Legislature(2021 - 2022)DAVIS 106
01/20/2022 11:30 AM House WAYS & MEANS
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Governor's 10 Year Plan | |
| Presentation(s): Fall 2021 Revenue Forecast Summary | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
January 20, 2022
11:33 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Andy Josephson
Representative Andi Story
Representative Calvin Schrage
MEMBERS ABSENT
Representative Adam Wool
Representative Mike Prax
Representative David Eastman
COMMITTEE CALENDAR
PRESENTATION(S): OVERVIEW(S): GOVERNOR's 10-YEAR PLAN
- HEARD
FALL 2021 REVENUE FORECAST SUMMARY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOHN CROWTHER, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Introduced Dr. Pascal Umekwe.
PASCAL UMEKWE, PhD, Petroleum Reservoir Engineer
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Fall 2021 Production Forecast."
DAN STICKEL, Chief Economist
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Fall 2021 Revenue Forecast Presentation."
BRIAN FECHTER, Deputy Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Commented briefly during the Department of
Revenue's presentation.
ACTION NARRATIVE
11:33:58 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 11:34 a.m. Representatives
Schrage, Story, Josephson, and Spohnholz were present at the
call to order.
^OVERVIEW(S): GOVERNOR'S 10 YEAR PLAN
11:35:38 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be a presentation on the governor's 10-year plan.
11:36:14 AM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, introduced the presenter, Dr. Pascal Umekwe.
11:36:22 AM
PASCAL UMEKWE, PhD, Petroleum Reservoir Engineer, Division of
Oil and Gas, Department of Natural Resources, delivered a
PowerPoint presentation, titled "Fall 2021 Production Forecast"
[hard copy included in the committee packet]. He stated that
the presentation would provide a 10-year petroleum forecast. He
began by recapping fiscal year 2021 (FY 21), stating that there
was a 2 percent increase in production on the North Slope
between FY 20 and FY 21. Because a slow decline was
anticipated, this growth was significant. He continued that
there was a 20 percent growth in production within the Milne
Point Unit; the Point Thompson Unit had over a 40 percent
growth; production held flat for Kuparuk River Unit which
extracts over 100,000 barrels of oil per day; Greater Mooses
Tooth 1 had over a 50 percent drop due to reservoir challenges;
there has been no drilling at Oooguruk since 2016; Colville
River Units had peak rates between 1,000 to 32,000 barrels per
day; Pikka is expected to produce 80,000 barrels per day in
phase 1 and 40,000 barrels per day after that; and the Willow
project plans to submit a supplemental environmental impact
statement, with the first oil announcement expected in 2025 or
2026. Its peak production rate is expected to be around 130,000
barrels per day. He remarked that these rates would add to the
declining base production.
11:44:13 AM
DR. UMEKWE stated that the forecast generated for statewide
production this year is expected to be around 500,000 barrels of
oil per day. He stated that the Department of Revenue receives
three levels of oil production projections, with 555,000 barrels
of oil per day being the high figure and 430,000 barrels of oil
per day being the low figure. Moving to slide 4, he pointed out
that the blue area in the graph represents the current
production outlook for oil fields that are currently online,
while the orange area represents production expected from wells
drilled in FY 22. The gray area represents production from
projects that will play a more significant role in the next five
to ten years. He related that the department focuses on
generating accurate near-term forecasts and realistic long-term
forecasts when generating production outlooks for oil fields
within the state. He warned that these forecasts represent a
snapshot, and changing conditions would require updates. He
said that other factors shaping the forecast include
environmental, social, and governance issues.
11:49:26 AM
CHAIR SPOHNHOLZ thanked Dr. Umekwe.
^PRESENTATION(S): FALL 2021 REVENUE FORECAST SUMMARY
11:49:40 AM
CHAIR SPOHNHOLZ announced that the final order of business would
be a presentation on the revenue forecast summary from fall
2021.
11:50:10 AM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue, provided a PowerPoint presentation, titled "Fall 2021
Revenue Forecast Presentation" [hard copy included in the
committee packet]. He stated that the presentation addresses a
recent public monthly update from the department. He continued
that if the expected unrestricted general fund revenue is above
or below 10 percent of the official revenue forecast for the
next two years, a notification will be issued to interested
parties. Because of higher oil prices, he said, there will be
$281 million of additional revenue for FY 22, and potentially
$467 million for FY 2023.
11:52:23 AM
MR. STICKEL gave background on the fall revenue forecast
published in December, reviewing the factors affecting revenue.
He listed that the gross domestic product is down slightly from
2021; industries which impacted employment the most include
leisure, hospitality, transportation, and mineral extraction;
bankruptcies and foreclosures are holding below pre-COVID-19
pandemic levels; wages and salaries have recovered to pre-COVID-
19 pandemic levels; housing starts will end in 2021 on par with
pre-COVID-19 pandemic levels; and mortgage delinquency rates
were lower than pre-COVID-19 pandemic levels.
MR. STICKEL, addressing the forecast's assumptions, advised that
the economic impacts of the pandemic are uncertain, and the
department has developed a plausible scenario to forecast these
impacts. He stated that [the forecast] assumes stable growth in
investment markets, and he noted that the federal revenue
forecast has incorporated stimulus funding since November 30,
2021. He stated that this partially reflects the Infrastructure
Investment and Jobs Act funding. He continued that the assumed
price per barrel of oil for FY 22 is $75.72 and the price per
barrel for FY 23 is $71.00. The assumed rate of return for the
permanent fund rate is 29.7 percent. He remarked that $29.8
billion in FY 21 is the highest state revenue in history.
MR. STICKEL, addressing revenues in the state, said unrestricted
general funds are revenues which are available for appropriation
by the legislature. He added that designated general fund
revenues are technically available, but they are customarily
appropriated for a specific purpose. Other restricted revenues
are not available for appropriation. He stated that the primary
source of investment revenue for the state is the permanent
fund; however, additional permanent fund earnings above the 5
percent transfer are considered restricted. Because the federal
government places restrictions on the use of various federal
funds, he said, federal receipts are shown as restricted
revenue. He highlighted that total revenue forecasted in FY 22
is $13.4 billion and FY 23 is $14.6 billion.
12:06:28 PM
MR. STICKEL, moving to slide 10, explained that the unrestricted
revenue forecast is the typical focus concerning revenue and the
state budget. He said that investment revenue is the largest
source of unrestricted revenue for the state and is forecasted
to generate $3.1 billion for FY 22, and $3.4 billion for FY 23.
He pointed out petroleum revenue is expected to increase to $2.3
billion for FY 22. Slide 11 summarizes some of the key changes
between the spring and fall forecasts for unrestricted revenue.
He stated that these revenue numbers do not include the sweep of
the higher education investment fund.
12:11:49 PM
MR. STICKEL said that slide 13 shows a graph of the 10-year
projection of the estimated percentage of market value (POMV)
transfer from the permanent fund to the general fund. The
transfer is expected to grow to $4.6 billion by FY 31, which is
based on a long-term earnings assumption of 6.2 percent for the
fund and a 5 percent POMV payout starting in FY 22. He
continued to slide 14, which shows the unrestricted petroleum
revenue history and forecast. The four main sources for
petroleum revenue are property tax, corporate income tax,
production tax, and royalties. Because of the recession from
the pandemic, he said, petroleum corporate income tax was low at
$19.4 million in FY 21. He stated that this is expected to rise
to $145 million by FY 22 and $240 million in FY 23. He
explained that Alaska's corporate income tax automatically
adopts federal provisions into its tax code, including carryback
loss provisions. The net impact of those refunds was $2.4
million in FY 21 and $49.6 million in FY 22. Production tax is
the state severance tax on oil and gas. For the North Slope, it
consists of a net-profits tax with a gross minimum tax floor.
Due to the current oil price, he said, there is an expectation
that most major producers will pay above the minimum tax in the
future.
MR. STICKEL explained that petroleum companies calculate 35
percent of a net-profits tax and can deduct up to $8 per taxable
barrel as a credit. The numbers reflected on the slide
represent the net tax received by the state after the deduction
of tax credits. Oil and gas royalties are the largest source of
unrestricted petroleum revenue and are expected to bring in
around $1 billion in each of the next two years. These numbers
only represent the royalties allocated to the general fund.
There is also a significant portion of royalties that are
dedicated to the permanent fund dividend and the school fund
that are not shown on slide 14.
MR. STICKEL moved to slide 15, which shows the largest
contributor of unrestricted non-petroleum revenues is taxes. He
stated that in a typical year the largest portion of this is the
corporate income tax, which generated a little over $100 million
in FY 21; however, for FY 22 this was only $15 million. He
explained that the significant decrease can be attributed to
companies struggling from the pandemic recession, as well as
carryback refunds from the Coronavirus Aid, Relief, and Economic
Security Act tax provisions. He said $120 million is expected
in FY 23. Other taxes include fines and forfeitures, charges
for services, rents and royalties, and dividends to the state
from state corporations. The refined fuel surcharge is
customarily appropriated to support programs with the Department
of Environmental Conservation, however; beginning in FY 22 it
will be reflected as general fund revenue in the forecast, which
explains the zeros in the table under those years.
12:22:44 PM
MR. STICKEL, in response to Representative Spohnholz, said that
the productivity of each new oil field has many factors which
contribute to output. The production tax has a specific
incentive called the "gross value reduction," which allows
companies to reduce their tax liability for the first several
years of oil production. He said that the system is set up to
minimize the immediate tax burden on new fields, which is an
incentive. He explained that gross value reduction applies for
the first seven years of production, or ends early after three
years of production, if the price of oil exceeds $70 per barrel.
12:26:08 PM
BRIAN FECHTER, Deputy Commissioner, Department of Revenue, noted
that while the severance tax may not "kick in" for a benefit to
the state for a few years, there are numerous other taxes, such
as property taxes and royalties, which provide benefits to the
state.
12:27:14 PM
The committee took an at-ease from 12:27 p.m. to 12:29 p.m.
12:29:08 PM
REPRESENTATIVE STORY noted that there is a growth in revenue for
the first time in years, which may relieve pressure on the
downward cuts which have been made in some areas.
CHAIR SPOHNHOLZ commented that this is the first time the
revenue forecast has increased in six years. She noted that
legislation passed in 2018 has allowed the legislature to use
permanent fund earnings for government operations. She
expressed excitement for the opportunity to address the needs
unmet during the pandemic and potentially pay down the
Constitutional Budget Reserve.
12:32:55 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
12:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Fall 2021 Revenue Forecast Presentation, 1.20.22.pdf |
HW&M 1/20/2022 11:30:00 AM |
|
| DNR Fall 2021 Production Forecast, 1.20.22.pdf |
HW&M 1/20/2022 11:30:00 AM |