Legislature(2019 - 2020)SENATE FINANCE 532
02/25/2020 09:00 AM House LEGISLATIVE COUNCIL
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ALASKA STATE LEGISLATURE
LEGISLATIVE COUNCIL
FEBRUARY 25, 2020
9:00 AM
MEMBERS PRESENT
Senator Gary Stevens, Chair
Representative Louise Stutes, Vice Chair
Senator Tom Begich
Senator John Coghill
Senator Cathy Giessel
Senator Lyman Hoffman
Senator Bert Stedman
Senator Natasha von Imhof
Representative Bryce Edgmon
Representative Neal Foster
Representative DeLena Johnson
Representative Jennifer Johnston
Representative Steve Thompson
MEMBERS ABSENT
Representative Chuck Kopp
OTHER MEMBERS PRESENT
Senators Bishop, Kiehl, Olson, Wielechowski, Representative
Hopkins
AGENDA
Call to Order
Oil & Gas Initiative Hearing per AS 24.05.186
Adjourn
SPEAKER REGISTER
Cori Mills, Attorney, Department of Law
Megan Wallace, Director, Legal Services, Legislative Affairs Agency
Emily Nauman, Deputy Director, Legal Services, Legislative Affairs
Agency
Mike Barnhill, Deputy Commissioner, Department of Revenue
Colleen Glover, Tax Division Director, Department of Revenue
9:00:18 AM
I. CALL TO ORDER
CHAIR STEVENS: called the Legislative Council meeting
to order at 9:00am in the State Capitol's Senate Finance
Committee Room. We have Statute 24.05.186 that requires the
Legislature to hold a hearing on any proposed initiative,
and that's the purpose of this meeting today, to satisfy
that requirement.
Several individuals have been asked to present at this
meeting: Department of Law, Department of Revenue,
Legislative Counsel. From Department of Law, it will be
Cori Mills; from Legislative Counsel, it will be Megan
Wallace, Emily Nauman; and also Department of Revenue may
be joining us with Colleen Glover and Mike Barnhill.
CHAIR STEVENS requested a roll call vote. Present at
the call were: Senators Begich, Coghill, Giessel, Hoffman,
Stedman, Stevens, von Imhof; Representatives Edgmon,
Foster, Johnson, Johnston, Thompson, Stutes. Representative
Kopp was absent. 13 members present.
CHAIR STEVENS: We have a quorum to conduct business.
Thank you all for being here. Let's go ahead with our
hearing today. We'll begin with Cori Mills, Department of
Law. Cori, if you'd come forward. Thank you for being
with us. She'll start the discussion, and we appreciate
your presentation. If you'd give your name for the record,
please.
II. OIL & GAS INITIATIVE HEARING
MS. MILLS: Yes. Good morning, everyone. Cori Mills,
Assistant Attorney General from the Department of Law.
And just to start off, a few ground rules, I guess,
from our perspective. I have been asked to go over
process, what the initiative process entails, especially
from this point forward for this particular initiative,
19OGTX, as identified by the Division of Elections.
I won't be doing the substantive discussion of the
initiative, and that's, in part, because we're in
litigation and, in part, because the executive branch does
have some restrictions on discussing initiatives.
Legislative Legal will be giving that presentation. So if
you have any of those questions, I would refer you to them.
We do have an --
CHAIR STEVENS: Sorry, but before we start, if there
are any questions that come up along the way, please raise
your hand, and I'll try and make sure you're allowed to ask
those questions. Cori, please go ahead.
MS. MILLS: Yes. But we do put out an attorney
general opinion on every initiative that is on our website.
I also have a copy if anybody wants it.
The one thing I would note, just because I get this
question quite often, is when we do a review of an
initiative, it's pre-enactment. And similar to
legislation, the courts don't look at legislation
pre-enactment and really determine its constitutionality or
legal issues. It waits until enactment. It does the same
thing with initiatives with some exceptions. There are
some restricted subjects that initiatives can't cover.
Those are -- in the Constitution appropriations, for
example, is one of those.
And then the other thing that the court has said is if
an initiative is clearly unconstitutional under existing
authority. So we look is there a prior case that has
already had this exact subject on this and the exact means
used has already been deemed unconstitutional? That's the
other circumstance in which we will recommend not
certifying an initiative.
In the case of 19OGTX, the oil and gas initiative, we
did not find that any of those exceptions were met, so we
recommended certification. And it was certified by the
lieutenant governor, and the petition has been circulated.
Now I'm going to kind of go from where we're at in the
initiative process now. And I did provide an outline that
I hope all of you have.
So petition certification. The petition was certified
back in October, and they gathered signatures and turned
those signatures in on January 17th. So at this point, the
Division of Elections and the lieutenant governor have 60
days to review those signatures and determine whether they
meet the qualifications in the Constitution.
And the -- I provided the constitutional language, but
the language and short of it is you have to have qualified
voters equal to 10 percent in terms of the signatures, and
then you have to have residents in at least 30 of the 40
districts, House districts represented, and on top of that,
you have to have 7 percent from each of those 30 districts.
So you have an overall 10 percent -- that's the
28,000-around-500 requirement we have right now -- and then
you have to have 7 percent from each of the 30 districts.
So there are -- you have to look at both of those
requirements when you're looking at whether they've met the
qualifications. So, like I said, the total this year is
28,501 to meet that minimum 10 percent requirement. So if
the petition is certified, it has enough signatures, then
the lieutenant governor notifies the sponsors and prepares
a ballot proposition. And at that point the whole Division
of Elections machine starts working on translating that
ballot into the different languages it has and making sure
we have a ballot summary and all of that. So, like I said,
it will be March 17th. We'll know by March 17th whether
the petition is certified or whether it's not certified.
And then some people ask about the ballot measure
number as well. You know, will we know the ballot measure
number? That doesn't happen until the Legislature
adjourns, and that's partly because of the next issue,
which is that the Legislature can void a petition through
enactment of substantially the same measure, and that's
Article XI, Section 4.
And this determination is made by the lieutenant
governor. There's a statute that kind of delegates this
decision to the lieutenant governor with the concurrence of
the attorney general. It's one of the few statutes where
the attorney general is directly mentioned.
And so what the Department of Law does, if the
Legislature enacts something that may look substantially
similar, is we engage in an attorney general opinion,
similar to when the initiative first came forward, but we
look at the enacted law that the Legislature passed, and we
look at the initiative and we compare them to determine
whether we believe they're substantially similar. And we
advise the lieutenant governor on that, and that becomes a
formal attorney general opinion.
Like I said, the timing occurs after enactment, so we
don't predetermine. We don't look at different versions of
a bill. We wait until the governor has either signed the
bill or it has become law without signature.
CHAIR STEVENS: Ms. Mills, before you go on, would you
explain the issue of -- on March 17th is the date at which
it's certified. And we've been getting reports of the
numbers of signatures, and it's a little confusing because
it says we're not -- they're not there, but the truth is,
we're only looking at a point in time. Could you just
bring us up to date on how that operates?
MS. MILLS: Yes. And so the Division of Elections is
very kind of open and public with their process. And so
every day they post the updated numbers for how many
signatures they've reviewed and how many have qualified and
in how many districts, and it's a one-page report.
I believe in this case -- I can't remember the exact
number -- but over 40,000 signatures were turned in. And I
looked at the report this morning, and I believe the review
has occurred on 27,000 of those. So you're still looking
at about 13,000-plus that haven't even been reviewed yet.
So when you look at that report online, it is not the final
until we get to March 17th and you see the total numbers
and you have certification.
CHAIR STEVENS: So 13,000 have not been verified --
MS. MILLS: Yes, 13,000.
CHAIR STEVENS: And just a moment, please. Mr.
Speaker.
SPEAKER EDGMON: Yes. Good morning, Cori. So on the
question of substantially similar, the Department of Law
couldn't opine on that -- I think you've been very clear --
until after March 17th. How long would it take the
department to conduct their review? And I guess the
context is, if the Legislature were to engage in attempting
to pass a bill that was substantially similar, can you give
me some sort of context, some sense of timing here?
MS. MILLS: Yes. I'm happy to do that, through the
Chair. It's -- we don't do it until enactment, but that
doesn't mean we're not looking at it. I mean, I'll be
honest there, right? We watch the process.
Once enactment happens, we try to get that opinion out
quickly. You know, with initiatives on the front end, we
have 60 days. But in this case, we realize an election is
coming up. I believe the last one, if you look at the
timing -- and the last one I'm aware of is HB 44 that was
passed on the legislative ethics, and that initiative, that
occurred in a week. So the opinion came out a week after
enactment.
I would imagine -- I can't promise we'd act that
quickly, but we would do it in a very timely manner to make
sure everyone knows what is going on the ballot and what is
not.
CHAIR STEVENS: Thank you, Mr. Speaker.
SPEAKER EDGMON: Thank you.
CHAIR STEVENS: Senator Begich.
SENATOR BEGICH: Thank you. Cori, just following up
on that, if I might. When that review is conducted, who
would be conducting that review?
MS. MILLS: So, through the Chair, Senator Begich, as
the elections attorney, I would definitely be involved, but
I will say that attorney general opinions go through a
pretty thorough vetting with kind of a team approach, and
ultimately the attorney general does the final review of
those.
SENATOR BEGICH: Brief follow-up?
CHAIR STEVENS: Please continue, Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chairman. And would
you use outside counsel as well in that review, or would
that be strictly internal?
MS. MILLS: Through the Chair, Senator Begich, it's
normally internal. You know, circumstances would depend on
whether we'd use outside counsel. I don't want to say we
absolutely never do, but most of that is done internally.
And part of that is just the swiftness with which it has to
occur and the statute requires the attorney general's
concurrence, so the attorney general has to be involved.
CHAIR STEVENS: Thank you. Mr. Speaker, comment?
SPEAKER EDGMON: Yes. Not to belabor this point, and
thank you for taking the questions. But the issue of
substantially similar, as best as I know today as a
layperson as it applies to this particular issue, seems to
be a fairly wide-open question, if I could put it that way.
I mean, the review that's going to take place, you know,
is -- I mean, I think you've got plenty of discretion, or I
guess maybe if I were to put this in the form of a
question, would any proceedings in the Legislature relative
to hearings on this issue affect your -- the possible
outcome of the department's opinion?
MS. MILLS: Through the Chair, Speaker Edgmon, what
I'd like to do is actually go over the standard really
quickly. I think that gives a good foundation, and then
I'll address your question during that discussion, if
that's okay.
SPEAKER EDGMON: Thank you.
CHAIR STEVENS: That's fine. Okay. Thank you so
much. Please continue then.
MS. MILLS: So going to the standard -- and I put on
your handout kind of the two main cases we have here:
Warren vs. Boucher and State vs. Trust the People. And if
I were to summarize the test that the court applies, you
look at scope, you look at purpose, and you look at means.
Those are the three inquiries.
And the first inquiry on scope, the court must
determine the scope of the subject matter and afford the
Legislature greater or lesser latitude, depending on
whether the subject matter is broad or narrow.
So you really have to start there, because the court
says, "If it is a really complex, broad law, we're going to
give the Legislature more leeway. If it has a very narrow
purpose, it's very restricted, you know, it's got one
provision that it's trying enact, the Legislature is going
to have less discretion."
And then you move to the purpose. The court must
consider whether the general purpose of the legislation is
the same as the general purpose of the initiative.
And one of the phrases in the -- and I think it's the
Warren court talks about is it a hollow gesture? Is the
Legislature engaging in a hollow gesture to bypass the
people's initiative power?
So moving to Speaker Edgmon's question, I think the
legislative record could be used in a case to either
support or negate that, depending on whose side you're on.
So statements made by the Legislature in the process I
think could become part of that record in that court case.
CHAIR STEVENS: Could you give us an example of a
hollow gesture?
MS. MILLS: Well, what I can really do is point you to
the case that found that the Legislature did not
appropriately enact a substantially the same measure, and
that was State vs. Trust the People.
And in that case, the initiative -- the whole purpose
of the initiative, according to the court, was to eliminate
the governor's ability to temporarily or permanently
appoint a Senate appointment, a congressional Senate
appointment. The Legislature enacted a special election
for -- to fill a senator vacancy, but they still allowed
the governor a short appointment period to make sure that
district was represented.
And the court said, "That doesn't do it." "It
just" -- "the purpose of the initiative was to eliminate
that power." And so the Legislature did not enact
substantially the same measure. It's not the same purpose.
Even though it may have been a shorter appointment period
than previously, that was not enough. It needed to be
eliminated in order to fulfill that.
But, again, I'd point to in the Warren vs. Boucher
case, they were talking about creating campaign finance
reform. I mean, we're basically talking about the origins
of APOC, not, you know, it changed over time.
But there the court didn't have a problem with, you
know, many differences in the two, creating higher limits
in the initiative, whereas the -- or higher limits in the
legislation, whereas there were lower campaign finance
limits in the initiative, very strictly regulating media
buys by candidates, and the legislative enactment ended up
not touching that at all.
So, but the court said, "This is very broad, and if
you look at the general purpose, there's nothing showing us
that we're trying to bypass the people's power. The
Legislature is just using its discretion just like it would
to amend an initiative after the fact." And the court
really drew on that to say, "We think this is substantially
similar even if some of these intricacies and exact numbers
are different."
So those are the two cases we have. And so any time
we have an enactment that comes before us, as the
Department of Law, we have to look at those two cases,
which kind of give the extremes, right? Look at this
three-part test. And the last one is the means --
CHAIR STEVENS: Before you go on to that --
MS. MILLS: Yes.
CHAIR STEVENS: -- I'm still not sure I understand.
Looking at this specific case, I'm not sure if you can even
refer to this specific case in front of us now. What would
be considered a hollow gesture?
MS. MILLS: So, Senator Stevens, I really can't
speculate on what that would be. I would just advise that
if you're looking to enact a measure that is substantially
similar, I would really pay attention to the purpose of the
initiative, and the thrust of what you're doing should be
focused on that. That's really the best I can do without
getting into specifics.
CHAIR STEVENS: Thank you, Ms. Mills. I realize that
puts you in a tough spot, and I appreciate that answer.
Any further questions or comments from the members of
Legislative Council?
If not, then please continue.
MS. MILLS: Thank you. So just the means. I just
want to cover that last part of that three-part test. The
court must consider whether the means by which that purpose
effectuated are the same in both the legislation and the
initiative.
And, again, though, if you look at the campaign
finance package that was passed, there were differences.
So getting hung up on the details can be difficult.
The court also said the means need only be fairly
comparable for substantial similarity to exist. So, again,
it's not an exact measure, and depending on the broadness
or the narrowness, that means component would change.
Yes. And so, ultimately, the conclusion I have --
which is never very helpful and is also the lawyer's
answer -- is it depends on the facts. I mean, we really
have to do a close examination of the initiative, go by
provision by provision and do the same with any legislation
that's passed. And there's just -- you know, are you
getting closer to the Warren initiative, or are you getting
closer to the Trust the People initiative? It's -- it just
really depends on the specific initiative and how it's
framed. Are there any other questions on substantial
similarity or how that works?
CHAIR STEVENS: Yes. Representative -- please go
ahead, Mr. Speaker.
SPEAKER EDGMON: So I'm trying to learn a little bit
about legislative record, because I think I can sit here
and say -- and, you know, I ask you to please correct me to
the best of your ability you can on the spot here.
But in terms of campaign finance, the record in the
Legislature versus this issue, I'm just sitting here
thinking that there seems to be a lot of latitude between
what legislative record could exist today and may exist
two, three weeks down the road and the department's
interpretation of the purpose in terms of this three-part
test that would ultimately be administered. Any thoughts
on that?
MS. MILLS: Speaker Edgmon, through the Chair, it's
just really hard to sit here without -- one, without, you
know, opining on a predetermination; and, two, without a
specific scenario in front of me. So I'm not sure I can
clarify any more than I already have, all that to say that
any public statements made on the record.
So when we determine substantial similarity or not,
that also triggers a right to litigate. And we see that,
you know, litigation in initiative context occurs a lot,
and this is another area. The -- any aggrieved person -- I
think is how the statute -- can sue within 30 days of a
determination. So if it's determined it's not
substantially similar, you know, that triggers one side.
If it's determined it is substantially similar, that could
trigger another side.
And so any public statements made during the
legislative process can be brought into that court
proceeding by any of the sides to support their view of the
law, and I think that's valid information.
But ultimately, you know, what the court has truly
looked at in these cases is the specifics of the law. What
do the provisions say? But using this language, you know,
"it's not a hollow gesture" I think opens it up to people
using the legislative record in order to support their
side.
CHAIR STEVENS: Thank you, Speaker Edgmon. A very
important question. I'm not sure we got a clear answer,
but I understand that you cannot maybe give us one, but --
about the legislative record.
Any further questions or comments for Ms. Mills at
this point? And did you have further presentation to make
to us, Ms. Mills?
MS. MILLS: So the only thing I wanted to go over, if
the Chair wants me to, is just the last steps, which is
placing the measure on the ballot, you know, what election
it would go on and then the enactment and effective date,
because those are questions we get.
CHAIR STEVENS: Very important. And if you could
cover that, we'd appreciate it.
MS. MILLS: Okay. I'm happy to. So placing the
measure on the ballot, the determination of what election
an initiative goes on once it's been certified by the
lieutenant governor is dependent on when the Legislature
adjourns. So it's not dependent on when certification
happens but when Legislature adjourns.
And it has to appear, the initiative, on the first
statewide election held more than 120 days after
adjournment of the legislative session following the filing
of the petition.
And the statute kind of clarifies what "first
statewide election" means and says, "First statewide
general, special, special runoff, or primary election." So
basically it's the gamut as long as it's a statewide
election involving the entire population and not like a
Senate district, you know, vacancy or something like that,
it will qualify.
SENATOR BEGICH: Mr. Chairman.
CHAIR STEVENS: I'm sorry. Yes, Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chairman. So does
that mean that the way it's worded, special -- what were
the -- what was the one after special?
MS. MILLS: Special runoff, which is a --
SENATOR BEGICH: Okay. Special runoff, right. But in
special election, does that mean -- does that create
ambiguity that a date could be set for a special election
simply dealing with the initiative?
MS. MILLS: Through the Chair, Senator Begich, the way
the statutes work, there is no statute allowing an
initiative to have its own election. It's only if a
special election, special runoff is called for another
reason. You know, and usually you're dealing with vacancy
issues with legislative appointments. But as I think we're
all aware of this year, we also are in a fight over the
recall. So --
CHAIR STEVENS: Yes, Senator Begich.
SENATOR BEGICH: Just follow-up. But we have had
special elections for like the veterans general obligation
bond, you know, two decades ago, and that was the special
election setup. It was on an off election year established
for an issue that the Legislature came up with. So why
wouldn't you be able to set -- I mean, I'm not suggesting
that one would, but why would you -- why wouldn't you be
able to?
MS. MILLS: So, Senator Begich, through the Chair, so
to clarify, my last answer was based on existing law. If
the Legislature were to pass another law or statute -- for
example, advisory votes have happened the same way. You
know, the Legislature has said in their advisory vote bill
it will be held on this date, you know, in a special
election. So if the Legislature were to pass another way
to have a special election, if you want one for just
initiatives, that would be a way to set a special election.
But in current law there is no special election just for
initiatives.
CHAIR STEVENS: So I think that's clear. And we do
always adjourn. We never know when, but we do adjourn, but
that adjournment sets the end process of the election.
MS. MILLS: Correct. And this year that would mean to
get to have initiatives show up on the primary the
Legislature would have to adjourn by April 19th. Anything
after that would most likely go on the general election
unless there's some sort of intervening election in between
the primary and the general.
And the only other requirement, you know, that's --
that I think everyone is aware of is that the lieutenant
governor is required to hold public hearings at least 30
days before the election in each judicial district, and
that was passed -- I think it was 2014 or so.
So then we come to enactment and effective date. And
as you're aware -- but sometimes we get questions from
members of the public. Enactment and the effective date
are two different things. Enactment occurs on the date --
well, the date after certification of election results. So
when we absolutely know that a majority of votes has passed
a measure, it's the date after that's considered the
enactment date for initiatives.
And then initiatives have -- are effective 90 days
after that certification date. And there is no ability,
unlike legislation, to do a special effective date. It's
an automatic 90-day effective date.
So an example from 2014 -- because these days most of
the initiatives end up on the general election ballot. The
marijuana initiative was passed that way in 2014, and it
went into effect in late February of 2015. So that's your
most likely timeline if it ends up on the general election.
And the other question we've gotten is, well, what if
you haven't been able to enact the -- or adopt the
regulations that have to go along with it? Law -- the law
is effective regardless of whether regulations are in
place, and that's true with legislation as well if for some
reason there's -- the effective date passes and we still
don't have regulations. So basically that leaves the
Department of Revenue and the Department of Law just
working on those implementation details while it's
effective.
And then I just have a really quick -- Department of
Revenue is going to kind of go over timelines, but a quick
primer on the regulations process, because that would be
the implementation part of this.
So, you know, your first step is you have to draft
regulations, and then you have to put it out for public
notice and public comment and decide whether you want a
public hearing. And you need to have at least 30 days
between when the public notice goes out and when new
regulations are adopted, and that's a short time frame. So
I just want to be clear that this is the legal
requirements, it's not the practical or best practices.
So then the agency adopts the regulations, and they
send them to the Department of Law. The Department of Law
has a statutory role in reviewing regulations to make sure
they're consistent with the law and that they're
constitutional. And our chief regulations attorney has the
power to disapprove regulations that are not consistent
with the law.
And so the Department of Law does their final review.
They send over the approval or disapproval of specific
provisions to the lieutenant governor, and then it's the
lieutenant governor's duty to file those regulations.
And once filed, the regulations are effective 30 days
after filing unless there's some further out date that was
included in the regulations, but 30 days is the minimum
amount of time you have between. So I just wanted to lay
that out because some people think that regulations happen
in a month. It's not a month process. It can take a
while.
So that's all I have to cover for process unless there
are any additional questions.
CHAIR STEVENS: Thank you, Ms. Mills. Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chairman. Ms. Mills,
the process doesn't have -- it has a minimum amount of
time, but what is the maximum amount of time? Because I
can see the process being drawn out or -- at what point
is -- does the timeline for regulations become so long that
it becomes what has been called, when at least I was a
bureaucrat, the slow roll?
MS. MILLS: So, Senator Begich, through the Chair, in
the regulations drafting manual that the Department of Law
has to put out, if a regulation -- if public notice
occurred and it's been a year and the regulations still
haven't been adopted, we consider that stale and recommend
that the process needs to start over. You need to get
public involvement again. So that's the recommendation.
There's no -- I don't know of a legal timeline, but that's
the recommendation by the drafting -- regulations drafting
manual.
CHAIR STEVENS: Stale in a year. Senator Begich.
SENATOR BEGICH: And, I'm sorry, but that doesn't
really answer the questions. That just says stale in a
year and then another year and then another year and then
another year. I mean, that process could go on
indefinitely. Is that what you're suggesting?
MS. MILLS: So through the Chair, Senator Begich,
I would have to go back and look if we have any case law on
saying you had to have regulations, and somebody brings a
challenge saying you haven't enacted regulations and it was
required, if there's a "shall adopt."
But I want to go back to my original comment, which is
the law is effective. So the law is in effect. It has to
be implemented. Regulations is a question of, you know,
those implementation details and what statutory authority
is out there for the regulations. But I don't have a
specific answer to, you know, how long is too long or is
there a legal limitation on when the court would say, "You
have to have adopted these."
CHAIR STEVENS: Thank you for the questions or
comments or thoughts. Yes, Madam President.
PRESIDENT GIESSEL: Thank you, Mr. Chairman. Cori, so
the initiative as it's written out doesn't specify what
parts of law are being addressed. Who determines where the
initiative language goes in terms of law?
MS. MILLS: So, Senator Giessel, through the Chair,
I'm actually going to defer that question to your next
presenters. Department of Law is not involved in that
process. And my understanding is that it's the reviser,
but I will defer to Megan Wallace and Emily Nauman on that.
PRESIDENT GIESSEL: Thank you.
CHAIR STEVENS: Thank you, Madam President. Further
comments, questions, thoughts? Thank you, Ms. Mills. A
very thorough explanation. You've gone over the
certification of the petition, if a petition is voided, the
substantial, the same and similar, the putting the measure
on the ballot and enactment and the effective date. Very
thorough. Thank you very much.
SENATOR BEGICH: Thank you, Cori.
CHAIR STEVENS: So we'll move on then to Megan
Wallace, Leg. Legal attorney, and I believe she has Emily
Nauman with her from Legislative Legal. If you'd come up
and join us and state your names for the record, please.
MS. WALLACE: Good morning. For the record, Megan
Wallace, Director of Legal Services, and I have with me
today Emily Nauman, the Deputy Director of Legal Services.
I will begin by kind of picking up where Ms. Mills
left off. So she discussed enactment effective dates. And
in response to Senator Giessel's question in terms of what
happens with the initiative if it's enacted by the voters
and where does it go in statute? How do we put it into our
Alaska Statutes?
And as Senator Giessel pointed out, the initiative
language itself does not specifically amend any existing
Alaska Statutes. It has a broad general statement in
following Section 1 before Section 2, "that notwithstanding
any other statutory provisions to the contrary, the oil and
gas production tax in AS 43.55 shall be amended as
follows."
Therefore, as Ms. Mills indicated, the determination
as to where to place the statutes is within the purview of
the reviser of statutes. Likely, this provision -- or this
initiative in its entirety is likely to be placed in AS
43.55, that chapter, likely as its own article. And it
will -- it's my best estimation that it will get placed
into statute exactly as it looks before you today.
I think the Legislature is accustomed to Leg. Legal
kind of doing a cleanup or technical changes, those kinds
of things, and that would not occur with respect to the
ballot initiative. Our reviser, as you all are aware,
generally do reviser bills and do technical cleanups of
things.
And to put it in a little bit of context, the
marijuana initiative that was passed in 2014 was just
cleaned up in a reviser bill last year in SB 71 in 2019.
So the process for Leg. Legal is to allow the
initiative to take effect, to see it -- how it's being
carried out, you know, make sure to see if there's any
litigation and allow the Legislature to take any action if
it wants to before we do any technical cleanups,
particularly if there are any questions about the substance
of the issue, because the cleanups that the reviser can do
are only technical revisions that do not change the meaning
of the law. And so we want to be extra diligent not to
make any changes that could have an impact on the
implementation or the meaning of the initiative.
CHAIR STEVENS: So the effective date is 90 days after
certification of the election, and it could take up to four
or five years to get it finalized and then in statute; is
that what you're saying?
MS. WALLACE: Mr. Chairman, it would go immediately
into the statutes. It would be placed in -- it would
become law, and it would be placed in the Alaska Statutes.
It would take probably two or three years, at a minimum, to
have any technical cleanups through a reviser bill, so to
speak.
CHAIR STEVENS: Thank you. Madam President.
PRESIDENT GIESSEL: Thank you, Mr. Chairman. So,
Megan, I'm somewhat alarmed to hear that there's no cleanup
in light of the fact that there are terms used in the
initiative that don't otherwise appear in law in some
cases, or they're extremely vague compared to our very
specific currently written law. So that seems a little
frightening that then they're going to be implemented and
financial impacts will be made as a result of this
initiative. Could you clarify that?
MS. WALLACE: Through the Chair, Senator Giessel, for
the reasons you just described, which is that we may have a
vague term, the reviser cannot make any changes that would
have the impact of changing the meaning of the law.
And so, you know, if Leg. Legal goes in and we replace
one word or phrase with another, in light of the fact that
it might be vague or open to interpretation, that change in
and of itself is a policy change that only the Legislature
can make and that the reviser doesn't have the power to
make because that change of a phrase or a word could have
an impact on the outcome of interpretation of the
initiative.
CHAIR STEVENS: Yes, please, we'll go to Senator
Hoffman, and then go to you, Representative. Senator
Hoffman.
SENATOR HOFFMAN: Thank you, Mr. Chairman. But under
the provisions of the law, you say that this legislation
will be -- initiative will be enacted. So that -- does
that mean that taxes will be collected and the Legislature
can appropriate them?
MS. WALLACE: Through the Chair, Senator Hoffman, yes,
the initiative will be enacted; it will be law. It will be
placed in the Alaska Statutes in some location, like I
said, likely in AS 43.55. If taxes are collected, they
will be subject to appropriation by the Legislature.
And the next topic that I was going to address is
while the reviser won't go in and make any of these
technical corrections, you know, likely for two, three,
maybe four years, the Legislature at any time has the power
to amend the initiative.
Article XI, Section 6 restricts the Legislature from
repealing the initiative for a period of two years, but the
Legislature is able to amend the initiative at any time.
And so if the Legislature feels as though there are vague
terms or that they need to make some technical corrections
to make the initiative better fit in alignment with the
Alaska Statutes, the Legislature could go in and make those
changes.
We have had some litigation in terms of how far the
Legislature can go in their amendments. And in the case of
Warren v. Thomas, the Alaska Supreme Court described that
what they'll do is they'll look to see whether the
Legislature exceeded their broad power by passing an
amendment and whether or not it so vitiates the initiative
as to constitute a repeal. In other words, did the
Legislature make changes so drastic to the initiative
language that it makes a mockery of the initiative?
And so, again, not very clear or specific. It's going
to be a very fact-intensive review in terms of the changes
that the Legislature made and whether or not it goes too
far or whether there are technical changes.
CHAIR STEVENS: Thank you, Megan. Senator Hoffman,
thank you. Representative Johnson. And then, Senator
Begich, did you have a comment or -- no. Okay.
Representative Johnson.
REPRESENTATIVE JOHNSON: Thank you, Mr. Chair. So if
you have in an initiative -- this initiative, say it's
self-contradictory within its own body of the initiative,
then -- and say we were to implement taxes based on that,
our best interpretation, at what point do you just get a
legal opinion saying this is self-contradictory? We just
get to pick which one we want to go with? If you would,
just help me understand how we might be potentially set up
for having to have some kind of litigation if we do do our
very best within what we're given.
MS. WALLACE: Certainly. Through the Chair,
Representative Johnson, so I imagine the process will
evolve. You know, the Department of Revenue and
administration will identify how this is going to be
carried out, and the Legislature can examine that.
And if the Legislature determines that it needs to
clarify or make any changes to the language of the
initiative, that will happen, you know, by bill. And I
suspect that there will be a lot of discussion through the
committee process as to the legislative intent of the
changes, what the purpose of those changes are.
And all of that discussion would be part of the
analysis as to -- you know, likely from Leg. Legal giving
you some kind of our best analysis as to whether or not we
think the amendments are at risk of litigation in terms of
going too far. I suspect that the Department of Law will
weigh in on those amendments potentially, if asked.
And, ultimately, to be frank, there's probably a high
chance of litigation if one -- you know, if the initiative
feels -- the backers of the initiative feel the Legislature
goes too far or some other, you know, citizen.
CHAIR STEVENS: Please, Representative Johnson.
REPRESENTATIVE JOHNSON: Thank you, Mr. Chair. So
walk me through then the process. So we have an enactment,
we have the effective date, and we have uncertainty. We
spend some time, as a Legislature, trying to figure out how
to come to a conclusion on how we would either implement
taxes or we would implement this -- the initiative. What
happens in that intervening time? Do we collect taxes and
then maybe refund them if we come up with some -- I mean,
tell me about some of the different scenarios that we might
have before us that we have to be thinking about as far as
timeline goes as far as coming to certainty on this if we
don't have certainty on the initiative.
MS. WALLACE: Through the Chair, Representative
Johnson, I'm going to punt a little bit since we have the
Department of Revenue here. They can -- they're probably
the best to answer in terms of what happens during that
uncertainty time in terms of collection of taxes,
refunding. That's a little -- that's outside of the scope
of what Leg. Legal would look at.
But those are all certainly going to be policy issues
for the Legislature to grapple with if the initiative takes
effect. And, like I said, because the Legislature has the
broad power to amend the initiative, the Legislature can
make that policy decision and evaluate what, if any,
changes they need to be -- need to be made in light of
whatever results from execution of the initiative.
CHAIR STEVENS: Very good question. Thank you,
Representative. We'll make sure that we direct that to the
department when they are before us. Any further comments?
MS. WALLACE: I'm going to turn it over to Emily to
discuss the substance of the initiative. As a reminder,
our office provides policy-neutral nonpartisan advice. Our
analysis of the initiative is just that, our analysis to
date. And with that, I will turn it over to Emily.
CHAIR STEVENS: Thank you, Ms. Wallace. Appreciate
your comments. And going on then to Emily Nauman.
MS. NAUMAN: Good morning. It's my intention just to
run through the sectional that I provided. I have a few
additional notes and comments in addition to the memo we
provided you. Please stop me if you have any questions
about the substance of the initiative, and I'll answer them
as best as I can.
Section 1 of the initiative sets out the short title
for the initiative. Once it's enacted would be known as
the Fair Share Act.
Section 2 of the initiative states that Sections 3 and
4, which set out these new additional taxes, would apply
only to fields, units, and non-unitized reservoirs on the
North Slope that have both produced more than
40,000 barrels of oil per day in the previous year and that
unit field or non-unitized reservoir has also produced more
than 400 million barrels of oil cumulatively. That section
also states that production taxes -- that all other
production taxes shall be unchanged by the initiative.
One key difference that Section 2 highlights between
the initiative and the current production tax system is
that taxes will be assessed by field. Currently, our tax
structure assesses production taxes by producer.
Our current production tax system has two primary
parts: The first is a net production tax value system.
This is our primary production tax. We also have an
alternative minimum tax based on gross value. The
initiative sets out a similar structure but, again, does it
by field instead of by producer.
So Section 3 sets out the alternative gross minimum
tax. Under Section 3, the fields, units, and non-unitized
reservoirs that meet the requirements of Section 2 would
have a 10 percent tax on the gross value at the point of
production starting at $50.
And technically, the initiative is a little bit -- the
wording is -- it took me a few minutes to do the math, but
at $50, the tax will actually go up to 11 percent. There's
a 1 percent increase for each $5 increase in a barrel of
oil over $50, capped at 15 percent of the gross value
total.
That section also states that no credits,
carry-forward lease expenditures, including operating
losses or other offsets, may be used to reduce the amount
of tax below the amount provided in that section.
And, again, Section 3 is -- or I should say not again.
A unique feature of the initiative is it collects taxes by
month. Our current production tax system while -- or
sorry. Let me rephrase that. The taxes are assessed and
due, levied each month. Our current production tax
collects taxes each month, but the tax is actually due
annually, so there's a true-up at the end of the year. And
I'm sure Department of Revenue can talk more about that
process if you're interested in it.
So already we see two large, what I would think,
differences between our current tax system and the
initiative; one being that we're taxing by field instead of
by producer, and the second that we're levying the tax by
month instead of annually.
Section 4 sets out what is, I imagine, parallel to our
current primary tax structure, which is an annual
production tax based on net production tax value. The
initiative sets out that this is an additional production
tax. It's unclear what it's an additional production tax
to, but I think we can assume that it's an additional
production tax to the rate set out in 40.55.011(e), which
is our primary tax system.
Under the initiative, the additional production tax
applies when the price of a barrel of oil is more than $50,
and it is the difference between $50 and the production tax
value of a barrel of oil multiplied by 15 percent. Again,
this net production tax is levied by month.
Section 4 also states that the per-barrel credits --
that's AS 43.55.024(i) and (j) -- cannot be used against
that production tax.
Section 5 of the initiative states that each producer
subject to the tax shall calculate the taxes -- shall
calculate their taxes separately for oil and gas. The
introduction of the term "gas" in Section 5 could lead to
some confusion in the interpretation of the initiative.
It -- read alone, Section 5 has the potential to imply that
the taxes set out in Sections 3 and 4 also apply to gas. I
don't believe that's the intention of the initiative
sponsor, but it's the first mention of gas in the
initiative and could cause potentially some implementation
issues.
Again, it requires the producers to pay taxes each --
the taxes in the initiative each month and also states that
lease expenditures for each field unit or non-unitized
reservoir must be calculated, deducted, and carried forward
separately.
Section 6 sets out -- or Section 6 is what triggers
the sort of parallel comparison where we're looking at the
tax levy by Section 3 and the tax levy by Section 4,
determining the greater amount and a producer shall pay
under that amount. I think you're going to have to
remember this is by month. So potentially the way that I
understand the initiative, each month the producer could
flip back and forth between the gross tax and the net tax.
Section 7 requires all filing and supporting
information related to the calculation and payment of
Sections 3 and 4 provided to the Department of Revenue to
be a matter of public record.
And Section 8 states that nothing in the initiative
dedicates revenue, makes or repeals an appropriation,
enacts local or special legislation, or otherwise performs
an unconstitutional act. Section 8 also states that the
revenues of the initiative could be used to fund government
services, capital projects, the Permanent Fund, and
Permanent Fund dividends.
Section 9 is a severability clause.
CHAIR STEVENS: Thank you, Emily.
MS. NAUMAN: Any questions?
CHAIR STEVENS: Questions? Senator Stedman.
SENATOR STEDMAN: Thank you, Mr. Chairman. I don't
know if this is a proper time to ask it or if it's to
Revenue, but this is the first time I've taken a look at
the language. I'm understanding that the current structure
we have is either-or, either a gross tax or at some point
in time you default into the net tax. This appears to be a
calculated gross tax and then a layered net tax north of
$75; is that correct? So it's not either-or, it's in
addition to?
MS. NAUMAN: Through the Chair to Senator Stedman, I
can't speak to the dollar amounts at which the tax would be
triggered. I just don't have enough information to answer
that question.
But I would say for the field -- and remember, the
producers are still going to be paying an annually levied
tax, potentially the current gross minimum tax on top of
that for a particular field monthly. They may be paying
this alternative gross minimum tax for the field or what
appears to me to be the net production tax additional
amount provided by the initiative layered on top of the
annual production tax currently in law under 43.55.011(e).
Does that answer your question?
SENATOR STEDMAN: It starts to. We've got a lot of
work to do to sort this out. And another concern I have or
just looking back in history, we've had a lot of discussion
on the integration between oil and gas and potential
impacts, you know, when we get a big gas sale, when that
comes and how that cost of gas is impacting our oil revenue
positive or negatively.
But it appears that this connects directly the gas
tax; is that correct? Would be with the mentioning of it,
that it would come under the same tax scenario, or if not,
do they have to be separated, and how would they -- how
would you separate them?
MS. NAUMAN: Through the Chair to Senator Stedman, the
initiative appears to require producers that will be paying
taxes under the structure set out in the initiative, in
other words, producers who produce oil from fields, units,
or non-unitized reservoirs that meet the requirements set
out in Section 2 to file taxes where they do separate oil
and gas under Section 5 of the initiative. I think that
those -- the provisions of the initiative will require
substantial regulations for the Department of Revenue to
sort out how those producers will file and how they'll
separate their lease expenditures.
CHAIR STEVENS: Senator Stedman.
SENATOR STEDMAN: Thank you, Mr. Chairman. Just
something I think we need to delve into a little bit,
because, as I recall, we had significant difficulty
allocating operating and capital expenditures to oil and/or
gas when they both come out of the same hole in the ground
at the same time. So I have no idea, other than we've had
numerous meetings at Resources over the years and this
table on that subject. And it gets extremely confusing,
and so I look forward to that conversation and
clarification.
CHAIR STEVENS: Thank you, Senator Stedman. Senator
von Imhof.
SENATOR VON IMHOF: Thank you. So Senator Stedman did
sort of allude to the fact that there seems to be many
layers of taxes on top of each other. So I'm only going to
just kind of briefly discuss one layer that's alarming, the
alternative gross minimum tax.
So right now it's about 4 percent. And how I read
this is it's going to jump to 10 percent with a potential
max up to 15 percent with also at higher prices. So we're
looking at quadrupling, almost quadrupling the current
taxes that we have now, particularly in an area where it's
the lower price per barrel, where it's very slim margins at
that point. And, you know, the companies aren't making all
that much revenue and need that to make payroll to continue
with operations even in some of the rigs.
And I kind of look at it like with every tax that we
have, there is a corresponding behavior. And you see that
with the argument with sin taxes. When you have taxes on
alcohol or cigarettes, why do you do that? Well, to raise
prices enough to potentially curtail behavior.
What kind of behavior are we trying to curtail with
this bill? Like let's just have no production on the North
Slope, just make everything idle underneath $50. Oh, by
the way, I think prices are at about $53. So I just look
at this and see this as very alarming, and we're
essentially just wanting to drive the oil companies into
the ground and make them shut down.
CHAIR STEVENS: Thank you, Senator von Imhof.
Senator Coghill.
SENATOR COGHILL: Thank you. For when it's my turn to
explain the initiative to some of the folks back home, it
looks to me like what you brought out is, in Section 2 and
3 we are taxing fields and in 5 and 6 we're taxing
producers. And I know there's different layers. But so in
the field -- we have several producers we might have, for
example, in a field. How do I explain that dynamic to the
person who signed the initiative and said, "We're going to
tax the oil companies, but we're really talking about
fields"? How does that distinguish from 5 and 6?
MS. NAUMAN: Through the Chair to Senator Coghill, I
apologize for the confusion. The initiative -- the entire
initiative taxes producers, but the tax is actually on the
field, so that applies to Sections 3, 4, 5 for the entire
initiative.
CHAIR STEVENS: Would you say that again and only a
little bit slower?
MS. NAUMAN: The initiative in its entirety assesses
taxes by field. So Sections 3, 4, 5, and 6, they all
assess taxes by field. Our current production tax system
assesses taxes by producer. So at a very general level,
producers pool together all of their income from across the
state or for specific purposes by region -- sometimes we
separate out areas like the Cook Inlet -- and then they
take all their lease expenditures for the state, you know,
with some particular area set out, and combine those
together, and the producer then pays taxes on that revenue
from -- for -- I have to say with exceptions for the state
for the year.
Producers will still be doing that for areas that are
not -- what I presume are areas not covered by the
initiative. But these fields that are covered by the
initiatives, producers will be paying taxes by field, so
for income and costs related to that field each month.
SENATOR COGHILL: Mr. Chairman, if I could just
clarify that?
CHAIR STEVENS: Yes, please, Senator Coghill.
SENATOR COGHILL: It looks to me like in the
initiative the fields are fairly narrowly defined. They're
a certain minimum production and maximum production, right?
And so those are, I think, Prudhoe, Kuparuk, and one other
field. So I think isn't that true that this just targets a
couple of major producing fields based on the numbers of
the excess of 40,000 or in excess of 400,000 for the total
cumulative? There can only be two or three fields on the
North Slope, right?
MS. NAUMAN: Through the Chair to Senator Coghill,
from reading the information provided by the initiative
sponsor, that's my understanding of their intent.
I have a couple of comments. The initiative uses the
terms "fields, unit, and non-unitized reservoir," which are
terms that are not currently defined in the production
taxes statutes. So although they might seem to be fairly
understandable concepts, there's quite a bit of room for
interpretation, especially in the term "field." We have a
definition of "field" elsewhere in statute in the Alaska
Oil and Gas Conservation Commission laws. I would not want
to rely on that definition to assess taxes personally. The
Department of Revenue might feel differently.
"Unit" is defined elsewhere in statute, again, in the
Oil and Gas Conservation Commission statutes, but I
believe -- and this is from a practical perspective, not
from -- or sorry, from a legal perspective, not from a
practical perspective -- it's possible that there could be
multiple fields within a unit or multiple units within a
field, which means that it would be very difficult to
assess or to know certainly what exact piece of land would
be subject -- where the ring-fence would be around the
object that is subject to the taxation.
SENATOR COGHILL: Thank you, Mr. Chairman. That's as
clear as mud to me, but it just shows kind of the
complexity of the issue. First, for me from reading it, it
looked to me like we were talking about fields in one
section and producers in another. And it seems like
we're -- whoever is producing is going to get a tax; it's
just how. And so I'll start from there. Thank you.
CHAIR STEVENS: Thank you, Senator Coghill.
Any further explanation before we go on? Okay. Thank
you; Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chairman.
A couple of clarifying points: When I was reading
Section 5, I had a different interpretation than you, and
I'm just wondering if my interpretation carries water at
all, not to bring water into an oil and gas field.
But when I read the section, it says, "For each
producer, the taxes set forth in Section 3 and 4, which are
explicitly oil, shall be calculated separately for the
following: for oil and for gas."
Isn't that just a way of identifying that they -- that
the intent of the writer of the initiative is to be clear
that it's for oil that you're calculating and not trying to
confuse it by -- I mean, isn't that one interpretation,
that they're trying to separate the two out and ensure that
the producers are accounting for it separately?
MS. NAUMAN: Through the Chair to Senator Begich, I
agree that your interpretation is both probably the most
reasonable and, based on my reading of the initiative
sponsors, is probably what was intended. You could read it
also, breaking it out, the taxes set forth in Sections 3
and 4 shall be applied separately to gas.
SENATOR BEGICH: Sure.
MS. NAUMAN: And that was where I read the ambiguity
into the --
CHAIR STEVENS: Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chair. The follow-up
then to that is, earlier we heard from the Department of
Law that intent matters, what we say here at the table
would be indicative of our intent in terms of alternative
legislation or anything like that.
Wouldn't it also apply that the intent that you've
spoken to from the writers of the initiative would apply
here or would at least have the weight of law behind the
interpretation as opposed to an alternative interpretation?
MS. NAUMAN: Through the Chair to Senator Begich,
Megan and I had many discussions in preparation for this
meeting. We kind of divided up the tasks, and I think
Megan is ready to answer the question.
MS. WALLACE: For the record, Megan Wallace, Director
of Legal Services.
Through the Chair, Senator Begich, you're correct,
when the -- if this results in litigation and the court is
trying to assess a proper interpretation of this language,
it's likely going to trigger some constitutional issues. I
mean, initiatives are a creature of the Constitution, and
so the Supreme Court will look, you know, at their past
precedent, but they also will give weight to the intent of
the initiative, and they will try to give deference to that
intent. And I suspect that, you know, they'll be -- you
know, litigation is two sided. So -- likely the initiative
sponsors will explain what their intent was, and it might
be countered, you know, by the opposition.
SENATOR BEGICH: And one last --
CHAIR STEVENS: Oh, yes, Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chairman. I don't
think anybody doubts there isn't going to be litigation, so
that's, you know, one way or the other. But the -- when I
look at the initiative and sort of the intent behind it and
the way it's crafted -- and I have read comments that were
forwarded to the committee or to the council by the sponsor
that were forwarded on to all of us -- it seemed pretty
clear that the idea was to narrowly construe it to legacy
fields and that there's -- that there isn't a doubt about
that, and yet I'm hearing doubt at the table now. So which
is it? Was it -- was -- the comments from the sponsor, are
they not clear that this is meant to be focused on the
legacy fields? It seems pretty clear to me from both the
writing of the initiative and from the letters that were
provided to this council.
MS. WALLACE: Through the Chair, Senator Begich, our
purpose here at the table is to just flag issues that we
spot. And as you noted, this might be a contested issue,
and we certainly don't -- aren't going to weigh in on what
a court is likely to conclude with respect to any
disagreements. So I think what Emily did was just flag a
potential argument as to maybe some ambiguity but not
express any opinion as to whether -- what side would
prevail if that were contested.
SENATOR BEGICH: I'm not asking that.
CHAIR STEVENS: Senator Begich, please continue.
SENATOR BEGICH: Thank you. I'm not asking to opine
on which side would prevail. What I'm asking is, is the
initiative narrowly construed or not? You know, I mean,
I'm simply asking based on what you've read, is the
initiative narrowly construed to legacy fields or not?
MS. NAUMAN: Through the Chair to Senator Begich, in
my effort to be as policy-neutral as possible, I really
tried to focus on the language of the initiative. To the
extent that I looked at the interpretation of the
initiative by the sponsor, I tried to keep my exposure to
that fairly minimal. I understand that's a factor that a
court and likely Department of Revenue will consider, that
they would speak to that when they're adopting regulations.
My task, as your legislative attorney, is to look at
the law that's in front of me and determine what it means.
I think that the interpretation that you have offered as
the explanation from the sponsor is probably the most
reasonable and likely interpretation, but reading it just
purely from a sterile context, I think that both
interpretations are possible.
SENATOR BEGICH: Fair enough. Thank you.
CHAIR STEVENS: Very interesting question. I thank
you for clarifying that, and we do appreciate the position
this puts you in. Senator Stedman.
SENATOR STEDMAN: Thank you, Mr. Chairman. Again,
this is the very first hearing of this completely very
complex subject matter. But under the current structure,
if we have a major gas sale, we have significant exposure
to field allowances, potentially eliminating our revenue
stream, and the concern is to have net zero. And that's
not a wacky thing to throw on the table, it's just a
mathematical potential exposure, very potential exposure we
have that I'm sure the Revenue and DNR are concerned about
also. So does this bill impact the field allowance
exposure that we may face in any way that appears
currently?
MS. NAUMAN: Through the Chair to Senator Stedman, I
don't know the answer to that question. I would happy to
be -- happy to look into it a little bit more. Perhaps the
Department of Revenue could provide some analysis on that.
I can't provide any comment.
CHAIR STEVENS: Thank you, Senator Stedman.
SENATOR STEDMAN: As a follow-up, Mr. Chairman, I
think that could come in the future with different folks.
And maybe they take -- it will take some time to sort
through this and figure it out, but it's an issue that's
very seldom talked about that has a huge financial impact
on the state potentially, and we need to understand it at
the table also.
CHAIR STEVENS: Thank you. Yes, Representative
Johnson.
REPRESENTATIVE JOHNSON: Just one last thing: Are
there any rules on what we can and cannot share with
constituents as we go forward about the initiative? I
mean, could we have a town hall and explain to them what we
don't know, do know? I just would like you to clarify
that.
MS. WALLACE: Through the Chair, Representative
Johnson, I don't want to give bad advice on the record in
committee, but I would be happy to provide some analysis to
the committee if you wish.
CHAIR STEVENS: Thank you, Megan. Further comments?
Senator Begich.
SENATOR BEGICH: Just as a member of the Ethics
Committee, it might be a question for the Ethics Committee,
I think. John might agree with that.
CHAIR STEVENS: Everything has to be answered by
Ethics. Yes, Senator Coghill.
SENATOR COGHILL: Just a structural question: You
know, our tax system is complex already as it is. Does
this narrow it enough to create a situation where if we did
this, would we be in a danger of a specialized tax on a
particular field that would create the similarly situated
tension amongst other fields, where you might treat one
field so disparately different than the other and create a
backlash for us?
MS. NAUMAN: Through the Chair to Senator Coghill, I
have two comments: The first is, my understanding of your
question is that you are hypothetically thinking about
creating legislation to meet that substantially similar
task; is that correct?
SENATOR COGHILL: Maybe I should --
CHAIR STEVENS: Senator Coghill.
SENATOR COGHILL: If we are contemplating this law as
it is, would we be in danger of taxing one group so much
more than another group that we would be in danger of
having a situation where we're taxing one group so
differently than another group that we would be in danger
of failing what normally the courts would call similarly
situated situations?
I remember once when we did a tax to fishing people
that were from out of state, we got our hand slapped really
hard on that, and we ended up having to pay back some
significant money. And I just wondered if this wanders
into that question.
MS. NAUMAN: Through the Chair to Senator Coghill, you
are alluding to an equal protection analysis under the
Alaska and United States Constitutions. Any time that we
treat similarly situated individuals or persons differently
as the government, we do trigger potential equal protection
challenge.
Equal protection analysis is a sliding scale based on
the factor by which the differential treatment is based.
This would be an economic factor; in other words, the
behavior that is differentiating the individual is being
assessed different tax rates is an economic one. That's a
very low bar. That said, the court will still look at the
reasons, the purpose, and the means used to accomplish that
differential treatment in the equal protection analysis.
I think another potential smaller issue to add onto
that is the producers that will be subject to this tax
might also have much more complex production tax filings
that could be an administrative burden as well.
SENATOR COGHILL: Thank you, Mr. Chairman.
CHAIR STEVENS: Thank you, Senator Coghill. Further
questions or comments? Senator Stedman.
SENATOR STEDMAN: I hate to keep bringing these little
things up, but every year we get the Revenue Sourcebook,
Mr. Chairman, and it's a consolidation of multiple
companies' monthly reporting to the agencies. And they
boil it down to one view, the entire year for us there in
the Legislature.
So would this initiative then potentially change that,
where we would be having monthly data produced from all the
fields and then consolidated to us in a monthly format
or -- and still an annual number?
It just -- it seems like -- I guess for those watching
at home, it's difficult to sit here at the table when you
have -- say you have four major companies or three major
companies. They all have different cost structures. They
all report monthly, and we get a consolidated number at the
end of the year and have to set policy. And we might
favor -- one might win, one might lose, and one of the
companies might be in the middle and noncommittal. It
makes it difficult. So are we compounding that challenge,
or are we -- probably a better question for Revenue,
Mr. Chairman.
MS. NAUMAN: Through the Chair to Senator Stedman,
that is -- you're right, it's a better question for
Revenue.
Something else that you might be interested in
knowing, if you're able to ask the Department of Revenue,
is how they would intend to audit the now monthly tax due
rather than having one year of data and one year to audit.
It seems possible they might have to perform audits each
month.
CHAIR STEVENS: Thank you, Emily, for those comments.
Further questions or comments from members of the Leg.
Council? Well, that was a fascinating discussion. I
appreciate the time you've spent with us and very thorough.
So let's go on then to our next. We have then Deputy
Commissioner Mike Barnhill and Tax Division Director
Colleen Glover, and I understand that Cori Mills will be
joining them.
Just a comment, Deputy Commissioner. You have two
former Revenue commissioners hovering over your back.
We're pleased to see Mr. Corbus and Mr. Alper here in the
audience.
MR. BARNHILL: Thank you, Mr. Chair. I am aware of
many people hovering over my shoulder today, but thank you
for inviting us.
We're going to focus our comments today primarily on
the process of implementing the initiative. Because of the
sensitivities regarding the pending litigation over the
meaning of the initiative, we're going to try as hard as we
can to avoid answering many of the questions that were
posed in the last presentation, but we do think there's
ways of getting information to the Legislature in the form
of scenarios that are presented outside the context of the
initiative.
So, for instance, if the finance committees wanted
information on what would happen if the minimum gross tax
was changed in some way, those are scenarios that we can
present information on through our economics research
group.
So with that, I'm going to turn it over to Ms. Glover,
and she's going to talk about implementation process.
CHAIR STEVENS: Thank you, Mr. Barnhill. That was
indeed brief.
MS. GLOVER: Good morning, committee. Colleen Glover,
for the record, Tax Director, Department of Revenue. So
I'll just walk through the process of what the department
will do in order to implement this initiative if it's
enacted.
As you've heard earlier that the initiative becomes
effective 90 days after certification, then -- and we would
then be -- have to have our system available for a taxpayer
for the next monthly return that would be filed after that
90-day process.
So currently our system -- our tax revenue management
system kind of has two aspects: There's kind of the
internal system that does all the programming and the
calculations of the taxes, and then there's a customer user
interface, which we call Revenue Online, and this is for
all our tax types.
And so the system would need to be updated for our
customers/taxpayers to be able to file their monthly
returns, as well as the back-end programming to do the
calculations. That all would need to be done within 90
days of enactment of this initiative. Our estimate for
cost is $7.5 million to do this. Most of the work is
programming. We expect a significant workload to be able
to program these changes within 90 days. That is a big
lift to do in 90 days.
Then as far as the regulation process, we will begin
working on those. The timeline you heard. It can be
anywhere from six months to a year, depending on the
complexity of the regulations. You heard Ms. Mills talk
about kind of the minimum timeline. It is our experience
for any kind of major oil and gas tax changes in the past,
that that would be several months up to a year to do a
thorough public notice process, public workshops, and
scoping.
There's -- we expect that within the 90 days we will
have programming complete, but we expect there will be
changes after that. We don't expect it's going to be
exactly perfect after 90 days and whether the regulations
are finalized or not at that time. So we expect to be in
kind of this transitional period where we will be testing,
reprogramming, testing, reprogramming until we get
everything completely done and tested in time for the final
changes.
And that -- unless there's questions on that, we --
CHAIR STEVENS: Ms. Glover, thank you. Senator
Begich.
SENATOR BEGICH: Just to clarify and question. You
said it would be difficult to do monthly tax collection,
but didn't we collect taxes monthly under the old ACES
regime from the oil industry?
MS. GLOVER: Senator Begich, through the Chair, I
didn't mean, if I said that, it would be difficult to do
monthly tax collections. We do monthly tax returns now.
There's a monthly return that's filed monthly now by
taxpayers. It's an estimated tax we do collect monthly,
but the return is an annual return currently. But there is
a monthly filing, or it's called a return in our system.
SENATOR BEGICH: Thank you. Thank you, Mr. Chairman.
CHAIR STEVENS: Thank you, Senator. Further questions
or comments, concerns or thoughts? We're going to let you
off awful easy it looks like. And you have your attorney
with you, so what can we ask?
Senator Coghill.
SENATOR COGHILL: Maybe I'll drill a little deeper
into that. Collecting monthly is one thing, but would it
be contemplated, as was proposed earlier, that there would
be audit provisions done following that collection process?
MS. GLOVER: Senator Coghill, through the Chair, the
audit -- in statute right now we have a six-year statute of
limitations for auditing returns.
SENATOR COGHILL: So at this point, it looks like that
wouldn't change that unless there was a regulatory need to.
So, you know, we're struggling with how do we deal with
fields and producers, which is a new concept in law. And
so you would have to then begin to look at producers within
whatever field you could define, right? So you would have
to probably start thinking about fields as a taxpayer now
differently than you do. And so is that something you
would leave up to regulation, or would you start
immediately looking at auditing those with that
contemplation in mind?
MS. GLOVER: Senator Coghill, through the Chair, the
audits typically happen much later in the process. Right
now we are auditing the 2014 tax year, so those are much
later in the process. And as far as interpretation and
policy calls, those have not yet been decided. And so if
this initiative is enacted, we would work with Department
of Law on those.
SENATOR COGHILL: Thank you.
CHAIR STEVENS: Thank you, Senator. And to Senator
von Imhof and then Senator Stedman.
SENATOR VON IMHOF: Thank you. So I'm looking at
Section 7, public records. So all filings and supporting
information provided by each producer to the department
relating to the calculation of payment of the taxes shall
be a matter of public record.
So all filings and supporting information, that might
be their daily revenue log, all the money that came in for
that particular month by whom, what their expenses were, so
essentially opening their books and their checkbook and
making it a public record. Do you know of -- any other
corporation that pays taxes to Alaska now, is their
checkbook public?
MS. GLOVER: Senator von Imhof, through the Chair,
currently under statute all taxpayers and all taxes under
43 -- Chapter 43 are confidential.
SENATOR VON IMHOF: So we are carving out an industry
and making their particular books, no one else, but their
particular books public to the state, the country, the
world?
MS. MILLS: Cori Mills again, for the record. Senator
von Imhof, through the Chair, I don't want to comment on
exactly how broad or narrow this would be for the reasons
we talked about before, but this does -- would change those
confidentiality provisions for the specific tax enacted in
this law.
CHAIR STEVENS: Senator von Imhof.
SENATOR VON IMHOF: So I just have to comment on the
fairness of that, the -- how businesses can operate
competitively with that, how we are highlighting a
particular business over others and just the punitive
nature of that on so many levels. And I just -- I find it
despicable that we would treat a particular company or any
number of companies like that.
CHAIR STEVENS: Thank you, Senator von Imhof. Senator
Stedman.
SENATOR STEDMAN: Thank you, Mr. Chairman. My
co-chair corked me on the question I was going to ask about
the filings. But let me couch it a different way. They
use the word "all," "all filings and supporting
information." And we've had, over the years, numerous
presentations on the inability that Alaska has of accessing
information in our oil basin. Virtually every consultant
that we've hired has brought that to our attention. That's
just the way we've been structured and we struggle along
with and always comment about the lack of information.
My understanding is Norway, they have a very open
process in the North Sea and compared -- so it's very easy
to see the cost and revenue of the industry.
But where is the boundary between the industry norms
worldwide for public -- or for us to have access to
information and the word "all filings and supporting
information"? I'm just not so sure that where that line
is, and it's something I think we need to clarify clearly.
There's a need, in my opinion, for us to have more
information. But what is the definition of "more," where
we don't breach -- like Senator von Imhof mentioned, have
the information to the point where it's egregious and puts
the corporations in a position where they have -- you know,
lose maybe some competitive advantage against their
competitors? So I think we need to explore that on a more
of a comparative basis. "All" is rather an inclusive term.
CHAIR STEVENS: Thank you. We'll begin with Senator
Stutes and -- I'm sorry, Stutes and Senator Begich, and
then we'll get the rest of you. Please go ahead,
Representative Stutes.
VICE-CHAIR STUTES: Thank you, Mr. Chair. I'm curious
on this "all filings and supporting information." Is that
required for other resource revenue that this state
receives from any of the other producers of other
resources?
MS. GLOVER: Vice-Chair Stutes, as I can only speak to
tax revenues, if you have questions on royalty revenues,
that would be a question for DNR. But there is no
requirement in -- for other taxes under Chapter 43. The
only -- there are some limitations on data that we can
aggregate and give, but we do not release taxpayer
confidential information for any taxes.
VICE-CHAIR STUTES: Thank you.
CHAIR STEVENS: Thank you. So if I have this right,
we have -- Senator Begich wishes to speak, Representative
Johnston, Representative Johnson. Anyone else? Okay.
Senator Begich.
SENATOR BEGICH: Thank you, Mr. Chairman. Just on
echoing comments from the co-chairs of Finance but maybe
from a different angle. It's my understanding from
presentations that I've had from the Legislature's oil and
gas experts that -- supporting what you just said, Senator
Stedman -- that other jurisdictions do require substantial
transparency, and the issue is where the line is probably
where we're going to.
But isn't it true some of our own taxpayers report on
Alaska through other transparency agreements that they have
with -- for example, British Petroleum, when it comes to
reporting to the International Association, because they
have signed on to that, they have to report their profits,
and they have to report their expenses within
jurisdictions. I mean, that's true, right, currently?
MS. GLOVER: Senator Begich, through the Chair,
it's -- I can't really speak to what taxpayers'
requirements are for reporting, like SEC filings. But if
they do report information publicly, that doesn't then give
us the authority for us to report that information. So
regardless of whether a taxpayer reports it themselves in
the public domain, we cannot provide that.
SENATOR BEGICH: Right. I think it's just getting to
my point of the balance of what transparency ought to be
allowed. For example, can -- do we know what the -- for
Exxon or for BP what the profits or expenses were here in
Alaska?
MS. GLOVER: Senator Begich, through the Chair, I
don't have that information. I think you should ask those
taxpayers that information.
SENATOR BEGICH: All right. And that's my point I
think is that there's a balance that has to be struck here,
Mr. Chairman, at some point. And I think supporting what
you're saying, Co-Chair Stedman, and the reasonableness
argument that Senator -- Co-Chair von Imhof brought up is
what is the balance between the level of information? And
part of our responsibility I think would be to define that,
were this initiative to pass would be to define that, or if
it were to be replaced, to ensure that we speak to that
transparency issue one way or the other. But clearly we
don't know the answer to those questions, and I think that
hampers our ability at the -- at our table to identify how
we address budgets.
CHAIR STEVENS: Thank you, Senator Begich.
Mr. Barnhill, did you have a response?
MR. BARNHILL: Mr. Chair, I think one of the
difficulties we, the Department of Revenue, have in
participating in the conversation at the table as presented
is there's a very specific statute that says that state
funds, in the context of an initiative, can only be used
for nonpartisan education. And so that's -- that is the
posture in which we sit before you. The various comments
at the table are phrased in terms of advocacy, and we
really do not want to participate in advocacy on either
side.
In that spirit, there are important issues of tax
policy regarding transparency of how we administer
statutes, and I think we can bring back a presentation
outside the context of the initiative on what those tax
policy considerations are and what practices are within the
state of Alaska and outside the state of Alaska.
But when we have advocacy going on at the table over
specific provisions in this initiative, that's a
conversation we'd rather refrain from actively
participating in.
CHAIR STEVENS: I understand that, and I understand
you will certainly be asked those questions later. I will
allow Senator Begich to continue questioning, and then
we'll go down to Johnston, Johnson, and Senator Stedman.
SENATOR BEGICH: I just want to take exception to the
comments that were just made by Mr. Barnhill that there's
advocacy going on at this table. What I'm hearing in
people who are questioning issues around an initiative, no
one here has spoken either in favor or against this
initiative. And I think that, at the very least, the
conversations at this table should not be categorized in
that manner by somebody who's sitting there because I think
that's unfortunate.
CHAIR STEVENS: Thank you, Senator Begich. So a
lesson for all of us to consider. Moving on to
Representative Johnston.
REPRESENTATIVE JOHNSTON: Yes, thank you, Senator
Stevens. Just a follow-up to Senator Stedman's comments
about the Norwegian transparency. I think that we might
find that Statoil, which is owned partially by the
Norwegian government but is traded, is -- has less
restriction on what they disclose and what they don't
disclose than their Norwegian oil company, which is
majority owned by the Norwegian government, than they had
more transparency. So it's not quite as clear as sometimes
it's presented as. A follow-up question?
CHAIR STEVENS: Yes, please, Representative Johnston.
REPRESENTATIVE JOHNSTON: I -- the definition of the
fields to be taxed, I'm trying to think of a scenario where
those fields become more fluid than they would be today by
definition, because you have a minimum amount that needs to
be produced and then you have the amount that has been
produced. And it's the minimum is where I could have
concerns, whereas if this tax is implemented, the efforts
to draw oil from the field would be less economically
feasible, and so those fields could be -- drop out of the
taxation and could happen rather quickly.
And on the other hand, you could have fields in other
units that maybe came on faster, and what kind of oversight
would that require? I'm back to Senator Coghill's idea as
far as auditing. Even though it's a yearly audit, we're
now talking monthly and by the field and if this was far
more fluid than we can see right now.
MS. GLOVER: Representative Johnston, through the
Chair, in the initiative it does have those thresholds of
the 40,000 barrels per day in the preceding year and then
the 400 million cumulative. So it's possible that there
are fields that could be -- qualify today and won't in the
future or that don't qualify today that could in the
future, including new fields, however that becomes defined.
As far as the defining or tracking or a reporting, those
are policy calls that have not been made yet.
REPRESENTATIVE JOHNSTON: Thank you.
CHAIR STEVENS: Thank you very much, Representative
Johnston. We'll move on to Representative Johnson,
Stedman, and then Coghill.
SENATOR STEDMAN: Thank you, Mr. Chairman. Just
briefly.
CHAIR STEVENS: Representative Johnson first.
SENATOR STEDMAN: Oh, excuse me.
REPRESENTATIVE JOHNSON: Thank you, Mr. Chair. So, I
mean, I recognize and acknowledge the sensitive position
that you are in in this situation, and I appreciate that.
And as you can imagine, all of us sitting at the table are
in a bit of a sensitive position as well because we need to
figure out exactly how much this is going to cost us as we
move forward. We're planning to be done, and really you
are the Department of Revenue's key to helping us
understand what those numbers are. And while you can't be
specific, I mean, we're all trying to get to the same
conclusion I -- or the same sense of what's happening I
think.
I, too, have some concerns about the confidentiality,
and I'd like to think that that's not a partisan issue,
that's a business issue. But if you would -- and I'm
trying to put this in a more general sense. If you could
walk me through the scenario of a ring-fenced field, where
you have tax, as if it was this initiative, how would you
see the administration -- not your administration, but the
administration of those fields by the companies, how are
they going to share the cost as a -- I mean, obviously,
there's administrative costs that they wouldn't necessarily
say that's attributed to that field, but if you start
ring-fencing it and you're going to now get down into those
kind of details, we're going to see things attributed to
fields in a way that they've never had to account for,
we've never had to account for. And how hard and expensive
is it going to be for the Department of Revenue really to
sort that out and say, okay, are you -- if you were to
audit something according to a field specifically, are you
going to be able to tell if the administrative costs are
being attributed to a field for tax purposes would be --
how are you going to know one way or the other?
I guess what I'm trying to figure out is from a
revenue perspective, not necessarily specific to this,
trying to be specific as much -- you know, not as specific
to the initiative so much, but what kind of difficulty?
How hard is it? How much expense will it be to your
department to really try to implement something where you
identify fields and sort out of those pieces that we -- in
some ways we don't even know exactly what's coming?
MR. BARNHILL: Through the Chair, Representative
Johnson, so there's a certain level of complexity to
Alaska's oil and gas production tax that's sort of imbedded
in the way we've decided to tax this particular industry.
There's a complexity that will be imbedded in any change to
that law.
Our best estimate at this time is what we've said in
our financial cost statement, that it's going to take
$5 million to program our tax revenue management system,
it's going to take $2.5 million in staff time. We don't
want to comment on how comparatively hard it is with
respect to current law because we're trying to manage that
line between advocacy and nonpartisan.
But it will impose a burden, which we're currently
calculating to be $7.5 million. And it will impose a time
burden in terms of implementation, you know, at least three
months to reprogram the system, several months to a year to
completely implement regulations.
CHAIR STEVENS: Representative Johnson, comments?
REPRESENTATIVE JOHNSON: May I --
CHAIR STEVENS: Please.
REPRESENTATIVE JOHNSON: -- follow up? Thank you,
Mr. Chair.
So how do you see yourself being able to really audit
and figure out how much is being attributed to each field?
I saw your numbers in here, and I appreciate that. And
then there's probably things imbedded in there that I
didn't pick up. I'm sure there probably is. But beyond
just -- well, I mean, there's the numbers, there's
reprogramming by month, and so on and so forth. But
there's a bigger piece to this of trying to figure out what
can you really attribute to a field and what you aren't
going to be able to attribute to a field. I mean, those
are going to be some -- I mean, there's policy issues you
guys are going to have to figure out within this, and I'm
just wondering if you're -- you know, if you have any
comments on that?
MR. BARNHILL: Through the Chair, Representative
Johnson, I have no further comments in that we've taken our
best guess at what the burdens are going to be in terms of
cost and staff time, but with respect to the specifics of
how we do the auditing, I believe our estimate is fair.
Ms. Glover, do you want to --
MS. GLOVER: Rep Johnson, through the Chair, so for
audits, currently we have things by unit. We do get
information for the major units, and obviously there's
different working interest owners for different units. So
there is a mechanism that information is shared and
cross-checked between different taxpayers at a unit level.
So that is something within our current audit practices.
CHAIR STEVENS: Thank you, Representative Johnson.
And thank you for your response as well. Just a reminder
that the purpose of this meeting is really an overview of
the initiative before us, not really intended to get into
the details or the merits of the initiative. Senator
Stedman and then Senator Coghill.
SENATOR STEDMAN: Thank you, Mr. Chairman. Let me, if
I could -- I'll try to make it brief, just digress to
Senator Begich's earlier question/concern. When we're
dealing with the public records, we have struggled with the
issue of Conoco's corporate reporting disclosing Alaska,
which is nice. BP's information we don't have access to.
We have to get it out of an international document. Exxon,
of course, is a different one.
And then when we go down and look down the end of the
table and we see revenue -- Department of Revenue and
Department of Natural Resources, you've got to be careful
which department you're asking the question to because some
questions cannot be answered by the Department of Revenue,
but they can be answered by the Department of Natural
Resources. And until you're around the table a while, it's
hard to pick that up. So it's very difficult for the
layman, as mentioned earlier by the speaker, that come to
these tables like we all do, and try to sort this out from
a public policy perspective. It's difficult.
So with that, Mr. Chairman, I would like to ask, as we
go forward, that we try to clarify some of these things
over the next month or so, including this "all filings." I
mean, it's kind of an inclusive term, but there is an issue
here that is of concern.
CHAIR STEVENS: Very good point. Thank you, Senator
Stedman. Senator Coghill.
SENATOR COGHILL: Maybe I should just stop where
Senator Stedman came in because the "all filing," you're
going to have a gross and a net and a producer and a field.
And so there's going to be different ways that they're
going to have to be categorized, I suppose.
This is -- as you were saying, this is just a new
category that you're going to have to try to figure out how
to implement. Is that what we understand? Plus, there's a
switching. You can switch between. And so those are
things I think -- when I want to explain it to people that
I have to talk to back home, I need to understand that it's
a new type of filing, and it could be gross tax or a net
tax. And if the producer is in one field and not another,
do they then have to report the same thing, and is their
taxes then going to be open different than, say, a
competitor? And those are things we need to be able to say
to our constituents, how this system works and how you
might contemplate calculating that.
MS. GLOVER: For the record, Senator Coghill, through
the Chair, I can talk to kind of simplistically about how
the taxes today -- I mean, currently there is -- the tax is
a net profits tax, the production tax. The gross minimum
floor is a tax floor. So information that taxpayers file
today, the system will calculate both to figure out which
tax is owed. So that is true today.
And currently for the North Slope, all oil is in one
tax segment, and so that information gets aggregated for
the taxpayer for all of the North Slope oil. That is how
it is today. As far as how this would work in the
initiative, those are still interpretive issues that are
policy calls, interpretations that we have not made at this
point in time.
SENATOR COGHILL: I just need to be able to say that
to people. There are some things that we do now that are
complex, as you have said, but there are new complexities
coming in this particular regard. I just need to be able
to say that out loud, Mr. Chairman. That's all. Thank
you.
CHAIR STEVENS: Thank you, Senator Coghill. Senator
von Imhof.
SENATOR VON IMHOF: Thank you. So in the past, your
department has testified here in the committee and talked
about the backlog of audits that we've had in the past, and
I think at one point it was about six years.
And then I think you testified recently that you're
absolutely getting caught up, and, you know, the millions
of dollars that we're sort of leaving on the table is now
being deposited into the CBR and other accounts, so this is
great news.
But I'm wondering if we're going to be doing a
backslide, because with this is new system of monthly
returns and that they're new via fields or even production
sites and not necessarily producers, how many more tax
returns and audits will the department be doing on a
monthly, quarterly, annual basis? And what kind of staff
are you going to need and annual resources do you think you
might need? You mentioned earlier 5 million to in 90 days
hopefully change the software, but I would imagine there's
going to be significant ongoing costs as well. Can you
comment on that?
MS. GLOVER: So, Senator von Imhof, through the Chair,
we don't expect there to be additional resources needed
for -- you know, for the future for this. The $7.5 million
estimate is for the next -- would be for the time period up
to about a year after, if the initiative was enacted, to
actually do a lot of the work and upfront planning.
We do, though, expect that that workload for our
current oil and gas production tax audit team would be
impacted if this initiative were enacted. We would need
them to help. It's a lot of testing for the system, help
with the regulations process. So we do expect that, based
on past practices when other oil and gas taxes were passed,
that the resources would then focus on the enactment of any
new tax law. That is partially what has kind of got us in
this backlog today was from prior tax laws.
So we do expect that the resources within their
priority would be enactment of any oil and gas tax law and
not the audit. So we do expect the duration of our audits
to slip, and whether it would go beyond the six-year
statute of limitation is unknown at this time until, you
know, the work happens, but we don't expect a need for
additional resources for the long-term for this.
CHAIR STEVENS: Thank you. Mr. Barnhill, did you have
any comment? No. Senator von Imhof.
SENATOR VON IMHOF: Well, thank you, Mr. Chairman. I
just wanted just to say so it sounds like it's potential
that the audits will begin to slip as all hands on deck
start to pick up the workload of figuring out what all
these taxes are and whether it's per field per production
site and so forth.
I just worry that with this change of monthly and this
change of ring-fencing, that the initial 7.5 million will
only get you so far and that we may be looking at some more
resources needed for your department, and we just want to
be aware of that possibility.
CHAIR STEVENS: Thank you, Senator. Senator Begich.
SENATOR BEGICH: Just as follow-up. Thank you,
Mr. Chairman. On Senator von Imhof's comment, it would be
your intent, though -- I mean, at one point you're saying
there won't be any long-term impact on your resources and
ability to do this, but, on the other hand, audits might
slip, which would imply there is a long-term impact. So
you would come back to the Legislature and request
additional support for auditing and those purposes if you
felt that that was happening, right?
MS. GLOVER: Senator Begich, through the Chair, that's
correct. At this point, we aren't at that six-year limit
as we had been in the past. So we do think we have some
room that we would still be able to -- if we had to focus
early on enactment of a new tax, to kind of move our
resources to that, but then also we just might push the
audit backlog back towards that six-year limitation, but we
don't expect additional resources. If we did, correct, we
would ask for that in the budget process.
SENATOR BEGICH: And, Mr. Chairman.
CHAIR STEVENS: Senator Begich.
SENATOR BEGICH: And you identified that the
7.5 million was not just for setting up the system but for
the planning process. You just said that a second ago.
And so you would anticipate in that planning process,
whatever those demands might be, and we would expect then
to see whatever accommodation you would need to make to
address the audits, correct?
MS. GLOVER: Senator Begich, through the Chair,
correct.
SENATOR BEGICH: Thanks.
CHAIR STEVENS: Thank you. Any further comments or
questions for the Department of Revenue?
Seeing and hearing none, thank you very much for being
with us. This is the last time we will be hearing this
issue, of course. It will be going through lots of other
meetings and committee hearings.
But I do want to say that, according to Statute 24 --
25.05.186, we're required, as a Legislature, to hold a
hearing on this initiative. I am pleased that the
Legislative Council has done this, seven members of the
House, seven members of the Senate.
I do appreciate Cori Mills, Department of Law, for
being here; Megan Wallace, Emily Nauman of Legislative
Counsel; and, of course, Deputy Commissioner Mike Barnhill
and the Tax Division Director, Colleen Glover. Thank you
all very much.
III. ADJOURN
CHAIR STEVENS said if there is nothing further to come
before the Council, we are adjourned.
10:52:51 AM
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2.25.20 Leg. Council Meeting Packet.pdf |
JLEC 2/25/2020 9:00:00 AM |
2.25.20 Leg. Council Meeting Packet |
| Sectional Summary for 19OGTX.pdf |
JLEC 2/25/2020 9:00:00 AM |
Sectional Summary for 19OGTX |