Legislature(2005 - 2006)SENATE FINANCE 532

04/20/2006 01:00 PM FINANCE


Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
+ SJR 19 TASK FORCE ON HOSPITAL INFECTIONS TELECONFERENCED
Moved SJR 19 Out of Committee
+= SB 271 AUTHORIZE HWY PROGRAM PARTICIPATION TELECONFERENCED
Moved SB 271 Out of Committee
+ SB 10 PARENTAL LIABILITY FOR CHILD'S DAMAGE TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
= SB 305 OIL AND GAS PRODUCTION TAX
Heard & Held
                            MINUTES                                                                                           
                    SENATE FINANCE COMMITTEE                                                                                  
                         April 20, 2006                                                                                       
                           1:05 p.m.                                                                                          
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair  Lyda  Green  convened   the  meeting  at  approximately                                                               
1:05:56 PM.                                                                                                                   
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
                                                                                                                                
Also Attending:   SENATOR GARY STEVENS; ROD  BETIT, President and                                                             
Chief Executive  Officer, Alaska State Hospital  and Nursing Home                                                               
Association; RICHARD MANDSAGER, MD,  Director, Division of Public                                                               
Health,   Department  of   Health  and   Social  Services;   JOHN                                                               
MACKINNON, Deputy Commissioner,  Department of Transportation and                                                               
Public  Facilities; TONY  NEWMAN,  Program  Officer, Division  of                                                               
Juvenile Justice,  Department of Health and  Social Services; DAN                                                               
DICKINSON, CPA,  Consultant to the Department  of Revenue; CHERIE                                                               
NIENHUIS,  Petroleum  Economist,   Tax  Division,  Department  of                                                               
Revenue;                                                                                                                        
                                                                                                                                
Attending  via Teleconference:   From  an offnet  location: CATHY                                                             
HANSEN, Attorney, Office of  Victims' Rights, Legislative Affairs                                                               
Agency;  ROB  MINTZ, Assistant  Attorney  General,  Oil, Gas  and                                                               
Mining  Section,   Civil  Division,   Department  of   Law;  From                                                               
Anchorage:  STACY STEINBERG,  Chief  Assistant Attorney  General,                                                               
Statewide  Section Supervisor,  Collections and  Support Section,                                                               
Civil  Division,  Department  of  Law;  GAIL  VOIGTLANDER,  Chief                                                               
Assistant Attorney  General, Statewide Section  Supervisor, Torts                                                               
and Worker's Compensation Section,  Civil Division, Department of                                                               
Law; From Kenai: LARRY KREJCI                                                                                                   
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SJR 19-TASK FORCE ON HOSPITAL INFECTIONS                                                                                        
                                                                                                                                
The Committee  heard from the  sponsor, the Department  of Health                                                               
and Social Services and a  hospital association. An amendment was                                                               
adopted and the resolution was reported from Committee.                                                                         
                                                                                                                                
SB 271-AUTHORIZE HWY PROGRAM PARTICIPATION                                                                                      
                                                                                                                                
The  Committee heard  from the  Department of  Transportation and                                                               
Public Facilities. The bill was reported from Committee.                                                                        
                                                                                                                                
SB  10-PARENTAL LIABILITY FOR CHILD'S DAMAGE                                                                                    
                                                                                                                                
The  Committee heard  from the  sponsor, the  Office of  Victims'                                                               
Rights,  the Department  of  Law, the  Department  of Health  and                                                               
Social Services and a parent. The bill was held in Committee.                                                                   
                                                                                                                                
SB 305-OIL AND GAS PRODUCTION TAX                                                                                               
                                                                                                                                
The Committee heard  a presentation by the Department  of Law and                                                               
a consultant to  the Department of Revenue. The bill  was held in                                                               
Committee.                                                                                                                      
                                                                                                                                
1:06:17 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE JOINT RESOLUTION NO. 19                                                                                             
     Relating to creating the Task Force to Assess Public                                                                       
     Reporting of Health Care Associated Infections.                                                                            
                                                                                                                                
                                                                                                                                
This was  the first hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
1:06:23 PM                                                                                                                    
                                                                                                                                
SENATOR  GARY STEVENS,  sponsor of  the resolution,  explained it                                                               
would  create  a  task  force  to  make  recommendations  on  the                                                               
establishment of  a reporting  system. Approximately  two million                                                               
infections are acquired  each year in hospitals  and an estimated                                                               
90,000 people  die as a result  of these infections. The  cost to                                                               
consumers is  between $4.5 and  $11 billion a year.  This problem                                                               
must be addressed.                                                                                                              
                                                                                                                                
Senator Gary Stevens  outlined the interim task  force that would                                                               
be appointed to  review experience to date  with public reporting                                                               
of hospital-associated  infections. The task force  would also be                                                               
charged with  drafting legislation  for consideration  during the                                                               
next  legislative  session.  Additionally the  task  force  would                                                               
provide a  timeline for implantation  of the  recommendations and                                                               
establish a reporting system.                                                                                                   
                                                                                                                                
1:09:05 PM                                                                                                                    
                                                                                                                                
Co-Chair  Green asked  whether the  January 31,  2007 termination                                                               
date of the task force would be appropriate.                                                                                    
                                                                                                                                
1:09:17 PM                                                                                                                    
                                                                                                                                
Senator  Gary   Stevens  answered  the  time   allowed  would  be                                                               
sufficient, as the work could be completed in three meetings.                                                                   
                                                                                                                                
Co-Chair Green asked  the process to determine  membership on the                                                               
task force.                                                                                                                     
                                                                                                                                
Senator  Gary  Stevens  affirmed  that in  conjunction  with  the                                                               
Department of Health and Social  Services, it was determined that                                                               
the  membership  of   the  task  force  would   be  comprised  of                                                               
professionals and legislators.                                                                                                  
                                                                                                                                
1:09:55 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken,  citing the language  of lines 15 through  17 on                                                               
page  2, asked  why  the resolution  specifically prohibited  the                                                               
public  members of  the task  force from  receiving reimbursement                                                               
for travel  expenses. He understood  the decision to  not provide                                                               
compensation, but suggested that travel costs be reimbursed.                                                                    
                                                                                                                                
Senator  Gary  Stevens  agreed this  would  be  appropriate.  The                                                               
intention  was  to  secure  membership   from  those  willing  to                                                               
participate  at  their own  expense.  Such  reimbursement by  the                                                               
State would  incur some cost, but  he was willing to  support the                                                               
proposal. The  task force members representing  the Alaska Native                                                               
Tribal  Health  Consortium (ANTHC),  the  Alaska  Chapter of  the                                                               
Association   of   Professionals   in   Infection   Control   and                                                               
Epidemiology  and  the Alaska  State  Hospital  and Nursing  Home                                                               
Association (ASHNHA)  could also represent "a  consumer of health                                                               
care who resides  in rural Alaska" or "a consumer  of health care                                                               
who resides in urban Alaska".                                                                                                   
                                                                                                                                
1:11:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  acknowledged this, but surmised  that volunteers                                                               
willing  to participate  in holding  the seats  designated for  a                                                               
consumer  of  health  care  residing  in  rural  Alaska  and  the                                                               
consumer  of  health care  who  resides  in urban  Alaska  should                                                               
receive  reimbursement  for at  least  their  travel and  lodging                                                               
expenses.                                                                                                                       
                                                                                                                                
Co-Chair Green  pointed out that legislators  and State employees                                                               
holding positions  in similar commissions do  not receive special                                                               
compensation. Travel and lodging is paid however.                                                                               
                                                                                                                                
Senator  Gary Stevens  suggested  that the  meetings  be held  in                                                               
Anchorage, where most members would reside.                                                                                     
                                                                                                                                
1:12:19 PM                                                                                                                    
                                                                                                                                
Amendment  #1:  This  conceptual amendment  would  provide  State                                                               
reimbursement  of  travel  and   other  expenses  for  the  seats                                                               
designated for  "a consumer of  health care who resides  in rural                                                               
Alaska"  and "a  consumer of  health  care who  resides in  urban                                                               
Alaska".                                                                                                                        
                                                                                                                                
Co-Chair Wilken  moved for adoption.  He noted those  holding the                                                               
remaining designated  seats would receive reimbursement  from the                                                               
agencies or organizations they represent.                                                                                       
                                                                                                                                
There was no objection and the amendment was ADOPTED.                                                                           
                                                                                                                                
1:14:42 PM                                                                                                                    
                                                                                                                                
ROD BETIT,  President and Chief  Executive Officer,  Alaska State                                                               
Hospital and  Nursing Home Association,  testified in  support of                                                               
the resolution.  The issue is  important and should  be addressed                                                               
in a  timely manner.  He agreed the  number of  hospital acquired                                                               
infections could be reduced.                                                                                                    
                                                                                                                                
1:17:26 PM                                                                                                                    
                                                                                                                                
RICHARD  MANDSAGER,  MD,  Director, Division  of  Public  Health,                                                               
Department  of  Health  and Social  Services,  testified  to  his                                                               
efforts with  the sponsor  to conceive  the proposed  task force.                                                               
Six  other  states  have reporting  requirements  for  infectious                                                               
diseases  contracted in  hospitals. The  task force  could review                                                               
these systems and  garner information from both  the positive and                                                               
negative aspects of the other states' programs.                                                                                 
                                                                                                                                
Dr.  Mandsager  informed  that  the state  of  Vermont  formed  a                                                               
similar  task  force a  year  prior,  which proposed  legislation                                                               
based  in  its findings.  The  resolution  before this  Committee                                                               
would allow for the same process.                                                                                               
                                                                                                                                
Dr.  Mandsager spoke  to  complexities of  the  issue in  Alaska.                                                               
Twenty-five  years ago,  only  30 percent  of  surgical care  was                                                               
performed  as outpatient  care; currently,  almost 75  percent is                                                               
done  in  this  manner.  Although the  title  of  the  resolution                                                               
specifies  "health care  associated  infections", he  recommended                                                               
the focus should be inclusive  and consider all forms of surgical                                                               
care  delivery.   This would  make the  task force  progress more                                                               
difficult.                                                                                                                      
                                                                                                                                
Dr.  Mandsager further  cautioned  that data  reporting would  be                                                               
problematic  with smaller  institutions.  Because  the volume  of                                                               
smaller  institutions is  low, the  reported  percentages of  any                                                               
infections could be misleading.                                                                                                 
                                                                                                                                
1:19:18 PM                                                                                                                    
                                                                                                                                
Senator  Olson asked  the  hardship  such reporting  requirements                                                               
would cause smaller  health clinics that are  not in-patient care                                                               
facilities.                                                                                                                     
                                                                                                                                
Dr.  Mandsager  told of  preliminary  discussions  held with  the                                                               
ASHNHA on this issue. The Association  as well as the ANTHC would                                                               
participate in  the task force  because of the  potential impacts                                                               
to  its member  health care  providers.   Recommendations of  the                                                               
task  force would  ultimately  be determined  by  cost and  value                                                               
returned  from  investment. To  be  a  "worthwhile exercise"  the                                                               
process   must  ensure   that   institutions   could  afford   to                                                               
participate so  consumers could  receive accurate  information of                                                               
value.                                                                                                                          
                                                                                                                                
Senator  Olson  asserted  that  accreditation  is  important  for                                                               
smaller hospitals, and asked whether  this process would impact a                                                               
clinic's efforts in achieving or maintaining accreditation.                                                                     
                                                                                                                                
1:20:33 PM                                                                                                                    
                                                                                                                                
Dr.  Mandsager responded  that a  joint commission,  which awards                                                               
accreditation,  was  undertaking  the same  effort  of  reporting                                                               
hospital  surgical  standards.  The   states  that  have  already                                                               
implemented   reporting   requirements   of   hospital   acquired                                                               
infectious  diseases include  the  process in  the licensure  and                                                               
certification of  institutions allowed to operate  in that state.                                                               
The   same  would   occur  for   Alaska   if  similar   reporting                                                               
requirements were instituted.                                                                                                   
                                                                                                                                
1:21:00 PM                                                                                                                    
                                                                                                                                
Senator Olson asked  how less commonly known  infections would be                                                               
addressed under the proposal.                                                                                                   
                                                                                                                                
Dr. Mandsager  replied that the  "scope" of which  diseases would                                                               
require  reporting would  be determined  by the  task force.  The                                                               
states that appear  to have the most success  with implementing a                                                               
reporting  system have  opted to  limit the  number of  infection                                                               
types  to be  reported to  those with  higher frequency  and have                                                               
broad applicability.  The size of  the data system and  the costs                                                               
would  be too  large if  reporting  of all  infection types  were                                                               
required. Once  capacity and "learning" has  been established for                                                               
a limited number of types,  the governing body could determine to                                                               
require reporting of additional types of infections.                                                                            
                                                                                                                                
1:22:18 PM                                                                                                                    
                                                                                                                                
Senator Dyson commented  on Dr. Mandsager's goal  of achieving an                                                               
extensive health education and information  system for the State.                                                               
This  resolution represents  "a  step in  the  first portion"  of                                                               
accomplishing this.                                                                                                             
                                                                                                                                
1:23:32 PM                                                                                                                    
                                                                                                                                
Senator Dyson  offered a motion  to report SJR 19,  24-LS1657, as                                                               
amended,  from Committee  with individual  recommendations and  a                                                               
new fiscal note.                                                                                                                
                                                                                                                                
Without objection, CS SJR 19  (FIN) was MOVED from Committee with                                                               
a forthcoming fiscal  note. The zero fiscal  note, dated 4/24/06,                                                               
from the Legislature, was submitted to the Senate Secretary.                                                                    
                                                                                                                                
AT EASE 1:24:03 PM / 1:24:32 PM                                                                                             
                                                                                                                                
1:24:36 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 271                                                                                                        
     "An Act  authorizing the commissioner of  transportation and                                                               
     public facilities to participate  in certain federal highway                                                               
     programs  and relating  to that  authorization; relating  to                                                               
     powers of the  attorney general to waive  immunity from suit                                                               
     in federal  court related to  those programs;  and providing                                                               
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
This was the  second hearing for this bill in  the Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Green  reminded  that   this  bill  would  provide  the                                                               
statutory authority  necessary for  the establishment of  a pilot                                                               
program  proposed by  US  Congressman Don  Young  of Alaska.  The                                                               
provision  relating to  immunity waivers  is necessary  to reduce                                                               
delays.                                                                                                                         
                                                                                                                                
1:25:46 PM                                                                                                                    
                                                                                                                                
Senator Stedman  clarified that no  changes were proposed  to the                                                               
original version of the bill previously heard in Committee.                                                                     
                                                                                                                                
Co-Chair Green affirmed.                                                                                                        
                                                                                                                                
Senator  Stedman recalled  that concern  was expressed  about the                                                               
amount of the  fiscal note and the increased  number of positions                                                               
this  bill  would entail.  Funding  for  additional positions  is                                                               
included  in the  FY 07  Operating Budget  earlier reported  from                                                               
Committee. He was  not convinced that the  proposed program would                                                               
improve  the  process to  the  extent  that  the costs  would  be                                                               
warranted.                                                                                                                      
                                                                                                                                
1:27:19 PM                                                                                                                    
                                                                                                                                
JOHN    MACKINNON,    Deputy    Commissioner,    Department    of                                                               
Transportation and Public Facilities,  testified that funding for                                                               
the  additional positions  as listed  in the  fiscal note  is not                                                               
included  in the  FY 07  Operating Budget.  The program  would be                                                               
funded primarily  with federal funding,  but would  require State                                                               
matching  funds. The  Department  supports the  creation of  this                                                               
program. It would benefit Alaska  by streamlining the process and                                                               
allowing  for decision-making  "in house"  within the  Department                                                               
rather  than  by the  federal  government.  The  cost is  low  in                                                               
comparison to  the large  program. The  cost savings  incurred in                                                               
one year from streamlining a  project would pay for the operation                                                               
of the program.                                                                                                                 
                                                                                                                                
1:29:23 PM                                                                                                                    
                                                                                                                                
Senator Stedman expressed concern  of the potential risk exposure                                                               
to  the State  by waiving  this sovereign  immunity. He  asked if                                                               
more exposure to liability could occur than anticipated.                                                                        
                                                                                                                                
Mr.  McKinnon had  contacted the  federal Highway  Administration                                                               
and learned  it had little  litigation history on this  issue. In                                                               
cases of  litigation resulting from accidents  the court directed                                                               
that certain  changes be made  to prevent additional  crashes. He                                                               
told of a  case involving the state of Utah  in which hearings on                                                               
an environmental  impact statement were  held as an  open meeting                                                               
forum and information was inadvertently posted and made public.                                                                 
                                                                                                                                
1:31:33 PM                                                                                                                    
                                                                                                                                
Senator Stedman pointed  out that few roads  had been constructed                                                               
in Alaska in the last 20  years. New roads would improve commerce                                                               
and  travel.  He  asked  if   this  legislation  is  intended  to                                                               
facilitate  the construction  of new  roads or  just shorten  the                                                               
length  of time  to resolve  "the inevitable"  litigation by  one                                                               
year.                                                                                                                           
                                                                                                                                
1:32:08 PM                                                                                                                    
                                                                                                                                
Mr. McKinnon  expressed the Department's  intent to  address this                                                               
undertaking  "seriously"  by  following procedure  correctly  but                                                               
also to provide  "checks and balances" to  ensure against errors.                                                               
This program  would provide no  guarantee against  litigation. In                                                               
the  history  of  these  State  projects,  two  cases  have  been                                                               
litigated  against; Illiamna/Nondalton  road and  bridge project,                                                               
which is  still pending, and  the Whittier Tunnel. The  State and                                                               
federal agencies have  prevailed to date on  all actions relating                                                               
to these projects.                                                                                                              
                                                                                                                                
1:32:59 PM                                                                                                                    
                                                                                                                                
Senator Olson asked the amount  of time until the federal funding                                                               
is  eliminated and  the State  would  be required  to assume  all                                                               
costs to  operate this program,  as is occurring with  many other                                                               
programs.                                                                                                                       
                                                                                                                                
1:33:26 PM                                                                                                                    
                                                                                                                                
Mr.  McKinnon answered  that the  provisions of  this legislation                                                               
would be  part of the  federal highway aide program.  The federal                                                               
funding is assured  for five years for this  six-year program. He                                                               
presumed that  if federal funding  for highway  construction were                                                               
eliminated nationwide "serious mutiny" would occur.                                                                             
                                                                                                                                
1:34:06 PM                                                                                                                    
                                                                                                                                
Senator Olson clarified that State  funding would not be required                                                               
to "backfill" a  reduction or elimination of  federal funding for                                                               
five years.                                                                                                                     
                                                                                                                                
Mr. McKinnon responded  the federal funding would  be assured for                                                               
at least five years and most likely longer.                                                                                     
                                                                                                                                
Senator Olson  asked if  State assumption  of this  process would                                                               
affect the eligibility to receive federal funding.                                                                              
                                                                                                                                
Mr. McKinnon surmised  this undertaking would not  make the State                                                               
more  or less  eligible  for federal  funding for  transportation                                                               
projects.                                                                                                                       
                                                                                                                                
1:34:53 PM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken  offered  a  motion  to  report  the  bill,  24-                                                               
GS2042\A,  from  Committee  with individual  recommendations  and                                                               
accompanying fiscal notes.                                                                                                      
                                                                                                                                
There was no  objection and SB 274 was MOVED  from Committee with                                                               
fiscal   note   #1   for  $647,400   from   the   Department   of                                                               
Transportation  and Public  Facilities  and zero  fiscal note  #2                                                               
from the Department of Environmental Conservation.                                                                              
                                                                                                                                
1:35:12 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 10(JUD)                                                                                             
     "An Act relating to civil liability for damage to or                                                                       
     destruction of property by minors; relating to court                                                                       
     revocation of a minor's privilege to drive; relating to                                                                    
     restitution for certain acts of minors; and amending Rule                                                                  
     60, Alaska Rules of Civil Procedure."                                                                                      
                                                                                                                                
                                                                                                                                
This was  the first hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
Senator  Dyson,  co-sponsor  of  this  legislation  with  Senator                                                               
Gretchen  Guess, told  of  significant  vandalism perpetrated  by                                                               
minors. He  and Senator Guess  combined their efforts  to address                                                               
this issue.                                                                                                                     
                                                                                                                                
1:36:35 PM                                                                                                                    
                                                                                                                                
Senator  Dyson  explained this  bill  would  continue efforts  of                                                               
establishing  a "common  law" system  to  recompense victims  for                                                               
damages  against them  and restore  the victim  to a  pre-offense                                                               
condition. The trend is "moving  away from" a system practiced in                                                               
American law in which "you pay your fines to the king."                                                                         
                                                                                                                                
Senator Dyson  qualified that the  provisions of this  bill could                                                               
appear "awkward", but  assured they would ensure  that the person                                                               
who causes  the property damage  would be  the "first one  up" to                                                               
recompense  the  victim. This  would  also  apply to  minors  who                                                               
commit  these offenses.  A  minor would  be  responsible for  the                                                               
first  $5,000  in  restitution.  The  minor  offender's  driver's                                                               
license  could   be  revoked,  Alaska  Permanent   Fund  Dividend                                                               
garnished, and  a payment schedule  imposed that could  extend to                                                               
beyond their reaching the age of 18 until the debt is satisfied.                                                                
                                                                                                                                
Senator  Dyson noted  that if  the minor  offender has  a parent,                                                               
that parent could be held  liable for restitution of that portion                                                               
of  damages  that exceed  $5,000,  with  a maximum  liability  of                                                               
$15,000. Liability for that portion  of damages exceeding $20,000                                                               
would  revert to  the  minor who  would be  required  to pay  the                                                               
restitution until the victim was fully compensated.                                                                             
                                                                                                                                
1:38:44 PM                                                                                                                    
                                                                                                                                
Senator Dyson  addressed the issue of  an "uncontrollable child",                                                               
informing that  this legislation  includes a provision  to exempt                                                               
parents from  this liability if  the parent  notified authorities                                                               
that  the child  was a  runaway.  In these  instances, the  minor                                                               
would be  liable for restitution  of all damage costs.  For those                                                               
minors  held in  State  custody, this  bill  would exempt  foster                                                               
parents from  the liability  with the  State paying  the parental                                                               
obligation.                                                                                                                     
                                                                                                                                
Senator Dyson stressed that someone  must be held responsible for                                                               
repaying the victim.                                                                                                            
                                                                                                                                
1:41:21 PM                                                                                                                    
                                                                                                                                
CATHY HANSEN,  Attorney, Office  of Victims'  Rights, Legislative                                                               
Affairs  Agency,  testified  via teleconference  from  an  offnet                                                               
location that this legislation  includes several positive aspects                                                               
to  assist in  securing restitution  for victims.  The Office  of                                                               
Victims'  Rights  (OVR)  supports   the  concept  of  consistency                                                               
involving  laws that  affect the  ability  of a  crime victim  to                                                               
obtain restitution.  The cost  of the damage  and the  ability of                                                               
the victim to collect restitution  should not depend on whether a                                                               
juvenile  is sentenced  to informal  probation, adjudicated  as a                                                               
delinquent or  whether the  offender or his  parents are  sued in                                                               
instances  in  which  the  State chooses  to  not  prosecute  the                                                               
offence.                                                                                                                        
                                                                                                                                
Ms.  Hansen  reported that  an  important  part of  the  criminal                                                               
process for  victims is  restitution. Victims  often "pay  a high                                                               
emotional price" and should not  additionally be required to bear                                                               
the economic cost  of the juvenile delinquent  acts. Victims must                                                               
bear the  financial cost  upfront and must  often wait  months or                                                               
years   for  payment.   This  delay   includes  the   process  of                                                               
adjudication  of the  offender and  collection. Some  victims are                                                               
never paid.                                                                                                                     
                                                                                                                                
Ms. Hansen reminded that voters  in 1994 approved an amendment to                                                               
the Alaska  Constitution that  instituted a  constitutional right                                                               
to victims'  restitution. The OVA  supports full  restitution for                                                               
victims and prompt  payment when possible, but  could not support                                                               
any legislative change that would not promote this goal.                                                                        
                                                                                                                                
Ms.  Hansen therefore  expressed  concerns with  the language  of                                                               
this bill that would limit  a juvenile's responsibility to $5,000                                                               
of the total cost of damage.  The victims should be paid "first".                                                               
Parents  paying on  behalf of  the juvenile  have the  ability to                                                               
withhold  dividends  and  obtain   repayment  in  other  manners.                                                               
Requiring  the  juvenile  to  make  the  payment  directly  could                                                               
interfere with the victim's right to obtain restitution.                                                                        
                                                                                                                                
Ms.  Hansen  furthered  that parental  liability  should  not  be                                                               
limited to  $15,000, especially if  the parent has  the financial                                                               
ability to  pay more. Making  the parent totally  responsible for                                                               
the restitution would  provide incentive to the  parent to ensure                                                               
the debt is paid.                                                                                                               
                                                                                                                                
1:48:00 PM                                                                                                                    
                                                                                                                                
Senator Dyson asked if these  concerns were raised when this bill                                                               
was heard by the Senate Judiciary Committee.                                                                                    
                                                                                                                                
Ms.  Hansen  answered  they  were,  reiterating  notes  from  her                                                               
testimony provided to that committee.                                                                                           
                                                                                                                                
1:48:41 PM                                                                                                                    
                                                                                                                                
STACY  STEINBERG,  Chief  Assistant Attorney  General,  Statewide                                                               
Section  Supervisor,  Collections   and  Support  Section,  Civil                                                               
Division, Department  of Law,  testified via  teleconference from                                                               
Anchorage  that the  Section  collects  restitutions in  juvenile                                                               
delinquency  cases that  have undergone  the formal  adjudication                                                               
process in  which the court  has ordered a  restitution judgment.                                                               
The Collection  and Support Section  does not become  involved in                                                               
informal restitution  cases. She  was available  to speak  to the                                                               
Department's ability  to collect  restitutions for  victims under                                                               
the provisions of this bill.                                                                                                    
                                                                                                                                
Ms.  Steinberg directed  attention to  Section 13  of the  Senate                                                               
Judiciary   Committee   substitute,   which  would   insert   new                                                               
subsections  to AS  47.12.120 and  pertaining  to restitution  in                                                               
formal juvenile  delinquency cases.  Under the provisions  of the                                                               
new  subsections, collecting  restitution would  take longer  and                                                               
would require  more resources  of the  Department to  collect the                                                               
same amount of money.                                                                                                           
                                                                                                                                
Ms. Steinberg continued  that the provisions of  Section 13 would                                                               
eliminate joint and severable liability  between the juvenile and                                                               
the  parent  and  would  also  establish  a  structure  in  which                                                               
liability would be divided between the juvenile and the parent.                                                                 
                                                                                                                                
Ms.  Steinberg  explained  that  under  the  existing  joint  and                                                               
severable liability procedure, a court  order for the juvenile to                                                               
pay  $5,000 in  damages also  holds the  parent responsible.  The                                                               
Department could collect the entire  amount or any combination of                                                               
the entire amount  from either parent or  the juvenile, depending                                                               
upon which party has the financial resources.                                                                                   
                                                                                                                                
Ms.  Steinberg gave  an example  of  how the  provisions of  this                                                               
legislation  would be  executed "in  the practical  world". Under                                                               
the  proposed system,  collection  of the  $5,000  could only  be                                                               
received  from  the  juvenile. Approximately  two-thirds  of  the                                                               
cases the Section handles involve  $5,000 or less. Generally, the                                                               
juvenile does  not have many  financial resources and  payment is                                                               
primarily secured  through garnishment  of Alaska  Permanent Fund                                                               
dividends. Under the existing system,  in situations in which the                                                               
juvenile  and parents  have limited  financial  resources, up  to                                                               
three  dividends could  be  garnished each  year;  one from  each                                                               
parent and  one from the  juvenile, until  the debt is  paid. The                                                               
proposed  system   would  only  allow  for   garnishment  of  the                                                               
juvenile's dividend. This would extend  the amount of time before                                                               
the victim  is recompensed from  approximately two years  to five                                                               
years for a restitution of $5,000.                                                                                              
                                                                                                                                
Ms. Steinberg explained that the  Collections and Support Section                                                               
currently "opens  one file"  for each  claim. Under  the proposed                                                               
system, three files  would be necessary. More  resources would be                                                               
required to  collect the same  amount of restitution.  The fiscal                                                               
note  reflects this  in listing  the addition  of a  paralegal or                                                               
legal  assistant position  at a  cost  of $110,000  per year,  in                                                               
addition to  approximately $6,000 in  the first year  to purchase                                                               
equipment and other necessities for the position.                                                                               
                                                                                                                                
Ms. Steinberg  continued that  the Section  would be  required to                                                               
establish and  administer payment plans for  juveniles, a process                                                               
that   requires  more   time  and   resources  than   a  one-time                                                               
collection.                                                                                                                     
                                                                                                                                
1:56:35 PM                                                                                                                    
                                                                                                                                
Senator Dyson  appreciated the witness' comments  about joint and                                                               
severable  liability. In  reality, many  of the  cases involve  a                                                               
single  parent  who  is  "struggling"  to  raise  the  child.  He                                                               
understood  that the  existing  system allows  collection from  a                                                               
non-custodial  parent who  could have  little involvement  in the                                                               
child's life.                                                                                                                   
                                                                                                                                
1:57:14 PM                                                                                                                    
                                                                                                                                
Ms. Steinberg  responded that the  Department could  only collect                                                               
from a  parent who is listed  in the judgment. In  some cases two                                                               
parents are  listed, and  other cases only  list one  parent. The                                                               
Department  does  not  receive  information  explaining  why  two                                                               
parents are not listed in a judgment.                                                                                           
                                                                                                                                
1:58:29 PM                                                                                                                    
                                                                                                                                
Senator Dyson  had anticipated Ms.  Steinberg would speak  to the                                                               
public policy  issue of whether  collecting from both  parents is                                                               
appropriate.  However, he  understood the  witness' testimony  to                                                               
expound on  the issue of  effectively and  efficiently collecting                                                               
judgments.                                                                                                                      
                                                                                                                                
Ms. Steinberg affirmed.                                                                                                         
                                                                                                                                
1:59:14 PM                                                                                                                    
                                                                                                                                
Senator  Dyson agreed  that a  provision  requiring the  juvenile                                                               
offender to pay  the first $5,000 of restitution  could delay the                                                               
process of  recompensing the  victim. He  asked if  Ms. Steinberg                                                               
could suggest an alternative amount.                                                                                            
                                                                                                                                
Ms. Steinberg responded that generally  juveniles do not have the                                                               
necessary   financial  resources   to  fulfill   the  restitution                                                               
obligation.  Juveniles should  be attending  school and  at most,                                                               
would have a  part-time job. The most common  means of collection                                                               
of restitution  from juveniles is  through garnishment  of Alaska                                                               
Permanent Fund  dividends. She  preferred restitution  be ordered                                                               
as a joint judgment from  the juvenile and the parent. Otherwise,                                                               
she would suggest  the juvenile be held responsible  for a lesser                                                               
amount.                                                                                                                         
                                                                                                                                
2:01:00 PM                                                                                                                    
                                                                                                                                
Senator  Dyson emphasized  that  the  witness's suggestions  were                                                               
based   on  practicality.   However,   the  Alaska   Constitution                                                               
stipulates   the  responsibility   for  rehabilitating   juvenile                                                               
offenders. Holding them responsible  for restitution could assist                                                               
in their rehabilitation.  He asked if personal  property, such as                                                               
vehicles and  electronic equipment could be  confiscated from the                                                               
offenders.                                                                                                                      
                                                                                                                                
2:01:47 PM                                                                                                                    
                                                                                                                                
Ms. Steinberg  stressed that the Collections  and Support Section                                                               
does not have the resources  to undertake that sort of collection                                                               
activity.  Even if  able to  obtain a  court order  to confiscate                                                               
property,  the  Section  does  not  have a  system  to  sell  the                                                               
property and give proceeds to the victim.                                                                                       
                                                                                                                                
2:02:27 PM                                                                                                                    
                                                                                                                                
Senator Olson  asked about instances  in which an  offender, upon                                                               
realizing the Alaska Permanent Fund  dividend would be garnished,                                                               
does not apply to receive the dividend.                                                                                         
                                                                                                                                
Ms. Steinberg  replied that in  most instances the  juvenile does                                                               
apply  to receive  the dividend.  The court  could order  that an                                                               
application  be filed  and  a provision  requiring  such a  court                                                               
order  included  in this  legislation  would  be beneficial.  She                                                               
would research the number of  instances in which the juvenile did                                                               
not apply for a dividend knowing it would be garnished.                                                                         
                                                                                                                                
2:04:26 PM                                                                                                                    
                                                                                                                                
Senator Dyson cited Section 7  of the committee substitute, which                                                               
allows the court  to order an offender to apply  for the dividend                                                               
for the purpose of satisfying restitution.                                                                                      
                                                                                                                                
2:05:24 PM                                                                                                                    
                                                                                                                                
GAIL  VOIGTLANDER, Chief  Assistant  Attorney General,  Statewide                                                               
Section  Supervisor,  Torts  and Worker's  Compensation  Section,                                                               
Civil Division,  Department of Law, testified  via teleconference                                                               
from  Anchorage to  Section  5  and Section  6  of the  committee                                                               
substitute.  Section 5  would amend  AS 34.50.020(a)  to allow  a                                                               
"governmental organization"  to recover damages in  addition to a                                                               
private party  and inserts language providing  for the allocation                                                               
of the first  $5,000 of liability to the juvenile,  up to $15,000                                                               
liability  to the  parent, and  any additional  liability to  the                                                               
juvenile. Section 6  would repeal and reenact  AS 34.50.020(b) to                                                               
provide for State liability for  an act of an unemancipated minor                                                               
in the custody of the  State. The Torts and Worker's Compensation                                                               
Section  has  been  contacted by  victim's  rights  organizations                                                               
expressing   concern   that   these   provisions   would   hamper                                                               
restitution efforts.                                                                                                            
                                                                                                                                
Ms. Voigtlander  stated this legislation  would create  a "strict                                                               
liability"  for  parents.  Alaska  case  law  includes  two  case                                                               
rulings establishing  the parental responsibility  for addressing                                                               
behavioral  problems of  their  children.  However, some  minors,                                                               
especially when older, could be difficult to control.                                                                           
                                                                                                                                
Ms.  Voigtlander  pointed  out  that foster  parents  and  others                                                               
overseeing juveniles  in State custody  would not be  held liable                                                               
for property  damage. Only a  small percentage of  juveniles held                                                               
in  State  custody are  institutionalized  and  under the  direct                                                               
supervision of  State employees. Most  are in the care  of foster                                                               
parents, other relatives, or parents.  The State is only involved                                                               
in the placement of these children  and not in oversight of their                                                               
behaviors.  Therefore,  she   questioned  the  State's  financial                                                               
liability  for damages  inflicted  by a  juvenile  while held  in                                                               
State custody.                                                                                                                  
                                                                                                                                
Ms.  Voigtlander  stated  that   under  the  provisions  of  this                                                               
legislation, a juvenile could be  ultimately held liable for more                                                               
than  $20,000.  This  debt  could   provide  a  disincentive  for                                                               
offenders to improve themselves and secure a good job.                                                                          
                                                                                                                                
Ms.  Voigtlander pointed  out  that the  language  of the  Senate                                                               
Judiciary  Committee  substitute  would not  provide  clarity  in                                                               
exempting foster  parents, "runaway" shelters, and  other similar                                                               
care givers, from liability.                                                                                                    
                                                                                                                                
Ms. Voigtlander  informed that existing regulation  provides that                                                               
foster  parents  in certain  circumstances  could  request up  to                                                               
$5,000  restitution  from the  Department  of  Health and  Social                                                               
Services for  damages caused  by a juvenile  in their  care. This                                                               
bill would eliminate  this ability and require  foster parents to                                                               
seek recompension from the juvenile.                                                                                            
                                                                                                                                
2:13:53 PM                                                                                                                    
                                                                                                                                
LARRY KREJCI  testified via teleconference from  Kenai, on behalf                                                               
of himself  and his wife,  Olga. They  have ten children,  all of                                                               
whom  have  been home-schooled  and  receive  "good grades".  One                                                               
daughter,  however, left  the house  without  their knowledge  or                                                               
permission   and  was   subsequently  date   raped.  Since   that                                                               
experience, this daughter's behavior  changed. She would run away                                                               
to Anchorage,  overdosed on drugs  and was sexually  active. They                                                               
attempted to  help her  and arrange for  counseling, but  with no                                                               
success. Police officers  could return her home,  but the parents                                                               
could not legally detain her in  the house. They had her driver's                                                               
license  revoked,   although  she   indicated  intent   to  drive                                                               
regardless and ultimately wrecked her car. He was concerned                                                                     
about their liability for her actions.                                                                                          
                                                                                                                                
2:18:06 PM                                                                                                                    
                                                                                                                                
TONY NEWMAN, Program Officer, Division of Juvenile Justice,                                                                     
Department of Health and Social Services, introduced himself and                                                                
read his testimony into the record as follows.                                                                                  
                                                                                                                                
     The  Division appreciates  any effort  to assist  it in  its                                                               
     mission   to  hold   juvenile   offenders  accountable   for                                                               
     behaviors  that   cost  Alaskans  emotional   and  financial                                                               
     difficulty. We've  appreciated the  co-sponsor's willingness                                                               
     to consult  and work with us  to try and create  a bill that                                                               
     enhances juvenile accountability.                                                                                          
                                                                                                                                
     The  mission  of  the  Division   of  Juvenile  Justice,  as                                                               
     described  in  AS  47.12.010,  is   to  promote  a  balanced                                                               
     juvenile  justice  system  that  imposes  accountability  of                                                               
     juvenile  offenders,  equips  juvenile  offenders  with  the                                                               
     skills  needed to  live  responsibly  and productively,  and                                                               
     also affords protection and redress to victims.                                                                            
                                                                                                                                
     It  is  this   third  piece  -  promoting   the  safety  and                                                               
     restoration  of  victims  and  communities  -  that  we  are                                                               
     concerned is jeopardized by this bill.                                                                                     
                                                                                                                                
     The restitution payment  structure set up by  the bill (with                                                               
     the  YOUTH  ONLY is  responsible  for  the first  $5,000  in                                                               
     damages,  the parent  for the  next $15,000,  and the  YOUTH                                                               
     ONLY responsible  for any remainder)  will likely  slow down                                                               
     the  speed with  which victims  are repaid  for damages  and                                                               
     will not encourage youth and  their parents to work together                                                               
     to address the damages caused by delinquent acts.                                                                          
                                                                                                                                
     Whether a  juvenile case is managed  informally or formally,                                                               
     the provisions  of the bill related  to juvenile restitution                                                               
     removes the  current joint and [severable]  liability system                                                               
     that encourages parents  and youths to work  together to see                                                               
     that  restitutions to  victims  are repaid  promptly and  in                                                               
     full. While this  conceivable my have the  effect of holding                                                               
     juveniles  more  directly  and individually  accountable  to                                                               
     their victims, in  the end it will result  in victims having                                                               
     to wait  for the youth  to gather, either  through permanent                                                               
     fund dividend payments or through work, the money.                                                                         
                                                                                                                                
     Imagine a  youth who has  committee $3,000 in  damage. Under                                                               
     current statute,  Juvenile Justice  staff or the  courts are                                                               
     able  to order  and collect  that restitution  directly from                                                               
     parents or  the courts  are able to  order and  collect that                                                               
     restitution  directly from  parents and  the youth  at once.                                                               
     Even if  the youth and parent  have no other source  of cash                                                               
     income, they'd  be able to repay  most (if not all)  of that                                                               
     restitution within a year by  together using their permanent                                                               
     fund dividends.  If you remove the  requirement that parents                                                               
     participate, the victim  would now have to  wait three years                                                               
     for  the  youth to  make  annual  payments of  approximately                                                               
     $1,000 each.                                                                                                               
                                                                                                                                
     So: while we  support efforts to hold  youth accountable, we                                                               
     are  concerned about  doing this  at a  cost to  victims. AS                                                               
     47.12.010, the  statute describing the goals  and purpose of                                                               
     the  state's juvenile  justice system,  states  that one  of                                                               
     Alaska's  goals  is  to  "ensure   that  victims  of  crimes                                                               
     committee  by  juveniles are  afforded  the  same rights  as                                                               
     victims   of  crimes   committed  by   adults".  This   bill                                                               
     contradicts   that  statute   by  providing   a  restitution                                                               
     repayment  scheme  that  will take  longer  for  victims  of                                                               
     juvenile  crimes to  be  repaid than  victims  of crimes  by                                                               
     adults, and as such, gives us serious concern.                                                                             
                                                                                                                                
     An  additional concern  with  the bill  is  that related  to                                                               
     driver's  license  revocations.  The   bill  states  that  a                                                               
     juvenile  formally adjudicated  for  any delinquent  offense                                                               
     shall  have  their  driver's  license  revoked.  (Currently,                                                               
     driver's licenses shall be revoked  only for minor consuming                                                               
     violations,  misconduct  involving a  controlled  substance,                                                               
     and offenses  involving the illegal  use or possession  of a                                                               
     firearm.)                                                                                                                  
                                                                                                                                
     The   Division   is   unaware  of   any   evidence   linking                                                               
     effectiveness of driver's  license revocations with reducing                                                               
     offenses that have nothing to  do with driving. The Division                                                               
     has spent the past few  years focusing and investing heavily                                                               
     in research-based approaches to  work with delinquent youth.                                                               
     Legislation  that  imposes  far-reaching  punitive  measures                                                               
     without regard  to whether the  proposal has been  linked to                                                               
     reduction in  offenses is inconsistent  with the  mission of                                                               
     the Division and a data-driven approach.                                                                                   
                                                                                                                                
     I want to  re-emphasize that the Division  takes its mission                                                               
     of  holding  juvenile  offenders accountable  seriously.  We                                                               
     have worked  to see that juvenile  offenders managed through                                                               
     informal processes  have repaid over 90%  of the restitution                                                               
     payments  owed  to  victims over  the  past  several  fiscal                                                               
     years; and  we have  worked closely  with the  Department of                                                               
     Law, collections  unit to  ensure that  restitutions ordered                                                               
     through the formal  court system are repaid  promptly and in                                                               
     full.                                                                                                                      
                                                                                                                                
     The  Division  is eager  to  work  with the  Legislature  to                                                               
     explore  ways  that   further  increase  accountability  for                                                               
     juvenile  offenders in  ways that  are  compatible with  out                                                               
     obligation toward victims and the community.                                                                               
                                                                                                                                
2:22:14 PM                                                                                                                    
                                                                                                                                
Senator  Dyson asked  if the  witness intended  to infer  that no                                                               
evidence  exists to  demonstrate  that revocation  of a  juvenile                                                               
offender's driver's  license would  motivate them to  repay their                                                               
debt.                                                                                                                           
                                                                                                                                
Mr. Newman clarified that evidence is not available supporting a                                                                
theory that revocation would result in behavior changes.                                                                        
                                                                                                                                
2:23:47 PM                                                                                                                    
                                                                                                                                
Senator Dyson requested Committee members share concerns and                                                                    
suggestions regarding this legislation with him.                                                                                
                                                                                                                                
Co-Chair Green ordered the bill HELD in Committee.                                                                              
                                                                                                                                
AT EASE 2:24:10 PM / 2:32:02 PM                                                                                             
                                                                                                                                
2:32:05 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 305(RES)                                                                                            
     "An  Act providing  for a  production  tax on  oil and  gas;                                                               
     repealing  the  oil  and  gas  production  (severance)  tax;                                                               
     relating to the calculation of  the gross value at the point                                                               
     of production of oil or gas  and to the determination of the                                                               
     value of oil  and gas for purposes of the  production tax on                                                               
     oil and gas;  providing for tax credits against  the tax for                                                               
     certain   expenditures   and   losses;   relating   to   the                                                               
     relationship of the  production tax on oil and  gas to other                                                               
     taxes, to  the dates those  tax payments and  surcharges are                                                               
     due,  to interest  on overpayments  of the  tax, and  to the                                                               
     treatment of  the tax  in a  producer's settlement  with the                                                               
     royalty owners; relating  to flared gas, and to  oil and gas                                                               
     used  in the  operation of  a  lease or  property under  the                                                               
     production tax; relating  to the prevailing value  of oil or                                                               
     gas  under the  production  tax; relating  to surcharges  on                                                               
     oil; relating  to statements  or other  information required                                                               
     to be filed with or  furnished to the Department of Revenue,                                                               
     to the penalty  for failure to file certain  reports for the                                                               
     tax, to the powers of the  Department of Revenue, and to the                                                               
     disclosure of  certain information required to  be furnished                                                               
     to  the   Department  of  Revenue   as  applicable   to  the                                                               
     administration of  the tax;  relating to  criminal penalties                                                               
     for  violating conditions  governing  access to  and use  of                                                               
     confidential  information relating  to the  tax, and  to the                                                               
     deposit  of  tax  money  collected   by  the  Department  of                                                               
     Revenue;  amending  the  definitions of  'gas,'  'oil,'  and                                                               
     certain other terms for purposes  of the production tax, and                                                               
     as the  definition of the  term 'gas' applies in  the Alaska                                                               
     Stranded   Gas   Development   Act,   and   adding   further                                                               
     definitions;  making  conforming amendments;  and  providing                                                               
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
This was  the 13th hearing  for this  bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
2:32:13 PM                                                                                                                    
                                                                                                                                
DAN  DICKINSON, CPA,  Consultant  to the  Department of  Revenue,                                                               
introduced Mr. Mintz.                                                                                                           
                                                                                                                                
2:33:10 PM                                                                                                                    
                                                                                                                                
ROB  MINTZ,  Assistant  Attorney  General, Oil,  Gas  and  Mining                                                               
Section,  Civil  Division,  Department   of  Law,  testified  via                                                               
teleconference from  an offnet location  and gave  a presentation                                                               
titled  "Comparing CSSB  305(RES) to  CSSB 305(FIN)  (version P)"                                                               
[copy on file]. He explained  the color coding system utilized in                                                               
the presentation with  red text indicating key  words and phrases                                                               
that are unchanged from the  original version of the bill; Yellow                                                               
text  indicating   changes  included  in  the   Senate  Resources                                                               
Committee substitute,  and Pink text indicating  changes included                                                               
in the Senate Finance Committee substitute, Version P.                                                                          
                                                                                                                                
[NOTE: In the text of these  minutes, the color coded language is                                                               
contained  in quotation  marks proceeded  by the  version of  the                                                               
bill  in  which  that  language  was  amended,  (RES)  or  (FIN).                                                               
Language color coded as red to  indicate it is unchanged from the                                                               
original  version  of  the  bill introduced  at  the  request  of                                                               
Governor  Murkowski  is shown  in  quotation  marks also  and  is                                                               
preceded by (GOV).  Brackets shown in the  presentation have been                                                               
inserted  by  the authors  of  the  presentation. Quotations  not                                                               
proceeded  by  a bill  version  reference  were inserted  by  the                                                               
authors of the presentation.]                                                                                                   
                                                                                                                                
2:34:20 PM                                                                                                                    
                                                                                                                                
     Page 2                                                                                                                     
                                                                                                                                
     RES, Section 32                                                                                                            
     FIN, Section 37                                                                                                            
                                                                                                                                
     New production tax provisions apply to oil and gas produced                                                                
     on or after:                                                                                                               
                                                                                                                                
          April 1, 2006 (RES)                                                                                                   
          July 1, 2006 (FIN)                                                                                                    
                                                                                                                                
Mr. Mintz  noted the difference  effective dates of  the proposed                                                               
Petroleum Production Tax (PPT).                                                                                                 
                                                                                                                                
2:34:53 PM                                                                                                                    
                                                                                                                                
     Page 3                                                                                                                     
                                                                                                                                
     RES, Section 5                                                                                                             
                                                                                                                                
     AS 43.55.011(e)                                                                                                            
     There is levied  upon the producer … a tax  for all "oil and                                                               
     gas" (GOV)  produced "each  month" (GOV)  … "[except  for] a                                                               
     lessor's royalty interest" (RES) …  The tax is equal to "25"                                                               
     (RES) "percent" (GOV) of the  "production tax" (RES) "value"                                                               
     (GOV) … under AS 43.55.160.                                                                                                
                                                                                                                                
Mr.  Mintz outlined  the  changes made  in  the Senate  Resources                                                               
Committee substitute to the original bill.                                                                                      
                                                                                                                                
2:35:30 PM                                                                                                                    
                                                                                                                                
     Page 4                                                                                                                     
                                                                                                                                
     FIN, Section 5                                                                                                             
                                                                                                                                
     AS 43.55.011(e)                                                                                                            
     There is levied  upon the producer … a tax  for all "oil and                                                               
     gas" (GOV)  produced "each  month" (GOV)  … "[except  for] a                                                               
     lessor's royalty interest" (RES) …  The tax is equal to "25"                                                               
     (FIN) "percent" (GOV) of the  "production tax" (RES) "value"                                                               
     (GOV) … under AS 43.55.160.                                                                                                
                                                                                                                                
Mr. Mintz pointed out that the language of the Senate Finance                                                                   
Committee substitute is identical to the Senate Resources                                                                       
Committee substitute with the exception of the percentage rate.                                                                 
                                                                                                                                
2:35:50 PM                                                                                                                    
                                                                                                                                
     Page 5                                                                                                                     
                                                                                                                                
     RES, Section 5 (cont.)                                                                                                     
                                                                                                                                
     AS 43.55.011(f)                                                                                                            
     There is  levied upon to  producer … a  tax for all  oil and                                                               
     gas produced  each month …  the ownership or right  to which                                                               
     constitutes a  "lessor's royalty  interest" (RES) …  The tax                                                               
     is equal  to "five percent of  the gross value at  the point                                                               
     of production" (RES) … ["for existing leases" (RES)]                                                                       
          - BUT…                                                                                                                
                                                                                                                                
Mr. Mintz explained this language pertains to tax on private                                                                    
royalty share. Private royalty shares comprise a small amount of                                                                
production; however, the issue must be resolved.                                                                                
                                                                                                                                
2:36:38 PM                                                                                                                    
                                                                                                                                
     Page 6                                                                                                                     
                                                                                                                                
     RES, Section 5 (cont.)                                                                                                     
                                                                                                                                
     AS 43.55.011(f) (cont.)                                                                                                    
     The tax is  equal to "1.5 percent of the  gross value at the                                                               
     point  of  production" (RES)  …  ["for  existing COOK  INLET                                                               
     BASIN leases" (RES)]                                                                                                       
                                                                                                                                
          - AND…                                                                                                                
                                                                                                                                
Mr. Mintz noted the exception provided in the Senate Resources                                                                  
Committee substitute for operations located in Cook Inlet.                                                                      
                                                                                                                                
2:36:48 PM                                                                                                                    
                                                                                                                                
     Page 7                                                                                                                     
                                                                                                                                
     RES, Section 6 (cont.)                                                                                                     
                                                                                                                                
     AS 43.55.011(f) (cont.)                                                                                                    
     The commissioner shall "recommend  to the legislature" (RES)                                                               
     the rate of tax ["for FUTURE leases" (RES)]                                                                                
                                                                                                                                
Mr. Mintz qualified this language would only apply to leases                                                                    
already in effect.                                                                                                              
                                                                                                                                
2:37:08 PM                                                                                                                    
                                                                                                                                
     Page 8                                                                                                                     
                                                                                                                                
     FIN, Section 5 (cont.)                                                                                                     
                                                                                                                                
     AS 43.55.011(f)                                                                                                            
     There is  levied upon to  producer … a  tax for all  oil and                                                               
     gas produced  each month …  the ownership or right  to which                                                               
     constitutes  a "lessor's  royalty interest"  (RES) …   "five                                                               
     percent  of the  gross  value at  the  point of  production"                                                               
     (RES) "of the oil … 1.667  percent of the gross value at the                                                               
     point of production of the gas [PERIOD]" (FIN)                                                                             
                                                                                                                                
Mr. Mintz stated this represents significant changes made in the                                                                
Senate Finance Committee substitute.                                                                                            
                                                                                                                                
2:37:56 PM                                                                                                                    
                                                                                                                                
     Page 9                                                                                                                     
                                                                                                                                
     FIN, Section 36                                                                                                            
                                                                                                                                
     The Department of Revenue is directed to study and report                                                                  
     to the legislature by 2013 on the private royalty tax rates                                                                
     and whether they should be changed in the future.                                                                          
                                                                                                                                
Mr. Mintz read this language inserted in the Senate Finance                                                                     
Committee substitute.                                                                                                           
                                                                                                                                
2:38:32 PM                                                                                                                    
                                                                                                                                
     Page 10                                                                                                                    
                                                                                                                                
     RES, Section 5 (cont.)                                                                                                     
                                                                                                                                
     AS 43.55.011(g)-(h)                                                                                                        
     [When West Coast ANS is "above $40/Bbl" (RES)] there is                                                                    
    levied upon the producer "of oil" (RES) a tax … equal to                                                                    
     "(West Coast ANS - 40) * .2% *                                                                                             
     (ANS Prevailing Value) * 75% *                                                                                             
     (amount of oil production)" (RES)                                                                                          
                                                                                                                                
Mr. Mintz noted this language pertains to the progressivity tax                                                                 
that would be levied when oil prices were high.                                                                                 
                                                                                                                                
2:39:10 PM                                                                                                                    
                                                                                                                                
     Page 11                                                                                                                    
                                                                                                                                
     FIN, Section 5 (cont.)                                                                                                     
                                                                                                                                
     AS 43.55.011(g)-(h)                                                                                                        
     When "price index is above 45" (FIN) there is levied upon                                                                  
     the producer of oil "or gas" (FIN) a tax equal to ".1%"                                                                    
    (FIN) of "production tax value" (FIN) times price index                                                                     
                                                                                                                                
     "price index = production tax value per barrel - 45" (FIN)                                                                 
                                                                                                                                
Mr. Mintz stated that the language of the Senate Finance                                                                        
Committee substitute is similar to that of the Senate Resources                                                                 
Committee substitute. He explained the price index calculation.                                                                 
                                                                                                                                
2:40:59 PM                                                                                                                    
                                                                                                                                
     Page 12                                                                                                                    
                                                                                                                                
     So…                                                                                                                        
                                                                                                                                
     The Resources CS has three production tax components:                                                                      
                                                                                                                                
     (1) 25% of net value (now called "production tax value")                                                                   
     except for lessor royalty share                                                                                            
     (2) 5% or 1.5% of gross value for lessor royalty share                                                                     
     (3) A progressive-rate tax on prevailing value of oil only,                                                                
     including lessor royalty share                                                                                             
                                                                                                                                
Mr. Mintz overviewed this information.                                                                                          
                                                                                                                                
2:41:32 PM                                                                                                                    
                                                                                                                                
     Page 13                                                                                                                    
                                                                                                                                
     And…                                                                                                                       
                                                                                                                                
    The Finance CS also has three production tax components:                                                                    
                                                                                                                                
     (1) 22.5% of net value (now called "production tax value")                                                                 
     except for lessor royalty share                                                                                            
     (2) 5% of oil gross value and 1.667% of gas gross value for                                                                
     lessor royalty share                                                                                                       
     (3) a progressive-rate tax on net value of oil gas                                                                         
     (excluding 2.3 of gas gross value), no including lessor                                                                    
     royalty share                                                                                                              
                                                                                                                                
Mr. Mintz gave a comparison of the variations of the three                                                                      
components between the Senate Resources Committee Substitute and                                                                
the Senate Finance Committee substitute.                                                                                        
                                                                                                                                
2:42:44 PM                                                                                                                    
                                                                                                                                
Senator Stedman understood the intent of the discussion is to                                                                   
address the issue of progressivity at a later time.                                                                             
                                                                                                                                
2:42:55 PM                                                                                                                    
                                                                                                                                
Mr. Mintz affirmed.                                                                                                             
                                                                                                                                
2:43:31 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson stated that additional information would be                                                                       
overviewed later in the presentation.                                                                                           
                                                                                                                                
2:43:56 PM                                                                                                                    
                                                                                                                                
     Page 14                                                                                                                    
                                                                                                                                
     RES, Section 22                                                                                                            
                                                                                                                                
     AS 43.55.160(a)                                                                                                            
     "production tax" (RES)  "value" (GOV) … is the  total of the                                                               
     "gross value at the point of  production" (GOV) of … oil and                                                               
     gas … from "all leases or properties" (GOV) in the state,                                                                  
     Less "lease expenditures" (GOV) … as "adjusted" (GOV)                                                                      
                                                                                                                                
Mr. Mintz read this language.                                                                                                   
                                                                                                                                
2:44:41 PM                                                                                                                    
                                                                                                                                
     Page 15                                                                                                                    
                                                                                                                                
     AS 43.55.160(a)                                                                                                            
     "production tax" (RES)  "value" (GOV) … is the  total of the                                                               
     "gross value at the point of  production" (GOV) of … oil and                                                               
     "one-third of the gross value  at the point of production of                                                               
     the gas"  (FIN) … from  "all leases or properties"  (GOV) in                                                               
     the state,                                                                                                                 
     Less "lease expenditures" (GOV) … as "adjusted" (GOV)                                                                      
                                                                                                                                
Mr. Mintz noted the Senate Finance Committee substitute follows                                                                 
the basic concept of the Senate Resources Committee substitute,                                                                 
with one significant change pertaining to gas.                                                                                  
                                                                                                                                
2:45:24 PM                                                                                                                    
                                                                                                                                
     Page 16                                                                                                                    
                                                                                                                                
     RES, Section 28                                                                                                            
     FIN, Section 32                                                                                                            
                                                                                                                                
     AS 43.55.900(7)                                                                                                            
     "gross value at the point of production" means                                                                             
                                                                                                                                
     For  "oil"  (GOV),  the value  …  at  the  …  meter …  in  …                                                               
     "pipeline quality" (GOV)                                                                                                   
                                                                                                                                
     For "gas"  (GOV) … the value  … where … metered  ["after any                                                               
     separation or gas processing" (GOV)]                                                                                       
                                                                                                                                
And                                                                                                                             
                                                                                                                                
     Page 17                                                                                                                    
                                                                                                                                
     RES, Section 20                                                                                                            
     FIN, Section 24                                                                                                            
                                                                                                                                
     AS 43.55.150(a)                                                                                                            
                                                                                                                                
     …  gross value  at  the point  of  production is  calculated                                                               
     using the reasonable "costs of transportation" (GOV) …                                                                     
                                                                                                                                
Mr. Mintz noted neither committee substitute changes the                                                                        
original language.                                                                                                              
                                                                                                                                
2:46:23 PM                                                                                                                    
                                                                                                                                
     Page 18                                                                                                                    
                                                                                                                                
     RES, Section 21                                                                                                            
                                                                                                                                
     AS 43.55.150(d)                                                                                                            
     "if the  commissioner completes  a detailed  fiscal analysis                                                               
     and  determines  … the  long-term  fiscal  interests of  the                                                               
     state [would  be served]" (RES) …the  department "may allow"                                                               
     (GOV) …  gross value  [to be calculated  based upon  "DNR or                                                               
     U.S.  Dep't of  Interior"  (GOV)] royalty  … valuation  [or]                                                               
     another "formula … that reasonable  estimates" (GOV) a value                                                               
     …                                                                                                                          
                                                                                                                                
Mr. Mintz explained this language of subsection (d) of the                                                                      
Senate Resources Committee substitute.                                                                                          
                                                                                                                                
2:47:02 PM                                                                                                                    
                                                                                                                                
     Page 19                                                                                                                    
                                                                                                                                
     FIN, Section 25                                                                                                            
                                                                                                                                
     AS 43.55.150(d)                                                                                                            
     "if the  department determines [it would  improve efficiency                                                               
     & economy  of tax administration and  be reasonably accurate                                                               
     and  not  biased  toward  understating  tax]"  (FIN)  …  the                                                               
     department  "may   allow"  (GOV)   …  gross  value   [to  be                                                               
     calculated  based  upon  "DNR or  U.S.  Dep't  of  Interior"                                                               
     (GOV)]  royalty …  valuation [or]  another  "formula …  that                                                               
     reasonable estimates" (GOV) a value…                                                                                       
                                                                                                                                
Mr. Mintz accepted  the concept expressed in the  language of the                                                               
Senate Finance Committee substitute,  but cautioned that it would                                                               
change  the   "details  of  the  determination"   in  ways  "more                                                               
specifically relevant to  the reasons why" it would  or would not                                                               
be  "desirable"  to  allow  "use  of  a  simplified  formula".  A                                                               
simplified formula  would not  produce the  same result  for each                                                               
month as  would application of  a standard  calculation. However,                                                               
over  time, the  simplified formula  should never  understate the                                                               
tax liability.                                                                                                                  
                                                                                                                                
2:48:21 PM                                                                                                                    
                                                                                                                                
     Page 20                                                                                                                    
                                                                                                                                
     RES, Section 22                                                                                                            
     FIN, Section 26                                                                                                            
                                                                                                                                
     AS 43.55.160(c)                                                                                                            
     …  lease   expenditures  …  are  the   "total"  (GOV)  costs                                                               
     "upstream" (GOV)  of the point  of production … on  or after                                                               
     "April  1"  (RES)  "July  1"  (FIN), 2006  …  that  are  the                                                               
     "direct, ordinary, and necessary"  (GOV) costs of "exploring                                                               
     for, developing,  or producing"  (GOV) oil or  gas …  in the                                                               
     state.                                                                                                                     
                                                                                                                                
Mr.  Mintz  remarked  this  page   demonstrates  that  the  basic                                                               
definition  of  lease  expenditures  has not  changed;  only  the                                                               
effective date.                                                                                                                 
                                                                                                                                
2:48:57 PM                                                                                                                    
                                                                                                                                
     Page 21                                                                                                                    
                                                                                                                                
     RES Section 22                                                                                                             
                                                                                                                                
     AS 43.55.160(c) (continued)                                                                                                
     In determining  … ["direct, ordinary, and  necessary" (GOV)]                                                               
     costs …  the department shall  give substantial weight  … to                                                               
     typical  "industry practices  and standards"  (GOV) …  as to                                                               
     [billable] costs  … under "unit operating  agreements" (GOV)                                                               
    … and ["DNR net profits share lease regulations" (GOV)].                                                                    
                                                                                                                                
Mr. Mintz explained this language,  which has not been changed in                                                               
either committee substitute. The  Department of Natural Resources                                                               
would  be directed  to follow  industry  practices and  standards                                                               
utilized in joint operating agreements between partners.                                                                        
                                                                                                                                
2:49:54 PM                                                                                                                    
                                                                                                                                
     Page 22                                                                                                                    
                                                                                                                                
     FIN Section 26                                                                                                             
                                                                                                                                
     AS 43.55.160(c) (continued)                                                                                                
                                                                                                                                
     This CS gives priority  to industry practices and standards.                                                               
     DNR's net profit share lease  regulations are looked to only                                                               
     if  industry  practices  and  standards  do  not  address  a                                                               
     subject or are not clear or not uniform.                                                                                   
                                                                                                                                
Mr. Mintz characterized this as an "important refinement".                                                                      
                                                                                                                                
2:50:48 PM                                                                                                                    
                                                                                                                                
     Page 23                                                                                                                    
                                                                                                                                
     Section 22/26                                                                                                              
                                                                                                                                
     AS 43.55.160(d) provides specific examples of, and                                                                         
     exclusions from, "direct costs"                                                                                            
        · FIN    CS   adds    "depletion"    to   exclusion    of                                                               
          depreciation/amortization                                                                                             
       · FIN CS clarifies language of several exclusions                                                                        
        · FIN CS deletes RES CS exclusion for "disuse",                                                                         
          dismantlement, restoration, etc.                                                                                      
                                                                                                                                
Mr. Mintz stated this page provides additional detail of                                                                        
deductible lease expenditures provisions.                                                                                       
                                                                                                                                
2:52:32 PM                                                                                                                    
                                                                                                                                
     Page 24                                                                                                                    
                                                                                                                                
     Section 22/26 (cont.)                                                                                                      
                                                                                                                                
        · FIN CS retains RES CS fair market rule for non-arm's                                                                  
          length transactions but deletes RES language referring                                                                
          to IRS provisions.                                                                                                    
        · Note: fair market rule for adjustments to lease                                                                       
          expenditures is moved from subsec. (l) to sub-subpar.                                                                 
          (e)(3)(A)(ii)                                                                                                         
        · FIN CS deletes RES CS treatment of "relinquished                                                                      
          assets"                                                                                                               
                                                                                                                                
Mr.  Mintz   supported  the  concept  contained   in  the  Senate                                                               
Resources Committee  substitute. The Department of  Revenue could                                                               
review  and make  adjustments if  a transaction  did not  reflect                                                               
fair market value.                                                                                                              
                                                                                                                                
2:54:35 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson elaborated  on the  concept to  adjust for  assets                                                               
that  were "turned",  defining this  as  equipment purchased  and                                                               
disposed in  one year, and  new equipment that would  perform the                                                               
same function purchased  the following year. This  issue could be                                                               
significant in rural areas such as the North Slope.                                                                             
                                                                                                                                
2:55:20 PM                                                                                                                    
                                                                                                                                
     Page 25                                                                                                                    
                                                                                                                                
     RES, Section 22                                                                                                            
                                                                                                                                
     AS 43.55.160(g)                                                                                                            
     …  a producer  that  is "qualified"  (GOV)  … and  "produces                                                               
     under  55,000 BOE/day"  (RES) may  reduce the  net value  by                                                               
     "deducting  an allowance"  (GOV) …  "equal to  the following                                                               
     fraction  of  the  production  tax   value:  (5,000  -  0.2*                                                               
     [average  daily   production  -  5,000])  ÷   average  daily                                                               
     production" (RES)                                                                                                          
                                                                                                                                
Mr.  Mintz  noted  the   Senate  Resources  Committee  substitute                                                               
replaced  the   language  providing   a  $73   million  allowance                                                               
contained  in the  original  version of  the  bill with  language                                                               
providing  for 5,000  BOE average  daily production.  This change                                                               
would eliminate one  tax and institute a different  tax at higher                                                               
oil prices.                                                                                                                     
                                                                                                                                
2:56:18 PM                                                                                                                    
                                                                                                                                
     Page 26                                                                                                                    
                                                                                                                                
     RES, Section 22                                                                                                            
                                                                                                                                
     AS 43.55.160(h)  - producer's  "qualification" (RES)  for an                                                               
     allowance. "Expires 12/31/2013)." (RES)                                                                                    
                                                                                                                                
     This is an anti-splitting provision  to prevent abuse of the                                                               
     per producer allowance under AS 43.55.160(g).                                                                              
                                                                                                                                
     It is essentially the same  anti-splitting provision that is                                                               
     in sec.  21 of the  original bill,  for the $73  million per                                                               
     producer allowance.                                                                                                        
                                                                                                                                
Mr. Mintz told how this language stipulates that the producer                                                                   
must demonstrate to qualification to the Department of Revenue.                                                                 
                                                                                                                                
2:56:41 PM                                                                                                                    
                                                                                                                                
     Page 27                                                                                                                    
                                                                                                                                
     FIN, Sec. 26 (cont.)                                                                                                       
                                                                                                                                
     "Allowance"   (RES)  provision   in  RES   CS  version   (AS                                                               
     43.55.160(g) &  (h)) is replaced  with a new  "credit" (FIN)                                                               
     provision in FIN CS (AS 43.55.170)                                                                                         
                                                                                                                                
     Credit  = "22.5%  of production  tax value"  (FIN) of  up to                                                               
     "5,000 barrels per day" (FIN) of production                                                                                
                                                                                                                                
     Up   to  $14   million/yr,  non-transferable,   not  carried                                                               
     forward, expires 2016                                                                                                      
                                                                                                                                
Mr. Mintz  stated that because the  tax rate is 22.5  percent the                                                               
credit  rate is  also  22.5  percent, and  would  offset the  tax                                                               
"exactly" if an operator produced  no more than 5,000 barrels per                                                               
day.                                                                                                                            
                                                                                                                                
Mr. Mintz qualified this provision "has some limitations" in                                                                    
that as production increased, operators would still receive                                                                     
credit for 5,000 barrels per day.                                                                                               
                                                                                                                                
2:58:09 PM                                                                                                                    
                                                                                                                                
     Page 28                                                                                                                    
                                                                                                                                
     FIN, Sec. 26 (cont.)                                                                                                       
                                                                                                                                
     Credit provisions  of AS 43.55.170 has  essentially the same                                                               
     anti-splitting provision as the  Governor's bill and the RES                                                               
     CS                                                                                                                         
                                                                                                                                
     AS 43.55.170(c)                                                                                                            
                                                                                                                                
Mr. Mintz read this information into the record.                                                                                
                                                                                                                                
2:58:30 PM                                                                                                                    
                                                                                                                                
     Page 29                                                                                                                    
                                                                                                                                
     FIN, Section 36                                                                                                            
                                                                                                                                
     Department of  Revenue is directed  to study the  effects of                                                               
     the  AS 43.55.170  credit  on  exploration, encouraging  new                                                               
     entrants,  etc.,  and report  to  the  legislature by  2015,                                                               
     including recommending whether to extend credit provision.                                                                 
                                                                                                                                
Mr. Mintz pointed out the lapse date of the credit provision.                                                                   
                                                                                                                                
2:59:07 PM                                                                                                                    
                                                                                                                                
     Page 30                                                                                                                    
                                                                                                                                
     RES, Section 13                                                                                                            
                                                                                                                                
     AS 43.55.024(a)                                                                                                            
     …   a  producer   …  that   incurs   a  "qualified   capital                                                               
     expenditure" (GOV)  … may … elect  … to take a  "tax credit"                                                               
     (GOV)  in  the   amount  of  "20  percent"   (GOV)  of  that                                                               
     expenditure.                                                                                                               
                                                                                                                                
Mr. Mintz noted this is another credit provision that is                                                                        
identical in the original version of the bill and the Senate                                                                    
Resources Committee substitute.                                                                                                 
                                                                                                                                
2:59:29 PM                                                                                                                    
                                                                                                                                
     Page 31                                                                                                                    
                                                                                                                                
     FIN, Section 12                                                                                                            
                                                                                                                                
     AS 43.55.024(a)                                                                                                            
     …   a  producer   …  that   incurs   a  "qualified   capital                                                               
     expenditure" (GOV)  … may … elect  … to take a  "tax credit"                                                               
     (GOV)  in  the   amount  of  "25  percent"   (FIN)  of  that                                                               
     expenditure.                                                                                                               
     ["But only if the producer  agrees to share exploration data                                                               
     with DNR - as in SB 185" (FIN)]                                                                                            
                                                                                                                                
Mr. Mintz  outlined the changes  contained in the  Senate Finance                                                               
Committee substitute.  This provision  qualifying the  tax credit                                                               
on   providing  the   Department   of   Natural  Resources   with                                                               
exploration  data  is intended  to  make  the new  tax  structure                                                               
consistent with  statutes enacted a previous  legislative session                                                               
as SB 185.                                                                                                                      
                                                                                                                                
3:00:24 PM                                                                                                                    
                                                                                                                                
     Page 32                                                                                                                    
                                                                                                                                
     Section 12/13 (cont.)                                                                                                      
                                                                                                                                
     AS 43.55.024(h)(2)                                                                                                         
     "qualified capital expenditure" does  "not" (RES) include an                                                               
     expenditure incurred … "for …  an extended period of disuse,                                                               
     dismantlement,  removal  …  or  abandonment  …  or  for  the                                                               
     restoration of a lease, field, [etc.]" (RES)                                                                               
                                                                                                                                
     FIN CS deletes that exclusion.                                                                                             
                                                                                                                                
Mr.  Mintz   explained  this  pertains   to  the   definition  of                                                               
"qualified capital  expenditure". The Senate  Resources Committee                                                               
substitute added  an exclusion, which  was deleted in  the Senate                                                               
Finance  Committee substitute.  The  difference  would likely  be                                                               
negligible as these types of  expenditures would generally not be                                                               
capital expenditures.                                                                                                           
                                                                                                                                
3:01:19 PM                                                                                                                    
                                                                                                                                
     Page 33                                                                                                                    
                                                                                                                                
     Section 12/13 (cont.)                                                                                                      
                                                                                                                                
     AS 43.55.024(b)                                                                                                            
     A producer  … may elect  to take a  "tax credit" (GOV)  … of                                                               
     "25"  (RES)  "22.5"  (FIN)   percent  of  a  carried-forward                                                               
     "annual  loss" (GOV)  [which  is the  amount  of a  previous                                                               
     year's   "lease   expenditures"   (GOV)   that   were   "not                                                               
     deductible"  (GOV)  because  they  would  have  reduced  the                                                               
     "production  tax  value" (RES)  of  the  oil and  gas  below                                                               
     zero].                                                                                                                     
                                                                                                                                
Mr. Mintz  stated that  the reduction  of the  tax credit  in the                                                               
Senate Finance  Committee substitute  is necessary to  offset the                                                               
change of  the production tax  to 22.5  percent made in  the same                                                               
committee substitute.                                                                                                           
                                                                                                                                
3:02:13 PM                                                                                                                    
                                                                                                                                
     Page 34                                                                                                                    
                                                                                                                                
     Section 12/13 (cont.)                                                                                                      
                                                                                                                                
     AS 43.55.024(d)-(f)                                                                                                        
     A producer entitled  to a tax credit may apply  to the Dep't                                                               
     of  Revenue  for  a "transferable  tax  credit  certificate"                                                               
     (GOV). Once issued,  a certificate may be used  for its face                                                               
     value,  but a  transferee  may not  apply  a certificate  to                                                               
     reduce its  tax liability  by more  than "20  percent" (GOV)                                                               
     during a calendar year.                                                                                                    
                                                                                                                                
Mr. Mintz pointed out this provision is unchanged from the                                                                      
original version of the bill.                                                                                                   
                                                                                                                                
3:03:01 PM                                                                                                                    
                                                                                                                                
     Page 35                                                                                                                    
                                                                                                                                
     Section 12/13 (cont.)                                                                                                      
                                                                                                                                
     AS 43.55.024(i)  - "nontransferable credit  for transitional                                                               
     investment expenditures" (RES)                                                                                             
     … transitional investment expenditures  [TIE] are … "capital                                                               
     expenditures"  (GOV)  [incurred  "4" (RES)  "/2001  through"                                                               
     (GOV) "4"  (RES) "/2006" (GOV)] ["7"  (FIN)/2001 through "7"                                                               
     (FIN)  /2006]  … less  …  [proceeds  from]  the "sale  …  of                                                               
     assets" (GOV)  … acquired …  as a result of  [those] capital                                                               
     expenditures.                                                                                                              
                                                                                                                                
Mr. Mintz stated the dates are changed to conform.                                                                              
                                                                                                                                
3:03:13 PM                                                                                                                    
                                                                                                                                
     Page 36                                                                                                                    
                                                                                                                                
     Section 12/13 (cont.)                                                                                                      
                                                                                                                                
     AS 43.55.024(i) (cont.)                                                                                                    
        · A producer may … take a "tax credit" (RES) … of "20                                                                   
          percent" (RES) of the producer's ["TIE" (RES)] but                                                                    
          only [up to] "one-half of the producer's qualified                                                                    
         capital expenditures" (RES) … during the month                                                                         
        · Credits are "non-transferable" (RES)                                                                                  
        · Credit provision "expires April 1" (RES) ["July 1"                                                                    
          (FIN)] ", 2003" (RES)                                                                                                 
                                                                                                                                
Mr. Mintz noted this pertains to the same subsection (i) as the                                                                 
previous page.                                                                                                                  
                                                                                                                                
3:03:29 PM                                                                                                                    
                                                                                                                                
     Page 37                                                                                                                    
                                                                                                                                
     FIN, Sections 13-17                                                                                                        
                                                                                                                                
     AS 43.55.025 (from SB 185)                                                                                                 
     The FIN CS                                                                                                                 
        · Extends the sunset for these exploration credits to                                                                   
          2016 statewide                                                                                                        
        · Fixes an ambiguity re: $20 million cap for Cook Inlet                                                                 
        · Makes conforming amendments                                                                                           
                                                                                                                                
Mr. Mintz overviewed these changes contained in the Senate                                                                      
Finance Committee substitute.                                                                                                   
                                                                                                                                
3:04:32 PM                                                                                                                    
                                                                                                                                
     Page 38                                                                                                                    
                                                                                                                                
     RES, Sections 7, 12                                                                                                        
                                                                                                                                
     AS 43.55.020(a) and (g)                                                                                                    
        · 95   percent   of    principal   production   tax   (AS                                                               
          43.55.011(e)), net of credits, due each month.                                                                        
          Remaining portion due at end of next calendar quarter.                                                                
        · 100 percent of tax on lessor royalty interest (AS                                                                     
          43.55.011(f)) due each month.                                                                                         
        · Bill does not specify payment of progressive-rate oil                                                                 
          tax (AS 43.55.011(G)).                                                                                                
                                                                                                                                
Mr.  Mintz  remarked   this  relates  to  payment   of  the  tax.                                                               
Discrepancies in payments  of less than 95 percent  of the actual                                                               
tax would be  subject to interest. No interest  would be assessed                                                               
on discrepancies of up to five  percent of the actual tax because                                                               
that amount would  not be due until the following  quarter of the                                                               
calendar year.                                                                                                                  
                                                                                                                                
3:06:06 PM                                                                                                                    
                                                                                                                                
     Page 39                                                                                                                    
                                                                                                                                
     FIN, Section 7                                                                                                             
                                                                                                                                
     AS 43.55.020(a)                                                                                                            
     "95  percent"  (RES) of  "total"  (FIN)  production tax  (AS                                                               
     43.55.011(e)-(g)), net  of credits, due "each  month" (RES).                                                               
     Remaining portion due "March 31 of following year" (FIN).                                                                  
                                                                                                                                
Mr. Mintz  contended this provision  would be "much  simpler" for                                                               
both the tax  payer and the Department of  Revenue. The "true-up"                                                               
was   changed  from   quarterly  to   annual  because   financial                                                               
information  is not  available by  the end  of the  next calendar                                                               
year quarter.                                                                                                                   
                                                                                                                                
3:07:03 PM                                                                                                                    
                                                                                                                                
     Page 40                                                                                                                    
                                                                                                                                
     FIN, Section 11                                                                                                            
                                                                                                                                
     AS 43.55.020(f) - "Prevailing value"                                                                                       
     The Governor's bill clarified  that prevailing value applies                                                               
     where there  is "no actual  sale" (GOV)  of oil or  gas. The                                                               
     FIN  CS  also   clarifies  that  where  there   is  a  sale,                                                               
     prevailing  value may  be calculated  for the  "month during                                                               
     which the  sale occurred" (FIN)  when that makes  more sense                                                               
    than the month during which the oil or gas was produced.                                                                    
                                                                                                                                
Mr. Mintz  commented that this  language does not pertain  to the                                                               
PPT system, but is nonetheless important.                                                                                       
                                                                                                                                
3:08:59 PM                                                                                                                    
                                                                                                                                
     Page 41                                                                                                                    
                                                                                                                                
     And finally …                                                                                                              
                                                                                                                                
     RES Section 25, FIN Section 29                                                                                             
                                                                                                                                
     The RES CS increased the oil conservation surcharge under                                                                  
     AS 43.55.300 from 3 cents per barrel to 5 cents.                                                                           
     The FIN CS increases it from 3 cents per barrel to 4 cents.                                                                
                                                                                                                                
Mr. Mintz overviewed this information.                                                                                          
                                                                                                                                
3:09:44 PM                                                                                                                    
                                                                                                                                
Senator Hoffman, referencing Page  24, asked the justification of                                                               
deleting  the   language  in   the  Senate   Resources  Committee                                                               
substitute relating to "relinquished assets".                                                                                   
                                                                                                                                
Mr.  Mintz deferred  to  Mr. Dickinson.  Mr.  Mintz surmised  the                                                               
issue to be more theoretical than problematic.                                                                                  
                                                                                                                                
3:10:39 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson defined  "relinquished asset"  as provided  for in                                                               
the Senate  Resources Committee substitute  as "an asset  that is                                                               
first acquired by the producer  before the effective date of this                                                               
section and  has been replaced  by the producer's  later purchase                                                               
of  an asset  that serves  substantially similar  function as  an                                                               
asset that  was relinquished." This  language should  be included                                                               
as  "a test"  in determining  eligibility of  capital investments                                                               
made  by  producers  on  the  North  Slope.  Producers  would  be                                                               
unlikely  to  import assets  to  the  North  Slope for  only  the                                                               
purpose of receiving a tax credit.                                                                                              
                                                                                                                                
3:11:44 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  asked if  this would apply  even for  high value                                                               
purchases.                                                                                                                      
                                                                                                                                
3:11:52 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson could not guarantee  this would not occur. However,                                                               
the process required proof that the asset was new.                                                                              
                                                                                                                                
3:13:07 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  spoke to private  royalty interest.  He recalled                                                               
debating the  issue and  subsequently directing  the commissioner                                                               
to  provide  the  legislature   with  recommendations  on  future                                                               
private  royalty  exploration  and  development  and  production.                                                               
However, the language of the  Senate Finance Committee substitute                                                               
stipulates five percent  of oil gross value and  1.667 percent of                                                               
gas gross value for lessor royalty  share up to the year 2013. He                                                               
asked the reasoning for this change.                                                                                            
                                                                                                                                
3:13:52 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson  replied  that   the  Senate  Resources  Committee                                                               
substitute provided  that the commissioner  would set  the future                                                               
tax rate.  The Murkowski Administration determined  this would be                                                               
inappropriate and  that the legislature should  instead establish                                                               
the  rate   in  statute.   It  would   be  appropriate   for  the                                                               
commissioner  to make  a recommendation  of the  tax rate  and to                                                               
implement  the  rate  established  by the  legislature.  The  two                                                               
branches of government should remain separate.                                                                                  
                                                                                                                                
Mr.  Dickinson  also  pointed  out   that  the  Senate  Resources                                                               
Committee  substitute   provided  a   specific  tax   on  private                                                               
royalties  for existing  leases.  However, producers  considering                                                               
new  leases  would  not  know  the  future  rates.  Although  the                                                               
legislature  could always  implement changes  to existing  rates,                                                               
the proposed system would provide  no rates whatsoever. Therefore                                                               
a rate for  all private royalties should always be  in place. The                                                               
commissioner  could  recommend  the  rate be  changed  or  remain                                                               
unchanged.                                                                                                                      
                                                                                                                                
Mr.  Dickinson   addressed  the   establishment  in   the  Senate                                                               
Resources Committee substitute of a  rate of five percent for oil                                                               
and 1.667  percent for  gas. The  Administration did  not support                                                               
the geographic  differentials, although a separate  rate for some                                                               
gas projects  could be  appropriate. Administratively,  "there is                                                               
no  confusion  over what's  gas  and  what's oil;"  however  "net                                                               
value" is unclear.  "A reduction at the gross  value level" would                                                               
instead be appropriate  and would "have the  additional virtue of                                                               
keeping  the twenty  percent applied  to everything."  A two-step                                                               
process would be applied for  gas resulting in a "lower effective                                                               
rate". Because  the gross value  is utilized, the  two "implicit"                                                               
rates are stated in the presentation.                                                                                           
                                                                                                                                
Co-Chair  Wilken indicated  he would  return to  this issue  at a                                                               
later time.                                                                                                                     
                                                                                                                                
3:17:15 PM                                                                                                                    
                                                                                                                                
Senator Hoffman asked the effect on  the State of the removal and                                                               
abandonment  costs   as  provided  for  in   the  Senate  Finance                                                               
Committee   substitute  and   overviewed  on   Page  23   of  the                                                               
presentation.                                                                                                                   
                                                                                                                                
3:18:12 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson replied, "I don't  believe the dollars at stake are                                                               
[a]  huge issue."  He continued,  "I  believe that  the costs  of                                                               
abandonment:  abandoning  something,  dismantling  it,  restoring                                                               
what was  there back  to the  State required by  the lease  is an                                                               
important part  of the business cycle.  It's a duty. It  falls on                                                               
the  person who's  done the  leasing." Although  perceived as  "a                                                               
company leaving the state," as  the fields "mature" some would be                                                               
shut  down yet  the producers  would still  operate elsewhere  in                                                               
Alaska. Two  small fields in  Prudhoe Bay are no  longer operable                                                               
and  the  holders  of  those leases  continue  to  operate  other                                                               
fields.                                                                                                                         
                                                                                                                                
Mr.  Dickinson  noted  this  matter  was  not  addressed  in  the                                                               
original version of  the bill or in the  Senate Finance Committee                                                               
substitute. As  a result, these  costs would be treated  the same                                                               
as any other "ordinary, necessary business expense."                                                                            
                                                                                                                                
3:19:22 PM                                                                                                                    
                                                                                                                                
Senator  Hoffman  asked if  the  original  Trans Alaska  Pipeline                                                               
System  (TAPS)  was  not  intended to  be  "covered"  under  this                                                               
provision, as it was anticipated to extend to the year 2050.                                                                    
                                                                                                                                
3:19:43 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson explained  that a "fraction of the  penny" or "over                                                               
a penny  now" is paid  for every barrel transported  through TAPS                                                               
and  held   specifically  for  future  abandonment   costs.  This                                                               
legislation would not change the existing system.                                                                               
                                                                                                                                
3:20:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken,  referencing the  same presentation  page, asked                                                               
if  the exclusions  from  direct costs  would  allow for  "double                                                               
counting", as  normal accounting practices require  holding funds                                                               
aside  in anticipation  that  a site  would  be abandoned.  These                                                               
would be considered annual operating  expenditures at this point.                                                               
At the  time of actual  abandonment, the costs could  be deducted                                                               
again  if  the  specific  exclusion were  not  included  in  this                                                               
legislation.                                                                                                                    
                                                                                                                                
3:21:21 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson answered this is  not the intent. Before an expense                                                               
could  be  accounted  for  as  a  future  liability  it  must  be                                                               
"identifiable with  a sufficient amount of  certainty." A reserve                                                               
account could be  established, but funds deposited  into it could                                                               
not be deducted  from income at the time of  deposit. He gave the                                                               
value of pension funds as an example of this situation.                                                                         
                                                                                                                                
Mr. Dickinson emphasized  the "focus" is on actual  costs or cash                                                               
flows. For  example, amortization,  depletion or  depreciation is                                                               
not allowed.  Only a "cash  outlay" would be considered  a direct                                                               
cost.  The only  exception would  be payment  of a  tariff for  a                                                               
downstream asset.                                                                                                               
                                                                                                                                
3:23:06 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  clarified that funds  deposited into  a producer                                                               
established "sinking fund"  would be an expense  to the producer,                                                               
but not considered an expense for tax purposes.                                                                                 
                                                                                                                                
3:23:35 PM                                                                                                                    
                                                                                                                                
Senator  Stedman  reposed the  question  noting,  "When there  is                                                               
abandonment and there's a PPT  tax calculated, there is no credit                                                               
taken  against the  PPT tax  for abandonment."  He asked  if "any                                                               
other  charges taken  against  it from  the  abandonment the  PPT                                                               
tax."                                                                                                                           
                                                                                                                                
3:23:58 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson affirmed  that capital is an  investment for future                                                               
benefit; abandonment  would not generally be  considered as such.                                                               
Abandonment costs  would be considered an  ordinary and necessary                                                               
expense. Each  dollar spent on  abandonment would reduce  the PPT                                                               
tax by  22.5 percent  under the provision  of the  Senate Finance                                                               
Committee Substitute.                                                                                                           
                                                                                                                                
3:24:59 PM                                                                                                                    
                                                                                                                                
Senator Bunde  understood that  abandonment costs,  when expended                                                               
would be  considered ordinary business  deductions that  could be                                                               
taken against corporate income tax.                                                                                             
                                                                                                                                
Mr. Dickinson affirmed.                                                                                                         
                                                                                                                                
Senator  Bunde asked  if these  expenses could  also be  deducted                                                               
from the PPT tax liability.                                                                                                     
                                                                                                                                
Mr. Dickinson again affirmed.                                                                                                   
                                                                                                                                
Senator Bunde characterized this as "double dipping".                                                                           
                                                                                                                                
Mr.  Dickinson explained  that this  would involve  two different                                                               
taxes. Costs of operation on  the North Slope would be considered                                                               
a deduction from both PPT and corporate income tax.                                                                             
                                                                                                                                
3:26:59 PM                                                                                                                    
                                                                                                                                
Senator   Olson  questioned   the  absence   of  a   geographical                                                               
differential on  investments related  to natural  gas development                                                               
because operations  in Cook  Inlet are  mostly developed  but not                                                               
developed on the North Slope.                                                                                                   
                                                                                                                                
3:27:43 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson  agreed  that Cook  Inlet  contains  "very  mature                                                               
wells";  however,  new development  is  still  occurring in  that                                                               
region.                                                                                                                         
                                                                                                                                
3:29:10 PM                                                                                                                    
                                                                                                                                
Senator Hoffman noted  the deletion of additional  audit of lease                                                               
expenditures requirements in Section  26(c) of the Senate Finance                                                               
Committee substitute. He asked the reason for this.                                                                             
                                                                                                                                
3:29:44 PM                                                                                                                    
                                                                                                                                
Senator Stedman  furthered that changes to  this subsection would                                                               
also reduce a penalty from 20 percent to 5 percent.                                                                             
                                                                                                                                
3:30:08 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson read  the language of the  committee substitute as:                                                               
"the Department of Revenue may  authorize a producer, including a                                                               
producer  that   is  an   operator,  to   treat  as   it's  lease                                                               
expenditures under this  section, the costs paid  by the producer                                                               
that are  billed to  the producer by  an operation  in accordance                                                               
with  the  terms  of  a   unit  operating  agreement  or  similar                                                               
operating agreement if  the Department of Revenue  finds that (1)                                                               
the  terms   and  conditions  of  the   operating  agreement  are                                                               
substantially   similar   with   the  Department   of   Revenue's                                                               
determinations,  and  (2) at  least  one  working interest  owner                                                               
party  to  the   agreement,  other  than  the   operator,  has  a                                                               
substantial incentive  and ability to effectively  audit billings                                                               
under the agreement."                                                                                                           
                                                                                                                                
Mr. Dickinson  understood this  provision has  remained unchanged                                                               
from  the  original  bill  and  the  Senate  Resources  Committee                                                               
substitute.                                                                                                                     
                                                                                                                                
3:31:22 PM                                                                                                                    
                                                                                                                                
Mr. Mintz  affirmed. An "immaterial  change" was made  to clarify                                                               
the inclusion of a producer that is also an operator.                                                                           
                                                                                                                                
3:31:40 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson informed  that most  operations  occurring on  the                                                               
North  Slope are  through joint  ventures involving  one operator                                                               
performing the  functions and other  working interest  owners. He                                                               
exampled activities  at Prudhoe  Bay in  which BP  Exploration is                                                               
the  operator.  BP Exploration  expends  the  funds necessary  to                                                               
operate the field  and each month, Conoco  Phillips reimburses 36                                                               
cents on  the dollar and  ExxonMobil reimburses an  additional 36                                                               
percent.                                                                                                                        
                                                                                                                                
Mr.  Dickinson stressed  that multiple  experts  employed by  the                                                               
working  interest   owners  continually  review  and   audit  the                                                               
billings submitted  by the operator. The  working interest owners                                                               
have a  substantial interest  in ensuring  that the  expenses are                                                               
valid and accurate. The intent  of the provision of Section 26(c)                                                               
is to allow the State to  benefit from these efforts. The State's                                                               
right to audit would not be forfeited.                                                                                          
                                                                                                                                
3:34:40 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson then  began over-viewing  a  handout titled,  "PPT                                                               
Revenue Studies, Senate Finance  Committee, April 20, 2006" [copy                                                               
on file.]                                                                                                                       
                                                                                                                                
[Note: The pages  in this document are not numbered  and were not                                                               
presented in the  same order as contained in  the packet. Several                                                               
pages are  untitled. For reference  purposes, the  Senate Finance                                                               
Committee  Secretary  made  a  notation   on  each  page  of  the                                                               
corresponding timestamp in which that  page was addressed in this                                                               
hearing.  General   descriptive  information  of  each   page  is                                                               
provided in  the body of these  minutes when feasible. A  copy of                                                               
the  handout  can  be  obtained  by  contacting  the  Legislative                                                               
Research Library at (907)465-3808.]                                                                                             
                                                                                                                                
Mr. Dickinson  stated that this presentation  pertains to several                                                               
technical questions  posed in the  previous two hearings  on this                                                               
bill.                                                                                                                           
                                                                                                                                
3:35:41 PM                                                                                                                    
                                                                                                                                
     Cook Inlet                                                                                                                 
     [Bar  graph showing  Daily Production  BOE (6000  mcf gas  =                                                               
     1Bbl  oil)   of  amounts  5,000  through   35,000  in  5,000                                                               
     increments for  Taxpayer listed as A,  B, C, D, E,  F, and G                                                               
     and delineated by  Oil [blue], Gas [white],  and Taxable Gas                                                               
     (after  exclusion)  [green].  A red  dotted  line  indicates                                                               
     5,000 BOE equivalent credit. ]                                                                                             
                                                                                                                                
Mr. Dickinson corrected  an error on the  page, which incorrectly                                                               
stated  "Annual  Production  BOE…"  He  identified  the  Taxpayer                                                               
lettering as "typical taxpayers in the last year."                                                                              
                                                                                                                                
Mr.  Dickinson noted  that oil  production has  declined in  this                                                               
region, with two producers  producing approximately 6,000 barrels                                                               
per  day  and "four  or  five  producers producing  significantly                                                               
less." Subsequently most oil produced  in Cook Inlet would not be                                                               
taxable  under the  provision of  the  "effective first  credit".                                                               
Most production in this region is of natural gas.                                                                               
                                                                                                                                
Mr. Dickinson continued explaining the bar graph as follows.                                                                    
                                                                                                                                
     The  combination  of  the  white and  green  bars  up  there                                                               
     constitute the  gas. What we've  done here, is we've  done a                                                               
     barrel  of oil  equivalent based  on the  BTU basis  rule of                                                               
     thumb. It takes 6,000 cubic feet  of gas makes one barrel of                                                               
     oil  BTU  equivalent.  Clearly the  values  don't  translate                                                               
     quite the same way, but  for these purposes we're just going                                                               
     to use a six  to one ratio of for a  thousand cubic feet for                                                               
     a barrel of oil.                                                                                                           
                                                                                                                                
     On  that basis  there  are three  producers  who have  large                                                               
     quantities of gas, in fact, well,  one of them also has oil,                                                               
     but two of them don't have  very much gas. The rule that you                                                               
     will see  there is of the  gas that they have,  when they go                                                               
     to  calculate their  base PPT  two-thirds of  that will  not                                                               
     calculate in  the tax. Two-thirds  of the revenue  from that                                                               
     gas will not calculate in.                                                                                                 
                                                                                                                                
     So  what you  will  see here  is, what  is  left after  that                                                               
     exclusion is  applied, is  a very  small about  ten thousand                                                               
     cubic feet a day barrel  of oil equivalent 60,000 cubic feet                                                               
     a day of taxable gas from those three tax payers.                                                                          
                                                                                                                                
     There will  be the  two places where  the blue  lines extend                                                               
     above the  red dotted  line. In other  words where  there is                                                               
     more than  5,000 barrels of  oil being produced by  a single                                                               
     producer. There will also be some tax on the oil.                                                                          
                                                                                                                                
     I hope  what this  slide illustrates  is that  through these                                                               
     two mechanisms,  I think the  taxpayers in Cook  Inlet, both                                                               
     of these  mechanisms, which are limits  on size, effectively                                                               
     cover much of the production from the Cook Inlet.                                                                          
                                                                                                                                
     This is  a simplified diagram  of how Cook Inlet  might look                                                               
     as these two,  the 5,000 barrel a day  equivalent credit and                                                               
     the reduction in gas, are applied.                                                                                         
                                                                                                                                
3:39:20 PM                                                                                                                    
                                                                                                                                
Senator  Stedman asked  for clarification  of the  calculation of                                                               
one-third  of   the  gross  revenue   on  gas  and   whether  the                                                               
calculation  would   be  made  before  or   after  expenses  were                                                               
deducted.                                                                                                                       
                                                                                                                                
3:39:54 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson explained that one-third  of gross revenues derived                                                               
from natural gas operations would  be added to all gross revenues                                                               
from oil  operations. All upstream  costs would be  deducted from                                                               
that amount, and the total would be taxed 22.5 percent for PPT.                                                                 
                                                                                                                                
3:41:17 PM                                                                                                                    
                                                                                                                                
Senator Stedman predicted an adverse  affect of this provision in                                                               
situations involving an  operator that only produces  gas and has                                                               
no revenues  from oil production.  Because all expenses  would be                                                               
deducted from one-third of the gross  revenue, the tax due on the                                                               
balance would be very low if any.                                                                                               
                                                                                                                                
3:42:04 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson responded,  "You would  adversely affect  your tax                                                               
base both ways.  Doing it the way the bill  lays out would affect                                                               
it   more."  He   began  to   reference  another   page  of   the                                                               
presentation.                                                                                                                   
                                                                                                                                
3:42:21 PM                                                                                                                    
                                                                                                                                
Senator Stedman  interjected to request the  presentation be made                                                               
in an  orderly manner, as  his follow-up question was  the affect                                                               
of progressivity on natural gas development.                                                                                    
                                                                                                                                
3:42:44 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson  reiterated that the  "six to  one is really  a Btu                                                               
[British  thermal  units]  equivalent".  The  price  of  oil  was                                                               
currently   $70  and   a   six-to-one   equivalent  would   equal                                                               
approximately  $12 of  thousand  cubic feet  (mcf)  of gas.  Most                                                               
prices for  Cook Inlet natural  gas would be  significantly lower                                                               
at  approximately  $3 to  $4.  In  utilizing actual  proceeds  in                                                               
calculating progressivity,  Cook Inlet gas would  "not be driving                                                               
much of the progressivity calculation".                                                                                         
                                                                                                                                
3:43:53 PM                                                                                                                    
                                                                                                                                
Senator  Stedman understood  that  progressivity would  not be  a                                                               
significant  factor  in  tax revenues  collected  on  Cook  Inlet                                                               
natural gas  productions. He deferred  future discussion  on this                                                               
matter.                                                                                                                         
                                                                                                                                
3:44:01 PM                                                                                                                    
                                                                                                                                
Senator Bunde  asked if the same  provision of basing the  tax on                                                               
one-third of  gross revenues derived from  natural gas production                                                               
would apply statewide.                                                                                                          
                                                                                                                                
Mr. Dickinson affirmed this provision  would apply to all natural                                                               
gas operations in the state.  Currently gas is only produced from                                                               
Cook Inlet  with the  exception of a  small amount  produced from                                                               
the North Slope.                                                                                                                
                                                                                                                                
Senator  Bunde   shared  Senator  Stedman's  concern   that  this                                                               
provision  would  be  "very   taxpayer  friendly".  He  suggested                                                               
deducting expenses from  the gross revenues and  taxing one third                                                               
of the net  amount would provide greater return to  the State. He                                                               
requested a comparison of the two methods.                                                                                      
                                                                                                                                
3:44:55 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson  could create  "a  standard  model or  a  standard                                                               
deduction type  arrangement". However,  "As an average,  it would                                                               
be an  average of a fairly  broad range of costs  associated with                                                               
gas."                                                                                                                           
                                                                                                                                
Senator  Bunde wanted  a comparison  of the  two methods  for the                                                               
taxpayer represented on the bar graph as "B".                                                                                   
                                                                                                                                
3:45:47 PM                                                                                                                    
                                                                                                                                
Co-Chair  Green  asked  for  clarification  that  "the  one-third                                                               
calculation [is] another way of saying  that for the price on gas                                                               
is $7.50 and the price on oil  is $22.50 and we've just said it's                                                               
one-third."                                                                                                                     
                                                                                                                                
3:46:13 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson replied that the reverse  would be true only in the                                                               
effect  that "where  there  is only  a gross  value  at point  of                                                               
production, in  other words where  the royalty value is  based on                                                               
gross value at point of  production, which is how private royalty                                                               
interests are taxed. I think that  the numbers put into this bill                                                               
were meant  to reflect the  gas revenue exclusion.  They're meant                                                               
to line  up with each other.  I'm not saying which  one drove the                                                               
other. Clearly  in terms of  volume there's a much  larger volume                                                               
in the  non-royalty tax  than there  is on  the royalty  tax. But                                                               
they are supposed to be exactly parallel."                                                                                      
                                                                                                                                
Co-Chair Green  asked if  "it would be  easier to  understand, if                                                               
you took  the gross value  of the gas  and the gross  revenue and                                                               
then just  multiplied it  by 7.5 rather  than take  your expenses                                                               
away from the  total but then just multiply by  7.5 and then it's                                                               
more clearly set out  that the gas is intended to  be less a unit                                                               
versus the price per unit of oil."                                                                                              
                                                                                                                                
3:47:39 PM                                                                                                                    
                                                                                                                                
Mr. Dickinson  agreed that such  a calculation  would essentially                                                               
"have the same mathematical effect."                                                                                            
                                                                                                                                
3:48:07 PM                                                                                                                    
                                                                                                                                
Senator Stedman  requested an explanation  of the  methodology of                                                               
using the  "one-third, which is  7 and a half"  and clarification                                                               
of how  expenses would be  applied, whether  to the gross  or the                                                               
"one-third side". He  understood that this method,  as opposed to                                                               
a method  in which portions  of each facility were  identified as                                                               
either producing oil or gas,  is proposed for a reason. Providing                                                               
"one point of calculation" is part of the reasoning.                                                                            
                                                                                                                                
Mr.  Dickinson  answered,  "I  think   the  Chair  is  absolutely                                                               
correct.  You  could  do  it  that way  and  I  think  what  that                                                               
emphasizes  is  that  we  are not  reducing  the  incentives  for                                                               
production  for  gas.  The  credits   are  still  available.  The                                                               
deduction at the  higher rate is still available.  And so, what's                                                               
being created here is when  those investments are being made. The                                                               
PPT system  is meant to  support all those  investments including                                                               
explorations, which you can't  differentiate. So the methodology,                                                               
(a) it's difficult to do, and  (b) it doesn't really line up with                                                               
the  vision of  how this  would work  to [provide  incentive for]                                                               
investment. Certainly  the step  that the Chair  has laid  out is                                                               
mechanically gets you to the same place."                                                                                       
                                                                                                                                
3:49:47 PM                                                                                                                    
                                                                                                                                
Co-Chair Green  remarked that the  discussion was "going  way too                                                               
deep" on an  issue "that in the whole scheme  of things is fairly                                                               
minor."                                                                                                                         
                                                                                                                                
3:49:57 PM                                                                                                                    
                                                                                                                                
Senator Bunde  understood the concept  that gas is  less valuable                                                               
per  unit  and  that  a  lower tax  rate  would  be  appropriate.                                                               
However,  he  questioned  the  deduction  of  expenses  from  net                                                               
revenue  rather  than  gross  revenue.   He  asked  the  monetary                                                               
differences to "government take" or "industry loss".                                                                            
                                                                                                                                
3:50:29 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson reposed  the question  to ask  how costs  would be                                                               
allocated between oil and gas  activities and whether it would be                                                               
done  on  a  value  basis,  specific  engineering  identification                                                               
basis, or volumetric basis. Costs  associated with a "hole in the                                                               
ground"  from  which both  oil  and  gas  was produced  would  be                                                               
difficult to separately account for  as either oil or gas related                                                               
expenses. Instead under the method  proposed in this legislation,                                                               
"you really wouldn't  be identifying costs so much  as setting up                                                               
a rule to create two buckets of cost."                                                                                          
                                                                                                                                
3:51:01 PM                                                                                                                    
                                                                                                                                
Senator Bunde clarified that under  the provisions of the current                                                               
committee  substitute,  expenses  would be  subtracted  from  the                                                               
identified one-third  of gross  revenues from  gas. He  asked the                                                               
difference  of deducting  expenses from  the total  gross revenue                                                               
from  gas before  calculating one-third  from which  to base  the                                                               
tax. The expenses would be the same in either case.                                                                             
                                                                                                                                
3:51:33 PM                                                                                                                    
                                                                                                                                
Mr.  Dickinson  responded  that  to  utilize  the  second  method                                                               
suggested by  Senator Bunde,  it would  be necessary  to multiply                                                               
some  expenses by  one rate  and  other expenses  by a  different                                                               
rate. He posed  a scenario of a producer expending  $7 million to                                                               
operate  a facility  that receives  well fluid  and separates  it                                                               
into  gas  and  oil.  Senator  Bunde's  method  would  require  a                                                               
determination  of which  of  those expenses  are  related to  oil                                                               
production and which to gas production."                                                                                        
                                                                                                                                
Senator Bunde  surmised that  under the  provisions of  the bill,                                                               
one-third of  gross revenues from  gas production would  be taxed                                                               
after all  expenses were  deducted. He again  wanted to  know the                                                               
difference,  given  that  the expenses  would  be  unchanged,  of                                                               
deducting these  expenses from the  total gross revenue  from gas                                                               
rather than one-third of the gross revenue from gas.                                                                            
                                                                                                                                
Mr. Dickinson  identified the problem as  determining the amounts                                                               
of the total  expenses were related to gas  activities versus oil                                                               
activities.  An arbitrary  rule, such  as that  contained in  the                                                               
legislation  could   be  established,  or  calculations   of  the                                                               
expenses could be  made. The costs for producing oil  and gas are                                                               
simple to  calculate. Dividing  those costs  between oil  and gas                                                               
production is complicated.                                                                                                      
                                                                                                                                
3:53:04 PM                                                                                                                    
                                                                                                                                
Senator Bunde  acquiesced due to time  constraints, but contended                                                               
that  the costs  could be  deducted  from either  the full  gross                                                               
revenue  from gas  or one-third  of the  gross revenue  from gas.                                                               
Deducting costs from  the one-third net would result  in less tax                                                               
paid to the State.                                                                                                              
                                                                                                                                
3:53:23 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken referenced a chart  that was earlier projected by                                                               
Mr. Dickinson  but not identified.  Co-Chair Wilken asked  if the                                                               
axis would reflect all of Alaska.                                                                                               
                                                                                                                                
Mr. Dickinson affirmed.                                                                                                         
                                                                                                                                
3:53:37 PM                                                                                                                    
                                                                                                                                
Senator  Stedman  emphasized the  point  that  revenues from  gas                                                               
taxed at  a rate of 22.5  percent would be too  high. Either form                                                               
of  calculation of  the tax  of one-third  of the  revenues would                                                               
produce similar results.                                                                                                        
                                                                                                                                
3:54:25 PM                                                                                                                    
                                                                                                                                
     Per Barrel Progressivity Surcharge 2010                                                                                    
     [Line graph  depicting Per  Barrel Progressivity  in amounts                                                               
     of $0 to $50.00 shown in  $5 increments and ANS Price of $40                                                               
     through $120 shown in $10  increments of the House Resources                                                               
     Committee   substitute,  the   Senate  Resources   Committee                                                               
     substitute,  and  the   proposed  Senate  Finance  Committee                                                               
     substitute.]                                                                                                               
                                                                                                                                
Mr. Dickinson  noted that  this chart,  included in  the handout,                                                               
had already been addressed.                                                                                                     
                                                                                                                                
                                                                                                                                
3:54:44 PM                                                                                                                    
                                                                                                                                
     Total Progressivity Surcharges 2006-2030 ($B)                                                                              
     [Line  graph  depicting   Progressivity  Surcharge  ($B)  in                                                               
     increments of 50  between zero and 200 and ANS  Price in $10                                                               
     increments  of  $40 through  $120  for  the House  Resources                                                               
     Committee   substitute,  the   Senate  Resources   Committee                                                               
     substitute, and the Senate Finance Committee substitute.]                                                                  
                                                                                                                                
Mr. Dickinson explained that a  rate would be applied against the                                                               
calculated tax base.  This is the progressivity.  He referenced a                                                               
chart  presented  at  the  previous hearing  on  this  bill  that                                                               
addressed the effect per each  barrel. The slide currently before                                                               
the Committee  "translates" the data  into cumulative  terms over                                                               
25 years  and "adds  up the difference."  At current  prices, the                                                               
progressivity surcharge would add $2  to $3 billion in additional                                                               
revenue  over the  25 year  period. Under  the provisions  of the                                                               
House  Resources  Committee  substitute, the  additional  revenue                                                               
generated during  this time  period from oil  priced at  $120 per                                                               
barrel would be approximately $200 billion.                                                                                     
                                                                                                                                
3:56:49 PM                                                                                                                    
                                                                                                                                
     Distribution of Future Cash Flows  Under SQ, Gov's Bill, Sen                                                               
     Res and Proposed Sen Fin CS* FY 2007-2016                                                                                  
                                                                                                                                
     [Spreadsheet and line graph listing  Government Share of the                                                               
     current tax system and the  various versions of SB 305 based                                                               
     on Alaska North  Slope West Coast (ANS WC)  price per barrel                                                               
     as follows:                                                                                                                
          Status Quo:                                                                                                           
          $30 ANS WC $/bbl    56.2%                                                                                             
          $40                 53.7%                                                                                             
          $50                 52.6%                                                                                             
          $60                 51.9%                                                                                             
          $70                 51.4%                                                                                             
          $80                 51.1%                                                                                             
          Governor's Bill                                                                                                       
          $30 ANS WC $/bbl    57.2%                                                                                             
          $40                 57.1%                                                                                             
          $50                 56.5%                                                                                             
          $60                 56.5%                                                                                             
          $70                 56.6%                                                                                             
          $80                 56.6%                                                                                             
          Senate Finance                                                                                                        
          $30 ANS WC $/bbl    58.1%                                                                                             
          $40                 57.9%                                                                                             
          $50                 57.7%                                                                                             
          $60                 57.9%                                                                                             
          $70                 58.5%                                                                                             
          $80                 59.1%                                                                                             
          Senate Resources                                                                                                      
          $30 ANS WC $/bbl    60.2%                                                                                             
          $40                 59.9%                                                                                             
          $50                 60.7%                                                                                             
          $60                 61.5%                                                                                             
          $70                 62.3%                                                                                             
          $80                 63.2%]                                                                                            
                                                                                                                                
          *Assumes the Progressive tax is deductible only once                                                                  
          from the PPT calculation for Resources CS; it is not                                                                  
          deductible for Finance CS.                                                                                            
                                                                                                                                
Mr. Dickinson  explained this page relates  only to progressivity                                                               
and  calculates the  government  share  of the  cash  flow in  "a                                                               
year".  This data  demonstrates the  effect of  a change  of one-                                                               
tenths,  two-tenths   or  three-tenths   of  a  percent   of  the                                                               
progressivity rate.                                                                                                             
                                                                                                                                
3:57:55 PM                                                                                                                    
                                                                                                                                
Senator Bunde  noted that if  the long-range forecasted  price of                                                               
$40  per  barrel  is  realized, no  progressivity  tax  would  be                                                               
collected.                                                                                                                      
                                                                                                                                
Mr.   Dickinson   affirmed.   The  Senate   Resources   Committee                                                               
substitute would provide for the  progressivity tax for prices of                                                               
$41 per barrel and higher.                                                                                                      
                                                                                                                                
Mr. Dickinson  qualified that because  this information  is based                                                               
on a  25 year  model, the  costs could  vary. The  Senate Finance                                                               
Committee   substitute    progressivity   provision    is   "cost                                                               
sensitive";  therefore  progressivity  would  not  be  levied  at                                                               
prices  of $60  per  barrel if  costs were  higher  than $15  per                                                               
barrel.                                                                                                                         
                                                                                                                                
3:59:25 PM                                                                                                                    
                                                                                                                                
Senator Bunde asked why less tax  would be collected on prices of                                                               
$60 per  barrel than $40  per barrel  under the provision  of the                                                               
Senate Finance Committee substitute.                                                                                            
                                                                                                                                
Mr. Dickinson replied that the  State has a regressive system. He                                                               
continued,  "PPT   does  much  to  correct   that";  however  the                                                               
situation  would  remain  due  to "the  nature  of"  royalty  and                                                               
property tax. He  emphasized, "As the total dollars  goes up, the                                                               
percentage goes down."                                                                                                          
                                                                                                                                
4:00:24 PM                                                                                                                    
                                                                                                                                
     Distribution of Future Cash Flows Under Sen Fin CS with                                                                    
     .1%, .2% and .3% Progressivity FY 2007-2016                                                                                
                                                                                                                                
     Spreadsheet  and  line  graph listing  Government  Share  at                                                               
     Alaska North Slope West Coast  (ANS WC) price per barrel for                                                               
     three  progressivity  rates  under  the  provisions  of  the                                                               
     Senate Finance Committee as follows:                                                                                       
          Senate Finance CS .1% Progressivity:                                                                                  
          $40 ANS WC $/bbl    57.9%                                                                                             
          $50                 57.7%                                                                                             
          $60                 57.9%                                                                                             
          $70                 58.5%                                                                                             
          $80                 59.1%                                                                                             
          $90                 59.6%                                                                                             
          Senate Finance CS .2% Progressivity:                                                                                  
          $40 ANS WC $/bbl    57.9%                                                                                             
          $50                 57.7%                                                                                             
          $60                 58.0%                                                                                             
          $70                 59.1%                                                                                             
          $80                 60.2%                                                                                             
          $90                 61.3%                                                                                             
          Senate Finance CS .3% Progressivity:                                                                                  
          $40 ANS WC $/bbl    57.9%                                                                                             
          $50                 57.7%                                                                                             
          $60                 58.1%                                                                                             
          $70                 59.7%                                                                                             
          $80                 61.3%                                                                                             
          $90                 63.0%]                                                                                            
                                                                                                                                
Mr. Dickinson noted  this demonstrates the trend  depicted on the                                                               
previous page over a longer time period.                                                                                        
                                                                                                                                
4:00:44 PM                                                                                                                    
                                                                                                                                
     Cumulative Revenues Attributable to Progressivity                                                                          
     Sen Fin CS and Sen Res CS, 2007-2030                                                                                       
     Low Volume Scenario                                                                                                        
     [Line graph depicting the Revenues at certain ANS West                                                                     
     Coast Prices under the provisions of the two committee                                                                     
     substitutes as follows:                                                                                                    
          Senate Finance Committee Substitute:                                                                                  
          $50 ANS WC     $0                                                                                                     
          $60            $0.2 billion                                                                                           
          $70             2.6 billion                                                                                           
          $80             6.0 billion                                                                                           
          $90            10.4 billion                                                                                           
          $100           15.7 billion                                                                                           
          Senate Resources Committee Substitute:                                                                                
          $50 ANS WC     $4 billion [approximately]                                                                             
          $60             7.7 billion                                                                                           
          $70            13.7 billion                                                                                           
          $80            21.1 billion                                                                                           
          $90            29.9 billion                                                                                           
          $100           40.1 billion                                                                                           
                                                                                                                                
Mr. Dickinson  explained this page presents  the same information                                                               
as  provided in  earlier  presentations,  although as  cumulative                                                               
revenues attributable to progressivity.                                                                                         
                                                                                                                                
4:02:26 PM                                                                                                                    
                                                                                                                                
Senator  Hoffman  noted  this  page   presented  the  low  volume                                                               
scenario and  that a  high volume scenario  was not  provided. He                                                               
asked  if, "the  high volume  scenario  would be  with the  lower                                                               
taxes,  more  to  the  Governor's  version  and  the  low  volume                                                               
scenario  would be  more toward  the Senate  Resources [committee                                                               
substitute] because of exploration incentives."                                                                                 
                                                                                                                                
Mr. Dickinson responded,  "Yes, we'd like to think  that the high                                                               
volume scenario lines  up with what is  happening with incentives                                                               
and as  a consequence there  would be  much more volume  and much                                                               
more  revenue. The  progressivity  lines, I  believe, would  move                                                               
exactly proportionately because  the - it'd simply be  more - the                                                               
same thing happen in two more barrels."                                                                                         
                                                                                                                                
4:04:18 PM                                                                                                                    
                                                                                                                                
    Effect of Tax Rate: Annual Oil Severance Tax ($Millions)                                                                    
     Senate Finance CS with 22.5% and 25% Tax Rate at $20, $40,                                                                 
     and $60 per bbl, Low Volume Scenario                                                                                       
     [Line graph depicting the trend of Severance Tax                                                                           
     ($Millions) of zero through 3,000 for the years 2005                                                                       
     through 2030 for tax rates of 22.5 percent and 25 percent.]                                                                
                                                                                                                                
Mr. Dickinson pointed  out that the differences in  the amount of                                                               
revenue would  remain fairly consistent. He  qualified this chart                                                               
does  not  calculate  in  other factors  and  assumes  all  other                                                               
provisions are consistent.                                                                                                      
                                                                                                                                
4:06:16 PM                                                                                                                    
                                                                                                                                
Senator Dyson clarified this information represents a low volume                                                                
scenario.                                                                                                                       
                                                                                                                                
Mr. Dickinson affirmed.                                                                                                         
                                                                                                                                
4:06:22 PM                                                                                                                    
                                                                                                                                
     Cumulative Severance Tax Revenue, Senate Finance CS, with                                                                  
     Tax Rates of 22.5% and 25%, 2007-2030 ($B), Low Volume                                                                     
     [Line graph showing Cumulative Sev Tax Revenue ($B) at ANS                                                                 
     Price for the two tax rates with certain amounts noted as                                                                  
     follows:                                                                                                                   
          22.5 percent tax rate:                                                                                                
          $40 ANS Price  $18.9 billion                                                                                          
          $50             28.9 billion                                                                                          
          $60             39.6 billion                                                                                          
          $70             52.4 billion                                                                                          
          $80             66.2 billion                                                                                          
          25 percent tax rate:                                                                                                  
          $40 ANS Price  $21.8 billion                                                                                          
          $50             33.0 billion                                                                                          
          $60             44.8 billion                                                                                          
          $70             58.8 billion                                                                                          
          $80             73.7 billion                                                                                          
                                                                                                                                
Mr. Dickinson pointed out the increased variances between the                                                                   
effects of the two tax rates as the price of oil increases.                                                                     
                                                                                                                                
4:07:04 PM                                                                                                                    
                                                                                                                                
Senator  Hoffman requested  a comparison  of this  information to                                                               
the  existing tax  structure to  demonstrate  the increases  that                                                               
would occur under the proposed methods.                                                                                         
                                                                                                                                
Mr. Dickinson stated he would prepare such a comparison.                                                                        
                                                                                                                                
4:07:30 PM                                                                                                                    
                                                                                                                                
Senator Stedman  asked if the  amount of $70  "non-discounted" is                                                               
held constant to the year 2030  in these charts. He surmised, "If                                                               
we double  that back in  today's dollars that gap  would severely                                                               
implode in present value terms."                                                                                                
                                                                                                                                
Mr.  Dickinson  affirmed  this  would  occur  "in  present  value                                                               
terms."  The presentation  utilizes "real  dollars" but  does not                                                               
account for the "time value of those dollars."                                                                                  
                                                                                                                                
4:08:54 PM                                                                                                                    
                                                                                                                                
     Value of Credits against Capital Expenditures Under Senate                                                                 
     Finance CS, at 20% and 25% Credit Rates, 2007-2030 Low                                                                     
     Volume                                                                                                                     
     [Line graph showing Value of Credits ($mm) for Year at a                                                                   
     20% rate and a 25% rate with certain years and                                                                             
     corresponding amounts noted as follows:                                                                                    
          20% credit rate:                                                                                                      
          Year 2007      $212 million                                                                                           
               2011       210 million                                                                                           
               2015       205 million                                                                                           
               2019       197 million                                                                                           
               2023       188 million                                                                                           
               2027       180 million                                                                                           
               2030       178 million                                                                                           
          25% credit rate:                                                                                                      
          Year 2007      $265 million                                                                                           
               2011       263 million                                                                                           
               2015       256 million                                                                                           
               2019       246 million                                                                                           
               2023       235 million                                                                                           
               2027       226 million                                                                                           
               2030       222 million]                                                                                          
     Average annual credit value is $50 million greater under                                                                   
     25% credit rate than under 20% credit rate.                                                                                
                                                                                                                                
Mr.  Dickinson continued  his presentation,  explaining that  the                                                               
credits would  be calculated  after the  rate was  calculated for                                                               
both progressivity and  the tax base. The  figures represented on                                                               
the graph are  driven by the assumptions of the  level of capital                                                               
investment more so than by price.                                                                                               
                                                                                                                                
4:09:24 PM                                                                                                                    
                                                                                                                                
Senator Stedman  asked the dollar amount  of capital expenditures                                                               
utilized to generate these findings.                                                                                            
                                                                                                                                
Mr.  Dickinson  responded that  a  figure  of approximately  $1.1                                                               
billion  was utilized  for the  year 2007.  The amounts  utilized                                                               
decline over the next 20 years to approximately $600 million.                                                                   
                                                                                                                                
4:09:57 PM                                                                                                                    
                                                                                                                                
Senator Stedman  asked the expectation of  production in relation                                                               
to capital expenditures.                                                                                                        
                                                                                                                                
Mr. Dickinson  relayed arguments made  to the Committee  by other                                                               
presenters contend that  at the current level  of investment, the                                                               
low  volume forecast  would not  be  achieved. The  data used  in                                                               
compiling this  graph considers the current  levels of investment                                                               
and attempts  to "create  distribution of  those dollars  that we                                                               
think  will create  the barrels  that  we're modeling."  However,                                                               
Senator B. Stevens "correctly identified  the issue" that if this                                                               
legislation  was  "successful"  investment  would  increase.  The                                                               
graphs presented are intended to  demonstrate the difference that                                                               
"such an  investment" would cause  under the  rates of 20  and 25                                                               
percent.                                                                                                                        
                                                                                                                                
4:11:10 PM                                                                                                                    
                                                                                                                                
Senator Hoffman requested clarification  that "over 20 years, the                                                               
total credit value would be  $1 billion additional between 20 and                                                               
25 percent."                                                                                                                    
                                                                                                                                
Mr. Dickinson affirmed this is correct.                                                                                         
                                                                                                                                
4:11:45 PM                                                                                                                    
                                                                                                                                
     Cumulative Revenue Loss Attributable to 5000 Bbl Mechanism                                                                 
     Sen Fin CS and Sen Res CS, 2007-2030                                                                                       
     Low Volume Scenario                                                                                                        
     [Line graph depicting the trend of Revenue Loss ($B) at ANS                                                                
     West Coast Price under the provisions of the committee                                                                     
     substitutes with certain amounts noted as follows:                                                                         
          Senate Finance CS                                                                                                     
          $20 ANS WC Price    $0.1 billion [approximately]                                                                      
          $30                  0.6 billion                                                                                      
          $40                  0.8 billion                                                                                      
          $50                  1.3 billion                                                                                      
          $60                  1.3 billion                                                                                      
          $70                  1.3 billion                                                                                      
          Senate Resources CS                                                                                                   
          $20 ANS WC Price    $0.2 billion                                                                                      
          $30                  0.4 billion                                                                                      
          $40                  0.5 billion                                                                                      
          $50                  0.6 billion                                                                                      
          $60                  0.8 billion                                                                                      
          $70                  0.9 billion                                                                                      
                                                                                                                                
Mr. Dickinson reminded  that, under the provisions  of the Senate                                                               
Resources  Committee substitute,  production of  less than  5,000                                                               
barrels would  not be  taxed. At production  of more  than 5,000,                                                               
the  number  of  barrels  exempt   from  tax  would  decline.  No                                                               
exemption would be  granted on production of 30,000  or more. The                                                               
five largest producers  operating in Alaska would  receive no tax                                                               
benefit from this provision.                                                                                                    
                                                                                                                                
Mr. Dickinson then  reiterated that the provisions  of the Senate                                                               
Finance Committee substitute  would exempt tax on  at least 5,000                                                               
barrels for every  producer. The effect of this  would be minimal                                                               
for large producers, although would still be granted.                                                                           
                                                                                                                                
Mr.  Dickinson pointed  out  that due  to  these provisions,  the                                                               
Senate Resources Committee substitute  would "have less effect on                                                               
revenue"  than  the  Senate  Finance  Committee  substitute.  The                                                               
Senate Finance  Committee substitute would allow  certain credits                                                               
that the Senate Resources Committee substitute would not.                                                                       
                                                                                                                                
4:13:59 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  clarified that the  difference of the  impact of                                                               
the two  bill versions would be  $300 million annually at  an ANS                                                               
price of $40.                                                                                                                   
                                                                                                                                
Mr. Dickinson corrected that the amount would be cumulative over                                                                
the period of 2007 through 2030. The amount would be                                                                            
approximately $100 million at significantly higher prices.                                                                      
                                                                                                                                
4:14:57 PM                                                                                                                    
                                                                                                                                
CHERIE  NIENHUIS, Petroleum  Economist, Tax  Division, Department                                                               
of Revenue, testified  that the 5,000 barrel  credit provision of                                                               
the Senate  Finance Committee substitute would  only be effective                                                               
through the year  2016. The results are charted on  this graph as                                                               
cumulative through the year 2030.                                                                                               
                                                                                                                                
4:15:44 PM                                                                                                                    
                                                                                                                                
     Distribution of Future Cash Flows Under SQ, Gov's Bill, Sen                                                                
     Res and Proposed Sen Fin CS* FY 2007-2030                                                                                  
     *Assumes the Progressive tax is deductible only once from                                                                  
     the PPT calculation for Resources CS; it is not deductible                                                                 
     for Finance CS.                                                                                                            
     [Spreadsheet and line graph listing Government Share at ANS                                                                
     WC Price at follows:                                                                                                       
          Status Quo:                                                                                                           
          $30 ANS WC $/bbl    56.9%                                                                                             
          $40                 54.1%                                                                                             
          $50                 52.7%                                                                                             
          $60                 52.0%                                                                                             
          $70                 51.5%                                                                                             
          $80                 51.2%                                                                                             
          Governor's Bill:                                                                                                      
          $30 ANS WC $/bbl    57.4%                                                                                             
          $40                 57.4%                                                                                             
          $50                 57.1%                                                                                             
          $60                 57.2%                                                                                             
          $70                 57.3%                                                                                             
          $80                 57.3%                                                                                             
          Senate Finance:                                                                                                       
          $30 ANS WC $/bbl    59.2%                                                                                             
          $40                 58.9%                                                                                             
          $50                 58.8%                                                                                             
          $60                 58.9%                                                                                             
          $70                 59.4%                                                                                             
          $80                 59.9%                                                                                             
          Senate Resources:                                                                                                     
          $30 ANS WC $/bbl    61.4%                                                                                             
          $40                 61.9%                                                                                             
          $50                 61.7%                                                                                             
          $60                 62.5%                                                                                             
          $70                 63.3%                                                                                             
          $80                 64.1]                                                                                             
                                                                                                                                
Mr.  Dickinson explained  this  information  is calculated  after                                                               
capital  expenses are  deducted. The  percentages represent  both                                                               
State and federal taxes.                                                                                                        
                                                                                                                                
Mr. Dickinson detailed the chart.                                                                                               
                                                                                                                                
4:18:00 PM                                                                                                                    
                                                                                                                                
Senator Stedman surmised  that the difference of the  impact of a                                                               
22.5 percent  tax rate  should equally  reflected between  the 20                                                               
percent tax  rate included  in the original  version of  the bill                                                               
and  the 25  percent tax  rate included  in the  Senate Resources                                                               
Committee  substitute.  However,  the  Senate  Finance  Committee                                                               
substitute  figures  are  closer  that those  of  the  Governor's                                                               
budget.  He asked  if  this  is due  to  the  higher credit  rate                                                               
provided in the Senate Finance Committee substitute.                                                                            
                                                                                                                                
Mr.  Dickinson  answered, "Let's  look  at  $40. I  believe  that                                                               
you've correctly identified that should  form part of that shift.                                                               
We can  certainly go in and  look at it more."  He assured, "That                                                               
certainly would have been my first reaction as well."                                                                           
                                                                                                                                
4:18:58 PM                                                                                                                    
                                                                                                                                
Senator  Stedman  asked  for verification  that  the  information                                                               
presented for  the Senate  Finance Committee  substitute accounts                                                               
for  a   25  percent  credit,  the   Senate  Resources  Committee                                                               
substitute  and  the original  bill  versions  account for  a  20                                                               
percent credit.                                                                                                                 
                                                                                                                                
4:20:19 PM                                                                                                                    
                                                                                                                                
     Effective Severance Tax Rate                                                                                               
     Sev Tax / Wellhead (less royalty)                                                                                          
     Low Volume Scenario                                                                                                        
     [Line graph comparing Eff Sev Tax Rate of ANS West Coast                                                                   
     Price of the bill versions with certain percentages noted                                                                  
     as follows:                                                                                                                
          Status Quo:                                                                                                           
          $20 ANS WC Price    4.9% [approximately]                                                                              
          $30                 5.0%                                                                                              
          $40                 4.9%                                                                                              
          $50                 4.9%                                                                                              
          $60                 4.9%                                                                                              
          $70                 4.8%                                                                                              
          Governor's bill:                                                                                                      
          $20 ANS WC Price   >1.0% [approximately]                                                                              
          $30                 5.6%                                                                                              
          $40                 9.5%                                                                                              
          $50                11.4%                                                                                              
          $60                12.9%                                                                                              
          $70                14.0%                                                                                              
          Senate Finance Committee Substitute:                                                                                  
          $20 ANS WC Price   >2.0% [approximately]                                                                              
          $30                 7.6%                                                                                              
          $40                11.7%                                                                                              
          $50                13.9%                                                                                              
          $60                15.5%                                                                                              
          $70                17.3%                                                                                              
          Senate Resources Committee Substitute:                                                                                
          $20 ANS WC Price   >4.0% [approximately]                                                                              
          $30                10.4%                                                                                              
          $40                14.5%                                                                                              
          $50                17.9%                                                                                              
          $60                20.5%                                                                                              
          $70                22.6%]                                                                                             
                                                                                                                                
Mr. Dickinson  detailed this information, noting  this represents                                                               
effective tax rates on gross value at the point of production.                                                                  
                                                                                                                                
4:22:02 PM                                                                                                                    
                                                                                                                                
Senator  Stedman  asked  if  the targeted  tax  rates  shown  are                                                               
calculated  without the  offset of  the credits.  The percentages                                                               
would be lower with the inclusion of the credits.                                                                               
                                                                                                                                
Mr. Dickinson  responded that the  credits are included  in these                                                               
calculations. The  percentages represent the tax  obligation as a                                                               
ratio to the total wellhead value.                                                                                              
                                                                                                                                
Senator  Stedman asked  if the  credit  data reflects  historical                                                               
investment amounts  or the amount of  investment anticipated with                                                               
the  increased  incentives provided  in  the  change of  the  tax                                                               
system.                                                                                                                         
                                                                                                                                
Mr.  Dickinson  answered  that  this  graph  utilizes  historical                                                               
spending.  Increased investment  would reduce  the percentage  of                                                               
tax  liability  in the  years  those  investments were  expended.                                                               
Additional production  as a result of  increased investment would                                                               
increase the percentages.                                                                                                       
                                                                                                                                
4:23:40 PM                                                                                                                    
                                                                                                                                
     Senate Finance CS Transition at 20% and 25%,                                                                               
     Annual Revenue Loss, 2007-2003                                                                                             
     [Line graph depicting a Net  Value of Allowance ($mm) of 100                                                               
     for the years 2007 through 2013  at a rate of 20 percent and                                                               
     approximately 125 at a rate of  25 percent for the same time                                                               
     period.]                                                                                                                   
                                                                                                                                
Mr. Dickinson explained this information as follows.                                                                            
                                                                                                                                
     If  you  look  at   the  transition,  transition  investment                                                               
     expenditures  they  are  -  and this  is  not  a  difference                                                               
     between two bills. But the Senate  Finance bill - the CS you                                                               
     have in front  of you, generally has a  25 percent deduction                                                               
     for  capital expenditures.  However, the  transitionals, the                                                               
     TIE,  the transitional  expenditures have  a 20  percent. So                                                               
     this is  simply indicating  the effect  every year  that you                                                               
     would  get. It's  a difference  between  these two  assuming                                                               
     they were  utilized effectively  at 70  percent. So  I won't                                                               
     tell  you,  it's a  sophisticated  piece  of analysis  here.                                                               
     These are just  two strait lines. But it just  shows you the                                                               
     effect of  roughly $12  million a  year from  the difference                                                               
     between the 20 and the 25 percent."                                                                                        
                                                                                                                                
Co-Chair Wilken requested clarification.                                                                                        
                                                                                                                                
Mr.  Dickinson  corrected  his  calculations  and  estimated  the                                                               
difference to be approximately $100.                                                                                            
                                                                                                                                
4:25:45 PM                                                                                                                    
                                                                                                                                
     Effective Date  Change From 04/01/2006 to  07/01/2006 at $60                                                               
     per Barrel Oil                                                                                                             
     [Line graph showing a line labeled as $418 million]                                                                        
                                                                                                                                
Mr.  Dickinson indicated  that Senator  Olson  had requested  the                                                               
effect of  changing the effective  date from  April 1 to  July 1.                                                               
The difference would be $418  million calculated at oil prices of                                                               
$60 per  barrel. The  actual amount would  be higher,  given that                                                               
prices are currently $70 per barrel.                                                                                            
                                                                                                                                
4:26:23 PM                                                                                                                    
                                                                                                                                
     PPT and GRE Revenue in FY 2007 at $60 per Barrel Oil                                                                       
     [Bar graph  stating that Severance  Tax Revenues of  PPT Oil                                                               
     Revenue at a  price of $60 per barrel  is approximately $2.2                                                               
     billion and  Severance Tax Revenues of  GRE is approximately                                                               
     $100 million.]                                                                                                             
                                                                                                                                
Mr. Dickinson explained this demonstrates  the effect of the "gas                                                               
revenue  stream". The  total Severance  Tax Revenues  of PPT  Oil                                                               
Revenue at $60 per barrel and  Gas Revenue Exclusion (GRE) for FY                                                               
07 would be $2.3 billion.  The GRE represents approximately "five                                                               
percent reduction in the total tax take, as a consequence."                                                                     
                                                                                                                                
4:26:59 PM                                                                                                                    
                                                                                                                                
     Cumulative Severance  Tax Revenue  under Governor's  Bill as                                                               
     Written, with  22.5/20, and with 25/20,  Low Volume Scenario                                                               
     2006-2030                                                                                                                  
     [Bar graph  listing Cumulative Revenues of  the existing tax                                                               
     structure and of  different tax rates of a  PPT structure at                                                               
     certain prices as follows:                                                                                                 
          Status Quo:                                                                                                           
          $20 ANS WC Price     $2,095 million                                                                                   
          $40                   8,001 million                                                                                   
          $60                  12,496 million                                                                                   
          Gov 20/20:                                                                                                            
          $20 ANS WC Price    $   256 million                                                                                   
          $40                  15,587 million                                                                                   
          $60                  33,259 million                                                                                   
          Gov with 22.5/20:                                                                                                     
          $20 ANS WC Price    $   455 million                                                                                   
          $40                  18,120 million                                                                                   
          $60                  37,989 million                                                                                   
          Gov with 25/20:                                                                                                       
          $20 ANS WC Price    $   670 million                                                                                   
          $40                  20,654 million                                                                                   
          $60                  42,719 million]                                                                                  
                                                                                                                                
Mr. Dickinson qualified this  information was requested, although                                                               
it  does  not  reflect  the  provisions  of  the  Senate  Finance                                                               
Committee  substitute. Instead,  it  demonstrates  the effect  of                                                               
different PPT  tax percentage rates  under the provisions  of the                                                               
original version  of the  bill. While  revenues generated  from a                                                               
PPT structure would be greater  than revenues generated under the                                                               
existing tax  structure at  higher oil  prices, revenue  would be                                                               
less than the status quo at lower oil prices.                                                                                   
                                                                                                                                
4:28:30 PM                                                                                                                    
                                                                                                                                
     Cumulative Severance Tax Revenues under Governor's Bill as                                                                 
     Written, with 22.5/20, and with 25/20, High Volume Scenario                                                                
     2006/2050                                                                                                                  
     [Bar graph listing Cumulative Revenues of the existing tax                                                                 
     structure and of different tax rates of a PPT structure at                                                                 
     certain prices as follows:                                                                                                 
          Status Quo:                                                                                                           
          $20 ANS WC Price     $5,042 million                                                                                   
          $40                  12,947 million                                                                                   
          $60                  20,331 million                                                                                   
          Gov 20/20:                                                                                                            
          $20 ANS WC Price    $   129 million                                                                                   
          $40                  20,917 million                                                                                   
          $60                  54,907 million                                                                                   
          Gov with 22.5/20:                                                                                                     
          $20 ANS WC Price    $   207 million                                                                                   
          $40                  24,982 million                                                                                   
          $60                  63,208 million                                                                                   
          Gov with 25/20:                                                                                                       
          $20 ANS WC Price    $   285 million                                                                                   
          $40                  29,046 million                                                                                   
          $60                  71,509 million]                                                                                  
                                                                                                                                
Mr.  Dickinson  noted  this  chart presents  the  data  from  the                                                               
previous chart, although for a high volume scenario.                                                                            
                                                                                                                                
4:28:52 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  requested information regarding  distribution of                                                               
future  cash  flows  under the  provisions  of  this  legislation                                                               
utilizing a 25 percent tax rate and 25 percent credit rate.                                                                     
                                                                                                                                
Senator Bunde  added a request  for this information  utilizing a                                                               
22.5 tax rate and 25 percent credit rate.                                                                                       
                                                                                                                                
4:29:53 PM                                                                                                                    
                                                                                                                                
Senator  Stedman  requested  a comparison  of  the  progressivity                                                               
provision  under consideration  in the  House of  Representatives                                                               
applied to  the Senate Finance  Committee substitute,  similar to                                                               
the  comparison created  by the  consultant  to the  legislature,                                                               
EconOne.  He asked  that  this information  be  presented in  one                                                               
chart.                                                                                                                          
                                                                                                                                
4:31:04 PM                                                                                                                    
                                                                                                                                
Senator Bunde  and Co-Chair Green  thanked Mr. Dickinson  and Ms.                                                               
Nienhuis for their efforts in preparing this presentation.                                                                      
                                                                                                                                
Co-Chair  Green announced  that  possible changes  to the  Senate                                                               
Finance  Committee   substitute  should   be  prepared   for  the                                                               
following hearing on this bill.                                                                                                 
                                                                                                                                
AT EASE 4:31:34 PM / 4:32:13 PM                                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Lyda Green adjourned the meeting at 4:32:10 PM                                                                       

Document Name Date/Time Subjects