Legislature(2019 - 2020)BARNES 124
04/15/2019 01:00 PM House RESOURCES
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| Audio | Topic |
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| Start | |
| HB122 | |
| Presentation(s): Oil and Gas Taxes by the Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 122 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 15, 2019
1:03 p.m.
MEMBERS PRESENT
Representative John Lincoln, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Grier Hopkins, Vice Chair
Representative Sara Hannan
Representative Ivy Spohnholz
Representative Chris Tuck
Representative Dave Talerico
Representative George Rauscher
Representative Sara Rasmussen
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 122
"An Act relating to the Funter Bay marine park unit of the state
park system; relating to protection of the social and historical
significance of the Unangax cemetery located in Funter Bay and
providing for the amendment of the management plan for the
Funter Bay marine park unit; and providing for an effective
date."
- HEARD AND HELD
PRESENTATION: OIL & GAS INDUSTRY TAXES BY THE DEPARTMENT OF
REVENUE
HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 122
SHORT TITLE: FUNTER BAY MARINE PARK: UNANGAN CEMETERY
SPONSOR(s): REPRESENTATIVE(s) HANNAN
04/03/19 (H) READ THE FIRST TIME - REFERRALS
04/03/19 (H) RES, FIN
04/15/19 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
HUNTER MEACHUM, Staff
Representative Sara Hannan
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Hannan,
sponsor, reviewed HB 122 by way of a PowerPoint presentation
entitled, "HB 122, Funter Bay Marine Park: Unangan Cemetery,"
dated 4/15/19.
RICKY GEASE, Director
Central Office
Division of Parks and Outdoor Recreation
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: On behalf of DNR, testified in support of
HB 122.
PRESTON KROES, Superintendent
Southeast Region
Division of Parks and Outdoor Recreation
Department of Natural Resources (DNR)
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HB 122.
RIC IANNOLINO, Spokesperson
Friends of Admiralty Island
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 122.
DANIEL MONTEITH, PhD, President
Friends of Admiralty Island
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 122.
MARTIN STEPETIN
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 122.
NIKO SANGUINETTI, Curator of Collections and Exhibits
Juneau City Museum
City and Borough of Juneau (CBJ)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 122.
CHUCK SMYTHE, PhD, Director
Department of History and Culture
Sealaska Heritage Institute
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 122.
REED STOOPS
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 122.
BRUCE TANGEMAN, Commissioner Designee
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation
entitled, "Alaska Oil and Gas Production Tax Calculation ('Order
of Operations')," dated 4/15/19.
DAN STICKEL, Chief Economist
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation
entitled, "Alaska Oil and Gas Production Tax Calculation ('Order
of Operations')," dated 4/15/19.
ACTION NARRATIVE
1:03:02 PM
CO-CHAIR JOHN LINCOLN called the House Resources Standing
Committee meeting to order at 1:03 p.m. Representatives Tuck,
Hannan, Talerico, Rauscher, Rasmussen, Hopkins, Tarr, and
Lincoln were present at the call to order. Representative
Spohnholz arrived as the meeting was in progress.
HB 122-FUNTER BAY MARINE PARK: UNANGAN CEMETERY
1:03:34 PM
CO-CHAIR LINCOLN announced that the first order of business
would be HOUSE BILL NO. 122, "An Act relating to the Funter Bay
marine park unit of the state park system; relating to
protection of the social and historical significance of the
Unangax cemetery located in Funter Bay and providing for the
amendment of the management plan for the Funter Bay marine park
unit; and providing for an effective date."
1:04:12 PM
REPRESENTATIVE HANNAN, sponsor, stated HB 122 is a project 77
years in the making, including about two decades of active
political work, to preserve the Unangan cemetery in Funter Bay
[on the northwest coast of Admiralty Island]. She related that
during World War II (WWII), people of the Aleutian Islands were
relocated to six camps in Southeast Alaska when the Japanese
started invading the Aleutians. Funter Bay was probably the
worst of the camps, she said, in that it had one of the highest
death ratios. Unlike the other campsites, she noted, the Funter
Bay cemetery is on state property and unpreserved. She said two
of the six relocation campsites were located in Funter Bay, one
at the mine site and one at the cannery site. The other camps
were located at Killisnoo near Angoon, which is private
property; Ward Cove outside of Ketchikan, which is federal
property and has been preserved as part of the Civilian
Conservation Corps (CCC) camp; Wrangell Institute in Wrangell;
and Burnett [Inlet], where today there is a fish hatchery. She
pointed out that the people relocated to the Funter Bay
campsites had already once been relocated from their traditional
Aleutian Island homelands when in the late 1700s Russian fur
trappers moved them to the Pribilof Islands where they were
forced to hunt furs.
REPRESENTATIVE HANNAN stated the Funter Bay relocation camps
were also known as internment camps because the men at these
camps were forced to leave their families in Funter Bay to go to
U.S. government sealing camps on the Pribilof Islands during
harvest time. The families left behind were ill prepared to
survive because of the marginal conditions at the Funter Bay
camps and a large cemetery ensued. About two decades ago, she
continued, people started to work on ensuring that the cemetery
didn't disappear. Some of the camp people's descendants still
live in the region today and some returned to the Pribilof's
post WWII, she said, and they have sought protection for that
land. While she happens to have the privilege of being the
person in office who is bringing to culmination the bill before
the committee, the dialogues for preserving this land have been
around for at least two decades, she said. She noted that a
number of the people involved in that dialogue are present today
to provide expertise. She acknowledged the leadership of the
executive branch as well as the director and regional director
of the Division of Parks and Outdoor Recreation who continued to
shepherd things to this step. She explained that a land survey
was done that would provide for the preservation of the cemetery
and HB 122 would protect it by moving the upland that the
cemetery is located on from the Division of Land, Mining and
Water into marine park status under the Division of Parks and
Outdoor Recreation.
1:08:31 PM
HUNTER MEACHUM, Staff, Representative Sara Hannan, Alaska State
Legislature, on behalf of Representative Hannan, sponsor,
reviewed HB 122 by way of a PowerPoint presentation entitled,
"HB 122, Funter Bay Marine Park: Unangan Cemetery." She
explained that HB 122 would transfer the parcel of land that the
cemetery is on in Funter Bay from the Department of Natural
Resources (DNR), Division of Land, Mining and Water, to the
Division of Parks and Outdoor Recreation to preserve the
cemetery's social and historical significance. She displayed a
photograph on slide 3 of the cemetery as it is today and noted
it is well maintained due to the efforts of family members and
the organization, Friends of Admiralty Island. Moving to slide
4, she showed a photograph of the headstone for a child born
about a month before relocation to the Funter Bay camp
[5/23/42], and who died in October because the conditions were
so terrible. Ms. Hunter brought attention to the land survey in
the committee packet depicting the cemetery's location.
1:11:40 PM
REPRESENTATIVE RAUSCHER remarked that it sounds like a great
idea. He inquired whether any municipal land is involved.
REPRESENTATIVE HANNAN replied no.
REPRESENTATIVE RAUSCHER asked how much area would be involved.
MS. MEACHUM responded that the total acreage is 537 acres.
REPRESENTATIVE HANNAN said DNR is online to address the
committee. She noted that DNR is suggesting the whole parcel of
state land under the Division of Mining, Land and Water be moved
into park status, so it is contiguous and not just an outlying
piece of burial plots.
1:13:22 PM
RICKY GEASE, Director, Central Office, Division of Parks and
Outdoor Recreation, Department of Natural Resources (DNR),
testified that HB 122 has the department's full support at all
levels. He said it has been a privilege to work and coordinate
with the diverse groups of knowledgeable people, agencies, and
organizations that have been working hard to further protect
this historical and culturally significant site. [This will]
help inform Alaskans about the importance of the cemetery and
the hardships imposed on the Aleut people of St. Paul and St.
George islands while in the Funter Bay area during WWII.
1:14:26 PM
REPRESENTATIVE RAUSCHER offered his understanding that tracts 37
and 38, plus multiple lots, are included for a total of 537
acres involved in the transfer.
MR. GEASE offered his belief that the aforementioned is correct.
He deferred to Mr. Preston Kroes for answering any specific
questions about the specific lots involved.
1:15:23 PM
REPRESENTATIVE HOPKINS inquired whether this is the first bit of
land to be added to the marine park. He further inquired
whether the land management plan for this marine park would be
changed.
MR. GEASE answered that to his knowledge there is some land and
HB 122 would add two additional lands that are currently under
the Division of Mining, Land and Water. The bill would ensure
that these lands are protected under the Division of Parks and
Outdoor Recreation and there is the authority for enforcement
that comes with state park lands. He deferred to Mr. Kroes to
answer about the land management plan.
1:16:48 PM
PRESTON KROES, Superintendent, Southeast Region, Division of
Parks and Outdoor Recreation, Department of Natural Resources
(DNR), stated the parcel the cemetery is located on is currently
under the Division of Mining, Land and Water and designated to
be managed as part of the state park. Therefore, he said,
nothing really will change as far as management; it will be
managed pretty much the same as it currently is and just be an
addition to the current state marine park.
1:17:43 PM
CO-CHAIR TARR asked whether a full assessment of the state's
public lands has been done for important historical sites. She
further asked whether Mr. Kroes is aware of any other sites like
this one that the committee should be thinking about.
MR. KROES offered his belief that unfortunately a lot of things
like this are missed. He said that is why, upon hearing about
it, the division was more than happy to have it extend into the
state marine park to protect it and ensure it will be there for
the cultural history. He pointed out that it wouldn't be any
additional budgetary burden as the state marine park is
relatively undeveloped. He added that the division hopes to get
some interpretive panels put out in that area.
1:18:59 PM
REPRESENTATIVE TALERICO inquired about the ownership status of
the lands adjacent to the boundary of the cemetery parcel.
MR. KROES replied there are some surrounding private parcels [by
the cemetery], as well as U.S. Forest Service property adjacent
to the state marine park and the parcel that [the park] would be
expanding into.
1:19:41 PM
REPRESENTATIVE RAUSCHER asked how many people are buried in the
cemetery.
REPRESENTATIVE HANNAN responded that there are 32 identified and
marked gravesites and the oral records suggest there could be
some unmarked graves that are further outside the marked graves.
REPRESENTATIVE RAUSCHER inquired whether there is one in each
[of the plots of the survey].
REPRESENTATIVE HANNAN answered no and stated that Representative
Rauscher is asking if there are gravesites within each of the
survey plots 1, 2, 11, and 12. She offered her belief that all
the gravesites are located in tract A. She explained that [the
survey] shows all the state land that is being transferred, but
that the cemetery is in a very concentrated area. She further
explained the survey shows a full township and some of the
township is federal land, not state land.
REPRESENTATIVE RAUSCHER offered his understanding that "each one
of those is a section in the township."
REPRESENTATIVE HANNAN replied yes.
REPRESENTATIVE RAUSCHER asked about the need for all of that.
MR. KROES explained that the reason for asking for the full 537
acres is to make a continuous boundary for the current state
marine park because otherwise the cemetery parcel alone would be
a far outlier. This way, he continued, it is one big continuous
park that includes the cemetery.
1:22:17 PM
REPRESENTATIVE RASMUSSEN inquired about the cemetery's size.
MR. KROES answered he isn't sure [the division] has that number,
but he estimates that it is roughly three-quarters to one acre.
REPRESENTATIVE RASMUSSEN stated she supports the cemetery but
questions the need for 537 acres for something that is one acre.
MR. KROES displayed a map and noted the current state park is
depicted in purple. He pointed to the tract proposed for
addition and said this way it would be connected. To do
otherwise, he stated, the cemetery would just be an asterisk
with quite a bit of property in between that is Division of
Mining, Land and Water, which is also part of DNR. Since it is
already DNR state property, he said, the thought was to make it
all part of the state marine park and eliminate jurisdiction
confusion. He showed another map and pointed out the state
marine park, the tract proposed for addition, and the cemetery.
1:24:30 PM
CO-CHAIR TARR surmised that without a contiguous boundary there
would be a need to create some kind of access that could become
complicated, while if contiguous it would be uncomplicated.
MR. KROES replied that it would definitely make the whole
management plan, jurisdiction matters, and everything much more
clearly cut and easy to do.
1:25:09 PM
REPRESENTATIVE SPOHNHOLZ offered her understanding that this
proposal is not a swap, but rather a transfer of lands from the
category of mining and other natural resources to the category
of parks.
MR. KROES responded that it would basically be a title change as
it would go from the DNR Division of Mining, Land and Water to
the DNR Division of Parks and Outdoor Recreation.
REPRESENTATIVE SPOHNHOLZ asked whether there are any commercial
resources on this land that would then not be extractable if
this title change occurred.
MR. KROES answered no and explained that part of the reason for
including this parcel under state parks is to better protect it
because the Division of Parks and Outdoor Recreation is
different in that it doesn't have commercial resource activities
on its parcels like the Division of Forestry does. This would
better protect the cemetery and adjacent lands, he added.
REPRESENTATIVE SPOHNHOLZ stated it makes sense in that the
primary objective is to protect the cemetery. However, she
continued, she would like to have it said on the record that in
moving this land over to the park there is not an opportunity
cost that is being missed since it is property that wouldn't be
developed otherwise. All that is being done, she said, is to
protect an important resource for the Unangan people and there
is no other factor that could cloud the committee's decision.
MR. KROES replied correct.
1:27:27 PM
The committee took an at-ease from 1:27 p.m. to 1:29 p.m.
1:29:16 PM
RIC IANNOLINO, Spokesperson, Friends of Admiralty Island,
testified that he did the archival work to prepare for a visit
[to the cemetery on 5/20/17] by the survivors and officials of
the Aleutian Pribilof Islands Association of St. Paul and St.
George. At this 75th memorial anniversary, he related, the
Russian Orthodox Church performed a blessing of the graves and a
12-foot-high cedar cross was put up.
MR. IANNOLINO stated he did his research at the state library
and archive and at the Sealaska Heritage Institute's archives.
He said that in a Sealaska archive he found a presentation by
Roy Peratrovich, the 1942 Grand President of the Alaska Native
Brotherhood and Alaska Native Sisterhood. He paraphrased as
follows from Mr. Peratrovich's presentation:
Approximately 500 Natives of Aleut, Kenai, and Eskimo
descent have been evacuated from the Aleutian Islands
by the U.S. Navy to Killisnoo and Funter Bay as a war
safety measure. These people came with very little of
their personal goods, and living conditions will be
extremely difficult for them, especially this fall and
winter. It is our patriotic duty to offer every aid
and comfort to these fellow countrymen, a gift of
friendship, advice, and assistance. At the present
time secondhand fishing gear of all kinds is needed by
them to help them put up their winter food. U.S.
Employment Service ... is trying to find jobs for them
and their main interest right now is building
temporary homes in Killisnoo and Funter Bay.
MR. IANNOLINO pointed out that these people were, in actuality,
interned. He related that despite a court case that said they
couldn't be interned because they were U.S. citizens, they were
interned for a year from 1942 to 1943.
MR. IANNOLINO noted that Friends of Admiralty Island
participated in the 5/20/17 cemetery visit by the survivors and
members of their families. He said 100 people went to the
cemetery for the ceremony and a blessing of the graves by the
Russian Orthodox bishop. He stated it was called the "Healing
Path," and shared some of the words that were said at the
ceremony:
In 1942 the steamer Delarof sailed from the Pribilof
Islands towards Southeast Alaska, destination unknown.
Their cargo was 380 St. Paul ... villagers and 180 St.
George villagers and an additional 38 villagers from
Atka, all were being evacuated from the war zone. As
the Delarof entered the Gulf of Alaska, government
agents were scrambling to find housing for the
evacuees. The ship was radioed to drop off the St.
George and St. Paul villagers in Funter Bay and the
Atka villagers in Killisnoo next to Angoon. Over the
next several years their story was one of people whose
government forgot them, ignored them, and treated them
as less than human. ... Today we visit this site of
this dark chapter of Alaska history with some of the
survivors and family members to hear their stories.
We sail into the same harbor ... as did the Delarof 75
years ago. We walk the same beach path as did the
evacuees. We gather at the cemetery to remember...
MR. IANNOLINO interjected that 30-plus graves was mentioned in
the ceremony. But, he said, there were many infants and their
graves were not marked and so the thought is that there are
about 44 graves.
MR. IANNOLINO continued reciting from the Healing Path ceremony:
...the 30-plus evacuees ... who never returned to
their home villages. We come today to honor those
evacuees and families and acknowledge their suffering
and losses. We come today to remind all of us how
easily fear can result in creating victims, especially
of the less empowered. We come today to pledge never
again.
1:34:28 PM
REPRESENTATIVE TUCK inquired about Mr. Iannolino's affiliation.
MR. IANNOLINO replied he is a Friends of Admiralty Island board
member and he did archival work for the aforementioned event.
CO-CHAIR LINCOLN requested a description of Friends of Admiralty
Island.
MR. IANNOLINO indicated that the next witness [Dr. Monteith]
would provide that information.
1:35:06 PM
DANIEL MONTEITH, PhD, President, Friends of Admiralty Island,
testified he has a PhD in anthropology and archeology and has
worked in Alaska for over 35 years. He thanked Representative
Hannan for sponsoring HB 122 and the committee for hearing it.
He said Friends of Admiralty Island is a nonprofit organization
dedicated to the research, education, and outreach for Admiralty
Island and Admiralty Island National Monument. He noted the
organization currently has over 350 members residing in the
communities of Angoon, Juneau, and other places.
DR. MONTEITH related that 290 people from St. Paul and 190
people from St. George were relocated to Funter Bay in June
1942. Over the course of a few years at that location, he said,
there were 32 documented deaths [plus undocumented] infant
mortality. The location is an Alaska historical site, he noted;
site Juneau 975.
DR. MONTEITH said HB 122 is very important in terms of the State
of Alaska protecting the Unangan historic cemetery site. Some
of the Unangan people in Killisnoo were buried there, he
related, and some of that has gone over to private lands and the
people cannot even put flowers on those graves because the
private residents say they will accuse them of trespass. So, he
continued, this is an important thing that is being done.
Transferring the cemetery from [the Division of Mining, Land and
Water] to the Division of Parks and Outdoor Recreation assures
its protection. He urged the passage of HB 122 and stated that
respect for one's ancestor is important to the respect of the
Unangan culture and their descendants today.
CO-CHAIR LINCOLN noted the committee's intent is not to move the
bill today. He explained there would be an opportunity for
amendments when the bill is taken up again at a later date.
1:38:28 PM
REPRESENTATIVE TUCK asked how Funter Bay was chosen for holding
the Aleutian people.
DR. MONTEITH responded that the U.S. Department of Defense (DoD)
was heading down to Southeast Alaska and was looking for
possible sites. In Funter Bay was an old cannery site and
structures left over from an old mining operation, he said, so
they utilized those places in Funter Bay and they also utilized
historic sites in Killisnoo. He related that they also went
down to Ward Cove where there were old Civilian Conservation
Corps (CCC) structures and also to Wrangell and some of the
young teenagers went to Wrangell Institute. He pointed out that
[WWII] prisoners of war were sent to Excursion Inlet where there
was a cannery site.
REPRESENTATIVE TUCK inquired whether any other structures remain
at the Funter Bay site besides the cemetery.
DR. MONTEITH answered yes, quite a few. But, he continued, they
do not have much integrity in terms of historical structures and
archeological sites. He explained that this is a very important
parcel because it is a cemetery and ancestors are buried there.
He said members could refer to a nice site inventory done by the
National Park Service and Charles Mobley, an archeologist and
historian, which has complete maps and a history of the federal
government's relations with these tribal entities.
1:40:47 PM
CO-CHAIR LINCOLN stated he doesn't perceive any opposition to
the intent of the legislation, but that there is some question
over the amount of land being transferred. He asked Dr.
Monteith to speak to the transfer of nearly 540 acres to protect
one acre.
DR. MONTEITH replied he would defer to the Division of Parks and
Outdoor Recreation. He offered his understanding that the
philosophy is to have contiguous land from the state park and
not have any parcels of land that are incongruent in terms of
management and divisions. The bill, he said, would include that
entire area and not cause any corridors of differences in terms
of divisions.
1:41:43 PM
CO-CHAIR LINCOLN inquired whether, from the perspective of the
intent being to protect and honor the ancestors, there is value
to having that much land or could the task be accomplished if
the bill were amended to a smaller amount.
DR. MONTEITH responded that an adequate buffer is needed to
protect the cemetery and to keep the integrity of the area from
being compromised, and this is what is trying to be done. He
added that Friends of Admiralty Island has been very involved
with the historical interpretation of that area and would
continue to dedicate money, time, and effort to helping with
interpretative signing of the area to make it a respectful area.
1:43:06 PM
MARTIN STEPETIN testified he is from St. Paul Island, Alaska,
and is a descendant of the Pribilof people who were brought to
Funter Bay. He said he now lives in Juneau and got involved
with Friends of Admiralty Island during a cruise in 2014. He
noted he already knew about this history, but got really caught
up in it as a result of this cruise. He thanked Representative
Hannan and the many people who helped get things to this point
of HB 122, which would finally protect the Funter Bay Unangan
cemetery. He continued as follows:
Most of my grandparents were taken to Funter Bay from
St. Paul Island in early 1942 and by God's will they
all survived. My dad was born here in Juneau in 1942
at the St. Ann's Hospital. ... I don't know how my
grandparents got over here to Juneau, but I'm thankful
they did, otherwise my dad might not have survived in
the cold and rundown camps in Funter Bay where many
perished. My maternal ... grandparents actually got
married while in Funter Bay. They survived. My mom
was born in 1951.
... A short timeline and three good points of why we
should pass this bill: In May 2014 my wife and I went
on a Friends of Admiralty cruise to Killisnoo near
Angoon where we would bless the graves and place a
plaque on the cemetery grounds in remembrance of 17
Atka Unangans who died before the federal government
would bring them home. The Atka cemetery is in bad
shape and still is to this day. After this emotional
cruise I got to meet all the board members of Friends
of Admiralty and this is when I learned the Atka
cemetery is on private land and the owners, although
they let us on the land to bless it, was unwilling to
engage with us about restoring the cemetery or any
kind of protection. This was frustrating and
heartbreaking. After joining Friends of Admiralty
board we quickly began researching the Funter Bay
cemetery trying to figure out who owns the land the
cemetery sits on. This was not an easy task ... We
had to do a lot of research. We eventually figured
out that the cemetery sits on Alaska state land and is
managed by the Department of Natural Resources, or
DNR. DNR didn't even know they managed the land that
the cemetery sits on; they had to look it up.
1:46:25 PM
... This is the first point I want to make: Unlike
the Atka cemetery or ... the other five locations the
Unangan Aleuts were kept, we can actually try to
protect this cemetery from future development,
logging, or use that would desecrate this sacred
place. Working with Friends of Admiralty, state
parks, DNR - who has been very cooperative and
accommodating through this whole process and we are so
thankful for that - we weighed our options for
protecting the cemetery. We learned there was a past
effort to protect the cemetery by Charles Mobley whose
book my friend just showed you. ... He tried to have
the cemetery grounds put on the National Historic
Registry, but the efforts failed because of the rules
of not allowing cemeteries on the National Historic
Registry and the stringent rules to prove historical
significance. We didn't want to try the National
Historic Registry again and recently learned that the
National Historic Registry doesn't actually provide
very much protection in the first place. For example,
the infamous Fourth Avenue Theater in Anchorage is on
the National Historic Registry, but is slated to be
torn down possibly. Our friends at DNR suggested an
Interagency Land Management Agreement, or ILMA. This
would be a great way to protect the land except ILMAs
can be changed, renegotiated, or completely canceled
at any time in the future by people who don't value
the cemetery as we do. So we knew that this would not
be a wise way to protect the cemetery permanently.
That's when Friends of Admiralty and I approached
Representative Sam Kito last year about getting the
cemetery legislatively protected. But it was already
too late into the session and we couldn't get a bill
started.
This is my second point: The cemetery is on state
land ... but this is not the state's fault. ... By
protecting this land we would recognize the history
with all the most important things about the history
.... Those who don't remember it are bound to repeat
it. ... My grandma, ... into her late 90s, ... would
say things like, "I hope it never happens again." ...
My third point is simple: The Funter Bay Marine Park
will be expanded a little, but it won't cost any money
to manage the land. The value of protecting the
social and historical significance of this land will
cement the history for good and we will never have to
repeat this history again.
1:50:23 PM
CO-CHAIR LINCOLN noted that invited testimony on HB 122 was now
concluded and opened public testimony on the bill.
1:50:41 PM
NIKO SANGUINETTI, Curator of Collections and Exhibits, Juneau
City Museum, City and Borough of Juneau (CBJ), testified she
became involved with this project when she first started
[employment with the museum]. She stated that as someone new in
Juneau and someone who didn't grow up in Alaska, she didn't know
about this history because it's an event that isn't often
covered in historical texts or in classrooms around the U.S.
When she took on her new post, she said, she was immediately
greeted by this large and ambitious project. She related that
as part of this project the City Museum is planning to do its
summer 2020 exhibition on the Funter Bay internment camps. In
preparing for this exhibition, she noted, much research was done
far in advance and she has benefitted greatly by Mr. Iannolino's
research and digging through the scant amount of records that
remain.
MS. SANGUINETTI pointed out that this [relocation] event was
characterized by a lot of confusion. Trying to iron out what
really happened has been very difficult, she said, because so
many agencies were involved and so many people were taken to
places that were never planned to house humans at any point.
There is now this opportunity to protect this cemetery, she
continued, which is the resting place for people who were moved
without their consent and without knowing where they were going
to end up when they boarded that ship.
MS. SANGUINETTI addressed the questions about the space between
the cemetery and the state park. She stated that [the goal is]
to ensure that future generations of people will be able to
visit this site unimpeded, that it is going to be protected in
perpetuity, and that the area around it will also be protected.
As many people know with historic sites, she continued, the
historic site itself can be protected, but if right next door
things are being dug up and the ground is being shaken, a lot of
unseen damage is being caused that can create trouble later on.
Therefore, that connection between the parkland and the cemetery
land ensures protecting the cemetery as well as the people's
right to visit it and visit their ancestors, and to continue to
do so for many years to come.
MS SANGUINETTI thanked Representative Hannan for putting forth
HB 122, the committee for hearing it, and the wonderful team
that worked on this for many years long before she was able to
join it.
1:54:03 PM
CHUCK SMYTHE, PhD, Director, History and Culture, Sealaska
Heritage Institute, testified in favor of HB 122. He said he
got to know the significance of this site in 1981 when he first
went to St. Paul and St. George and heard firsthand from people
whose parents were there or who were there themselves. He
related that they told of how they were brought to this cannery
and the experience they went through - how there were holes in
the walls and ceilings, blankets were used to separate the
families' quarters, it was very cold, there wasn't much food,
and that without the help of the Alaska Native Brotherhood
(ANB), they might have starved during that time period. He
further related that they talked about how they were given two
or three hours to gather up their belongings when the ships came
to pick them up. He said this cemetery is a very important
significant site historically for the people of the Pribilof
Islands.
DR. SMYTHE addressed the question about whether there should be
just one acre, or a larger land area set aside for this.
Speaking from his 12 years of experience working for the
National Park Service, he said the big difference between
protecting a one-acre site and a larger site in terms of
funding, recognition of the site, and ways to protect it, is
that a larger land area provides a more significant type of
recognition that enhances the ability to protect an area.
1:56:59 PM
CO-CHAIR LINCOLN stated he didn't mean to imply that anyone on
the committee was seeking to set aside only one acre. Rather,
he said, he was trying to get a sense of whether the whole 540
acres or somewhere in between would be sufficient to protect it
from adjacent development. He asked whether the full 540 acres
is the minimum Dr. Smythe would have in mind.
DR. SMYTHE replied he doesn't have an opinion on that.
CO-CHAIR LINCOLN stated the bill would be taken up again and the
committee would consider the acreage.
1:57:47 PM
The committee took a brief at-ease.
1:58:01 PM
CO-CHAIR TARR thanked Mr. Stepetin for sharing his emotional
story. She said that whenever [the committee] works on righting
the wrongs of the past, it is among the most important things
that can ever be done.
1:58:42 PM
REED STOOPS testified he is before the committee as an
individual. He said he bought the old cannery site 30 years ago
and it is in the middle of the property adjacent to the
cemetery. He stated he has used the property half a dozen times
a year since purchasing it and is therefore familiar with the
history and current status of the cemetery site. He noted he
once worked for DNR dealing with land management, so he is
familiar with that perspective as well. He stated he supports
HB 122 and that it is a good idea.
MR. STOOPS discussed the size of the parcel. He said there is
no other commercial value of that property and that it is de
facto recreation. About 20 cabin sites are in Funter Bay, he
stated, that are used for recreational purposes mostly by people
from Juneau or other places in Southeast Alaska. He related
that many commercial fishermen, recreational boaters, kayakers,
and campers use Funter Bay and the areas that are privately
owned. He pointed out that while 500 acres sounds like a lot,
it is scattered along the shoreline and not very deep. He
further pointed out that there is no commercial timber or mining
potential there and it is already heavily used for recreation
and is surrounded by national monument. Therefore, he said, he
doesn't think any economic opportunities would be foregone by
protecting the area immediately around the cemetery.
MR. STOOPS addressed Representative Tuck's question. He said
some of the old buildings are still there on his property and he
saves what he can save, but a lot of them were too far-gone to
save. He stated that the old bunkhouse where the Aleut people
lived was barely standing when he first purchased the property
and has now fallen down. He said he couldn't imagine the living
conditions for the people who lived there as the bunkhouse
wasn't much bigger than the committee room, there was no
insulation, and apparently 30 or 40 people were living in it.
It was not something anyone would want to endure, he added. He
urged the committee to support HB 122.
2:01:11 PM
REPRESENTATIVE RAUSCHER inquired whether Mr. Stoops' property is
considered private land.
MR. STOOPS responded yes. He explained that the old cannery
site, old mining site, and a few other trade manufacture sites
were patented back in the early 1900s and have all been sold and
developed into recreational cabin sites.
REPRESENTATIVE RAUSCHER offered his understanding that right now
it is a recreational area.
MR. STOOPS answered yes. It is used heavily by mostly Southeast
Alaskans, he said. A lot of boaters go up the bay and many
commercial fishermen use it to get out of the weather or to
spend the night while fishing, he continued. He added that many
people go there for the weekend to go salmon fishing and camping
on the beach or sleeping on their boats.
REPRESENTATIVE RAUSCHER asked how many private properties are in
Funter Bay.
MR. STOOPS estimated there are 20 private tracts, all of which
have cabins on them.
REPRESENTATIVE RAUSCHER inquired whether the private properties
are close to the park that would be made contiguous or whether
the properties go the other way.
MR. STOOPS replied that the bay is about a mile deep with the
majority of properties on the south side of the bay and a few in
the back. One property is contiguous with the cemetery, he
said, and his property is nine lots and almost next to the
cemetery. There is plenty of private property in the bay that
has already been developed, he advised, and what is left is
probably best left to public use because if the rest were sold
the public wouldn't be able to use any of the bay.
2:03:06 PM
CO-CHAIR LINCOLN closed public testimony on HB 122 after
ascertaining no one else wished to testify.
CO-CHAIR LINCOLN held over HB 122.
2:03:26 PM
The committee took an at-ease from 2:03 p.m. to 2:06 p.m.
^PRESENTATION(S): OIL AND GAS TAXES BY THE DEPARTMENT OF
REVENUE
PRESENTATION(S): OIL AND GAS TAXES BY THE DEPARTMENT OF REVENUE
2:06:59 PM
CO-CHAIR LINCOLN announced that the final order of business
would be a presentation by the Department of Revenue on Alaska's
oil and gas tax structure.
2:07:15 PM
BRUCE TANGEMAN, Commissioner Designee, Department of Revenue
(DOR), began by noting that Alaska's oil tax system is complex.
He said DOR's PowerPoint presentation entitled, "Alaska Oil and
Gas Production Tax Calculation ('Order of Operations')," is a
technical walk-through of how the tax structure works from a
high level. No policy or politics will be discussed, he stated,
the presentation is only about how the math calculation works.
He turned the presentation over to Mr. Dan Stickel.
2:08:00 PM
DAN STICKEL, Chief Revenue Economist, Tax Division, Department
of Revenue (DOR), displayed a list of acronyms on slide 2 that
are used in oil tax and production tax. He turned to slide 3
and stated the purpose of the presentation is to explain the
nuts and bolts of how the state's existing production tax and
fiscal system work. He explained he would start by looking at
all of the sources of oil and gas revenue to the state and then
provide a detailed walk-through of the production tax and each
step of the calculation. He said the presentation focuses on
North Slope oil because that is the main source of revenue to
the state, except for federal and investment revenue, and that
the presentation walks through fiscal year 2020 (FY 20). He
further stated that the presentation also looks at cash flow
distribution and ends with a five-year comparison.
2:09:50 PM
REPRESENTATIVE RAUSCHER inquired how it was decided to use the
years 2017-2021.
MR. STICKEL replied the decision was to present two years of
history, FY 17 and FY 18, and two years of forecast, FY 20 and
FY 21, and FY 19 is the current year, which comes up with the
five-year period of FY 1721.
2:10:23 PM
MR. STICKEL resumed the presentation. He noted DOR's disclaimer
on slide 4 and said that this presentation attempts to distill a
very complex tax system down to understandable and simplistic
pieces. He explained the presentation is based on aggregated
data and DOR's forecasted estimates for different items and
portions of the tax regime. Given he is an economist, he added,
anything he says shouldn't be interpreted as an official tax
interpretation, but rather an attempt to walk members through
the revenue forecast to illustrate the tax calculation.
MR. STICKEL moved to slide 5 and outlined the state's four
primary oil and gas revenue sources: royalty, corporate income
tax, property tax, and production tax. Royalty is received for
any production from state land, he explained, as well as a share
of royalty for production on federal land. A typical state
royalty is 12.5 percent or one-eighth, although some royalty
rates differ from that. The corporate income tax that is
received is based on worldwide net income for company's doing
business in Alaska. That worldwide net income is apportioned to
Alaska and the top marginal rate paid on the Alaska taxable
income is 9.4 percent. Property tax, he noted, is paid to the
state on all oil and gas production related property anywhere in
the state and in the state's three-mile offshore limit.
Production tax, he pointed out, is the revenue source being
focused upon in the presentation. Production tax is Alaska's
severance tax on oil and gas, and it applies to all production
anywhere in the state and within the state's three-mile
jurisdictional offshore limit regardless of whether that
production is on state-owned, federal-owned, or private-owned
land.
2:12:30 PM
CO-CHAIR LINCOLN observed from slide 5 that the corporate income
tax applies to C-corporations. He surmised limited liability
companies (LLCs) are not subject to paying this tax.
MR. STICKEL responded correct. He explained that LLCs (or
partnerships) are pass-through entities. If that income passes
through to a C-corporation it would be taxable, he said, but if
it passes through to an individual return there is no individual
income tax at this time.
CO-CHAIR LINCOLN noted that historically production in the state
has been by very large companies like BP. He asked whether the
ratio of C-corporations to non-C-corporations has changed over
time such that these small companies are now affecting what the
state collects in taxes.
MR. STICKEL answered correct. He said he doesn't have a ratio
handy, but historically, as well as currently, the vast majority
of production is by C-corporations and that currently some non-
C-corporations are involved in production.
2:14:03 PM
REPRESENTATIVE HANNAN posed a scenario in which the state has an
individual income tax. She surmised that in this scenario the
state would be able to "get a taxation" from those companies
that are operating as LLCs and non-C-corporations.
MR. STICKEL replied correct.
2:14:46 PM
MR. STICKEL continued the presentation. He displayed slide 6
and compared the revenue from each of the four oil and gas
revenue sources for the five-year period of FY 17 through the
forecast for FY 21. He noted that the property tax shown on the
slide is the state's share only, but that in addition there is a
municipal share that is quite a bit larger than the state's
share. Regarding the corporate income tax, he said there were
prior year refunds that impacted the collections in FY 17 and
2018; so now, when looking at the FY 19 and 20 numbers, DOR
believes that the approximately $200 million per year is a
better estimate of what to expect from corporate income tax over
the long run. Production tax, he said, is expected to generate
[$735] million in FY 19. He explained that royalties include
bonuses, rents, and interest and that the royalty number of a
little over $1 billion a year includes general fund, permanent
fund, and school fund shares of royalty. Mr. Stickel pointed
out that DOR's Revenue Sources Book forecast also includes two
other categories of petroleum revenue. One category, he said,
is constitutional budget reserve fund (CBRF) settlements, which
are any assessments or resolution of disputes regarding past
years production tax royalty and minerals related corporate
income tax. The second category, he continued, is the state's
share of revenue from the National Petroleum Reserve-Alaska
(NPR-A), which is federal revenue. He stated that currently the
numbers have been small, $8 million in FY 19 and $11 million in
FY 20, but the number is expected to exceed $100 million a year
by FY 28 as new developments in the NPR-A come online.
2:17:04 PM
CO-CHAIR TARR used slide 6 to point out that revenue from taxes
is dependent upon oil price and during low price environments
the state loses out in every revenue area - production tax,
corporate income tax, and royalties. For example, she pointed
out, low prices in FY 17 resulted in negative revenue from
corporate income tax.
MR. STICKEL explained that the corporate income tax has a
provision where when a company has a net operating loss in a
given year it is allowed to carry that loss back for up to five
years and claim refunds on taxes paid in prior years. He said
that was part of the story that brought the corporate income tax
to a net negative number in FY 17 and a lower number in FY 18
than otherwise would have been the case.
2:18:42 PM
REPRESENTATIVE RAUSCHER asked whether everybody loses out in a
low price environment and whether that loss is shared equally or
disproportionately.
MR. STICKEL replied that this question is addressed in the
presentation's addendum. He explained that there are elements
of the state's fiscal system that are based on gross revenue, so
the companies actually lose out disproportionately more in a low
price environment.
REPRESENTATIVE RAUSCHER inquired whether any municipalities are
included within the NPR-A.
MR. STICKEL responded that the NPR-A is located to the west of
the Alpine development and encompasses the Willow and Greater
Mooses Tooth developments. He offered his belief that there are
communities within the NPR-A.
2:20:09 PM
REPRESENTATIVE TUCK surmised the figures depicted on slide 6 are
actuals for FY 17 and 18, close to actual for FY 19, and
forecasts for FY 20 and 21.
MR. STICKEL answered correct. He said the chart is based on
DOR's spring 2019 forecast that was issued in March, so the FY
19 figure represents a little over half a year of actuals and
four to five months of forecasts.
2:20:44 PM
REPRESENTATIVE SPOHNHOLZ recounted Co-Chair Tarr's statements
about the low price environment having a big impact on the State
of Alaska's revenue in FY 17. She asked what accounts for the
lower revenues that are forecast for FY 20 and 21, given that
oil prices and production are anticipated to remain relatively
stable.
MR. STICKEL replied that the Alaska North Slope (ANS) oil price
is forecast to be slightly lower for FY 20 and 21 and is part of
the story of what is going on. He also noted that the state
received some one-time payments on production tax in FY 18 and
19.
REPRESENTATIVE SPOHNHOLZ asked whether the drop of $3.80 in ANS
oil price is what accounts for the difference in royalties and
production tax.
MR. STICKEL responded correct.
2:22:10 PM
REPRESENTATIVE HANNAN inquired about the big drop in CBRF
settlements after FY 17.
MR. STICKEL answered that FY 17 had an unusually large amount of
settlements because some major settlements took place in that
particular year. He said the range of $100-$150 million is more
indicative of what can be expected in a typical year.
REPRESENTATIVE HANNAN offered her understanding that settlements
mean litigated disputes with the State of Alaska that were
settled that year. She therefore surmised the settlement was
received by the state that year, not earned that year.
MR. STICKEL replied correct and stated it could be litigation or
could be audit assessments. He said the settlements received in
FY 17 could have been settlements for as long as a decade.
2:23:32 PM
REPRESENTATIVE RASMUSSEN asked whether it is accurate that a $1
[price] change is equivalent to $100 million in revenue.
MR. STICKEL responded that DOR has been using an estimate of
about $70 million in terms of general fund. He explained that
because the production tax works with a gross tax, when prices
go above the current price it is going to be $70-$100 million
per $1 of price change, and when prices go below the current
price it is going to be a little less than $70 million.
REPRESENTATIVE RASMUSSEN inquired whether DOR has a comparison
of what a $1 change in the price per barrel would have looked
like under Alaska's Clear and Equitable Share (ACES) tax plan as
far as revenues.
COMMISSIONER TANGEMAN answered that because the State of Alaska
has a net tax system it is impossible to go back and give an
accurate estimate had a different tax structure been in place
since the biggest drivers under a net tax system are capital
expenditures (CAPEX) and operating expenditures (OPEX). This
presentation, he reiterated, is sticking with just the facts of
what DOR knows. The department is not going to go out on a
limb, he continued, and assume CAPEX or OPEX would have been
affected one way or the other because then it would be getting
into policy and political decisions. He stressed that looking
backwards and trying to apply different tax structures is very
difficult, especially when looking at rather high prices under
ACES and rather low prices under Senate Bill 21. Consultants
can do this, he said, but the Department of Revenue would rather
stay out of that game, especially with such vastly different tax
structures.
REPRESENTATIVE RASMUSSEN asked whether DOR has a record of the
income and daily production [under ACES] and whether that record
would be available.
COMMISSIONER TANGEMAN replied yes. He said the department has
CAPEX, OPEX, and all those details and they are laid out very
well in the Revenue Sources Book.
2:26:46 PM
MR. STICKEL resumed the presentation. He displayed slide 7 and
started to review the production tax "order of operations" for
FY 20. He pointed out that this table appears in the back of
the Revenue Sources Book each fall and that this version is
updated for the spring [2019] forecast. For this calculation,
he began, DOR started with an average price forecast of $66 per
barrel for FY 20 and a daily production estimate of 529.5
thousand barrels per day. Those numbers calculate out to an
annual production of 194 million barrels for a total value of
$12.8 billion sale price, he stated. He advised that the table
is an aggregation of all the different companies doing business
on the North Slope, which is the state's largest source of
production and revenue, and is intended only to illustrate the
production tax calculations.
MR. STICKEL moved to slide 8 and addressed step 1, calculation
of royalty and taxable barrels. He explained that any royalty
barrels are subtracted from the production tax calculation
regardless of the ownership of those royalty barrels. He said
the typical rate is one-eighth, or 12.5 percent, although the
rates do vary. For example, he continued, the average royalty
rate in the current year is actually a little less than 12
percent. He explained that federal and private land royalties
are also subtracted to get to the total taxable barrels. For
example, he said, nontaxable federal land would include the
offshore portion of the NorthStar oil field as well as the
Liberty field once it is online. He pointed out that the
calculation arrives at an estimate of 172 million taxable
barrels in FY 20 with a total taxable value of about $11.36
billion.
2:29:40 PM
MR. STICKEL, responding to Representative Hopkins, reiterated
that the Liberty field is outside of the state's jurisdictional
limit in federal waters. He further reiterated that a part of
the NorthStar field falls within the state's limit and a part
falls outside the state's limit.
REPRESENTATIVE HOPKINS offered his understanding that the State
of Alaska would receive $0 from Liberty.
MR. STICKEL responded that, as DOR currently understands, the
barrels from Liberty production would not be considered taxable
barrels for production tax purposes.
REPRESENTATIVE HOPKINS asked whether $0 in revenue from Liberty
is just for these two lines on the chart or includes all the way
to the end of the chart.
MR. STICKEL answered that, as DOR currently understands, Liberty
would not be taxable for production tax purposes. He said there
would still be some benefits in property tax for any onshore
infrastructure as well as the benefit of having production going
down the Trans-Alaska Pipeline System (TAPS).
REPRESENTATIVE HOPKINS asked how far out the island is located.
MR. STICKEL replied that it is beyond the three-mile limit.
2:31:05 PM
REPRESENTATIVE TUCK referenced slide 5 and recalled it was
stated that severance tax occurs regardless of whether it is
state, private, or federal land, but that anything beyond three
miles of the state's shore is not subject to state tax.
MR. STICKEL responded correct.
2:31:32 PM
REPRESENTATIVE RASMUSSEN inquired whether Liberty would pay
state income tax.
MR. STICKEL answered that, to the extent that the operators are
C-corporations and to the extent that that project impacts their
property and sales in the state of Alaska, there could be
potential corporate income tax impacts.
2:32:23 PM
CO-CHAIR TARR commented that this example would be one of the
circumstances to think about the carried forward losses because
Liberty is going to be a very costly development and so for at
least five years any of Liberty's net operating expenses could
be carried forward and applied against its corporate income tax.
When modeling that, she continued, it would be expected that
those early years would be very low or negative because of the
net operating loss carried forward.
MR. STICKEL replied that the question of how an offshore
development, not in state waters, would impact state corporate
income tax is a tricky math problem. He said this is because it
would impact the worldwide income and could potentially impact
the company's apportionment factors. He pointed out that the
State of Alaska would receive about 27 percent of the royalty
for production from Liberty. Responding to Representative Tuck,
Mr. Stickel clarified that 27 percent of the royalty portion
received by the federal government is shared with the State of
Alaska under a sharing provision that is in place.
REPRESENTATIVE TUCK asked whether the 27 percent royalty applies
to anything close to Alaska that is beyond the three miles on
federal property or is specific to projects in areas within
Alaska.
MR. STICKEL offered his belief that that provision applies to
production beyond three miles and out to another limit. He
noted that in previous years DOR has provided a handout that
lists all the different land ownerships and how those all apply
for tax and royalty purposes.
2:34:54 PM
REPRESENTATIVE SPOHNHOLZ inquired whether the percentage for the
federal royalty is an amount similar to the State of Alaska's
12.5 percent or something different.
MR. STICKEL responded he doesn't know the number and that he
will get back to the committee in this regard.
REPRESENTATIVE SPOHNHOLZ commented that it is important to know
the number because 27 percent of a much smaller number is a much
smaller percent than what committee members might be thinking.
2:35:30 PM
REPRESENTATIVE HANNAN asked if the State of Alaska's share of
federal royalty is the same percentage regardless of whether it
is from federal offshore property or land like the NPR-A.
MR. STICKEL answered it varies and said he will get the document
to the committee.
2:36:10 PM
MR. STICKEL returned to the presentation. He displayed slide 9
and talked about step 2, calculation of the gross value at point
of production (GVPP), also referred to as the wellhead value.
He said the GVPP is calculated by subtracting transportation
costs from the total taxable value.
2:36:40 PM
The committee took a brief at-ease.
[CO-CHAIR LINCOLN passed the gavel to Co-Chair Tarr.]
2:36:53 PM
MR. STICKEL continued to describe the mechanism for calculating
the GVPP (slide 9). He reiterated that transportation costs,
also known as netback costs, are subtracted from the taxable
value to arrive at the GVPP. He said netback costs include the
tanker costs for getting from Valdez to the West Coast, the
tariff for TAPS, the tariff for any feeder pipelines, and any
quality bank adjustment. He noted that the ANS price of $66 per
barrel is actually the price on the West Coast when the oil is
sold. He stated that subtracting DOR's estimated transportation
costs of $8.81 per barrel results in a GVPP of [$57.19] per
barrel and a taxable value of about $9.8 billion for FY 20.
2:38:12 PM
REPRESENTATIVE RAUSCHER inquired whether the transportation cost
of $8.81 is a flat rate rather than an average.
MR. STICKEL replied that the $8.81 is an average. He said each
company has a slightly different marine cost.
2:38:48 PM
MR. STICKEL moved to slide 10 and looked at step 3, lease
expenditures. He said the production tax is essentially a
modified version of a net profits tax - companies are allowed to
deduct both capital expenditures and operation expenditures.
For capital expenditures, he stated, DOR relies in general on
Internal Revenue Service (IRS) guidelines to determine what
qualifies as a capital expenditure. He noted that one
difference from an income tax is that companies receive an
immediate deduction of their capital costs, as there is no
depreciation schedule in the production tax. Operating
expenditures are essentially anything that is not a capital
expenditure, such as ongoing costs of operations and labor.
MR. STICKEL added that when looking at lease expenditures, there
are two other terms to understand in addition to operating and
capital allowable lease expenditures and deductible lease
expenditures. He said allowable lease expenditure refers to
generally any cost in the unit directly associated with
producing the oil; this is everything that is allowed under the
production tax code. Not everything is an allowable lease
expenditure, he continued; for example, such things as financing
costs, lease acquisition costs, dispute resolution costs, and
dismantlement and removal and restoration costs. Deductible
lease expenditure, he advised, is a term of art that DOR uses
solely for presentation purposes; it is not something that
appears in any statute or regulation. He explained that when
presenting deductible lease expenditures, DOR is talking about
that portion of allowable lease expenditures that are applied in
the tax calculation in a given year up to the GVPP. He said any
expenditure beyond those deductible lease expenditures turns
into a carry forward lease expenditure that a company can use in
a future year to offset a future year's taxes.
2:41:16 PM
REPRESENTATIVE HANNAN recalled Mr. Stickel stating that
deductible capital expenditures were not depreciated; they were
within the year of use. She posed a scenario in which a company
buys a $1 million widget and offered her understanding that the
company can deduct the entirety of that expense that year.
MR. STICKEL responded correct.
REPRESENTATIVE HANNAN requested Mr. Stickel to give an example
of the kind of capital that is done in a year.
MR. STICKEL posed an example of constructing a building on the
unit or drilling a well, both things that will have a long-term
life. Under a corporate income tax, he said, that cost might be
depreciated over time, but in the state's production tax that
cost would be deducted entirely in the year earned. He stated
it is typical in these types of taxes around the world to have
some sort of benefit for capital spending like that.
REPRESENTATIVE HANNAN asked whether a whole well is typically
built in one year, as she was thinking it spanned a longer time
period. She offered her understanding that it would be
portioned out between ordering the parts, shipping the parts,
and getting it put up at the drill site, and that that would
take more than one year. She asked how that capital expenditure
would be differentiated.
MR. STICKEL answered that that might better be a question for an
auditor and said he would get back to the committee with some
clarity on what DOR does when there is a multi-year project.
2:43:52 PM
REPRESENTATIVE RAUSCHER requested an example of what constitutes
a lease expenditure.
MR. STICKEL replied that a lease expenditure is any operating or
capital expenditure - basically the costs of operating the unit,
any cost directly associated with the producing of the oil.
Examples of lease expenditures, he continued, include drilling a
well, putting up a facility to process the oil, and ongoing
costs of labor.
REPRESENTATIVE RAUSCHER surmised it must be performed on the
lease.
MR. STICKEL responded, "Generally associated with the lease."
REPRESENTATIVE RAUSCHER further surmised it must be associated
with the lease but not necessarily on the lease.
MR. STICKEL answered yes and said costs can be on the lease and
also associated with the lease.
2:44:44 PM
REPRESENTATIVE HOPKINS recalled the statement that deductible
lease expenditure is a term of art of what is allowed under the
allowable lease expenditures up to GVPP. Referring to slide 10,
he posed a scenario in which the deductible operating and
capital expenditures add up to $60 in total lease expenditures.
He inquired whether in that scenario the production tax value
(PTV) would be $0 [rather than the $29.93 shown on the table]
and $2.81 would be carried over into the next year.
MR. STICKEL answered, "That's generally the right way to look
at." He noted that the calculations on slide 10 show about $4.7
billion in lease expenditures that companies would be able to
use to offset their GVPP down to $0. After applying those lease
expenditures, he said, there is an additional $823.6 million of
lease expenditures that were not used in the tax calculation,
which is highlighted in yellow at the bottom of the chart. He
explained this could be a company that doesn't have enough
production to use up all those lease expenditures or a company
that is still in the exploration or development phase; so, in
the following year or five years from now, the company could use
the $823 million carried forward.
REPRESENTATIVE HOPKINS observed that the estimates on the chart
show the State of Alaska receiving $524 million in total tax
paid in FY 20 and owing $823 million.
MR. STICKEL replied that the $823 million is a carried forward
lease expenditure that can be used to offset production tax
value in a future year. It is not that the State of Alaska owes
$823 million, he continued, it is an asset to the company to
potentially reduce its taxes in a future year and the maximum
benefit would be 35 percent of that lease expenditure amount.
REPRESENTATIVE HOPKINS requested an explanation of the number 35
percent.
2:47:18 PM
CO-CHAIR TARR responded that 35 percent is the tax rate.
MR. STICKEL concurred.
CO-CHAIR TARR provided the committee members with a copy of the
lease expenditure statute, AS 43.55.165.
2:47:38 PM
REPRESENTATIVE RASMUSSEN offered her understanding that the
chart shows Alaska [companies] paying [$8.81] just to get the
oil to market. She asked whether companies in the Lower 48 take
on that cost.
MR. STICKEL answered that there is a netback cost for most oil
production and that it varies depending on the field. For
example, he said, in some areas in Alberta the production is
very far from infrastructure, so those netback costs are very
high. There are fields that are very close to market, he
continued, so those netback costs are much lower than in Alaska.
REPRESENTATIVE RASMUSSEN, responding to Commissioner Tangeman,
clarified that her understanding is that the $8.81 is a
deduction.
REPRESENTATIVE RASMUSSEN inquired how the [$27.26] in deductible
total lease expenditures compares to other states such as Texas
and North Dakota that don't have major costs for getting their
oil to market.
MR. STICKEL replied he doesn't have with him a comparison of
Alaska's cost structure to other jurisdictions, but in general
Alaska is a high cost jurisdiction.
REPRESENTATIVE RASMUSSEN asked whether Alaska has higher costs
for all expenditures, including lease expenditures and
transportation.
MR. STICKEL responded it would be safe to say Alaska is either
similar or higher. He added that Alaska is definitely not a low
cost jurisdiction.
2:49:50 PM
REPRESENTATIVE SPOHNHOLZ noted that net operating loss, as it
relates to oil taxes, is not included on the chart. She asked
whether net operating loss is a term of art that relates to
deductible and nondeductible lease expenditures or whether it
isn't included in the chart at all.
MR. STICKEL answered that this relates to nondeductible lease
expenditures. He explained that, prior to calendar 2018 under
the previous tax law, the $824 million would get converted to a
net operating loss credit. With the tax changes that took place
beginning in 2018, he continued, companies no longer earn a
credit for those excess lease expenditures and instead they have
the carry forward provision for those lease expenditures.
REPRESENTATIVE SPOHNHOLZ offered her understanding that they are
no longer called net operating losses because they are not
actually cashable, but they can be carried forward as a credit
for up to five years.
MR. STICKEL replied that DOR is referring to those lease
expenditures as a carried forward annual loss, and a company can
carry those forward indefinitely. He said there is a provision
where the value erodes over time if the company doesn't use up
the carried forward lease expenditure within 8 or 11 years, but
a company does get to carry it forward indefinitely. Responding
further to Representative Spohnholz, he reiterated that they are
called carried forward annual loss.
2:51:46 PM
CO-CHAIR TARR offered her understanding that net operating loss
is used for the corporate income tax. She said the lease
expenditure carry forward could be differentiated from the
corporate income tax loss in that one is carry forward and one
is net operating loss.
MR. STICKEL responded correct. He reminded members that today's
presentation is only about the production tax. He pointed out
that there is a completely separate carry forward provision in
corporate income tax and corporate income tax would take up its
own presentation.
2:52:54 PM
MR. STICKEL turned to slide 11 and addressed step 4, calculation
of the production tax value (PTV). He explained that the PTV is
the gross value at point of production (GVPP) less deductible
lease expenditures and it is essentially a measure of net profit
or the cash left over after subtracting royalties and all costs
of production. He further explained that each company is going
to have a separate PTV based on all of its North Slope activity,
including all fields and developments. So, he continued, if a
company is operating an existing field and investing in a new
field, both of those will be pooled together for calculating the
company's PTV. He said the PTV is the tax base for the
production tax and that it is also the basis for any effective
tax rate analysis and distribution of cash flows analysis that
DOR will be presenting in the addendum.
MR. STICKEL moved to slide 12 and discussed step 5, gross
minimum tax. He pointed out that two parallel tax calculations
are essentially done side-by-side, the gross minimum tax and the
net profits tax, and said that the company pays the higher of
those two calculations. Referring to the column for minimum
tax, he advised that the minimum tax for all prices over $25 per
barrel is 4 percent of the GVPP. So, he continued, for fiscal
year 2020 the minimum tax is 4 percent times the $9.8 billion of
[GVPP], which equals [$393.9] million.
MR. STICKEL turned to slide 13 and reviewed step 6, net tax and
gross value reduction (GVR). Drawing attention to the column
for calculating net tax, he said the net tax is based on the PTV
of $5.15 billion minus a gross value reduction provision. The
GVR, he explained, is an incentive for new development that
excludes a portion of the value of new fields from the tax
calculation to get to the adjusted PTV and the 35 percent net
tax rate applies to that adjusted PTV. So, he continued, for FY
20 the 35 percent tax rate before application of any credits
generates a tax before credits of $1.76 billion.
2:55:36 PM
MR. STICKEL displayed slide 14 and reviewed step 7, calculating
tax credits against liability. He said the largest tax credit
is the per-taxable-barrel credit and that the two different
varieties [non-GVR eligible and GVR eligible] of this credit are
shown in aggregate on the chart. He stated that the vast
majority of these are non-GVR eligible production and that those
fields receive a sliding scale credit ranging from $0-$8 per
taxable barrel. He explained that the $8 per taxable barrel
applies when the wellhead value is less than $80 per barrel,
which is roughly when ANS prices are less than about $89 per
barrel. He said GVR eligible production, which is new fields
during their initial period of production, receives a flat $5
per-taxable-barrel credit. He pointed out that the $5 per-
taxable-barrel credit can reduce [a company's tax liability]
below minimum tax, while the sliding scale credit for non-GVR
production cannot reduce a company's tax liability below the
minimum tax. Mr. Stickel further pointed out that any per-
taxable-barrel credits not used in the year incurred are
forfeited. He said they cannot be carried forward and cannot be
refunded and that that is true of any credits under this section
of the tax code. For example, he continued, in FY 20 a little
over $1.3 billion of per-taxable-barrel credits are generated
based on the amount of production, and in calculating the
production tax liability the companies can claim a little over
$1.2 billion. Mr. Stickel drew attention to the $22 million in
additional tax credits against liability shown on the chart and
explained that this includes some small producer credits and
prior year credits. He said the total tax after credits is then
calculated by subtracting the credits from the higher of the
tax, which is the $1.76 billion net profits tax, to arrive at a
total tax after credits of $481.3 million for FY 20.
2:58:05 PM
MR. STICKEL moved to slide 15 and outlined step 8, adjustments
and total production tax paid to the state. He explained that
the $43 million in adjustments includes prior year tax payments
and refunds, private landowner royalty tax, hazardous release
conservation surcharge, tax revenue from ANS gas production, and
any net tax liability from Cook Inlet production. He said the
estimated total [production] tax paid to the state is then
calculated by adding the $43.4 million in other adjustments to
the $481.3 million in total tax after credits, to arrive at a
total forecast of $524.7 million in 2020. That represents the
total cash that DOR is estimating to the general fund from
production tax in the budget year, he added.
MR. STICKEL, responding to Co-Chair Tarr and Representative
Hopkins, explained that the figure of $2.80 represents the
estimated production tax after credits per taxable barrel of
North Slope oil production.
2:59:49 PM
REPRESENTATIVE SPOHNHOLZ recalled Mr. Stickel describing the
gross value reduction (GVR) as an incentive for new development
and that it is [a flat $5 per-taxable-barrel] credit. She asked
how long this incentive lasts and to what projects it applies.
MR. STICKEL replied that the GVR is a provision that excludes
either 20 or 30 percent of the gross value of production from
the production tax value calculation for certain new fields. It
is 20 percent for any qualifying new field, he said, or 30
percent if a field is comprised exclusively of state-issued
leases with greater than 12.5 percent royalty. Currently all
the GVR production is receiving a 20 percent rate, he continued.
He noted that this benefit expires after seven years of
production or any three years with greater than $70 ANS price.
3:01:19 PM
REPRESENTATIVE RAUSCHER recalled Mr. Stickel stating "if" a
company decides to use the [per-taxable-barrel] credit. He said
he would think it would be automatic and would just happen when
the barrels are produced.
MR. STICKEL responded that when filling out its production tax
form and the calculations, the company chooses to claim the
credits to which it is entitled. He said there are certain
provisions where a company may elect to use one credit or
another credit to best serve the company's interest.
3:02:14 PM
REPRESENTATIVE TUCK brought attention to slides 12 and 13 and
inquired whether he is correct in understanding that a company
could either do the gross minimum tax method or do the net tax
and gross value reduction method.
MR. STICKEL answered correct. He noted that the gross minimum
tax shown on slide 12 actually functions as a tax floor, and the
company pays the higher of, in terms of the tax before credits.
Drawing attention to slide 12, he said the minimum tax that DOR
is estimating for FY 20 is $394 million before credits.
Bringing attention to slide 13, he said the net tax [DOR is
estimating] is $1.76 billion. He explained that the higher of
these two calculations becomes the tax before credits.
3:03:40 PM
COMMISSIONER TANGEMAN pointed out that the company doesn't get a
choice both [the minimum tax and the net tax] are calculated
and then the company pays the higher of the two.
REPRESENTATIVE TUCK asked what percentage of the $1.759 billion
is the gross minimum versus the net tax and gross value.
MR. STICKEL replied he would get back to the committee with that
calculation.
3:04:32 PM
REPRESENTATIVE HOPKINS inquired as to how much of the $8.81 in
transportation cost is the TAPS tariff. He surmised the TAPS
tariff is fairly static as opposed to the other shipping costs.
MR. STICKEL offered his belief that the TAPS tariff is in the
range of $5-$6 per barrel.
REPRESENTATIVE HOPKINS offered his understanding that the TAPS
tariff is the majority, 50-60 percent, of the $8.81.
MR. STICKEL confirmed the TAPS tariff is the largest portion,
but said he doesn't have the breakout before him. He stated he
would get back to the committee with that information.
3:06:47 PM
CO-CHAIR TARR reviewed the questions for which DOR would be
getting answers back to the committee. She pointed out that the
addendum to the presentation provides the share between the
federal, state, and municipalities, as well as some historical
information. She said the committee would have DOR return to
continue the rest of the presentation.
3:07:02 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:07 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB122 Sponsor Statement 4.8.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 ver U 4.8.19.PDF |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Sectional Analysis ver U 4.8.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Fiscal Note -DNR-PKS 4.13.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Supporting Document - Land survey 4.14.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Supporting Document - Land patent 4.14.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Supporting Document - Presentation by Rep. Hannan 4.14.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Supporting Document - Friends of Admiralty Letter of Support 4.13.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HB122 Supporting Document - Juneau Area State Parks CAB 4.13.19.pdf |
HRES 4/15/2019 1:00:00 PM HRES 4/17/2019 1:00:00 PM |
HB 122 |
| HRES Oil and Gas Tax Presentation - DOR 4.15.2019.pdf |
HRES 4/15/2019 1:00:00 PM |
Oil and Gas Tax |