Legislature(2015 - 2016)HOUSE FINANCE 519
03/24/2016 09:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB231 | |
| HB222 | |
| HB77 | |
| HB247 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 77 | TELECONFERENCED | |
| += | HB 231 | TELECONFERENCED | |
| += | HB 222 | TELECONFERENCED | |
| + | HB 247 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 24, 2016
9:33 a.m.
9:33:33 AM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 9:33 a.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Ester Mielke, Staff, Representative Bob Lynn; Kris Curtis,
Legislative Auditor, Alaska Division of Legislative Audit;
Julie Lucky, Staff, Representative Mike Hawker; Randall
Hoffbeck, Commissioner, Department of Revenue; Ken Alper,
Director, Tax Division, Department of Revenue; Jane
Pierson, Staff, Representative Steve Thompson.
PRESENT VIA TELECONFERENCE
Megan Wallace, Attorney, Legislative Legal Services; Rick
Webb, Wallbusters, Fairbanks; Juanita Webb, Wallbusters,
Fairbanks; Chad Goeden, Alaska State Troopers, Sitka;
SUMMARY
HB 77 DISABILITY:ID/LICENSE AND TRAINING RQMTS.
CSHB 77 (FIN) was REPORTED out of committee with
a "do pass" recommendation and with a new zero
fiscal note from the Department of
Administration.
HB 222 INCREASE OF APPROPRIATION ITEM
CSHB 77 (FIN) was REPORTED out of committee with
a "do pass" recommendation and with a new zero
fiscal note from the Alaska Legislature.
HB 231 EXTEND BOARD OF PAROLE
CSHB 231 (FIN) was REPORTED out of committee with
a "do pass" recommendation and with a new fiscal
impact note by the Department of Corrections.
HB 247 TAX;CREDITS;INTEREST;REFUNDS;O & G
HB 247 was HEARD and HELD in committee for
further consideration.
Co-Chair Thompson reviewed the agenda for the meeting. He
planned to move HB 77, HB 222, and HB 231 from committee if
it was the will of committee members.
9:34:53 AM
HOUSE BILL NO. 231
"An Act extending the termination date of the Board of
Parole; and providing for an effective date."
Vice-Chair Saddler MOVED to ADOPT the proposed committee
substitute for HB 231 (FIN), Work Draft (29-LS1138\H).
There being NO OBJECTION, it was so ordered.
JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,
explained that the change in the bill shortened the
extension date from 2022 to 2019 providing 3 years before
the termination came before the legislature again. The
parole was a board that might go through changes if the
state changed its criminal statutes.
Representative Wilson asked if an audit would be required
as a result of changing the date. Ms. Pierson responded
affirmatively.
Representative Wilson asked about the cost of the current
year's audit. Ms. Pierson deferred to Kris Curtis in the
audience.
Representative Wilson requested getting the answer from
whomever was appropriate.
Co-Chair Thompson noted that Representative Pruitt had
joined the meeting.
ESTER MIELKE, STAFF, REPRESENTATIVE BOB LYNN, had no
further comments.
9:36:47 AM
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, responded to Representative Wilson's
question. She explained that the audit took approximately
700 hours and the cost per hour was about $70 for FY 15.
The total cost of the audit was approximately $50 thousand.
Representative Wilson asked whether a change in dates would
have made a difference to the audit. She thought that
changes to the parole board could still be made and the
sunset could be extended in the normal process for statute.
Ms. Curtis concurred that changes could be made to the
parole board outside of the sunset process. The office of
Legislative Audit had no opinion concerning the sunset
date. It would be up to the policy makers to decide whether
it was worth the extra cost.
Representative Wilson wondered if the time between audits
influenced their costs. She remarked that the last sunset
was much longer than the current audit being discussed. She
wondered if the cost would be $50 thousand no matter the
sunset.
Ms. Curtis responded that if the time between audits was a
shorter period the cost would be less because it would be
completed more quickly. However, due to the dramatic
changes to the landscape it could be a longer audit.
Several factors impacted the length of an audit. She
relayed that if everything stayed the same typically an
audit took less time.
Co-Chair Thompson indicated Representative Gara had joined
the committee.
9:39:12 AM
Representative Guttenberg mentioned that there were four
recommendations from the audit but expressed concern
regarding the report. The findings included: Parole board
files did not consistently contain all required
information, notifications to offenders and victims were
not sufficiently documented, changes to regulations did not
address statutory requirements, and the audit contained
several deficiencies that could affect security and
consistency of data. He asked about the severity of the
findings in terms of the functioning of the parole board.
He asked how far out of alignment these findings were from
normal practices.
Ms. Curtis responded that none of the recommendations
impacted the auditor's recommendation for extension. She
furthered that the auditor would have recommended the full
8 years, the maximum allowed in statute, had there not been
a concern for the need for oversight. The reason had to do
with the change in the risk assessment tool towards the end
of the audit. The auditors were not able to see and
evaluate its impact. The auditors did not consider SB 91 in
the audit recommended. The board was operating fairly well
and professionally. She explained that whenever Legislative
Audit conducts an audit it considered documentation and
procedures.
9:41:28 AM
Representative Guttenberg asked if the office was lacking a
filing clerk position which could be affecting the
efficiency of operations.
Ms. Curtis answered that it was the interaction between the
board and the department. Some of the documentation issues
had to do with the interactions with institutional
correctional officers and to what degree they documented.
It also had to do with what degree they were effectively
using the management system to document. It was not about
missing a staff person, but about the coordination between
the board and the department.
Representative Guttenberg wondered if it was for training.
Ms. Curtis replied that it was just being aware of where
they were at and a willingness to improve.
Co-Chair Thompson OPENED public testimony.
Co-Chair Thompson CLOSED public testimony.
Representative Wilson was not going to stop the bill from
moving forward. However, she was comfortable with the date
currently on the bill. She did not see any red flags that
would constitute a date change to 3 years. She understood
there were several moving pieces but believed all could be
completed and the checks and balances could be performed
without adding more work for the auditors. She preferred
not to change the date.
Co-Chair Thompson had taken pending legislation into
consideration that could alter what the state would be
doing in the future.
9:44:03 AM
Representative Gara agreed with Representative Wilson. He
thought it took time and money to have the auditors come
before the committee. He suggested a 5-year board
extension.
Representative Gara MOVED to ADOPT a conceptual amendment:
Extend the Board of Parole to 2021, a 5 year extension [as
opposed to the committee substitute's proposal to 2019, a 3
year proposal] in Section 1, page 1 of the bill. There
being NO OBJECTION, it was so ordered.
Vice-Chair Saddler relayed that HB 231 had a single fiscal
note from the Department of Corrections. It called for
$1,017,500 from undesignated general funds and $1,019,400
from interagency receipts. There was a total ongoing
expense of $1,019,400 which was a continuation of the
existing funding.
Vice-Chair Saddler MOVED to report CSHB 231(FIN) as amended
out of Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 231 (FIN) was REPORTED out of committee with a "do
pass" recommendation and with a new fiscal impact note by
the Department of Corrections.
9:47:03 AM
AT EASE
9:48:57 AM
RECONVENED
HOUSE BILL NO. 222
"An Act relating to increases of appropriation items."
Vice-Chair Saddler MOVED to ADOPT the proposed committee
substitute for HB 222, Work Draft (29-LS1045\H). There
being NO OBJECTION, it was so ordered.
Ms. Pierson explained that the committee substitute (CS)
before the committee changed the 45 day limit to 90 days
thereby giving the legislature more time for evaluation.
The legislature could always provide approval prior to 90
days. She indicated that Julie Lucky could supply the
committee with additional detail.
9:50:17 AM
JULIE LUCKY, STAFF, REPRESENTATIVE MIKE HAWKER, explained
that the bill codified a procedure for the legislature
during the budgeting process to prohibit using the revised
program legislative (RPL) process to increase an
appropriation in the budget. The CS extended the waiting
period to 90 days. Therefore, if the Legislative Budget and
Audit Committee were to receive an RPL the executive branch
would have to wait 90 days before expending the RPL unless
the committee took action to hasten the timeline by
approving the RPL.
Co-Chair Thompson OPENED public testimony.
Co-Chair Thompson CLOSED public testimony.
Vice-Chair Saddler explained that HB 222 had one zero
fiscal note from the legislature.
9:52:03 AM
Vice-Chair Saddler MOVED to REPORT CSHB 222 (FIN) out of
committee with individual recommendations and the
accompanying zero fiscal note.
Representative Gara OBJECTED for discussion.
Representative Gara commented that no one would have
thought of the current bill without the Medicaid expansion
debate in the prior year. The current process allowed the
state to accept grant funds that fit within the parameters
agreed upon by the legislature to appropriate. The money
came from the federal government or a private donor. He did
not believe the legislature could anticipate what funding
it could potentially lose out on. He thought the
legislature would be overstepping itself by passing the
bill. He presented a hypothetical situation where renewable
energy money would be needed to complete a project that the
state would not accept. If the bill had been in place the
previous year and the state had not accepted Medicaid
expansion money the state would have lost out on $140
million of federal funding that was rippling throughout the
economy. He suggested that much of the budget reductions
had been possible because of the Medicaid expansion monies
coming in. There were reductions in behavioral health of
$5.7 million because the money was being leveraged through
the new federal law. In the future it would be difficult to
determine what the legislation would prevent the state from
accepting. The bill had to do with money coming in from
another source for something approved by the legislature.
He thought the passage of the legislation would result in
unintended consequences. He believed that in 30 years into
the future the legislature might realize a project had been
blocked that could have been useful to the state. He did
not support changing the current law and would be opposing
the bill.
9:54:57 AM
Representative Wilson spoke about a significant amount of
stimulus money coming to the state a few years prior. After
the state accepted the money it ended up backfilling
certain projects, although that had not been the intention
upon taking the funding. Her understanding of the
legislation was that it did not disallow the acceptance of
funding. It allowed the legislature to better understand
what the money would be used for and to decide if a project
should move forward. She thought the bill allowed the
legislature to be more proactive. She did not feel the bill
blocked funding but allowed for more due diligence. She
indicated she was in favor of the bill.
9:55:58 AM
Vice-Chair Saddler suggested that the bill came up as a
result of a dispute regarding Medicaid expansion. However,
the current issue was not Medicaid expansion but clearly
the legislature's appropriation authority and the proper
balance between the executive and legislative branches. He
opined that the legislation allowed the legislature the
improved opportunity to consider the meaning of accepting
more money through the RPL process. He thought the
legislation was appropriate and would be supporting it.
Representative Guttenberg commented that in every
department cuts were applied and the departments were
directed to go out to find additional monies. He was
concerned that the bill was a "pull back" from agencies
being able to function with more efficiencies. The
legislature had told the governor and agencies to find
additional funding but the legislation did not allow for
flexibility. He objected to the bill.
9:58:18 AM
Representative Pruitt reported that within state and
federal government the legislative body had the power of
the purse. Any money that went through the state was
appropriated by the legislature. He thought that the
current discussion was rethinking whether the legislature
had given up the ability to maintain the power to
appropriate. The reason the legislature had appropriation
power was because legislators were closest to the people.
Legislators had a more direct connection with constituents
than the administration or the governor. The legislative
body recognized that there was a situation where the
legislature had seated its authority to another branch of
government. He asserted that the bill was recognizing and
correcting the scenario. The bill was placing the power of
appropriations back into the hands of the people through
the legislature. He appreciated the legislation being
brought forward.
Representative Kawasaki was glad there was an
acknowledgement that the legislation came about because of
Medicaid expansion and that the legislature had the power
of the purse. Sometimes the legislature disagreed with the
governor. He suggested that while the legislature might
disagree with the governor on some issues it was a simple
separation of powers. The governor had the ability to
accept federal funds on behalf of the rest of the state. He
feared a program such as early education (the federal
government was looking at granting states certain Pre-K
dollars) could come up in the middle of the summer. The
state was now looking at a window of 90 days before it
could accept funding. It was possible the state might need
to receive the funds earlier. He suggested that a
legislative chairman, only representing a portion of
Alaskans, could decide they did not like Pre-K. The
governor had the opportunity, representing the rest of
Alaskans, to say it was something the state would like to
see but would not have a means to accept the funding
barring the legislator's responsiveness and willingness to
bring it forward. He added that he thought there were
certain circumstances in which the legislation could make
things very difficult. He objected to the bill.
10:02:40 AM
Representative Munoz thought it was possible to overthink
the change. It was a very simple change adding 45 days of
review time to the Legislative Budget and Audit Committee
when accepting new grant monies. She thought the change was
appropriate and one that she supported.
Co-Chair Thompson asked for clarification.
Ms. Lucky stated that the policy discussion was exactly the
result Representative Hawker was looking for by introducing
the legislation. She suggested the discussion was about the
separation of powers and the power of the purse versus the
power to accept money (which the governor had). She pointed
out that the power to accept additional federal funding was
not a power granted to the governor by the constitution but
granted via the legislature by statute (the current
legislation proposed to amend the statute). It would be
reconsidered every year in the full budget and was granted
each year. At any point the legislature could choose not to
include Section 24 in the budget. She furthered that by a
quick budget amendment the legislature could disallow the
governor from accepting any federal funds during the
interim. She reported that the State of Arizona had adopted
such a policy. She furthered that Arizona had to call back
into special session anytime additional federal funds came
in. In many other states Legislative Budget and Audit had
more power to accept or reject based on the difference in
the constitutional balance of powers.
Ms. Lucky continued to explain that within Alaska's system
the Legislative Budget and Audit Committee did not have the
power to reject the acceptance of funds. She explained that
the legislature had a two-step process of granting the
power via the budget and then a process would be put into
place. She highlighted that the power was not absolute, it
was limited. In a previous meeting Mr. Teal had reported
that it was allowed for general funds but the legislature
had chosen to amend the budget not allowing general funds.
The revised program legislative process was not currently
available for those funds at present. It was not her job or
duty to discuss the policy; that rested with the
legislature. However, she was providing a few facts in
front of legislators about how the process worked. The
process envisioned by HB 222 would be a specific
prohibition on a specific budget item rather than a blanket
prohibition on many items. It was the intent of the bill
sponsor that if the legislature, as the appropriating body,
had considered a particular appropriation and determined
not to move forward with it they would have the power to
restrict it in the budget. It was not necessarily to
prohibit the governor or the executive branch or the state
from taking advantage of the funding but rather to have a
process where the full legislature, as opposed to however
many members sat on the committee could make any important
policy decision that had already been considered but
rejected by the entire legislature.
10:06:45 AM
Representative Guttenberg wondered about the first change
in the bill on Page 1, Line 4 [Section 1(h)]. He provided a
hypothetical scenario where the legislature adopted the
previous year's budget outlining that there would be no
Medicaid expansion while the courts ruled that the
expansion was mandatory. He wondered if there would have
been a conflict.
Co-Chair Thompson did not want to get into a discussion
about Medicaid expansion.
Representative Guttenberg explained that although Medicaid
expansion was in the past he was using it as an example. He
rephrased his question. He asked about if language was
inserted into the budget that stated no money should be
taken for a certain program and the federal government has
defined the program as mandatory. He wondered how the
conflict would be resolved.
Ms. Lucky was not a constitutional scholar. She deferred to
Legislative Legal Services online.
Representative Pruitt thought that the first line related
to the legislature being able to accept federal funds. He
explained that unless the legislature excluded the language
in the budget, there would have to be a process in place to
resolve such a conflict. He thought there was a mix of
issues at hand. He suggested it was a two-step process.
First, the legislature would give authority for the
acceptance of federal funds. A second step was being added.
If the legislature did not ask for the authority then the
step would not be needed. He presumed that the legislature
had not indicated that there was not the authority in place
for the administration to accept federal money. He thought
that it was moving away from a court decision because the
legislature would have to first elect not to accept any
additional federal funding.
Representative Guttenberg wondered how to resolve a
conflict in which the budget included language that
specified that the state not accept certain federal
funding, yet there was a federal mandate to accept the
funds.
Ms. Lucky believed it would be resolved similar to the way
in which the state resolved anything regarding the balance
of powers. She suggested that the bill only stated that the
RPL process could not be used to accept federal funding.
She thought that if the legislature chose not to accept
funds in the budget process or in any process and the
federal government required the state to accept it, then
the issue would likely have to be litigated. In the bill
being discussed, it stated that the RPL process would not
be an appropriate avenue for a particular issue.
10:10:36 AM
Co-Chair Thompson indicated someone from legal was online.
MEGAN WALLACE, ATTORNEY, LEGISLATIVE LEGAL SERVICES (via
teleconference), relayed that she was available.
Representative Guttenberg referred to Page 1, Line 4 of the
committee substitute. He highlighted the portion that
stated, "Unless expressly prohibited language of the
appropriation." He wondered how the issue of passing a
budget that identified funds the state was not allowed to
accept from the federal government but mandated to do so.
Ms. Wallace responded that it would be a difficult question
to answer in a hypothetical context. It would depend on the
program and the Alaska statutes surrounding the program.
Hypothetically, the language would prevent an increase to
an existing appropriation. If there was a program funded in
the budget and additional federal dollars for it came in
but the legislature had chosen to insert language
prohibiting the acceptance of additional funds, a person
would likely have to turn to the statutes. There would be
the question of whether the additional federal funding was
needed to fully fund the program. If so, the question of
what would happen if the program was not fully funded would
need to be addressed.
Representative Gara MAINTAINED his OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gattis, Munoz, Pruitt, Saddler, Wilson, Thompson
OPPOSED: Gara, Guttenberg, Kawasaki
The MOTION PASSED (6/3).
Co-Chair Neuman and Representative Edgmon were absent from
the vote.
CSHB 77 (FIN) was REPORTED out of committee with a "do
pass" recommendation and with a new zero fiscal note from
the Alaska Legislature.
10:13:45 AM
AT EASE
10:15:28 AM
RECONVENED
HOUSE BILL NO. 77
"An Act relating to training regarding disabilities
for police officers, probation officers, parole
officers, correctional officers, and village public
safety officers; relating to guidelines for drivers
when encountering or being stopped by a peace officer;
relating to driver's license examinations; and
relating to a voluntary disability designation on a
state identification card and a driver's license."
Ms. Pierson read a portion of the Sponsor Statement:
The goal of HB77 is to improve communications between
law enforcement and corrections professionals who
interact with people who have non-apparent
disabilities, whether these disabled individuals
encounter the "systems" as victims, witnesses, or
alleged perpetrators.
Ms. Pierson reported that the bill had three parts; a
training component, a voluntary option to have an
identifying mark on a driver's license denoting the driver
had a disability, and an added section in the driver's
manual in which questions could appear on the written
driver's test.
Co-Chair Thompson OPENED public testimony
10:17:13 AM
RICK WEBB, WALLBUSTERS, FAIRBANKS (via teleconference),
supported the bill. He believed education was very
important. The bill would help to change preconceived
ideas. He noted that the bill would not equate to a "Get-
out-of-jail-free" card. He provided a personal story about
his friend in a wheelchair who had been arrested for drunk
driving. He emphasized that the legislation was about equal
treatment not special treatment. He thanked the committee
for its time.
10:20:05 AM
JUANITA WEBB, WALLBUSTERS, FAIRBANKS (via teleconference),
supported the legislation and understood the importance of
the bill. She opined that the bill was about educating
people. She thanked the bill sponsor for bringing the
legislation forward and urged committee members to pass the
bill along.
Co-Chair Thompson CLOSED public testimony.
10:21:44 AM
Representative Wilson supported the bill. She expressed
concerns about having identification without having any
backup about the type of disability. She wondered if it
would be an issue to only see that a disability existed
rather than specifying the disability type.
Co-Chair Thompson commented that the intention of the bill
was not to highlight a person's disabilities but to begin a
conversation between an officer and the person who was
stopped.
10:22:30 AM
CHAD GOEDEN, ALASKA STATE TROOPERS, SITKA (via
teleconference), understood concerns around the balance of
privacy and an officer having enough information to make
the best decisions. Since it was a voluntary option he
suggested the inclusion of a provision that enabled people
to determine how much information they wanted to make
available. Information could be added to the dispatch
system rather than on a license so that the information
could be provided to an officer upon calling into dispatch
Representative Wilson stated that it had been brought to
her attention that even with a designation there had been
issues with people getting nervous and having difficulty in
providing information. She was wondering if the objective
of the legislation could be accomplished through changing
regulation since it was voluntary. She added that even with
a simple designation more information could smooth over a
situation.
Representative Gara thought it would be best to make it
clear that the person had some sort of disability rather
than specifically designating a disability. It was an alert
to officers that there was an issue and to further
investigate. He liked the way the bill was currently
written and thought it struck a better balance.
10:25:39 AM
Vice-Chair Saddler was co-sponsoring the bill. He expressed
concerns about placing too much responsibility on the
police to have a positive outcome between the disabled
person and law enforcement. He encouraged disabled people
to help police knew of the person's situation. He thought
meeting with police officers and school resource officers.
He also suggested the use of identification bracelets. He
recommended that parents review appropriate responses when
interacting with police officers such as complying, being
respectful, and answering questions. He opined that a
person could not legislate common sense.
Vice-Chair Saddler continued that the responsibility for a
positive outcome between anyone and police officers was a
shared responsibility. He believed that the legislation
offered police officers additional information and was a
good step that he would support.
Representative Gattis asked Officer Goeden to walk her
through what would be included in training if the bill were
to pass. Office Goeden asked whether she meant what the
troopers would do for training or what an officer would do
if they came in contact with a person with the proposed
mark on their license.
Representative Gattis supposed she meant both but most
importantly wondered what a law enforcement officer would
do when stopping someone with a disability. She thought
that an officer would have to be trained. Officer Goeden
suggested that when troopers made a traffic stop they
positioned their car so that there was a safe lane of
travel to get up to the vehicle. The law enforcement
vehicle would have overhead flashing lights front and rear.
Officers would try to be aware of several things
simultaneously such as oncoming traffic, movements in the
car, number of people in the car being pulled over, and
what the passengers were doing. The troopers would identify
themselves, ask the driver for identification and proof of
insurance, ask for any legal reason for why they were
stopped, and give them a decision as to whether a citation
would be issued.
10:28:42 AM
Representative Gattis asked what the officer would do
differently than the standard protocol when stopping a
person with a designation on their driver's license.
Officer Goeden replied that it would depend on how much
detail was provided with the designation. It would also
depend on the driver's behavior. For instance, if a person
was acting unusual or extremely nervous an officer might
ask whether there was anything they should be aware of. It
all hinged on getting to the point where the law officer
was looking at a person's driver's license to see a special
designation.
Representative Gattis relayed that Officer Goeden had
answered her question.
10:30:38 AM
Representative Guttenberg liked the bill because he thought
it addressed problems from both the side of the trained
officer and the motorist. He was very concerned with public
safety officers having an adequate level of training. He
asked if there was specific training to handle stops made
with vehicles having handicap license plates.
Officer Goeden responded that the academy's recruits went
through an 8 hour crisis intervention training. The
training covered hidden and visible disabilities including
how to recognize them and how to deal with them. He had
never specifically spoken with the instructor about an
approach change if an officer saw a handicap license
placard. He hoped that a visual indicator would provide a
clue that the person might have a disability.
Co-Chair Thompson thanked Officer Goeden for being
available for questions.
Vice-Chair Saddler reviewed the zero fiscal note from
Department of Administration.
Vice-Chair Saddler MOVED to report CSHB 77 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note(s). There being NO OBJECTION, it
was so ordered.
CSHB 77 (FIN) was REPORTED out of committee with a "do
pass" recommendation and with a new zero fiscal note from
the Department of Administration.
10:33:46 AM
AT EASE
10:35:54 AM
RECONVENED
10:35:54 AM
HOUSE BILL NO. 247
"An Act relating to confidential information status
and public record status of information in the
possession of the Department of Revenue; relating to
interest applicable to delinquent tax; relating to
disclosure of oil and gas production tax credit
information; relating to refunds for the gas storage
facility tax credit, the liquefied natural gas storage
facility tax credit, and the qualified in-state oil
refinery infrastructure expenditures tax credit;
relating to the minimum tax for certain oil and gas
production; relating to the minimum tax calculation
for monthly installment payments of estimated tax;
relating to interest on monthly installment payments
of estimated tax; relating to limitations for the
application of tax credits; relating to oil and gas
production tax credits for certain losses and
expenditures; relating to limitations for
nontransferable oil and gas production tax credits
based on oil production and the alternative tax credit
for oil and gas exploration; relating to purchase of
tax credit certificates from the oil and gas tax
credit fund; relating to a minimum for gross value at
the point of production; relating to lease
expenditures and tax credits for municipal entities;
adding a definition for "qualified capital
expenditure"; adding a definition for "outstanding
liability to the state"; repealing oil and gas
exploration incentive credits; repealing the
limitation on the application of credits against tax
liability for lease expenditures incurred before
January 1, 2011; repealing provisions related to the
monthly installment payments for estimated tax for oil
and gas produced before January 1, 2014; repealing the
oil and gas production tax credit for qualified
capital expenditures and certain well expenditures;
repealing the calculation for certain lease
expenditures applicable before January 1, 2011; making
conforming amendments; and providing for an effective
date."
Co-Chair Thompson indicated that Commissioner Hoffbeck and
Mr. Alper would be providing a 30 thousand foot overview of
oil and gas tax credits. The committee would not be hearing
the bill sectional in the current meeting. There would be
an overview of issues that generated the legislation. He
offered that there would be several meetings on the bill at
which time there would several opportunities to discuss the
bill and to ask questions at future meetings.
10:36:38 AM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
provided a PowerPoint presentation titled "Oil and Gas Tax
Credit Reform: HB 247" dated March 24, 2016 (copy on file).
He began by providing a couple of brief opening statements.
He opined that HB 247 was a critical piece of the
governor's overall fiscal plan for the current year and
into the future. The administration saw a sustainable oil
and gas tax credit program as vital for the State of
Alaska. He pointed out that the key word was "sustainable."
The plan would have to be sustainable going forward. He
reported that when the bill was first introduced in House
Resources Committee it was presented primarily as a budget
issue. The House Resources Committee found the bill to be
much more of an oil and gas tax policy issue.
Commissioner Hoffbeck reported that the hearing focused on
both budget issues and oil and gas tax policy issues. The
administration saw that both needed to be dealt with. The
state could not offer any certainty to the industry on the
tax credit program if the credits were paid at a level that
the state could not sustain or afford. He thought there had
to be a balance between the credits the industry desired or
needed and what the state was capable of paying. He
mentioned the overview of the preliminary spring revenue
forecast presented earlier in the current week. He
highlighted that the department was looking at oil prices
that were essentially range-bound somewhere between $35 and
$60 per barrel. He remarked that if prices dropped below
$35 per barrel drilling would essentially cease. Oil would
likely come off the market and oil prices would eventually
rebound. If the price of oil were to reach much beyond $60
per barrel a significant amount of oil would hit the market
causing a brief spike. Eventually the supply would
overwhelm demand causing the price to drop again. He
suggested that it was pretty consistent with the thinking
across the board as far as what people saw in the oil
industry. In terms of talking about a rebound and hoping to
get $100 per barrel it did not appear to be in the future.
He added that the state's credit program was being paid out
at a level more consistent with $100 per barrel to $110 per
barrel oil. The governor felt that it was a critical thing
to deal with if the state were to have some kind of
certainty within the oil and gas tax credit program. What
he put forward in the bill was to reduce the state's annual
outlay. He wanted to protect the net operating loss credit
program within the bill which he added was the most
critical piece of the credit program. It was a field
leveler between the legacy producers and the newcomers. He
furthered that the state needed to have a way to limit the
amount of repurchases in any given year in order to control
the state's outlay.
10:40:30 AM
Commissioner Hoffbeck explained that the state needed to
strengthen the minimum tax because in the current price
environment Alaska was essentially a 4 percent gross tax
state. The price of oil needed to be above $80 per barrel
before that would change. The administration did not see
the price increasing above $80 per barrel any time in the
future. The minimum tax really became "the" tax. He
mentioned that the administration sought more transparency
in the credit program to facilitate more dynamic
discussions. The credits were a large outlay and he thought
it was important for the people of Alaska to know where
their money was being spent and what returns were being
received. Lastly, due to the repercussions of the
governor's veto from the previous year, the department
thought it was very important the state had some kind of
visible commitment to paying the existing credits. The
state wanted to avoid any uncertainty in the financial
markets that the credits that had been earned would be
paid. He concluded that he had highlighted the underlying
components of the decision making process in crafting the
legislation currently before the committee. The
administration hoped the final version reflected these
components once it went through the legislative process.
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
introduced the PowerPoint presentation: "Oil and Gas Tax
Credit Reform: CS HB247 (RES)." He indicated he would only
be focusing on the highlights of the bill in the current
meeting. He hoped there would be additional opportunities
to delve into the deep details of the bill in another
meeting.
10:42:36 AM
Mr. Apler advanced to slide 2: "History of Oil and Gas
Production Tax Credits":
FY 2007 thru 2015, $7.4 Billion in Credits
North Slope
· $4.3 billion credits against tax liability
· Major producers; mostly 20% capital credit
in ACES and per-taxable-barrel credit in
SB21
· $2.1 billion refunded credits
· New producers and explorers developing new
fields
Non-North Slope (Cook Inlet & Middle Earth)
· $100 million credits against tax liability
· Another $500 to $800 million Cook Inlet tax
reductions (through 2013) due to the tax cap
still tied to ELF
· $900 million refunded credits (most since 2013)
Mr. Alper explained that Alaska had been in the business of
paying tax credits by statute since 2007. In the time
period between FY 07 and the end of the previous fiscal
year [2015] about $7.4 billion worth of oil and gas tax
credits had been paid or paid through reduced taxation by
the State of Alaska. The largest share was from the North
Slope where the bulk of the production and value was, with
the majority used against tax liability, about $4.3
billion. He explained that the major producers were able to
subtract certain credits against their tax payments before
writing any checks to the state. Previously under the era
of Alaska's Clear and Equitable Share (ACES) it was
primarily the 20 percent capital expenditure credit. Since
the transition to SB 21 [Short Title: OIL AND GAS
PRODUCTION TAX - legislation passed in 2013] it had been
the per taxable barrel credit, a sliding scale credit
between zero and $8 dollars.
Mr. Alper also pointed out a very large number on the North
slope of $2.1 billion that had been refunded (the state
wrote checks and the legislature appropriated money every
year to repurchase tax credits primarily going to new
players in the field - the new producers and the explorers
that were looking for and developing new oil).
Mr. Alper continued to the non-North Slope area which
included Cook Inlet and Middle Earth (Interior Alaska).
There was no current production in Interior Alaska but
there was some exploration. However, the number of players
and the numbers of credits were too small to be released
without violating confidentiality law which accounted for
lumping all of the non-North Slope together. He reported
that only $100 million had been used against tax liability
because of less work and because there were statutory caps
(maximum taxes in the Cook Inlet that were put into place
in 2006 as part of the PPT bill). There was not a
significant amount of tax liability in the first place,
therefore there was not to offset. He furthered that about
$900 million through the previous year had been refunded -
repurchased in tax credits in the previous several years.
10:45:00 AM
Mr. Alper pointed to the graph on slide 3: "History of Oil
and Gas Production Tax Credits: Refunded Tax Credits by
Region." He explained that the most obvious feature in the
graph was the growing red wedge representing the Cook Inlet
and other non-North Slope areas. It used to be relatively
small but had started growing in 2012 or 2013. It was a
response to the additional work that had been done since
the passage of the Cook Inlet Recovery Act and related
legislation in 2010. He reported a large ramping up of work
some of which resulted in resolving some of the supply
uncertainty that South central was experiencing at the
time. It had grown to where, of the money the state spent
in the previous year, over 60 percent was outside the North
Slope in terms of refundable tax credits. The state was
seeing similar numbers were seen for FY 16.
Mr. Alper turned to slide 4: "Forecast of O&G Revenue and
Tax Credits." He explained that the first of the three bars
was all unrestricted oil and gas revenue prior to any
credits. The number was theoretical. The middle bar
represented in dark green was the actual money received by
the state, the difference between the two was the money
taken as credits against tax liability. The red bar
reflected the revenue after subtracting the repayment
checks for tax credits. Suddenly in FY 15 the oil revenue,
which had decreased from $2.3 billion before credits
against liability to $1.7 billion, was only about $1.0
billion. He was only talking about unrestricted oil and gas
revenues which included royalties, corporate income tax,
property tax, and the production tax. He thought the graph
made it look like FY 15 was a good year and did not reflect
back far enough. If a person were to look at FY 12 the
state had about $8 billion to $9 billion worth of oil
revenue. The reduction was a major shift of consciousness
for the state forming a budget, while switching to a
climate of structural deficits. Going down from FY 15 to
the present things were getting even worse, likely tied to
the further reduction in the price of oil and the growth in
the tax credit program. The forecasted tax credit number
for FY 17 was about $825 million. He reported that for the
first time the amount was a larger number than all of the
state's unrestricted oil and gas tax revenues. The state
would be functionally negative on oil and gas in FY 17 for
the first time ever.
10:48:10 AM
Mr. Alper advanced to slide 5: "Work Done Since Last
Session":
· Governor's line-item veto capped FY16 spending at
$500 million
· Temporary liquidity crisis; many meetings
with industry and others to help reassure
lenders
· Multiple presentations with history, current
practice, and possible changes
· Joint Resources in Kenai, June 17
· Three "regional" presentations to Senate
Working Group September through November
· All presentations on BASIS; we're prepared
to go through similar information for the
committee
· Development of reform legislation including plan
for transition from current system
Mr. Alper explained that the results of the governor's line
item veto limiting spending to $500 million helped to cover
everything that was in the cue at the time. The governor's
primary mission was to start a conversation. He was aware
that it was a big issue that needed addressing. He did
something dramatic in order to put a process in place that
lead to legislation in the 2016 session. He relayed that
the administration was taken by surprise by the degree the
industry reacted, stopping lending because of a fear of
even greater cutbacks and spending in future years. The
commissioner of DOR and other senior members of the
administration had met with industry assuring repayment of
the state's obligations. He stated that there could
possibly be slight delays during the transition period.
However, the state was working towards a system that would
keep everyone whole. Any changes to the statutes would be
forward looking rather than retroactive. He mentioned the
liquidity crisis being resolved. Loans were being made
again and everyone was going about their business.
Meanwhile, through the previous interim there were several
meetings and presentations. The first one was a Joint
Resources Meeting in Kenai in June where the Department of
Revenue made a major presentation. Senator Giessel put
together a working group of Senators and members of
industry. The group had a series of hearings in the
previous fall providing very detailed presentations on the
credit structure on the North Slope, Cook Inlet, and in the
middle earth area. Each of the presentations were on BASIS
through the Senate tax credit working group. He encouraged
members of the committee to review them. He relayed that
they could be brought before the committee as well. They
provided a significant amount of detail. He furthered that
out of the hearings and discussions with the administration
a reform package in the form of legislation that included
the plan for transition from the current system to ensure
enough money would be available to keep the system whole
through that time. The legislation had been introduced at
the beginning of session as HB 247 (Short Title: TAX;
CREDITS; INTEREST; REFUNDS; O & G).
10:50:37 AM
Mr. Alper moved on to slide 6: "Major Bill Themes":
1. Reduce the state's annual cash outlay
2. Protect Net Operating Loss credits as a playing
field leveler between legacy producers and
newcomers
3. Limit repurchases
4. Strengthen the minimum tax
5. Be more open and transparent
6. Honor and pay credits earned to date and through
any transition period
Mr. Alper indicated that the slide reflected the
commissioner's introduction which outlined the themes the
governor hoped to accomplish through a tax credit reform
package. He read the list.
10:51:06 AM
Mr. Alper turned to slide 7: "Major Bill Concepts in
Governor's Proposal":
1. Exploration Credits- sunset and transition
2. Cook Inlet Drilling Credits- phase out while
retaining operating loss credits
3. Repurchase Limits- limit cash outlay
4. Remove Exceptions / Loopholes
5. Strengthen Minimum Tax- prevent certain credits
from going below the floor, plus increase to 5%
6. Other Provisions- technical cleanup,
transparency, interest rate reform
Mr. Alper explained that the slide went into greater detail
of the concepts that were in HB 247. He would not drill
down into the details in the current hearing. There would
be time to discuss them in other hearings. He reviewed the
list. He explained that many of the exploration credits
were nearing sunset. The intent would be to allow them to
sunset and transition away from direct support of
exploration. The Cook Inlet drilling credits were very
large and were created to resolve the Cook Inlet supply
crisis. The proposal included phasing those out while
retaining the operating loss credits. The proposal also
included placing some sort of caps on the physical
repurchases, specifically dollar values per company. He
furthered that there were a number of exceptions and
loopholes in the statutes that became apparent in a low-
price environment that needed to be cleaned up.
Mr. Alper continued that the proposal included
strengthening the minimum tax. However, it was discovered
that, although the 4 percent floor governed tax payments by
the major producers, as the state got into a period of a
sustained low prices there were other circumstances where
tax payments could go below the 4 percent number. The most
prominent one began in January 2016: If a major producer
had an operating loss they could use their operating loss
credits to reduce their payments below the floor all the
way to zero. The legislation was looking to strengthen the
minimum tax and to bump up the minimum tax rate from 4
percent to 5 percent. He relayed that there were a number
of other provisions in the legislation including technical
cleanup of existing law, the concept of transparency, and
reform to the interest rate structure for delinquent taxes.
He concluded that he had presented the guts of the bill.
Mr. Alper scrolled to slide 8: "Content of Future
Presentations":
· We provided five different presentations to the
prior committee; all are on BASIS
· History and development of our credit system
· History and application of the minimum tax
· Various credits and how they have been used,
which ones haven't been, and what is sun setting
· Detailed forecasts and scenario analysis
· Details and modeling of specific provisions
· Explanation of changes made in prior committee
· Life cycle modeling of typical new projects, with
impact of legislation
Mr. Alper mentioned that the House Resources Committee had
met 24 times on the subject of HB 247 over a period of 6 to
7 weeks. The Department of Revenue provided the committee
with five different presentations all of which were
available on BASIS. He wanted to be working with
legislators and staff to determine the appropriate
information and the order in which it should be brought
before the House Finance Committee. Some of the larger
concepts in the previous presentations included the history
and development of Alaska's credit system going back to the
early 2000's, how the minimum tax evolved over the years
going back to the 1970's during the Economic Limit Factor
(ELF) era, how the various credits worked, how the credits
had been used, which credits were never used, and what
credits would sunset. Additional content included looking
at scenario analysis and what might happen if certain
changes were made. He elaborated that DOR had done a
significant amount of modeling of specific and more
mathematically complicated provisions of the bill. He also
informed committee members that he would be reviewing the
changes made by the House Resource Committee which were
reflected in the committee substitute and how the bill had
evolved.
Mr. Alper reported that DOR had developed a new model
called a "Life Cycle" model that looked at individual
fields. He cited the example of a new player coming to town
wanting to develop a 50 million barrel field with an
assumption for capital spending, a certain timing, and a
certain set of credits. He wondered if the state's cash
flow could be determined. He was interested to know what
the state's cash flow would look like and what the cash
flow of the producers would look like. He also wanted to
know how the changes in the current legislation affect the
profitability and the state's cash flow. The department was
capable of generating new scenarios at the request of the
committee.
Mr. Alper concluded his presentation and made himself
available for questions.
HB 247 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson indicated the committee would have
several additional meetings in order to dig into the
details of the bill. He reviewed the agenda for the
afternoon.
ADJOURNMENT
10:56:08 AM
The meeting was adjourned at 10:56 a.m.