Legislature(2015 - 2016)BUTROVICH 205
04/09/2016 02:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB130 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 247 | TELECONFERENCED | |
| += | SB 130 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 130-TAX; CREDITS; INTEREST; REFUNDS; O & G
[Contains discussion relating to HB 247.]
2:59:54 PM
CHAIR GIESSEL announced the consideration of SB 130.
MARGO WARING, representing herself, Juneau, Alaska, testified in
support of SB 130. She said Section 2, Article 8, of the Alaska
Constitution, is about the use, development, and conservation of
natural resources of the state for the maximum benefit of the
people, and the fact is that elected officials are temporary
custodians of those resources. She spoke in favor of full
transparency regarding oil and gas affairs of the state,
"because public accountability has to be more important than
anything else."
She learned a couple of lessons when she worked in Governor
Hammond's Office. One is about public financing of private
corporations and that there is no excuse for having oil and gas
credits, particularly production credits. They go against
another lesson she learned, which is if a business is not
profitable, then it shouldn't be propped up by public funds. The
state needs to be able to sell its assets at a profit and not at
a "disguised cost."
MS. WARING concluded that tax rates should be at their higher
previous rates to maximize the benefit the Constitution
promises.
3:03:55 PM
SANDRA UDELHOVEN, representing herself, Wasilla, Alaska,
testified against SB 130. She said the State of Alaska is not
keeping its word. It has already committed to pay oil and gas
tax credits to corporations and not doing so creates an
environment that is hostile to private enterprise. She
requested the state to be truthful and honest in its dealings
with the oil and gas industry and not change its tax policies so
frequently.
3:05:31 PM
CARL PORTMAN, representing himself, Anchorage, Alaska, testified
in opposition to SB 130. He was concerned about the state's
current fiscal situation. He said the current oil tax policy has
encouraged new industry investment, which has stabilized a long
steep slide in production. In fact, it was up 1 percent in the
past 12 months, the first increase since 2002. He did not
support raising taxes on the oil and gas industry as SB 130
would do. "Alaska cannot increase oil production by raising
taxes," he said, "especially considering that North Slope oil
now sells for less than it costs to produce."
He said the industry is losing hundreds of millions of dollars
annually in this downturn and is being forced to cut jobs and
expenses. Any tax increase will have a direct impact on future
investment in Alaska and, therefore, future production. Even at
today's low oil prices, most of Alaska's revenues come from the
oil industry through various industry taxes and royalties.
Clearly, the industry continues to pay the majority of Alaska's
bills. He suggested that the legislature continue cutting state
spending to a more affordable level, because despite recent
cuts, the state's operating budget is still on an unsustainable
path.
In addition, he supported coming to terms with using Permanent
Fund earnings to help fill the fiscal gap. The earnings need to
be part of the long term solution, and the Permanent Fund is the
biggest tool in the box to help solve the state's fiscal crisis.
He recalled that Governor Hammond's vision for the Permanent
Fund included the eventual use of fund earnings to help pay for
essential government services. He believes that day is here.
3:08:32 PM
MICHAEL FOSTER, representing himself, Mat-Su Valley, Alaska,
testified in opposition to SB 130. He spoke in support of
extending tax credits in the Copper River Basin, because it and
many other places in Alaska need affordable and reliable energy.
Ahtna is trying to do this by exploring for natural gas within
the basin. One of his companies, North Star Trucking, is
currently working for them on the Tolsona 1 natural gas
exploration well. They have 14 employees on site and another
four employees supporting that project. They are all Alaskans
and all support families in Anchorage, Wasilla and Glennallen.
If it wasn't for this project, these workers wouldn't be
employed. These are Alaskan projects for Alaskan workers.
If not for the current tax credits, this project would not be
going forward. This is not Prudhoe Bay or Cook Inlet. The risk
of exploring in areas like the Copper River Basin is high. There
are a lot of unknowns and little infrastructure available to
support these exploration projects. He urged the committee to
extend the Frontier Basin tax credits to the year 2022 to help
companies like Ahtna to investigate underexplored areas in
locations that they don't have infrastructure and energy for the
supporting population.
3:10:49 PM
CHAIR GIESSEL welcomed Senator Wielechowski to the committee.
She noted the presence of Jerry Burnett, Deputy Commissioner of
the Department of Revenue.
3:11:10 PM
BRAD FAULKNER, representing himself, Homer, Alaska, testified in
support of SB 130. He has worked in and out of the oil and
fishing industries all his life.
One of the reasons he supports SB 130 is because an oil rig from
Asia is tied to the dock right outside his house and 100 percent
of the people on it are from Louisiana. And of the 100 people
doing seismic work near Anchor Point only five of them are
Alaskan. So, the tax credits are not jobs-related, because the
jobs aren't going to Alaskans.
Cook Inlet tax credits were paying up to 65 percent of costs,
and at best, if oil is discovered many years down the road, it
will only bring in 12.5 percent royalty into the state. It's
just not a good deal. Production tax credits on the North Slope
are entirely different, because that production gets taxed. This
is not a good deal for the state and it hasn't done anything to
increase production. Production will go up when the price of oil
goes up, he said.
3:13:19 PM
BRENDON HOPKINS, representing himself, Homer, Alaska, testified
in opposition to SB 130. Testifying from work on the North
Slope, Mr. Hopkins said he is a lifelong Alaskan. He has had to
take a significant cut in his income as a result of the current
business environment, but he is happy to work for a well-run
company.
He pointed out that the state's budget has increased
significantly over the years; in 2000 it was roughly $2 billion
and now it is $8.6 billion. He said the fiscal problem has to be
solved now and by using a balanced approach. Cook Inlet's
success in increasing production and jobs over the last several
years is due in large part to some of the credits. If they want
to repeat the situation of companies shutting down and job loss,
taking those credits away is a first step.
He agreed with Article 8 of the Alaska Constitution that
provides for maximizing the state's resources for the benefit of
its people, but "benefit" should not be measured in purely
revenue or the size of the bank account. He closed in saying
that he appreciated all the hard work the legislature is doing.
3:16:32 PM
CHAIR GIESSEL thanked him for taking the time to call in and
asked where Mr. Hopkins lives when he is not on the North Slope.
MR. HOPKINS answered that he lives on the Kenai Peninsula.
CHAIR GIESSEL thanked him for traveling all that distance for
work.
3:17:15 PM
JOHN STURGEON, representing himself, Anchorage, Alaska,
testified in opposition to SB 130 and any new tax on the oil
industry. He acknowledged concern about the state's deficit but
added that a lot is being done to resolve the issue. However,
the state still needs an economy after the fiscal cliff problem
is solved, and taxing the industry's success is not the way to
keep industry in Alaska and keep the economy strong.
MR. STURGEON said he runs the largest timber operation in the
state and he can't imagine how he would run that logging
operation if their taxes were as high and unpredictable as the
oil industry's that has changed almost every other year.
CHAIR GIESSEL noted Senator Stoltze was present.
3:19:14 PM
JIM PLAQUET, representing himself, Fairbanks, Alaska, testified
in opposition to SB 130. He is a 42-year member of the
International Union of Operating Engineers, Local 302, and said
that Alaskans voted for more oil production in 2014 and since
then the oil industry has invested $5 billion and stabilized
flow rates through the TAPS.
Oil tax policy does not need to be changed again, he said. SB
130 would be the sixth major oil tax change in 11 years. "We
need a stable tax system....Alaska needs investment to achieve
more through-put in the pipeline."
MR. PLAQUET stated that oil prices will rise again and when they
do, Alaska will be competing with shale oil in the Lower 48.
Alaska is an expensive place to do business and changing tax
policy frequently doesn't help attract investment dollars. It
doesn't send a message that Alaska is open for business.
SB 21 increased production by 1 percent compared to a decline
average of 6.6 percent a year under ACES. Now is the time to
keep Alaska competitive and open for business by maintaining a
tax policy that is stable and balanced.
3:21:28 PM
CATHY DUXBURY, representing herself, Anchorage, Alaska,
testified in opposition to SB 130. She works in the oil and gas
industry and was opposed to changing the oil and gas tax
structure. "Higher taxes only discourages investment," she said.
She suggested finding ways to increase throughput as opposed to
increasing taxes. The private sector is holding its breath every
day wondering which jobs are going to go next or what pay cuts
are coming. It will just get worse if the industry is taxed
more. Let it be and use the earnings from the Permanent Fund;
that is what it is there for. She said it was never set up to
just hand out money to people.
3:23:45 PM
JAMES MCMILON, representing himself, Fairbanks, Alaska,
testified in opposition to SB 130. He said he is a 30-year
resident of Fairbanks and is currently a business representative
for Teamsters Local 959. He noted the wide variety of industries
his union represents including the Usibelli Coal Mine, the North
Slope, the TAPS, and the Port of Anchorage. They understand the
challenges facing Alaska and the tough decisions that need to be
made, and support the governor and legislature in reducing the
operating budget, using some of the Permanent Fund earnings to
help balance the budget, and instituting new taxes.
They are concerned with the governor's plan to change the oil
tax structure, however. Since SB 21 passed, the oil industry has
invested more into Alaskan projects, like CD5 and Shark Tooth,
that have put hundreds of Alaskans to work, more oil in the
pipeline, and billions of dollars into the economy. Increasing
oil taxes and reducing credits that encourage investment at a
time when industry is struggling sends the wrong message. He
supported maintaining a healthy oil and gas industry in Alaska.
3:26:01 PM
DAVE HANSON, representing himself, Anchorage, Alaska, testified
in support of SB 130. He said he is a 40-year Alaskan resident
and a fiscal conservative. He has the greatest respect for the
oil industry and thinks their last 40 years are an amazing
success story. However, the crash in oil prices is no one's
fault. We're all in it together.
MR. HANSON said the state cannot afford the current oil tax
credit program. In FY13 the program cost $54 million, but in
FY17 it will cost $825 million or over one-fifth of the state's
budget. The Tax Division says program costs are headed toward
$1-1.5 billion a year. Who will pay for it?
The tax credit program made great sense when oil prices were
high and oil production taxes were being paid. But no production
taxes are paid on an oil price below $73/barrel and now the
program doesn't make sense.
The BlueCrest representative said the state would get back its
tax credit money through oil royalty payments, but royalty
payments are what oil companies pay the state for its oil. The
amount the state receives should not be discounted to make up
for its tax credit program that is related to the oil production
tax. He said the credit program is also the most effective way
to increase oil production. Some credit money has helped produce
oil, some has helped efforts that didn't work, and some is being
used to bail out companies from bankruptcy.
MR. HANSON said it is time to work together and think a little
differently and be creative. He suggested a three-point plan
that would be sustainable. Use part of the Governor's generous
SB 130 to pay for credits through FY16 even though the credits
were subject to appropriation and not guaranteed. They need to
be followed through. Two, use Senator Stedman's approach
beginning in FY17 to eliminate oil production taxes and credits
until the price of oil reaches $72/barrel. Three, expand the
Alaska Industrial Development and Export Authority (AIDEA)-
direct loan program so that all credible oil company efforts can
get financing at a reasonable cost during these tough times.
3:29:26 PM
KATE BLAIR, representing herself, Anchorage, Alaska, testified
in opposition to SB 130. She said she and her family had lived
in Alaska for 10 years and have learned what an important and
interesting relationship the oil industry has with the state.
She spoke of her family's involvement with the community and the
state and said it is their permanent home.
She works in the oil and gas industry and her husband is a
police officer. They are acutely aware of the state's budget
shortfall, but they are also very aware of the effect the low
price of oil has on private industry that has already seen
layoffs, project and drilling delays, and companies starting to
leave the state. These all affect families such as theirs.
The oil industry is in the red; they have paid the bills for
years, built infrastructure across the state, donated to
communities, universities non-profits, schools and buildings,
and now the state is going to ask for "another pound of flesh."
Raising oil taxes or cutting tax credits will force companies to
get their money from capital spend, which will jeopardize even
more jobs. She didn't understand why they would even consider
cutting Cook Inlet tax credits and sending the Mat-Su Anchorage
and Kenai Peninsula Boroughs back to the energy shortages of
2009.
MS. BLAIR supported the state reducing its operating budget,
using the Permanent Fund, and instituting a broad-based tax, but
she will not support going back to a single industry year after
year when prices go up or down.
3:33:13 PM
MARLEANNA HALL, Executive Director, Resource Development Council
(RDC), Anchorage, Alaska, testified in opposition to SB 130. She
said increasing taxes on our natural resource industries will
decrease production through the TAPS, not encourage the
development of new mines in Alaska; it will not attract more
tourists or increase more investment in the fishing industry.
Higher taxes in this low priced commodity environment will
likely deter investment and lead to lower state revenues and a
weaker private sector over the long run. Changing the tax
structure now will make a bad situation worse.
3:35:58 PM
SCOTT HAWKINS, President, Advanced Supply Chain International
(ASCI), Anchorage, Alaska, testified in opposition to SB 130. He
is a 33-year resident of Anchorage who co-founded his company 17
years ago. There are three reasons he opposed SB 130: incentives
matter in encouraging investment. For example, his FedEx Cargo
hub development agreement included incentives to reduce some of
the disadvantages Anchorage had at that time and his Alyeska
Resort agreement included state investments in water and
wastewater infrastructure in Girdwood. Another example is eight
years ago, Southcentral Alaska was practicing for brownouts due
to energy shortages. Then the legislature adopted a package of
incentives for Cook Inlet and production turned around becoming
a tremendous success story.
There is an old principal in economics: if you want more of
something, incentivize it. If you want less of something, raise
taxes on it.
Reason two is that the state's tax policy "desperately" needs to
be stabilized. It has changed about five different times over
the past 10 years. That many changes in that period of time
looks more like a "Banana Republic" than a mature, stable taxing
jurisdiction, Mr. Hawkins said. Strengthening that point even
further is that Alaskans voted for the current tax policy at the
ballot box. They were given the choice of voting for a tax
environment that stimulates production or overturning it.
Thirdly, Mr. Hawkins pointed out that increasing taxes on oil
and gas at a time like this would be going in exactly the
opposite direction. His company, an oil field services company,
had to cut about 20 percent of its workforce over the past 18
months and is looking at cutting about another 20 percent over
the next 12 months. Many other companies have had similar
experiences. In fact, his is probably "one of the lucky ones."
So, industry is making hard decisions, but by contrast, state
government doesn't appear to be making similar hard decisions.
The budget is going in the right direction, but it's not
decisive enough in adopting a sustainable spending pattern.
3:40:20 PM
CURTIS THAYER, President & CEO, Alaska Chamber of Commerce,
Anchorage, Alaska, testified in opposition to SB 130. He spoke
of the numerous changes in oil taxes and credits and described
the benefits of credits and a stable tax environment. He urged
them to avoid changing any current tax policy. It has been
changed over 30 times since oil was first discovered in 1969 on
the North Slope.
He mentioned the threatened brownouts in Southcentral Alaska for
a lack of natural gas. There were only two players in Cook Inlet
and they were harvesters who had the sense to leave the state.
When the state put incentives in place, multiple new companies
started drilling for natural gas in Cook Inlet. Now a stable
supply of natural gas is delivered to Homer and to Fairbanks
Natural Gas.
Southcentral has also seen additional jobs and two new gas-fired
power plants have come on line, because the natural gas is now
available. When the voters reaffirmed SB 21, new players came to
the North Slope and new fields are being discovered there.
3:44:12 PM
TOM LAKOSH, representing himself, Anchorage, Alaska, testified
in support of SB 130. He said the bill does not go far enough
toward cutting tax credits. He referred to an Alaska Dispatch
story about how the current tax credits subsidize the oil
companies. He said not to give money away to the oil industry.
3:47:35 PM
FAITH MARTINEAU, representing herself, Anchorage, Alaska,
testified in opposition to SB 130. She said she had worked in
the oil industry for over a year and explained how the bill
hurts her family because her employer, Caelus Energy, has just
announced a 25 percent reduction in workforce. Caelus Energy
came to Alaska because of the benefits offered by SB 21 and
these benefits are being retroactively revoked under SB 130.
Also, in order for Caelus to return to its previous level of
employment the price of oil would have to be much higher under
SB 130.
She addressed how the bill would negatively affect Alaska's
businesses by presenting "yet another change" in a jurisdiction
recognized as one of the most unpredictable in the world for how
it taxes oil and gas. She asked them to consider the
advancements that businesses have made under the existing tax
regime. SB 21 attracts investment which allows the current
system to work especially in a time of crisis. Enalytica has
testified that stability is the most important element in any
legal system to fostering steady investment and healthy
businesses.
How would SB 130 affect Alaska jobs? She has never personally
known so many people who have lost their jobs since commodity
prices have plunged. Multiple communities and organizations
suffer in the face of layoffs. The proposed bill would increase
taxes on an industry that already contributes more to
unrestricted general fund revenue than any other industry.
Because more than one-third of Alaska's jobs are tied to oil and
gas, those e additional taxes represent dollars that can't be
spent creating jobs through exploration, development or
production.
3:50:50 PM
JEREMY PRICE, representing himself, Anchorage, Alaska, testified
in opposition to SB 130. He disclosed that he is the director of
Americans for Prosperity. He maintained that SB 130 is a tax
increase on the oil and gas industry, an industry that is now
losing money. If the commercial fishing industry was cash flow
negative, would they raise taxes on it? Would they consider
raising taxes on the timber industry? No.
He believes that taxes are being raised on oil, because the
public perception is that big oil can afford it. The legislature
and the governor would never think of raising taxes on any other
industry in this low price environment, which is ironic, because
this is the one industry that pays for most of the state's
services. The message in the press is that these state services
are so sacred that they cannot be eliminated.
He noted layoffs in the oil industry are occurring even without
this legislation. He said the bill will not increase production
or jobs or provide certainty and predictability in the private
sector. It is not in our best interests. He cautioned to not
pass something that has short-term gain with long-term
repercussions.
MR. PRICE said he used to work for Flint Hills Refinery and no
one thought it would close, but it did, because of the
combination of bad economic conditions and poor public policy
that drove it into the ground. Now it is going to be sold for
scrap metal. He cautioned to not rush the decision.
3:54:29 PM
SENATOR WIELECHOWSKI asked if Alaskans for Prosperity believes
the state should decrease oil taxes.
MR. PRICE answered yes and added that the oil tax burden, as
with any other industry, should be stable and predictable.
3:55:38 PM
CHAIR GIESSEL found no further comments, closed public testimony
and held SB 130 in committee.
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