Legislature(2019 - 2020)ADAMS ROOM 519
02/25/2019 01:30 PM House FINANCE
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| Audio | Topic |
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| Start | |
| Presentation: Fall 2018 Revenue Forecast | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
February 25, 2019
1:32 p.m.
1:32:24 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
None
ALSO PRESENT
Bruce Tangeman, Commissioner, Department of Revenue; Ed
King, Chief Economist, Office of Management and Budget; Dan
Stickel, Chief Economist, Economic Research Group, Tax
Division, Department of Revenue; Colleen Glover, Director,
Tax Division, Department of Revenue.
SUMMARY
PRESENTATION: FALL 2018 REVENUE FORECAST
Co-Chair Foster reviewed the meeting agenda.
^PRESENTATION: FALL 2018 REVENUE FORECAST
1:33:26 PM
BRUCE TANGEMAN, COMMISSIONER, DEPARTMENT OF REVENUE,
provided information about the department's Revenue Sources
Book. He spoke of his stellar staff that produced the
publication. He introduced a PowerPoint presentation titled
"Fall 2018 Revenue Forecast," dated February 25, 2019.
Commissioner Tangeman relayed that the new administration
was presenting revenues and budgets differently. The
administration was matching revenues to expenditures rather
than addressing the components in two separate discussions.
The governor asked the department to get the revenue
numbers together first, then he was going to match his
budget to the revenues. Commissioner Tangeman would be
walking through the report stopping to point out very
pertinent pages as he went along. It was a document that
had been generated for many years and was extremely useful.
Commissioner Tangeman explained that Chapter 3 of the
Revenue Sources Book tackled a different issue each year.
The current year's Chapter 3 discussed 60 years of revenue
history. He recommended to members to read Chapter 3 from
reports of previous years, as they were very informative
and interesting to read.
Commissioner Tangeman began with slide 3 which provided a
one page look at the entire revenue picture and could be
found on page 6 of the Revenue Sources Book. The top
section was the unrestricted general fund (UGF) revenue.
The chart showed FY 18 actuals and the forecast for FY 19
and FY 20. The largest change under UGF revenues was
investment earnings reflecting a percent of market value
(POMV) draw as a result of the passage of SB 26
[Legislation passed in 2018 establishing a POMV draw]. He
highlighted that for FY 20 about $2.9 billion of the $3.0
billion was the earnings reserve account (ERA) draw.
Commissioner Tangeman continued to the designated general
fund (DGF) section broken down into oil revenue, non-oil
revenue, and investment earnings. Unrestricted general fund
revenue in the top section encompassed production revenue,
property tax, corporate income tax, and royalties. Other
restricted revenue was included such as excise tax, fish
tax, charitable gaming, marijuana tax, and motor fuel tax.
Commissioner Tangeman continued to the next section down,
other restricted revenue. It was a portion of royalty
revenues, a portion of the Public School Trust fund and
others. He indicated greater detail could be found in the
Revenue Sources Book. The bottom section of the chart was
federal revenue including oil revenue and federal receipts.
1:38:05 PM
Vice-Chair Ortiz referred to slide 3 and queried the reason
for a drop in oil revenue between FY 19 and FY 20.
Commissioner Tangeman replied that it primarily had to do
with the price of oil. The forecast was about $68 per
barrel in FY 19 and $64 per barrel in FY 20. Currently, the
price was averaging just under $70 per barrel. The price of
oil was currently outpacing the department's forecast
slightly. Since mid-January the price of oil climbed to
more than $60 per barrel. The price of oil was $68 on the
previous Friday. He hoped the price would increase.
Commissioner Tangeman turned to slide 4 that showed the top
part of slide 3 in greater detail. He pointed to the
section on taxes which showed petroleum property tax,
petroleum corporate income tax, and production tax.
Royalties encompassed mineral bonuses and rents, oil and
gas royalties, and interest. Oil and gas royalties on state
lands in Prudhoe Bay made up the largest portion of the
royalties category.
Vice-Chair Johnston asked if the amount of property taxes
was before the passage of any new legislation. Commissioner
Tangeman replied in the affirmative.
Commissioner Tangeman turned to slide 6 related to the Fall
2018 price forecast. He asked Ed King to join him at the
table to walk through some informative slides.
ED KING, CHIEF ECONOMIST, OFFICE OF MANAGEMENT AND BUDGET,
addressed slide 6 regarding the oil price forecast. The
slide showed where prices had been over the previous year
and the direction prices were headed over the budget cycle
and beyond. There had been a significant amount of
volatility in the past year. Over the summer prices had
been over $70 per barrel. At one point the price broke the
$80 mark reaching $85 per barrel in October 2018.
Mr. King elaborated that much of what was occurring at the
time was geopolitical uncertainty, mostly around Iran. He
relayed that there was a requirement for about a million
barrels of oil being produced by Iran to come off the
market. The market reacted to the requirement by trying to
encourage more oil to come to the market by increasing the
price. The price moved up through the summer and into the
fall. The effort was successful, as new oil came into the
market. For instance, Saudi Arabia increased its production
and mid-continent producers of shale oil increased their
production. The market got blind-sided with the waivers
issued for Iranian oil, allowing the oil to stay on the
market after the market had just reacted to the need to
bring more oil to it. He pointed out that from October
through December there was about a 40 percent drop in the
price of oil because of there being too much oil on the
market at the time.
Mr. King continued that in December Oil Producing and
Exporting Countries (OPEC) started to cut back on
production, as did Russia. The market started to stabilize
and presently oil prices closed at $65 per barrel at the
end of the day. Oil prices were back in the range of what
the department thought was reasonable. He suggested the
volatility of oil prices would continue through 2019. There
were several geopolitical questions that remained
unanswered including whether Iranian waivers got approved.
There were several tensions and sanctions occurring with
the regime change in Venezuela. There were many questions
about what would happen next. He would not be surprised if
oil prices shot up again. However, it would not be prudent
for the state to count on such an event to happen.
Vice-Chair Ortiz asked about the red marks on the graph on
slide 6. Mr. King answered the red arrows pointed out
specific points in time. He noted that the blue line
represented the Brent oil price and the white line
represented the West Texas Intermediate (WTI) oil price.
Mr. King continued to slide 7: "World Liquid Fuels
Production and Consumption Balance," which depicted the
supply and demand balance [from 2013 to 2019 by the Energy
Information Agency (EIA)]. He explained that the EIA was an
agency of the federal government which tracked oil price
movement and supply and demand balances. The entity
published the chart every month in its short-term forecast.
The chart was a December publication. He presently had the
one from January. It showed that the balance had collapsed.
He explained that the yellow line represented the timeframe
in December showing that the world's production was
outpacing consumption. It indicated there would be downward
pressure on price, as there was too much oil on the market.
Mr. King continued that the green bars represented the fact
that there was very little room for oil prices to rise.
Since then, OPEC cut back on its production which moved the
two lines together. He suggested that there was currently
balance. He conveyed that in looking at the January 19
version of the table the green bars collapsed to nearly
zero. The expectation was that there would be some
stability in prices.
1:45:19 PM
Mr. King turned to slide 8: "PRICE FORECAST: Differences in
Analyst Forecasts," which demonstrated what analysts looked
at when considering what oil prices might do in the future.
It was very important for analysts to take into account the
supply and demand balance, especially when looking beyond a
month or two. He suggested that even if there was a price
disruption that drove prices up or down in the near-term,
it was important to consider the larger picture for the
price forecast looking forward. Everyone was paying
attention to the demand from Asia and how economic growth
in Asian countries with large population centers was doing.
He elaborated that if they had more disposable income, they
would use more oil products including plastics and
transportation fuels. It would increase the demand for
petroleum. China, India, and Africa were being watched as
the large population centers continued to develop.
Mr. King discussed supply. He noted that the cost to get
oil out of the ground and to market, and the location of
the supply were always considerations. Currently there were
enough discoveries of resources to meet decades-worth of
anticipated consumption. He elaborated that having the
resource was not the concern so much as the cost to extract
it and get it to market at a price that competed with the
next best alternative. People were thinking about what the
next best alternative might be such as battery technology.
He noted the cost of actual development was also important.
He suggested that as producers were finding ways to push
down on the cost of production, it limited the ability for
prices to get too high. The advancement of technologies
such as horizontal drilling and fracking was pushing down
on the cost of production, therefore, the opportunity for
prices to rise was very limited.
Mr. King moved to slide 9: "Brent Forecasts Comparison as
of 12/4/2018: Real Oil Prices and Forecasts." The slide
showed a graph comparing the price forecast done in October
2019 and released to the public on December 4, 2019 - the
morning of the new administration taking over. At the time
of the forecasting session in October oil prices were up
near $85 per barrel. The participants of the forecasting
session were optimistic. However, comparing the October
forecast to the actual prices in December made it apparent
that the administration needed to make an adjustment. He
pointed to the dotted line which showed the price forecast
session results.
Mr. King moved to slide 10: "Brent Forecasts Comparison as
of 1/3/2019: Real Oil Prices and Forecasts" where the
dotted line showed what was published in the Revenue
Sources Book. He reported that the forecast was
significantly lower to reflect the new information the
state received.
Commissioner Tangeman elaborated on the reason the forecast
number had been changed by the Department of Revenue (DOR).
He noted the price volatility in the fourth quarter of
2018. The department decided it was important to use a more
reasonable price based on the volatility that had occurred
and the price correction. It was important to have a more
reasonable forecast for the new administration to be able
to build its budget and for the legislative budget process.
Choosing the price forecast required a significant amount
of work. The department went back to the spring forecast
and made changes from there. The forecast lined up with
prices in the $64 per barrel range up to about $74 per
barrel over the following 10 years. He wanted to share the
department's process on why the current forecast was in
front of legislators and where it came from.
1:51:11 PM
Mr. King displayed slide 11: "EIA Cases from 2018 Annual
Energy Outlook," which showed the Energy Information
Administration's (EIA) long-term price outlook.
Essentially, the chart conveyed the uncertainty of the
future. The Energy Information Administration looked at the
futures market and the options price for oil (futures
contracts) trying to price the range of contracts to
generate the high and low cases. The chart showed what
range of possible future prices in the market place people
were willing to bet money on. In looking out to the
following year people had purchased options at more than
$100 per barrel and other people were buying below the $30
mark. The market did not know for certain what would
happen. He suggested that the department could not build a
budget based on such a large range. The department had to
choose a number based on the EIA's reference case.
Mr. King elaborated that the EIA reference case represented
a central tendency of expected prices. He drew attention to
the dotted black line which represented DOR's forecast. The
department's forecast was slightly lower than the EIA's
forecast. He noted that the EIA's long-term forecast was
from 2018 but was not published until January 2019. It was
about a year old. There was a new EIA outlook available and
the department was happy to provide it to legislators.
Mr. King indicated that the next few slides provided
further details of how the market had adjusted to
volatility through the previous summer and fall. Some
people looked at activity and saw reasons to be bearish or
bullish. The department needed to be prepared that oil
prices could be much higher or lower than the department
was forecasting. The department would use a number that
provided at least some confidence in meeting or beating the
forecast.
1:54:22 PM
Co-Chair Wilson spoke about needing to live within the
state's means. She asked what would happen if the forecast
was too high. She wondered where the administration would
find the money needed to fund the budget at its current
level.
Commissioner Tangeman answered that it was a risk that was
always present. The department felt it was being
conservative. The Constitutional Budget Reserve (CBR) was
the shock absorber that was in place. The department would
not know whether it would be short until well into the
fiscal year. He was aware the governor was not interested
in overdrawing the ERA. He reiterated that the CBR would be
the natural shock absorber if the forecast was off.
Co-Chair Wilson suggested that the forecast was not only
based on price but, also, on the number of barrels per day.
She queried about projects coming online in the next fiscal
year.
Commissioner Tangeman replied that Department of Natural
Resources would address the issue in greater detail later
in the week. He mentioned that there were several projects
that were included in the department's forecast including
assessing the risk of projects the further out they were to
production. There were several things assimilated into the
production forecast. Although the department was optimistic
about projects coming online as planned, it assigned risk
based on the potential price of oil and other factors.
Ultimately, the department took a conservative approach.
Co-Chair Wilson wondered how many times the price had been
higher than projected in the previous 10 years.
Commissioner Tangeman replied that the department had
produced graphs with the information. He offered to provide
the detail.
Vice-Chair Ortiz referred to slide 12: " Market Activity
Around RSB Publication" and asked how accurate the average
Brent Crude forecast had been historically.
1:58:34 PM
Mr. King replied that several of the forecasters were in
investment banks or trading in the oil markets. There was a
tendency for people that made money buying contracts that
increased in value to be overly optimistic. Whereas, with
the New York Mercantile Exchange (NYMEX) in futures
trading, the numbers tended to come in low. He directed
attention back to slide 10 which showed analysists'
forecasts that tended to be more bullish. The New York
Mercantile Exchange future prices tended to reflect some
sort of risk and the numbers tended to be lower. The
department's forecast tried to land between the two bounds.
Vice-Chair Ortiz thought Mr. King was saying that the
average Brent Forecast had historically been above reality
consistently year-after-year.
Mr. King answered they tended to be high or more optimistic
about the future than other people because they were in the
market and made money selling related products. He thought
if a person were to go back and look at the forecasts, they
tended to be higher than other people. He could not be more
specific because from 2006 to 2012 oil prices were ramping
up. He suggested that when the department or other
forecasters were trying to make a forecast of what would
happen next, the information they had was rooted in the
current price environment. In an environment where prices
were rising, most people forecasted low because actual
prices ended up being high. The analysts in such an
environment ended up being more accurate. However, in a
price environment where prices were declining the opposite
would be true. In looking at just the previous 10 years,
the forecast might be more accurate. That might not be the
case over a longer period of time.
Vice-Chair Ortiz referenced Mr. King's testimony that the
department's projections on the decline of oil revenue from
2019 to 2020 reflected a drop in price to $64 rather than a
price of $68 per barrel. He asked if he was correct.
Commissioner Tangeman answered that the forecast was $68
for FY 19 and $64 for FY 20.
Vice-Chair Ortiz asked, in relationship to the Brent
forecast, whether the department's projection of $64
compared to Brent's of $70 came from the desire to be as
conservative as possible.
Mr. King did not think the department was intentionally
trying to be low. Rather, it was trying to take into
account all of the available information. The department
looked at the NYMEX curves and what EIA was doing. The
Energy Information Association's forecast was also $64. The
department would not make money from selling the product.
The state did not have the same motivation that analysts
might.
2:02:27 PM
Vice-Chair Ortiz was not questioning the need to be
conservative. He asked about the difference in annual
revenue between an oil price of $70 per barrel versus an
oil price of $64 per barrel.
Mr. King answered it would be somewhere in the $500 million
range.
Vice-Chair Ortiz asked for verification that the $70 oil
price projection was fairly accurate over the prior 10
years.
Mr. King answered that the department's goal was to provide
a number the state could budget to. If the actual price
ended up being in the $70 range, it would be great. It
actually happened in FY 19 where the state budgeted based
on an oil price of $64 per barrel. It appeared oil prices
would end up closer to $68 by the end of the year. As a
result, part of the anticipated CBR draw would not have to
be made. The higher the price of oil was pushed, the more
likely the price would end up below it. It was better to
beat the oil price forecast. It was not the department's
intention to beat the price, rather, it's goal was to come
as close as possible to the actual price with the best
information possible. Based on all of the information the
department had, it thought it was prudent to budget to a
price of $64 per barrel.
2:05:13 PM
Representative Josephson noted the presenters had touched
briefly on production. He believed there were about four or
five reasons why, even with an uptick in production, West
of the Natural Petroleum Reserve-Alaska was not likely to
be the lifeline the state had hoped it would be. He noted
that new oil enjoyed a 10 percent reduction in value for 10
years through gross value reduction. The production areas
were not on state land. Therefore, the state did not
receive a royalty share. A portion of a royalty share was
transferred to municipalities. He noted the expense of
reaching the areas and that the carry forwards would have
to be gone through to reach the profitable years. He
thought there would be profitable tax years, but they would
not be helpful in the short-term. The producers specified
that the returns would materialize in the future. He
referenced the drop in legacy field production and
speculated that new production would cover the loss of
legacy fields. Although new production was great for the
economy and jobs, it was not a panacea for the treasury. He
asked if he was accurate.
Commissioner Tangeman answered that Representative
Josephson's statements were all accurate. The department
presentation would look at several slides pertaining to
costs. The tax system was a net system. He agreed with the
statement about the cost to develop oil. The state had
experienced a good run in Prudhoe Bay. It was an elephant
field that was in a good location. As the search for oil
went further East and West from Prudhoe Bay it was much
more expensive to develop. He mentioned two discoveries
that were each estimated to produce 100 thousand barrels of
oil. Things were optimistic. However, the state needed
companies that knew how to develop oil and who could bring
their capital to the state for development. He thought as
the department stepped through the actual calculation under
the state's net tax system, it would show that the fields
were very expensive to invest in and develop. Until the
fields are developed it was just oil in the ground. He
stated the information was good news, but it was only news
until oil made it into the pipeline.
Commissioner Tangeman thought the representative's
assessment of the declining legacy fields was very
accurate. He expounded that the department anticipated a
decline of production of 5 percent total over the following
10 years. Recently, the department had seen a 6 to 7
percent decline annually. It was the natural decline of
Prudhoe Bay without new oil to fill the tranche that the
state was losing. He thought the state was now seeing a
combination in its forecast of a decline in Prudhoe Bay and
an increase new production from fields coming online
holding the state even. He noted the challenge of staying
even with production. He mentioned the cost of several
billion per year to bring new oil online.
2:09:43 PM
Representative Josephson asked how long it had been since
the Alaska North Slope (ANS) price was more closely aligned
with the Brent price than with the WTI price.
Mr. King answered that the ANS oil price had always tracked
Brent. He furthered that prior to 2006 when the oil in the
mid-continent started to take off, distressing the price of
oil, the differential inverted between WTI and Brent. Prior
to 2006, WTI and Brent traded very closely. There was a $1
to $2 differential to account for the difference in
transportation costs. Alaska North Slope oil was between
them. They were currently inverted because of distress. He
continued that ANS traded about equal to Brent overall.
However, more often ANS was under by about $0.50.
Currently, ANS was over that amount.
Commissioner Tangeman would be having Dan Stickel to the
testifier table to discuss the cost forecast. He noted that
the Senate Finance Committee had asked the department to
include the information in the presentation. It was a 101
overview. The state had a very complex tax structure in
place. He continued that with being a net tax structure
there were deductible items as well. He opined that it was
important to understand how the forecast expenditures
(operating, capital, and transportation expenditures) would
affect the revenue stream.
2:12:16 PM
DAN STICKEL, CHIEF ECONOMIST, ECONOMIC RESEARCH GROUP, TAX
DIVISION, DEPARTMENT OF REVENUE, spoke to slide 14 titled
"Lease Expenditures - Overview." He relayed that lease
expenditures were important for two reasons. They were an
integral part of the tax calculation. The state had a net-
based production tax. Lease expenditures were also an
indication of company investment in the state. Investment
lead to future production and economic activity. He relayed
there were a few notes on the slide about how lease
expenditures related to the production tax. He reported
that all upstream costs and transportation costs incurred
by a producer were deducted in determining the net profit
or production tax value, for the tax. He continued that any
losses could be carried forward into future years and
applied against a future year's tax liability. One unique
aspect of Alaska's production tax was that all capital
costs were immediately deductible. The state did not
require a company to depreciate capital costs, they could
take an immediate deduction. In calculating the production
tax a company would compare their net tax, which was a 35
percent net tax rate, minus allowable credits. They would
compare it to a gross minimum tax of 4 percent. He
continued to explain that the lease expenditures would
impact their tax liability when the company was paying the
net tax. In general, for the state's major operators, the
cross over point was in the $60 to $65 per barrel range. At
current levels and above most of the companies would be
paying on the net tax. Therefore, changes in lease
expenditures would directly impact their tax liability. He
suggested that at lower prices changes in lease
expenditures were still important, but they would not have
an immediate and direct impact on tax liability.
Mr. Stickel advanced to slide 15 titled "Cost Forecast:
North Slope Capital Lease Expenditures." He indicated that
slide 15 and slide 16 showed the state's fall forecast for
North Slope lease expenditures compared to the prior spring
forecast. He indicated that to prepare the state's cost
forecast the department had submissions provided by the
operators of the producing units. They submitted a 5-year
projection of their lease expenditures. The department also
had discussions with the operators and looked at various
public information about activity in the field. The
Department of Revenue also consulted with the Department of
Natural Resources (DNR) to make sure the lease expenditure
forecast was in line with the production forecast that they
issued.
Mr. Stickel continued to discuss Slide 15 which showed the
state's capital expenditures forecast for the North Slope.
He reported that in FY 18 North Slope capital expenditures
were approximately $1.7 billion. The state was expecting
the amount to increase over the next several years. The
state was seeing an increase in spending at the legacy
fields, as the existing producers were ramping up spending
slightly in response to higher prices. He highlighted FY 19
and FY 20. The other major increases in FY 20, FY 21, and
FY 22 were the addition of several new fields to the
revenue forecast including the Willow, Pikka, and Greater
Moose's Tooth units. He reported that, beginning in FY 19,
the state was looking at approximately $1.5 billion of
annual capital expenditures for the legacy fields.
Everything beyond that amount was spending on new
developments. In comparing the spring forecast to the fall
forecast the only change was shifting out the time for new
developments. He continued that in the out years in the mid
'20s and beyond the department added more spending on new
developments which was in line with the production
forecast.
2:16:26 PM
Mr. Stickel moved to slide 16, which was a similar slide
looking at the operating cost forecast. He reported that in
FY 18 the North Slope operating expenditures were about
$2.6 billion. The department was expecting spending at the
existing fields to be fairly flat over the forecast time
horizon. The producers had done a significant amount of
work to bring down costs and to make the fields work at
current prices. The department felt that most efficiencies
had been realized to-date. There was a slight increase in
the operating cost forecast in the out years as some of the
new developments came on. He highlighted the reduction in
FY 23 in the forecast compared to what the spring forecast
indicated. It represented a new understanding of the
anticipated cost of the new developments. The companies
were working diligently to operate the new developments in
a more efficient manner to keep the ongoing costs lower
than they had been historically.
Mr. Stickel turned to slide 17 which looked at per barrel
transportation costs for moving oil from the North Slope to
market. It included the Trans-Alaska Pipeline, feeder
pipelines, and marine transportation costs. He reported
that for FY 18 the average transportation cost per barrel
was $9.52. The department was forecasting $8.53 per barrel
for FY 19 - about $1 per barrel lower in FY 19 than in
FY 18. The change had to do with the settlement of a
methodology for calculating the Trans-Alaska Pipeline
tariff between the Federal Energy Regulatory Commission,
the producers, and the state. The change resulted in a
lower Trans-Alaska Pipeline System (TAPS) tariff in the
forecast beginning in FY 19. Beyond that time, the overall
transportation costs were growing roughly with inflation.
Co-Chair Wilson asked about the forecast time periods. She
asked when the spring forecast would come out.
Mr. Stickel replied that the department issued two official
forecasts every year - once in the fall in December and
once in March or early April. They both included a full
forecast for the following 10 years of revenue and the
different variables having to do with revenue. For the
current year the target release was in mid-March, but the
final date had not yet been determined. He elaborated that
in terms of the work that went into the forecast and
modeling, the major forecast was the fall forecast. The
department spent the summer working on models and produced
the Revenue Sources Book each year. The spring forecast was
a new forecast but was largely an update in terms of how
the modeling and background work went.
Co-Chair Wilson asked which amounts should be used for the
budget. Mr. Stickel answered that typically the spring
forecast was the revenue number that tied into the budget.
Co-Chair Wilson would hope for a good one.
2:20:50 PM
Vice-Chair Ortiz pointed to slide 14 that included a lease
expenditure overview. He asked what the effective tax rate
was that oil companies paid. Mr. Stickel answered that the
information would be forthcoming. Commissioner Tangeman
added that he had signed the memorandum that morning and
the response would be given to the committee soon.
Vice-Chair Ortiz asked for verification there would be a
definitive tax rate provided. Commissioner Tangeman
answered there was no definitive rate because producers
paid different amounts but incite would be provided as to
how the rate was calculated.
Vice-Chair Ortiz asked if a definitive tax range would be
provided in order to assist him in responding to his
constituents' queries.
Mr. Stickel answered that the department had compiled a
chart which showed the effective tax rate for a legacy
field based on production tax value. It was a range of
prices and would help the representative to answer
questions from the representative's constituents.
Representative Josephson suggested that in the oil price
range of $60 to $80 per barrel the per barrel credit was at
its most generous point of $8. He wondered if he was
correct in saying that the credit was at the most generous
point on the scale. Mr. Stickel answered that the statement
was fairly accurate.
Representative Josephson understood that when the industry
was not making as much as it would otherwise, the purpose
of the credit was to incentivize production. However, there
was a question regarding fields in production and whether
they would be producing otherwise. Essentially, the per
barrel credit brought down the effective rate from 35
percent to some other figure. He asked if he was correct.
Mr. Stickel answered in the affirmative.
Co-Chair Foster believed the memorandum would be passed out
to members shortly.
2:25:00 PM
Commissioner Tangeman indicated that next section that
would be discussed was the credits forecast and would begin
with the outstanding tax credit liability, otherwise known
as the cashable credits. He turned to slide 19:
"Outstanding Tax Credits." He clarified he was speaking of
tax credits not applicable to the big three legacy field
producers. The credits he would be discussing were credits
offered to bring new entrance to the North Slope. The
debate had been about bringing more competition to Alaska
to invest in oil production.
Commissioner Tangeman continued that in going back to other
oil tax systems there had been several different incentives
and tax credits available for folks to invest. Those
incentives were brought to an end in the previous 2 years.
Currently, instead of an increasing liability, the state
was showing the tail end of the plan to pay off the tax
credits. He reemphasized that the information was based on
current statute. The department had a supplemental request
to add more money to the FY 19 budget payoff. He suggested
that the payment for FY 20 looked fairly accurate and was
approximately $175 million. The chart reflected the state
being able to pay off its tax liability by FY 24 if it was
only appropriating $175 million for the following several
years.
COLLEEN GLOVER, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, introduced herself.
Representative Josephson understood that when money was
flowing into the state treasury the idea was to create some
parody between producers and non-producers with the cash
credit program. The concern with suspending the cash tax
credits was that parody was eliminated. He suggested there
was some evidence that the small producers were continuing
to participate not withstanding they would not receive the
benefit. He asked if the department could confirm that
there were investors that wanted to come to Alaska. He also
wondered if the department expected the 3 major producers
to fill the void in some way and to start investing in
fields they might not have otherwise invested in because of
the absence of other producers. He asked the commissioner
to comment.
Commissioner Tangeman answered that the producers were
investing. The state was forecasting an increase in capital
expenditures in fields other than in Prudhoe Bay. He
mentioned Hilcorp investing in the state. He was uncertain
if the company's decision was based on cashable credits. He
thought it might have been an incentive. Companies such as
Repsol also invested. He did not believe a tax credit was a
stand-alone incentive drawing them to the state. However,
it was part of a suite that made Alaska competitive and a
more interesting place to invest. He commented that Hilcorp
was becoming the fourth major producer. There would likely
be other producers anchored in Alaska for the long-term as
other units, such as Pikka and Willow, came online. He
reiterated that the cash credits were gauged more at the
smaller investment companies. He agreed that when prices
were higher, the state was paying the credits at a more
aggressive rate. Payments were being made at a lower rate
due to oil prices. He would discuss the bonding issue in
the following couple of slides.
2:30:13 PM
Commissioner Tangeman advanced to slide 20, "Update on Tax
Credit Bonding (HB 331)." He reported that HB 331
[Legislation passed in 2018 establishing the Alaska Tax
Credit Certificate Bond Corporation] was passed in the
previous year. He explained that with oil taxes being low
the state was unable to pay off tax credits as aggressively
as in the past. The prior administration came up with the
concept of bonding for the tax credit liability to pay off
the debt service over the following 8 to 10 years. The
issue was currently caught up in the legal system. The
state received a favorable ruling in the Superior Court but
anticipated it would go to the Supreme Court. Resolution on
the issue would likely be delayed for another 12 months.
The previous administration was anticipating and hoping
that the state would be able to bond in the summer and fall
to take care of the liability. However, it did not work
that way. There was about $100 million appropriated for the
FY 19 budget as a backstop amount in case the bond issue
did not come to fruition. When the new administration took
over, it decided to make the $100 million payment.
Representative Sullivan-Leonard asked for an example of how
the tax credits had helped smaller companies to invest in
Alaska and how the state's failure to pay the credits might
have presented challenges for the companies.
Commissioner Tangeman responded that the first of the
issues occurred when the state was having rolling brown
outs in Anchorage due to the Cook Inlet issue. He believed
it was the impetus for the tax credit program which turned
out to be successful. He did not think there was a resource
issue but rather an issue with gas production in the Cook
Inlet. He also mentioned the challenge of getting companies
to the inlet to explore for more gas to widen the reach.
The tax credit program proved to be very successful in the
Cook Inlet.
Commissioner Tangeman continued that when the tax credit
system extended to the North Slope, the state found that
not every company's balance sheet allowed for investment in
Alaska to the extent needed. Alaska was a very expensive
place to invest. He noted that when prices spiked in 2012
and 2013 the state discovered the need to compete - for
several decades it had been the biggest play, but other
options had presented themselves in the U.S. including
shale plays in North Dakota. He suggested that at a certain
oil price there were several options that became fiscally
feasible. For instance, in North Dakota in 2001 and 2012,
the shale plays were new, and fracking had been around for
a while. Companies knew what the peak production had been,
and it happened right away. They were not certain what the
tails looked like on the individual wells. They also
thought the breakeven point might be around $60 to $70 but
were now seeing it could be around $35 per barrel.
Commissioner Tangeman spoke to the need to be competitive.
When prices had gone down there had been limited resources
and the state had to decide how it was going to deploy its
assets. Unfortunately, some companies had gotten caught up
in the issue and probably went bankrupt while some were
hanging on waiting for the tax credits. He reiterated that
Alaska was very expensive and not everyone could do
business in the state.
2:36:00 PM
Commissioner Tangeman reported that the bonds were
currently tied up in litigation. The state received a
favorable ruling in the Superior Court. The case would go
to the Supreme court which would take at least 12 months to
resolve. The state had set aside $170 million in the budget
for the case.
Commissioner Tangeman turned to slide 23 that included
three different tables. The top table was ANS oil price for
Fall 2018 versus the Spring 2018 forecast. The only
difference was in FY 19 where the state forecasted around
$64 per barrel. The middle table included UGF revenue
10-year forecast excluding the Permanent Fund transfer -
the POMV transfer. He reported a slight reduction in the
out years which was more in line with the state risking
potential production that would be coming online. He
suggested if targets were met, the negative numbers would
go positive. However, the department accounted for risk in
case they were delayed or did not come online as
anticipated. The bottom section included UGF revenue with
the POMV draw - it reflected the additional revenue that
was brought to the table through the POMV. There was not an
aggressive slope to the line. The number went from about
$2.9 billion in FY 20 to about $3.3 billion in FY 28. The
amounts were based on a 5.25 percent POMV draw dropping to
a 5 percent draw.
Representative Josephson asked about the 5.25 percent or
5.0 percent POMV draw from the ERA which showed a
sustainable number. He asked how the administration
intended to fund the FY 16, FY 17, and FY 18 dividends that
had not been fully funded.
Commissioner Tangeman answered the dividends would be
funded from the ERA. The budget did not include the back
payments of Permanent Fund Dividends. The payments would
come from the ERA in the form of an additional draw. The
department viewed the money as funding that would have been
drawn from the ERA to fund FY 16, FY 17, and FY 18. Since
the money remained in the ERA, the state experienced a 10
or 12 percent return. There was an upside to the fact that
a large portion that was not paid out earned a substantial
return. He specified that because it was a 3-year issue,
the department recommended a 3-year solution.
Vice-Chair Ortiz spoke to the same issue of paying off back
dividends to residents. He clarified that the back payments
would be based on an added draw of 5.25 percent which would
have some impact on the amount of revenue the state would
receive from future draws. He surmised that the investment
money would no longer be in the fund earning returns. He
asked if estimates included the idea that the money would
no longer be a part of the investment portfolio.
2:41:11 PM
Commissioner Tangeman answered in the negative. The data
was based on the current laws in place. The data was based
on the year-end balance for the Alaska Permanent Fund
Corporation (APFC) and estimates going forward. It was not
taking into account any other proposals.
Vice-Chair Ortiz asked what the impact would be on revenue
from future draws if the draws occurred.
Commissioner Tangeman answered that once the bills were
before the legislature there would be a robust discussion
in the modeling of the impacts to the ERA. He indicated
that the corporation was projecting earnings of $4.1
billion in the coming year. The percent of market value
would be about $2.9 billion. The back pay in FY 19 was
about $600 million. He reported that the net earnings would
still be about $600 million. The department could look more
closely at the impact on future revenues once the bills
were before the legislature.
2:42:34 PM
Ms. Glover would be providing an update on the oil and gas
production tax audits. She began on slide 25: "OGP Tax
Audit Update." The department had completed the 2012 audits
and was nearly completed with the 2013 audits. The
department was working through much of the backlog and the
complications it had with audits because of the changes in
tax regimes from year-to-year. She reported there had been
staff turnover and new software to contend with. The
department currently had an online system, the Tax Revenue
Management System (TRMS). The department had a
sophisticated, proprietary software system it used for tax
returns. The majority of the returns were currently
electronic and provided for better data to be used. The
department was looking forward to getting into the 2014
audit year to see the efficiencies.
Ms. Glover turned to slide 26: "OGP Audit Improvement
Plan." The department intended to be completed with the
2013 audits by the end of the first quarter of the current
year. The audit team planned to take a short break to step
back in order to plan for the future. There was an audit
improvement plan the department had been working on
internally and had been reaching out to tax payers to
develop a comprehensive plan dealing with how to be more
efficient, streamlined, and communicative, and how to
incorporate more stringent audit practices. The department
was looking at risk-paced audits, and issue-based audits
instead of auditing 100 percent of the tax payer returns.
Ms. Glover reported that the department was also reaching
out to other industry associations for feedback in
benchmark audit practices. The department was planning to
have defined audit plans going into 2014 using a more
traditional audit format that would include an opening
meeting with the tax payer, a defined scope of an audit,
protocols in hand, and agreements regarding data sharing.
She explained that sometimes the department did not get the
data it needed in a timely manner, but sometimes that was
due to the department making a last-minute request. The
department wanted to be more collaborative with tax payers.
She also mentioned streamlining the TRMS. Once the
department got through the 2014 audit cycle, it would have
a much better idea of how it would work using the
information in the system and using standardized templates.
The department was committed to being in a 3-year cycle by
2022.
Vice-Chair Johnston surmised all of the things Ms. Glover
reported were dependent on whether the legislature kept the
tax regime consistent. Ms. Glover replied that through 2018
audits, the tax structure was the same. Vice-Chair Johnston
commented that in order to maintain a 3-year cycle, the
state would need to maintain a consistent tax regime. She
asked if she was correct. Ms. Glover replied in the
affirmative.
Commissioner Tangeman turned to the last slide of the
presentation, slide 27: UGF Relative to Price per Barrel
(without POMV), FY 2020." He indicated the slide showed the
price sensitivity of ANS and what revenue could be expected
without the POMV. He noted that the Legislative Finance
Division also had a price sensitivity chart that was
informative.
Co-Chair Foster noted that the committee had received a
letter [letter from Commissioner Tangeman to the committee
to provide responses to committee questions on indirect
expenditure report presentation on February 8, 2019, dated
February 25, 2019, (copy on file)].
2:47:25 PM
Representative Sullivan-Leonard asked for the final quarter
balance for the ERA. She thought it was about $19 billion.
Commissioner Tangeman did not know the exact amount. He was
aware of the balance on December 31, 2018 which was $16.6
billion. Recently the number was in the mid $17 billion
range. He commented that it reflected the market changes.
He reported that the total Permanent Fund balance dropped
to $0.4 billion. However, the balance of the ERA had not
changed significantly. Presently the total Permanent Fund
balance was over $65 billion.
Representative Sullivan-Leonard requested to hear from Mr.
King on the numbers.
Mr. King replied that on the APFC website, the ERA balance
would be about $13.5 billion. He suggested that the amount
was slightly misleading because the Permanent Fund was
booked as a liability (the $2.9 billion draw that was
coming as the POMV during FY 20). In looking at the numbers
he advised caution in the interpretation. He explained that
the $13.5 billion was the amount of money available in the
fund in addition to the money that was already obligated to
the budgets for FY 19 and FY 20 which included the dividend
payments and the general fund uses.
Representative Sullivan-Leonard asked Mr. King for the
totals. Mr. King responded that in looking at the cash
balance of the account presently, it would be about $19.5
billion. However, it included all of the money that was
obligated to be transferred to the principle account or to
the general fund. The available balance was about $13.5
billion.
Vice-Chair Ortiz asked about the potential effects of
making the Permanent Fund Dividend (PFD) back payments. He
suggested it would have an impact on the earnings potential
of the fund and for the POMV draw. He wanted Mr. King to
comment on any other potential impacts.
Mr. King replied that the more assets the state had under
management, the more earnings it would generate. If the
money that was not paid out in PFDs over the previous 3
years that remained in the fund, the fund would generate a
larger amount of revenue.
Vice-Chair Ortiz asked how much more revenue would be
generated if the draws were not made.
Mr. King answered that 6.5 percent of $2 billion would be
approximately $130 million per year in additional earnings.
The question was whether the earnings belonged to the state
or the people. The governor was trying to address the
question.
Representative LeBon appreciated the department's
conservative approach to projections. He asked about the
industry standards on a POMV, endowment, or a permanent
fund draw rate.
Mr. King answered that looking at an endowment fund such as
a university, the typical draw rate was somewhere around 4
percent to 5 percent. One of the reasons for the percentage
rate was because if the funds deteriorated, there was not
really an opportunity to make up the funds. The Permanent
Fund had a protection mechanism in the principle account.
By putting the account in a protected account and only
drawing on the earnings, it was an alternative way of
managing an endowment fund. The protection existed
regardless of whether a POMV was used. The state was in an
odd situation currently where the state was using a POMV to
restrict the draws on the earnings that were kept in the
holding account rather than a POMV on the total fund as a
mechanism for maintaining the principle protection. It was
slightly different from a typical endowment fund. It was
the case that the 5 percent POMV currently in place was
intended to protect the fund. Given the projection of
returns the corporation was currently using, it was the
upper limit of what the projection would allow. If the
state tried to draw more than 5 percent, it would put more
stress on the fund and require a higher return to maintain
the fund balance.
2:53:40 PM
Representative LeBon commented that paying out money for
past dividends in future years was not a wise choice if
looking at the fund long-term. He wondered if a wiser
choice would be to roll those dollars into the principle
balance. He asked if the administration had considered his
suggestion.
Commissioner Tangeman answered it was a policy decision.
The governor strongly felt the citizens of the state were
entitled to the funds in FY 16, FY 17, and FY 18. His goal
was to make the issue right. Since the funds would be drawn
out over the course of 3 years, it would not be doing any
significant damage.
Mr. King added that there was a difference between trying
to grow and protect the fund versus the intended use of the
fund. If the intent of the fund was to do what the statute
required, which was to pay out dividends, then it was not
really a question of the most prudent fiscal choice.
Rather, it was about whether it was the morally right thing
to do. It was not a question of maximizing the fund's
value, but about following the current statutes. If the
goal was to maximize the fund's growth, it would be
financially prudent to cut the budget further to avoid
taking any of the POMV. If the goal was to grow the fund as
large as possible, then the aim should be no draws from the
ERA. It was a balance between the current generation
following the current law and how much to grow the account
for future generations and how much the current generation
should sacrifice in order to protect future generations.
Representative LeBon surmised it would be a compromised
position to focus on the formula as outlined in SB 26 and
not to treat the pay back dollar amounts as a payout to the
following 3 years if taking the most conservative approach
to a POMV on an endowment.
Mr. King answered that if a person perceived the $2.4
billion sitting in the fund as state money, it should be
protected. If the money was viewed as the public's money
sitting in a state account, it should be dispersed.
Vice-Chair Johnston stated that inflation proofing was also
in statute. She asked if the department had done modeling
in terms of the ERA and the stress factor of inflation-
proofing the principle and the highs and lows of the
availability of funds and the POMV draw.
Mr. King replied that the inflation proofing formula
required the principle balance to be protected from being
eroded by inflation. He reminded members that it was not
the entire account that was inflation protected, it was the
principle account. He conveyed that when looking at the
6.55 percent projection on the total accounting return that
the fund was projecting - the $4.1 billion the commissioner
had discussed - the $2.9 billion draw plus inflation
proofing ate up the earnings. There were not enough
additional earnings to inflation proof the current balance
of the ERA. He indicated that because of the way the
current formula worked, the total projection that the
Permanent Fund was using was not sufficient to meet all of
the statutory requirements. As a result, a little bit of
the money would be swept over to the principle account as
long as the inflation proofing statute was being used. In
following all of the current laws including the statutory
PFD, inflation proofing, and the draw, the ERA would be
maxed out in terms of what it could do.
2:59:05 PM
Co-Chair Wilson returned to slide 23. She did not recall
significant discussion occurring when SB 26 passed
regarding following the statutory formula of the dividend.
She thought it was the responsibility of the legislature to
follow both statutes. However, it was important to consider
the negative effects on the numbers listed on the slide.
She suggested that a 5.25 percent draw with the current
amount in the ERA would be very different than if the
legislature used $1 billion or $2 billion out of the ERA in
the following 2 years.
Commissioner Tangeman agreed that the debate on SB 26 was
not about how the amount would be split. The focus was on
the amount that could be withdrawn. The statute on the
calculation of the dividend was not changed and was the law
Governor Dunleavy thought should be followed. He believed
it also lent for the discussion the governor was focusing
on: revenues matching expenditures. Regardless of the
amount drawn from the ERA for the POMV and how it would be
split, the governor felt strongly in following the law for
the dividend calculation and controlling state spending. A
full dividend payout would equate to $1.9 billion leaving
$1 billion for government. The governor had turned the
discussion around by starting with revenues and building a
budget up to those revenues. He thought the discussion
shined the light on the fact the state currently had
limited revenue streams. The governor's focus was to
balance the budget with a full dividend in place.
Co-Chair Wilson agreed that the state should have been
balancing its budget a long time ago. She emphasized that
the more the legislature touched the ERA, whether through
back pay or not balancing the budget, the more it would
impact government services and the dividend in the future.
She wanted to better understand the impacts.
Commissioner Tangeman asked if she was asking about the
impacts of doing the back payments in conjunction with the
POMV draws.
Co-Chair Wilson suggested that there were two issues she
was trying to better understand. She referred back to
slide 23 which showed how much funding the state would have
in the following few years using a 5.25 percent draw for
another year then dropping to 5.0 percent. The legislature
did not have a discussion about how SB 26 worked with a
full dividend because it was cut. She believed the dividend
was about having it for future years, not just the next few
years. She was trying to better understand the impacts of
the numbers on the slide with additional draws.
Co-Chair Wilson reiterated comments by Mr. King about a
necessary 6.5 percent return on investment. She noted the
stock market was not doing well at present. She asked if
there was a way to see what the ERA would look like in the
next year if more money was taken out of the ERA in the
current year. She wanted everyone to understand how all of
the figures on slide 23 worked based on decisions that
still needed to be made.
Mr. King commented that because of the way the POMV formula
worked on a 5 year averaging basis, the full ramifications
of the draw were not felt in the first year. They were
spread out over time. He indicated that, with the 3-year
draw to pay back the prior year dividends, it was spread
out even further. The hit the state would be taking would
likely not be felt until 2028. The difference was about
$100 million per year. He would show the graphs. He asked
if the chairman wanted to see them as part of the PFD pay
back bill or something separate.
3:04:52 PM
Co-Chair Wilson wanted to see it now. She asked listeners
not to send her letters on the back pay bill yet, as she
had not made her mind up. She thought it was important to
take into consideration the time the state was in. She
liked Mr. King's comment about a draw maybe not impacting
the state in the coming year but would ultimately impact
the state in future years. The information would be useful
in considering several bills.
Co-Chair Foster was fine with having the current
conversation. However, he noted that the department would
be presenting on a bill and supplying the numbers being
requested.
Vice-Chair Ortiz asked if the chair intended to have the
department address the memorandum. Co-Chair Foster wanted
to finish questions on the presentation first.
Representative Josephson mentioned the administration's
allegiance to the PFD formula. He asked about the reduction
to the school grants and whether there was a piece of
legislation changing the school foundation formula or
simply moving the figure from about $5000 to $4000 per
student as an average. Commissioner Tangeman thought the
Office of Management and Budget should answer
Representative Josephson's question. Representative
Josephson was curious how the administration reconciled its
fidelity to one formula and whether it would be equally
loyal to the other formula.
Vice-Chair Johnston asked if the department could include
how inflation proofing would be affected in its modeling.
3:07:57 PM
Mr. King remarked on the memorandum and the shape of the
curve. He thought it was important to remember that in
Alaska's oil tax system it actually had two oil systems -
effectively a 4 percent gross tax and effectively a 35
percent net tax that had some credits that brought the rate
down. The graphic showed that at prices below about $65 per
barrel, only the gross tax was in effect accounting for the
shape of the curve. It was as though the actual effective
gross tax rate was 4 percent until the net tax system
kicked in.
Commissioner Tangeman offered to read the memorandum to the
committee. Since the committee had time to review it, he
thought members might have some specific questions.
Vice-Chair Ortiz referenced a graph at the bottom of page 1
of the memorandum related to the effective production tax
rate. He suggested that, based on the current oil price and
the prices in the forecast, the effective tax rate would be
8 percent to 9 percent. He asked if he was correct. Mr.
Stickel replied in the affirmative. It represented
in aggregate for legacy fields - the production tax only
component of the share of production tax value. He
continued that at the FY 20 price of $64 per barrel the
effective tax rate would be 8 percent.
Vice-Chair Ortiz clarified that Mr. Stickel had stated 8
percent. Mr. Stickel replied in the affirmative.
Vice-Chair Ortiz asked how competitive the rate was
compared to other tax regimes worldwide. Mr. Stickel was
not prepared to address the question at present.
Mr. King answered that Alaska's tax system was based on the
federal requirements through federal law and the mining
act. He suggested that because of the way Alaska owned its
natural resources and leased its mineral interests, it
applied a tax. Other states did not own the mineral leases,
they only applied a tax. Alaska was more like a Central
American country than Texas or North Dakota. He explained
that the norm in the world was to have a production sharing
agreement in place. It would assign risk to the governing
interest. Certain countries had higher effective tax rates
because it compensated them for taking additional risks.
Whereas, Texas and North Dakota had a lower tax rate but
did not account for the fact that companies were paying
other tax rates. He advised that when looking at the 8
percent or 9 percent tax rate in the current price
environment it was important to remember there were other
ways the state was generating revenue. He explained that
SB 21 [Legislation passed in 2013 regarding oil and gas
production tax] was designed so that the 12.5 percent or
16.67 percent royalty rate in combination with the net rate
was relatively stable at about 60 percent to 65 percent of
total take. In total, the state took more than most other
regimes especially relative to the risks taken by the
state.
3:12:49 PM
Representative Knopp believed it was important to note the
graph included production tax rates. He clarified that Mr.
King had stated that when the taxes were combined Alaska
was on par with other states.
Mr. King answered that he was hesitant to say that Alaska
was on par with other states due to the difference in the
regimes. If the question was whether Alaska was getting its
fair share and looking at the numbers, most people would
say it looked relatively fair. It was not the case that
companies were running away with the bank. If the state
were to increase the tax rate, it would put additional
stress on the economics to continue to produce.
Representative Josephson clarified that Mr. King used the
number of 65 percent as the total state take but thought he
meant between the federal and state governments. Mr. King
confirmed Representative Josephson was correct. He meant
the total amount of the producer's share.
Representative Josephson asked for additional clarification
about the number. Mr. King answered that the sliding scale
barrel credit was intended to create some level of
progressivity that offset the regressive nature of the
royalty. He suggested that when there was a 12.5 percent
gross, it was a higher share of the net when oil prices
were low. The intent of SB 21 was to create an almost level
total non-producer share across all price ranges. In the
current price environment, there was a similar share
presently - as if the prices were $90 to $100 per barrel.
He continued that the pie would get bigger but would be
distributed consistently.
Representative Josephson agreed that when prices fell in
2014 there had been discussion about the total take for the
state including its royalty share. It reflected something
the state owned, but it still needed help getting to the
resource. He thought it remained a reflection of the
state's entitlement by virtue of statehood. He suggested
tax was a different policy altogether. He asked Mr. King if
he agreed.
Mr. King thought it was important to remember that the oil
owned by the state was leased to producers through DNR. The
royalty that was kept for the state was to compensate the
state for its ownership share. The taxes and the other ways
the state collected revenue from the companies were not to
compensate the state for its ownership share. The tax
system was not intended to capture value from the state's
ownership share. It was the contract the state entered into
when it leased out its resources.
Co-Chair Foster thanked the presenters. He reviewed the
schedule for the following day.
Co-Chair Wilson noted that they had asked OMB for the
matrix that it used to create the budget. She wanted to see
the information prior to the Thursday meeting. Co-Chair
Foster agreed.
ADJOURNMENT
3:18:10 PM
The meeting was adjourned at 3:18 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Fall 2018 Revenue Forecast Presentation.HFC.2.25.2019.pdf |
HFIN 2/25/2019 1:30:00 PM |
HFIN Revenue Forecast |
| DOR House Response 2.25.2019.pdf |
HFIN 2/25/2019 1:30:00 PM |
DOR Response 2/8/19 Indirect Exp House Mtg |