Legislature(2017 - 2018)ADAMS ROOM 519
04/12/2018 05:00 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB411 | |
| Public Testimony | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 411 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 411
"An Act relating to the oil and gas production tax,
tax payments, and credits; and providing for an
effective date."
5:11:40 PM
^PUBLIC TESTIMONY
5:11:44 PM
EARL LACKEY, SELF, MAT-SU (via teleconference), spoke in
opposition to the bill. He explained that the current tax
structure had encouraged increased growth in production on
the North Slope. Presently, he did not believe it made
sense to change the tax system. He thought it could make
sense in the future. He did not support a change and wanted
to maintain a stable environment for oil producers and for
further research and exploration. He asked for a no vote on
the legislation.
Representative Thompson asked if Mr. Lackey believed HB 411
was a job killing bill. Mr. Lackey answered in the
affirmative. He stated that every time the oil companies
started making money the state changed the tax policy
again.
Representative Tilton thanked Mr. Lackey for testifying.
Mr. Lackey thanked Representative Tilton for her work in
the legislature.
5:15:52 PM
GARVAN BUCARIA, SELF, MAT-SU (via teleconference), spoke
against the bill. He thought the bill penalized the oil
industry; the state's largest revenue source. He discussed
the downturn in the economy and the budget deficit. He
stressed the need for stability and predictability in the
state's tax policy. He believed that the benefits of SB 21
had rejuvenated exploration and production on the North
Slope. He asked the legislature to let private enterprise
enjoy the benefits of reduced federal taxes that
incentivized future investment and increased long-term
production. The state had changed the tax regime many
times. He stressed that the state should be maximizing
production. He felt that the bill would have a negative
impact on the industry and ultimately state revenue. He
underscored that policy was controlled by the legislature
and he did not think it was the time to increase taxes on
the oil industry. He stated it was not time to kill the
goose that laid the golden egg.
5:18:42 PM
BEN MULLIGAN, VICE-PRESIDENT, ALASKA CHAMBER, ANCHORAGE
(via teleconference), testified against the bill that would
bring the eighth change in tax policy in the last 13 years.
He felt that the changing tax landscape discouraged
investors. He advocated for a stable tax policy that
encouraged investments. He discussed that there were some
significant projects on the horizon and felt the bill
jeopardized their progress. The chamber believed the state
should be encouraging production and creation of new jobs.
Vice-Chair Gara stated that the bill proposed a 25 percent
tax on profits. He indicated that currently most fields
"were under the new oil tax rate" which could be taxed as
low as zero percent. Many of the larger fields were at the
4 percent minimum tax rate. He asked if only individual
citizens should contribute to fill the budget deficit or
whether the industry should chip in. Mr. Mulligan answered
that he could send the legislature the list of chamber
priorities. He stated that the chamber had gone on record
testifying for a $4.5 billion budget through reduced state
spending. The chamber would like to see a decrease in the
budget and drawing from the Earnings Reserve Account (ERA)
before broad based taxes were implemented. Vice-Chair Gara
stated that the committee had heard that the bill
represented a large tax increase. He stated that when the
tax was almost nothing anything would be a big increase. He
commented that chamber members had lobbied him for further
state spending decreases but did not identify areas to cut.
He noted the $3.5 billion of spending cuts in the last six
years and miniscule capital budget and inquired in what
areas the chamber would advocate spending cuts. Mr.
Mulligan answered that efficiencies would also lower the
budget. He exemplified consolidating health care plans that
he maintained would save hundreds of millions of dollars
over the next 6 or 7 years.
5:22:52 PM
Co-Chair Seaton asked Mr. Mulligan to repeat of his
comment. Mr. Mulligan stated he recommended the
consolidation of health care plans.
Representative Wilson asked about the impact the bill would
have on the current investment on the North Slope. Mr.
Mulligan replied that at first state revenue would increase
but subsequently the oil companies would be making
decisions that would lead to decreased production and fewer
jobs. Representative Wilson asked how a slowdown on the
North Slope would impact chamber businesses. Mr. Mulligan
answered that a slowdown would impact businesses greatly.
He mentioned the multiplier effect from oil industry jobs.
He elaborated that small businesses felt the "crunch" the
most in economic downturns. He used an example of
restaurants that had seen a real decrease in business
during the recent job losses. Representative Wilson asked
if the bill would shorten or lengthen the current
recession. Mr. Mulligan answered that HB 411 would prolong
the current recession.
5:26:13 PM
Representative Pruitt wanted to correct statements "that
were not true." He commented that only GVR (Gross Value
Reduction) eligible and new [fields] were taxes at 6
percent. He remarked that he heard the word "most"
referring to new fields and that statements were made that
mischaracterized what was taking place. He highlighted that
most fields were not at the 4 percent minimum tax due to
the current price of oil. He reported that $410 million in
production tax was forecast, which was not "nothing." He
felt that it was inappropriate to try to "make a point"
through questioning testifiers, especially if the point was
false.
Co-Chair Foster asked the committee to refrain from debate
during public testimony.
Vice-Chair Gara countered that Representative Pruitt had
misstated almost everything that he had said.
Representative Pruitt disputed the statement.
5:28:23 PM
CARL PORTMAN, SELF, ANCHORAGE (via teleconference),
testified against the bill. He was very concerned about the
state's economy. He believed the best way to improve the
state's economy was to increase oil production. The state
needed to create an investment environment to compete
against lower cost projects elsewhere. He stated the bill
would weaken Alaska's competitive position. He believed it
would bring in more revenue initially, but in the long-term
it would reduce revenue. He stated Alaska could be on the
cusp of an oil renaissance on the North Slope. He advocated
for incentivizing new industry investment. He noted a
column in the Anchorage Daily News that stated it took $13
billion in new investment to increase production by 400,000
barrels of oil per day. He quoted the following from the
article: "Alaskans were known to shoot themselves in the
foot sometimes - raising oil taxes on the industry."
5:30:37 PM
MIKE SATRE, ALASKA MINERS ASSOCIATION, JUNEAU (via
teleconference), testified against the bill. He provided
details about the miner's association that was comprised of
a diverse membership that included prospectors, geologists,
engineers, small and major mining companies. He indicated
that many oil and gas service companies that also serviced
the mining industry were members. The association advocated
for an equitable and stable tax and royalty structure for
state owned resources and to support measures that would
increase investment and production. He believed the bill
moved the state in the wrong direction and would reduce
Alaska's competitiveness. He urged the committee to reject
the bill.
5:32:36 PM
MARLEANNA HALL, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT
COUNCIL, ANCHORAGE (via teleconference),testified in
opposition to the legislation. She provided details about
the council and its membership that included oil and gas
mining, forest products, fisheries, and tourism industries
and the 12 native corporations. The council believed the
best way forward for the state's economy was to produce
more oil, attract more tourist, mine more minerals, and
harvest more fish and timber. The new tax proposal would
increase taxes resulting in increased industry costs and
lost revenue for the state. The bill would result in a
decline in Alaska's competitiveness. She felt that HB 411
would bring the state less revenue than the existing system
that would encourage more production. She stressed the
importance of considering the state's competitiveness
pertaining to future production. She stated that the bill
would make oil projects more expensive and less attractive
to industry. She noted that SB 21 - Oil and Gas Production
Tax, which passed in 2013 had increased jobs, investment,
and production.
5:35:16 PM
SARAH ERKMANN WARD, SELF, ANCHORAGE (via teleconference),
spoke against the bill from the perspective of a new small
business owner. She thought proposing to change the tax
policy for the eighth time in 13 years at the end of the
legislative session was bad public policy and should not
happen annually. She did not understand why some members of
the legislature did not know how harmful it was to continue
to try to change the tax system. She felt the policy hurt
Alaskan citizens. She urged the committee to "give oil tax
policy a rest."
5:37:10 PM
GAIL PHILLIPS, SELF, ANCHORAGE (via teleconference),
testified against the bill and noted that she was a former
member of the legislature. She stated that HB 411 was
another last minute attempt to change the state's oil tax
regime. She thought the bill should have been thoroughly
vetted and referred to other committees such as, the House
Resources Committee. She wondered why the committee would
want to go through all the hurdles to get the bill passed
when it was unlikely to get a hearing in the Senate. She
urged the committee to put the bill aside and focus on
other legislation and a productive end of the legislative
session.
Representative Wilson asked why Ms. Phillips suggested
referring the bill to other committees. Ms. Phillips
answered that a bill of the magnitude of an oil tax bill
should be considered and vetted by as many people and hold
as much opportunity for public testimony as possible.
Representative Wilson agreed.
5:39:34 PM
KEITH SILVER, SELF, ANCHORAGE (via teleconference), spoke
in opposition to the bill. He concurred with all the
previous testimony. He shared that he was a "victim" of the
Alaska's Clear and Equitable Share (ACES) tax policy, which
caused him to lose his oil industry job and "reinvent"
himself. He stated there would be numerous other victims
through the passage of the bill and increased taxes. He
suggested that everyone in favor of the 25 percent tax
should pay 25 percent more in federal taxes.
5:40:42 PM
AVES THOMPSON, EXECUTIVE DIRECTOR, ALASKA TRUCKING
ASSOCIATION, ANCHORAGE (via teleconference), spoke against
the bill. He related information about the association. He
did not support a bill proposing another tax increase on
the oil industry in the waning days of session. Over the
past few years the oil industry had adjusted to a dramatic
decrease in oil prices by creating efficiencies and
adjusting business plans while continuing to pay state
taxes. He felt that was not the time to further penalize
the industry. Oil tax reform had made Alaska more
competitive and a more attractive place to invest; oil
production had increased and stabilized. He stated that the
bill would hinder new production. The bill represented the
8th major tax change in 13 years. He opined that the bill
would reduce Alaska's competitiveness and would increase
costs for the industry. He supported giving the industry
more time to continue its rebound.
Representative Wilson asked what impacts the bill would
have on the trucking industry aside from no new jobs. Mr.
Thompson answered that there would be no freight to haul.
Fuel usage was down, and thousands of gallons of ultra-low
sulfur diesel was trucked to the North Slope each year.
Further downturn impacted the size of companies and caused
employee layoffs. Representative Wilson thanked Mr.
Thompson for his work.
5:44:46 PM
ROSS BIELING, SELF, ANCHORAGE (via teleconference), was
opposed to the bill. He did not believe the problem was the
need for higher taxes. He stated that HB 411 was a way to
regain revenue lost from the tax credits. He used Armstrong
as a successful example of newly discovered oil located 80
miles from Prudhoe Bay. He suggested building a pipeline
and road. [audio very difficult to hear]. He recommended
reducing royalties until the tax credits were paid in full.
He believed the bill stymied production when incentivizing
production was the answer.
Co-Chair Foster asked Mr. Bieling to submit his testimony
in writing.
Representative Wilson asked if Mr. Bieling was supporting
or opposing the bill. Mr. Bieling was opposed to the bill
because it would take away from production. He emphasized
his support for Armstrong's Pikka Unit oil field to go into
production. He believed that the "key" was to increase oil
production.
Co-Chair Foster provided the committee email address for
written testimony.
5:48:46 PM
LOREN MEANS, SELF, WASILLA (via teleconference), testified
against the bill. He did not believe HB 411 was well
thought out. He did not recall hearing anything positive
about the bill during testimony the previous day. He
supported the current tax structure and believed that oil
companies were prospering, and production had improved. He
thought that the state had a spending problem. He
referenced testimony by Alaska Oil and Gas Association
(AOGA) and felt that the association was upset its input
had not been considered. He supported killing the bill. He
thought it was important to focus on other necessary
legislation. He advocated for less state spending. He
opined that legislation such as HB 411 made industry and
Alaskans nervous. He implored the committee to oppose the
bill.
5:52:22 PM
BILL CORBUS KEEP ALASKA COMPETITIVE, JUNEAU, opposed the
bill. He relayed that the organization was comprised of
individuals and businesses that supported the current tax
regime and did not have oil industry membership or support.
The organization supported a stable oil tax regime. He
continued that the bill made fundamental changes to a
provision enacted in SB 21. After the passage of SB 21 the
oil industry had continued to invest in the state even when
it was losing money. The industry had slightly increased
production during a time it had been expected to decline.
The removal of per barrel credits and increased taxes would
likely add $750 million in new taxes on the oil industry.
The state should continue to support the industry instead
of continued attempts to raise taxes on an industry that
was still unprofitable in certain areas and modestly
profitable in other areas. Raising taxes on the industry
did not make sense. He wanted to maintain the "reasonable
revenue split between the state and the oil industry" that
was instituted through SB 21. He opined that HB 411 would
tip the balance in the wrong direction and jeopardized
future investment, revenue, and jobs.
5:56:14 PM
CHRIS GERONDALE, SELF, JUNEAU, testified against the bill.
He shared that he worked for Construction Machinery
Industrial that operated in Fairbanks, Anchorage, Juneau,
and Ketchikan. He had experienced how taxes impacted his
business. He stated that the increase in oil taxes in 2008
impacted the Ketchikan business which indirectly lead to
its temporary closure. He stated that currently the Juneau
and Ketchikan branches were profitable and growing but he
worried over how another "round of reduced revenue" would
impact his company.
5:58:08 PM
BARBARA HUFF-TUCKNESS, DIRECTOR OF GOVERNMENTAL AND
LEGISLATIVE AFFAIRS, TEAMSTERS LOCAL 959, JUNEAU, spoke
against the bill. She noted the organization's membership
of 7000 members throughout the state. The organization
believed that HB 411 would be detrimental to the long-term
economic stability of the state.
5:59:33 PM
JEREMY PRICE, AMERICANS FOR PROSPERITY, JUNEAU, spoke
against the bill. He shared that the organization advocated
for decreased regulations and creating better opportunities
for small business. He stated that it did not matter what
profession the organization advocated for, it supported
jobs and providing a level of certainty for Alaskans and
the private sector. He shared that he had three children
and hoped for a positive future for them. He believed that
the bill did not provide a better future. He stated that
according to the Bureau of Labor Statistics, Alaska's
unemployment rate was 7.3 percent in February 2018 and the
state lost 3,600 jobs according to the Department of Labor
and Workforce Development (DOL). He asked if the bill
created jobs. He believed the answer was no.
Co-Chair Foster left public testimony open.
6:02:50 PM
ELIZABETH DIAMENT, STAFF, REPRESENTATIVE PAUL SEATON,
reviewed the sectional analysis of the new committee
substitute (CS):
Section 1. Amends AS 43.55.011(e) Tax Rate
Changes production tax rate from 35% to 25% as of July
1, 2018, plus any supplemental rates added by Section
2. Retains change to gas rate after 2022.
Section 2. Amends AS 43.55.011(g) Supplemental Tax
Establishes a supplemental 5% tax bracket at a
production tax value (PTV) of $40 per barrel, an
additional supplemental 5% tax bracket at $50 PTV per
barrel, and a third supplemental tax bracket at $60
PTV per barrel. The supplemental tax rates only apply
to the amount above each price trigger value. $60 PTV
per barrel is equal to approximately $100 Alaska North
Slope (ANS) price per barrel.
Section 3. Amends AS 43.55.014(b) Gas Tax Rate after
2022
Conforming amendment to new tax rates in AS
43.55.011(e) and (g).
Section 4. Amends AS 43.55.020(a) Monthly Installment
Tax Payments
Conforming amendment to new tax rates in AS
43.55.011(e) and (g).
Section 5. Amends AS 43.55.020(g) Interest on
Underpayment of Monthly
Installments Conforming amendment to new tax rates in
AS 43.55.011(e) and (g).
Section 6. Amends AS 43.55.020(h) Interest on
Overpayment of Monthly Installments
Conforming amendment to new tax rates in AS
43.55.011(e) and (g).
Section 7. Amends AS 43.55.020(k) Tax Payments by
Private Property Owners
Conforming amendment to new tax rates in AS
43.55.011(e) and (g).
Section 8. Amends AS 43.55.020(l) Tax Payments by
Private Property Owners
Conforming amendment to new tax rates in AS
43.55.011(e) and (g).
Section 9. Amends AS 43.55.160(a) Determination of
Production Tax Value
Conforming amendment to new tax rates in AS
43.55.011(e) and (g).
Section 10. Amends AS 43.55.160(e) Determination of
Carry Forward Annual Loss
after 2022
Conforming amendment to incorporate changes in Section
12.
Section 11. Amends AS 43.55.160(f) Determination of
Gross Value Reduction (GVR)
Conforming amendment to new tax rates in AS
43.55.011(e) and (g)
Section 12. Amends AS 43.55.160(h) Determination of
Production Tax Value for Oil
after 2022.
Adds references to incorporate the new supplemental
tax brackets in AS 43.55.011(g) which takes effect in
2022.
Section 13. Repeals AS 43.55.024(i) and AS
43.55.024(j) Per Barrel Credits
Repeals the per barrel credit for GVR and NON-GVR oil.
Section 14. Transition Language
Gives the Department of Revenue authority to continue
to apply the old tax criteria for purpose of monthly
collection of installment payments.
Section 15. Transition Language
Gives retroactive regulatory authority to the
Department of Revenue to adopt necessary regulations
to implement the measures of the bill.
Section 16. Effective Date
Provides for an immediate effective date for Section
15
Section 17. Effective Date
Provides for an effective date of July 1, 2018 for all
other sections.
6:05:23 PM
Representative Pruitt wanted to understand how the monthly
installment tax changed and how it correlated to the
proposed tax structure.
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
responded that he had mentioned in an earlier hearing that
21 out of 25 pages of the legislation contained conforming
language. He explained that much of the conforming language
dealt with AS 43.55.020 related to the monthly installment
payments. The monthly installment payments were a
calculation of how much was owed that month based on the
percentage of production tax value and the method of
remitting the payment. The tax statute would add more
subparagraphs and subsections. He exemplified that in AS
43.55.011 there were two new subparagraphs. The new CS
revived some ACES provisions due to the supplemental tax
brackets and the new statute made references to other
statutes for purposes of calculations. He further explained
that within the bill there were long conforming sections
over several pages that did not include an amendment. The
other provisions in the CS dealt with AS 43.55.160 that
related to the calculation of production tax value and
defined the net profits that were subject to the tax. He
explained that with a progressive tax a monthly value was
necessary therefore, a separate calculation was needed. The
progressivity section was complex. Therefore, a new large
section, section (h) (3) was created. He delineated that AS
43.55.160 (a) defined the current "normal" production tax
value. The (h) section replaced (a) in 2022. In 2022, gas
reverted to a 13 percent gross tax related to a provision
that would allow the state to receive gas-in-kind. The
change required many statutory revisions to the production
tax value. Specifically, AS 43.55.160(h) spelled out that
the costs associated with oil and gas were being deducted
from the value of oil only. However, the statute was
written after SB 21 when the progressivity provisions were
eliminated. Therefore, AS 43.55.160(h)(2) was added to
include the progressivity built into the formula.
6:11:01 PM
Representative Pruitt thanked Mr. Alper for his
explanation. He asked whether that related to interest on
overpayment and if the CS was only conforming to statute
and not changing it. Mr. Alper replied in the affirmative.
He specified that the over and under payment sections in
the CS were not related to delinquent taxes. The provisions
concerned the monthly payment estimates and the interest
calculation based on over and underpayments. The transition
sections at the end of the bill related to the early
effective date. The provisions allowed for older forms to
be used for the estimated payments until new tax forms were
developed. He noted that the department would waive any
interest that was due if it was related to using the old
forms.
6:12:50 PM
Vice-Chair Gara asked Mr. Alper to review what the actual
tax payments were at various prices. He recalled that
currently the new GVR fields not owned by the legacy
producers paid no production taxes until the price of oil
was $70 per barrel. He asked whether he was correct. Mr.
Alper answered in the affirmative. He explained that the
gross value adjusted by the gross value reduction resulted
in the net value taxed at 35 percent. The sliding scale per
barrel credit could not go below the tax floor for legacy
producers. The $5 new oil credit could decrease the tax
below the tax floor; the $5 credit was equal to or more
than the tax calculation up to the $65/bbl. to $70/bbl.
range; effectively GVR production would pay zero. Vice-
Chair Gara asked whether the legacy fields paid the minimum
4 percent tax until the price of oil was $74/bbl. Mr. Alper
indicated that the 4 percent tax rate related to the
percentage of a gross tax that was paid until a "crossover
point" was reached. He detailed that the crossover point
was the point where the 35 percent tax less the $8 credit
was greater than the gross value times 4 percent.
Everything below the crossover point was taxed at 4 percent
of the gross value, which at low prices was a "very high
effective tax rate on net until prices dipped below the
company's breakeven point." He furthered that as the net
profits tax went into effect the effective tax rate
gradually increased with the stair stepped per barrel
credit and the 35 percent tax rate reached $160/bbl. Vice-
Chair Gara stated that the department had estimated that
the cost structure on the slope was lower than the prior
year. He asked about legacy oil and wondered when companies
started paying more than the 4 percent gross minimum tax.
He deduced that the point was roughly at $65/bbl.
6:16:55 PM
Mr. Alper replied in the affirmative. He confirmed that in
FY 19 $65/bbl. was the crossover point. Vice-Chair Gara
commented that the definition of new oil included legacy
oil. He deduced that non-legacy producers paid zero percent
production for new oil up to $60/bbl. He asked if his
statement was accurate. Mr. Alper responded in the
affirmative and added that the crossover point was roughly
at $60/bbl. to $70/bbl. Vice-Chair Gara inquired whether
the state would receive any income from production taxes
for 7 years from a new Alaska National Wildlife Refuge
(ANWR) field if the price of oil was $60/bbl. to $65/bbl.
Mr. Alper answered that there was a considerable number of
variables with ANWR. He stated that the production costs
would be higher because a pipeline to Prudhoe Bay was
necessary and would add $2/bbl. in costs. However, setting
aside the variable issues, he agreed that for the first 3
to 7 years until the GVR expired, the producers would pay a
very low tax. Subsequently, until the rest of their costs
were recaptured the producers would pay a minimum tax.
Vice-Chair Gara asked up to what prices a new producer
would pay zero taxes for new oil in ANWR, assuming the same
cost structure for Prudhoe Bay. Mr. Alper answered that the
answer was the same at $65/bbl. to $70/bbl. He cautioned
against using the term zero percent tax rate. He clarified
that the tax rate was 35 percent minus a credit and the GVR
making the effective tax rate zero percent. He advised that
effective tax rate was the proper terminology.
6:20:41 PM
Co-Chair Foster returned to public testimony.
KEVIN DURLING, SELF, ANCHORAGE (via teleconference), spoke
against the bill. The oil and gas tax system had changed
seven times in the past 13 years. He read a statement he
attributed to a Department of Revenue (DOR) [not
specifically cited] from a few days prior "After the
legislature set in motion a process to revisit fair share
issues with the intention to use this to inform the major
next tax rewrite until the completion of the process set in
motion last year it may be premature to consider a change
to the tax system at present." He asked why the legislature
was considering a bill that DOR did not agree with. He
recommended that the current system should be allowed more
time to work, which has already increased oil production.
He opined that production could increase by 400 thousand
more barrels at an estimated investment of $13 billion. He
worried that the new tax proposal could jeopardize
investment. He wondered if the state was trying to be the
least attractive tax regime.
6:23:14 PM
PETE FLUX, SELF, ANCHORAGE (via teleconference), spoke
against the bill. He noted that he worked for a large oil
company. He stated that he experienced excitement in the
working environment over the "rejuvenated efforts" towards
resource development. He reported a collective "heartfelt
desire" to stabilize the tax structure. He believed that
repeated changes made it almost impossible for companies to
invest in multi-billion dollar projects. He spoke to the
risk factor already contained in making large investment
decisions and felt a changing tax structure "closed the
door" on large projects.
Co-Chair Foster CLOSED public testimony.
HB 411 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the schedule for the following
day. He restated the amendment deadline.
^RECESSED
6:26:37 PM
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