Legislature(2011 - 2012)HOUSE FINANCE 519
02/08/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Department of Revenue Fy 13 Revenue Forecast | |
| Department of Revenue State Savings Account & Budget Reserves | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 8, 2012
1:36 p.m.
1:36:06 PM
CALL TO ORDER
Representative Bill Thomas Jr., Co-Chair called the House
Finance Committee meeting to order at 1:36 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative David Guttenberg
Representative Reggie Joule
Representative Les Gara
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Bryan Butcher, Commissioner, Department Of Revenue; Bruce
Tangeman, Deputy Commissioner, Tax Division, Department of
Revenue.
PRESENT VIA TELECONFERENCE
Victoria Ferguson, Petroleum Economist, Tax Division,
Department of Revenue; Lennie Dees, Audit Master, Tax
Division, Department of Revenue.
SUMMARY
PRESENTATION: DEPARTMENT OF REVENUE
FY 13 Revenue Forecast
State Savings Account & Budget Reserves
^DEPARTMENT OF REVENUE FY 13 REVENUE FORECAST
1:37:10 PM
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
provided members with a PowerPoint presentation: Overview
of Fall 2011, Revenue Forecast (copy on file). The largest
segment of state revenue came from oil. The state also had
significant income from federal receipts and investment
revenue.
Commissioner Butcher spoke to unrestricted general fund
revenue as reflected in slide 5. He explained that a little
over 60 percent of the state's expected revenue in FY 12
came from production tax. Remaining revenue came from:
royalties - 23.9 percent; corporate income tax - 7.4
percent; property tax - 1 percent; and non-oil revenue - 8
percent.
Commissioner Butcher concluded that oil revenue accounted
for 92 percent of the state's unrestricted general fund
income and non-oil revenue accounted for 8 percent.
Commissioner Butcher broke down the state's non-oil revenue
income. Corporate tax was the largest share at 21 percent.
Other non-oil revenue included: mining tax, insurance
premiums, tobacco tax, and motor fuel tax.
1:41:41 PM
Commissioner Butcher observed comments and frustrations
expressed by legislators in the previous session that the
department had been overly optimistic.
Commissioner Butcher split out the three categories of
forecasted production:
1. Currently Producing
Currently producing production included base production
and enhanced recovery production from investment in
rate enhancing activities (perforations, stimulations,
well work overs, and gas and water injection support).
This was the easiest category to forecast since
forecasts were based on current production.
2. Currently under Development
The Liberty Alaska project was an example of a project
that was currently funded or awaiting project sanction
in the near future. The "green light" was given to
move forward, but the project was not yet to the point
of production. This category was less certain than the
previous but more certain than the next category.
3. Currently Under Evaluation
Currently under evaluation production included
technically viable projects in the stage where
engineering, cost, risk and reward were being actively
evaluated. These projects were unfunded but were
considered to have a high chance of being brought to
fruition. Port Thomson would be in this category.
There was an expectation for future production and
projects were technically viable enough to include in
out-years' forecast, but a lot of things had to happen
for production to occur.
Commissioner Butcher observed that shale oil was not in the
forecast due to a lack of data. He anticipated exploration
wells by Great Bear Petroleum that could provide additional
information in the coming years.
Commissioner Butcher added that the department would
forecast any businesses that were doing business in the
state for tax credit purposes. Estimates for participation
in the tax credit program were made regardless of where a
company was in production.
1:45:41 PM
Commissioner Butcher spoke to factors that affect
production forecasting: geology, development plan,
commercial (oil price and market conditions), permitting,
production profile, and timing. He referred to the Liberty
project that had been delayed by British Petroleum (BP).
The project was moved out of the forecast due to
unanticipated factors, which had delayed the project.
1:46:47 PM
Commissioner Butcher reviewed the graph on page 12, which
depicted projects under evaluation, under development, and
currently producing. The department had been most accurate
at predicting currently producing projects; projects under
evaluation were the most speculative and reliant on
permitting, taxation, market and other issues.
Representative Doogan questioned how the department
separated projects under development from projects under
evaluation. Commissioner Butcher explained that projects
under development were not being produced but were being
funded; projects under evaluation had not received funding
or a "green light."
1:49:01 PM
Commissioner Butcher, in response to a question by
Representative Doogan, clarified that shale oil and heavy
oil were not included in the forecast due to insufficient
data relating to when they would be economic. There was no
"realistic idea of when it may come on line."
Representative Doogan asked for a list of projects that
were not far enough along to put into any of the
categories.
BRUCE TANGEMAN, DEPUTY COMMISSIONER, TAX DIVISION,
DEPARTMENT OF REVENUE, responded that heavy oil and shale
oil would constitute the list.
Representative Doogan summarized that the level of
speculation was being measured. The line between under
evaluation and nothing was not clear. Mr. Tangeman referred
Representative Doogan to page 37 of the Department of
Revenue's, Revenue Source Book, Section 4, Crude Oil
Production for an explanation.
1:52:23 PM
Mr. Tangeman reviewed slide 13, ANS (Alaska North Slope
oil) Production Forecast and Decline Rates, FY 12 - FY 21.
He explained that the chart stacked up the three categories
previously discussed to a total ANS production forecast
with a final percentage change from prior year. The
department added a percent change from the prior year
column for currently producing. He emphasized that the
currently producing category was the most solid. All three
categories required significant capital and operating
expenses to be realized. The 2009 forecast, predicted that
the Kuparuk [oil field] production in 2011 to within 39
barrels a day; Kuparuk would be under currently producing.
Mr. Tangeman observed that the Department of Revenue had
been criticized as being overly optimistic in the final
percentage change from prior year for all three categories.
The addition of the added percent change from the prior
year column for currently producing provided more
certainty.
Co-Chair Thomas ascertained that forecast assumed no change
to the tax code.
1:54:29 PM
Representative Guttenberg observed that Great Bear
Petroleum anticipated future production; and if it were
included in the projection.
Commissioner Butcher emphasized that the department worked
closely with the Department of Natural Resources and the
Alaska Oil and Gas Conservation Commission (AOGCC) on the
forecast. He observed that Great Bear Petroleum had not
drilled into the shale rock to determine potential or
looked at economics. Shale oil development would require
additional infrastructure. He felt that shale oil
development was too speculative for an estimate in the
current year. Subsequent years might be included.
Mr. Tangeman added that the state was exposure to Great
Bear Petroleum for the first time. He did not doubt the
resource. He pointed out a lack of roads in Alaska compared
to other states. North Slope shale oil development
economics had not been determined. He stressed the state's
responsibility to put out the best number and the lack of
data for shale oil production forecasts.
1:58:06 PM
Representative Guttenberg expressed appreciation for the
department's forecast but emphasized the need for
legislators to look at the gray areas in order to determine
where to go.
Vice-chair Fairclough referred to the Department of
Revenue's, Revenue Source Book, pages 37 through 41. She
felt the book was helpful and appreciated the department's
conservative but hopeful forecast.
2:00:43 PM
Mr. Tangeman discussed improvements in methodology. The
department created a standardized reporting form for
production and reserve forecasting information. He
maintained the form would be beneficial to the department
and producers. Petroleum engineer and petroleum economists
compiled the forecast information instead of reinterpreting
data previously received. The department previously
received production forecast information in various forms
without standardization. The department also received down
time estimates, which was an example of new information
used by the production forecast. The department followed up
and met a second time with industry to confirm the
department's assumptions and ensure forecast results were
reasonable with the companies' projections. He stressed
that the state was not a producer and was reliant on
industry information. Production forecasting required
consideration of each project's geology, development plans,
commerciality, production profiles, decline curves and
timing. The department used extensive well and field
specific data acquired from producers, AOGCC, and DNR. He
emphasized that AOGCC and DNR played a large role as the
experts in the field. New field development was very
important in mitigating decline rates.
2:03:33 PM
Mr. Tangeman concluded that production forecasting required
consideration of each project's geology, development plans,
commerciality, production profiles, decline curves and
timing. The department relied on other departments and
experts to assist them in putting together the forecast.
New field development would be most important to mitigating
the decline rate.
2:04:05 PM
Representative Doogan asked if "new field development"
referred to the development of new fields or new
development in fields.
VICTORIA FERGUSON, PETROLEUM ECONOMIST, TAX DIVISION,
DEPARTMENT OF REVENUE (via teleconference), explained that
field development referred to both: there could be
additional development in an existing field, and there
could be new development in a new field.
2:05:00 PM
Commissioner Butcher spoke to price forecast methodology.
An oil price forecasting session was held on October 3,
2011, and included 26 participants from the Department of
Revenue, Department of Natural Resources, Department of
Labor and Workforce Development, Office of Management and
Budget, University of Alaska, Legislative Finance Division,
and outside participants. Forecasting session presentations
included supply, demand, geopolitics, financial markets,
and outside expert forecasts. The forecasts of these
experts were averaged and blended equally with the New York
Mercantile Exchange (NYMEX), and the federal U.S. Energy
Information Administration (EIA), to derive a price
forecast for FY 11 through FY 16. Beyond FY 16, the
department took the constant real price increased by 2.5
percent for inflation.
2:06:56 PM
Commissioner Butcher discussed the change from Alaska North
Slope (ANS) to West Texas Intermediate (WTI) oil. The WTI
differential had been between one and two dollars premium
to ANS. He discussed the methodology due to the widening
differential. Previously, the department had adjusted the
WTI forecast by a dollar or two. In the last year, ANS rose
as high as $28 above WTI. The price dipped to within $5 and
was around $16 to $18 higher at the time of the meeting.
Experts agreed that there was a glut of oil being produced
from North Dakota and the southern states that was limited
in the number of pipelines. Experts also noted that the
lack of export and refinery capacity. He concluded that ANS
would come back in line with WTI over the next years. He
suggested that WTI would come up in price rather than ANS
dropping.
2:10:09 PM
Vice-chair Fairclough questioned if Commissioner Butcher
referred to the "global" supply. She asked the production
timeline for other jurisdictions that had received heavy
capital investments out-side of the U.S. She observed that
the U.S. imported 70 to 80 percent of its crude oil.
Commissioner Butcher acknowledged that a majority of U.S.
crude oil was imported; the majority came from Canada. He
affirmed that the forecast looked at global supply and
demand. He observed that new technologies were affecting
project economics. Demand had been affected by the
worldwide recession. The department needed to determine
what the price would look like as the recession recovered.
Vice-chair Fairclough questioned if American energy
consumption was flat. Commissioner Butcher could not
respond but observed that there was an expectation that
consumption would be affected by the milder winter in the
lower 48.
Vice-chair Fairclough wondered when competitor's production
would come on line: would competitive production occur in
two years, five years, or ten years out?
2:13:25 PM
Mr. Tangeman observed that there had been discussion around
the ANS - WTI issue in other states. He noted there were a
variety of projects that could affect production that would
also affect the ANS - WTI ratio. The North American market
understood quick fixes were possible.
Vice-chair Fairclough expressed concern that the budget was
based on $94 per barrel of oil that was at risk of decline.
2:15:13 PM
Representative Neuman questioned if the department's price
forecast utilized outside participants. Commissioner
Butcher explained that the department used many of the same
experts as the oil companies, but they tried to rotate
experts. Representative Neuman acknowledged the value of
utilizing industry experts. Commissioner Butcher noted that
industry's view of the future would be more proprietary.
Representative Wilson asked if the price of royalty oil had
to be tied to ANS or could WTI be used. Commissioner
Butcher observed that the Department of Natural Resources
would need to answer the question.
2:17:49 PM
Commissioner Butcher reviewed the ANS - WTI oil price
differential contained on slide 18. He observed that the
differential shot up in the middle of 2011. The department
expected the differential to continue for another year or
so. He felt the market would correct itself.
Commissioner Butcher compared ANS, WTI and Brent [Crude]:
ANS was a dollar below Brent; and WTI was below both ANS
and Brent. The differential was expected to narrow over
time. The average differential was $18.41 for FY 12. The
department's FY 12 estimate was $18.22.
2:20:08 PM
Representative Doogan observed the expectation that Brent
would close the gap. Commissioner Butcher clarified that
the expectation was that Brent and ANS would stay the same
and WTI would come up due to an increased in pipelines and
refineries or retrofitting that would alleviate the glut.
Commissioner Butcher reviewed slide 20, Price Forecasts as
of October 2011. He observed that the graph depicted FY 11
to FY 16 forecasts by the NYMEX, EIA, the Department of
Revenue, the price session and expert analysts. The
department's forecast fell in the middle to conservative
range. One of the points made by Standard and Poor's in
assessing the state's credit rating was its historic
conservatism on oil price. In all but one year the price of
oil exceeded the state's forecast over seven years.
2:22:50 PM
Commissioner Butcher reviewed slide 21: Fall 2011 DOR Oil
Price Forecast. He noted the chart showed real and nominal
dollars and was $109.33 per barrel of oil (p/b) for FY 13.
He anticipated the price would remain around $100 p/b but
not go much over $109 p/b.
2:24:19 PM
Commissioner Butcher, in response to a question by
Representative Doogan, explained that the FY 12 projection
referred to the fall projection, which updated the spring
projection. The spring forecast, final look at FY 12, would
come in April 2012 based on company true up.
2:25:47 PM
Mr. Tangeman reviewed lease expenditure forecast
methodology. He noted the department requested capital and
operating lease expenditure projections from North Slope
unit operators in the fall and the spring of each year for
the next five years from the current year. The department
would meet with and request spending projections from
companies that were not currently producing but had
announced drilling and/or development plans. He noted new
interest and explorers that had not entered into the
production side of their potential; the expected
expenditures for capital were taken into account. The
department also reviewed and coordinated with production
forecast regarding anticipated developments outside the
five-year time horizon received from operators and updated
long-term capital and operating expenditure projections
based on new information. The department saw an increase in
the forecast from new explorers without a tax liability.
2:27:02 PM
Mr. Tangeman discussed slides 24, which looked back at FY
12 to FY 16. He pointed out that the Alaska's Clear and
Equitable Share Act (ACES) was signed in December 2007, but
capital programs for explorers and producers were already
in place for FY 08 and into FY 09. He explained that FY 09
was the first time the [ACES] tax change would have been
incorporated. There was a bump in FY 10; but there was a
decrease in FY 11 actual numbers.
Mr. Tangeman noted that the price in 2012 was notably lower
than in 2011 (slide 26). The price of oil in 2012 had been
consistently higher than 2011. There was a dip from FY 10
to FY 11 in capital expenditures (CAPEX); the trend
continued in FY 12. There was a decrease in capital
expenditure of 13 percent under 2011. There was an increase
in operating expenses (OPEX) of over 19 percent from the
prior year. He observed that the cost of substances other
than oil in production was driving up the OPEX.
Co-Chair Thomas asked who had the actual facts related to
the number of drills and permits. Commissioner Butcher
replied that AOGCC kept an accurate drill count and the
Department of Natural Resources kept count on permits.
Mr. Tangeman pointed out that during Petroleum Production
Tax (PPT) and ACES debates it was not possible to look at
the five years previous; forecasts were all based on
modeling. The state was now in the position to look back at
actuals. He believed it would be an important part of the
conversation going forward and stressed that the constant
was the oil price, which had been incredibly high for a
long time.
2:32:54 PM
Representative Doogan referred to slides 24 and 25 and
asked how they related to operating expenses and projected
capital expenditures. He wondered whether the numbers were
an accurate portrayal.
Mr. Tangeman explained that increases were projected.
Explorers added a new level of speculation. Tax credits had
a direct impact on capital spending. He anticipated
increased capital expenditures.
Commissioner Butcher emphasized the department's ability to
look at historical information for future predictions. He
observed the department sometimes was overly optimistic on
the amount of expenditures and production.
2:37:34 PM
Mr. Tangeman stressed the possible versus the probable. The
resource was tremendous providing a lot of possibilities.
Actual information from a historical point of view was
beneficial for basing discussions [for future forecasts].
Representative Neuman observed that the combined CAPEX and
OPEX continued to increase.
Mr. Tangeman noted that the cost to produce a barrel of oil
had increased; capital uplift was needed to offset the
production decline of 10 to 12 percent.
2:39:47 PM
Mr. Tangeman, in response to a question by Representative
Guttenberg, explained that CAPEX would be affected by
allowing and receiving tax credits. There was an increase
in the capital expenditure projections along with increased
tax credits.
Representative Neuman asked if production credits were
applied against the net tax owed to the state. The gross
value of the oil minus standardized deductions of capital
and operating to get to a net; the tax rate on the net
provides the value of revenue. Production tax credits were
applied against the net, deducted from taxes owed the
state.
2:42:19 PM
Mr. Tangeman agreed with Representative Neuman's assessment
of the state's tax process was contained in the income
statements on pages 102 - 104 of the Resource Sources Book.
He stressed the complexity of the state's tax system, which
he maintained was the most complicated system in North
America and perhaps the world. He observed that there were
dozens of ways that the tax system could be adjusted and
each would affect another. Income statements represented a
snap shot with the different variables used.
2:43:24 PM
LENNIE DEES, AUDIT MASTER, TAX DIVISION, DEPARTMENT OF
REVENUE (via teleconference), provided an update on
production tax credit. He referred to slide 28. By FY 13,
the accumulation of production tax credit given over a six
year period since inception was estimated to be over $5.1
billion. Slide 29 depicted the amount of credits that would
have been earned via the tax credit certificate (blue bar,
series 1); and the credits that would have been applied
against production tax liabilities (red bar, series 2). Mr.
Tangeman interjected that slides 28 and 29 were summary
rollup slides, and a high level look at the tax credit
program.
2:46:02 PM
Co-Chair Thomas asked the total income to the state in
relationship to the $5 billion the state gave up in tax
credits. Mr. Tangeman offered to provide the information.
Commissioner Butcher pointed out that tax credits for new
exploration would not show revenue until years into the
future. The average time from exploration to development in
Alaska was 10 years.
Co-Chair Thomas concluded that the state took in $8 billion
and gave up $1 billion.
2:48:15 PM
Representative Doogan asked for more information regarding
years prior to 2009. Mr. Tangeman agreed to provide the
information.
Representative Guttenberg asked the difference between
series 1 and 2. Commissioner Butcher explained that series
1 were certificated without tax liability series 2 were
certificated with tax liability
Representative Neuman asked if it were possible to look at
how production credits affected the amount of throughput in
Trans-Alaska Pipeline System (TAPS).
2:51:22 PM
Commissioner Butcher thought it would be difficult to make
a direct correlation between credits and production. An
attempt had been made to look at the past five year's tax
credits and their affect. Representative Neuman
acknowledged the difficulty since the tax structure had
changed and there was no baseline.
2:53:03 PM
Mr. Dees reviewed slide 30, which provided detail of
transferrable tax credit certificates claimed by fiscal
year and broken down by credit type of actual received
applications for companies or explorers. Future projections
were difficult since the credits were unknown.
2:55:01 PM
Mr. Dees observed that slide 31 broke down transferable tax
credits that were issued and applied to production tax
credit liability for the outstanding balance of tax credit
certificates at the end of FY 11. A total of $42 million
transferable tax credit remained that could be transferred
or applied to production tax liabilities.
Mr. Tangeman, in response to a question by Representative
Guttenberg, clarified that the 2006 audit was completed and
the department was currently auditing 2007. A desk audit
would be done on tax credits. Another trued-up would be
done by the companies on March 31, for the previous
calendar year. There were severe penalties (11 percent) for
under-reporting. The numbers would be trued-up, but he
expected them to be close.
2:57:55 PM
Vice-chair Fairclough asked the dollar value of outstanding
tax credits that could potentially be refunded by the state
of Alaska. Mr. Dees noted there were $42 million
outstanding as of December 2011.
Vice-chair Fairclough referred to slide 30, and asked the
2010 - 2011 difference. She observed that there was a drop
off in the Exploration - .025 line. Mr. Dees noted that
there was no exploration activity in the state after oil
prices decreased at the end of 2008. Only a few
applications were received after the winter of 2010. There
was a lag between when activity occurred and the state
received the credit application. Credit applications must
be submitted within six months of the activity. He
estimated the state received $99 million in the fall of
2009, which would have corresponded to the end of drilling
activity in the first half of 2009.
3:02:04 PM
Vice-chair Fairclough observed that there was an influx of
credits available from 2008, 2009 to 2010, which were held
flat in 2011. She wondered if Alaska was seen as a place to
invest or if tax credits on the books were being spent.
Mr. Dees reviewed slide 32: "Credits Applied Against
Production Tax Liability, by Fiscal Year." The credit was
listed by credit type. He observed that FY 12 and FY 13
were projections; FY 11 was awaiting the final true-up and
had not been finalized.
Mr. Dees explained that data also existed for years prior
to 2009.
3:04:58 PM
Representative Costello asked how a company without a tax
liability could apply for production tax credits and the
difference between series 1 and 2. Mr. Tangeman explained
that production tax credits were tax credits available for
oil and gas. Series 1 (blue) were tax credit certificates
or cash payments out; and the series 2 (red) was the amount
taken against tax liability. The same tax credits were
available to explorers and producers, although it would be
simpler for a producer to net the credit against their tax
liability.
3:07:08 PM
Representative Doogan observed that the total was roughly
the same for producer or explorer tax credits. Commissioner
Butcher was not sure if there was a connection. Mr. Dees
pointed out that the credits applied against the date the
expenditure occurred. He suggested that there was a
coincidence. In 2010, the law regarding the ability of
companies to convert tax credit certificates to cash was
changed. Previously, reinvestment had to occur within 24
months to get the credit in cash. Now companies were able
to get their refund as soon as their application was
received. He suggested that the new policy might have sped
up the level of activity. Representative Doogan
acknowledged that it could be an anomaly.
3:12:42 PM
^DEPARTMENT OF REVENUE STATE SAVINGS ACCOUNT & BUDGET
RESERVES
3:13:23 PM
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
provided members with PowerPoint Presentation: State of
Alaska, An Update on the State's Savings Accounts (copy on
file). He pointed out that short term investments earned
low interest rates, which were expected to continue.
Markets did well in FY 11 in longer-term investments (21 to
22 percent). The market declined significantly at the end
of the fiscal year: 9 percent in the first quarter of FY
12, which rebounded to half.
3:14:57 PM
Commissioner Butcher referred to slide 3: General Fund
Other Non-Segregated Investments (GeFONSI), which were in
short-term investments liquidity purposes to run state
government. These investments made just under two percent
in FY 11. Fiscal year 13 was a little under one percent.
Commissioner Butcher reviewed slide 4, Constitutional
Budget Reserve (CBR). The main fund was invested for short-
term return (2.64 percent in FY 11, and 3.73 in FY 12 to
date); and the sub-fund was invested for long-term return
(21 percent in FY 11, and down by 4 percent in FY 12 to
date). There was a significant difference between short and
long term investments. He observed that FY 12 had not been
as good as FY 11.
3:16:23 PM
Representative Doogan recalled that there was approximately
$3 billion in funds available that were not in the
Constitutional Budget Reserve Account and questioned how
they were invested. Commissioner Butcher explained that the
funds were included in the GeFONSI section in short-term
returns.
3:17:09 PM
Commissioner Butcher looked at the Power Cost Equalization
(PCE) Fund on slide 5. The fund was invested for a seven
percent return. The return in FY 11 was a little under 22
percent. The fund was down at a little under a four percent
loss for FY 12. He concluded that the rate of return
averaged over 18 months was healthy.
3:17:37 PM
Commissioner Butcher reviewed the Public School Trust Fund.
The principle was invested for a six percent return and was
at seventeen percent for FY 11 and flat for FY 12. The
income being paid out was funded short term and only made a
fraction.
3:18:09 PM
Commissioner Butcher discussed the Public Employees'
Retirement System (PERS) and Teachers' Retirement System
(TRS) funds. He observed that the PERS Fund earned 21
percent; the TRS Fund earned 21.23 percent. They were
invested the same; the different rates of return resulted
from timing issues.
Commissioner Butcher noted that the unfunded liability was
not reduced due to changes by the Alaska Retirement Board
(ARM) and was down 8.25 to 8.0 percent.
3:19:19 PM
Representative Guttenberg clarified that all percentages
were the same and asked if they were invested in the same
manner. Commissioner Butcher affirmed.
Representative Guttenberg asked if they could be separated
if there were a change of investment policy. Commissioner
Butcher affirmed.
3:20:17 PM
Commissioner Butcher reviewed the Alaska Permanent Fund
Corporation (APFC), which earned a little over 20 percent.
He observed that APFC utilized similar investment
strategies as PERS, TRS and the CBR sub-fund.
Representative Wilson asked if Alaska helped other state's
infrastructure projects. Commissioner Butcher did not
recall any Alaskan investments in other state's
infrastructure. Mr. Tangeman interjected that there might
be a project in Chicago.
Representative Wilson questioned why investment was not
made in Alaskan infrastructure.
Commissioner Butcher clarified that APFC would be willing
to look at any project that fell under the prudent investor
rule. He observed that the Alaska Permanent Fund
Corporation staff could provide more detail. Representative
Wilson asked for a list of APFC real estate and
infrastructure investments and a definition of what
qualified a project.
3:22:53 PM
Co-Chair Stoltze acknowledged but pointed to past failures
of the Alaska Housing Finance Corporation and the Alaska
Industrial Development and Export Authority (AIDEA).
Vice-chair Fairclough commented that Mike Burns, Executive
Director, Alaska Permanent Fund Corporation, Department of
Revenue indicated to her that APFC was looking at big
projects. The intent was to find long-term projects with
long years of stable investments.
Vice-chair Fairclough asked if there were an ebb and flow
to the market and if there were a difference by quarter.
Commissioner Butcher noted that there did not seem to be a
particular trend.
3:25:26 PM
Representative Doogan observed a $71 million fish plant in
his district that was not processing fish and resulted in a
state loss. He recalled substantial legislative debate in
1979 and 1980 about how the Permanent Fund (PF) should be
invested. The development bank would have put all the money
into the state.
Commissioner Butcher recalled that Dave Roses presented
detail in his memoir relating to the pros and cons of
investing in the state. He observed that Mr. Roses posited
that a deep state recession would be magnified if the PF
were invested in-state. The state would not want to be
forced into a political decision in order to protect PF
investments that could go sideways.
3:27:48 PM
Commissioner Butcher observed that the total of investments
brought in revenue of a little over $8 billion in FY 11:
$6.8 of the billion was in the Alaska Permanent Fund. The
FY 12 actuals were not as high due to volatility in the
market.
3:28:42 PM
Commissioner Butcher concluded that there was good and bad
news in the projections for FY 12.
ADJOURNMENT
3:31:10 PM
The meeting was adjourned at 3:31 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN Presentation DOR State Savings Accounts Update 2.8.12.pdf |
HFIN 2/8/2012 1:30:00 PM |
|
| DOR Revenue Forcast HFIN 2-8-12.pdf |
HFIN 2/8/2012 1:30:00 PM |
|
| DOR Response to 2 8 12 H FIN.pdf |
HFIN 2/8/2012 1:30:00 PM |
|
| H FIN DOR 2.8.12 Credits pre-2009 and break outs.pdf |
HFIN 2/8/2012 1:30:00 PM |
|
| H FIN.DOR. 2.8.12 APFC Infrastructure holdings.pdf |
HFIN 2/8/2012 1:30:00 PM |
|
| H FIN.DOR. 2.8.12 APFC Real estate holdings.pdf |
HFIN 2/8/2012 1:30:00 PM |