Legislature(2023 - 2024)ADAMS 519
03/23/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Spring Revenue Forecast | |
| Presentation: Willow Project Update and Fiscal Analysis | |
| HB39 || HB41 | |
| Public Testimony: off Nets | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 39 | TELECONFERENCED | |
| += | HB 41 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 23, 2023
1:33 p.m.
1:33:13 PM
CALL TO ORDER
Co-Chair Johnson called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Dan Stickel, Chief Economist, Economic Research Group, Tax
Division, Department of Revenue; John Crowther, Deputy
Commissioner, Department of Natural Resources; Dan Stickel,
Chief Economist, Economic Research Group, Tax Division,
Department of Revenue; Owen Stephens, Commercial Analyst,
Department of Revenue.
PRESENT VIA TELECONFERENCE
Anna Grace Jeffries, Primary Prevention Coordinator,
Advocates for Victims of Violence, Valdez; Moira Gallagher,
Self, Anchorage; Tiffany Mills, Executive Director, Helping
Ourselves Prevent Emergencies (HOPE), Prince of Wales; Jena
Crafton, Self, Eagle River; Carri Crater, Self, Anchorage;
Maria Legend, Self, Anchorage; Tom Crafton, Self, Eagle
River; Amanda Faulkner, Alaska Association on Developmental
Disabilities, Kenai; Jon Erickson, City Manager, Yakutat;
Kathleen Fitzgerald, Self, Soldotna; John Solomon, CEO,
Alaska Behavioral Health Association, Kotzebue; Tom
Morphet, Self, Haines; Dawn Waldal-Anderson, Mayor, Whale
Pass, Prince of Wales; John Sonin, Civilized Humanity,
Douglas; Emily Carroll, Self, Anchorage; Sue Libenson,
Self, Haines; Eric Gurley, Executive Director, ACCESS
Alaska Inc., Anchorage; Rick Nelson, Self, Anchorage.
SUMMARY
HB 39 APPROP: OPERATING BUDGET/LOANS/FUND; SUPP
HB 39 was HEARD and HELD in committee for further
consideration.
HB 41 APPROP: MENTAL HEALTH BUDGET
HB 41 was HEARD and HELD in committee for further
consideration.
PRESENTATION: SPRING REVENUE FORECAST
PRESENTATION: WILLOW PROJECT UPDATE AND FISCAL ANALYSIS
Co-Chair Johnson reviewed the meeting agenda. The committee
would hear two presentations including the spring revenue
forecast by the Department of Revenue (DOR) and the
Department of Natural Resources (DNR) and an update and
fiscal analysis of the Willow project by DOR and DNR. There
would be public testimony on the operating and mental
health budgets after the presentations.
^PRESENTATION: SPRING REVENUE FORECAST
1:35:36 PM
Co-Chair Johnson asked committee members to hold questions
until after the meeting.
DAN STICKEL, CHIEF ECONOMIST, ECONOMIC RESEARCH GROUP, TAX
DIVISION, DEPARTMENT OF REVENUE, provided a PowerPoint
presentation titled "Spring 2023 Forecast Presentation:
House Finance Committee," dated March 22, 2023 (copy on
file). He stated he would focus on a few key slides in the
interest of time. He began with key assumptions behind the
spring forecast on slide 5. He highlighted that the spring
forecast was one scenario within a range of uncertainty and
potential outcomes. Some of the market volatility in the
financial markets over the past couple of weeks was another
source of uncertainty.
Mr. Stickel continued to review slide 5 and explained that
DOR did not change its outlook for investment returns for
the fiscal year. Investment forecasts were based on a 7
percent return for FY 23 and 7.05 percent for FY 24 and
beyond. The federal revenue forecast had been updated to
incorporate all known federal revenues as of March. There
were some increases to expected federal revenues related to
expected infrastructure funds and increased funding for
agency operations. The oil and gas forecast was based on an
estimated oil price of $85.25 per barrel for FY 23. He
explained it was an average price that incorporated higher
prices that had already occurred in the current fiscal year
and an assumption that oil prices would average in the low
$70s per barrel for the remainder of the fiscal year. The
oil price per barrel forecast for FY 24 was $73.00. The
non-petroleum assumptions were largely unchanged from the
fall forecast. The forecast assumed continued economic
growth (any economic slowdown was expected to be short
lived), 90 percent of capacity for the 2023 cruise season,
and minerals prices based on futures markets. He stated
that most of the changes between the fall and spring
forecasts were related to oil and gas.
1:39:05 PM
Mr. Stickel advanced to slide 9 titled "Unrestricted
Revenue Forecast: FY 2022 and Changes to Two-Year Outlook."
The forecast for Alaska North Slope (ANS) average oil
prices had been decreased by $3.20 per barrel for FY 23 and
by $8 per barrel for FY 24. He stated the decrease was the
primary reason for the reduction in the revenue forecast.
Unrestricted general fund (UGF) revenue was reduced by $246
million for FY 23 and $679 million for FY 24. There was
very little change in expectation for non-petroleum
revenues. The Permanent Fund transfer was one of the
largest sources of UGF revenue. He stated that the
expectation for the transfer for FY 23 and FY 24 had not
changed because of the way the transfer was calculated on
the ending value of the first five of the past six years.
Mr. Stickel turned to slide 10 titled "Total Revenue
Forecast: FY 2022 to FY 2024 Totals." The DOR Revenue
Sources Book included four categories of revenue that
aligned with how revenues were reported in the budget. The
UGF category included revenues available for general
appropriation. Designated general funds (DGF) were revenues
technically available for appropriation but were
customarily appropriated for a specific purpose. For
example, a share of alcohol tax revenues that were
customarily appropriated to alcohol and drug abuse
treatment and prevention purposes. The category "other
restricted revenues" was truly dedicated to a specific use.
He highlighted examples including debt covenants, federal
law provisions, and constitutional restrictions (such as a
portion of state royalty revenue constitutionally dedicated
to the Permanent Fund). The federal revenue category was
considered to be restricted because there were federal
provisions specifying how the funds could be used. Total
state revenue was $8.6 billion in FY 22, which was a bit
lower than in a typical year because investments showed a
net negative in FY 22 due to a market downturn. The
forecast was $16.4 billion in total state revenue in FY 23
and $14.9 billion in FY 24.
Mr. Stickel moved to slide 11 titled "Unrestricted Revenue
Forecast: FY 2022 to FY 2024 Totals." He highlighted that
investment and petroleum revenue were the two primary
sources of UGF revenue. Each of the two sources generated
over $3 billion in FY 22. The department was forecasting
investment revenues of $3.4 billion in FY 23 and $3.6
billion in FY 24 and petroleum revenues of $3.1 billion in
FY 23 and $2.2 billion in FY 24.
1:42:55 PM
Mr. Stickel looked at a breakout of unrestricted investment
revenue on slide 12. The Permanent Fund transfer was the
largest portion. Additionally, there was a small portion
primarily composed of earnings on the state general fund
balances. There were some losses on the general fund
balances in FY 22 due to some of the interest rate
volatility, but DOR was anticipating a return to positive
amounts in FY 23 and FY 24.
Mr. Stickel turned to slide 14 titled "Unrestricted
Petroleum Revenue: FY 2022 to FY 2024 Totals." The slide
included four different sources. State property tax was a
fairly stable revenue source generating a little over $120
million per year. Corporate income tax applied to most but
not all of the oil and gas corporations doing business in
the state and DOR was expecting it to generate $270 million
in FY 23 and $300 million in FY 24. The oil and gas
production tax (the state's severance tax on oil and gas)
was projected to generate $1.5 billion in FY 23 and
slightly over $700 million in FY 24. For state royalties
including [mineral] bonuses, rents, and interest, DOR was
forecasting $1.2 billion in FY 23 and slightly over $1
billion in FY 24. He noted the amounts on slide 14 were
limited to the UGF portion. He explained there was a
significant municipal share for property tax and a
significant restricted share of royalties going to the
Permanent Fund and school fund.
1:45:09 PM
Mr. Stickel turned to slide 17 showing the change in the
long-term petroleum price forecast from fall 2022 to spring
2023. He noted it was the primary reason for the reduction
in the revenue forecast from fall to spring. The department
used the futures market to guide its oil price forecast.
The spring forecast was based on the median futures prices
from the preceding week ending March 17, which was compared
to the fall forecast generated in early December. There was
a $3.20 per barrel reduction for the FY 23 forecast, an
$8.00 per barrel reduction for FY 24, and reductions in the
outyears as well.
Mr. Stickel advanced to slide 19 showing the FY 24 UGF
revenue forecast before accounting for the Permanent Fund
transfer of $2.7 billion and a forecast price of $73 per
barrel oil. He explained that each additional dollar above
the forecasted $73 per barrel equated to about $65 million
to $70 million UGF. He detailed that each dollar below the
$73 per barrel forecast equated to about $50 million UGF.
1:47:14 PM
Representative Stapp asked about slides showing stable
investment returns of 7 percent for FY 23 and 7.05 percent
for FY 24. He noted that in January the Alaska Permanent
Fund Corporation (APFC) was reporting a 3.38 percent return
year to date (YTD), which was below the rate of inflation.
He remarked that the fiscal year would end in June, and he
wondered if there would be a massive investment return to
make a correction to the APFC projection.
Mr. Stickel answered that the 7 percent and 7.05 percent
reflected nominal returns (prior to accounting for
inflation). The department worked with APFC to help derive
the investment forecasts. He elaborated that APFC looked at
the returns YTD in addition to the full year return
assumption and felt the 7 percent annual return was still
on track; therefore, APFC did not want to make any changes
to the forecast.
Representative Galvin asked if DOR conducted an estimate of
cost to the state and how much the state may forego if the
state did not impose a ringfence on production tax over the
Willow development.
Mr. Stickel answered that the Willow project was included
in the revenue forecast on a risked basis. He noted the
topic would be discussed in further detail in the next
presentation.
Representative Galvin wondered if a change was made whether
it would enable the state to shift the impact to later
years in order for Willow to contribute to the state now as
opposed to later.
1:50:00 PM
Mr. Stickel could not speak to any particular proposal. He
explained it would depend on how a proposal was
constructed. He noted the department would be happy to
analyze it. He addressed the Willow project in particular
and explained that the negative impacts to the state during
construction came out to about $360 million cumulatively
over the first five years of construction. The official
forecast was produced on a risked basis and only included a
portion of Willow. He stated it would give an order of
magnitude estimate of what may be included in the official
forecast.
Co-Chair Johnson asked Mr. Stickel to repeat the
information.
Mr. Stickel replied there were two ways of looking at the
Willow project. The first was in the official revenue
forecast that used confidential taxpayer information and
company specific modeling. The department could not share
the details with the public or the committee due to
taxpayer confidentiality concerns. The Willow specific
analysis that would be presented later in the meeting was
based entirely on publicly available information. Over the
first five years of the project beginning in 2024, the
total net impact to the state was about $360 million, which
was offset by an impact of about $1.3 billion over the
following five years. The first ten years of the life of
the project were projected to bring close to $1 billion net
positive to the state.
Co-Chair Johnson asked if it was $360 million per year.
Mr. Stickel clarified the number was $360 million total. He
added that DOR had published a white paper at the end of
February that included some larger estimated negative
impacts. The department made changes to its assumptions
regarding how the lease expenditures relate to the minimum
tax. The minimum tax significantly limited the exposure to
the state and the benefit to the company from the lease
expenditures.
1:52:29 PM
Representative Galvin stated her understanding there was
another project very nearby with a different company that
had to pay taxes because they were not yet in production.
She stated her understanding that the state would still get
the revenue [from the Willow project], but not until later.
She thought it was the case because of the way the oil tax
laws were presently written.
Mr. Stickel answered that there were some nuances around
how the lease expenditures translate into state revenue and
company benefit. He stated it depended on whether a company
was paying above the minimum tax, under the minimum tax, or
at a net operating loss. There were several slides in the
upcoming presentation that would address the question.
Representative Hannan looked at slide 19 and referenced Mr.
Stickel's statement that every dollar above $73 per barrel
was worth $65 million to the state. She asked for the
second number Mr. Stickel had provided.
Mr. Stickel replied that every dollar below $73 per barrel
below was about $50 million.
Representative Hannan asked why a dollar below the $73 per
barrel projection was so much less than a dollar above the
projection.
Mr. Stickel answered that the state's oil tax system was
progressive in nature and included the gross minimum tax
and net tax. The difference had to do with a crossover
point between the two.
Representative Hannan pointed to the severance tax decrease
on slide 14. She asked what was included in the severance
tax and why it dropped 50 percent from FY 23 to FY 24.
Mr. Stickel responded that the production tax was a
progressive tax system. He detailed that DOR was estimating
a significant drop in oil prices from $85.25 to $73 per
barrel from FY 23 to FY 24. The department was also
anticipating an increase in company spending.
1:55:59 PM
Representative Josephson remarked that Mr. Stickel had
brought some good news in one way. He referenced Mr.
Stickel's statement that the loss [to the state]/tax passed
by the legislature was only $360 million for five years. He
asked what the number had been before the recalculation.
Mr. Stickel believed the negative was over $1 billion. He
relayed that his colleague would provide the information in
the next presentation.
Representative Josephson asked if it was related to the 4
percent gross tax floor and not to a reduction in the cost
of capital expenditures.
Mr. Stickel agreed. He relayed that when DOR compiled its
Willow lifecycle analysis together in February it had made
a simplifying assumption that the producer would receive
the 35 percent value of all lease expenditures and that the
minimum tax floor would not limit the value. He explained
that the assumption was generally correct for a smaller new
project, but it was no longer a correct assumption for
extremely large projects such as Willow. He stated that the
minimum tax floor significantly reduced the value of the
lease expenditures to the company. Another change the
department made was incorporating the spring revenue
forecast, which had a lower oil price. He explained that
under the change a company reached the minimum tax floor
quicker than under the fall price forecast.
1:57:43 PM
Co-Chair Johnson wanted to segue into the Willow
presentation shortly.
Representative Josephson asked if the department's new
findings about the net operating losses or carryforward
lease expenditures would be contentious and disputed.
Alternatively, he asked if DOR's confidence level was high.
Mr. Stickel answered that DOR was continually improving its
analysis and its confidence in the numbers was improving.
He stated that the current analysis was a new and improved
version of the information released by DOR in February.
Representative Ortiz turned to slide 17 pertaining to
changes to the long-term oil price forecast. He observed
that projections going out to 2032 remained below $80 per
barrel. He asked what went into the projection.
Mr. Stickel replied that DOR used the futures market
outlook for as many years as available, which was through
the end of FY 29 in the current case. Following that
timeframe, DOR applied an assumption where prices would
increase with inflation. The chart on slide 17 included the
assumption that prices would grow with inflation beginning
in 2030.
Co-Chair Johnson thanked Mr. Stickel for the presentation.
2:00:33 PM
AT EASE
2:02:42 PM
RECONVENED
^PRESENTATION: WILLOW PROJECT UPDATE AND FISCAL ANALYSIS
2:02:49 PM
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, stated that the project represented a new era
for Alaska from his perspective and from the perspective of
the Department of Natural Resources (DNR) and the
administration. He elaborated that the size, scope of
investment, potential production, and location were all
groundbreaking and set the stage for production and success
on the North Slope in a way that had not been seen since
the startup of the fields and bringing the Kuparuk River
Unit into production or perhaps going back to Prudhoe Bay.
He highlighted that the Pikka Unit Nanushuk development in
the National Petroleum Reserve-Alaska (NPRA) and on state
lands was a new era for Alaska. He relayed that the
projects were tremendously complex, massive, and not
guaranteed. He noted it was fair to say that the Willow
project had a bit of fragility at the moment due to ongoing
litigation. He expounded that a little over one year ago
litigation had successfully paused and required additional
revisions to the project. Additionally, a final investment
decision (FID) had not yet been taken by ConocoPhillips.
The company had not announced when it may make the
decision. The successful resolution to litigation was part
of the decision in addition to other significant
considerations.
Mr. Crowther provided a PowerPoint presentation titled
"Willow Project Update: House Finance Committee," dated
March 23, 2023 (copy on file). He began on slide 3 showing
a map of development on the North Slope and the Willow
project location. The colors on the slide indicated the
ownership of the land. The Willow project was shown on the
left side of the slide in the NPRA located on federal land.
The colors on the slide indicated land ownership: yellow
was state owned land, green was federally owned (also
including the Bear Tooth Unit), and other colors
corresponded to different ownership types for different
units.
2:05:34 PM
Mr. Crowther discussed ownership/royalty interest with a
map on slide 4. He explained that on state lands the state
received 100 percent royalty interest. The variable royalty
rates and leases affect the rates coming to the state for
different development. Areas shown in red were owned by the
federal government. The coastal plain of the Alaska
National Wildlife Refuge (ANWR) was located to the east and
the federally owned NPRA was to the west. The Willow
project was located within the NPRA; therefore, the royalty
interest was owned by the federal government. However, the
federal government, in its statutory provisions enabling
development, leasing, and activity in the NPRA, had
dedicated 50 percent of the revenues to the state coming to
the NPRA impact mitigation fund. He noted that royalty
revenues from Willow would follow the process.
2:06:40 PM
Mr. Crowther turned to slide 5 showing a map to provide
context about other investments ConocoPhillips was making
on the North Slope. He pointed to the left side of the map
showing the exploration wells West Willow 1 and Bear 1. He
detailed that ConocoPhillips was attempting to identify new
prospects to potentially develop. The Greater Mooses Tooth
(GMT) development was currently in production and located
next to the Bear Tooth development. There were also some
significant developments on state lands including the Nuna
project, the Coyote project located in the Kuparuk River
Unit, and the Narwhal development (already online) located
in the Colville River Unit (often referred to as Alpine).
He relayed that ConocoPhillips had been very active and
investing a tremendous amount in all of the projects, which
led to production and ultimately revenue and economic
activity for Alaska.
Mr. Crowther advanced to a map on slide 6 showing details
of the Willow project. He pointed to three pads located in
the Bear Tooth unit (BT 1, 2, and 3 in a north/south
orientation) that had been approved by the record of
decision by the Department of Interior (DOI). Additionally,
important infrastructure had been approved in the location
as well including an airstrip, facilities, and a central
processing facility allowing the oil produced to be
appropriately managed and processed prior to flowing to a
new pipeline flowing to the Kuparuk River unit (KRU)
(indicated in green).
2:08:28 PM
Mr. Crowther advanced to slide 7 showing the permitting
history for the Willow project. In 2013, the integrated
activity plan for the entire NPRA was approved by DOI,
which set the terms for development on a large scale. At
the planning phase the IAP stepped into the specific review
for the Willow project beginning in 2017/2018. The original
record of decision was issued in 2020, which included some
changes that ConocoPhillips initiated in response to
community concerns to improve the project and reduce
impact. Due to a lawsuit, the 2020 approval was paused by
the courts and sent back to DOI for additional review and
revision. The review and revision had just completed, and
the second supplemental environmental impact statement
(EIS) had finished in February 2023 with the record of
decision following in March. He relayed that lawsuits had
immediately been filed. The state had filed to intervene in
the litigation and opposed preliminary injunctions and
efforts to pause the project while litigation proceeds.
Mr. Crowther discussed the development timeline on slide 7.
The initial ice construction (non-ground disturbing, non-
permanent activity) was underway; however, significant
ground disturbing construction activity was on hold by the
operator until there was resolution of the initial
litigation questions. Project permitting was continuing and
included things like state pipeline rights of way that were
based on the record of decision. He noted the approvals and
permitting were proceeding on schedule. He reiterated his
earlier statement that FID had not yet been announced by
ConocoPhillips even though receiving the record of decision
was a very important step. He relayed that ConocoPhillips
would take litigation, logistics, timing, and fiscal policy
prior reaching FID. He relayed that construction could
begin as soon as possible (possibly in the current year
proceeding into the 2027 to 2029 timeframe), assuming
litigation had a favorable outcome.
2:11:11 PM
Representative Galvin asked if there had already been a
plan to start the project that had been prevented by the
lawsuits. She referenced a bullet point about ice road
construction in the presentation. She asked if something
was happening or if the state was holding its breath and
waiting.
Mr. Crowther replied that the current status was very
similar to what it had been in early 2021. He detailed that
when the record of decision had been issued by the DOI at
the end of 2020 initial ice work and field execution had
begun. He elaborated that the initial lawsuits had been
filed and ultimately a preliminary injunction had been
granted, which paused and limited the work. The current
position was similar in that the preparation for work was
ongoing, but the state would not know whether the work
could proceed until the lawsuit was resolved. The review
that had been conducted as a result of the first lawsuit
was comprehensive and hopefully there would be a different
result in the [recent] litigation.
2:12:58 PM
AT EASE
2:13:58 PM
RECONVENED
DAN STICKEL, CHIEF ECONOMIST, ECONOMIC RESEARCH GROUP, TAX
DIVISION, DEPARTMENT OF REVENUE, provided a PowerPoint
presentation titled "Willow Fiscal Analysis: House Finance
Committee," dated March 23, 2023 (copy on file). He noted
the presentation was broken into two parts. The first
section was aimed at helping individuals understand the
nuances of the production tax, which was important for
understanding the specific impacts of how Willow and the
associated lease expenditures would impact state revenue.
The second part of the presentation included detailed
fiscal modeling for the Willow project.
Mr. Stickel relayed that the Department of Revenue (DOR)
had originally released a white paper on the Willow fiscal
analysis in late February, which had estimated a greater
than $1 billion negative impact to the state during the
construction period. The department had updated the
analysis to better account how the gross minimum tax floor
would impact how lease expenditures apply in the production
tax. Additionally, DOR had incorporated its spring revenue
forecast. The updated analysis estimated a $360 million
total negative impact to the state during construction and
an estimated $1 billion net positive over the first ten
years of the project.
Mr. Stickel noted that slide 2 included a list of oil and
gas acronyms. He moved to a disclaimer on slide 3. He
explained that DOR had taken a complex tax system and
complex project and made assumptions to break them down
into understandable pieces. He underscored that he and his
colleagues were economists, not auditors and any of the
statements they made about the tax system were not an
official tax interpretation. Additionally, DOR's Willow
analysis was based entirely on publicly available
information in order to honor taxpayer confidentiality. He
noted that taxpayer specific information would be slightly
different than the information shown in the presentation.
2:17:24 PM
Co-Chair Johnson asked to keep the questions limited due to
the limited timeframe.
Representative Stapp read the first bullet point on slide
3:
Alaska's severance tax is one of the most complex in
the world and portions are subject to interpretation
and dispute.
Representative Stapp stated that as the committee learned
about the complicated process, he realized that the people
who were much smarter than him generally came out ahead. He
remarked, "I'm curious as we go through this process, who
the actual smarter people are going to be."
Mr. Stickel turned to slide 5 and discussed oil and gas
revenue sources. The state received revenue from royalties,
corporate income taxes, property tax, and production tax.
The royalty owner of the Willow field was the federal
government with a 16.67 percent royalty. He explained that
half of the royalty was shared with the state for the
benefit of the impacted communities and was essentially a
passthrough revenue. The department assumed the corporate
income tax would apply to the operator at Willow. He
explained that the property tax of 20 mills would apply
[and would be paid to the state] and a municipal property
tax was allowed as a credit against the state tax. He would
provide details on the production tax in the upcoming
slides.
2:19:56 PM
Mr. Stickel moved to slide 6 pertaining to the overall
fiscal system order of operations. He explained that the
landowner received the royalty off the top. He detailed
that royalties and property tax were both allowed as
deductions against production tax and both taxes became
deductions against corporate income tax. He noted that the
state corporate income tax was allowed as an offset to the
federal corporate income tax.
Mr. Stickel relayed that the next set of slides beginning
with slide 7 were a refresher of the order of operations
presentation given by DOR earlier in the session. He noted
that the slide had been updated to reflect the spring
revenue forecast and presented an estimate of the aggregate
calculation in North Slope oil taxes. The refresher was
meant to provide context to how the Willow field impacted
production taxes. The slide used the DOR forecast of $73
per barrel for FY 24 and the average daily production of
496,000 barrels per day and looked at the $36 million per
day or $13 billion per year of the value of oil and how it
translated into the tax calculation.
Mr. Stickel turned to slide 8 and discussed the first step
of the production tax calculation, which was to subtract
royalty barrels. The average royalty rate on the state was
slightly over 12.5 percent. He highlighted that 12.5
percent and 16.67 percent were the most common rates. He
explained that the subtraction of royalty barrels arrived
at an estimated taxable value of $11.5 billion for FY 24
for all North Slope oil. The next step was to subtract
transportation costs, which were pipeline tariffs for
feeder pipelines to the Trans-Alaska Pipeline System (TAPS)
and marine shipping costs (slide 9). The transportation
costs averaged out to an estimated $9.61 per barrel or
about $1.5 billion in FY 24, resulting in a gross value at
point of production (GVPP) of about $10 billion for the
fiscal year.
2:22:21 PM
Mr. Stickel turned to slide 10 and explained that lease
expenditures were applied against the GVPP. There were two
categories of lease expenditures. The allowable lease
expenditures were total spending (anything allowable under
the tax code) including operating expenditures and capital
expenditures (capital expenditures were allowed to be
deducted in the year incurred). Deductible lease
expenditures represented the portion of the allowable lease
expenditures up to the GVPP in the year. He elaborated that
a company was allowed to use its lease expenditures to
offset any gross value if it had additional lease
expenditures (if a company spent more than it made from
selling its oil). He explained that the situation could
occur if a company was making major investments when oil
prices were low; it also applied to companies that were not
yet producing. He expounded that if excess lease
expenditures became a carryforward lease expenditure, the
carryforwards were ringfenced and could be used to offset a
future tax liability contingent on production from the area
where lease expenditures were incurred. In FY 24, the
department was estimating $4.6 billion of lease
expenditures deducted in the tax calculation and an
additional $914 million of lease expenditures that became
carryforwards. The carryforwards were primarily for the
companies doing exploration and development (new fields not
yet in production).
2:24:13 PM
Mr. Stickel advanced to production tax value (PTV) portion
of the equation on slide 11. The PTV was the tax base for
the net portion of the tax system. He detailed that PTV was
calculated as GVPP minus deductible lease expenditures.
There was an estimated PTV of $5.4 billion for FY 24.
Representative Josephson asked if the GVPP had relevance to
the royalty and tax calculations.
Mr. Stickel responded, "That is roughly correct."
Mr. Stickel moved to slides 12 and 13 and relayed that the
net tax and gross minimum tax floor portion of the
production tax calculation were done side by side. As long
as oil prices averaged $25 or more for the calendar year,
the gross minimum tax floor was a 4 percent gross tax rate.
He elaborated that based on the $10 billon in gross value
and the 4 percent gross tax rate, the minimum tax floor for
FY 24 was estimated at about $400 million. The net tax
started with the production tax value and allowed companies
to subtract the gross value reduction (GVR). He explained
that the GVR was a benefit that applied for new fields
allowing a company to deduct a portion of the gross value
when calculating its production tax. The 35 percent nominal
tax rate was applied to the production tax value after
subtracting the GVR resulting in a net tax calculation of
$1.85 billion before accounting for tax credits.
2:26:38 PM
AT EASE
2:29:07 PM
RECONVENED
Mr. Stickel continued to discuss the production tax
calculation on slide 14. He explained that there were two
tax credits that applied after the higher of the net tax or
minimum tax had been taken. The first was a sliding scale
per taxable barrel credit (up to $8 per barrel) for any oil
that did not qualify for the GVR. The second was a $5 per
taxable barrel credit for any oil eligible for the GVR. The
$5 per barrel credit could be used to reduce tax liability
below the minimum tax for producers that did not take any
sliding scale credits. The department was expecting per
taxable barrel credits would amount to a little over $1.1
billion in FY 24, resulting in a total tax after credits of
about $713 million. There were several other items and
adjustments that resulted in the $741.8 million production
tax paid (as shown in the Revenue Sources Book official
forecast).
2:30:33 PM
Representative Galvin referenced the carryforward
expenditures. She asked if the company Santos would have to
carry its costs forward in relation to the Pikka field,
whereas ConocoPhillips would be able to immediately deduct
its costs for Willow.
Mr. Stickel responded that any company in a net operating
loss situation would earn carryforward lease expenditures
that could be used to offset a future tax liability. Any
company that had sufficient gross value could apply the
lease expenditures in the year incurred. He explained that
for a company like ConocoPhillips, it depended on the oil
price, the company's other production, and how much the
company was spending in a given year.
Representative Galvin provided a scenario where they
[ConocoPhillips] were in the black because they were
already in production in the particular area. She asked for
verification there was a difference in how they were
treated as opposed to a new company like Santos.
Mr. Stickel stated that the next set of slides showed how
it would apply to a current producer like ConocoPhillips.
He confirmed that a new company would not have existing
production; therefore, any lease expenditures would become
a carryforward.
2:32:16 PM
Mr. Stickel turned to slide 16 titled "Example: Company
with 200,000 Barrels Per Day Taxable Production." He noted
the example was similar to recent levels for a company like
ConocoPhillips. The example assumed aggregate North Slope
lease expenditures and demonstrated what a company like
ConocoPhillips would pay without relying on any
confidential information. The example showed a company with
$2.1 billion of lease expenditures, $4.6 billion GVR, a
production tax value of $2.5 billion, and tax after credits
of $287 million in FY 24.
Mr. Stickel turned to an example on slide 17 where an
additional $200 million in capital expenditure was made (a
smaller development project). The scenario would increase
the company's lease expenditures by $200 million to $2.3
billion, reduce its production tax value by $200 million to
$2.3 billion, and the company would still be able to apply
the full value of the per taxable barrel credits because it
would be above the minimum tax before and after the
investment. The extra $200 million investment would reduce
the company's taxes by $70 million (the full 35 percent
nominal tax rate).
2:34:26 PM
Mr. Stickel looked at slide 18 showing a scenario where the
company spent $1 billion in additional capital
expenditures. Under the scenario, the gross minimum tax
floor limited the company's ability to apply sliding scale
per taxable barrel credits and eliminated the company's
ability to use the $5 per barrel credit for GVR eligible
oil. There was a significant reduction in the amount of
credits the company was allowed to use because of the
minimum tax floor. Under the scenario, the company had a
tax after credits of $186 million, a reduction of about
$100 million or 10 percent of the value of the lease
expenditure. He summarized that when the company made a
$200 million incremental expenditure, it received a 35
percent benefit, whereas a $1 billion incremental
expenditure resulted in a 10 percent benefit.
2:35:29 PM
Mr. Stickel looked at slide 19 with a scenario of a $2
billion additional capital expenditure. He noted the
department was estimating a peak spend (in one of the
years) on the Willow project of just over $2 billion. Under
the scenario, the company's production tax value was only
$515 million, and the company would pay underneath the $186
million tax floor even before applying any tax credits. He
expounded that the company would not be allowed to apply
any sliding scale credits because they could not be used to
go below the minimum tax. He explained that because the
company would not be using any sliding scale credits, it
would be able to use the GVR $5 per barrel credits to go
slightly below the minimum tax; therefore, its tax
liability would be $160 million. Out of the $2 billion of
additional expenditures, the company reduced its taxes by
$127 million or about 6 percent.
Representative Stapp asked if a company could write off an
operating loss against its corporate income tax in Alaska.
Mr. Stickel answered it was a more indirect relationship.
The net production tax factored into a company's worldwide
income for corporate income tax. He elaborated that the
worldwide income got apportioned to Alaska. He stated there
was a small feed through to the state corporate income tax.
Representative Hannan observed that the bigger the
investment the less percentage of benefit. She asked if
there was another incentive to not invest as much as
possible on an annual basis. She remarked that $200 million
versus $2 billion was a huge difference. She asked if the
primary decision about how much to invest was about the
percentage of tax benefit or by other factors in terms of
how quickly a company wanted to bring a project online, the
number of employees, or the price of oil globally over the
decade.
Mr. Stickel answered there were a variety of factors
companies looked at. The purpose of the examples was to
illustrate how the existing tax system worked and to
highlight that the impact of the investments on the state
was very uncertain depending on the price of oil and how
much a given producer chose to invest. He explained it was
uncertain for the state in terms of fiscal planning and
uncertain to the producer in terms of its economic decision
making.
2:39:24 PM
Mr. Stickel turned to a final example on slide 20 showing a
scenario with an additional $3 billion in capital
expenditure. Under the scenario, the company brought its
production tax value to zero and earned a carryforward for
additional lease expenditures. There was $484 million in
left over lease expenditures after the production tax value
was brought to zero. The $484 million became a carryforward
for the producer that could be used to offset a future tax
liability contingent on production from the field where the
loss was earned. The carryforward was ringfenced by lease
of property. The company would pay the same $160 million
tax with a $3 billion expenditure as it did with the $2
billion expenditure example, giving it a 4 percent benefit
of spending in the year incurred. When accounting for the
potential use of the carryforward, the benefit could be up
to 10 percent.
Mr. Stickel turned to slide 21 showing takeaways from the
examples. He stated it was important in terms of
understanding the Willow analysis. He reviewed the slide:
• If company is above minimum tax floor, modest
increases in investment benefit at 35% marginal tax
rate.
• Once company reaches minimum tax floor, the benefit of
increased investment is much lower.
• Once company reaches a net operating loss, some
benefit of increased investment returns, in the form
of a carried-forward loss.
• Benefit of spending will also vary based on oil
prices.
• A low oil price scenario is very similar to a high
investment scenario.
• The changing benefits are a source of uncertainty to
company making investment decisions, and to state
revenue forecasting.
• This analysis is relevant to discussions of Willow
because the field would require massive additional
investment.
2:42:33 PM
OWEN STEPHENS, COMMERCIAL ANALYST, DEPARTMENT OF REVENUE,
began on slide 25 titled "Typical Oil Field Development."
He stated that finding and developing an oil field was very
expensive and time consuming. He noted it depended on the
size and complexity of the field. He relayed that a field
the size of Willow would take billions of dollars to
develop.
Mr. Stephens turned to an analysis description on slide 26.
He stated the goal was to demonstrate the fiscal impact of
the Willow field development. He explained it was a single
case analysis using public data to model a complex project
with many uncertainties. The analysis used public data
only, primarily from the Willow federal supplemental
environmental impact statement that came out in February
and the just released DOR spring forecast. He noted that
the use of confidential data could materially change the
analysis.
2:44:03 PM
Mr. Stephens advanced to slide 27 and discussed four
component updates from the February 2023 analysis:
1. Spring 2023 forecast for oil prices and transportation
costs
• Previously used Fall 2022 forecast
2. Producer receives benefit of lease expenditure
deductions only as far as minimum tax floor
• Previously producer received benefit of all lease
expenditure deductions.
3. Zero impact on State Corporate Income Tax prior to
production
• Previously included negative impact on state
corporate income
4. North Slope-wide state benefit from pipeline tariff
now also includes feeder pipelines (Alpine and
Kuparuk)
• Previously only included Trans-Alaska Pipeline
(TAPS)
Mr. Stephens reviewed the results of the changes in terms
of 10-year state revenue. The white paper modeled about
negative $500 million. He relayed DOR was forecasting
positive $900 million over 10 years. Previously, DOR had
projected about $5.4 billion in 30-year revenue to the
state, but the number had increased to $6.3 billion. The
department had initially projected the project would go
cashflow positive in 2035, but the projection had been
changed to 2030. He turned to slide 28 and briefly
addressed an oil production profile supplied by
ConocoPhillips. The profile showed total production of 613
million barrels peaking in FY 30 with production through FY
53. He stated it represented a pretty normal oil production
profile. Slide 29 titled "Lease Expenditures" showed a
total projected capital expenditure of $10.3 billion and
operating expenditure of $6.1 billion.
2:46:21 PM
Mr. Stephens turned to slide 31 and discussed
transportation (netback) costs. Transportation costs
included a combination of several different items including
marine transportation. The department expected additional
oil flow through the pipelines should reduce the tariffs
for TAPS and feeder pipelines. The department had modeled
the impact on the North Slope in terms of production tax
and royalty. A chart on slide 31 showed the total benefit
to the state and the transportation cost number for Willow.
2:47:33 PM
Mr. Stephens moved to fiscal assumptions on slide 32. The
department assumed current state and federal tax laws, GVR
at 20 percent, and state corporate income tax at 4.25
percent (the rate DOR used for a typical North Slope
producer). The department would be better able to model the
interaction of lease expenditures with the minimum tax
floor by modeling a hypothetical taxpayer. The fiscal
assumptions included 200,000 barrels per day after royalty
and lease expenditures of $24.50 per barrel as a typical
value for currently producing North Slope fields. He noted
that the use of taxpayer confidential data could materially
change the analysis.
2:48:39 PM
Mr. Stephens turned to revenue categories on slide 33. He
reminded committee members that royalty was shared 50/50
between the impacted communities and the federal government
and property tax was shared between the North Slope Borough
and the state with just over 10 percent going to the state.
Mr. Stephens moved to slide 34 showing forecasted annual
revenues by category. He relayed that revenue of all types
remained strong until the end of the 30-year analysis
period, particularly for royalty and production tax. He
highlighted that all revenues started high and gradually
declined in line with production numbers.
2:49:49 PM
Mr. Stephens addressed the first ten years of state revenue
on slide 35 (before and just after the start of
production). He noted it was the most important slide for
the state. The columns on the chart showed state revenue.
He explained that the dashed line indicated state revenue
if the producer were to remain above the minimum tax floor.
He noted that 2024 was the only pre-production year with
lease expenditures low enough to stay above the minimum tax
floor. He detailed that as the forecast oil price
decreased, there was a point in 2028 where the producer was
already at the minimum tax floor, with no additional
benefit from Willow lease deductions. The total pre-
production impact on state revenue was $360 million (less
than one-fifth of the amount if the minimum tax floor was
not a concern). He reported that the first five years of
the analysis showed negative $360 million going to positive
$900 million after 10 years. He elaborated that if the
producer was able to take the benefit of lease expenditures
the number would be negative $1.9 billion, recovering to
negative $800 million after 10 years. He noted the number
in the whitepaper had been negative $2.1 billion after five
years. The state would be looking at less than 20 percent
of the number it would have otherwise had if all lease
expenditures could be deducted.
2:52:00 PM
Mr. Stephens advanced to annual and cumulative cash flow
(grouping revenues by recipients) on slide 36. The state
would see breakeven state revenue in 2030. The projection
showed a 30-year cumulative revenue of $6.3 billion.
Additionally, the department expected billions of
cumulative revenue for all stakeholders including local
communities on the North Slope, the federal government, and
the producer. He discussed the NPV on slide 37, which
measured the discounted value of future cashflows. He
elaborated that NPV represented the total revenue including
the time value of money. He explained that $1 at present
was worth more than $1 next year. The department used a 10
percent discount rate for the analysis, which meant $1 in a
year's time was worth the same as 90 cents at present. He
noted the 10 percent was pretty commonly used.
Mr. Stephens turned to slide 38 titled "Uncertainty." He
relayed there was significant uncertainty in many of the
assumptions, elevated above typical levels. There was
uncertainty in project risk and timing, costs, and oil
price. Additionally, in the pre-production period oil
production rates and reserves were still relatively
uncertain. He explained that because of the analysis and
the way things tied in with lease expenditures, there was
additional product uncertainty in terms of state revenue
due to the uncertainty about producers' other fields on the
North Slope.
2:53:59 PM
Mr. Stephens concluded his presentation.
Representative Stapp referred to his remark earlier in the
meeting that smart people win when something is
complicated. He considered a scenario where ConocoPhillips
wanted to maximize its shareholder revenue. He asked about
the worst case scenario for state revenues. He asked how a
company could maximize its tax liability and pay as little
to the state as possible.
Mr. Stickel answered the worst case scenario for everyone
involved was making significant investment in the Willow
project and the project not coming to fruition. He stated
that everyone hoped that did not occur.
Mr. Stickel highlighted there was significant risk around
the project.
2:55:49 PM
Representative Galvin looked at slide 35 showing state
revenue in the first ten years. She surmised that if oil
prices turned out to be as high as the forecast (in fall of
2022 for example) there was the potential for a pretty big
hit of $1.9 billion to state revenue during development.
However, if oil prices turned out to be lower as projected
in the 2023 spring revenue forecast, the fiscal hit was
smaller. She asked if she interpreted the information
correctly.
Mr. Stephens answered that in general terms she was
correct. He explained that when moving away from the
minimum tax the movement was more gradual. He stated it
would take high oil prices, especially in 2028 to reach a
situation where all of the lease expenditures reduce
[indecipherable]. He turned to slide 43 that he had not
previously addressed related to oil price sensitivities.
The numbers started to increase as the oil price increased
but were not coming down as far as the dashed line shown on
a previous graph.
2:57:21 PM
Representative Hannan asked about the number of changes Mr.
Stephens had mentioned from the February whitepaper. She
understood the changes were included in the slides. She
asked if the changes were summarized anywhere.
Mr. Stephens answered that DOR was working to update the
whitepaper in the near term and the full numbers would be
released. He would follow up with the information.
Co-Chair Johnson asked the department to provide any wrap
up.
Mr. Stickel thanked the committee for the opportunity to
present. He relayed the department was available for any
potential follow-up questions.
Co-Chair Johnson thanked the presenters and would take an
"at ease" before beginning public testimony [on the
operating budget].
2:59:07 PM
AT EASE
3:07:23 PM
RECONVENED
HOUSE BILL NO. 39
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making reappropriations; making
supplemental appropriations; making appropriations
under art. IX, sec. 17(c), Constitution of the State
of Alaska, from the constitutional budget reserve
fund; and providing for an effective date."
HOUSE BILL NO. 41
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
3:07:35 PM
Co-Chair Johnson reviewed the public testimony protocol.
^PUBLIC TESTIMONY: OFF NETS
3:08:22 PM
ANNA GRACE JEFFRIES, PRIMARY PREVENTION COORDINATOR,
ADVOCATES FOR VICTIMS OF VIOLENCE, VALDEZ (via
teleconference), thanked the committee for including
increased funding for prevention work. She stated there
were strategies to prevent violence. The organization had
introduced evidence-based curriculum such as the Girls on
the Run program and hoped to have the Let Me Run program
for boys in the coming summer. She shared that the previous
month, the organization invited the Alaska Network on
Domestic Violence and Sexual Assault to assist in a
presentation at the Valdez High School on Bree's Law and
Erin's Law. She discussed the benefits of the presentation.
The organization helped provide direction and strategies
for the community to come together and to prevent crime and
change community norms so that violence against women, men,
and children would no longer be tolerated.
3:10:26 PM
MOIRA GALLAGHER, SELF, ANCHORAGE (via teleconference),
called in support of adding $15 million to the childcare
grant program to increase wages for childcare providers.
She is a mother of two young children. Her younger son had
been on 10 daycare waiting lists for longer than his life
due to a lack of daycare in Anchorage. She elaborated that
her son could not get into a daycare due to a lack of
facilities and caregivers at open facilities. She relayed
that many daycares had closed due to a lack of staff. She
emphasized that caregivers needed to keep up with inflation
and be competitive because it was necessary to keep
talented workers in the childcare field. She shared that
she and her husband were now spending more than $5,000 on a
nanny. She shared it was almost her husband's entire net
monthly income after taxes. She underscored that the
workforce shortage was real, and people were leaving their
jobs because they could not find childcare. She shared that
her family was privileged to have the ability to afford a
nanny, but just barely. She urged the committee to add the
funds. She spoke about the benefits of the additional
funding.
3:12:50 PM
TIFFANY MILLS, EXECUTIVE DIRECTOR, HELPING OURSELVES
PREVENT EMERGENCIES (HOPE), PRINCE OF WALES (via
teleconference), spoke in support of funding for domestic
violence prevention and services. She shared information
about the advocacy work HOPE provided to victims of sexual
assault and domestic violence. She was supportive of the
Council on Domestic Violence and Sexual Assault (CDVSA)
victim services budget. She thanked Representative Ortiz
for his support of victims' services on Prince of Wales.
She relayed that the organization had not closed during the
COVID-19 pandemic and the numbers of individuals seeking
help increased each year. She detailed that in 2022, the
organization provided services for around 130 adults, which
was double the number assisted in 2018. Additionally, the
organization had fewer staff in 2022. She relayed that
without the one-time increment funding of $6.5 million in
the CDVSA budget, there would be a shortage from the 2022
funding. The organization was appreciative that the budget
allowed victim services providers to receive consistent
funding as in previous years; however, the costs facing
rural Alaska were higher and were continuing to increase.
She cited examples of the cost of goods in rural Alaska.
The agency was also facing staffing shortages because it
had just begun offering health insurance to full-time
employees to compete with other employers on the island and
it was being very conservative about its hiring practices.
She shared that when the organization got insurance in
2022, it cost $4,000 per month. She stated that HOPE did
not want to be priced out of the market and have to cut the
benefit for employees; however, premiums had increased $400
per month in the current year. She hoped the committee
could find more available funding to support victims'
services.
3:15:07 PM
JENA CRAFTON, SELF, EAGLE RIVER (via teleconference),
shared that she had been out of work for six years. She
spoke in support of reducing the waitlist for people to get
services for improved quality of life. Her dad was helping
her to try to get a job by driving her. She shared that she
was learning how to drive.
3:17:32 PM
CARRI CRATER, SELF, ANCHORAGE (via teleconference),
supported the addition of $15 million to the childcare
budget. She shared that her childcare expenses increased 40
percent since COVID. She shared that her family had spent
over $40,000 on childcare the past year. She highlighted
the difficulty of finding quality childcare. She thought
the situation was a real problem for the workforce. She
noted that childcare providers were shutting down. She
spoke to the importance of increasing funding for childcare
providers to enable increased staff wages and
accessibility.
3:19:19 PM
MARIA LEGEND, SELF, ANCHORAGE (via teleconference), shared
that her son was diagnosed with schizophrenia in 2015. She
elaborated that her son had been in and out of psychiatric
hospitals and jail. She provided details. She believed that
if she and her son had enough help, guidance, and
educational resources they would not have been faced with
many unnecessary issues. Her son wanted to get his GED, but
he was still in need of continuous care, IDD, housing
healthcare directives, and guardianship papers. She shared
that she was a recovering alcoholic and had dealt with
grief and depression in the past. She advocated on behalf
of Alaska Native people who were struggling with resources
and education to overcome the burdens of mental and
behavioral health issues. She asked for increased funding
for the Division of Behavioral Health crisis now continuum
of care grants, peer support, homelessness assistance,
behavioral health treatment recovery grants, IDD waitlist
reduction, and disability services grants.
3:22:28 PM
TOM CRAFTON, SELF, EAGLE RIVER (via teleconference), shared
that he was representing his daughter Jenna Crafton and 700
others who were currently on the developmental disability
waitlist for receiving a Medicaid waiver to enable them to
have meaningful lives. He had been helping his daughter for
25 years and seeing she had a meaningful life. He stated
that he would not be here forever, and he did not know how
she would survive later in life without support. He was a
highly trained behavioral clinician, but he could not work
in his field and help others while his daughter suffered
without the services she was entitled to receive. He
highlighted the workforce shortage. He stated his daughter
was quite able to work (she had called in to testify
previously) and wanted to provide for herself. He asked how
many other people were home taking care of their loved
ones. His mom was now living in his home. He noted that
more people were taken out of the workforce with the senior
population as well. He stated it was time to eradicate the
waitlist. His daughter wanted transportation to and from a
good job. He appreciated all of the hard work legislators
were doing.
3:24:46 PM
AMANDA FAULKNER, ALASKA ASSOCIATION ON DEVELOPMENTAL
DISABILITIES, KENAI (via teleconference), advocated for an
additional Medicaid increment of $15 million UGF to
stabilize home and community-based services while the state
worked to address flaws in the rebasing system. The funding
would be matched by an additional $15 million in federal
funding (a 10 percent increase in Medicaid rates). The
increment would provide bridge funding to prevent system
collapse during the process of addressing flaws in the rate
methodology system. She clarified the request was separate
from the $647,000 increment as requested to fund the
infrastructure needed to start implementation of the
waitlist elimination plan. She elaborated that rates were
implemented in 2011 and should have been reestablished at
least every four years using provider data collection. She
reported that rates had not been reestablished in 2014 and
2018 despite regulatory requirements. She stated that the
significant lack in responding to increased cost had been
exacerbated by the pandemic and reduced services and
workforce shortage. She detailed that some providers had
gone out of business and other organizations had calculated
a path to closure within one to three years. She elaborated
that system capacity did not currently exist with smaller
providers; therefore, the delivery of care would default to
larger institutional settings at a much higher cost to the
state, including out of state placements. She remarked that
the state's plan would fail if the provider system was weak
to the point of not being able to support people with a
wide variety of disabilities.
3:27:25 PM
JON ERICKSON, CITY MANAGER, YAKUTAT (via teleconference),
thanked the legislature for the community assistance
recapitalization and an increase in the Base Student
Allocation (BSA). He stated the community did not have a
ferry for the summer because of the Kennicott [the Alaska
Marine Highway System (AMHS) announced it did not have
sufficient crew to run the Kennicott ferry in the summer of
2023]. Additionally, the community was always short on
childcare. He reiterated his thanks to the committee.
3:28:41 PM
KATHLEEN FITZGERALD, SELF, SOLDOTNA (via teleconference),
shared that her 40-year-old daughter was autistic,
nonverbal, and required full personal care support and
close supervision. Her daughter had a loving and caring
heart and a beautiful smile. She shared things her daughter
loved to do including hiking, being in the woods, going for
drives with her dad, and going to Home Depot. She and her
husband were in their 70s and had had worked hard to
prepare for when they pass; however, many of the
developmental disability agencies were facing challenges
attracting staff to care for disabled individuals. She
urged the committee to include an additional $15 million to
stabilize agencies. She highlighted the anxiety she and her
husband had over their daughter's future. She referenced
hard work related to the Harborview Developmental Center in
order to provide community support for children, which
allowed for family and community input at a much more
reasonable cost. She thanked the committee.
3:31:05 PM
JOHN SOLOMON, CEO, ALASKA BEHAVIORAL HEALTH ASSOCIATION,
KOTZEBUE (via teleconference), supported funding the
recommendations made by the Alaska Mental Health Trust
Authority (AMHTA). He provided details about the work
performed by the Alaska Behavioral Health Association. He
shared that he had started as a therapist flying into
remote villages and saw how difficult it could be to
deliver care, but he had also seen how much care changed a
community and saved money by treating people when they
needed it before it was too late. He stressed that
something needed to be done. He supported taking care of
the most vulnerable Alaskans by funding a behavioral health
system. He spoke in support of funding the behavioral
health system, which would avoid throwing good money after
bad. He stressed when cuts were made, the state paid more.
Additionally, when flat funding was provided, the state
paid more. He thanked the committee.
Representative Josephson remarked that the organization
represented groups that did not necessarily qualify for
1115 waivers. He noted there had been some backfilling with
COVID funding of behavioral health grants. He asked how Mr.
Solomon viewed the governor's budget in terms of grants
outside the 1115 waiver and continuing need.
Mr. Solomon replied that grants allowed for the building of
capacity to stand up services. He stated that when there
was no ability to start services, the state kept losing
providers and care. There was an opportunity to provide
startup funds to get providers going. He noted that COVID
funding had provided some of the opportunity, but the funds
had not been sufficient to stand up the 1115 services.
3:35:14 PM
AT EASE
3:36:06 PM
RECONVENED
TOM MORPHET, SELF, HAINES (via teleconference), testified
in support of increased funding for Alaskans with
disabilities and families struggling with childcare. He
shared that he ran for legislative office in 2018 and all
young families wanted to talk about was childcare. He was
also concerned about people dying in state prisons, the
lack of funding for the Alaska Marine Highway System
(AMHS), and inadequate funding for public schools. He
wanted to be taxed. He stressed that the state had $80
billion in the bank and "we are acting like paupers." He
found it very frustrating. He asked for the implementation
of an income tax. He underscored the need to act like
Alaskans and have courage to do what was right.
3:38:27 PM
DAWN WALDAL-ANDERSON, MAYOR, WHALE PASS, PRINCE OF WALES
(via teleconference), testified in support of the
recapitalization of the community assistance program
funding. She shared that Whale Pass was Alaska's newest
city and it had incorporated just over five years ago. The
funding from the community assistance fund accounted for
almost 75 percent of the community's budget. The
community's city clerk was its only employee. The community
was working hard to build up its infrastructure to become a
self-supporting and independent city. She reported that if
community assistance funding was not recapitalized, it
would put the community in a very uncomfortable situation.
She thanked the committee.
3:39:58 PM
JOHN SONIN, CIVILIZED HUMANITY, DOUGLAS (via
teleconference), thought it sounded like the other
departments could use the pay increase that had just been
given to the legislature and executive branch. He could not
believe what the basics cost. He stated the funding
designated for a pay raise would be better used on
education. He asked if the state could not spend $600 to
$1000 more on students but it could spend a substantial sum
on the executive branch. He thought that there needed to be
some sense in the budgeting process. He thanked the
committee.
3:42:13 PM
EMILY CARROLL, SELF, ANCHORAGE (via teleconference), shared
that she is a pastor. She loved her work but thought about
quitting because of the difficulty finding childcare. She
elaborated that the provider she had found was closing
because other opportunities provided more money. She had
called every place in town and could not find childcare
because so many childcare workers did not get paid enough.
The state was lacking workers and many moms or dads were
having to stay home with their kids because they could not
find affordable childcare. She encouraged the committee to
add $15 million for childcare grant wages.
3:44:03 PM
SUE LIBENSON, SELF, HAINES (via teleconference), supported
funding for AMHS. She stressed that the situation was
critical. She shared that teachers were leaving and people
were quitting because people could not come and go from the
community. She received calls from people expressing
incredulity that they were unable to make a reservation.
She highlighted the once-in-a-generation federal funding
that required a state match. She remarked that the state
needed to step up and provide a full match in order to
qualify for over $100 million in federal funds. She stated
the situation impacted the military deployed up north,
school teams, a lack of medical services. She emphasized
that Haines was losing valued members of the community due
to lack of ferry service.
3:46:27 PM
ERIC GURLEY, EXECUTIVE DIRECTOR, ACCESS ALASKA INC.,
ANCHORAGE (via teleconference), supported funding for
independent living centers. He shared that Access Alaska
was one of the state's four centers for independent living
in Fairbanks, Anchorage, Fairbanks, Mat-Su, Southwest
Alaska, and other locations. The organization's efforts
assisted individuals and families to improve their
independence and enabled Alaskans with disabilities to
remain in their own homes and communities. He noted that
one of the largest programs provided consumer directed
personal care services to qualifying Alaskans. The
workforce shortage created significant challenges with
filling the need. He elaborated that Alaska's service
providers continued to struggle with filling vacancies. He
thanked the committee for its support for senior and
disability services community based grants. He requested
the addition of an increment to support participant
directed care. The model placed employment and budget
authority in the hands of those who need and receive
services. He stated that the ability to hire a friend or
family member to provide needed support was the next step
of meeting the needs of Alaskans. He asked the committee to
support an increment to initiate a program for Alaska to
begin the effort. He thanked the committee.
Representative Cronk thanked Mr. Gurley for calling in.
Co-Chair Johnson relayed there were no additional
testifiers currently in the room or online. She recessed
the meeting until 4:10 p.m.
3:48:57 PM
RECESSED
4:14:09 PM
RECONVENED
Co-Chair Johnson noted there were no additional testifiers
online. She recessed the meeting until 4:30 p.m.
4:14:09 PM
RECESSED
4:30:53 PM
RECONVENED
RICK NELSON, SELF, ANCHORAGE (via teleconference),
testified in support of funding for people with
disabilities and their services. He referenced a lack in
workforce due to the rate caretakers were paid. He
testified in support of increased wages for caretakers. He
shared that the rate for home and community-based services
had not increased in the past 12 years. The 10 percent rate
increase in the past year had not helped anyone. He stated
an increase of at least 13 percent was needed for
individuals to earn a living wage. He stated that without
the increase, the agencies would die. He urged the
committee to pass the budget with the increment.
Representative Galvin thanked Mr. Nelson for calling in and
for his leadership. She was grateful for his work.
Co-Chair Johnson noted there were no additional testifiers.
HB 39 was HEARD and HELD in committee for further
consideration.
HB 41 was HEARD and HELD in committee for further
consideration.
Co-Chair Johnson reviewed the schedule for the following
meeting.
ADJOURNMENT
4:35:54 PM
The meeting was adjourned at 4:35 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN DNR Willow Update 2023 03 23.pdf |
HFIN 3/23/2023 1:30:00 PM |
|
| HFIN DOR Willow Fiscal Analysis 03.23.23.pdf |
HFIN 3/23/2023 1:30:00 PM |
|
| HFIN Spring 2023 Revenue Forecast Presentation 2023.03.22.pdf |
HFIN 3/23/2023 1:30:00 PM |
|
| DOR Response to HFIN Willow Analysis 03.23.23 041123.pdf |
HFIN 3/23/2023 1:30:00 PM |
|
| DOR Response HFIN Willow Project Fiscal Analysis 2023.04.10 Update.pdf |
HFIN 3/23/2023 1:30:00 PM |
|
| HB 39 - HB 41 Op MH Budget Public Testimony Rec'd by 032324.pdf |
HFIN 3/23/2023 1:30:00 PM |
HB 39 HB 41 |