Legislature(2005 - 2006)CAPITOL 120
07/25/2006 08:30 AM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB3002 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB3002 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
July 25, 2006
8:40 a.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative John Coghill
Representative Pete Kott
Representative Peggy Wilson
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
Representative Tom Anderson
OTHER LEGISLATORS PRESENT
Representative Paul Seaton
COMMITTEE CALENDAR
HOUSE BILL NO. 3002
"An Act relating to the Alaska Stranded Gas Development Act;
relating to municipal impact money received under the terms of a
stranded gas fiscal contract; relating to determination of full
and true value of property and required contributions for
education in municipalities affected by stranded gas fiscal
contracts; and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 3002
SHORT TITLE: STRANDED GAS AMENDMENTS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
07/12/06 (H) READ THE FIRST TIME - REFERRALS
07/12/06 (H) JUD, FIN
07/25/06 (H) JUD AT 8:30 AM CAPITOL 120
WITNESS REGISTER
JOSEPH K. DONOHUE, Attorney at Law
Preston Gates & Ellis, LLP
Anchorage, Alaska
POSITION STATEMENT: Presented HB 3002 on behalf of the
administration.
EDDY JEANS, Director
School Finance
Department of Education and Early Development (EED)
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 3002, provided
comments and responded to questions regarding Section 5.
PHILLIP C. GILDAN, Attorney at Law
Greenberg Traurig, LLP
West Palm Beach, Florida
POSITION STATEMENT: Relayed that he would provide comments on
HB 3002 after the administration has presented its suggestions
for change.
ACTION NARRATIVE
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 8:40:40 AM. Representatives
McGuire, Wilson, Kott, Gara, and Coghill were present at the
call to order. Representative Gruenberg arrived as the meeting
was in progress. Representative Seaton was also in attendance.
HB 3002 - STRANDED GAS AMENDMENTS
8:40:49 AM
CHAIR McGUIRE announced that the only order of business would be
HOUSE BILL NO. 3002, "An Act relating to the Alaska Stranded Gas
Development Act; relating to municipal impact money received
under the terms of a stranded gas fiscal contract; relating to
determination of full and true value of property and required
contributions for education in municipalities affected by
stranded gas fiscal contracts; and providing for an effective
date."
8:41:34 AM
JOSEPH K. DONOHUE, Attorney at Law, Preston Gates & Ellis, LLP,
after relaying that his firm is under contract with the
Department of Law (DOL), presented HB 3002. He said that the
bill divides itself into three basic areas: Section 1 expands
the "Purpose" provision of the Alaska Stranded Gas Development
Act; Sections 2-4 pertain to a new approach to the distribution
of "impact payments" paid to the state pursuant to Article 18 of
the proposed Alaska Stranded Gas Fiscal Contract ("ASGF
Contract"); and Section 5 corrects a problem created by the
Payments in Lieu of Taxes (PILT) provisions of the ASGF Contract
regarding the impact on the school funding formula.
MR. DONOHUE, with regard to Section 5, explained specifically
that Articles 15-17 of the ASGF Contract call for PILT regarding
payments on the Trans-Alaska Pipeline System (TAPS), payments on
the "upstream facilities" on the North Slope, and payments on
the "midstream facility" once its constructed. These PILT have
had the effect of removing those properties from the AS 43.56
property tax base which in turn has had an adverse effect on the
school funding formula. Section 5 of HB 3002 is designed to
provide the Department of Commerce, Community, & Economic
Development (DCCED) with the authority to come up with an
assessment approach to essentially "plug the full and true value
of the properties that would otherwise be taxed under [AS 43.56]
during the life of the [ASGF Contract] back into the formula
base for purposes of school funding calculation."
8:44:46 AM
EDDY JEANS, Director, School Finance, Department of Education
and Early Development (EED), confirmed that Section 5 of HB 3002
requires the DCCED to calculate the full value, based on the
PILT that are paid to municipalities [for schools], and would
increase the full value for the purposes of calculating the
required local contribution. In simplistic terms, he offered,
if a community was paid a $100,000 PILT and that was equivalent
to a "20 mil levy," then the full value would basically be
increased to $5 million, and this would allow the EED to
calculate the "formula required local effort" based on that
increased full value; at that point, the municipality would have
that PILT to make that local contribution to education.
MR. JEANS, in response to a question, indicated that Section 5
will not impact the foundation formula calculation.
REPRESENTATIVE COGHILL asked about valuation.
MR. JEANS said that although he is not sure what the mil
equivalent of the PILT would be, it will be up to the DCCED to
make that determination via regulation, "and then they would
take that and do the math backwards to figure out what that full
value would have been to generate that mil equivalent of the
PILT," and then that full value is what the EED would use to "go
back the other direction to apply a formula tax levy to
determine what the required local effort would be."
MR. JEANS, in response to another question, offered that under
his hypothetical example, for purposes of calculating required
local effort under the foundation program, the EED would only
consider $2.5 million and the state would make up the
difference. He relayed that that calculation comes from a
provision in the foundation statutes. If the committee wanted
to change that application of the law, AS 14.17 would have to be
amended. The provision in HB 3002 simply requires the DCCED to
calculate the value of the full value based on the PILT payment.
REPRESENTATIVE WILSON surmised, then, that the communities that
will gain a lot from the gas pipeline running through their area
won't have to pay their fair share.
MR. JEANS said that is correct because of the way the foundation
statute is currently written. He added, "For the purposes of
calculating required local effort for school districts, you
would only include half of the increase ... of the new full
value determination."
REPRESENTATIVE WILSON asked Mr. Jeans to assist her in crafting
an amendment that would change that.
MR. JEANS agreed to do so. In conclusion, he said that the EED
has worked very closely with Steve Van Sant [of the DCCED] on
Section 5 to ensure that "the full value is calculated and
included in the full value determination for education
purposes."
8:53:08 AM
MR. DONOHUE, returning to his presentation of HB 3002, said that
Section 1 would expand the scope of the Purpose provision of the
Alaska Stranded Gas Development Act and the fiscal contracts
developed pursuant to it by adding the phrase, "oil and gas
agreements and taxes related to oil and gas business activity in
the state" in place of the phrase, "that new investment without
significantly altering tax and royalty methodologies and rates
on existing oil and gas infrastructure and production". This
change would mean that the fiscal terms would relate to oil
taxes and oil and gas business activity in the state generally,
as opposed to relating to new investment only. Deletion of the
aforementioned phrase will allow the contract to consider
significant alterations to the oil and gas tax structure such as
the PPT currently being discussed by the legislature.
MR. DONOHUE said that from the administration's standpoint, [the
change proposed via Section 1] is the beginning of the
discussion of the necessary conforming amendments that will
bring the overall ASGF Contract into line with the underlying
statute. He assured the committee that although a memorandum by
the firm Greenberg Traurig, LLP, indicates that [this provision]
suggests that the administration is changing its approach from a
laundry list of amendments to one simple alteration that would
accommodate all the provisions of the ASGF Contract, that is not
the case; instead the administration will be working with the
committee and the legislature as a whole to create a committee
substitute that will include all of the changes proposed via the
proposed committee substitute (CS) for HB 2004, 24-GH2046\F,
Bailey, 6/5/06, as amended, which had been adopted by the House
Judiciary Standing Committee as a work draft on 6/6/06].
CHAIR McGUIRE remarked that Section 1 of HB 3002 is currently
pretty broad and could be interpreted to mean pretty much
anything.
MR. DONOHUE concurred.
8:55:51 AM
REPRESENTATIVE GARA asked what provision of the bill gives the
administration the authority to change the tax rules.
[Chair McGuire turned the gavel over to Representative Wilson.]
MR. DONOHUE clarified that the bill doesn't specifically do
that; instead, it merely sets up the framework under the Purpose
provision of the Alaska Stranded Gas Development Act so that the
administration can work with the committee to specifically add
in that authority. In response to other questions, he indicated
that neither revenues from the PILT for corporate income taxes
nor PPT revenues would be directed specifically to political
subdivisions. Furthermore, the property tax PILT that are
directed to political subdivisions would be in lieu of AS 43.56
"sharing," and would constitute an independent tax in addition
to the other PILT. To the extent that members want more details
on how the local government PILT work, he recommended that they
consult with experts in the Department of Revenue (DOR)
regarding how those independent formulas work.
9:01:19 AM
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, asked
whether the PILT would be deductible from the PPT as a
deductible expense.
MR. DONOHUE said he would research that issue.
[Representative Wilson returned the gavel to Chair McGuire.]
MR. DONOHUE turned attention to Sections 2 and 3, and said that
they pertain to the impact payments that are required to be paid
to local governments. Current law raises two concerns: one
being whether these impact payments would constitute a
dedication of funds violation of the Alaska State Constitution;
and the other being whether it is practical for the contract to
provide for estimated impacts and the distribution of funds
before the impacts are felt. Section 2 changes AS 43.82.505
such that all periodic impact payments would be payable to the
state, specifically to a special account in the general fund
(GF) that is being established via subsection (b) of Section 3.
Subsection (c) of Section 3 establishes an Alaska natural gas
pipeline construction impact fund in the DCCED to which funds
from the special account outlined in subsection (b) could be
appropriated. This resolves the dedicated fund concern because
it will be discretionary as to whether the legislature transfers
the impact payments into the construction impact fund. This
does, however, create a policy preference, though one that is
nonbinding regardless that it is something intended under the
ASGF Contract.
REPRESENTATIVE WILSON, turning attention back to Section 5,
sought clarification.
MR. DONOHUE said that an impact must be clearly demonstrable and
have a material affect on local infrastructure, transportation
services, law enforcement emergency services, health and human
services, education, the labor force, population, wages,
subsistence, and socio-cultural aspects of a community. The
DCCED would then take into account that there has been an
offsetting benefit regarding education funding.
REPRESENTATIVE WILSON pointed out that under these provisions
some communities will be receiving more benefits.
MR. DONOHUE noted that subsection (f) of Section 3 provides a
public process for reviewing grants that are preliminarily
determined to be appropriate by the DCCED; therefore, there will
be public notice and hearing regarding which community is
getting what grant and for what purposes. He offered his belief
that the municipalities which are impacted will be able to point
out the fact that other communities which are seeking grants
have received additional benefits, and the DCCED will be able to
consider that information when determining fair allocations.
MR. DONOHUE relayed that subsection (d) of Section 3 authorizes
the DCCED to promulgate regulations establishing a process
through which to apply for "these grants," including eligibility
criteria. The DCCED will be charged with giving priority to
municipalities and organizations in the unorganized borough that
are experiencing the most direct and severe impacts from gas
pipeline construction; "direct or severe impact" is specifically
defined in proposed AS 43.82.505(j).
MR. DONOHUE, in response to a question, indicated that the
Tanana Chiefs Conference is one such organization, organizations
which were proposed by the Municipal Advisory Group.
9:11:25 AM
REPRESENTATIVE COGHILL indicated that he would prefer [that such
organizations] work through Title 29 rather than through the
process being proposed via HB 3002.
MR. DONOHUE, in response to a question, indicated that the only
nonprofit organizations that would be eligible for the
aforementioned impact grants would be those serving in the
unorganized borough.
REPRESENTATIVE COGHILL offered his understanding that the Tanana
Chiefs Conference takes a cut of the fees it receives for
providing services, and so the end user is getting less service.
He suggested that this issue should be researched further.
CHAIR McGUIRE noted that another issue is that certain programs,
once established, tend to take on a life of their own.
REPRESENTATIVE COGHILL offered his understanding that the
periodic grants are meant for only a certain duration; however,
it could be hard "to keep it to that."
MR. DONOHUE, in response to a question, said that the definition
of "direct or severe impact" relates back to the prioritization
requirement located in subsection (d) of Section 3. All of
Section 3 pertains only to the distribution of impact payments
that are required to be paid to the state under the ASGF
Contract; currently that amounts to $125 million to be paid over
six years, and the bill will allow the legislature to
appropriate additional monies for additional impacts beyond
either that amount or that period. This program will focus on
the communities that have been hit the hardest, he assured the
committee. In response to other questions, he indicated that
the ASGF Contract allows for PILT to substitute for certain
taxes, and that the aforementioned $125 million is to paid by
the proposed Pipeline Project Mainline Limited Liability Company
(LLC) Entity ("Mainline LLC") and is in addition to any PILT.
MR. DONOHUE, in response to further questions, said he would
research whether the $125 million would be deductible from the
PPT, and that the impact payment requirement is provided for in
Article 18 of the ASGF Contract, though that only says that the
Mainline LLC will pay $125 million for social and economic
impacts; therefore it is up to the legislature to determine the
right approach for allocation of those monies over time.
Subsection (d) of proposed AS 43.82.505 requires the DCCED to
come back to the legislature at the beginning of each session
and explain which communities and organizations got the grants
and which meritorious applications were left unfunded because of
a shortage of funds. Therefore the legislature will have the
opportunity to define the program and refine it as necessary
should the legislature feel that the grants are not going in an
appropriate or fair direction.
REPRESENTATIVE GARA offered his understanding, then, that the
impact payments will be revenue in addition to whatever local
property tax is raised, and that those property taxes won't be
raised to deal with any impacts a community experiences as a
result of pipeline project construction.
9:21:30 AM
MR. DONOHUE said that that is generally correct; the impact
payments are intended to deal with some of the construction-
level impacts that might have otherwise been dealt with via a
raise in local taxes. However, during the construction period,
at least two of the PILT articles would continue to fund local
political subdivisions, and those would be the taxes on the TAPS
as well as upstream facilities primarily on the North Slope.
REPRESENTATIVE SEATON surmised that that the state - as a 20
percent producer - would be paying 20 percent of the
aforementioned $125 million.
MR. DONOHUE concurred, adding that it is unlikely that it will
relate back to the PPT.
REPRESENTATIVE SEATON asked whether "this investment" will
qualify for a tax credit for the investors in the Mainline LLC.
MR. DONOHUE suggested that someone else might be better able to
address that issue, but offered his understanding that the 35
percent tax credit only pertains to the gas treatment plant
(GTP), not the Mainline LLC.
REPRESENTATIVE SEATON surmised that the PILT won't qualify for a
tax credit.
MR. DONOHUE concurred.
9:24:26 AM
MR. DONOHUE referred to subsection (e) of Section 3, and
explained that this language regarding the specific things that
might be impacted by construction of the project was recommended
by the Municipal Advisory Group; furthermore, subsection (e)
requires that the department consult with the Municipal Advisory
Group in order to determine what constitutes a fair allocation
of the impact payments.
REPRESENTATIVE GARA asked how the number of $125 million was
arrived at.
MR. DONOHUE said it was based on information garnered from a
study using an analysis based on the TAPS experience, and that
the actual number arrived at was $109.9 million; $125 million is
not an inflated number but does contain some coverage for
inflation. Furthermore, Article 18 of the ASGF Contract does
allow portions of that amount to be inflated should any payments
be made more than nine years after the effective date of the
ASGF Contract. In response to a question, he offered his
understanding that the Municipal Advisory Group agreed to the
$125 million figure.
MR. DONOHUE reiterated that subsection (f) of Section 3 provides
for public notice and hearing of the department's decisions and
of the final grant awards. Subsection (g) of Section 3 contains
a prohibition against using the impact payments to retire
municipal debt. Subsection (h) provides that once monies are
appropriated into the Alaska natural gas pipeline construction
impact fund, they should be retained there for future
disposition; this will ensure that the funds can be distributed
when the impacts are felt rather than in just the year they were
received. Subsection (i) of Section 3 assures the Alaska
Supreme Court that nothing in the chapter dedicates the initial
impact payments to any specific purpose. Again, Subsection (j)
of Section 3 defines "direct or severe impact" and is designed
to show preference to communities that are experiencing clear
and demonstrable impacts on the services listed therein.
MR. DONOHUE indicated that Section 4 extends the life of
municipal advisory groups to the later of either 90 days after
final distribution of impact payment money or commencement of
operations of the qualified project. Furthermore, Section 4
stipulates that the expenses of a municipal advisory group could
be covered by impact funds.
9:30:54 AM
CHAIR McGUIRE asked why the administration decided to depart
from the specific clauses included in [HB 2004].
MR. DONOHUE said:
The approach was to put in a purpose section which was
consistent with the other bill that was introduced at
the beginning of the Third Special Session, which is
the PPT provisions and what have you, and then to
allow, essentially, the administration and this
committee ... to deal with this, either through
specific amendments by committee members or [a]
committee substitute such as the one that was adopted
for discussion purposes at the end of the Second
Special Session. So the decision was really to
provide flexibility in working with the legislature.
REPRESENTATIVE GARA said that the big issue is how the
administration will make the tax structure in the ASGF Contract
consistent with the law. He asked whether the administration
holds the belief that merely changing the Purpose provision of
the Alaska Stranded Gas Development Act will give the
administration all the authority it needs to change the ASGF
Contract.
MR. DONOHUE said it was never the intent of the administration
to rely solely on a change to the purpose provision of the
Alaska Stranded Gas Development Act; that change is meant to be
just the beginning of the discussion.
REPRESENTATIVE GARA indicated that if there is an intention to
add provisions to HB 3002, he would prefer to see them in the
form of a new committee substitute (CS) rather than simply
working with "this shell of a bill and then a bunch of
amendments that come from I don't know where." He asked, "Does
the administration have an intention to file a bill to ask for
what they want?"
MR. DONOHUE said that would be up to the committee and the
administration.
9:33:24 AM
CHAIR McGUIRE remarked that HB 3002 currently has specific
provisions with regard to the grant provisions, the PILT, the
education funding, and the municipal advisory groups, and so
what is left is to add provisions pertaining to oil and gas
taxes. She asked Mr. Donohue to recommend to the administration
that it provide suggestions for those provisions in writing to
the committee. She then offered her understanding that the
Senate is moving forward with its version of the bill, and yet
she still doesn't have any proposed amendments from the
administration.
MR. DONOHUE reiterated that the administration would be willing
provide a more complete set of provisions, either as a proposed
CS [or as a series of amendments], and that it is ultimately
looking to have something similar to what was adopted [by the
House Judiciary Standing Committee as a work draft on 6/6/06 -
the proposed committee substitute (CS) for HB 2004, 24-GH2046\F,
Bailey, 6/5/06, as amended].
REPRESENTATIVE COGHILL surmised that the oil and gas tax issue
ought to be dealt with in this committee, since the fiscal-
certainly question will have to be answered as part of the
deliberation on the constitutionality [of the ASGF Contract].
REPRESENTATIVE GARA expressed a preference for seeing what the
administration really wants - via either amendments or a
committee substitute - rather than just passing a shell out of
this committee and then having the administration add its
desired provisions to the bill in the House Finance Committee.
CHAIR McGUIRE concurred, and relayed that she has just now heard
from the administration that it will be providing [suggested
language] to the committee.
REPRESENTATIVE COGHILL suggested that they look at what the
Municipal Advisory Group was tasked with under the original
Alaska Stranded Gas Development Act.
REPRESENTATIVE WILSON said she wants to ensure that communities
which won't receive impact funds won't be penalized.
9:38:08 AM
REPRESENTATIVE SEATON relayed that in CSHB 2004(RES), the House
Resources Standing Committee was very explicit that the
administration, for the purposes of fiscal certainty, could only
incorporate a tax structure and rates adopted by the
legislature. The original version of HB 2004 provided that the
commissioner could modify tax rates and structures, and the
legislature shouldn't allow such, he warned, as doing so would
constitute an inappropriate public policy.
CHAIR McGUIRE asked whether the House Resources Standing
Committee had considered the question of whether allowing such
would constitute an unconstitutional delegation of the
legislature's taxing authority.
REPRESENTATIVE SEATON relayed that a legal opinion which the
House Resources Standing Committee received said in part:
It seems unlikely, however, that even an otherwise
enforceable contract could provide for a tax exemption
as such because exemptions must be provided "by law"
or "by general law" not by contract. Art. IX, sec. 4.
MR. DONOHUE, in response to a question, said he doesn't think
that the administration has yet issued a formal legal opinion on
the issue of modifying the ASGF Contract after its been
authorized. However, the administration did propose, in the
House Resources Standing Committee, language that would require
the legislature to authorize any future proposed change to the
ASGF Contract after its been executed; this language was meant
to address the concern that delegation of taxing power should be
restricted to those items clearly authorized by the legislature.
CHAIR McGUIRE suggested that the administration and members have
written suggestions for change ready for when the bill is next
heard.
9:41:59 AM
PHILLIP C. GILDAN, Attorney at Law, Greenberg Traurig, LLP,
relayed that he would defer his comments until after the
administration has provided the additional language it wants
included in the bill.
[HB 3002 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 9:42 a.m.
| Document Name | Date/Time | Subjects |
|---|