Legislature(2005 - 2006)CAPITOL 106
08/01/2006 08:00 AM House STATE AFFAIRS
| Audio | Topic |
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| Start | |
| HB3005 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB3005 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
August 1, 2006
8:06 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Carl Gatto, Vice Chair
Representative Jim Elkins
Representative Bob Lynn
Representative Jay Ramras
Representative Berta Gardner
Representative Max Gruenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Mark Neuman
COMMITTEE CALENDAR
HOUSE BILL NO. 3005
"An Act providing for an additional production tax on oil when
the price index on oil is above a certain amount; and providing
for an effective date."
- MOVED HB 3005 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB3005
SHORT TITLE: PROGRESSIVE TAX ON OIL
SPONSOR(s): STATE AFFAIRS
07/25/06 (H) READ THE FIRST TIME - REFERRALS
07/25/06 (H) STA, FIN
07/26/06 (H) STA AT 10:00 AM CAPITOL 106
07/26/06 (H) Heard & Held
07/26/06 (H) MINUTE(STA)
08/01/06 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
CHERIE NIENHUIS, Petroleum Economist
Tax Division
Juneau Office
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
3005.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 8:06:03 AM. Representatives
Seaton, Lynn, Gardner, Gruenberg (via teleconference), Gatto,
and Elkins were present at the call to order. Representative
Ramras arrived as the meeting was in progress.
HB3005-PROGRESSIVE TAX ON OIL
8:06:10 AM
CHAIR SEATON announced that the only order of business was HOUSE
BILL NO. 3005, "An Act providing for an additional production
tax on oil when the price index on oil is above a certain
amount; and providing for an effective date."
CHAIR SEATON mentioned that there are several packets of
materials plus amendments in the committee packet. He reviewed
that at the last meeting the committee had looked at HB 3005 and
what it meant with regard to the retroactivity clause as it
relates to the progressivity of .35 percent per dollar above the
West Texas Intermediate (WTI) price of $50, capped out at $150
WTI. The tax was not applied to the index, but rather the
wellhead value.
8:08:39 AM
REPRESENTATIVE LYNN asked how HB 3005 would mesh together with
any of the various proposals related to the production profits
tax (PPT) that are before the legislature.
CHAIR SEATON explained that HB 3005 only looks at the
progressivity element of a comprehensive tax bill. If it
appears that the legislature is having problems coming to a
consensus on a complete rewrite of the tax package, he said, HB
3005 would allow the state to recover part of the value that has
been realized from high [oil] prices, and to do so
retroactively. The bill does not change either the economic
limit factor (ELF) or the 15 percent tax rate. The proposed
legislation could be incorporated into either a net or gross tax
plan. He said the bill is not meant to supplant or supersede or
curtail other discussions, but rather to act as a fallback
position.
8:12:23 AM
CHAIR SEATON directed attention to a multi-page handout in the
committee packet, which shows "progressivity schemes" - all the
progressivity for all the proposals that have come before the
legislature to date. He highlighted some examples of various
bills' plans. The last bill shown on the second page of the
handout is HB 3005, which Chair Seaton reviewed would pertain to
oil over $50 a barrel WTI, and the calculation would be: "(.35%
x WTI-50) x gross; at $150 WTI the surcharge caps at 35 %."
8:17:01 AM
CHAIR SEATON said most of the ensuing pages in the handout are
"recaps of those actual languages." He turned to the last [5]
pages of the handout, which shows the PowerPoint presentation on
Alaska PPT to the House Resources Standing Committee, March 13,
2006, by Barry Pulliam and Dr. Tony Finizza of Econ One. The
assumption shown is 0.25 percent per dollar over $45 per barrel
WTI, with sliding scale tax. He reviewed that the proposal in
the committee packet from the last hearing is by Pedro van
Meurs, Ph.D., and, as "Option 2," shown thus: "Basic Tax Rate =
(WTI - 50.00) * 0.25%." He reminded the committee that HB 3005
is a standalone bill that would not modify the lower tax.
8:19:11 AM
[Following was a brief discussion regarding what has occurred
with the various bills on this issue that have come before the
legislature thus far this year.]
8:21:50 AM
CHERIE NIENHUIS, Petroleum Economist, Tax Division, Juneau
Office, Department of Revenue, directed attention to a matrix in
the committee packet, entitled, "[HB] 305 Tax Rate with $50 WTI
per Barrel Trigger Point." She noted that the matrix shows the
Alaska North Slope (ANS) [and WTI] oil prices [from $50 to $25,
top to bottom at the left of the page]. She said the $50 ANS
price basically equates to a $52 WTI - an historical
differential that can change at times. She explained that [also
on the matrix, in columns] are various progressive surcharge
rates, all the way down to 0.175 percent and as high as 0.45
percent. Below each rate is shown the actual percentages of the
tax with those various prices and various progressive surcharge
rates. Ms. Nienhuis pointed out where the 35 percent cut off
rate appears throughout the matrix [color highlighted on the
page]. She said that is a feature of the matrix that she
provided in response to the committee's request from the last
hearing.
CHAIR SEATON noted that the occurrence shown at the bottom-right
corner of the matrix - where the amount of 90.90 percent is a
result of the progressive surcharge rate of 0.45 percent and an
ANS oil sales price of $250 - would not take place under HB
3005, because of the bill would impose a cap of 35 percent. He
indicated that the cap shows along "the top of the shaded line."
8:25:08 AM
MS. NIENHUIS, in response to Representative Gatto, concurred
that as the state begins to produce more heavy oil, the
aforementioned differential could become greater. She said, "A
lot has to do with what the benchmark is, as well." She
surmised that the alternative would be to "base it on ANS
price." She remarked that she has noticed that most of the
bills coming out of committees have been based on ANS price.
She guessed that that might be "a little safer, as far as on
down the road," but she specified that she cannot provide
comment on what the committee should choose.
MS. NIENHUIS, in response to Chair Seaton, confirmed his
summation that the value of the "basket of oil" is based on the
actual value of the oil, and if it is heavy oil, that would
presumably bring down the value. She noted that over the past
month the differential has dropped somewhat to around $1.60-
$1.80.
CHAIR SEATON asked if gas liquids injected as oil into the
pipelines would change the mixture.
MS. NIENHUIS replied that she does not know for certain, but can
find out.
8:28:41 AM
MS. NIENHUIS, in response to a question from Representative
Gatto, offered her understanding that heavy oil has more
components that need to be removed from the oil, thus the
processing is more expensive and the value of what is left is
decreased.
REPRESENTATIVE GATTO indicated that he would like to know more
about heavy oil.
8:30:08 AM
CHAIR SEATON suggested that an expert in the field may better
offer that information.
8:30:30 AM
CHAIR SEATON directed attention to the committee's own draft
memorandum in the committee packet with two attached amendments,
one relating to "185 exploration credit" and the other to heavy
oil credits addressed in the bill. He said he would like the
committee to consider the amendments and decide if it would like
to recommend the bill move forward to the House Finance
Committee with the amendments. He explained that the committee
has heard a lot of concern about heavy oil, and if the lower tax
rate changes are not made, there is nothing in [the bill] to
indicate that the committee is concerned about investment in
heavy oil. He said the "185 credits" are exploration credits,
"where you have to be over three miles away from another well."
He relayed that all the bills the legislature has sent forward
have extended those credits for 10 years. Chair Seaton said he
does not want to complicate the bill by incorporating the
amendments at present, but would like to see them ready for the
House Finance Committee. He stated, "If ... the structure of
our bill was incorporated with another tax rewrite, it's already
going to have some provisions on heavy oil and ... exploration
credits in there, so it would complicate the bill and need to be
pulled out. If it would be a standalone backup position, then
I'd like the committee to consider whether they want to forward
these to [the House Finance Committee] for consideration so that
the bill ... not only raises taxes but also extends those
credits."
8:35:43 AM
REPRESENTATIVE GATTO said he has spoken with some Senators who
support the bill.
REPRESENTATIVE MARK NEUMAN, Alaska State Legislature, commented
that he likes the standalone feature of the bill, and he opined
that it is a piece of legislation worthy of being passed on.
CHAIR SEATON expressed an interest in receiving a motion to send
the amendments and cover letter along with the bill.
8:37:23 AM
REPRESENTATIVE GARDNER asked Chair Seaton to clarify what the
advantage is in moving the bill out of committee without the
amendments being adopted into it.
CHAIR SEATON explained:
The idea ... is: we have a very simple progressivity
bill that could be incorporated with any other tax
changes. If we incorporate these two amendments into
the bill, it becomes more complicated. And any other
bill that has been going forward is going to
incorporate ... the credit portions, and then we would
have to be pulling things out and adding them back in.
8:38:19 AM
CHAIR SEATON, in response to a request from Representative
Gruenberg, read the letter of intent, which read as follows
[original punctuation provided]:
Attached to this memorandum are two amendments that
were reviewed by the House State Affairs Committee.
The first amendment provides financial incentives for
companies to develop their heavy oil resources. This
amendment is based upon the concept presented in HB
498 sponsored by Representative Rokeberg during the
regular session and worked on extensively by the House
Resources committee.
The second amendment provides for an extension of the
185 exploration credits included in nearly every
version of the PPT legislation to date.
These amendments were not adopted by the House State
Affairs Committee, as an effort was made to keep HB
3005 as straightforward as possible. However, the
amendments are being passed along with HB 3005 in the
event that a more complete PPT package does not appear
likely to emerge during this special session. The
House State Affairs Committee believes that heavy oil
incentives, and the 185 credits should be included in
whatever tax package finally passes the legislature,
and would respectfully request the House Finance
Committee to consider these amendments as another tool
in the toolbox should they be needed.
8:39:58 AM
REPRESENTATIVE GRUENBERG said he was under the impression that
the amendments would only be included "if this progressivity
bill passes as a standalone bill." He said the letter is
drafted in a such a way that sounds like the committee would
like the amendments incorporated "regardless of whatever form
the legislation takes." He concluded, "I thought that we were
considering the main bill itself as a standalone bill, and so,
if we do that and that's our premise, then we should only say
that these amendments would be included if we only pass the main
bill - the progressivity bill - and nothing else. Am I wrong in
what I'm thinking we're doing here?"
8:41:21 AM
CHAIR SEATON responded that he thinks that is the intended
effect. To address continued concern from Representative
Gruenberg, he highlighted the sentence: "However, the
amendments are being passed along with HB 3005 in the event that
a more complete PPT package does not appear likely to emerge
during this special session."
8:42:03 AM
REPRESENTATIVE GATTO raised the issue of possibly having to
repeal legislation in the future.
CHAIR SEATON pointed out every time new legislation is
considered, language that has come before is modified and/or
deleted.
8:44:31 AM
REPRESENTATIVE GATTO moved that HB 3005 be forwarded to the
House Finance Committee accompanied with a cover letter and
amendments labeled, "24-LS1990\G.2, Bullock, 7/28/06" and "24-
LS1990\G.3, Bullock, 7/28/06." There being no objection, the
motion carried.
CHAIR SEATON noted that in the committee packet is a letter from
the bill drafter that address a concern stated at a previous
meeting regarding the bill's language.
CHAIR SEATON mentioned questions posed during the last bill
hearing, and he drew attention to a handout in the committee
packet that addressed the questions. The first question is:
"Does progressivity 'take away all the upside?'" The handout
explains the reason that the answer to that question is no, and
Chair Seaton reviewed the answer with the committee. The second
question is: "What is the purpose of HB 3005?" He reviewed the
answer by reiterating his previous statements regarding the
reason for HB 3005.
8:50:10 AM
CHAIR SEATON clarified that the previous motion that passed had
been to send along the amendments and cover letter with the
bill; it was not a motion to move the bill out of committee.
8:50:41 AM
REPRESENTATIVE GATTO moved to report HB 3005, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes, along with the amendments and the letter.
CHAIR SEATON reminded Representative Gatto that the amendments
that would accompany the bill to the House Finance Committee
were not adopted, therefore the bill had not been amended.
[Representative Gatto's motion was considered withdrawn].
REPRESENTATIVE GRUENBERG noted that HB 3005 does not deal with
the repeal of ELF, thus he asked if the cover letter might also
include a recommendation that "if they can't pass anything else,
at least they repeal ... or do something with the ELF."
CHAIR SEATON said that would be beyond the scope of HB 3005. He
indicated that other committee members concurred, stating, "I
see a lot of heads shaking no here."
8:52:11 AM
REPRESENTATIVE GATTO moved to report HB 3005 out of committee
with individual recommendations and the accompanying fiscal
notes, along with the aforementioned attached amendments and
cover letter. There being no objection, HB 3005 was reported
out of the House State Affairs Standing Committee.
8:52:46 AM
REPRESENTATIVE GRUENBERG stated that although he was not able to
vote [due to his participating via teleconference], he would
like the record to reflect that his "comments on the report
sheet would have been a 'No recommendation.'"
8:53:22 AM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 8:53
a.m.
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