Legislature(2003 - 2004)
01/29/2003 01:27 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 29, 2003
1:27 P.M.
TAPE HFC 03 - 4, Side A
TAPE HFC 03 - 4, Side B
CALL TO ORDER
Co-Chair Harris called the House Finance Committee meeting
to order at 1:27 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Gary Stevens
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
None
ALSO PRESENT
Senator Ralph Seekins; William Corbus, Commissioner,
Department of Revenue; Hans Roeterink, Executive Director,
Alaska Science and Technology Foundation, Anchorage.
PRESENT VIA TELECONFERENCE
None
GENERAL SUBJECT(S):
APPOINTMENT:
William Corbus, Commissioner,
Department of Revenue
FY04 State Revenue Forecast - Department of Revenue
AGENCY OVERVIEWS:
Department of Revenue
Alaska Science & Technology Foundation,
Department of Community & Economic Development
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 23rd Legislative Session, contact 465-
2156. After the 23rd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 03 - 4, SIDE A
000 Co-Chair Harris Convened the House Finance Committee
meeting at 1:27 P.M. A roll call was
taken and all members were present.
122 Co-Chair Harris Referenced the sub-committee member list.
Appointment Discussion of William Corbus
Commissioner for Department of Revenue
226 Co-Chair Harris In accordance with AS 39.05.020, the
Finance Committee reviewed the
qualifications of William Corbus,
Governor's appointee and recommends that
the name be forwarded to a joint session
for consideration.
301 WILLIAM CORBUS, Stated that he was honored that the
COMMISSIONER, Governor had recommended him for the
DEPARTMENT OF position of Commissioner of the
REVENUE Department of Revenue.
420 Commissioner Corbus Provided background information on his
personal history and investment banking.
Commissioner Corbus moved to Juneau in
1970. Prior to that, he worked on Wall
Street for four years. He added that he
had spent 32 years in the electric
utility management with Alaska Electric
Light & Power Company. He referenced the
number of bank boards that he served on
and added that he had served on Governor
Knowles Highway Gas Pipeline.
Additionally, he noted that he has been
active on State, civic and charitable
activities and held position on several
boards and commissions.
625 Co-Chair Harris Observed situations statewide regarding
fiscal concerns of the State.
649 Commissioner Corbus Commented that he was new on the job and
did not have specific recommendations.
He noted that he agreed with the
Governor's suggestion regarding the oil
and gas development and assured that
would be an area of focus.
721 Co-Chair Williams Asked what the State could do to increase
revenues in order to address fiscal gap
concerns.
819 Commissioner Corbus Reiterated that the Governor has
mentioned oil. He observed that later in
his testimony, he would review the
revenue forecast. The petroleum industry
must to be encouraged to keep up their
level of investment. He stated that he
would discuss what could encourage those
companies to make investments to sustain
production. At present time, he had no
specifics.
920 Representative Observed that Commissioner Corbus had an
Hawker extensive background on public utilities
administration and banking. He requested
a broader elaboration regarding his
qualifications to act as Commissioner of
the Department of Revenue.
959 Commissioner Corbus Replied that he has been following the
State of Alaska's financial situation for
many years. He advised that his
experience on the Alaska Pension Board,
State Fiscal Policy Council and other
commissions. He acknowledged that as far
as leading the Department of Revenue, it
would be a formidable task. He added that
he had filled leadership positions
throughout his life. He noted the
qualifications of his staff.
1148 Representative Asked for an expansion on the roll that
Hawker the Department of Revenue would take in
the future as part of the new
Administration.
1204 Commissioner Corbus Responded that the mission of the
Department of Revenue was to collect
money for the State and then invest it.
Commissioner Corbus noted that he was
more concerned with increasing the
collections, which would increase
revenues.
1250 Representative stressed that Commissioner Corbus was
Stoltze very qualified for the position of
Commissioner of Department of Revenue.
He requested for a brief discussion on
any foreseeable changes to the Permanent
Fund.
1328 Commissioner Corbus Commented that the Permanent Fund had not
had a meeting since the Administration
came into office. Commissioner Corbus
noted that he did know many of the Board
of Trustees and agreed with the
allocation approach taken in the past.
1435 Representative Inquired about Commissioner Corbus'
Stoltze opinion on the endowment.
1440 Commissioner Corbus Replied at this time, he did not.
1503 Representative Croft Acknowledged that Commissioner Corbus was
qualified. He addressed the State's
current fiscal issues. He asked how long
longer the State would have with its'
current spending from the Capital Budget
Reserve (CBR).
1603 Commissioner Corbus Responded that the only information that
he had was the Fall revenue forecast as
prepared by the previous Administration.
Based on those projections, the CBR was
be exhausted by June, 2005.
1705 Representative Croft Asked how can the State encourage new
money out of the oil industry, when the
State is on a "3-year" fiscal crash
course.
1740 Commissioner Corbus Responded that he did not have an answer
to that at present time. He commented
that it is being worked on at this time.
1801 Representative Croft Questioned that response.
1817 Representative Commended Commissioner Corbus on his
Foster resume and experience. He thanked Mr.
Corbus for his willingness to take the
position with the Administration.
1850 Co-Chair Harris Stated that Commissioner Corbus would be
confirmed by the House Finance Committee
for the position of Commissioner of the
Department of Revenue.
OVERVIEW: DEPARTMENT OF REVENUE
1928 Vice-Chair Meyer Called the Committee back to order and
noted that Co-Chair Williams and Co-Chair
Harris would be absent for the remainder
of the meeting and that he would be the
Chair.
1957 Commissioner Corbus Noted that the mission of the Department
was to collect State funds and invest
them. Stated that there are seven
divisions within the Department of
Revenue. He listed each of those
divisions:
· Administrative Services
· Treasury
· Child Support Enforcement Division
(CSED)
· Permanent Fund Division
· State Bond Committee/Alaska
Municipal Bond Committee
· Tax Division
· Alcohol Beverage Control Board (ABC)
2053 Commissioner Corbus Stated that there are approximately 450
full time employees working for the
Department. There is an overall budget
of approximately $70 million dollars.
Most of that money is a management fee
for the Permanent Fund and the Pension
Fund. $12.5 million comes from General
fund appropriations.
2113 Commissioner Corbus Listed the other entities within the
Department of Revenue for administrative
purposes are:
· Permanent Fund Corporation
· Alaska Housing Finance Corporation
(AHFC)
· Mental Health Lands Trust
2132 Commissioner Corbus Added that one of the important roles of
the Department was to prepare the semi-
annual revenue source book.
2205 Commissioner Corbus Explained that the Tax Division is broken
into 9 groups with 88 employees. The
groups are:
· property tax
· oil property taxes
· economic research
· appeals
· Audit I group
· Audit 2 group
· Gaming group
· Administrative support
· Information technology
· Operations
Oil and gas tax revenues amount to $945
million dollars for FY02.
2241 Commissioner Corbus Child Support Enforcement Division (CSED)
- mission to establish paternity,
determine monthly child support amount,
issuing withholding orders, collecting
and dispersing payments, and
investigating cases of non compliance.
2332 Commissioner Corbus Historical records indicate good progress
in handling complaints over the years.
2356 Commissioner Corbus Addressed the Permanent Fund Dividend
Division. There are 59 permanent
employees and 34 seasonal employees. He
noted the Division is making progress
with people filing applications on-line.
2449 Commissioner Corbus Referenced the Treasury Division, which
consists of the investment staff, cash
management group and the controllers
group. The Division is responsible for
managing $16 billion dollars. About $10
billion dollars of that amount is the
defined benefit plan for the Alaska State
Investment Pension Board. Approximately
$2 billion dollars is for the defined
contributions of the State. The general
funds included to about $1 billion
dollars. The Constitutional Budget
Reserve fund totals about $2 billion
dollars and there is various group funds
bringing the total to about $16 billion
dollars. The Commissioner of Department
of Revenue has fiduciary responsibility
for a portion of that money. The other
$12 billion dollars, the ASPIB has the
fiduciary responsibility for. The
Department of Revenue follows a defined
process for the investment funds. The
investment options are important. He
added that outside consultants are used
to build market assumptions and establish
an asset allocation mix, which follows a
mathematical model looking at the overall
return of the fund versus the risks
associated with it. The performance of
the fund is measured through these
benchmarks.
2752 Commissioner Corbus Commented that CSED and PFD touch more
Alaskans personally than the other
divisions.
2819 Commissioner Corbus He spoke to the Bond Committee. That
Committee is responsible for selling the
State's general obligation bonds and
administers the State's debt. The Alaska
Municipal Bond Bank helps communities to
settle tax-exempt bonds.
2913 Commissioner Corbus Spoke to the Alcohol Control Board (ABC)
Board. He noted that the Department does
not have much responsibility for that
board. The Governor appoints that board
with staggered terms. The Department
does not have much responsibility for
that Board. They are responsible for
enforcing the State's liquor laws.
Commissioner Corbus noted that he had
been the Chairman of the Governor's
transition team. He added that the
Department is "well-run" with many
dedicated employees.
3030 Commissioner Corbus Concluded that he looked forward to
working with the Legislature.
3046 Vice-Chair Meyer Referenced the oil price forecast summary
contained in the packet. (Copy on
File).
3109 Commissioner Corbus Noted that he would highlight that
handout later when he discussed the
revenues forecast.
3135 Representative Asked if there was serious consideration
Stoltze moving Post Secondary Education out of
Department of Revenue.
3136 Commissioner Corbus Replied that he had not heard that
discussed. He noted that the Department
manages those funds for them, however,
they are the ones that make the
investment decisions.
3158 Representative Referenced CSED noting that the sunset
Stoltze legislation was coming up.
Representative Stoltze asked if there was
a change in philosophy between the
administrations.
3125 Commissioner Corbus Responded that legislation would be
introduced to address the sunset. Did
not know about the details of the
philosophical issues.
3241 Representative Regarding CSED, he asked if PFD's were a
Stoltze big portion of that collection.
3300 Commissioner Corbus Explained that he had seen graphs
indicating that collections increase at
the time of the distribution of the PFD.
3325 Representative Asked about moving CSED into another
Stoltze department because of periodic
enforcement issues. He asked if there
had been any active consideration
regarding that concern.
3359 Commissioner Corbus Replied that issue had been brought to
the attention of the Department and that
no decision had been made. He noted that
he had not heard of the possibility of a
transfer to another department.
3433 Vice-Chair Meyer Thought that there are not enough ABC
inspectors. He asked if there would be
new members added to that Board.
3459 Commissioner Corbus Replied that he did not know what was in
next year's budget. He offered to get
back to the Committee regarding that
concern.
DOR FORECAST PRICE FOR ANS CRUDE OIL
3612 Commissioner Corbus Noted that the forecast document had been
prepared by the previous Administration.
(Copy on File). The forecast is prepared
semi-annually.
3703 Commissioner Corbus Discussed that the Department does
actively consult members of the Industry
and other departments regarding the
proposed numbers. He added that within
the Department of Revenue, the tax
Division plays a very important role.
3739 Commissioner Corbus Noted that the Fall forecast this year
took a more optimistic out look at the
price of oil than the previous forecasts.
For many years prior to this forecast,
the Department of Revenue was looking at
long run, the price being between $17.50
- $18.50 range. That had been the average
since 1986 through 2002. In the Fall
forecast, that was switched and now looks
back over a shorter time period, 53
months. That placed oil at $22 dollars a
barrel. He stressed that was a
significant change. It was concluded
that OPEC had a handle on controlling the
market management. Prior to that, the
feeling was that the discipline was not
there. OPEC has been responsible for the
success for the past number of years. He
highlighted the process
4040 Commissioner Corbus Continued, transportation costs are
estimated around $5 - $5.50 dollars per
barrel, which includes the tariff on the
taps, oil pipeline. The price is then
predicted and the gross revenue is
determined. He added that there are four
types of taxes are collected:
· property taxes
· severance taxes
· royalty taxes
· corporate income taxes
4148 Commissioner Corbus Addressed production. The estimated oil
in the ground is about 63 billion
barrels. To date, 14 billion barrels has
been taken out of the ground and shipped
out. It is estimated that by 2010, there
will be another 8.5 billion barrels will
be recovered. That will require
investment by the oil companies.
4302 Commissioner Corbus Referenced Page 12, Table 1 in the
handout. (Copy on File). The chart
provides the projected ANS Production
from discovered producing fields in the
millions of barrels.
4423 Representative Croft Inquired if there would really be 8
billion gallons by 2010.
4444 Commissioner Corbus Indicated that was a mistake and that
number is the amount that they ultimately
expect to recover.
4506 Commissioner Corbus Stated that it is expected that there
will be 1 million barrels per day until
2007. In 2008, there will be other oil
coming in from Pt. Thompson. By the year
2010, 27% of the production will come
from new sources that have been
discovered and are not currently
producing. New discoveries could be made
and will add to production until after
2010.
4604 Commissioner Corbus Addressed oil price. He stated that the
price is reflected by the supply and the
demand, which affect the industry. He
noted that included in the packet, is a
one-page sheet of the forecast for three
years. (Copy on File).
TAPE HFC 03 - 4, Side B
4635 Commissioner Corbus Pointed out how in the fall of 2002, the
outlook for the price of oil has jumped.
4614 Commissioner Corbus Addressed how the State of Alaska is
currently doing with the price of oil.
Because of the strike in Venezuela, the
price has been cut adding the prospect of
war with Iraq. In the forecast for FY03,
it is estimated that the average price is
up $1.25 per barrel. That is good news
for the State Treasury.
4444 Commissioner Corbus Commented that the basic concern is the
unrestricted revenues. Referenced Page
49 of the forecast.
4344 Commissioner Corbus Referred to Page 49, which illustrates
the unrestricted and restricted costs of
oil. Page 51, addresses the unrestricted
oil revenues. The projected revenues
from 2003, of $1.468 billion trailing off
to $1.20 by 2010.
4237 Representative Croft Questioned why NPRA was restricted. He
referenced Page 49 - The use of
"unrestricted" and "restricted". He
questioned if the projected forecast had
ever been right.
4156 Commissioner Corbus Acknowledged the question but did not
know the answer but would get back to the
Committee regarding that concern.
4109 Commissioner Corbus Mentioned that other revenue source for
the State come from corporate income
taxes, and a myriad of other taxes such
as estate tax, alcohol tax, and earning
investment.
4000 Representative Asked about the alcohol tax. He asked
Stoltze how long until it actually "kicks in".
3936 Commissioner Corbus Commented that he did not know but would
get back to the Committee regarding that
concern. He referenced the non-oil
revenues summarized on Pages 3 & 32 of
the Forecast.
3905 Vice-Chair Meyer Observed that the estimate of oil revenue
is decreasing, while NPRA production is
increasing. He noted that the price of
oil would have to be at $40 dollars per
barrel to balance the budget gap. The
forecast does not indicate anything close
to that.
3732 Commissioner Corbus Emphasized the need for new development
in time for the development to come to
fruition. The estimates do not include
new production.
3623 Representative Questioned if Commissioner Corbus did
Whitaker accepted the methodology and assumptions
used by the previous Administration. He
suggested that the current baseline was
unacceptable.
3548 Commissioner Corbus Stated that he did agree with the
previous Administration's assumptions,
however, emphasized that the new team is
just beginning their process.
3504 Representative Joule Questioned the overall health of the
Teacher and Public Retirement System
(PERS & TERS).
3409 Commissioner Corbus Replied that he had not attended any
board meetings of that contingency but
acknowledged that there are some general
concerns because of the cuts to the stock
market.
3337 Representative Croft Asked if Alaska National Wildlife Refuge
(ANWR) could save the State if it came on
line 'tomorrow'. Would it produce
enough, before the State runs out of
money.
3313 Commissioner Corbus Commented that ANWR was not included in
the 2010 projection. He stated that he
would get back to the Committee regarding
that concern. Testimony concluded.
Alaska Science and Technology Foundation
3201 HANS ROETERINK, Provided members with an information
EXECUTIVE DIRECTOR, packet regarding Alaska Science and
ALASKA SCIENCE AND Technology Foundation (ASTF). (Copy on
TECHNOLOGY File). He provided a brief personal
FOUNDATION (ASTF) history.
2919 Mr. Roeterink Noted that ASTF was funded in 1988 with
the goal to establish a foundation and
economic base to grow the economy and as
a counterpoint against the erosion of
oil. There are three elements that must
be in place for growth:
· Education
· Partners
· Projects/technology/knowledge
2702 Mr. Roeterink Observed that Alaska Manufactures'
Association (AK/MA), one of their
partners, has a mission to enhance the
fisheries.
2556 Mr. Roeterink Stressed the need to create an
environment that would allow growth for
the future. In order to move forward, the
State should pick areas that the State is
good at and use new technology, and
telecommunications to enhance growth.
2319 Mr. Roeterink Observed that lumber grading, SciFish and
Alaska FreshCut, an Anchorage company,
have benefited from that approach.
2153 Mr. Roeterink Addressed how ASTF can help grow
industry, through an efficient, clear
process. Mr. Roeterink presented the
Committee with a list of projects that
ASTF has participated in. He explained
that the intent is to concentrate with
fewer projects with more direction and
monitoring.
1913 Mr. Roeterink Spoke to funding. He observed that the
Board approved 5% of the market value
concept to limit distributions, to
protect a smooth distribution of monies
by ASTF in the future. He referred to
University funding by ASTF. He observed
that $2.3 million dollars had been
appropriated to the University. He
suggested that other sources be found in
order to continue that funding.
1527 Representative Asked for more information regarding
Stoltze University funding.
1439 Mr. Roeterink Explained that a $2 million dollar
appropriation to the University does not
allow ASTF direction as to how the
funding and how it would be spent.
Research is key to moving forward.
1326 Representative Croft Asked if ASTF was prohibited from taking
an equity position.
1305 Mr. Roeterink Responded that they are prohibited.
1255 Representative Spoke in support of AK/MA. He thought
Stevens that was within the Department of
Community and Economic Development
Division.
1222 Mr. Roeterink Explained that AK/MA was started by ASTF
and then "spun off". He noted that the
ASTF share of the funding has decreased
from 50% to 20% percent as the percentage
of their other funds has increased.
1023 Representative Questioned if ASTF grants require a
Hawker repayment.
957 Mr. Roeterink Grantees must repay 1.5 percent if that
agency remains in the State. They pay
three times that amount if they leave the
State.
928 Representative He noted that the overhead rate is
Hawker approximately 20 percent. He asked if
community investment should be more or
less aggressive.
841 Mr. Roeterink Explained that core needs require 4 - 5
staff members. He noted that ASTF could
administer more money, if it were
available, with their current staff. He
stressed that the State needs growth
outside of oil.
650 Representative Summarized that Mr. Roeterink felt that
Hawker ASTF is operating efficiently. He asked
the outstanding commitment for match
money by partners.
607 Mr. Roeterink Estimated the outstanding commitments
total about $2 million dollars, leaving
approximately $1 to $1.2 million left for
investment this year. The funds are part
of the Permanent Fund.
521 Representative Asked the total long-term liability for
Whitaker ASTF, currently allocated to programs.
441 Mr. Roeterink Did not know the exact amount but
estimated between $3 - $5 million
dollars. There are some long-term
commitments that have been made.
419 Representative Asked for more information on the success
Stevens of the surimi industry.
400 Mr. Roeterink Noted that the surimi grantee has been
successful and is selling $70 to $80
million dollars of product per year. It
is a very successful endeavor.
360 ADJOURNMENT The meeting was adjourned at 3:14 P.M.
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