Legislature(2019 - 2020)SENATE FINANCE 532
01/14/2019 10:00 AM House LEGISLATIVE BUDGET & AUDIT
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| Audio | Topic |
|---|---|
| Start | |
| Approval of the Agenda | |
| Approval of the Minutes | |
| Amendment to Special Audit Request | |
| Executive Session | |
| Final Audits Release | |
| Other Committee Business | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
January 14, 2019
10:02 a.m.
MEMBERS PRESENT
Senator Bert Stedman, Chair
Senator Anna MacKinnon
Senator Cathy Giessel
Senator Click Bishop
Senator Lyman Hoffman
Senator Natasha von Imhof (alternate)
Representative Andy Josephson, Vice Chair
Representative Paul Seaton (via teleconference)
Representative Ivy Spohnholz
Representative Jennifer Johnston
Representative Dan Ortiz (alternate)
MEMBERS ABSENT
Representative Scott Kawasaki
OTHER LEGISLATORS PRESENT
Senator Shelley Hughes
Representative Tammie Wilson
Representative Gary Knopp
Representative George Rauscher
Representative Mark Neuman
Representative Geran Tarr
COMMITTEE CALENDAR
APPROVAL OF THE AGENDA
APPROVAL OF THE MINUTES
AMENDMENT TO SPECIAL AUDIT REQUEST
EXECUTIVE SESSION
FINAL AUDITS RELEASE
OTHER COMMITTEE BUSINESS
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
RANDY RUARO, Staff
Senator Bert Stedman
Legislative Budget and Audit Committee
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reported on the Legislative Budget and
Audit Committee transition report.
ACTION NARRATIVE
10:02:23 AM
CHAIR BERT STEDMAN called the Legislative Budget and Audit
Committee meeting to order at 10:02 a.m. Representatives
Josephson, Johnston, Spohnholz, Seaton (via teleconference), and
Ortiz (alternate) and Senators Stedman, Hoffman, Giessel,
Bishop, MacKinnon, and von Imhof (alternate) were present at the
call to order.
^Approval of the Agenda
Approval of the Agenda
10:03:24 AM
CHAIR STEDMAN announced that the first order of business would
be approval of the agenda.
REPRESENTATIVE JOSEPHSON moved that the Legislative Budget and
Audit Committee approve the agenda as presented. There being no
objection, it was so ordered.
^Approval of the Minutes
Approval of the Minutes
10:03:47 AM
CHAIR STEDMAN announced that the next order of business would be
approval of the minutes.
REPRESENTATIVE JOSEPHSON made a motion to approve the minutes of
the December 13, 2018 meeting. There being no objection, the
minutes from the meeting of December 13, 2018 were approved.
^Amendment to Special Audit Request
Amendment to Special Audit Request
10:04:19 AM
CHAIR STEDMAN announced that the next order of business would be
to rescind an action from the previous meeting and add
definition to that motion to ensure there was not any
misunderstanding to the technicalities. He explained that
during its December 13, 2018 meeting the Legislative Budget and
Audit Committee had approved a special audit request. At the
end of that meeting there had been discussion for the adoption
of an amendment which would use the FY 18 information as the
baseline. However, this change "was not firmly adopted and
voted on." He reported that the Legislative Auditor had advised
that a formal vote to adopt the use of the FY 18 information as
the baseline was necessary.
10:05:31 AM
REPRESENTATIVE JOSEPHSON moved that the Legislative Budget and
Audit Committee rescind its action to adopt a special audit
request on the Office of Children's Services (OCS) under HB 151,
as amended, to reference use of FY 16 as its baseline.
10:05:44 AM
CHAIR STEDMAN objected for discussion. There being no
discussion, the objection to adoption of the motion to rescind
was removed.
10:06:03 AM
REPRESENTATIVE JOSEPHSON moved to adopt the special audit
request as presented with an amendment to include FY 18 baseline
data in the audit. There being no objection, it was so ordered.
^Executive Session
Executive Session
10:06:35 AM
CHAIR STEDMAN announced that the next order of business would be
to move into executive session.
10:06:47 AM
REPRESENTATIVE JOSEPHSON made a motion to move to executive
session under Uniform Rule 22(b)(1) for the purpose of
discussing confidential audit reports for the Alaska Gasline
Development Corporation and the Department of Commerce,
Community & Economic Development, Big Game Commercial Services
Board, under AS 24.20.301. There being no objection, the
committee went into executive session at 10:09 a.m.
10:08:28 AM
The committee took a brief at-ease.
Chair Stedman brought the committee back to order.
10:09:46 AM
The committee took an at-ease from 10:09 a.m. to 10:41 a.m.
10:41:23 AM
CHAIR STEDMAN brought the committee back to order.
Representatives Josephson, Johnston, Spohnholz, Seaton (via
teleconference), and Ortiz (alternate) and Senators Stedman,
Hoffman, Giessel, Bishop, MacKinnon, and von Imhof (alternate)
were present at the call back to order.
^Final Audits Release
Final Audits Release
10:42:30 AM
REPRESENTATIVE JOSEPHSON made a motion for the final audits for
the Alaska Gasline Development Corporation, Select Financial
Issues and the Department of Commerce, Community & Economic
Development, Big Game Commercial Services Board, to be released
to the public for response. There being no objection, it was so
ordered.
^Other Committee Business
Other Committee Business
10:42:55 AM
CHAIR STEDMAN reported that Mr. Ruaro would present a transition
packet for the incoming House Chair of the Legislative Budget
and Audit Committee, explaining that this committee rotated its
chair from Senate to House every two years. He reported that,
as the committee represented the majority and minority
membership in both the House and the Senate, a lot of its agenda
was non-partisan work, with input from consultants, for the
benefit of the entire Alaska State Legislature. He reported
that, as recent Legislative Budget and Audit Committee work had
been on a gasline, a set of consultants had been engaged to
bring "some analytics to the gasline decisions that we're going
to be facing in the Legislature in the event that we have a
large in-state export line built." He shared that, in order to
preserve this accumulation of information, Mr. Ruaro would be
compiling the information for transfer to the incoming chair.
He noted that the complexity of the gasline issue was
"substantial in any realm." He acknowledged that the transition
document was not yet ready, as they were waiting to get some
information from the consultants. He stated that this document
would be available to all current and future committee members,
as well as current legislators. He expressed his hope that the
document would offer a better understanding for "the scope and
realm of what we're dealing with." He noted that, although
there had been some unreported complications, "at some point, we
have to lay some of these issues on the table." He shared that,
in December, it had been revealed that the "information flow was
highly restricted out of the administration to this committee,
which made it more difficult for us to move forward as fast as I
would have liked to." He added that the significance of these
discussions and the accumulation of information in the upcoming
months was "of such a nature, I would recommend that the new
House organization, whoever or whatever that structure is,
consider having this information put forth in front of the
[House Resources Standing Committee]. He noted that this
information would be shared with the Senate Resources Standing
Committee and the Senate Finance Committee.
10:48:02 AM
RANDY RUARO, Staff, Senator Bert Stedman, Legislative Budget and
Audit Committee, Alaska State Legislature, reported that a
transition report was in progress to describe and identify the
issues related to the AGDC [Alaska Gasline Development
Corporation] and AK LNG [Alaska liquified natural gas] projects.
He noted that these topics span fiscal analysis, fiscal
certainty, and legal issues, as well as royalty calculations and
the possible stacking of deductible lease expenditures. He
added that it would include the question whether field cost
allowances applied to liquids that were produced. He expressed
his surprise that the AGDC calculations had not considered these
issues or were unable to share them. He explained that most of
the fiscal impacts flowed from two areas. The first area,
potential project cost overruns, had some structures which AGDC
hoped to put in place to protect the state, as, at any moment,
the parties responsible for those cost overruns could choose to
"simply walk away from the project at which time the state would
be the deep pockets that would be left." He explained that some
experts had been retained to look at cost overrun issues and how
to mitigate the potential impact and risk to the State of
Alaska. He reported that information on cost overruns for mega
projects averaged as much as 80 percent, although it could be
much less on this project. He added that the committee wanted
all the risks identified and the strategies reviewed, in order
to mitigate those risks. He stated that the general concept for
this work was to identify and mitigate every identifiable risk,
which could help the state "be on solid ground knowing what the
returns would be, what the risks are going forward with the
project." He reported that, in the last year, the Alaska State
Legislature had denied a request from AGDC for an unlimited
amount of receipt authority. He offered his belief that this
had been denied because the legislature was not comfortable with
the amount of information it had received from AGDC, possibly
reflecting a need for more transparency and information sharing.
He suggested that, although "that could be a little tricky with
commercial terms," there were ways for mitigation by presenting
ranges of terms. He added that, although AGDC had broad
confidentiality powers under Alaska law, if there was intent for
an equity offering to the public or other persons, it was
necessary to make disclosures of a lot of fiscal and contract
information under federal SEC (U.S. Securities and Exchange
Commission) rules and laws. He shared one recommendation from
the report, that AGDC publicly present all the information
necessary for a formal equity offering for review by the public
and the legislature. This would allow that suggestions for
modifications to contracts or negotiations be returned to AGDC.
He shared that AGDC "seemed to be unconcerned" or [not] "very
worried about the fiscal impacts from potential cost overruns"
or "fiscal impacts from deductible lease expenditures and field
cost allowances that would be created by the upstream
infrastructure that the oil companies would be building at
Prudhoe and Point Thomson." He offered his belief that the cost
estimate would be for billions of dollars of infrastructure and
ongoing operating costs of hundreds of millions. He relayed
that Senator Stedman's had directed the consultants to review
these issues and develop a fiscal year by year net impact of the
project to the [state] treasury. He emphasized that Senator
Stedman wanted "to get to the bottom-line net by fiscal year" to
allow any necessary mitigation for impacts to the treasury. He
declared that the overall need was for the legislature and the
public to understand the impacts and mitigate those impacts to
the maximum extent, so the state and the public, along with the
other parties on the project, could move forward with
confidence. He acknowledged that, although some commercial
terms did need to remain confidential, many commercial terms and
contracts needed to be disclosed under federal law. He pointed
out that federal law preempted state law.
MR. RUARO added that the Department of Natural Resources and the
Department of Revenue received appropriations in the past
legislative session to perform their own due diligence and
review of the work to achieve a uniform, agreed upon
identification of issues and impacts. He noted that there would
be continued meetings between the experts from all sides,
including AGDC, to work toward agreement of the variables for
the modeling and the impacts from this effort. He added that,
with the recent change of administration, there had been an
increase of data from AGDC. He opined that the only way the
project could move forward was for identification of all the
issues and impacts, with strategies to mitigate each and
agreement for how to move forward.
10:58:28 AM
CHAIR STEDMAN added that the Legislative Budget and Audit
Committee consultants had been working with the Department of
Natural Resources and the Department of Revenue. He reported
that, in December, a preview of the integrated analysis, showing
the net impacts back to the state, had been presented on the
summary page. He questioned how a $40 billion project could be
negotiated without an understanding for the net cash impact to
the state. He opined that the Senate Finance Committee would
"take some detailed interest in, on whatever project was sittin'
on the table to be built." He declared that he "was not
impressed with AGDC not doing it [the integration analysis]"
even as it was in statute to review the net impact to the state.
He referenced another issue being reviewed by the analysts, "the
loss of oil due to the take-off of gas," adding, "I think there
might be some discussion in the resources committee on that."
He declared that the project would continue to move forward, and
"hopefully, at the end of the day, we'll end up with a large
export gasline."
11:01:27 AM
REPRESENTATIVE SEATON (via teleconference) directed attention to
a presentation he had e-mailed to the committee members. He
expressed his concern with slide 6 of this presentation, which
showed consideration for two different projects using
alternative financing. He explained that this financing
alternative separated the Chinese portion, as the Chinese
National Bank would offer low terms to only the Chinese national
oil company which would be responsible for paying that lender.
He added that the other 25 percent of the project, the equity
side which included the State of Alaska, would be financed
separately. He offered his belief that the interest rate on the
Chinese portion could be 1 or 2 percent which would make this
available gas more economical; however, for the State of Alaska,
the interest rate would be 8 or 9 percent. He concluded that
this raised the possibility for two sections of this project, a
Chinese section which was totally economic and the State of
Alaska section which was not competitive due to the interest
rate. He expressed his concern that there was not a plan for
further explanation. He suggested that the Legislative Budget
and Audit Committee ask its contractors to specifically review
this investment proposal so the state would not be subject to
subsidies in order to sell its portion of the gas.
11:06:29 AM
CHAIR STEDMAN declared that he was unclear for the financial
package to be presented by the Chinese, stating that "it's a
moving target." He pointed out that the consultants would need
to review and understand "whatever package is put on the table
and this mechanism of basically bifurcating the project of 75
percent of overseas and 25 percent on this side and running
it... like two different projects."
CHAIR STEDMAN, in response to Senator Hoffman, said that the
transition report would be distributed as soon as possible.
MR. RUARO said that distribution of the transition report by the
end of January was a reasonable expectation, although Legal
Legal Services had advised for a possible delay in the
authorizations to the contractors until a new Legislative Budget
and Audit Committee Chair and project director were seated.
CHAIR STEDMAN said that he wanted the transition report
distributed as soon as possible and that he would work with the
incoming chair. He opined that the consultants would be
available for discussions during the winter.
11:09:36 AM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
11:09 a.m.
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