Legislature(2011 - 2012)HOUSE FINANCE 519
04/25/2012 09:00 AM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB3001 | TELECONFERENCED | |
HB3001-OIL AND GAS PRODUCTION TAX
9:09:13 AM
CO-CHAIR SEATON announced that the only order of business would
be HOUSE BILL NO. 3001, "An Act relating to adjustments to oil
and gas production tax values based on a percentage of gross
value at the point of production for oil and gas produced from
leases or properties north of 68 degrees North latitude;
relating to monthly installment payments of the oil and gas
production tax; relating to the determinations of oil and gas
production tax values; relating to oil and gas production tax
credits including qualified capital credits for exploration,
development, or production; making conforming amendments; and
providing for an effective date."
9:09:51 AM
KAREN REHFELD, Director, Office of Management & Budget (OMB),
Office of the Governor, said she would offer a PowerPoint
presentation on Alaska's budget outlook, revenues and
expenditures, and the potential impact on future budgets with
passage of HB 3001. Her presentation would also include
background on how OMB develops its annual budget; a brief look
at the current overall operating and capital budgets; highlights
of the 10-year plan; and discussion of some of the projected
revenue changes based on the Department of Revenue (DOR) fiscal
notes attached to HB 3001.
MS. REHFELD projected slide 2 of the PowerPoint presentation,
which displays the governor's vision used by OMB to develop the
annual budget: economic growth and strengthening families. Ms.
Rehfeld said the future of Alaska rests on responsibly
developing its natural resources and creating jobs and economic
opportunities, especially in light of declining oil production
and the price of oil necessary to balance its budget. As shown
on slide 3, she named the four budget principles used by OMB to
develop its proposals: fiscal restraint - to spend less and
save more for the future; strategic investments - made to grow
the economy; cash reserves - the 2011 constitutional budget
reserve (CBR) and the statutory budget reserve (SBR) totaled
about $13 billion, with an additional $2 billion appropriated to
the SBR in 2012; and focus on results - agency missions and core
services that the public expects to receive from its investment
in state programs and services.
MS. REHFELD listed budget priorities - shown on slide 4 - from
the state constitution and its statutory framework: resource
development - creating jobs for Alaskans; education - to prepare
students for success in vocational training or postsecondary
education; public safety - for safe homes and strong families;
transportation/infrastructure - to support economic development;
and military support - for missions and families.
MS. REHFELD presented slide 5 entitled, "FY2012/2013 Revenue &
Savings," which provides a chart of the spring forecast and
budgets passed by the legislature and awaiting the governor's
signature. Projected in fiscal year 2012 (FY 12) is: revenue
of about $9.9 billion; spending of about $7.4 billion; an
available balance of about $2.5 billion; deposits to the SBR of
$1.75 billion; and possible additional savings of about $766
million. Projected in FY 13 is: revenue of about $8.44
billion; spending of about $7.7 billion; an available balance of
$760 million; deposits to the SBR of about $250 million; and
possible additional savings of about $510 million. She pointed
out that the potential savings for FY 12 and FY 13 under the
current spending proposal total $3.2 billion.
9:15:49 AM
MS. REHFELD acknowledged the spring forecast is somewhat
conservative; if oil prices remain at $120 per barrel (/bbl)
there will be more revenue available. However, it is known that
90 percent of the state's unrestricted general fund (GF) revenue
comes from oil production, and production continues to decline,
thus high oil prices are masking the effect of this decline, but
at the same time present an opportunity for savings. As an
aside, she noted that oil prices of approximately $105/bbl would
be required to balance the projected FY 13 budget. Ms. Rehfeld
turned to FY 13 proposed budget sources of funds, slide 6, and
said the total proposed budget is a little over $12 billion and,
of that, roughly 53 percent is unrestricted GF. About one-
quarter of the budget is comprised of federal funds primarily
for the Department of Health and Social Services (DHSS), the
Department of Transportation & Public Facilities (DOT&PF), the
Department of Education and Early Development (DEED), and the
Department of Labor & Workforce Development (DLWD), although all
departments receive some federal funds. Further federal funds
go directly to the state through the U.S. Department of Health
and Human Services, Indian Health Service, and military
spending. As an aside, she advised that federal funding is
expected to decline and its impact on the state is unknown.
Permanent fund dividends (PFDs) [earnings] and inflation-
proofing contribute about 12 percent to the budget, and
designated GF such as University of Alaska receipts and GF
program receipts contribute 7 percent. Finally, other funds,
such as international airport funds, contribute 4 percent.
9:19:09 AM
MS. REHFELD presented slide 7 entitled, "FY2013 Proposed
Expenditures by Category," which illustrates that approximately
one-half of the state's expenses, about $6 billion, are
nondiscretionary funds, such as formula programs, the Permanent
Fund, and items included in statewide costs. The other one-half
are discretionary funds and include agency nonformula components
and capital spending. She explained that under the nonformula
component of 35 percent are the 14 state agencies, the
University of Alaska, the Office of the Governor, the
legislature, and the Alaska Court System budgets.
9:20:19 AM
CO-CHAIR SEATON asked whether discretionary funds are a
combination of agency nonformula and capital budget funds.
9:21:01 AM
MS. REHFELD answered yes. Returning to slide 7, she said about
26 percent of the budget is for formula programs and is mostly
taken up by the two largest pieces of the formula program: K-12
education and pupil transportation cost $1.2 billion to support
54 school districts and 129,000 students; and Medicaid costs
$1.64 billion, with $676 million coming from the GF. The cost
of Medicaid is determined by the number of people who are
eligible and enrolled, the utilization of the program, and the
cost of providing the services. Other elements of the formula
program include public assistance, foster care programs, and
power cost equalization (PCE). Statewide appropriations
represent 12 percent of the total budget and include annual
payments of approximately $613 million to the public employee
and teacher retirement systems' unfunded liabilities. She said
about $400 million from statewide appropriations apply to oil
exploration tax credits, based on which companies are eligible
for credit and outstanding credit certificates that are cashed
out in any given year. She said DOR gives OMB those estimates,
which are built into the budget. Ms. Rehfeld said about $300
million apply to debt service; about $120 million apply to the
school debt reimbursement program, which reimburses municipal
school districts for a portion of the cost of educational
facility projects; and about $60 million apply to community
revenue sharing for 162 incorporated and 150 unincorporated
communities, including an additional $25 million for one-time
help with energy costs. The Permanent Fund is about 12 percent
of the budget, including funding for PFDs and hold-harmless
provisions. Ms. Rehfeld said the capital budget is about 15
percent of the total budget, which was increased by about $1
billion appropriated by the legislature. She highlighted
important elements: resource development; transportation and
infrastructure vital for economic development, including
highways and aviation; water and sewer projects; the harbor
grant program; energy programs for renewable energy,
weatherization, and the home energy rebate; rural power system
upgrades; deferred maintenance; public safety; school
construction and maintenance; and an additional general
obligation bond package, appropriated by the legislature, of
$450 million for roads and port improvement projects.
9:25:18 AM
CO-CHAIR SEATON clarified that the additional capital budget
funding, and funding for the bond package, are not included in
the pie chart on slide 7.
9:25:28 AM
MS. REHFELD confirmed that is correct. She projected slide 8
entitled, "FY2013 Proposed Budget - Another Perspective," which
is a chart indicating another way to look at how the money is
used: approximately 60 percent of all funds goes to Alaska
communities, individuals, and organizations through Medicaid,
PFDs, revenue sharing, school funding, deposits to unfunded
liabilities, capital projects, and named recipient grants.
About 21 percent goes to services purchased from Alaskan
vendors, such as travel, lodging, fuel, equipment, and supplies.
Finally, about 19 percent of the total budget goes to salaries
and benefits for the state's workforce. Ms. Rehfeld opined this
perspective is a way to display the overall budget in context.
CO-CHAIR SEATON asked if capital projects are in the purchased
services category.
MS. REHFELD answered that capital projects are represented in
the 60 percent category. Typically, many capital projects are
for municipalities, and large and small projects are put out to
private industry for bid.
MS. REHFELD turned attention to the future and presented slide 9
entitled, "Ten-Year Fiscal Plan," which displays OMB's guiding
principles for improving on the evaluation, planning, and
delivery of the budget: to develop Alaska's natural resources -
economic development vital to the future of the state and
creation of jobs and opportunities for Alaskans; to restrain
spending - budget discipline to minimize unsustainable automatic
increases to formula programs; and to save for the future - done
well by the legislature and governor over the last several
years, given the environment the state has had.
MS. REHFELD talked about focusing on priorities under Alaska's
constitutional and statutory framework, looking at the mission
and core services that the department has been tasked to carry
out, maintaining the level of services with fixed costs,
projecting costs of increasing capacity or expanding services,
and considering and planning for new initiatives.
9:30:20 AM
MS. REHFELD said the 10-year fiscal plan is published on the OMB
website and includes baseline scenarios for individual agencies
and new initiatives. Also on the website are four statewide
scenarios based on variables in the price of oil, including $90
oil, flat-funding of the budget, and a 4 percent increase.
Slides 10 and 11 illustrate the effects of OMB Scenario 4: the
potential fiscal impact of HB 3001 with a four percent growth in
agency operating components; the projected increases in payments
to unfunded liabilities; and a $1 billion cap on capital
expenditures. She advised that a reduced capital budget of $1
billion means the state turns to a specific focus on leveraging
dollars with matching federal funds, and the focus would be on
funding deferred maintenance and schools.
MS. REHFELD continued to explain that the revenues and
expenditures adjusted for HB 3001 - illustrated by slides 10 and
11 - reflect the timeframe of the bill's fiscal note [FY 13 to
FY 18]. On slide 10: the top line represents the spring [2012
GF] revenue forecast; the blue line ["General Fund Expenditures
(Scenario 4 FY2013 10-year plan)"] represents OMB Scenario 4
projected expenditures, incorporating the budget that was just
passed by the legislature, with the "cap scenario" budget coming
into effect in FY 14; the green line ["Spring 2012 GF Revenue
adjusted by HB 3001 FN dated 4/18/1012)"] represents the change
in revenue, based on the fiscal note worst case scenario; the
yellow shaded area ["Potential Shortfall"] represents the
difference between the revised revenue and the projected
expenditures; and the black line ["projected reserve
deposit/draw"] represents the amount that would be drawn from
reserves to balance the projected expenditures to FY 18. In
response to Co-Chair Seaton, she explained the revenue
projection was based on oil priced at $110/bbl.
9:35:26 AM
CO-CHAIR FEIGE asked for the forecasted level of production.
MS. REHFELD said the forecast was out of the Revenue Source Book
and is DOR's revised spring forecast.
REPRESENTATIVE PETERSEN returned attention to slide 5, and asked
whether $110/bbl was the price used for those projections also.
MS. REHFELD answered yes. She returned attention to slide 10,
saying that the slide shows the overall impact of the annual
draws on reserves; however, if the price of oil stays at the
current price of $120/bbl, the amount of the potential draws
will change.
CO-CHAIR SEATON expressed the committee's intent to ask OMB to
generate scenarios based on varying production rates and prices
of oil. Also, he offered his understanding that the FY 13
budget reflects the actual budget, but the projected budgets for
FY 14 and FY 15 reflect a cap at $1 billion.
MS. REHFELD responded that OMB updated FY 13 based on the budget
that just passed; FY 14 and beyond are projections based on OMB
Scenario 4 with the capped $1 billion capital budget. If the
committee wants to look at a different level of expenditures,
each adjustment would increase or decrease the draw on reserves.
CO-CHAIR SEATON surmised that averaging the capital budget for
the past two years would add an additional $1 billion to the
draw from reserves.
MS. REHFELD said that is correct.
9:38:16 AM
REPRESENTATIVE MUNOZ asked for the reserve balance projected for
FY 18, assuming the annual draws take place.
MS. REHFELD, in response, drew the committee's attention to
slide 11. On slide 11: the orange bar ["Spring 2012 Forecast
General Fund Unrestricted"] represents the spring forecast of GF
revenues; the green bar ["General Fund Revenues Adjusted for HB
3001"] represents adjusted revenue for HB 3001; and the yellow
bar ["Budget Surplus/(Shortfall)"] indicates the required draw
from reserves. New information is shown in the gray bar ["Total
Reserves"], which indicates that the balance in reserves for FY
13, after the draw, would be $15.7 billion; in FY 18, the
balance would be $15.6 billion in reserves. Ms. Rehfeld stated
the importance of understanding that the combined balances of
the CBR and the SBR have grown from $2.4 billion in FY 06 to a
projected $16.1 billion in FY 13. Ms. Rehfeld said the
legislature has excelled in growing significant savings for the
state in response to the high price of oil. She suggested the
heart of the issue is in figuring out how much should be in
savings and how much should be used to incent increased
production.
9:40:52 AM
REPRESENTATIVE HERRON observed HB 3001 seeks to change the taxes
and use the dollars saved [by the industry] for expenditures on
the North Slope to flatten the decline curve. He acknowledged
that the more the decline curve is flattened, the more revenue
the state will generate over time, and he asked if it is
possible for OMB to determine how much income is generated by
each dollar lost in taxes.
MS. REHFELD advised that a 3-D model is needed to define the
aforementioned investment because data on production would be
required from the Division of Oil & Gas (DOG), to then be
interpreted by DOR, and the expenditures would be modeled by
OMB. She deferred to Mr. Boucher.
CO-CHAIR SEATON stated that the committee had requested [DOG] to
provide speculation on the number of barrels the state could see
from additional fields, if those fields became economic because
of the change in tax structure.
9:43:02 AM
JOHN BOUCHER, Senior Economist, Office of the Director, Office
of Management & Budget (OMB), Office of the Governor, reminded
the committee that DOR can illustrate what the state may receive
back in revenue; however, OMB must also try to quantify the
additional private sector activity that might occur otherwise.
He agreed with Ms. Rehfeld on the core of the issue.
REPRESENTATIVE HERRON opined that the debate going on is
regarding what amount invested would reduce the decline and
generate more money for the state. He said he thinks it would
be helpful to those on both sides of the debate to see a
presentation showing how many dollars might be returned for each
dollar invested.
MS. REHFELD responded that the governor's goal is to create jobs
and grow the economy, and not necessarily to offset that with
more money coming to the state. She urged for looking at a
long-range plan that will create a vibrant private sector
employing many across the state.
REPRESENTATIVE PETERSEN returned attention to slide 11, and
asked for the assumed rates of return on investment for the CBR
fund that will continue the projected growth.
MR. BOUCHER answered that OMB used the official returns from
DOR, and he recalled that the sub account is in the range of 6
percent, and the long-term for the main account, which is more
conservatively invested, is approximately 3 percent. He offered
to provide the exact figures.
9:46:58 AM
REPRESENTATIVE PETERSEN returned to slide 10, and asked whether
reducing the capital budget to $1 billion would affect the rate
of unemployment.
MS. REHFELD said there has not been an analysis on unemployment;
however, $1 billion in the GF would be added to federal and
other funds of about $1 billion. In total, without significant
changes in federal funding, the capital budget would approach $2
billion, which would - over time - support the workforce.
Although not refined over the long-term, decisions are made on
an annual basis, she said.
REPRESENTATIVE PETERSEN recounted having heard from the Alaska
Congressional Delegation to expect reductions in funding from
the federal government. He requested a long-term projection of
the effects reduced funding in the state budget would have on
unemployment in Alaska.
MS. REHFELD relayed that the House Special Committee on Fiscal
Policy (HFPY) is actively looking at changes to federal funding
and other long-term issues, and OMB will focus on whether the
state would be in a position to replace any loss of federal
funding. In response to Co-Chair Seaton, she clarified that the
revenue forecast with a cap of $1 billion on capital spending
was only based on the GF.
MR. BOUCHER suggested that members think of the amount of cash
at stake in terms of investment, and that a portion of that
would shift from state-purchased construction activity to
private sector oil and gas activity. This could mean a
different or similar type of work, but it would not necessarily
be that a $1 billion reduction in the state capital budget would
mean an equal reduction in purchased construction.
REPRESENTATIVE PETERSEN expressed his understanding that the
spending would shift to oil fields from specific state-financed
projects around the state.
MR. BOUCHER responded, "In a very large sense, that's somewhat
what I think would occur."
9:52:15 AM
CO-CHAIR FEIGE recalled the state has had healthy capital
budgets in the last three to four years and HB 3001, if enacted,
may reduce the capital budget from approximately $3 billion to
$2 billion. He said the state is not expending $3 billion in a
year; a lot of it is getting rolled over to the future. He
explained the state has a kind of rolling reserve of capital
projects that represent a lot of jobs; it could have a zero
capital budget next year and still be keeping people employed.
He asked if OMB could relate "how much is actually from what has
already been committed in previous years' capital budgets [and]
how much is still left to be spent."
MS. REHFELD said she was unsure; however, she advised there are
a number of different components to a capital budget. Typically
a simple GF project can be completed in a five-year term. A
number of projects are federally funded, such as those that go
through DOT&PF. Those projects, she said, typically take more
time, because they require permitting and other steps required
under the Federal Highway or Federal Aviation program. She
ventured that in DOT&PF's budget, there are a significant number
of federally authorized projects not yet completed. Ms. Rehfeld
said another group of projects are grants to municipalities, the
timing of which varies depending on a municipal government's
ability to enter into grant agreements. She offered to report
on what projects have been authorized, how much has been
encumbered, and what balances are remaining, although this
information may not answer the question at a high level of
specificity, she said.
9:55:34 AM
CO-CHAIR SEATON asked OMB to prepare a report on the state's
history of capital spending during periods of deficit spending
from 2001 to 2006. He explained he would like to see a
comparison of what the capital spending was during the years
when the legislature had to take money out of savings and "since
2006, when we've been under a different regime."
MS. REHFELD suggested that the Legislative Finance Division,
Legislative Agencies & Offices, may already have that
information.
CO-CHAIR SEATON urged that the committee take a look at
responses to deficits other than a $1 billion cap on spending.
MR. BOUCHER said from an historical perspective, a $1 billion GF
capital budget in deficit spending is extremely high, but it was
chosen as an example because it would be a relatively healthy
capital budget assumption and would allow for a fairly
significant amount of non-matching, straight GF projects.
CO-CHAIR SEATON said he understood the reason for the $1 billion
cap scenario; however, he said, "I don't think that's been the
response of the legislature all the time." He opined that
speculating that a $1 billion capital budget is "healthy" - in
the context that it is taken from savings - should be looked at
by the committee and not assumed. He re-stated the need to look
at all responses.
9:59:08 AM
REPRESENTATIVE SADDLER, referring to historical spending by the
state on operating expenses, asked if agency spending increased
following the change in the tax system from production profits
tax (PPT) to Alaska's Clear & Equitable Share (ACES) and the
concurrent rise in oil prices.
MS. REHFELD stated that some of the big increases were in
formula and statewide costs related to oil tax credits, the
three-year education funding plan, and direct deposits to the
unfunded liability of the retirement system.
CO-CHAIR SEATON advised the committee would be looking at the
effect of the state's commitments to capital credits for the oil
industry - which are all based on "spend" with disregard to
revenue - and which are an ongoing obligation that is
independent of the revenue stream.
REPRESENTATIVE SADDLER asked for an estimate of additional state
revenue from royalties, income taxes, and severance taxes that
would result from the changes made by HB 3001.
MS. REHFELD deferred to DOR.
CO-CHAIR FEIGE returned attention to the production numbers in
DOR's Revenue Source Book on which OMB based its budget. He
stated that with the effects of HB 3001, one would assume that
lowering the taxes makes more money available to industry for
investment, and thereby would result in a rise in production.
He asked whether OMB accounted for that rise in production and
the subsequent additional revenue.
MS. REHFELD relayed that estimates of the potential revenue
generated from investment must come from DOR and DNR. She
explained that OMB relies on the expertise of DNR and DOR for
the information on which to base its budget decisions, and does
not arrive at numbers independently. In further response to
Co-Chair Feige, she confirmed the committee would need to ask
DOR directly.
CO-CHAIR SEATON acknowledged that the committee is asking some
speculative questions; however, it can question the oil
companies on their historic application of capital, especially
that of ConocoPhillips Alaska, Inc. In fact, in 2010 and 2011,
the committee can see ConocoPhillips' allocation of profits and
where its profits went on a percentage basis. He suggested
asking the industry Representative Herron's question, and also
asking for the historic perspective of asset allocation by the
oil companies. He acknowledged that is a difficult question to
ask OMB, and ventured that DOG's perspective numbers on
additional oil production would be helpful.
10:05:47 AM
REPRESENTATIVE SADDLER returned to slide 11 and pointed out that
the total estimated reserve funds in FY 18 are about the same as
in FY 13, because funds are taken from the SBR. He asked for
the stated purpose of the SBR, and whether it is appropriate to
use SBR funds "to fill this hole in revenue."
MS. REHFELD responded that the SBR and the CBR are the state's
savings accounts. She opined there is no limitation on the
state's use of the SBR; language in the annual appropriation
bill allows the state to use the SBR if the balance is
insufficient to cover expenditures. The reason that funds are
taken from the SBR in the forecast is that in order to use CBR
funds, there must be a supporting vote by three-quarters of the
legislature; therefore, SBR funds have become the savings
account accessed first.
REPRESENTATIVE SADDLER asked for confirmation that SBR funds are
designed for this use.
MS. REHFELD responded that is correct. She concluded that at
the end of [FY 18] - the period anticipated in the HB 3001
fiscal note - there would still be a healthy reserve balance.
She said the governor's goal for HB 3001 is to grow the economy,
create jobs, and turn around the production decline.
CO-CHAIR SEATON spoke of the need for additional analysis of
scenarios assuming the price of oil at $20/bbl higher, and
$20/bbl lower, than the price in OMB's Scenario 4. He said he
presumes this analysis would more accurately reveal the impact
of volatile oil prices.
CO-CHAIR FEIGE requested OMB add production numbers to the
analysis.
MS. REHFELD agreed.
REPRESENTATIVE MUNOZ stated that the HB 3001 fiscal note
estimates forecasts with 5 percent, 10 percent, 15 percent, and
20 percent increases in production. She asked for an analysis
on the impact of those changes on savings and other figures
provided in OMB's PowerPoint.
MS. REHFELD agreed.
10:12:14 AM
DAVID TEAL, Director, Legislative Finance Division, Legislative
Agencies and Offices, cautioned that the Legislative Finance
Division does not take a position on bills; however, he offered
to comment on the presentation by OMB. He directed attention to
slide 3, noting that one of OMB's budget principles is building
cash reserves. He affirmed that the legislature should be aware
that building cash reserves is important for the future because
of the projected deficits, which will occur without changes to
the production tax structure, and which will become even larger
with changes to the tax structure.
MR. TEAL agreed with members of the committee that the
legislature needs to see how the deficit changes if production
increases. Referencing slide 7, he pointed out that the PFD
program is discretionary spending, and he said if deficits
continue to eat into reserves, the PFD program may not be
affordable; in fact, the $1 billion cost of the PFD program is
about the same amount that is lost in revenue under HB 3001. He
stressed that the state cannot continue to have a cash flow
deficit forever and, although reserves will help the state for a
period, funding for the PFD program can be used instead to fund
government operations.
MR. TEAL turned to the subject of savings, noting on slide 11
the total reserves in FY 13 are $15.7 million and are projected
to be basically the same in FY 18. In fact, the SBR is
declining because it is being used to fund deficits; the
reserves don't decline with the SBR because CBR earnings are
offsetting the expenditures. He said the point is that Alaska
is like a person nearing retirement; declining earnings must be
replaced by earnings from savings, thus cash reserves are
critical as oil production declines.
MR. TEAL, in response to the previous questions stated by
Representatives Herron and Petersen, regarding whether money
invested on increased production is recovered, acknowledged that
OMB makes a good point about jobs, but jobs also come from
keeping tax revenue for spending as capital budget. The
question remains whether the state would benefit more from that
than letting the oil companies keep the money and invest "just
in one way." He suggested turning the question around and
asking how much more production would be required in order to
break even, because the approximate costs of the tax change are
known and it is possible to see the negative cash flow. He
offered an example of figuring out whether a 2 percent annual
increase in production would generate enough cash flow over a
period of years to produce a net present value (NPV) back up to
zero, or whether it would take a great percent increase, and
whether that level of production would be reasonable.
10:19:23 AM
CO-CHAIR SEATON asked whether [the Legislative Finance Division]
has those calculations or can provide them.
10:19:48 AM
MR. TEAL answered no. He said DOR and DNR have to generate
those numbers.
10:19:52 AM
CO-CHAIR SEATON clarified that his question related to
Representative Herron's previous question: How much production,
at estimated costs, would it take to get back $1 billion in tax
relief?
MR. TEAL said he did not know. He explained that the oil tax
issue has not involved his division, because of its neutral
position, and although he could do more modeling, the source of
the numbers would be DNR and DOR.
CO-CHAIR SEATON said he would inquire as to who can provide
answers.
MR. TEAL offered to provide the graph on the state's historical
spending patterns which was prepared for the House Special
Committee on Fiscal Policy. He advised the state endured 20
years in deficit spending with no increase in capital and
operating spending. He agreed with Mr. Boucher that a $1
billion capital budget is high; on the other hand, the state and
legislature can be fiscally conservative if there is no money to
spend in the operating budget.
CO-CHAIR SEATON requested the information on historical spending
patterns.
10:23:17 AM
REPRESENTATIVE PRUITT referred to DOR's Revenue Source Book,
page 39, which shows "the total North Slope production from
2011," and he indicated that DOR included opportunities related
to development, valuation, and "what we potentially could have
total." He said OMB used numbers "off of what's projected in
here." He recommended asking DOR what changes it anticipates
from the effects of HB 3001, so that OMB can adjust its
projections and come back before the committee. He said,
"Because right now, if you just look at from 2011 to 2018, it's
a 48,000 per day barrel drop. How is this going to change
that?" He said he thinks that will help the committee
understand, because the information would clarify the situation
if a change is made with no new production.
CO-CHAIR SEATON observed that the committee is constrained by
DOR's estimates that are simply various percentages. He
remarked:
That's why we've asked the Division of Oil & Gas to
come back and say what, in addition to these plans of
development that are listed, do they speculate would
be out there because [DOR] said that they don't have
... that information. So, hopefully, we can ... get
that information from [DOG] ... although, the caveats
are from them that it's going to be speculative.
Yeah, speculation by [DOG] is much better than most of
us sitting here trying to guess off a ... 5, 10, 15,
20 percent range with no ... knowledge of what fields
are even potentially available.
REPRESENTATIVE PRUITT opined all the information presented is
speculative, and he called for a better estimate for comparison
of "what we saw today with ... those new numbers thrown in the
same projections."
CO-CHAIR SEATON explained he used the term speculative in order
to prevent a misunderstanding of guaranty.
10:27:34 AM
REPRESENTATIVE P. WILSON recalled having to cut the state budget
year after year in the past, and described doing so as "no fun."
She encouraged the committee to seriously consider how to
sustain the present budget before adding programs.
CO-CHAIR SEATON expressed appreciation for Mr. Teal's
perspective that the surplus is not just to "tide us over," but
that the CBR and the SBR are the earnings that will generate
some of the state's flow of capital in the long-term. He said
it is a perspective that had previously not been discussed.
REPRESENTATIVE PETERSEN returned attention to the chart on slide
11 and said that added together, the HB 3001 fiscal note
adjustments from [FY 13 through FY 18] equal $8.125 billion, and
if that is added to the total reserves, it would put the state's
reserves at $27.243 billion in 2018, and that is not counting
any lost interest on investments over those six years. He said,
"It would be probably pushing in the neighborhood of $30 billion
that we would have in our reserve accounts." He explained that
he wants the committee to consider that as one of many
scenarios.
[HB 3001 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| House Resources for HB 3001 04.25.2012 Final.pdf |
HRES 4/25/2012 9:00:00 AM |
HB3001 |
| BP Letter April 27th, 2012.pdf |
HRES 4/25/2012 9:00:00 AM |
HB3001 |