Legislature(2005 - 2006)SENATE FINANCE 532

04/18/2005 09:00 AM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 139(L&C) Out of Committee
Moved SJR 11 Out of Committee
Moved CSSB 69(FIN) Out of Committee
Bills Previously Heard/Scheduled
Heard & Held
Scheduled But Not Heard
Moved CSSB 110(FIN) Out of Committee
Moved CSSB 147(FIN) Out of Committee
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 18, 2005                                                                                      
                             9:05 a.m.                                                                                        
CALL TO ORDER                                                                                                               
Co-Chair Green convened the meeting at approximately 9:05:02 AM.                                                              
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Also  Attending:   SENATOR  RALPH SEEKINS;  MARY  JACKSON, Staff  to                                                          
Senator Tom  Wagoner; TOM MAHER, Staff  to Senator Gene Therriault;                                                             
PAT  DAVIDSON,  Director,   Division  of  Legislative   Audit;  DAVE                                                            
STANCLIFF, Staff  to Senator Gene Therriault; JUDY  BRADY, Executive                                                            
Director, Alaska  Oil and Gas Association;  TOM WILLIAM,  Chair, Tax                                                            
Committee, Alaska Oil and  Gas Association; DAN DICKINSON, Director,                                                            
Tax Division, Department  of Revenue; DAN EASTON, Director, Division                                                            
of Water, Department of  Environmental Conservation; MERLE THOMPSON;                                                            
KATHIE WASSERMAN,  Alaska Municipal  League; STEPHANIE MADSON,  Vice                                                            
President,  Pacific Seafood Processors  Association; GORDEN  GARCIA,                                                            
Department of Fish and Game;                                                                                                    
Attending via Teleconference:   From Anchorage: LARRY HOULE, General                                                          
Manager,  The  Alaska Support  Industry  Alliance;  From  an  offnet                                                            
location:   STEVE   BORELL,  Executive   Director,   Alaska   Miners                                                            
SUMMARY INFORMATION                                                                                                         
SB  69-APPROP: GRANT TO ARCTIC POWER FOR ANWR                                                                                   
The Committee  heard from  the sponsor. A  committee substitute  was                                                            
adopted and the bill was reported from Committee.                                                                               
SB 139-OCCUPATIONAL BDS/AGENCIES                                                                                                
The  Committee   heard  from  the   sponsor  and  the  Division   of                                                            
Legislative Audit. The bill was reported from Committee.                                                                        
SJR 11-REPEAL TELECOMMUNICATIONS TAX                                                                                            
The Committee  heard from the sponsor.  The resolution was  reported                                                            
from Committee.                                                                                                                 
SB 151-DECOUPLING FROM FED TAX DEDUCTION                                                                                        
The Committee  heard from the Department of Revenue,  the Alaska Oil                                                            
and Gas Association,  and the Alaska Support Industry  Alliance. The                                                            
bill was held in Committee.                                                                                                     
SB 110-POLLUTION DISCHARGE & WASTE TRMT/DISPOSAL                                                                                
The   Committee  heard   from   the  Department   of  Environmental                                                             
Conservation,  industry-related organizations  and other  interested                                                            
9:05:26 AM                                                                                                                    
     SENATE BILL NO. 69                                                                                                         
     "An Act  making special appropriations  to promote the  opening                                                            
     of  the  Arctic  National  Wildlife  Refuge  for  oil  and  gas                                                            
     exploration  and development;  and providing  for an  effective                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
MARY JACKSON,  Staff  to Senator  Tom Wagoner,  testified that  this                                                            
legislation  is sponsored  by  the Senate  Resources  Committee  and                                                            
would provide  an appropriation to  Arctic Power for its  efforts to                                                            
open the Arctic National  Wildlife Refuge (ANWR) to oil development.                                                            
9:06:15 AM                                                                                                                    
Senator  Dyson asked  which version  of the bill  the Committee  was                                                            
Co-Chair  Green clarified  the original  version  of the bill  would                                                            
appropriate  $1.2 million,  while a proposed  committee substitute,                                                             
Version "G" would appropriate $1.3 million.                                                                                     
9:07:12 AM                                                                                                                    
Senator Stedman  moved to adopt CS  SB 69, 24-LS0438\G as  a working                                                            
Without objection the committee  substitute was ADOPTED as a working                                                            
9:07:35 AM                                                                                                                    
Co-Chair Green  remarked that annual  appropriations have  been made                                                            
to Arctic Power  from the State general fund for several  years. She                                                            
noted the appropriation  in this legislation would  actually be made                                                            
to the Department  of Commerce, Community  and Economic Development                                                             
9:08:16 AM                                                                                                                    
Senator Dyson offered a  motion to report CS SB 69, 24-LS0438\G from                                                            
Committee with individual recommendations.                                                                                      
There was no objection and CS SB 69 (FIN) MOVED from Committee.                                                                 
9:08:36 AM                                                                                                                    
     CS FOR SENATE BILL NO. 139(L&C)                                                                                            
     "An  Act  relating  to termination  and  oversight  of  boards,                                                            
     commissions,  and agency  programs; extending  the termination                                                             
     date of the Board  of Marital and Family Therapy; and providing                                                            
     for an effective date."                                                                                                    
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
TOM MAHER,  Staff to Senator  Gene Therriault,  read testimony  into                                                            
the record as follows.                                                                                                          
     This legislation  stems from  recommendations contained  in two                                                            
     reports by the Division of Legislative Audit.                                                                              
     (Section 1) of this  legislation extends the sunset date of the                                                            
     Board of Marital and  Family Therapy from June 30, 2005 to June                                                            
     30, 2010 per the audit  recommendation contained in that report                                                            
     (page 9).                                                                                                                  
     SB  139 also  incorporates  recommendations  contained  in  the                                                            
     audit of  the Alaska Sunset Process and Selected  Investigative                                                            
     First, (Sections 2  and 4) for boards that are terminated, this                                                            
     legislation clarifies  the transfer of authority for regulatory                                                            
     and  disciplinary   powers  to  the  Department   of  Commerce,                                                            
     Community  and Economic Development.  While the Department  has                                                            
     assumed  the responsibility   for administering  the  regulated                                                            
     occupation  after a board has  terminated, the statutes  do not                                                            
     clearly  give  the Department  the  authority  to  do so.  This                                                            
     change will help address this uncertainty.                                                                                 
     Second, SB  139 (Sections 3 and 5) changes the  standard sunset                                                            
     period  for occupational  boards  in AS  08.03.020(c) and  non-                                                            
     occupational  boards  in AS 44.66.010(c)  from  "not to  exceed                                                            
     four  years" to  "not to exceed  eight  years". Increasing  the                                                            
     standard  sunset period allows  for better use of audit  staff,                                                            
     committee  time, and  makes the sunset  process less  consuming                                                            
     for boards/regulatory agencies.                                                                                            
     Finally,  (Section 6)  two criteria are  added to statute  that                                                            
     the auditors  must consider in  the course of a sunset  review:                                                            
        · The extent to which the board, commission, or agency has                                                              
          effectively attained its objectives and the efficiency                                                                
          with which it has operated.                                                                                           
        · The extent to which the board, commission, or agency                                                                  
          duplicates the activities of another governmental agency                                                              
          or the private sector.                                                                                                
     Expanding  the criteria will assure that auditors  will measure                                                            
     the  efficiency  and effectiveness  of boards,  commissions  or                                                            
     agencies under review.                                                                                                     
     The Senate Labor and  Commerce Committee approved one amendment                                                            
     offered  by the Administration  addressing  what occurs  when a                                                            
     board  is terminated.  Section 2 of the  bill was amended  with                                                            
     language  that states "all statutory authority  of the board is                                                            
     transferred  to the department"  and a new Section 4  was added                                                            
     that further  defines the transition  of board regulation  when                                                            
     terminated.  While the original  version of the bill  contained                                                            
     language  aimed at addressing board termination,  the Labor and                                                            
     Commerce  Committee preferred  the additional language  offered                                                            
     by the Administration.                                                                                                     
     Finally,  there is one fiscal note from Occupation  Licensing -                                                            
     passage  of this legislation  will incur no additional  costs -                                                            
     and the outlying fiscal  years the fiscal note merely shows the                                                            
     cost  of continuing  this board  at the  current level  already                                                            
     included in the budget.                                                                                                    
9:12:18 AM                                                                                                                    
Senator Dyson announced  for the record that his wife is licensed by                                                            
the Board of Marital and Family Therapy.                                                                                        
Senator Dyson supported  the Audit recommendation that this board be                                                            
consolidated with the Board  of Professional Counselors. He asked if                                                            
other legislation  has been introduced  that would accomplish  this.                                                            
Mr.  Maher answered  that  legislation pertaining  to  the Board  of                                                            
Professional Counselors is under consideration.                                                                                 
9:13:01 AM                                                                                                                    
PAT DAVIDSON,  Director,  Division of Legislative  Audit,  clarified                                                            
that the other  legislation would  retain the Board of Professional                                                             
Counselors  as a separate  entity.  It was determined  to  therefore                                                            
draft this  legislation  to provide  that the Board  of Marital  and                                                            
Family Therapy remain separate as well.                                                                                         
9:13:37 AM                                                                                                                    
Senator  Dyson  asked if  any  legislation  was pending  that  would                                                            
combine the two boards.                                                                                                         
Ms. Davidson replied that no legislation has been introduced.                                                                   
9:13:52 AM                                                                                                                    
Senator  Dyson opined  this  was "unfortunate".  He  understood  the                                                            
directive  that  fees  collected  by the  boards  should  cover  the                                                            
operating  expenses of the  board. However,  if a board,  especially                                                            
one with  limited  membership must  take adverse  action, the  legal                                                            
costs increase  the overall operating expenses of  the board and the                                                            
fees must subsequently  be increased.  In this event, practitioners                                                             
withdraw  from membership  in the  board and join  a separate  board                                                            
with lower fees.                                                                                                                
9:14:50 AM                                                                                                                    
Co-Chair Green spoke to  the ongoing dilemma when professionals seek                                                            
to become licensed.  The system is  not designed to provide  for one                                                            
board to absorb the membership  of other boards. She asked about the                                                            
distinction  between  the  two boards  and  whether  one  profession                                                            
carries a higher risk or requires a greater degree of oversight.                                                                
9:15:36 AM                                                                                                                    
Ms.  Davidson informed  that  current  statute stipulates  that  the                                                            
"occupation"   must  be  financially   self-supporting.   Therefore,                                                            
regardless  whether  the boards  were  combined,  the  fees must  be                                                            
established  to "level out" the expenses  of each occupation.  Other                                                            
pending  legislation would  change this  to provide  that the  board                                                            
must be  financially self-supporting.  The  Division of Legislative                                                             
Audit considered the concept  of an overall mental behavioral health                                                            
board  including   professional  counselors,   marital  and   family                                                            
counselors,   social  workers,   psychologists   and  psychological                                                             
associates. The  audit's concluded a combined board  of professional                                                            
counselors  and marital and family  counselors would be appropriate                                                             
because  of the common  educational background  and experience.  She                                                            
qualified that the professional  counselors "adamantly opposed" such                                                            
a merger.                                                                                                                       
9:17:10 AM                                                                                                                    
Co-Chair  Green  clarified  that  the membership   of the  Board  of                                                            
Professional Counselors is opposed to such a merger.                                                                            
9:17:19 AM                                                                                                                    
Ms.  Davidson  affirmed,  noting  that  the  Board  of Professional                                                             
Counselors has  a financial surplus, while the Board  of Marital and                                                            
Family  Counselors  has a  deficit.  The  cost of  regulating  these                                                            
occupations   includes   investigations,   hearing   officers,   and                                                            
disciplinary actions. A  Division of Legislative Audit report of the                                                            
sunset review  process contains recommendations  to the Division  of                                                            
Occupational  Licensing for streamlining  the investigative  unit to                                                            
become more effective.  This could provide some financial  reduction                                                            
in fees imposed for occupations.                                                                                                
9:18:06 AM                                                                                                                    
Co-Chair  Green asked  if this  legislation addresses  the issue  of                                                            
extending the  termination date of boards and commissions  from four                                                            
years to eight  years; specifically an initial four  year review for                                                            
new boards, and reviews every eight years thereafter.                                                                           
9:18:31 AM                                                                                                                    
Ms. Davidson  replied that current  language provides that  the term                                                            
of  boards  is  not  to  exceed  eight   years.  At  any  time,  the                                                            
legislature  could  request  an  audit  of a  board  or commission.                                                             
Enabling legislation  establishing a new board would  also provide a                                                            
schedule for review of that board.                                                                                              
9:19:01 AM                                                                                                                    
Co-Chair  Green did  not disagree  that an audit  review every  four                                                            
years could  be onerous; however,  this process is not unreasonable                                                             
for new boards.                                                                                                                 
9:19:20 AM                                                                                                                    
Co-Chair Green  asked the reasons  for extending sunset review  from                                                            
four to eight years.                                                                                                            
9:19:26 AM                                                                                                                    
Ms. Davidson responded  that most boards and commissions  subject to                                                            
termination  dates are occupational  and have been in existence  for                                                            
several  years. The  fees necessary  to cover  operational  expenses                                                            
"already sets  a pretty high threshold" for professionals  intending                                                            
to practice in Alaska.  An analysis of the sunset processes of other                                                            
states  found six  states  have repealed  their  sunset provisions;                                                             
another six  states have suspended  the process; four states  have a                                                            
four year sunset  review process;  three states have a standard  six                                                            
year extension;  and  eight states  have a ten  year extension.  The                                                            
report also  discusses other alternatives.   Rather than  relying on                                                            
the sunset  process,  one suggestion  is  the concept  of a  sunrise                                                            
process that  would establish  thresholds before  any new boards  or                                                            
commissions  are  set  in  statute.  Once  established,  boards  are                                                            
difficult to eliminate.                                                                                                         
9:21:30 AM                                                                                                                    
Co-Chair  Green agreed  "there's  always  a constituency  that  gets                                                            
9:21:38 AM                                                                                                                    
Ms. Davidson affirmed.  The Division of Legislative  Audit primarily                                                            
considers  efficiency  and  effectiveness  rather than  whether  the                                                            
board  should  exist. Boards  must  issue  annual reports  of  their                                                            
activities  and  provide  accountability.   The legislature   "isn't                                                            
without information  with respect to these organizations,"  although                                                            
this information is not to the extent that an audit provides                                                                    
9:22:17 AM                                                                                                                    
Co-Chair Green asked if  problems have been identified in the sunset                                                            
review audit process that should have been found earlier.                                                                       
9:22:39 AM                                                                                                                    
Ms. Davidson replied that  the issues tend to be "hot topics" within                                                            
the profession  rather than regulation  of the profession.  She gave                                                            
as an example  the Regulatory Commission of Alaska,  which is always                                                            
controversial.   She  recommended   focus  on  whether  boards   are                                                            
effective   and   efficient    and   whether   other   professional                                                             
organizations exist that could serve the board purpose.                                                                         
9:23:42 AM                                                                                                                    
Co-Chair  Green noted  that  two recommendations  contained  in  the                                                            
audit  report  would provide  the  legislature  greater  ability  to                                                            
assess whether a board or commission should be continued.                                                                       
Ms. Davidson opined this  would provide "greater focus" in the audit                                                            
process. The  two recommendations  are already undertaken,  although                                                            
they  would  now  be  addressed  more  specifically.   However,  the                                                            
Division  of  Occupational  Licensing  is "on  notice"  that  future                                                            
audits would specifically review this.                                                                                          
9:24:53 AM                                                                                                                    
Senator Stedman  offered a motion to report the bill  from Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
There was  no objection  and CS  SB 139 (L&C)  MOVED from  Committee                                                            
with zero fiscal note #1  from the Department of Commerce, Community                                                            
and Economic Development.                                                                                                       
9:25:33 AM                                                                                                                    
     SENATE JOINT RESOLUTION NO. 11                                                                                             
     Urging the United States Congress to amend the tax code to                                                                 
     repeal the federal excise tax on communications.                                                                           
This  was the  first  hearing  for  this resolution  in  the  Senate                                                            
Finance Committee.                                                                                                              
DAVE STANCLIFF, Staff to  Senator Gene Therriault, gave a history of                                                            
this tax  established  in 1878,  repealed twice  then reenacted  and                                                            
amended several  times. Senator Therriault deemed  this resolution a                                                            
"valuable  message to send  on behalf of  Alaskans", who pay  almost                                                            
$17 million  annually in the form  of this tax. This federal  excise                                                            
tax on communications is also known as the "talking tax".                                                                       
9:26:44 AM                                                                                                                    
Co-Chair Green asked the impact of the repeal of this tax.                                                                      
9:26:58 AM                                                                                                                    
Mr. Stancliff  replied that "the little column" on  customers' phone                                                            
bills would "disappear"  along with the three-percent  tax. He spoke                                                            
to concerns by  members of Congress that this tax  would be expanded                                                            
and imposed on Internet services not currently taxed.                                                                           
9:27:36 AM                                                                                                                    
Co-Chair Green clarified  this resolution does not address the issue                                                            
of taxation of Internet services.                                                                                               
9:27:44 AM                                                                                                                    
Mr. Stancliff  affirmed this resolution  requests the repeal  of the                                                            
luxury tax.                                                                                                                     
9:27:53 AM                                                                                                                    
Senator Olson  asked the negative  impact of repealing this  tax and                                                            
what programs would be  eliminated or reduced if not funded from the                                                            
revenues generated.                                                                                                             
9:28:09 AM                                                                                                                    
Mr. Stancliff  replied this is a general  tax of three percent  that                                                            
is imposed on  local telephone service, toll service,  Teletype, and                                                            
exchange  service.  Revenues  from this  tax  are deposited  to  the                                                            
general  fund.  If  repealed,  Alaskans  would be  relieved  of  $17                                                            
million in taxes  paid. It is difficult to ascertain  the allocation                                                            
of all the revenues.                                                                                                            
9:29:03 AM                                                                                                                    
Senator Olson  wanted to ensure that  no telecommunication  programs                                                            
would suffer.                                                                                                                   
9:29:19 AM                                                                                                                    
Mr.    Stancliff   had    detected    no   opposition    from    the                                                            
telecommunications industry.                                                                                                    
9:29:48 AM                                                                                                                    
Senator Stedman commented  about migration to Internet phone service                                                            
from traditional long distance  telecommunications. He asked if this                                                            
should be addressed in this resolution.                                                                                         
9:30:11 AM                                                                                                                    
Mr. Stancliff understood  concerns that as communication through the                                                            
Internet  increases, the  revenue generated  by this  tax would  not                                                            
continue unless  the tax is expanded to Internet services.  Congress                                                            
has  been considering   this issue  for  several  years.  Interested                                                            
parties from both sides  of the issue have been involved and to date                                                            
no changes have  been made. The repeal of this tax  would not impact                                                            
the any issues currently before Congress.                                                                                       
9:31:06 AM                                                                                                                    
Co-Chair Green clarified  the repeal of this tax would not result of                                                            
any  reduction  in federal  funding  appropriated  in  the state  of                                                            
Mr. Stancliff affirmed.                                                                                                         
9:31:31 AM                                                                                                                    
Senator  Stedman offered  a  motion to  report the  resolution  from                                                            
Committee with  individual recommendations  and accompanying  fiscal                                                            
There was  no objection and  SJR 11 MOVED  from Committee with  zero                                                            
fiscal note #1 from the Department of Revenue.                                                                                  
9:31:47 AM                                                                                                                    
     SENATE BILL NO. 151                                                                                                        
     "An  Act excepting  from  the  Alaska Net  Income  Tax Act  the                                                            
     federal  deduction  regarding  income attributable  to  certain                                                            
     domestic production  activities; and providing for an effective                                                            
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
JUDY BRADY,  Executive  Director,  Alaska Oil  and Gas Association,                                                             
spoke about  the non-profit  trade association  that represents  the                                                            
majority  of the  companies  that produce,  explore,  transport  and                                                            
refine oil and gas products  in Alaska. She introduced Mr. Williams.                                                            
9:34:05 AM                                                                                                                    
TOM WILLIAMS, Chair, Tax Committee, Alaska Oil and Gas Association                                                              
(AOGA), read his testimony into the record as follows [editorial                                                                
notations made by author].                                                                                                      
     AOGA is a private  trade association whose 18 members companies                                                            
     account  for  a  majority  of  the  oil  and  gas exploration,                                                             
     development,    production,   transportation,    refining   and                                                            
     marketing  activities  in Alaska.  On  behalf of  AOGA and  its                                                            
     members, I thank you  for this opportunity to testify on Senate                                                            
     Bill 151.                                                                                                                  
     AOGA  opposes  this legislation  for  two reasons.  First,  the                                                            
     justification  for it has been misstated to you  and its fiscal                                                            
     impacts  have been significantly  overstated. Second,  the bill                                                            
     represents  yet another tax increase  on the oil industry  from                                                            
     this Administration.                                                                                                       
     To explain  our reasons  for opposing  this bill, let  me first                                                            
     provide  you briefly with some  background. Last year  Congress                                                            
     passed  the federal Jobs  Act creating,  among other things,  a                                                            
     tax incentive  to improve the competitiveness  of manufacturing                                                            
     in  the  United   States,  which  currently  is  disadvantaged                                                             
     relative  to the rest of the world because national  income tax                                                            
     rates on  such activity overseas are generally  lower. This tax                                                            
     incentive takes the  form of a new deduction that is equal to a                                                            
     percentage  of  a  taxpayer's  "qualified  production  activity                                                            
     income"  ("QPA Income") from  manufacturing activity  occurring                                                            
     in the United  States. The tax deduction equals  3% of this QPA                                                            
     Income  initially; it increases  to 6% in 2007 and reaches  its                                                            
     full size  of 9% beginning in 2010. In order  to make this work                                                            
     as an incentive  to create and keep jobs in the  United States,                                                            
     Congress  specifically   limited  QPA  Income  to  income  from                                                            
     domestic, U.S. - only activity.                                                                                            
     Alaska's  state income  tax automatically  adopts sections  1 -                                                            
     1399 and  6001 - 7872 of the  Internal Revenue Code,  including                                                            
     new sections  within these number  ranges as they are  enacted,                                                            
     amendments  as they  are made  to existing  sections, and  even                                                            
     repeals  of any of these sections  in the federal Code.  Alaska                                                            
     picks up these federal  changes unless the Legislature enacts a                                                            
     law  to prevent such  a federal change  from taking effect,  or                                                            
     modify  its effect for  state purposes.  The new deduction  for                                                            
     QPA  Income in  Section 199 of  the Internal  Revenue Code  and                                                            
     hence  has been picked up for  state purposes. Senate  Bill 151                                                            
     proposes  to undo this  automatic adoption  of Section  199 and                                                            
     keep it from taking effect for state income-tax purposes.                                                                  
     In  the fiscal  note for this  legislation,  the Department  of                                                            
     Revenue claims that  letting Section 199 take effect for Alaska                                                            
     purposes  would  cost  the State  between  $94.88  million  and                                                            
     $104.84  million  in  total over  the  FY 05  - FY  10  period.                                                            
     Further,  Department of  Revenue's fiscal  note states  it cold                                                            
     cost more than half  a million dollars a year for Department of                                                            
     Revenue to administer  Section 199 if it takes effect for state                                                            
     Both  of  these estimates  are,  in  AOGA's  opinion,  severely                                                            
     overstated  because  of  a  faulty  premise  in  Department  of                                                            
     Revenue's  analysis. This premise is stated in  the fiscal note                                                            
     as follows:                                                                                                                
          In  order to  avoid impermissible  discrimination  against                                                            
          economic  activity outside of the state, taxpayers will be                                                            
          allowed  the  QPA  [Income]  deduction  on  their  Alaskan                                                            
          return  for all  production profits  whether the  activity                                                            
          occurred   in Alaska,  another  state,  or  in  a  foreign                                                            
          country.  Production activity conducted in-state, domestic                                                            
          out  of state, or in a foreign country  will be awarded an                                                            
          equal deduction.                                                                                                      
     In  other  words, in  assessing  the  state revenue  impact  of                                                            
     letting Section  199 take effect, Department  of Revenue looked                                                            
     at  potential "production  activity income"  everywhere  in the                                                            
     world. It did not  look just at "qualified" production activity                                                            
     income as defined  by Congress, which is only that income which                                                            
     comes from production activity inside the United States.                                                                   
     Despite what  Department of Revenue asserts to  the contrary in                                                            
     its  fiscal  note,  when  Alaska  passively  adopts  a  limited                                                            
     federal  deduction,  it does  not legally  or logically  follow                                                            
     from  this fact  that  Department of  Revenue  must, under  the                                                            
     Foreign  Commerce Clause of the  U.S. Constitution,  completely                                                            
     remove  the  limitation  in the  course  of  administering  the                                                            
     deduction  for state  tax purposes.  There  is ample  precedent                                                            
     where  a  geographically  limited  federal   provision  remains                                                            
     limited in precisely  the same way when it is applied under the                                                            
     Alaska income tax.  For instance, expenditures for enhanced oil                                                            
     recovery ("EOR") give  rise to a federal tax credit that Alaska                                                            
     also allows, and the  federal credit is limited to expenditures                                                            
     for EOR  projects in the United  States - in administering  the                                                            
     EOR credit  for state purposes, Department of  Revenue does not                                                            
     impute  a hypothetical  credit  for  EOR projects  outside  the                                                            
     United    States   "[I]n   order    to   avoid   impermissible                                                             
     discrimination   against  economic  activity   outside  of  the                                                            
     state[;]"   instead,  Department  of  Revenue   uses  the  same                                                            
     domestic  territorial limitation as the federal  credit has. We                                                            
     do not see  how the domestic territorial limitation  in the new                                                            
     QPA Income  deduction would be  any different from the  one for                                                            
     EOR   in   terms   of   its   potential   for   "impermissible                                                             
     discrimination."  In other words,  since Department  of Revenue                                                            
     isn't  applying  the EOR  credit on  a worldwide  basis, it  is                                                            
     inconsistent  for Department  of Revenue  to say it must  apply                                                            
     the QPA Income deduction on a worldwide basis.                                                                             
9:39:36 AM                                                                                                                    
Mr. Williams deviated from his written testimony to state the                                                                   
     There's  another reason too.  I'm going to depart briefly  from                                                            
     the  prepared  comments  here. For  foreign  income,  taxpayers                                                            
     basically  have three  possible ways of  reporting that  to the                                                            
     state. One is to look  at their overseas activities and restate                                                            
     the   income  and   expenditures  under   federal  income   tax                                                            
     principals,  as if  those companies  were going  to file  a tax                                                            
     return  with the IRS.  For state purposes  they make the  state                                                            
     modifications that  we have, but basically that's reporting and                                                            
     paying  as if they  were federal taxpayers.  That's called  the                                                            
     "as if federal basis" that they use.                                                                                       
     But,  especially  for large  international  corporations,  that                                                            
     restatement to an  "as if federal basis" can be very cumbersome                                                            
     and time  consuming and often for a relatively  small amount of                                                            
     tax.  So  the Department  allows  taxpayers  to use  two  other                                                            
     options.  For their  control foreign  operations, they  can use                                                            
     what's called an "earnings  and profits" that they report on an                                                            
     information  return to  the IRS. Alternatively,  taxpayers  may                                                            
     use  financial   statement  income  under  generally   accepted                                                            
     accounting   principals    in   the   country   where   they're                                                            
     We basically  then have the three choices: the  "as if" federal                                                            
     income,  the earnings  and profits  income,  and the  generally                                                            
     accepted  accounting principals, or GAP, income.  Taxpayers get                                                            
     to choose those.                                                                                                           
     If a taxpayer voluntarily  reports on the basis of earnings and                                                            
     profits there'll  be no QPA Income in there because  QPA Income                                                            
     is not  part of the definition  of earnings and profits.  There                                                            
     won't  be any deduction  for it; the  income will be there  but                                                            
     there  won't   be  this  deduction.  Similarly,   if  you  have                                                            
     financial  accounting income  as your basis for reporting  your                                                            
     non-US   operations  income,   generally  accepted   accounting                                                            
     principals  don't  have a  deduction  for QPA  Income. So  that                                                            
     deduction  won't show up there. The taxpayers  will voluntarily                                                            
     use either of those  two methods, voluntarily abandon the claim                                                            
     for  a  deduction  with  respect to  the  non-US  QPA  activity                                                            
     Even if there  were theoretically a constitutional  issue here,                                                            
     there's no foul, there's no harm.                                                                                          
9:42:05 AM                                                                                                                    
Mr. Williams resumed reading his written testimony as follows.                                                                  
     Because of its faulty  premise about how broadly the QPA Income                                                            
     is deduced  must be applied for  State purposes, Department  of                                                            
     Revenue's estimated  revenue impacts are overstated by at least                                                            
     a factor  of two or three or  more, depending on how  much QPA-                                                            
     ish  income  it  foresaw  from non-US  production  activities.                                                             
     Similarly, the estimated  administrative cost of half a million                                                            
     dollars  a  year is  entirely  a  result  of this  same  faulty                                                            
     assumption.  The  IRS will  audit  taxpayers'  QPA Income  from                                                            
     activities  in  the US,  and  there will  be nothing  left  for                                                            
     Department of Revenue  to audit and enforce. The half a million                                                            
     dollars a year should, in other words, disappear.                                                                          
     AOGA also disagrees  with Department of Revenue's conclusion in                                                            
     the fiscal note that  the anticipated beneficial effects of the                                                            
     QPA  Income   deduction  at   the  federal  level  "cannot   be                                                            
     replicated  at the state level."  At least with respect  to oil                                                            
     and  gas, the  two principal  regions of  qualified  production                                                            
     activity  in  the United  States  are  the deep-water  Gulf  of                                                            
     Mexico and Alaska.  With only two "hot spots" for the action to                                                            
     occur  in, it seems  likely that Alaska  would be ahead  of the                                                            
     game  when   the  incentive  works  in  attracting   production                                                            
     activity  to the  US. Given  Department  of Revenue's  contrary                                                            
     conclusion   about  these   benefits   for  Alaska,  it   seems                                                            
     improbable that Department  of Revenue made any serious attempt                                                            
     to estimate  and include  the increases  in State tax  revenues                                                            
     from  the  production   activities  in  Alaska  that  this  tax                                                            
     incentive would help attract to this state.                                                                                
     Thus,  both  on policy  grounds  as  well as  potential  fiscal                                                            
     impacts,  the  justification  that  Department of  Revenue  has                                                            
     given  for  this  legislation  has  been  both  overstated  and                                                            
     This  brings  me to  AOGA's  second  reason for  opposing  this                                                            
     legislation: it represents  yet another tax increase on the oil                                                            
     industry  from  this  Administration.  It  is  a  tax  increase                                                            
     because   Section  199  of  the   Internal  Revenue   Code  was                                                            
     automatically  adopted for state  purposes as of January  first                                                            
     of  this  year,  when it  took  effect  for  federal  purposes.                                                            
     Section 199 is, in  other words, already the status quo. SB 151                                                            
     proposes  to change this status quo by undoing  the adoption of                                                            
     Section  199, and in  doing so it will  raise corporate  income                                                            
     taxes  for our industry and every  other industry in  the state                                                            
     having "qualified production activity."                                                                                    
     Department  of  Revenue's  just-released  Spring  2005  Revenue                                                            
     Sources  Book  predicts  future  state  oil  and  gas  revenues                                                            
     through  FY 15 based  on assumptions that  tens of billions  of                                                            
     dollars of new investments  will be made during that time which                                                            
     will hold  oil production at  the projected levels and  keep it                                                            
     from declining  at it otherwise  will. Fortunately for  Alaska,                                                            
     the  opportunities   for making   these  investments,  and  the                                                            
     possibility  that  they will  indeed result  in the  production                                                            
     being hoped for, are  not some wild pipe dream, but a plausible                                                            
     expectation.  The  key to  fulfilling this  bright expectation                                                             
     lies  in  winning  the  competition  for funding  so  that  the                                                            
     potential  Alaskan investments will become actual  investments.                                                            
     Raising taxes  does not make Alaska's investment  opportunities                                                            
     more competitive. It makes them less competitive.                                                                          
     Some have  said that, with today's high oil prices,  Alaska can                                                            
     and should  raise its oil taxes  - the producers can  afford to                                                            
     pay a larger share  of this "windfall" they say. This reasoning                                                            
     misses the  real issues here. From the industry's  perspective,                                                            
     the  question is not  about how  much it can  afford to  pay to                                                            
     Alaska,  but  how  much  it can  afford  to  invest  in  Alaska                                                            
     relative  to opportunities elsewhere.  Fifty-dollar  oil is not                                                            
     $50 just  for Alaskan oil, but  for all oil wherever  produced.                                                            
     High  oil prices to  not change the fact  that Alaska  is among                                                            
     the most  expensive places in the world to operate  and produce                                                            
     From the  State's perspective  as well, the question  is not so                                                            
     simplistic as to be  only about what the industry might be able                                                            
     to pay. There  is a trade-off between, on the  one hand, taking                                                            
     a larger  share now and having  less available to be  shared in                                                            
     the  future because  some investments  cease to be competitive                                                             
     enough to  win funding, and on the other hand,  taking the same                                                            
     or perhaps  even a more modest share and having  more available                                                            
     to  be shared  in the future  because more  investments  become                                                            
     competitive  enough to win funding.  Or to put it another  way,                                                            
     which  gives the State  more -  taking a wider  slice out  of a                                                            
     smaller pie, or a  narrower slice out of a larger pie? And what                                                            
     is the  optimum width  for that slice  so that it has  the most                                                            
     fiscal "weight"?                                                                                                           
     Some simplistically  believe that $50 oil will  justify any and                                                            
     all  of  the investment  opportunities   that industry  has  in                                                            
     Alaska,  despite  raising taxes  as proposed  in  this bill  or                                                            
     raising  them by  lumping satellite  fields  with their  parent                                                            
     field   for  ELF  purposes.   Such  reasoning  apparently   led                                                            
     Department  of Revenue and Department  of Natural Resources  to                                                            
     advise  the Governor to  introduce this  bill, and to  make the                                                            
     Prudhoe  Bay ELF decision. The  Governor was, no doubt  assured                                                            
     in both  situations that neither  action would actually  change                                                            
     investment decisions.                                                                                                      
     The advice  that the Governor  received about the ELF  decision                                                            
     has already  been proven wrong. The Orion field  in the western                                                            
     region of  the Prudhoe Bay Unit, for example,  is a development                                                            
     that  industry has been  diligently pursuing  to help  stem the                                                            
     decline of  North Slope production. The producers  have already                                                            
     stated that,  because of the tax increase under  that decision,                                                            
     they will not be able  to proceed with the planned expansion of                                                            
     the  Orion field as  it is currently  proposed. This  expansion                                                            
     would have  been a $650 million project to develop  viscous oil                                                            
     in the  Prudhoe Bay Unit. An  associated casualty is  the I-100                                                            
     Well  for  viscous oil  development  that  was on  this  year's                                                            
     drilling  schedule for  Prudhoe Bay, but  now has been  removed                                                            
     and indefinitely deferred.                                                                                                 
     The advice that the  Governor has been given about this bill is                                                            
     also  wrong, for the  same reasons. Because  it has not  become                                                            
     law, there is no hard,  empirical evidence to offer you to show                                                            
     that  this bill  is  ill-advised  for the  State. Fortunately,                                                             
     however,  this same circumstance  means it is not too  late for                                                            
     you,  the Legislature,  to avoid repeating  the mistake  of the                                                            
     Governor's  advisors. You are in the position  of being able to                                                            
     refrain from acting, and you should.                                                                                       
     AOGA has  long said, and we need  to say again now,  any change                                                            
     to Alaska's  existing fiscal  regime for our industry  needs to                                                            
     be  carefully  evaluated   for  its  impacts  on  each  of  the                                                            
     different  kinds of investments there are for  getting more oil                                                            
     produced.  Otherwise,  there  is a  substantial  risk that  the                                                            
     anticipated  negative effects of that change  on other kinds of                                                            
     oil investments.                                                                                                           
     We  believe that  raising oil taxes  now, as  SB 151 would  do,                                                            
     will  send precisely  the wrong message  to the industry  about                                                            
     making the investments  that Alaska is so desperately needs and                                                            
     is counting  on for  its own fiscal  future. Accordingly,  AOGA                                                            
     opposes  this bill and  respectfully urges  that you oppose  it                                                            
9:50:17 AM                                                                                                                    
LARRY HOULE, General Manager, The Alaska Support Industry Alliance,                                                             
testified via teleconference from Anchorage in opposition to this                                                               
bill. He read a statement into the record as follows.                                                                           
     The Alliance  this year is celebrating  its 25th. We  are a 501                                                            
     C6  non-profit statewide  trade association  representing  over                                                            
     380 businesses,  organizations and individuals.  The collective                                                            
     workforce  represented  by Alliance membership  exceeds  30,000                                                            
     Alaskans that live in your districts.                                                                                      
     The Alliance  is very much opposed to this legislation  because                                                            
     we see it  as yet another industry tax that will  further erode                                                            
     Alaska's  competitive position as [an] oil and  gas province in                                                            
     an  ever increasing  competitive  global market.  In short,  it                                                            
     represents  another tax increase  on the oil industry  from the                                                            
     Murkowski Administration.                                                                                                  
     Raising taxes  does not make Alaska's investment  opportunities                                                            
     more  competitive.   It  simply  and  plainly  makes   Alaska's                                                            
     investment  climate  less  competitive.  A  lot of  people  are                                                            
     saying  these days  that  in a world  where  oil companies  are                                                            
     getting  $50 a  barrel that  they can  all afford  to pay  more                                                            
     taxes. But we forget  that $50 oil in Alaska is the same as $50                                                            
     oil in the Middle East, South America or Indonesia.                                                                        
     In the  oil and gas industry,  it is not the price of  oil that                                                            
     matters, but the cost  to produce that particular barrel of oil                                                            
     that  really  matters.  Less  expensive  oil  will  always  get                                                            
     produced before more  expensive oil. The reality is relative to                                                            
     other  oil and gas providences  in the  world, Alaska's  oil is                                                            
     extremely  expensive  to  produce.  I  believe  this  fact  was                                                            
     recently validated  the Wood Max [spelling not verified] study.                                                            
     We think  that SB 151  simply adds to  the production  costs of                                                            
     Alaska's oil.                                                                                                              
     When we first read  through this bill, let me give you a simple                                                            
     sort of metaphoric  [indiscernible] of how we talked about this                                                            
     particular  bill.  I  live in  the  Anchorage  neighborhood  of                                                            
     College Village. We  just received the good news that there was                                                            
     a $5,000  property tax  exemption or  tax credit that  everyone                                                            
     who  owns  a home  in  Anchorage  in College  Village  gets  to                                                            
     benefit from. However,  all of a sudden, the mayor or maybe the                                                            
     local  assembly  passed an  ordinance  that says  "no this  tax                                                            
     exemption  is only for  those houses -  you can only have  this                                                            
     tax exemption if your  house is painted white." And I happen to                                                            
     live in a white house  in College Village. How welcome should I                                                            
     feel?  How  welcome  should  an industry  feel  when  they  are                                                            
     continually the subject  of increased taxes. And also I want to                                                            
     point out  this is an increase tax at a time  of a $500 million                                                            
     We  agree  with  Tom in  the  fact  that the  advice  that  the                                                            
     Governor  received  on the recent  field  aggregation to  raise                                                            
     taxes  on the Prudhoe  Bay satellites  was wrong. The  Alliance                                                            
     has  been  very  aggressive   in its  statements   against  the                                                            
     Governor's actions.  We clearly see that the aggregation of the                                                            
     fields in  Alaska up on Prudhoe Bay will probably  eliminate 20                                                            
     to 40,000  barrels of oil that will never get  the tax pipeline                                                            
     because  of  the  faction  unless  it's  overturned.   Already,                                                            
     Alliance contractors,  specifically in the area of engineering,                                                            
     are experiencing a slowdown in work.                                                                                       
     Senate Bill  151 is, like Tom said, a piling  on of another tax                                                            
     for this industry.  I've said it before and I will probably say                                                            
     again,  that no  project has  ever been  taxed into  existence.                                                            
     State  officials,  the  legislature  and  the  public  need  to                                                            
     remember  what  some  of  them seem  to  have  forgotten,  that                                                            
     companies  wisely invest shareholder money. Corporate  officers                                                            
     look  to invest  in areas  where there  is  an opportunity  for                                                            
     reasonable  profits and those  investments can be made  without                                                            
     undue risk.                                                                                                                
     The problem is that  most recently, if you take this particular                                                            
     SB  151 you take  the arbitrary  Administrative  action by  the                                                            
     Governor  to aggregate Prudhoe Bay satellites.  It's becoming a                                                            
     high-risk province.                                                                                                        
     Senate  Bill 151,  we believe  is ill-advised  legislation.  It                                                            
     sends  a wrong  message to  Alaska's largest  investors and  if                                                            
     passed it  would most certainly cost Alaskans  that work in oil                                                            
     [indiscernible  -  patch?] jobs.  We respectfully  urge you  to                                                            
     oppose this particular legislation.                                                                                        
9:55:30 AM                                                                                                                    
DAN  DICKINSON,  Director,  Tax  Division,  Department  of  Revenue,                                                            
testified that  the AOGA gave two reasons against  this legislation.                                                            
The first claimed  that the Department  misstated or overstated  the                                                            
impact  with  "faulty premises".   Mr. Dickenson  pointed  out  that                                                            
"fundamentally",  the  Department  asserted this  legislation  would                                                            
have "a hundred  million dollar affect  over the next decade."  AOGA                                                            
calculated  the amount  to be half  that, or even  $30 million.  The                                                            
dispute is  over the size of the affect  and AOGA does not  question                                                            
that there would  be an affect. He noted this information  could not                                                            
be verified, as the courts would decide the issues.                                                                             
Mr. Dickinson  cited an article  in the Alaska  Budget Report  [copy                                                            
not provided], which asked  members of AOGA their intentions if this                                                            
legislation  did not  pass. The  members responded  that they  would                                                            
take advantage of any tax allowances permitable by law.                                                                         
Mr. Dickenson predicted  resolution of the matter would take several                                                            
years, although  the Department  is confident  that the State  would                                                            
prevail. He told  of a court decision issued in 1992  [specifics not                                                            
provided]  establishing  rules, which  the Department  has  followed                                                            
since. The "commerce clause  issue" that pertains to the "ability to                                                            
draw extra-territorial lines" has not been permitted.                                                                           
Mr.  Dickenson  directed attention  to  the  example given  by  AOGA                                                            
relating to  credits. Credits are  "very different from determining                                                             
income." He  surmised that company  would not sue the State  because                                                            
of the  manner  in which  credits are  treated. He  noted a  circuit                                                            
court decision  on the treatment of credits that,  although does not                                                            
directly apply to Alaska, is an indicator.                                                                                      
9:58:51 AM                                                                                                                    
Mr. Dickinson  spoke to the assertion that prices  of $50 per barrel                                                            
of oil has  the same value  in Alaska as in  the rest of the  world.                                                            
This is  untrue. This price  has more value  in a regressive  regime                                                            
than  in a  progressive  regime.  He  explained  that Alaska  has  a                                                            
regressive  regime, in that when prices  are low, a high  percentage                                                            
of "economic  rent" is  taken, and  as prices  rise an "ever  lower"                                                            
percentage is taken. At  the price of $50 per barrel, Alaska "is one                                                            
of the  best  places in  the world  to do  business."  As the  price                                                            
increases  in a progressive  regime,  the host  government takes  an                                                            
ever-larger percentage.                                                                                                         
9:59:45 AM                                                                                                                    
Mr. Dickinson  next addressed the  second statement made  by AOGA in                                                            
opposition  to this bill,  that "this is  just another tax  increase                                                            
that's been  passed on by the Murkowski  Administration."  He read a                                                            
portion of Mr.  Williams' testimony to indicate this.  Mr. Dickenson                                                            
reminded  the  Committee  members  that  at the  conclusion  of  the                                                            
previous legislative  session, the  federal government "changed  the                                                            
rules and those rules will  flow through to the state laws." This is                                                            
the first opportunity for  the legislature to address the matter and                                                            
determine whether Alaska  should "go along" with those opportunities                                                            
provided  by the federal  government  to attempt  to return  certain                                                            
industrial  development  to America  from abroad.  He surmised  that                                                            
Alaska would likely  not receive a significant share  of investment.                                                            
He explained that the federal  legislation pertains to manufacturing                                                            
and  refining  activities  rather  than  resource   extraction.  The                                                            
legislature  must  determine whether  this  is an  unfunded  federal                                                            
mandate and if  it is appropriate for the State to  lower its taxes.                                                            
10:01:48 AM                                                                                                                   
Senator  Stedman  characterized   the  title  of  the  American  Job                                                            
Creation Act as a stimulus  effort to increase manufacturing jogs in                                                            
the country.  He asked  if the State  opting to  participate  or not                                                            
participate would generate additional jobs.                                                                                     
10:02:45 AM                                                                                                                   
Co-Chair Green asked if this has that been analyzed.                                                                            
10:02:54 AM                                                                                                                   
Mr. Dickinson  qualified  the federal Act  affects many provisions,                                                             
including the  creation of special depreciation rules  for a natural                                                            
gas pipeline. Many of the  provisions would "encourage" job creation                                                            
in  Alaska. The  Department  is not  recommending  decoupling  those                                                            
sections. This  legislation addresses  one provision only  and would                                                            
not reduce any of the federal tax benefit.                                                                                      
Mr. Dickinson  explained  that the State  has historically  followed                                                            
the federal  income tax guidelines  rather than developing  separate                                                            
guidelines.  This legislation  is necessary  to address the  reduced                                                            
federal taxation rates.                                                                                                         
10:04:28 AM                                                                                                                   
Co-Chair Green  indicated the fiscal  note would receive  additional                                                            
The bill was HELD in Committee.                                                                                                 
10:04:39 AM                                                                                                                   
     SENATE BILL NO. 110                                                                                                        
     "An Act relating to regulation of the discharge of pollutants                                                              
     under the National Pollutant Discharge Elimination System; and                                                             
     providing for an effective date."                                                                                          
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
10:05:39 AM                                                                                                                   
Senator  Olson asked  if  the assessments  on  affected communities                                                             
would be public information.                                                                                                    
10:06:19 AM                                                                                                                   
DAN   EASTON,   Director,   Division   of   Water,   Department   of                                                            
Environmental Conservation, testified that it would be public.                                                                  
10:06:25 AM                                                                                                                   
Senator Olson  asked if the affected communities have  been notified                                                            
of the rate increase.                                                                                                           
10:06:38 AM                                                                                                                   
Mr. Easton responded that  those communities have not been notified.                                                            
10:06:51 AM                                                                                                                   
STEVE  BORELL,  Executive   Director,  Alaska  Miners  Association,                                                             
testified  via teleconference  from  an offnet  location, that  this                                                            
issue has been  discussed within the mining industry  for some time.                                                            
He noted that  until participating in a series of  meetings that the                                                            
industry became convinced  that State's primacy would be in the best                                                            
interest of the  State. He detailed a letter and attachments  to the                                                            
Committee from the Association dated April 4 [copy on file.]                                                                    
Mr. Borrell spoke  to "non-Alaska" factors that could  impact Alaska                                                            
permits,   explaining   that   decisions   made   by   the   federal                                                            
Environmental  Protection Agency (EPA)  could affect other  areas of                                                            
the national  region  number ten,  of which Alaska  is included.  In                                                            
addition,  the EPA  could  consider  permit applications  based  the                                                            
impact such permit could  have on the outcome of pending court cases                                                            
in other jurisdictions.                                                                                                         
10:09:54 AM                                                                                                                   
MERLE THOMPSON, testified  in Juneau this bill is example of "piling                                                            
off"  rather than  "piling  on".  He identified  concerns  with  the                                                            
legislation, notably that  tribal governments and the general public                                                            
would be excluded  from the permit process. He questioned  the State                                                            
expenditure of  $1.5 million annually to provide a  service that the                                                            
federal government currently conducts at no cost to the State.                                                                  
Mr. Thompson  indicated  his experience  with coal  bed methane  and                                                            
expressed   concerns  about   the  surface   discharge  from   these                                                            
activities that would have  likely be required to undergo a thorough                                                            
environmental  impact statement  process under  federal management,                                                             
but  would  not  be considered   under  State management.   Baseline                                                            
studies  of  surface  discharge  were undertaken   in the  state  of                                                            
Colorado  and were  review  of those  studies by  the organization,                                                             
Trout Unlimited,  which resulted in  a significant decline  in trout                                                            
populations. It was determined  that the eggs could not hatch in the                                                            
water conditions.                                                                                                               
Mr. Thompson surmised that  this legislation would reduce the number                                                            
of compliance  officers  and permitting  officers. He characterized                                                             
this legislation  as a "wish  list from the  industry". He  spoke to                                                            
the benefits of the public process.                                                                                             
10:13:13 AM                                                                                                                   
KATHIE WASSERMAN,  Alaska Municipal League, testified  in support of                                                            
the bill. She read a statement into the record as follows.                                                                      
     AML  supports SB 110.  We believe  Department of Environmental                                                             
     Conservation  should have authority  from EPA to implement  the                                                            
     NPDES   permitting   program.   Department   of  Environmental                                                             
     Conservation  has successfully taken actions  to assume primacy                                                            
     for  the timber industry  and, we feel,  now should be  able to                                                            
     pursue program development for full primacy.                                                                               
     Our   reasons   for   support   are   simple:   Department   of                                                            
     Environmental Conservation  is better able to respond in a more                                                            
     timely manner to Alaska  discharge and waste water issues. They                                                            
     are more familiar  with Alaska's communities and businesses and                                                            
     thus know  first hand the on-the-ground  impacts, limitations,                                                             
     geography  and economics  related to  the decisions they  might                                                            
     We are (as  is Senator Olson) concerned about  fees. Permitting                                                            
     is  worthless if communities  cannot  afford to pay  permitting                                                            
     fees.  We would  suggest  a sliding  scale  for municipalities                                                             
     based  on   population,  and  would  be  happy   to  work  with                                                            
     Department  of Environmental  Conservation to arrive  at a fair                                                            
     and equitable fee structure.                                                                                               
10:14:30 AM                                                                                                                   
Senator Stedman  clarified that the AML is in support  of increasing                                                            
the fees that the Department  would charge above the normal rate. He                                                            
spoke to the  allowable fee percentages  based on the actual  amount                                                            
of time spent on permit  issuance activities. He asked if the intent                                                            
is to transfer the costs incurred by the State to industry.                                                                     
10:15:22 AM                                                                                                                   
Ms.  Wasserman  corrected  this  was not  the  League's  intent.  In                                                            
discussions  with Mr. Eastman,  she understood  that the fees  would                                                            
increase under State primacy.  She expressed this would be "one more                                                            
added expense" to communities.                                                                                                  
10:15:50 AM                                                                                                                   
Co-Chair  Green   asked  if  the  witness'  concerns   pertained  to                                                            
communities of all sizes.                                                                                                       
10:15:56 AM                                                                                                                   
Ms. Wasserman affirmed.                                                                                                         
10:15:59 AM                                                                                                                   
Senator Stedman expected  that 80 percent of the costs would be paid                                                            
by the State  and 20 percent by local  governments. He asked  if Ms.                                                            
Wasserman requested  that the 20 percent assessed  to communities be                                                            
10:16:44 AM                                                                                                                   
Ms. Wasserman  had  not seen  proposed  fee amounts  and hoped  that                                                            
municipalities  would be involved in the establishment  of the fees.                                                            
If the increase  were small, the matter  would be insignificant.  If                                                            
the increase  were  substantial, communities  would  be required  to                                                            
consider whether "it would be beneficial."                                                                                      
10:17:14 AM                                                                                                                   
Senator Hoffman  cited a  memorandum dated  April 8, 2005,  from the                                                            
Department of Environmental  Conservation [copy on file], indicating                                                            
that the rates would increase 80 percent.                                                                                       
10:18:03 AM                                                                                                                   
Senator Stedman identified  two components to the fee situation, the                                                            
first being  "the absolute increase  cost at the local level",  i.e.                                                            
municipalities  and  businesses,  which would  cost  more for  local                                                            
governments and industry.  However total cost of implementation, the                                                            
other component  of the fee situation,  would be paid 80  percent by                                                            
the State and 20 percent by local entities.                                                                                     
10:18:41 AM                                                                                                                   
Co-Chair Green  referenced the aforementioned letter  as stating the                                                            
increase would be a factor  of 1.8 for every community. She surmised                                                            
this would be "fairly nominal for smaller cities".                                                                              
10:18:56 AM                                                                                                                   
Senator   Stedman   cited   pie  charts   titled,   "Department   of                                                            
Environmental  Conservation, NPDES Primacy, Distribution  of Program                                                            
Costs"  [copy on  file], and  the  pie titled,  "Incremental  Alaska                                                            
investment  in  wastewater  discharge permitting  to  achieve  NPDES                                                            
primacy  (legislation  fiscal  note) $1,547,900"  showing:  fees  19                                                            
percent, general  funds 81 percent  and federal funds zero  percent,                                                            
which demonstrated his argument.                                                                                                
10:19:11 AM                                                                                                                   
Mr.  Easton  directed  attention  to the  pie  titled  "Full  Alaska                                                            
investment in wastewater  discharge permitting at full NPDES primacy                                                            
implementation  $4,826,100" showing: fees 19 percent,  general funds                                                            
56 percent, and federal funds 28 percent.                                                                                       
Mr. Easton  furthered that  the 80 percent  increase is an  average;                                                            
generally fees  would increase by  that factor. The actual  increase                                                            
would be a function of  the direct costs and the fees for some types                                                            
of permits could  increase more than others. The permits  issued for                                                            
municipalities  are "generally  easier  for us to  write" and  would                                                            
therefore likely  increase by a factor or 1.2 or 20  percent, rather                                                            
than the average of 80 percent.                                                                                                 
10:21:09 AM                                                                                                                   
Senator Stedman  noted the differences  of the two pie charts,  with                                                            
the incremental  implementation  of the program  entailing  a higher                                                            
portion of the costs be paid by the State.                                                                                      
10:21:44 AM                                                                                                                   
Co-Chair Green requested  a review of the reasons for assuming State                                                            
primacy to provide understanding for the proposed fee increases.                                                                
10:21:58 AM                                                                                                                   
Mr.  Easton  explained  that  most of  the  permit  applications  in                                                            
question  are from  small businesses,  including  placer miners  and                                                            
small seafood  processors. Unlike  in other states, two permits  are                                                            
required  for operations  in Alaska:  one from the  federal EPA  and                                                            
another  from the State  Department of  Environmental Conservation.                                                             
Most other  states require  one permit issued  by the state  agency,                                                            
which  acts  as an  agent  for the  EPA  and  must comply  with  the                                                            
provisions mandated be  the federal Clean Water Act. This process is                                                            
less expensive and time consuming.                                                                                              
10:23:11 AM                                                                                                                   
Co-Chair  Green  spoke  to  concerns  that  the  quality  of  permit                                                            
application  review  would  be  reduced.  The State  would  be  less                                                            
careful  and  less  discriminate  because  the State  would  not  be                                                            
required to comply with federal regulations.                                                                                    
Mr. Easton assured that  the Department must comply with the Federal                                                            
Clean Water Act. Receiving permits would not be any easier.                                                                     
10:23:46 AM                                                                                                                   
Co-Chair  Green asked the  location of the  nearest EPA headquarter                                                             
Mr. Easton replied the  regional headquarters is located in Seattle,                                                            
Washington.  It  is  possible  that  a  permit  reviewer  has  never                                                            
traveled to Alaska.                                                                                                             
10:24:06 AM                                                                                                                   
Ms. Wasserman shared that  she once had a discharge permit for NPDES                                                            
through her  community, and  that in the  process of obtaining  this                                                            
permit, the  EPA required ten months  to locate a necessary  waiver.                                                            
The agency was unresponsive.  Comparatively, the State Department of                                                            
Environmental Conservation has been very responsive.                                                                            
10:24:44 AM                                                                                                                   
Co-Chair Green asked if  the witness surmised that the Department of                                                            
Environmental Conservation  without any standards approved the State                                                            
Ms.  Wasserman replied  that  the process  never  progressed to  the                                                            
point of Department of Environmental Conservation involvement.                                                                  
10:25:05 AM                                                                                                                   
Co-Chair Green  opined that some functions are better  undertaken by                                                            
the State.                                                                                                                      
10:25:16 AM                                                                                                                   
Senator  Olson   clarified  that  the  AML  is  in   favor  of  this                                                            
legislation  despite  the  fee  increases  of more  than  twice  the                                                            
current amounts.                                                                                                                
10:25:35 AM                                                                                                                   
Ms. Wasserman  reported that  Mr. Easton  hoped the increases  would                                                            
not be as high. Most communities  favor a quicker, speedier and more                                                            
complete process than the current EPA system.                                                                                   
10:25:55 AM                                                                                                                   
Senator Olson  understood  the fee increases  would average  1.8 for                                                            
the communities  he was concerned  about and therefore some  permits                                                            
would increase over this amount.                                                                                                
Mr. Easton affirmed.                                                                                                            
Senator Olson  asked if these permits  would be issued primarily  to                                                            
municipalities or businesses.                                                                                                   
Mr. Easton  responded that the larger  increases would apply  mostly                                                            
to large businesses,  such as a water treatment facility  located in                                                            
10:26:50 AM                                                                                                                   
Co-Chair Wilken noted the  aforementioned letter addressed the issue                                                            
of including revenues generated  from the imposition of fines in the                                                            
fiscal note.  He asked for  an estimate to  offset the $1.5  million                                                            
cost to operate the program.                                                                                                    
10:27:15 AM                                                                                                                   
Mr. Easton replied that  this was considered, although he was unsure                                                            
how  to  demonstrate  collection  of  fines  in a  fiscal  note.  He                                                            
surmised it would be appropriate  to assume that a certain amount of                                                            
revenue would  be collected from fines; however, these  revenues are                                                            
deposited directly into the general fund.                                                                                       
Co-Chair  Wilken  interpreted  the  fiscal  note  to state  that  no                                                            
violations  would occur and therefore  no fines would be  levied. He                                                            
deferred to  Co-Chair Green to pass  judgment on the correctness  of                                                            
the fiscal note.                                                                                                                
10:28:09 AM                                                                                                                   
STEPHANIE  MADSON,   Vice  President,  Pacific  Seafood   Processors                                                            
Association,  testified about the  Association and its members.  She                                                            
spoke as  a member  of a workgroup  reviewing the  pros and  cons of                                                            
State  primacy. Currently  the  State has  two types  of permits:  a                                                            
general permit applied  across the state, and a site-specific permit                                                            
issued to larger  processors or in areas of increased  water quality                                                            
concern.  She understood  that the  cost of  permits would  increase                                                            
under State primacy;  however the benefits would be  worth the extra                                                            
expense.  She assured  that  the public  process  would not  change.                                                            
Rather the State would  not be required to concur with tribal groups                                                            
other  federal   agencies,   such  as  the   National  Oceanic   and                                                            
Atmospheric  Administration (NOAA)  and other groups. She  qualified                                                            
that the EPA  would retain authority  to override the issuance  of a                                                            
10:32:36 AM                                                                                                                   
Co-Chair Green  took Co-Chair Wilken's advice to further  review the                                                            
fiscal  note. She  commented  that  fines should  not  be viewed  as                                                            
revenues sources;  however their collection impacts  the fiscal cost                                                            
of a program.                                                                                                                   
Co-Chair  Green ordered the  bill HELD in  Committee. [The  bill was                                                            
heard again after the recess.                                                                                                   
AT EASE 10:33:30 AM/10:33:37 AM                                                                                             
AT EASE 10:33:51 AM/10:42:53 AM                                                                                             
     SB 110-POLLUTION DISCHARGE & WASTE TRMT/DISPOSAL                                                                           
This bill was heard earlier in the meeting.                                                                                     
Co-Chair   Green  noted   a  proposed   committee   substitute   was                                                            
distributed to members.                                                                                                         
10:43:12 AM                                                                                                                   
Co-Chair Wilken  moved for adoption  of CS SB 110, 24-GS1009\G  as a                                                            
working document.                                                                                                               
Co-Chair Green objected for an explanation.                                                                                     
10:43:31 AM                                                                                                                   
Mr. Easton explained that  the committee substitute "recognizes that                                                            
the fiscal  note reflects a substantial  investment of State  funds"                                                            
and  establishes   an  annual  reporting  system  to   appraise  the                                                            
legislature and the governor of the status of achieving primacy.                                                                
10:43:53 AM                                                                                                                   
Co-Chair Green  removed her objection  and the committee  substitute                                                            
was ADOPTED without further objection.                                                                                          
10:44:12 AM                                                                                                                   
Co-Chair  Green  relayed a  suggested  made  by Co-Chair  Wilken  to                                                            
report this bill from Committee  with the intent that the Department                                                            
would prepare a new fiscal  note that would be adopted by the Senate                                                            
Rules Committee.  The fiscal impact of revenue generated  from fines                                                            
would not be significant to the total cost of the program.                                                                      
AT EASE 10:45:01 AM / 10:45:28 AM                                                                                           
10:45:43 AM                                                                                                                   
Co-Chair Wilken  offered a motion  to report CS SB 110, 24-GS1009\G                                                             
from  Committee with  individual  recommendations  and accompanying                                                             
fiscal notes.                                                                                                                   
Senator Hoffman  objected because, although the State  would receive                                                            
some  benefit  from   primacy,  the  federal  government   currently                                                            
provides the services.  This program would add two new positions and                                                            
cost the State approximately $1.5 annually.                                                                                     
10:46:30 AM                                                                                                                   
Co-Chair  Wilken amended  his motion  to clarify  that a new  fiscal                                                            
note  would be  forthcoming  from the  Department  of Environmental                                                             
10:46:52 AM                                                                                                                   
Senator  Olson  shared  concerns  expressed  to  him  from  affected                                                            
municipalities. Beside  the increase costs, smaller communities that                                                            
are federally  recognized  as tribal  governments  have a  developed                                                            
relationship with  the EPA that he characterized as  "government-to-                                                            
government"   The  Department   has  not   demonstrated  that   this                                                            
relationship would continue.                                                                                                    
10:47:45 AM                                                                                                                   
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Dyson, Senator Stedman, Co-Chair Wilken and Co-                                                               
Chair Green                                                                                                                     
OPPOSED: Senator Hoffman and Senator Olson                                                                                      
ABSENT: Senator Bunde                                                                                                           
The motion PASSED (4-2-1)                                                                                                       
CS SB 110(FIN)  MOVED from Committee with zero fiscal  notes #1 from                                                            
the Department  of Fish and Game, #2 from the Department  of Natural                                                            
Resources,  #4 from  the  Department  of Transportation  and  Public                                                            
Facilities, and  a new fiscal note for $874,200 from  the Department                                                            
of Environmental Conservation.                                                                                                  
10:48:26 AM                                                                                                                   
     SENATE BILL NO. 147                                                                                                        
     "An  Act providing for  a sport fishing  facility surcharge  on                                                            
     sport  fishing licenses;  providing  for the  construction  and                                                            
     renovation  of state  sport fishing  facilities  and for  other                                                            
     projects  beneficial to the sport  fish resources of  the state                                                            
     as  a  public  enterprise;  and  authorizing  the  issuance  of                                                            
     revenue bonds to finance those projects."                                                                                  
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
10:48:42 AM                                                                                                                   
SENATOR RALPH SEEKINS reminded  the Committee of questions raised at                                                            
the previous  hearing regarding  the proposed  method of bonding  is                                                            
legal.  In discussion  with the  Department  of Law,  he learned  it                                                            
would be legal as it is  similar to the Alaska international airport                                                            
fund. This legislation  would not establish a dedicated fund and the                                                            
Department of Fish and  Game would continue to have an obligation to                                                            
repay the debt regardless of revenue generated to the fund.                                                                     
10:49:48 AM                                                                                                                   
Senator Seekins  reported that four tenths of one  percent of people                                                            
who  purchase  Alaska sport  fishing  licenses  resides  in  Western                                                            
Alaska.  Therefore, while  residents  of this area  may receive  the                                                            
benefits of this legislation, most would not pay for it.                                                                        
10:50:21 AM                                                                                                                   
Senator  Seekins  furthered  that  Senator  Stedman  had  asked  the                                                            
percentage of licenses  purchased in Southeastern Alaska. The amount                                                            
is  approximately   25  percent,  but  primarily  is   comprised  of                                                            
nonresident licenses. Residents  of Southcentral Alaska purchase the                                                            
majority  of resident sport  fishing licenses,  and Interior  Alaska                                                            
residents purchase about ten percent of the licenses issued.                                                                    
10:51:19 AM                                                                                                                   
Senator Seekins told of  discussions he had with Senator Stedman and                                                            
he agreed that  funding a source other  than increased license  fees                                                            
would  be preferred  for the  construction of  hatchery facilities.                                                             
However, "we are  behind the curve" in development  of such hatchery                                                            
fisheries  and  the biomass  reduction  must  be addressed  soon  as                                                            
demand continues to increase.                                                                                                   
10:52:05 AM                                                                                                                   
Co-Chair Green  relayed her discussions  with Senator Stedman  about                                                            
other potential  needs identified  during the  term of this  license                                                            
surcharge and the potential  difficulty in increasing the fee amount                                                            
to fund those  non-bonded, yet essential  activities. She  asked the                                                            
sponsor's opinion.                                                                                                              
10:53:00 AM                                                                                                                   
Senator Seekins  was unable  to ascertain what  needs would  be more                                                            
important that the hatchery project.                                                                                            
10:53:08 AM                                                                                                                   
Co-Chair Green  spoke to the "natural  evolution" of fee  increases.                                                            
Although this surcharge  is nominal, she expressed concern about the                                                            
ability to impose future increases to meet certain needs.                                                                       
10:53:29 AM                                                                                                                   
Senator  Seekins  reiterated  that he  was  unable to  predict  what                                                            
future needs  could arise. The proposed  license fees would  be less                                                            
than those levied for resident  sport fishing licenses in the states                                                            
of  Idaho,  Utah and  others.  Currently  Alaska  fees  are  average                                                            
compared  nationally,  and with  the  passage of  this legislation,                                                             
would be in  the higher one-third.  The Department of Fish  and Game                                                            
anticipates increased income  from other sources, which would offset                                                            
the operational  charges  of the hatchery  operations. He  predicted                                                            
that  if an emergency  arose  and was  justified,  anglers would  be                                                            
willing to pay increased  license fees.  His objective is that those                                                            
who purchase licenses would be able to "take fish home".                                                                        
10:55:31 AM                                                                                                                   
Senator Hoffman  asked the operating costs of the  hatchery program.                                                            
10:55:42 AM                                                                                                                   
Senator Seekins deferred to the Department of Fish and Game.                                                                    
10:56:03 AM                                                                                                                   
GORDEN  GARCIA, Department  of  Fish and  Game, estimated  that  the                                                            
current  annual operating  costs  of $2  million  would increase  by                                                            
$700,000 to $1 million. Production would increase 60 percent.                                                                   
10:56:50 AM                                                                                                                   
Senator Seekins  indicated  he had a proposed  amendment to  require                                                            
that  the  commissioner  of  the Department   of Fish  and  Game  to                                                            
transfer  any  unexpended  and  unobligated   bond  proceed  to  the                                                            
redemption  fund  to pay  the  outstanding  principal  owing on  the                                                            
bonds. In addition,  the commissioner shall terminate  the surcharge                                                            
"at the first  day of the year" following  payment of the  debt. The                                                            
intent  is to  ensure  that  the surcharge  is  not levied  for  any                                                            
purpose other than for this project.                                                                                            
10:57:53 AM                                                                                                                   
Co-Chair  Green asked  the number of  years in  which the bond  debt                                                            
would be paid.                                                                                                                  
10:58:00 AM                                                                                                                   
Senator Seekins answered 20 years.                                                                                              
10:58:24 AM                                                                                                                   
Co-Chair  Green pointed  out this  provision would  assure that  the                                                            
surcharge would  terminate and not become an ongoing  funding source                                                            
for future projects.                                                                                                            
10:58:35 AM                                                                                                                   
Senator Seekins agreed assured this was his intent.                                                                             
10:58:56 AM                                                                                                                   
Senator Stedman  commented that he had not been aware  of the demand                                                            
on sport fish stocks in the Interior.                                                                                           
11:00:45 AM                                                                                                                   
Senator   Olson  suggested   that  additional   vendors  should   be                                                            
established in  rural areas of the state to sell licenses.  He spoke                                                            
to the difficulty in purchasing licenses in rural communities.                                                                  
11:01:00 AM                                                                                                                   
Amendment  #1: This amendment  inserts language  to AS 16.05.130(f)                                                             
added  by Section  2 of  the bill  on page  2, line 22,  to read  as                                                            
     Upon  completion  of  the  purposes  for which  the  bonds  are                                                            
     issued,  the  commission  shall  transfer  any  unexpended  and                                                            
     unobligated  bond  proceeds  to  the  redemption  fund  to  pay                                                            
     outstanding  principal,  interest,  or redemption  premium,  if                                                            
     any, owing on the bonds.                                                                                                   
This amendment  also  deletes language  and inserts  language  to AS                                                            
16.05.340(j)  added by Section 4 of  the bill on page 3,  lines 11 -                                                            
14. The inserted language reads as follows.                                                                                     
     The authority of the  department to collect the surcharge under                                                            
     this subsection terminates  on December 31 of the calendar year                                                            
     in  which the principal  amount  of the bonds  issued under  AS                                                            
     37.15.765  through  34.15.799, together  with  the interest  on                                                            
     them  and  any   interest  owing  on  unpaid  installments   of                                                            
     interest, and all  other obligations with respect to the bonds,                                                            
     are fully met and discharged.                                                                                              
This amendment  also adds  a new bill section  on page 9,  following                                                            
line 21 to read as follows.                                                                                                     
     Sec. 6.  The uncodified law of  the State of Alaska  is amended                                                            
     by adding a new section to read:                                                                                           
          DUTY OF COMMISSIONER TO NOTIFY AND REVISOR'S                                                                          
     INSTRUCTIONS. (a)  The commissioner of revenue shall notify the                                                            
     lieutenant  governor and  the reviser  of statutes of  the date                                                            
     that  the  principal  amount  of  the  bonds  issued  under  AS                                                            
     37.15.765  through 34.15.799,  enacted by  sec. 5 of this  Act,                                                            
     together  with the interest on  them and any interest  owing on                                                            
     unpaid  installments  of interest,  and all  other obligations                                                             
     with respect to the bonds, are fully met and discharged.                                                                   
          (b) The reviser of statutes shall replace the pertinent                                                               
     text of  AS 16.05.340(j), enacted  by sec. 4 of this  Act, with                                                            
     the  calendar  year  of  the  date provided  by  (a)  off  this                                                            
Co-Chair Wilken moved for adoption.                                                                                             
Co-Chair  Green noted Senator  Seekins gave  an explanation  of this                                                            
There was no objection and the amendment was ADOPTED.                                                                           
Co-Chair Green  pointed out this legislation  does not indicate  any                                                            
increased expenses for the Department of Fish and Game.                                                                         
11:02:10 AM                                                                                                                   
Senator Seekins replied  that any increased operating expenses would                                                            
be in future years.                                                                                                             
11:02:15 AM                                                                                                                   
Co-Chair  Green  asked the  number  of years  before  the  increased                                                            
expenses would be incurred.                                                                                                     
11:02:18 AM                                                                                                                   
Senator  Seekins   stated  the  project   would  be  scheduled   for                                                            
completion in 2007 or 2008.                                                                                                     
AT EASE 11:02:38 AM / 11:03:02 AM                                                                                           
11:03:05 AM                                                                                                                   
Co-Chair  Green concluded  that if  the project  were not  completed                                                            
until the year 2008, a  fiscal note is not necessary at this time to                                                            
reflect the increased operating costs.                                                                                          
11:03:21 AM                                                                                                                   
Co-Chair Wilken offered a motion to report the bill, as amended                                                                 
from Committee with individual recommendations and accompanying                                                                 
fiscal notes.                                                                                                                   
Without objection CS SB 147 (FIN) MOVED from Committee with fiscal                                                              
note #1 for $1,398,600 from the Department of Revenue and fiscal                                                                
note #2 for $1,553,400 from the Department of Fish and Game.                                                                    
Co-Chair Green adjourned the meeting at 11:04 AM                                                                                

Document Name Date/Time Subjects