companies - a lot of them are not
going to be owners of the pipeline. He advised, "So you have to
ask yourself what are we doing here? Are we just simply paying
the tariffs for new companies to come in and explore?"
A number of years ago, a BP employee told him that the state
could actually make a great deal of money if it cut out the
middle man, meaning BP, Conoco and Exxon, and hired the same
subcontractors they used to extract the oil and gas.
He speculated that at $40 a barrel, the state would get a little
more than $330 million under the proposed legislation compared
to what it gets now. He thought it would be simpler for the
state to subtract the federal take from the economic rent, but
when oil went above $20 a barrel, to split the price evenly -
50/50. He conjectured that at $40 a barrel oil, the state should
get somewhere between $1.2 billion and $2 billion, not $330
million.
MR. SYKES said the past four governors have settled tax cases
out of court when $10 billion or $12 billion were at stake and
they were settled for a nickel or a dime on the dollar. He urged
that the legislature to know exactly what the companies would be
allowed to write off and that it consider other proposals before
making a final decision. The state can't afford to make a
mistake now that will affect it for the next 40 years.
JIM HASELBERGER, Alaska Tent and Tarp, said he provides
environmental products for the oil companies. He trusted that
Alaska's three-part government worked and that both the Governor
and the producers negotiated in good faith. The bill assured
continued resource development in the state and created good
jobs and a good lifestyle for its people. He supported this
legislation.
MARRICK PEIRCE, FAIRBANKS, thought this was the poorest piece of
legislation the legislature had looked at in decades. He accused
that it was being fast-tracked and the state stood to lose
billions of dollars and gain many years of costly litigation. He
urged them to slow down and thoroughly vet the issues.
He absolutely did not agree with the effective date of July 1.
The state had lost billions of dollars that could have been used
for a number of improvements by failing to revise its oil
production taxes years ago and he thought an effective date of
January 1 would help mitigate some of that loss.
MR. PEIRCE also thought the proposed 20 percent tax rate was a
"give-away" of hundreds of millions of dollars and the reason
for such a low rate was because of administration linked it to
the gas pipeline. He mentioned that the Port Authority could
make its proposal work without asking for any such give-aways.
ROGER BURGRAFF, Fairbanks, supported both SB 305 and HB 488 as a
good step towards solving the long-term policy of taxing the
petroleum industry. Companies need a stable tax policy to be
able to invest billions of dollars in Alaska.
JENNIFER BOWERS urged legislators to consider this plan
carefully and to, "Please slow down." She feared that the
Governor already agreed to a plan with the oil companies without
any public dialogue. She urged the legislature to adopt a gas
tax plan that provided the maximum benefit to all Alaskans.
10:52:18 AM
CO-CHAIR RAMRAS explained that this bill was a revision of oil
taxes and not a gas pipeline contract. He assured her that the
legislature was being very deliberate in its consideration of it
and that it would get a lot more public scrutiny.
10:53:47 AM
REPRESENTATIVE PAUL SEATON asked where she thought the confusion
about what issues are in SB 305 and HB 488 comes from.
MS. BOWERS replied that her biggest concern was that the
Governor conferred with the producers without any public
comment, whatsoever. She thought the Governor was not paying a
whole lot of attention to what the public was saying. She
thought there was a lot of room for improvement on the
legislation. Pressures from lobbyists were viewed to be so great
that legislators were almost forced to bend it them.
CHAIR WAGONER reassured her that the Senate was not receiving
pressure from anyone and that more hearings were being held on
this bill than any other.
CO-CHAIR RALPH SAMUELS said he has had no pressure whatsoever
from lobbyists and vowed to continue holding many hearings.
10:56:40 AM
LAKE WILLIAMS, Fairbanks, said it seemed like this legislation
was being rushed. He questioned the Governor's motives because
his own experts recommended a 25 percent tax and he lowered it
to 20 percent. "At this point, we had a jet rammed down our
throat that the legislature voted against - the public was
against it and it still ended up on his airstrip."
CO-CHAIR RAMRAS remarked that he appreciated it when anybody
from District 10 testified early on a Saturday. He was mindful
of Mr. Williams' concerns and stated the legislature would
proceed slowly and deliberately through this issue.
JIM SAMPSON, Alaska AFL-CIO, said that the oil production tax
regime has needed revision for a long time and commended
Governor Murkowski for his leadership in bringing it forward. He
also appreciated the work that Representative Gara, Senator
French and others did on this issue over the last couple of
years. He thought that because the ELF was not price sensitive,
it had never really worked for the benefit of the state and he
cautioned members of the legislature that they must understand
how this tax system works before they vote on it.
11:05:52 AM
CO-CHAIR SAMUELS agreed and explained how many committee
meetings were cancelled because of it. He maintained that he had
felt literally no pressure from lobbyists.
11:07:32 AM
REPRESENTATIVE NORM ROKEBERG asked if he was against any linkage
of this bill to the gas transaction.
MR. SAMPSON replied yes.
REPRESENTATIVE ROKEBERG said it would be helpful if the AFL-
CIO's legal counsel looked into long-term commitments in the
Commerce Clause of the U. S. Constitution.
MR. SAMPSON replied that they would look at the issue within the
confines of their resources. He personally believed that a
linkage would violate the Alaska Constitution, as well.
CHAIR WAGONER added those questions were already being asked and
that discussion was already taking place.
HUGH FATE, former Alaska State Representative, supported the
20/20 concept. He had three concerns - one was that the
parameters of both the 20 and 25 percent tax on net should be
considered, because since Dr. Pedro Van Meurs recommended 25
percent and the Governor chose 20. That issue has caused the
public to question what was going on. Secondly, using the $40
dollar-a-barrel oil as a reference price concerned him because
the U.S. Department of Energy projected a range of prices as low
as $48 - $52 going up to $60 in 2030. He suggested having a
reopener or pegging a number to the NYMEX so that the state
received the maximum tax on net that it should. Thirdly, the
process through which those taxes would be paid, which is 90
percent now and 10 percent on March 31, needs to be reviewed, in
particular the interest provisions on the 10 percent. He
encouraged them saying this legislation was a good basis on
which to work and he would support it with the caveats he
mentioned.
REPRESENTATIVE ROKEBERG clarified that the $40 figure in section
21 was a floor price in the transition provision that was being
called the "clawback provision."
11:14:26 AM
REPRESENTATIVE SEATON asked if he was talking about having a
sliding scale if the price of oil goes to $100, for instance, so
that Alaska's take is a greater percentage.
11:15:07 AM
MR. FATE replied that the scale would have to somehow be
quantified by using the NYMEX or some other means.
11:15:40 AM
PAUL LAIRD, General Manager, Alaska Support Industry Alliance,
said he was encouraged by the tax credit and annual allowance
because he believed they would achieve their goals of
stimulating new investments, developing existing resources and
finding new ones. However, the Alliance was concerned that a $1
billion annual tax increase on the very industry that was
already providing about 90 percent of Alaska's state revenues
would tarnish Alaska's competitiveness and its ability to
attract investments. They were also concerned that the state
already had a $1.2 billion budget surplus and no fiscal plan for
managing excess funds during the good times or balancing the
budget when times were lean.
11:19:08 AM
DAVE MACDOWELL, Anchorage, said he had been working in the oil
industry for 25 years and couldn't recall any issue that was
more important to Alaska than the one before them today. He
confided that this legislation left him both hopeful and
worried. He thought the new tax structure would effectively lead
to a fiscal contract that provided clear and durable rules for
oil and gas development. However, because it hit the major oil
producers with a massive tax increase, he cautioned:
These are the companies that have the technical and
financial strength to succeed in the difficult high-
cost North Slope environment where production is
declining and new development prospects are getting
smaller and harder to produce. Common sense tells me
that when taxes go up, the investment climate gets
worse. Higher taxes may mean more money for the state
in the short term, but over the longer term, I worry
that less investment and lower production would be the
outcome....
He had faith and hope that the legislature would see these
issues very clearly and wouldn't make this legislation worse. He
urged them to do everything possible to insure a healthy oil
business that enabled a gas pipeline project to move forward.
11:23:20 AM
DAVID GOTTSTEIN, Backhome 2, said he co-chairs that group with
former Alaska governor, Wally Hickel, whose letter he read that
exhorted the legislature to not approve any new tax scheme
without a thorough understanding of it and to not be blackmailed
or intimidated into passing flawed legislation. "If it's good
legislation, it will stand up to that scrutiny."
MR. GOTTSTEIN urged the members to:
Open up the process to competitive market forces
instead of agreeing to a sole source contract
negotiated in secret. Those who argue that the oil
industry needs a tax scheme and rates set that they
approve of and that they need a guarantee that it is
stable for the next 30 years in order for them to
agree to build a pipeline are negotiating on behalf of
the producers.
Those who represent Alaska should respond by saying
the oil industry is fraught with uncertainty and
danger all around the world as they deal often with
unstable regimes in order to produce oil and gas
reserves - even at times being solved by armed
militias, even as we see in Saudi Arabia and Nigeria
in these last weeks. In contrast, producers on the
North Slope of Alaska are completely protected by the
courageous men and women of the United States Armed
forces and are blessed to operate safely in a free and
democratic society where they are privileged to be
subject to the will of the democratic society as it
sees fit over time.
Finally, please don't approve any new tax scheme
without full knowledge of the economic consequences
over perhaps a hundred possible price and production
scenarios over a long period of time. Don't race to a
conclusion prematurely, even at the risk of offending
the major North Slope producers....
He said the Governor had linked the tax issue to the gasline,
but most Alaskans want it to be completely separate. He stated,
"I personally believe we should build the all-Alaska line first
and now unless a competing bid proves itself to be better. Let's
not be puppets, but rather puppet masters."
11:27:04 AM
BILL WALKER, Anchorage, said he was speaking as an individual
today, but he disclosed that he is the general counsel for the
Alaska Gasline Port Authority (AGPA).
CHAIR WAGONER asked him to clarify if he was speaking on behalf
of AGPA now.
MR. WALKER reiterated that he was speaking as an individual.
He said this was potentially good legislation, but he didn't
know enough about it. He urged them to have more public
hearings, to slow the process down and to make Department of
Revenue information that was used by the Governor for his
legislation available to the public. He also exhorted them to
keep the tax issue and gasline project separate.
SENATOR DYSON invited Mr. Laird back to have him explain what he
meant when he said both the producers and support industry would
have a $1 billion impact.
MR. LAIRD explained that the Alliance has heard the tax increase
would be as much as $1 billion annually for the major producers
which would impact reinvestment by them, which in turn would
have a direct impact on his members.
CARLA BEAME, Anchorage, said that she works for British
Petroleum (BP), but was speaking for herself. She said her
company was building its strategy on at least a 50-year future
in the state. BP and other majors have hired and trained
Alaskans and brought in talent and expertise that has benefited
not just the oil industry, but communities all over the state.
She advised:
As you consider this bill, I trust that you will keep
your eyes on what we have in common - a healthy oil
business, a healthy economy and people who are able to
have the kinds of opportunities that I have had.... I
support this bill as it is, even though it may not be
completely perfect in the interests of helping to move
this issue forward. Let's not lose sight of the big
picture - one that could be very bright for us all.
MAYNARD TAPP, Anchorage, said he was a small business owner
working in the oil and gas industry and he supported the
legislation. He asked them if they were to loan money to a
relative, would they charge a high rate of interest or a small
amount of interest to encourage them to become successful so
they could pay you back and make the family business grow. He
concluded:
I would like to reinforce two principles. The State of
Alaska cannot tax its way to prosperity and I want
Alaska to be high if not highest on the list where our
fellow citizens, the oil companies, want to invest
their money.
11:38:14 AM
DARYL KLEPPIN, Anchorage, said he had a family and was an
employee of BP and supported both SB 305 and HB 488. He was
proud of the way BP had both developed the state's resources and
remained good stewards of the environment. He said that Alaska
was geographically remote and he thought the current proposal
was balanced and would keep the state competitive. A robust oil
and gas industry means jobs for Alaskans. He defended the
clawback provision saying it's clear that this legislation was a
significant tax increase.
11:40:53 AM
SENATOR DYSON asked if he was implying that raising the tax rate
above 20 percent would be extreme.
MR. KLEPPIN replied yes.
SENATOR DYSON clarified that DR. VAN MEURS' report says the
marginal net profit tax rates across the world were varied, but
many of them were much higher - North Sea and Denmark, in
particular. He asked how moving up from 20 percent gets to be
extreme in light of what the other tax rates are around the
world.
MR. KLEPPIN replied that you have to take the state property and
corporate taxes and federal taxes into account, as well. "When
you aggregate those, you will see that Alaska is pushing towards
the end, particularly in the United States."
11:42:15 AM
JOHN HOZEY, City Manager, Valdez, endorsed Governor Hickel's
letter and was encouraged to hear there would be more public
hearings. He urged them to slow down and to not be held hostage
to the gasline deal.
11:43:57 AM
BERT COTTLE, Mayor, City of Valdez, said he had received
numerous phone calls from the residents of Valdez asking him to
urge the legislature to slow down the process and allow public
review and input.
CHAIR WAGONER asked him what he meant by "slow down the
process."
MAYOR COTTLE replied that the public wants to be allowed to look
at all the documents that have gotten them to this point. They
have not had access and have not been able to figure out the
numbers. They also did not feel the next two weeks was enough
time for a full review.
CHAIR WAGONER commented that he didn't know when they would get
to the end of these hearings. "So, your information is a lot
better than mine and I'm chairman of Senate Resources
Committee."
LOUISE PARRISH, Valdez voter, said the she needed a lot more
time to understand the information on this issue and to offer
her opinions to her representatives.
CHAIR WAGONER responded by announcing, "All the documents that
are being used in committee or that we receive are on line and
available currently at www.ak.republicans.org/sen.res."
11:48:46 AM
BILL CORBUS, Commissioner, Department of Revenue (DOR), said the
computer model was the only document that he knew of that hadn't
been made available to the public, yet, and he would see if he
could cleanse the confidential information from it and get it
out to the public.
SENATOR SEEKINS said he could hear constitutional concerns on
this issue in the Judiciary Committee, which he chaired.
SENATOR ALBERT KOOKESH asked for an example of something that
would have to be taken out because of confidentiality.
COMMISSIONER CORBUS replied that some confidential information
may have been derived from income tax returns filed by the oil
companies.
REPRESENTATIVE SEATON asked if he was preparing charts of
taxation for public consumption that would show how gas would be
taxed differently from oil. Right now they have just a joint
single model based on oil.
COMMISSIONER CORBUS replied that yesterday, Roger Marks,
Petroleum Economist, Department of Revenue, converted the gas
tax to the equivalent of oil. To that extent, the difference has
been addressed already, but the vast majority of gas on the
North Slope would be addressed under the stranded gas contract
that would be presented to the legislature for its
consideration. The tax rates for oil and gas in the PPT
legislation would be the same. They have tried to convert the
price of gas to the equivalent price of oil.
DAVE COBB, City Council member, Valdez, said he was also a
member of the Alaska Gasline Port Authority. While he supported
certain aspects of HB 488, he said, "Slow down. This bill is not
about what's right for the oil industry; it's about what is
right for Alaska." He urged them to hold hearings in the more
communities around the state.
RICH LONG, City Council member, Valdez, said has worked for the
oil industry in the past and supported what it had done for the
state. It seemed that the 20/20 was a wash. He encouraged them
to research the difference in what the 20/20 formula versus the
25/20 would do to the industry and the state. He urged them to
slow down. He wanted to support it, but didn't understand it
well enough, yet.
11:59:53 AM
SENATOR SEEKINS admitted that he didn't understand it yet
either. That's why they were still having Resource Committee
hearings on it. He didn't want to slow down, because he needed
to digest a lot of information.
12:02:48 PM
REPRESENTATIVE MARY KAPSNER responded to what she thought was a
valid concern saying that she understood the 20/20 formula to
not be a wash.
CO-CHAIR RALPH SAMUELS agreed and added that they were not
correlated to be a wash at all. The credit would depend on how
much was spent and how much was made. The $73 million allowance,
profit and current credit programs would factor into it, as
well. He also said they don't want to slow down.
REPRESENTATIVE KAPSNER said they have an energy conference break
in March and this has to be done by the end of session.
CO-CHAIR SAMUELS reassured the public that the legislature was
going to get as much information as it could and would
understand it before making a decision.
12:09:11 PM
REPRESENTATIVE BERTA GARDNER said 20/20 was not a wash.
12:10:29 PM
CO-CHAIR RAMRAS echoed sentiments that it was a go-slow process.
CHAIR WAGONER said, "Ditto."
JOHN REEVES, Fairbanks, said he was on the Port Authority, but
he was speaking as a private citizen. He did not want to see the
bill tied into construction of the gas pipeline. He urged the
legislature to slow down and to allow more meetings.
12:15:26 PM
CHAIR WAGONER agreed and hoped that Alaska's stability could be
reflected somewhere in the formula.
NICK STEPOVICH, Fairbanks constituent, said he was not for or
against the legislation, but explained that the slow down was so
the public could digest the issue.
CHAIR WAGONER clarified that this legislation wasn't being
hurried like some people seemed to think.
MR. STEPOVICH also strongly urged that the tax issue not be
linked to the gasline. He asked why Alaskan companies hadn't
been involved in discovering or the production of oil.
CHAIR WAGONER informed him that when he gets on the plane in
Kenai on Monday morning, he sees more than 40 people heading to
the North Slope to go to work.
MR. STEPOVICH said he was referring to Alaskan companies that
have discovered oil and been involved in production that was
going down the pipeline.
12:21:23 PM
LORI BACKES, Executive Director, All Alaska Alliance, urged
getting more information on this legislation to the public and
scheduling extra meetings throughout the state. She urged them
to develop good public policy and to keep the tax and gasline
issues separate.
12:26:25 PM
CHAIR WAGONER stated rubberstamping this proposal was furthest
from what the legislature was going to do. He reminded people
to keep their comments directed to the tax bill.
SENATOR BERT STEDMAN commented that numerous people have said
the current tax system was broken and must be brought up to
date. He assured the public that legislators had spent a lot of
time preparing even their staff for this issue and they were
just in the early stages of its consideration. They are talking
about a big tax increase for the oil companies and it would
affect the state for many years to come.
CO-CHAIR SAMUELS followed up saying that this legislation is not
just about getting more money. It asks how much risk Alaskans
can stomach.
CHAIR WAGONER clarified that this legislation dealt with only 25
percent of the revenues coming into the state - just the
severance tax from the oil industry. He also said they needed to
reflect on how much worse off the state would be to continue
using the current ELF with $20-a-barrel oil than with the PPT.
12:34:39 PM
RYAN COLGAN, Fairbanks, said he respected this process a great
deal. He asked them to consider that the taxable royalty in
section 9 on page 4, line 19, could be determined by an
agreement made after this legislation passed. Also, the gross
value at point of production, in section 20 on page 11, could be
calculated based on a formula adopted after this legislation
passed. Further he said:
The lease expenditures component of the calculation
cannot be known with any certainty at this point as
the operative definition of "lease expenditures" are
the direct, ordinary and necessary costs, which are
substantially determined based on typical industry
standards as proposed in AS 43.55.160(c). The
information used to compute the tax is confidential
under this bill and the model used to craft these
provisions is not public. You may trust this
administration or the last administration to carry out
the ambiguous provisions of this bill, but do you
trust future administrations?
He concluded saying, "Just because ELF is bad doesn't make this
legislation good. Consider the alternatives."
GUY PETERS, Fairbanks, urged legislators to continue developing
the oil industry, but to proceed with caution in developing the
PPT.
12:40:08 PM
CO-CHAIR RAMRAS explained that this legislation was meant to
incent the producers and explorers "to get back into the dirt in
Alaska and find more oil and fill up that pipeline." This bill
incents a 30-year old revenue stream that will result in more
severance taxes, more jobs, more royalty oil, and the economic
multiplier of getting billions of dollars of new investment on
the Slope.
12:41:12 PM
TODD LARKIN, Fairbanks, said he didn't have a solid opinion on
the legislation at the moment, but he voted for Republicans
because of their ideals and one of them was to create an
inviting market to draw in new business, large or small and
create economic opportunity for all Alaskans. He was interested
in creating personal financial independence rather than a bunch
of dependents. He hope the PPT followed the constitutional
mandate and that any proceeds would be heavily invested in the
Permanent Fund so that individual Alaskans could make their own
financial decisions.
CAL SKAUGSTAD, Fairbanks, supported the Governor's bill and he
encouraged its passage if the legislature determined its
provisions were in the state's best interest.
12:44:29 PM
KATHY FONTAINE, Anchorage, supported the legislation, but she
emphasized that the state must be fiscally responsible and not
short-sighted in wanting too much.
JERRY MCCUTHCHEON, Kenai, said the requests to slow down were
really a request for information and time for the public to
obtain it. He urged them to look at the original bids on North
Star as a model for the percent of net profit tax plan. He
feared that the Governor's plan would have endless litigation.
They would control what would be net profits and costs and he
used Exxon as an example. He accused that they were here today
because they were promised a gasline contract in which the
producers were not obligated to build a pipeline, but rather to
just consider it.
SENATOR STEDMAN reminded people that they were dealing with
changing the ELF tax, not the gasline.
J. R. HANK LANGMAN, Anchorage, said that everybody where he's
from wants the legislature to drop the legislation and start
over. He said that people need more time to understand what they
are doing.
THERESA OBERMEYER, Anchorage, commented on unrelated issues.
MIKE PRAX, North Pole, said he was representing himself. He said
that Alaska is in partnership with the oil companies and has to
compete in the world market with them. The state shouldn't get
into an adversarial relationship with them.
RHONDA BOYLES, Fairbanks, urged the legislature to move forward
on this issue and said that she had confidence in their
abilities. She wanted to see more oil production, exploration
and development saying, "Taxes are not good, but jobs are." She
preferred the 15/15 scenario.
1:05:50 PM
REPRESENTATIVE SEATON referred her to Robyn Wilson's Petroleum
Tax overview that contained the Department of Revenue's long-
term forecast. It indicated that this bill would give the state
more money for two years, but after that it underperforms the
ELF for two years and after that it does exactly what the
underperforming ELF does. This was unacceptable to him and
others on the House Resources Committee.
1:07:57 PM
REPRESENTATIVE ROKEBERG commented that the tax structure used
now is dying of its own weight.
SENATOR STEDMAN said that ELF is a little bit better under a
certain scenario, but above a certain price, the proposed
structure would be substantially different and that point was
one of the decisions the legislature has to determine.
MS. BOYLES read Buzz Otis' statement supporting a new tax
regime. He also urged them to take the time necessary to fully
understand both the near and long-term ramifications of this
bill.
1:10:52 PM
CHRIS WEST, Anchorage, said he has been employed by BP since
1998, and has four Alaskan boys. He reported that the resources
on the Slope are very large, but they are increasing hard to
transport when competing for investment dollars. He thought the
bill was fair and would help move resource development forward.
REPRESENTATIVE ROKEBERG asked if a higher tax credit for heavy
oil specifically would encourage more invest in it.
MR. WEST replied that Alberta, Canada, has a vibrant heavy oil
economy compared to Alaska's and he thought the tax scheme was
the difference.
JIM DECKER, Anchorage oil industry worker, said he supported the
PPT legislation and that it would make the gasline a reality. He
thought the PPT should be revenue-neutral over time. Department
of Revenue projections indicate the new tax would provide far
more revenue to the state than the existing ELF-based production
tax and he didn't think the state should use the shift to the
PPT as an opportunity to grab more revenue from an industry that
already provides over 80 percent of state revenues. The shift
should be about moving to a more equitable, less regressive, tax
structure; the focus should be on creating a healthy business
environment that increases production, which would result in
higher revenues for the state.
MR. DECKER also favored establishing a mechanism to insure that
excess revenues received under the PPT during times of
relatively high oil prices would be placed into a reserve to
cover revenue shortfalls during times of relatively low oil
price. He explained:
My concern here is that in my household, expenditures
rise to meet income and I am asking that the
legislature insure that the state's expenditures do
not rise to consume the entirety of revenues received
under the PPT in our current high oil price
environment.
CHAIR WAGONER emphasized that one of the key issues of the
legislation was to increase in oil production and that is where
the state would derive the biggest benefit.
ANDREW VAN CHAU, Anchorage, said he was a BP employee and that
the PPT was an unprecedented tax hike that doubles the overall
tax rate for the oil industry. If it encouraged development, he
supported it; if it was just a grab for money, he didn't.
Lawmakers should think about shaping Alaska's fiscal policies to
encourage investment. He placed his faith in the legislature.
CO-CHAIR RAMRAS asked which percentage he supported.
MR. CHAU replied that he would leave that up to the legislature.
1:24:09 PM
MERRICK JOHNSTON, Anchorage, said she just started working with
BP and thought this was a good time to set tax policy. She
suggested setting aside another Permanent Fund for education so
it revenues were not so narrowly focused on oil and gas taxes.
She questioned having a six-year transition period in the
beginning of the 30-year contract and not the end. She thought
this was a good time to establish a state fiscal policy and
thought Alaskan residents should consider paying an income tax.
She concluded by urging them to diversity Alaska's resources by
investing in its intellectual properties.
1:27:05 PM
RACE G. JONES, Anchorage, said Alaska's partnership with the oil
and gas developers has mostly been good. He had concerns with HB
488, but he couldn't address them without understanding the
pipeline contract. He asked if HB 488 could have a clause
allowing for a revision if affected by the gasline contract,
which he thought might help prevent litigation.
CHAIR WAGONER replied that the legislature is dealing with a
stand-alone bill on oil and gas taxation and the Governor's
gasline contract would be addressed at a later date after he
completes negotiations and the contract is ready for signature.
The legislature would, then, make the choice of voting it up or
down. If it is voted down, a letter would be attached indicating
the problems.
MR. JONES asked him if he was saying the legislature would have
the ability to go back and look at HB 488 if it felt the need
after they saw the pipeline contract.
CHAIR WAGONER replied, "Absolutely."
1:30:47 PM
CHANCY CROFT, Anchorage, said he has owned oil and gas leases in
Alaska, but he was speaking for himself. He related that he had
a minor role in the beginning of the process when the state
changed its severance tax. He hoped the present legislation
would involve many weeks and maybe months on behalf of those who
worked on it then. He related how in 1978, the legislature
passed a bill providing for a net income tax separate accounting
to determine the basic income the state would receive in
addition to royalty income from the oil industry. That was
repealed in 1981 by tacking it on to other legislation without
much of a hearing. It was signed into law by Governor Hammond
and he regretted having done that to the day of his death. He
was told the effect was revenue neutral, but it wasn't. The fact
of the matter was because it didn't go through a thorough
legislative process, it cost the state billions of dollars.
MR. CROFT exhorted them to consider all of the legislation on
this topic. He noted that they had heard skeptical comments and
that was due to the fact that other bills dealing with the
question of ELF were pending before the legislature, but none of
them received a hearing and still do not. When this type of
legislation was considered in the past, bills introduced by the
legislature had the same status as bills introduced by the
governor. He hoped the legislature would consider all the bills
on this subject, not just one.
He thought it was important for the legislature to address the
intent with which they were approaching this legislation because
the Supreme Court, for years, has urged the legislature to
express its intent. It would be important particularly since the
question has arisen about whether this is tied in any way to the
pipeline contract. and that:
He urged them to consider eliminating any tax credit completely,
because it creates distortion and is terrible policy. He
mentioned that Representative Ramras also talked about the
possibility someone might attempt to insert these credits into
other areas.
He said tax policy should include an almost instantaneous review
by the legislature to make sure it would not stop an economic
operation. But in reality, it's only belatedly that the question
of the appropriate tax arises after oil prices have risen
substantially. He concluded:
The state and the oil companies are adversaries in the
sense that in the long run whatever we take out in
taxes does impact their net income, but that doesn't
mean we cannot formulate a reasonable policy. It only
means that you can't tax the oil after it's gone. And
that it's important for us to remember it's not
whether the oil companies like us, but whether we have
a reasonable policy. Because we're not here buying
love, we're actually selling oil.
CHAIR WAGONER noted that the legislature did have a hearing on
Senator French's ELF bill.
MR. CROFT responded that having all the bills on this issue
before the committee is important, because that goes a long way
towards eliminating the perception that this is only being
addressed because a gas pipeline contract might follow or is in
any way dependent on it. It also puts all options before the
legislature at the same time.
CHAIR WAGONER mentioned that the committee had received many
letters from people on this issue who were not testifying in
person and those would be entered into the record.
BOB BATCH, Anchorage, said he was here today because he cared
about Alaska's future and he supported this legislation as
drafted. Passing it makes the rules clear and lasting and would
move the gasline project forward.
1:40:53 PM
STAN GATES, Anchorage, said since he had been in Alaska, he has
seen an enormous increase in the quality of life and he
attributed that enhancement to the development of industry. He
recommended that the legislature encourage the oil companies
with incentives to come to Alaska to sustain that quality of
life. He thought that high oil prices would be sustained
indefinitely and that fact needed to be taken into account.
CHAIR WAGONER reiterated:
This is a tax bill; this is not a long-term contract
and it is not the intention at this time in the
legislature for this to become a long-term contract.
That decision is down the road and that will be made
by the whole legislature.
1:43:20 PM
BARBARA HUFF-TUCKNESS, Director, Governmental and Legislative
Affairs, Teamsters Local 959, said they recognize the importance
of oil development to Alaska's economy. She said that SB 305 and
HB 488 were very important pieces of legislation and she urged
the legislature to give them full consideration saying there
would be no room for mistakes.
From her initial review, she felt the 20 percent tax rate with
the many liberal deductions was not enough. Knowing this rate
will probably be locked in over a 20-year period of time, she
felt that fiscal certainty around oil has nothing to do with
building a gasline, but rather it was simply an industry-
leveraging tactic to lock in a long-term tax rate. The industry
should be willing to pay a significant premium for the certainty
that they claim is so vital and important to their continued
operation in Alaska.
She assumed the tax policy behind the proposed deductions was to
stimulate economic activity and job creation in the state, which
she endorsed. However, she said:
Money spent outside Alaska should not qualify as
legitimate deductions. Allowing overhead costs for
payroll out of India does little to stimulate Alaska's
economy nor would engineering firms that are paid in
Canada actually stimulate anybody else's economy
besides the Canadians'. We believe that the current
language surrounding capital and operating expense
deductions needs additional review, analysis and be
written in such a manner to incentify the companies to
hire Alaskans and Alaskan firms with Alaskan employees
first and foremost. Let's make sure that these
deductions stimulate our economy and not those of
other nations. In closing, we urge you to move
carefully and deliberatively as your decisions will
impact our government and quality of life for all of
the Alaskans, not only our future, but for years and
years to come.
Let us not forget our courageous leaders that went
before you. This is not a Republican versus Democrat
issue. This should be one of complete and total
bipartisan support. Your decisions this session will
impact your children's children and the future of all
of us in the room as well.
1:48:34 PM
TOM BRICE, District Council of Laborers, said he needed more
time to gauge impacts of the proposal on the state or his
membership. He noted there should be a floor so the tax rate
isn't an effective zero at some point in time and opined that,
"Everybody should be required to pay something if they are going
to extracting our resources."
Additionally, he said the write-offs needed the greatest level
of clarity possible because ending up in litigation for years
and years trying to get our share of the taxes, which was the
case in the current system, was not what anybody wanted. He
urged the committee to have a very public process.
CHAIR WAGONER thanked everyone for their comments and adjourned
the meeting at 1:49:47 PM.
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