Legislature(2003 - 2004)

05/12/2003 09:12 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 12, 2003                                                                                       
                              9:12 AM                                                                                         
SFC-03 # 88,  Side A                                                                                                            
SFC 03 # 88,  Side B                                                                                                            
SFC 03 # 89,  Side A                                                                                                            
CALL TO ORDER                                                                                                               
Co-Chair Gary Wilken convened  the meeting at approximately 9:12 AM.                                                            
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Robin Taylor                                                                                                            
Senator Ben Stevens                                                                                                             
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Also Attending:   SENATOR FRED DYSON; REPRESENTATIVE  MIKE CHENAULT;                                                          
CHUCK HARLAMERT,  Juneau Section Chief, Tax Division,  Department of                                                            
Revenue;  JASON  HOOLEY,  Staff  to  Senator   Dyson;  MIKE  BARTON,                                                            
Commissioner,  Department of Transportation  and Public Facilities;                                                             
TOM BOUTIN, Deputy  Commissioner, Department of Revenue;  JAY HOGAN,                                                            
Deputy  Director, Office  of Management  and Budget,  Office of  the                                                            
Attending  via  Teleconference:    From  Anchorage:   VICKY  HALCRO,                                                          
Director,  Public  Affairs  and  Marketing,  Planned  Parenthood  of                                                            
Alaska; From  an offnet location:  KEN SURA, Landrum and  Brown; KIP                                                            
KNUDSON,   Deputy   Commissioner    of  Aviation,    Department   of                                                            
Transportation   and  Public  Facilities;  CHARLES  LOGSDEN,   Chief                                                            
Petroleum  Economist,  Tax  Division, Department  of  Revenue;  DOUG                                                            
THEIRWECHTER,  Marathon Oil Company; JOHN BARNES,  Manager of Alaska                                                            
Operations, Marathon Oil Company;                                                                                               
SUMMARY INFORMATION                                                                                                         
HB  90-TAX CREDIT:SALMON DEVELOPMENT/UTILIZATION                                                                                
The  Committee  heard from  the  Department  of Revenue,  adopted  a                                                            
committee substitute and reported the bill from Committee.                                                                      
SB  30-ABORTION: INFORMED CONSENT; INFORMATION                                                                                  
The  Committee heard  from  the sponsor  and Planned  Parenthood  of                                                            
Alaska. The bill moved from Committee.                                                                                          
SB 216-INTERNATIONAL AIRPORTS REVENUE BONDS                                                                                     
The  Committee  heard from  the  Department  of  Transportation  and                                                            
Public Facilities,  the Department of Revenue and  a consulting firm                                                            
contracted   by  the  Department   of  Transportation   and   Public                                                            
Facilities. The bill moved from Committee.                                                                                      
HB 243-EVALUATION OF AGENCY PROGRAMS                                                                                            
The Committee  heard from the Office  of Management and Budget,  and                                                            
the bill moved from Committee.                                                                                                  
HB  61-OIL & GAS TAX CREDIT FOR EXPLORATION/DEV                                                                                 
The Committee  heard from  the sponsor, the  Department of  Revenue,                                                            
and Marathon  Oil Company.  An amendment was  offered but no  action                                                            
was taken. The bill was held in Committee.                                                                                      
     CS FOR HOUSE BILL NO. 90(FIN)                                                                                              
     "An Act relating to a salmon product development tax credit                                                                
     and a salmon utilization tax credit under the Alaska fisheries                                                             
     business tax; and providing for an effective date."                                                                        
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair Wilken reminded  that this bill, "recommended by the Salmon                                                            
Task  Force,  provides  two  tax credits:  one  for  salmon  product                                                            
development and  another for salmon utilization. The  purpose of the                                                            
measure is to encourage  industry to invest in the production of new                                                            
value-added  salmon  products to  improve  marketability.  It has  a                                                            
retroactive clause to January 1, 2003."                                                                                         
Senator B. Stevens moved  for adoption of SCS CS HB 90, 23-LS0525\B,                                                            
as a working draft.                                                                                                             
Senator B.  Stevens detailed the changes  proposed in the  committee                                                            
substitute clarifying the  definitions of qualified expenditures for                                                            
salmon utilization.  He informed that  efforts were underway  by the                                                            
Governor's Office,  himself, and industry representatives  to ensure                                                            
the costs could be contained to their intended purposes.                                                                        
Senator Bunde  asked if  agreements were  entered into that  require                                                            
the retroactivity of this legislation.                                                                                          
Senator B.  Stevens responded that  this legislation was  drafted in                                                            
November 2002  with the anticipation that it would  have been passed                                                            
into law  earlier than  May 2003.  If the bill  had been enacted  in                                                            
February  2003, he  pointed out  the retroactivity  would have  been                                                            
limited to one month.                                                                                                           
CHUCK HARLAMERT,  Juneau Section Chief, Tax Division,  Department of                                                            
Revenue, stated he was  not involved in matters relating to the need                                                            
for  the  provisions  of this  legislation  to  be  retroactive.  He                                                            
surmised that affected  taxpayers could have made business decisions                                                            
based on  the passage of  this bill early  in the calendar  year. He                                                            
did not expect the retroactivity  to have a significant effect since                                                            
the salmon fishing season does not start until the spring.                                                                      
There was no objection  to the adoption of Version  "B" as a working                                                            
draft and the committee substitute was ADOPTED.                                                                                 
Senator B. Stevens  offered a motion to report HB  90 from Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
Without  objection SCS  CS HB  90 (FIN)  MOVED from  Committee  with                                                            
fiscal note #1 for $49,300 from the Department of Revenue.                                                                      
AT EASE 9:19 AM / 9:20 AM                                                                                                       
     CS FOR SENATE BILL NO. 30(JUD)                                                                                             
     "An  Act relating  to  information  and services  available  to                                                            
     pregnant  women  and  other  persons;   and ensuring   informed                                                            
     consent  before an abortion may  be performed, except  in cases                                                            
     of medical emergency."                                                                                                     
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken stated  that this bill, "places in statute a current                                                            
regulation that  states an abortion may not be performed  unless the                                                            
patient  gives informed  consent.  In addition,  SB  30 directs  the                                                            
Department  of  Health and  Social  Services  to develop  a  website                                                            
designed  to inform  a  pregnant women  regarding  her reproductive                                                             
SENATOR  FRED DYSON,  sponsor,  testified that  regulations  require                                                            
that doctors provide  for informed consent and that  this bill would                                                            
make the requirements statutory.  He stated that since introduction,                                                            
this  legislation  has  been  "extensively  modified  and  improved"                                                            
incorporating  recommendations  from the Department  of Law  and the                                                            
Department  of Health and Social Services.  He explained  that under                                                            
the provisions  of  this bill,  a doctor  would not  be required  to                                                            
utilize the  information supplied  by the  State, and could  instead                                                            
continue  to use information  compiled by the  doctor. He noted  the                                                            
information  supplied   by the  Department   of  Health  and  Social                                                            
Services would be continually  updated and available on the Internet                                                            
in several  languages. He suggested  this would allow the  doctor to                                                            
have  current information  on  support  and services  available.  He                                                            
informed  that  a doctor  who  chooses to  utilize  the information                                                             
provided  by the Department  would be exempt  from the liability  of                                                            
not providing adequate informed consent.                                                                                        
Senator Olson  asked the  affect of this  legislation on the  normal                                                            
operations  of practitioners.  He spoke as  a physician of  the many                                                            
existing requirements  placed on doctors and opposed  the imposition                                                            
of additional complexities.                                                                                                     
Senator Dyson relayed testimony  from doctors that they are "already                                                            
doing  a good  job of  informing  their patients  of  the risks  and                                                            
choices that  they have." He stated  that doctors already  providing                                                            
informed consent would  only be required to keep a record of such in                                                            
a  patient's  file.  He  predicted   that  the  utilization  of  the                                                            
Department  supplied  information  would  simplify the  process  for                                                            
doctors, as the  information would be kept up to date.  He cited the                                                            
"very few botched  abortion operations" in Alaska  as indicating the                                                            
most practitioners are performing adequately.                                                                                   
Senator  Olson expressed  concern  about  the additional  burden  of                                                            
compliance in the event of a medical emergency.                                                                                 
Senator Dyson  noted existing regulations  require informed  consent                                                            
for all  medical procedures,  which would  not change. He  suggested                                                            
that "no competent practitioner"  would perform "a somewhat invasive                                                            
procedure  like abortion"  without having  reviewed the matter  with                                                            
the patient.                                                                                                                    
Co-Chair Wilken  directed the discussion  to focus on fiscal  issues                                                            
related  to this  legislation  and not  "too much  of the  mechanics                                                            
part".  He  indicated opportunity   would be  provided  for  further                                                            
discussion on other aspects of the bill.                                                                                        
Senator  Olson  asked  the  anticipated   financial  impact  of  the                                                            
requirement to keep records of informed consent.                                                                                
Senator   Dyson  expected   no  additional   financial  impact,   as                                                            
documentation of informed consent is already required.                                                                          
Senator  Olson asked  the penalties  to a physician  for failure  to                                                            
comply with the statute.                                                                                                        
JASON HOOLEY,  Staff to Senator Dyson, responded that  the physician                                                            
would be civilly liable for compensatory and punitive damages.                                                                  
Senator Olson asked if this differs from current regulations.                                                                   
Mr.  Hooley answered  that  the  civil liability  provision  is  not                                                            
stipulated in the regulations.                                                                                                  
VICKY  HALCRO,  Director,  Public  Affairs  and  Marketing,  Planned                                                            
Parenthood of  Alaska, testified via teleconference  from Anchorage,                                                            
against the bill  on behalf of Anna Franks, Executive  Director. She                                                            
read a statement into the record as follows.                                                                                    
     I strongly urge you  to oppose SB 30. This proposed legislation                                                            
     would create excessive  obstacles resulting in undue burden for                                                            
     the women of Alaska  who are seeking to obtain an abortion. One                                                            
     such obstacle  proposed by SB  30 includes requiring  that only                                                            
     physicians  verbally,  individually and  in a private  setting,                                                            
     present patients the  information necessary to provide informed                                                            
     consent.  A second troublesome obstacle proposed  by SB 30 is a                                                            
     mandated   24-hour   waiting   period   requiring   that   this                                                            
     information be provided  to a patient 24 hours in advance of an                                                            
     In tandem,  the ramifications  of these two mandates  multiply,                                                            
     especially  when  taking  into  consideration   the  geographic                                                            
     uniqueness  of our  State. The  24-hour  waiting period,  along                                                            
     with  the  requirement  that a  physician  is the  only  person                                                            
     eligible  to relate particular information will  result in many                                                            
     patients  having to visit  a clinic three  times: once  for the                                                            
     pregnancy test, a  second time for the physician to provide the                                                            
     information to the  patient - many times the physician will not                                                            
     be  available  the  moment  the  patient  receives  their  test                                                            
     results,  and a third visit for  the procedure. Adding  a third                                                            
     visit  translates into  increased expenses,  risks and  stress.                                                            
     Three  visits  means  more  time  off  from  work,  a  possible                                                            
     increase  in  risk  -  any  delay  can  carry   medical  risks,                                                            
     especially  if a doctor is not available for  a second or third                                                            
     appointment for a  week or more, and increased stress resulting                                                            
     in additional time away from family and jobs.                                                                              
     Women  from rural communities  who must travel to Anchorage  or                                                            
     Fairbanks  for medical care will  feel these burdens  the most,                                                            
     possibly  making an abortion  prohibitive. The intent  of SB 30                                                            
     is  clear:  restricting  physicians  as  the  only information                                                             
     provider  to  patients,   misappropriates  valuable   physician                                                            
     resources.  Rather  than allowing  a  physician  the option  of                                                            
     delegating   this  responsibility  to  another   trained  staff                                                            
     member,  a physician's  availability  to perform  abortions  is                                                            
     limited,  therefore reducing  the women  of Alaska's access  to                                                            
     Moreover,  physicians and clinics  are already required  and do                                                            
     provide  to the patients  the necessary  information to  ensure                                                            
     that they  are able to make an informed decision  regarding any                                                            
     surgical procedure,  including abortion. SB 30 unjustly singles                                                            
     out abortion and imposes  numerous additional requirements that                                                            
     are  not  only  unfair   to the  women   of  Alaska,  but  also                                                            
      Once again, I strongly urge you to vote against SB 30.                                                                    
Senator Dyson  asked if  reason why the  required information  could                                                            
not be provided to a patient at time of the pregnancy test.                                                                     
Ms. Halcro responded  that the physician might be  unavailable for a                                                            
consultation  at  the time  of  the pregnancy  test.  She  suggested                                                            
authorization to allow  the physician to delegate the responsibility                                                            
to a trained staff member.                                                                                                      
Senator Dyson commented this would be reasonable.                                                                               
Co-Chair Green  offered a motion to  move SB 30 from Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
There was no objection  and CS SB 30 (JUD) MOVED from Committee with                                                            
two fiscal notes from the  Department of Health and Social Services:                                                            
fiscal  note #1  for $20,000  from the  Maternal,  Child and  Family                                                            
Health component, and fiscal  note #2 for $30,000 from the Bureau of                                                            
Vital Statistics component.                                                                                                     
     SENATE BILL NO. 216                                                                                                        
     "An Act relating to international airports revenue bonds; and                                                              
     providing for an effective date."                                                                                          
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
AT EASE 9:36 AM / 9:37 AM                                                                                                       
Co-Chair  Wilken stated  that  this bill  introduced  by the  Senate                                                            
Rules  Committee  at the  request  of the  Governor  "increases  the                                                            
authorization  for  international  airport  revenue bonds  by  $70.6                                                            
million  for capital improvements  for the  Anchorage and  Fairbanks                                                            
international airports."                                                                                                        
MIKE BARTON, Commissioner,  Department of Transportation  and Public                                                            
Facilities, testified this  bill would provide the necessary bonding                                                            
authorization   to  complete  the   C  Concourse  of  the   Terminal                                                            
Redevelopment  Project  begun in  1999.  He emphasized  the  revenue                                                            
bonds  would  be repaid  from  revenues  generated  by  the  airport                                                            
facilities and would not  be an obligation of the State. He informed                                                            
that in the event of a  default insurance would become the "ultimate                                                            
payer" to the bondholders.                                                                                                      
Mr. Barton  have  a history  of the  projects, noting  that the  Ted                                                            
Stephens   Anchorage  International   Airport   and  the   Fairbanks                                                            
International  Airport  are included  in the  State's international                                                             
airport  system  (AIAS)  and  operated   together,  with  costs  and                                                            
revenues  polled. He  stated that  the Airport  Operating  Agreement                                                            
governs  the  two facilities  and  he  defined  the Agreement  as  a                                                            
contract  between the  airports and  airlines  that establishes  the                                                            
business relationship  and obligates  the airlines to pay  the costs                                                            
of  operating  and  maintaining  the  airports,  including   capital                                                            
projects and  bonded indebtedness.  He furthered that the  Agreement                                                            
obligates  the airport to  secure agreement  on costs for  operating                                                            
the  airports, including  capital  projects.  He continued  that  in                                                            
1997,  the airlines  agreed to  finance the  terminal redevelopment                                                             
project and that two previous  bond issues have occurred in 1999 and                                                            
2002.  He  stated  that the  proposed  issuance  "follows  the  same                                                            
format" as the earlier  issuances. He told of the agreement with the                                                            
airlines  that  Terminal  C  must  be  completed,  which  this  bond                                                            
issuance would allow.                                                                                                           
Mr. Barton  cited the bond  issuance amount  at $76.6 million,  with                                                            
approximately  $50 million  of the  amount for  actual construction                                                             
costs. He stated that $13.5  million would be used to secure federal                                                            
funds and the  remaining funds would be utilized for  bond financing                                                            
Mr.  Barton  warned  that  the cash  supply  would  be  depleted  by                                                            
September 2003  without this authorization. He stated  the project's                                                            
expected completion date  is approximately one year from the current                                                            
Senator  Taylor  clarified  this  legislation  does  not  relate  to                                                            
additional construction,  but rather to "clean up  cost overruns" of                                                            
an existing  project undertaken  during  the previous gubernatorial                                                             
Commissioner Barton responded  that the additional costs result from                                                            
three sources,  $33 million in "design  problems and differences  in                                                            
interpretation  of seismic  codes", $20 million  resulting  from the                                                            
Transportation  Safety Administration  (TSA)  security requirements                                                             
resulting from  the events of September  11, 2001, and the  reminder                                                            
for additional  space requested  "post design".  He stated  that the                                                            
additional  space request was  agreed upon  with the intent  that it                                                            
would be financed with interest from the bonds.                                                                                 
Senator Hoffman  asked the total cost  of the project including  the                                                            
amount included in this legislation.                                                                                            
Commissioner Barton  gave the estimated cost of Concourse  C at $308                                                            
Senator  Hoffman asked  the  total cost  of "all  retrofitting"  and                                                            
modification to the airport building.                                                                                           
Commissioner  Barton replied that  a definitive figure would  not be                                                            
known  until the  design is  completed,  although  he estimated  the                                                            
amount to be approximately $110 million.                                                                                        
Senator  Hoffman  asked the  likelihood  that the  Department  would                                                            
request  additional  funds given  that a  definitive  amount is  not                                                            
Commissioner  Barton clarified any  request would be for  additional                                                            
bonding authority.                                                                                                              
Co-Chair Wilken  understood $418 million  would fund the  completion                                                            
of Concourse C.                                                                                                                 
Commissioner  Barton  detailed  that  $308 million  would  fund  the                                                            
completion of  Concourse C and that $110 in bonding  authority would                                                            
be requested in  the future to upgrade Concourse A  and Concourse B.                                                            
Co-Chair  Wilken  asked  the  amount of  funds  authorized  in  this                                                            
legislation  would be  allocated to  the Anchorage  project and  the                                                            
amount allocated to the Fairbanks project.                                                                                      
Commissioner Barton replied  that the majority of the funds would be                                                            
appropriated to  the Concourse C project in Anchorage  and that $3.5                                                            
million would be utilized  as matching funds to secure federal funds                                                            
for use in Fairbanks.                                                                                                           
KEN SURA, Landrum  and Brown, testified  via teleconference  from an                                                            
offnet location that he had prepared a presentation.                                                                            
Co-Chair Wilken requested a brief overview.                                                                                     
Mr. Sura informed that  the firm prepared a feasibility study in the                                                            
year  2002  based  on  key statistics:   enplanements  or  passenger                                                            
activity  and  operations  of aircraft  and  airline  schedules.  He                                                            
stated that passenger  activity and cargo tonnage  are the "two most                                                            
important  drivers  at Anchorage"  and  is two-percent  higher  than                                                            
forecast  in 2002. As a  result, he surmised  the debt capacity  for                                                            
the additional bond issuance is sufficient.                                                                                     
Senator Olson commented  on the "impressive amount of work" invested                                                            
in the project. He asked if the projections were accurate.                                                                      
Mr. Sura affirmed.                                                                                                              
Senator Olson  asked if therefore  the cost overruns are  the result                                                            
of unforeseen  obstacles. He noted declining passenger  revenues and                                                            
subsequent  employee layoffs and reduced  flight schedules,  as well                                                            
as the  inability  for airlines  to  fund airport  improvements.  He                                                            
asked  how the  economic  difficulties  were affecting  the  airport                                                            
Mr. Sura  assured  that the projects  are "conservative  by  design"                                                            
given the "potential  investors".  He noted that other airports  are                                                            
undergoing  improvements  and expansions  and that  airport  funding                                                            
comprises only five to  six percent of airlines' operating expenses.                                                            
He acquiesced  that some  airlines had made  adjustments in  certain                                                            
markets;  however,   "in  a  market  as  strong  as  Anchorage   and                                                            
Fairbanks"   future  scheduling   does  not   indicate  significant                                                             
reductions in flight frequency and number of seats.                                                                             
Senator Taylor  understood the Ted  Stevens Anchorage International                                                             
Airport  is   the  single  largest   economic  driving  faction   in                                                            
Anchorage, much  of which is derived from Asian cargo.  He supported                                                            
the expansion efforts.  He indicated other communities would benefit                                                            
from funding to construct roads throughout the State.                                                                           
Mr.  Barton expressed  he  would  welcome  such funding  for  roads,                                                            
although  no general  funds are  involved in  the airport  projects,                                                            
which are instead paid by the airlines through rates and fees.                                                                  
Co-Chair Wilken  informed of the proposed  $2.5 billion funding  for                                                            
roads under consideration at the congressional level.                                                                           
Senator  Bunde pointed  out  airline  passengers, not  the  airlines                                                            
themselves  pay the  airport construction  costs  and that if  extra                                                            
roads  were constructed  the  "people  of  Alaska" would  pay  those                                                            
expenses as well.                                                                                                               
Senator Hoffman  stated he had concerns  when the Anchorage  airport                                                            
project  was  first proposed.  He  requested  from  the Department,                                                             
passenger  forecasts  as  well  as  the  commitments  made  by  each                                                            
affected carrier.                                                                                                               
Co-Chair  Wilken referenced  a handout  provided  by the  Department                                                            
titled,  "Alaska International  Airports  System  Business  Planning                                                            
Information,  Presentation to  State of Alaska  Legislature,  May 9,                                                            
2003"  [copy on file]  that includes  the information  requested  by                                                            
Senator  Hoffman.   He  noted  this  handout  was   prepared  for  a                                                            
presentation  to the House  Finance Committee  and he suggested  the                                                            
Department  make a presentation on  the matter to the joint  finance                                                            
committees  in January  2004. Co-Chair  Wilken  then corrected  that                                                            
cargo carriers  pay the  majority of the  construction costs  rather                                                            
than  the  passengers.  He  was  concerned  that  advancing  airline                                                            
technology  allowing planes to fly  farther, as well as the  opening                                                            
of airport facilities  in Russia could result in lesser  revenues to                                                            
the airports in Alaska  with which to repay the bonds. He emphasized                                                            
the need  to have  the bonds  paid before  this time  to ensure  the                                                            
costs are not transferred to passengers.                                                                                        
Co-Chair  Wilken further  referenced  the handout  as detailing  the                                                            
projected traffic  and landing fees in conjunction  with the bonding                                                            
SFC 03 # 88, Side B 10:00 AM                                                                                                    
Co-Chair   Wilken  commented   to  the   importance  to   adequately                                                            
understand  this issue, although he  pointed out the amount  of time                                                            
remaining in the legislative session is insufficient to do so.                                                                  
Senator   Hoffman  requested   supporting   documentation  for   the                                                            
information  contained in the  handout. He  wanted to know  the date                                                            
the data was  last updated to reflect  changes incurred relating  to                                                            
the events of September 11, 2001.                                                                                               
KIP  KNUDSON,  Deputy   Commissioner  of  Aviation,   Department  of                                                            
Transportation  and Public Facilities, testified via  teleconference                                                            
from an offnet  location that this information would  be provided to                                                            
the Committee.                                                                                                                  
Senator Olson  asked the amount of outstanding bonds  and the effect                                                            
the proposed bonds would have on the existing balance.                                                                          
Mr. Sura noted  this information is  included in the handout  and he                                                            
listed the  total amount of outstanding  bonds for the AIAS  at $379                                                            
million, $368  million of which is  outstanding principal  remaining                                                            
on those  bonds.  He informed  that  rating agencies  and  potential                                                            
investors request  future forecasts  of other projects contemplated                                                             
for the system.                                                                                                                 
Senator Olson  asked if the debt repayment is on schedule,  ahead of                                                            
schedule or behind schedule.                                                                                                    
Mr. Sura replied  that the schedule  is set when the bonds  are sold                                                            
with a prescribed  schedule for each  series of bonds. He  qualified                                                            
that  it has been  advantageous  to refinance  some  of the debt  to                                                            
realize economic  savings. He furthered  that airlines and  airports                                                            
would sometimes agree to  retire a particular series of bonds in the                                                            
event of an ability to  make a "lump sum payment"; however, he noted                                                            
that airlines  prefer to debt finance  airport capital projects  due                                                            
to the relation of repayment to the useful life of the facility.                                                                
Senator Olson  again asked if the  debt repayment is progressing  as                                                            
Mr. Sura  affirmed and noted  funds are transferred  monthly  to the                                                            
TOM BOUTIN, Deputy Commissioner,  Department of Revenue, told of the                                                            
"refunding  opportunity"  that the  bond committee  would  undertake                                                            
concurrently if this bill passes into law.                                                                                      
Senator  Olson calculated  that  this  legislation  would result  in                                                            
doubling  amount of bond  debt. He was concerned  that the  proposal                                                            
contains no assurances  that the current situation  would not result                                                            
again.  He referenced  Co-Chair Wilken's  emphasis  on the need  for                                                            
business plans. Senator  Olson challenged that with the exception of                                                            
"some verbal  nods", a business plan  has not been presented  to his                                                            
satisfaction.  He  spoke  to  recent  rental  increases  imposed  on                                                            
airlines that had invested in hangers.                                                                                          
Co-Chair Wilken requested  the Department address the business plan,                                                            
specifically the involvement of user groups.                                                                                    
Mr. Barton told  of the process of the "signatory  airlines" for the                                                            
airport  operating  agreement  that  occurs  every  five  years.  He                                                            
explained  the process involves  negotiations  and discussions  with                                                            
the airlines about necessary  capital projects and identification of                                                            
potential  sources of revenue  to finance the  cost of projects.  He                                                            
stated this agreement operates as the business plan.                                                                            
Co-Chair  Wilken   understood  that  all  parties   of  the  airport                                                            
operating agreement must agree to support the revenue bonds.                                                                    
Mr. Barton affirmed and  furthered on the formal process involving a                                                            
balloting system.                                                                                                               
Co-Chair Wilken  asked the extent that terminal lessees  participate                                                            
in the agreement.                                                                                                               
Mr. Knudson replied that  most of the lessees, those that occupy the                                                            
majority of terminal  space are the signatory airlines.  He informed                                                            
that the few concessionaires  who also lease space  comprise a small                                                            
Senator  Hoffman  referenced  the landing  fees  data  cited in  the                                                            
handout and asked  when the initial feasibility study  was conducted                                                            
and  the  reason  for  the  variance  between  it  and  the  revised                                                            
Mr. Sura replied  that the initial  detailed study was conducted  in                                                            
April 2002  and the revised forecast  was prepared specifically  for                                                            
this legislation  approximately  two weeks  ago. He pointed  out the                                                            
initial  study   was  completed  approximately   six  months   after                                                            
September  11, 2001 and  reflected a conservative  approach,  as the                                                            
recovery  cycle of  cargo  and passenger  activity  was unknown.  He                                                            
stated  that the primary  difference  between the  two forecasts  is                                                            
that the earlier  study did not include the bond issuance  requested                                                            
in this legislation.                                                                                                            
Senator Hoffman  was concerned  that the figures  differ by  over 40                                                            
percent  for the  year 2010  and remarked  that a  difference of  as                                                            
little as two  percent would have a significant impact  on a project                                                            
of this magnitude.                                                                                                              
Co-Chair Wilken  calculated the landing fees of a  loaded Boeing 747                                                            
aircraft to be $1,300.                                                                                                          
Senator Bunde commented  that although this project is necessary, he                                                            
has "never met State projects that couldn't go over budget."                                                                    
Co-Chair  Green offered  a motion  to report SB  216 from  Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
Co-Chair Wilken  stated that Senator Bunde's concerns  are currently                                                            
under scrutiny.                                                                                                                 
There was no objection  and SB 216 with accompanying  fiscal note #1                                                            
for $7,813,000 from the  Department of Revenue MOVED from Committee.                                                            
     CS FOR HOUSE BILL NO. 243(STA)                                                                                             
     "An   Act  establishing   state  agency   program  performance                                                             
     management  and audit powers in the Office of  the Governor for                                                            
     the  evaluation  of  agency  programs;  and  providing  for  an                                                            
     effective date."                                                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken stated  that this bill, sponsored by the House Rules                                                            
Committee at  the request of the Governor,  "reestablishes  an audit                                                            
function in the Office  of the Governor and funding will be provided                                                            
by reallocation of existing Office of the Governor funds."                                                                      
JAY HOGAN, Deputy Director,  Office of Management and Budget, Office                                                            
of the Governor,  testified that he  began working for the  State in                                                            
1970 and  at that time  internal auditing  was conducted within  the                                                            
Department  of Administration.  In  1983,  he noted,  the Office  of                                                            
Management and  Budget was created and the internal  audit functions                                                            
were  assigned  to  it along  with  numerous  other  activities.  He                                                            
continued  that since  that time,  "the functions  have been  scoped                                                            
down"  with the  elimination  of the audit  function  in the  middle                                                            
1990s. Governor  Murkowski intends to "reemphasize,"  "recreate" and                                                            
"broaden" the  internal audit function, according  to Mr. Hogan. Mr.                                                            
Hogan explained  the expansion would include program  evaluations to                                                            
determine their current usefulness.                                                                                             
Mr. Hogan stated  that the Governor's FY 04 budget  request includes                                                            
funds to undertake  the internal auditing  functions. He  noted that                                                            
the  House of  Representatives  and the  Senate have  approved  this                                                            
Mr.  Hogan  expressed that  this  legislation  is  a result  of  the                                                            
"realization"  that although internal  audits had been conducted  in                                                            
the past, no statutory  direction exists to require  them. This bill                                                            
would create the statutory direction, he said.                                                                                  
Mr. Hogan stated that in  the undertaking of an internal audit it is                                                            
appropriate that  the information is kept confidential.  He informed                                                            
that testimony relevant  to an audit is sometimes discovered but for                                                            
various   reasons  must   be  kept  confidential.   He  noted   this                                                            
legislation allows  access to this information by  auditors, similar                                                            
to the authority  granted to the Division  of Legislative  Audit. He                                                            
pointed  out a difference  in that  the information  secured  by the                                                            
Division  of  Legislative  Audit  is  kept  confidential  until  the                                                            
Legislative Budget  and Audit Committee and affected  State agencies                                                            
review  the audit, at  which time  the information  is released.  By                                                            
contrast, he explained  the information gathered in audits conducted                                                            
by the  Office of Management  and Budget  would remain confidential                                                             
until it is released by direction of the governor.                                                                              
Mr. Hogan emphasized  the Office of  Management and Budget  would be                                                            
unable  to conduct  audits similar  to the Division  of Legislative                                                             
Audit, but  rather could  only conduct audits  on activities  within                                                            
the Executive Branch.                                                                                                           
Senator  Hoffman saw  the need  for this  function;  however he  was                                                            
concerned  with the  absence of a  defined date  in which  completed                                                            
audits must  be released.  He surmised from  the witness'  testimony                                                            
that the governor  could determine whether the information  is never                                                            
released. Senator Hoffman  suggested language in the bill to provide                                                            
for timelines  for release to ensure the legislature  and the public                                                            
would have access to the outcome of the audits.                                                                                 
Mr. Hogan pointed out that  no specific release date is required for                                                            
legislative audits.  He predicted situations in which  such releases                                                            
would not be advisable,  exampling a personnel audit  conducted as a                                                            
result of alleged  impropriety involving  "matters of delicacy".  He                                                            
expressed that it would  be conceivable that an audit might never be                                                            
completed although the problem itself was resolved.                                                                             
Co-Chair Wilken clarified  the witness would prefer not to specify a                                                            
date certain in this bill.                                                                                                      
Mr. Hogan  remarked  that "great  effort"  was taken  to follow  the                                                            
legislative  audit process,  which he opined  has worked well  since                                                            
statehood.  He  surmised  that  the Governor  would  prefer  to  use                                                            
Senator   Hoffman   countered   that   despite    information   held                                                            
confidential until release,  members of the legislature could review                                                            
that information. In contrast,  he stated this legislation would not                                                            
provide the same option.                                                                                                        
Mr. Hogan relayed  that the House State Affairs Committee  discussed                                                            
the issue  and determined  that language  in Section  3 amending  AS                                                            
44.19.147.  Internal audit  records., on  page 2,  lines 5-9  of the                                                            
committee  substitute,  satisfied the  concerns of  the Division  of                                                            
Legislative Audit. This language reads as follows.                                                                              
     …However,   internal  audit  work  papers  and   other  related                                                            
     supportive  material containing  information, data,  estimates,                                                            
     and  statistics   obtained  during  the  course   of  an  audit                                                            
     conducted  under AS 44.18.145(a) may be kept  confidential only                                                            
     to the  extent required  by law applicable  to the agency  from                                                            
     which the material is or was obtained.                                                                                     
Senator Taylor  offered a motion to  report the bill from  Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
Without objection  CS HB  243 (STA) MOVED  from Committee with  zero                                                            
fiscal note #2 from the Office of the Governor.                                                                                 
     SENATE CS FOR CS FOR HOUSE BILL NO. 61(RES)                                                                                
     "An Act establishing  an exploration and development  incentive                                                            
     tax credit  for operators and working interest  owners directly                                                            
     engaged in the exploration  for and development of gas for sale                                                            
     and  delivery  without  reference  to volume  from  a lease  or                                                            
     property  in the state; and providing  for an effective  date."                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken  stated that this  bill, "allows a tax credit  equal                                                            
to ten  percent of qualified  capital investment  as well as  annual                                                            
labor, seismic  and associated costs related to gas  exploration and                                                            
development south of the Brooks Range."                                                                                         
REPRESENTATIVE MIKE CHENAULT  testified that this bill creates a new                                                            
income   tax  credit   to  encourage   increased   exploration   and                                                            
development  of natural gas reserves  south of the Brooks  Range. He                                                            
informed  that  to  qualify  for  the  tax  credit,  operators  must                                                            
successfully  drill and develop  new reserves  that produce  natural                                                            
gas for sale and  delivery. He pointed out that no  credits would be                                                            
given for "dry holes."                                                                                                          
Representative Chenault  remarked that Cook Inlet and other areas of                                                            
the  State  have  "great  potential"  for  additional   natural  gas                                                            
development; however,  the combination of exploration  risk and high                                                            
development  costs  have created  a disincentive  to  drill for  new                                                            
reserves  compared to other  areas of the  world. He predicted  that                                                            
providing this  tax credit more exploration would  occur in southern                                                            
Alaska, leading  to "much  needed" new natural  gas reserves,  which                                                            
would  benefit  residents  of  those  communities  as  well  as  all                                                            
residents of the State and businesses.                                                                                          
Representative  Chenault furthered that in addition  to the benefits                                                            
of developing  new gas  reserves increased  drilling would  also aid                                                            
general economic status  of the Kenai Peninsula, Anchorage and other                                                            
areas of Alaska.                                                                                                                
Representative  Chenault  opined that  increased  revenues from  gas                                                            
production  would offset any fiscal  impact of the proposed  credit.                                                            
Senator Bunde noted the  fiscal note indicates zero fiscal impact of                                                            
this legislation,  and asked  how this would  be possible given  the                                                            
proposed tax credit.                                                                                                            
CHARLES   LOGSDEN,   Chief  Petroleum   Economist,   Tax   Division,                                                            
Department of  Revenue, testified via teleconference  from an offnet                                                            
location,  that the  tax credit  requires successful  discovery  and                                                            
development. He informed  that the Cook Inlet produces approximately                                                            
210  billion cubic  feet (bcf)  annually  and hypothetically  a  new                                                            
discovery of an additional  100 bfc would generate approximately $50                                                            
million  per  year in  general  fund  revenue.  He stated  that  the                                                            
unknown amount  of gas that  would be discovered  is an uncertainty                                                             
for the  Department of Revenue  in estimating  the fiscal impact  of                                                            
this  bill.  He explained  the  tax  credit would  be  the  "State's                                                            
participation"  in the risk  of exploration  and development,  which                                                            
would  only be  realized  if  the exploration  were  successful.  He                                                            
qualified  that the proposed  tax credit  is not  risk free  for the                                                            
State,  in that  the marketplace  could  become such  as to  provide                                                            
incentive for exploration and development.                                                                                      
Co-Chair  Wilken referenced  a handout titled,  "House Bill  No. 61,                                                            
Gas Exploration  and Tax  Credit" prepared  by Marathon Oil  Company                                                            
[copy on  file], which details  the matter  further on pages  13 and                                                            
Senator Bunde  stated for the record  that the tax credit  would not                                                            
be extended without successful  discovery. However, he stressed that                                                            
after discovery,  the State could  receive less revenue than  if the                                                            
tax  credit were  not  enacted,  although  "it may  be  a very  good                                                            
bargain."   He  predicted   the  impact  would   be  beneficial   as                                                            
exploration  would occur in  new areas and  because the State  would                                                            
receive no revenue  without exploration efforts. He  opined that the                                                            
fiscal note should reflect negative revenue.                                                                                    
Senator  B.  Stevens  relayed  that  Representative   Hawker  and  a                                                            
representative  from Marathon  Oil  Company gave  a presentation  on                                                            
this bill before  the Senate Resources  Committee, on which  Senator                                                            
B.  Stevens  serves.  He  directed  attention  to  page  13  of  the                                                            
aforementioned  handout,  a  spreadsheet  titled "Fiscal  Impact  to                                                            
State  of Alaska".  He detailed  a  hypothetical  project with  $100                                                            
million  development  costs that  discovered a  producible  reserve,                                                            
which would  generate $500 million  in gross revenues, 12.5  percent                                                            
royalty of $62,500,000,  a 7.5 percent severance tax of $37,500,000,                                                            
and a property  tax increase of $4.2 million, totaling  $104 million                                                            
in taxes collected  by the State.  He emphasized this revenue  would                                                            
only be generated  if the $100 million  exploration and development                                                             
investment were made. He  clarified the ten percent tax credit would                                                            
be applicable to the corporate tax income.                                                                                      
Senator  B.  Stevens  continued  that after  review  by  the  Senate                                                            
Resources  Committee,  he  concluded  this  legislation  provides  a                                                            
"success tax  credit". He furthered  that the tax credit  would have                                                            
no negative impacts  because if the exploration is  unsuccessful and                                                            
new revenue is not generated the tax credit would not apply.                                                                    
Senator Bunde  stated that a $10 million  impact would be  realized.                                                            
He surmised that  a $100 million return on a $10 million  investment                                                            
is "wise" and  emphasized he does  not oppose the program.  However,                                                            
he disagreed  that "there  is a  free lunch" and  he questioned  the                                                            
zero fiscal note.                                                                                                               
Senator B. Stevens and  Senator Bunde continued to debate the point.                                                            
DOUG   THEIRWECHTER,    Marathon   Oil   Company,   testified    via                                                            
teleconference from an  offnet location in Houston, Texas, to answer                                                            
JOHN BARNES,  Manager of  Alaska Operations,  Marathon Oil  Company,                                                            
testified  via  teleconference  from  an offnet  location  that  the                                                            
proposed tax credit  is an opportunity to "level the  playing field"                                                            
in favor  of the  State of Alaska.  He explained  that corporations                                                             
have the  ability to  invest funds  around the  world and that  this                                                            
legislation  would "draw  more capital"  to Alaska.  He pointed  out                                                            
that corporations  participating in the exploration  and development                                                            
efforts would  expend ten  times the amount  received in tax  credit                                                            
and  the  State  should  receive  up to  ten  times  the  amount  in                                                            
additional  revenues.  Therefore,  he  remarked  that  Marathon  Oil                                                            
Company supports this legislation.                                                                                              
Senator  Taylor  asked  why the  tax  credit  is necessary  for  gas                                                            
exploration when  that is the "business" of Marathon  Oil Company. ,                                                            
Mr. Barnes  agreed  that part  of every  producer's  business is  to                                                            
explore for oil  and gas in various parts of the world.  However, he                                                            
stressed that  Alaska "is disadvantaged in many areas  when it comes                                                            
to seeking investment  opportunities, or drawing other  companies in                                                            
to invest in the  State of Alaska." He gave an analogy  of a sale at                                                            
a retail store to provide incentive to attract customers.                                                                       
Mr. Barnes  reported that  although the need  exists for  additional                                                            
gas  exploration  "has  been noted  in  the marketplace",   industry                                                            
activity  has  been  insufficient  in  Cook  Inlet  to  replace  the                                                            
declining reserves.                                                                                                             
Senator Taylor  asked if  the witness were  asserting that  Alaska's                                                            
tax structure  "is so  high" as  to impede  industry investment  and                                                            
that a ten percent discount would guarantee investment.                                                                         
Mr. Barnes testified that  investments are not occurring for various                                                            
reasons,  including the tax  structure, and  that this credit  would                                                            
"hopefully  be seen as  a positive  sign by industry  and result  in                                                            
additional activities south of the Brooks Range in Alaska."                                                                     
Co-Chair Wilken  asked if Alaska currently  has "a zero exploration                                                             
tax credit" and whether any other government has the same.                                                                      
Mr. Logsden  clarified that  two exploration  tax credits  currently                                                            
exist  in  Alaska.  He  explained  that   the  commissioner  of  the                                                            
Department  of Revenue could  issue a tax credit  to cover up  to 50                                                            
percent of the  cost of an exploration well, which  could be applied                                                            
to royalties,  severance tax or corporate  income tax. He  qualified                                                            
that this provision  has not been invoked for the  past eight years.                                                            
Senator Hoffman asked if  the Kenai Peninsula Borough has considered                                                            
granting a property tax credit as well.                                                                                         
Representative  Chenault had  not discussed  the issue with  Borough                                                            
officials.  He  pointed  out  however,  that  the  Borough  assesses                                                            
approximately  11  mils  of  the 20  mils  collected,  allowing  the                                                            
remainder  to  be paid  to  the State.  He  compared this  to  other                                                            
communities,  specifically the North  Slope Borough, which  collects                                                            
the entire 20 mils.                                                                                                             
Amendment  #1:  This  amendment  inserts,   "east  of  meridian  156                                                            
degrees"  into  Section  1,  Sec.  43.20.043.  Gas  exploration  and                                                            
development  tax credit. The  amended language  on page 3,  lines 10                                                            
through 14 reads as follows.                                                                                                    
          (f) A taxpayer is not entitled to a credit under this                                                                 
     section  for expenditures  that  are made or  incurred for  the                                                            
     qualified  capital investment  or for  qualified services  made                                                            
     for exploration  and development of gas that  occur in the area                                                            
     of Alaska lying north  of 68 degrees North latitude and east of                                                            
     meridian 156 degrees  or that are made or incurred to transport                                                            
     gas from reserves  located in the area of Alaska lying north of                                                            
     68 degrees North latitude and east of meridian 156 degrees.                                                                
Senator Olson moved for adoption, asserting that this prevents                                                                  
one area of the State from being "singled out". He opined, "If                                                                  
it's good for the rest of Alaska it ought to be good for places                                                                 
like Point Hope, Point Lay, Wainright."                                                                                         
Co-Chair Wilken  requested an explanation  of the areas included  in                                                            
the provisions of the amendment.                                                                                                
Senator Olson directed  attention to a map showing the areas west of                                                            
the 156   meridian, which includes the aforementioned  villages plus                                                            
Co-Chair Wilken  asked for an explanation  of the amendment  itself.                                                            
Senator Olson  stated the amendment  would extend the tax  credit to                                                            
the additional areas, although not to the entire State.                                                                         
SFC 03 # 89, Side A 10:48 AM                                                                                                    
Co-Chair  Wilken and Senator  Olson established  the locations  that                                                            
would receive the credit.                                                                                                       
Co-Chair Wilken asked  whether the 156  meridian  has been used as a                                                            
line of demarcation in  other legislation or matters relating to oil                                                            
and gas.                                                                                                                        
Senator Olson was unsure.                                                                                                       
Co-Chair Wilken  requested the sponsor's comments  on the amendment.                                                            
Representative  Chenault relayed concerns  about the possibility  of                                                            
shallow  gas  located  near   the  Red  Dog  Mine.  He  stated  that                                                            
previously adopted  legislation relating to taxation  of oil and gas                                                            
development utilized 68 degrees latitude as a delineation.                                                                      
Co-Chair Wilken interjected  to ask if the sponsor favors or opposes                                                            
the  amendment  or  whether  it  should  be  addressed  in  separate                                                            
Representative   Chenault  indicated  it  should   be  addressed  in                                                            
different legislation.                                                                                                          
Senator Taylor commented  that this amendment raised the question of                                                            
the need for  a ten percent tax credit  to stimulate the  economy in                                                            
one geographic  region of the State, although other  locations where                                                            
gas  reserves  have  been  identified  are  not  developed   because                                                            
producers  are unwilling to  construct a  pipeline to transport  the                                                            
gas to tidewater.                                                                                                               
Co-Chair Wilken  ordered the bill HELD in Committee.  [The motion to                                                            
adopt Amendment #1 was subsequently TABLED.]                                                                                    
Co-Chair Gary Wilken adjourned the meeting at 10:51 AM                                                                          

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