Legislature(2017 - 2018)SENATE FINANCE 532

03/27/2017 09:00 AM Senate FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
09:08:15 AM Start
09:11:22 AM Confirmation Hearing: Alaska Gasline Development Corporation Board - David Wight, Hugh Short, and Warren Christian
10:21:37 AM SB25
10:58:48 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearings: TELECONFERENCED
Alaska Gasline Development Corporation
David Wight
Hugh Short
Warren Christian
Heard & Held
<Bill Hearing Canceled>
<Pending Introduction & Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                      March 27, 2017                                                                                            
                         9:08 a.m.                                                                                              
9:08:15 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  MacKinnon  called  the  Senate  Finance  Committee                                                                    
meeting to order at 9:08 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Mike Dunleavy                                                                                                           
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Natasha von Imhof                                                                                                       
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Hugh Short, Appointee;  Warren Christian, Appointee; Randall                                                                    
Hoffbeck, Commissioner, Department  of Revenue; Mark Luiken,                                                                    
Commissioner,  Department   of  Transportation   and  Public                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
David Wight,  Appointee; Fred Sturman, Self,  Soldotna; Jeff                                                                    
Wafford, UPS,  Louisville, KY; Dana DeBell,  Delta Airlines,                                                                    
Los Angeles;  Fred Sturman,  Self, Soldotna;  Aves Thompson,                                                                    
Alaska Trucking Association, Anchorage.                                                                                         
SB 25     MOTOR FUEL TAX; TRANSPORTATION MAINT. FUND                                                                            
          SB 25 was HEARD and HELD in committee for further                                                                     
CONFIRMATION    HEARING:    ALASKA    GASLINE    DEVELOPMENT                                                                    
CORPORATION BOARD                                                                                                               
Co-Chair Hoffman  remarked about the public  hearing process                                                                    
as it related to education  funding. He said that the public                                                                    
should  be  aware  that  the  senate  intended  to  cut  the                                                                    
education  budget   by  5   percent  regardless   of  public                                                                    
testimony. He  said that the  public hearing was  closed and                                                                    
the item  would not  be reopened.  He shared  that lawmakers                                                                    
could provide  amendments, which could be  considered in the                                                                    
operating budget, but  reiterated that the intent  was to go                                                                    
through with the 5 percent cut.                                                                                                 
Co-Chair MacKinnon  interjected that  letters on  the matter                                                                    
could be submitted to the committee via email.                                                                                  
9:11:22 AM                                                                                                                    
^CONFIRMATION    HEARING:    ALASKA   GASLINE    DEVELOPMENT                                                                  
CORPORATION  BOARD -  DAVID WIGHT,  HUGH  SHORT, and  WARREN                                                                  
9:11:56 AM                                                                                                                    
DAVID WIGHT,  APPOINTEE (via teleconference),  discussed his                                                                    
qualifications   for   the    Alaska   Gasline   Development                                                                    
Corporation  board.  He  stated  that he  had  a  degree  in                                                                    
petroleum engineering and had  worked in the energy industry                                                                    
for 41 years.  He said that half of his  industry career was                                                                    
related  to  gas  processing  and  development.  He  further                                                                    
discussed his resume (copy on file).                                                                                            
9:14:05 AM                                                                                                                    
Vice-Chair  Bishop asked  for Mr.  Wight's  opinion on  debt                                                                    
versus equity  financing for the state's  proposed liquefied                                                                    
natural gas (LNG) project.                                                                                                      
Mr. Wight thought that the  financing would be determined by                                                                    
the  market.  He believed  that  the  project required  some                                                                    
equity investment  by the  state, but he  could not  say the                                                                    
level. He thought  that the purchasers, the  market, and the                                                                    
financers  would  look  to a  commitment  from  the  primary                                                                    
9:16:05 AM                                                                                                                    
Senator  von Imhof  referred to  the  state investment,  and                                                                    
wondered where Mr. Wight thought the funds would be found.                                                                      
Mr.  Wight  acknowledged  the   state's  budget  and  income                                                                    
challenges, and  expressed that  the government  of Trinidad                                                                    
and Tobago  was much in  the same position. The  country had                                                                    
relied on  investment banks to  provide capital.  He thought                                                                    
that the  project was still  possible, and that  all avenues                                                                    
would be  explored that  would result  in a  minimum capital                                                                    
investment from the state.                                                                                                      
9:18:00 AM                                                                                                                    
Vice-Chair Bishop  asked Mr. Wight about  his top priorities                                                                    
for the board for the upcoming year.                                                                                            
Mr.  Wight thought  it was  important to  improve investment                                                                    
efficiency and cost structure. He  believed that the project                                                                    
size  compared  to the  volume,  timing,  and price  of  the                                                                    
market  would need  to  be considered.  He  stated that  the                                                                    
financing  of big  projects  was never  easy.  He said  that                                                                    
Federal  Energy  Regulatory  Commission  (FERC)  filing  and                                                                    
negotiations about plant size would need to take place.                                                                         
9:20:16 AM                                                                                                                    
Senator  Dunleavy   asked  whether  there  were   any  other                                                                    
projects  that were  similar to  the project  structure that                                                                    
the administration had proposed.                                                                                                
Mr. Wight  thought there had  been many  foreign governments                                                                    
that  had  decided to  own  facilities  rather than  another                                                                    
9:21:31 AM                                                                                                                    
Senator  Dunleavy  asked  for   specific  names  of  foreign                                                                    
Mr. Wight cited Qatar and Indonesia.                                                                                            
9:22:17 AM                                                                                                                    
Senator Dunleavy  asked whether the approaches  of Qatar and                                                                    
Indonesia  were  similar  to   the  model  proposed  by  the                                                                    
Mr.  Wight  replied  that  he  was  unable  to  definitively                                                                    
determine whether the same model was being used.                                                                                
Co-Chair MacKinnon thought that  the question could be posed                                                                    
to  a subsequent  testifier who  was serving  on the  Alaska                                                                    
Gasline Development Corporation (AGDC) board.                                                                                   
Senator Dunleavy answered in the affirmative.                                                                                   
9:23:20 AM                                                                                                                    
Senator Micciche noted that the  two models mentioned by Mr.                                                                    
Wight   had  significant   private  sector   investment.  He                                                                    
wondered whether Mr.  Wight planned to pursue the  idea of a                                                                    
state owned and controlled project.                                                                                             
Mr. Wight explained that he  had spent his career with major                                                                    
companies   and  had   been   involved   in  major   capital                                                                    
investments  throughout  the  world. He  believed  that  the                                                                    
project should be  a priority for the state and  that it was                                                                    
appropriate  for the  state to  take a  leadership role.  He                                                                    
explained  that the  state's  capital  investment should  be                                                                    
minimal, but big  enough to drive the project  with the rest                                                                    
of the investors.                                                                                                               
9:27:49 AM                                                                                                                    
Senator Micciche  asserted that  private entities  were more                                                                    
efficient   than  governments   when  it   came  to   making                                                                    
investments.  He  wondered  how the  board  could  encourage                                                                    
efficiency  in investment  when it  was itself  a government                                                                    
entity and therefore prone to thoughtless spending.                                                                             
Mr. Wight thought that AGDC could  act for the estate in the                                                                    
same capacity as  a large private company.  He believed that                                                                    
the  biggest challenges  facing the  project were  the size,                                                                    
price, and environment. But he was optimistic.                                                                                  
9:30:15 AM                                                                                                                    
Senator  Dunleavy discussed  past legislation  pertaining to                                                                    
the gasline. He  noted that in 2016 the 3  majors had backed                                                                    
out  of  the project  because  it  did  not fit  into  their                                                                    
portfolios. He wondered  whether the 3 majors  would be part                                                                    
of  the   project  moving  forward   if  Alaska   were  more                                                                    
Mr. Wight contended that the  parties never felt the project                                                                    
was uneconomic. He referred to  his over 40 years of working                                                                    
with major oil companies. He  spoke to the company's limited                                                                    
capital and  the reality of  having to  prioritize projects.                                                                    
He  said that  if the  state wanted  to see  if the  project                                                                    
could be successful someone had to take a leadership role.                                                                      
9:33:05 AM                                                                                                                    
Mr. Wight discussed gas resources  in Trinidad and Tobago as                                                                    
they related  to the proposed Alaska  gasline. He reiterated                                                                    
that what the project needed was strong leadership.                                                                             
9:35:19 AM                                                                                                                    
Co-Chair MacKinnon thanked Mr.  Wight and invited Hugh Short                                                                    
to the testifier microphone.                                                                                                    
9:35:52 AM                                                                                                                    
HUGH SHORT, APPOINTEE, discussed  his qualifications for the                                                                    
position  and offered  biographical and  employment history,                                                                    
as  well as  his experience  working on  the board  (copy on                                                                    
file). He  agreed with previous  testimony that  the project                                                                    
faced challenges, and he relayed  that the board had spent a                                                                    
significant  amount   of  time   building  a   coalition  of                                                                    
investors,  which included  ConocoPhillips,  Exxon, BP,  and                                                                    
the  state. He  said  that the  extended commodity  downturn                                                                    
throughout 2016 had put a  significant amount of pressure on                                                                    
each of those companies  globally and locally. He reiterated                                                                    
the challenges to  the project that were  highlighted by Mr.                                                                    
9:39:57 AM                                                                                                                    
Mr. Short  said that the  project finance model  attached to                                                                    
the  project involved  government participation.  He relayed                                                                    
that  the previous  model had  been an  equity model,  where                                                                    
each  partner  put  in  25  percent.  He  related  that  the                                                                    
currently project  finance model meant that  the state would                                                                    
contribute  equity  to  the  project  and  would  build  the                                                                    
project with the  help of investment partners.  He said that                                                                    
the model  would align the  cost of capital over  the entire                                                                    
project,  versus each  company  having their  own return  on                                                                    
equity. The model  would also reduce the cost  and return of                                                                    
the project, and could have some tax advantages.                                                                                
9:41:57 AM                                                                                                                    
Senator  Dunleavy commented  that  there was  about $100  to                                                                    
$110  million  left in  the  accounts  for the  project.  He                                                                    
thought  there  were  many   Alaskans  that  questioned  the                                                                    
viability of the  project. He wondered whether  the money in                                                                    
the account  should be used  to further the project  at this                                                                    
Mr.  Short relayed  that the  state had  spent approximately                                                                    
$175  million in  the  pursuit  of a  FERC  license for  the                                                                    
Susitna-Wantana  hydro project.  He  said that  AEA and  the                                                                    
state  were $75  million away  from completing  a full  FERC                                                                    
license when the decision was  made to not move forward with                                                                    
the project  and not fund  the remaining FERC work.  He felt                                                                    
that the state  could have had an asset in  the FERC license                                                                    
that could  have been sold,  and he lamented that  the state                                                                    
could  have made  money from  the  hydroelectric plant,  but                                                                    
instead  lost the  invested money.  He  likened the  gasline                                                                    
project to the Susitna-Wantana  project. He felt that having                                                                    
a license  in hand  would be  reflected as  an asset  on the                                                                    
state's books. He felt that it  would be foolish to not move                                                                    
forward  with the  FERC licensing  process  for the  gasline                                                                    
9:46:35 AM                                                                                                                    
Vice-Chair Bishop asked whether  the AGDC budget would cover                                                                    
the  cost   of  completing   the  FERC  license,   or  would                                                                    
additional appropriations be expected.                                                                                          
Mr. Wight  thought that  the current  budget would  get AGDC                                                                    
through the FERC process.                                                                                                       
9:47:21 AM                                                                                                                    
Co-Chair MacKinnon asked  what how much of  the $100 million                                                                    
in state assets AGDC expected to spend in FY18.                                                                                 
Mr. Short did  not have the information at  hand, but agreed                                                                    
to provide greater detail at a later time.                                                                                      
9:47:58 AM                                                                                                                    
Senator Micciche  commented that there were  LNG projects in                                                                    
the U.S.  that had  done the  entire permitting  process for                                                                    
under  $100 million.  He asked  whether the  transparency of                                                                    
the board  with the  legislature would  be an  objective for                                                                    
Mr. Short.                                                                                                                      
Mr.  Short answered  in the  affirmative.  He lamented  that                                                                    
over the  last 9 months  the board had been  in negotiations                                                                    
with project  partners over 4  key agreements.  He expressed                                                                    
frustration over  the amount of  information that had  to be                                                                    
discussed in  executive session,  and he said  he understood                                                                    
that the  executive sessions had irritated  the legislature.                                                                    
He said that his goal for  the future was to limit executive                                                                    
sessions to  a minimal amount. He  relayed that transparency                                                                    
was  one  of  the  board's biggest  challenges  because  the                                                                    
project   was    shrouded   in    multiple   confidentiality                                                                    
agreements.  He  said  that  transparency  was  the  board's                                                                    
biggest priority.                                                                                                               
9:50:35 AM                                                                                                                    
Senator  Micciche queried  the  criteria AGDC  would use  to                                                                    
determine whether  the project was economical  or whether it                                                                    
should be killed.                                                                                                               
Mr.  Short  stated that  AGDC  was  structured to  give  the                                                                    
governor  the  ability  to hire,  and  the  legislature  the                                                                    
ability to  retain or fire,  board members. He said  that he                                                                    
had worked to serve  independent and apolitically. He feared                                                                    
that things  could be politicized  and that  decisions would                                                                    
be made based on the wrong  criteria. He thought that if the                                                                    
current board  felt that the  project was not  feasible, and                                                                    
was not an effective use  of resources, the project would be                                                                    
shut down.                                                                                                                      
9:54:10 AM                                                                                                                    
Senator von  Imhof echoed the  comments of  Senator Micciche                                                                    
and thanked  Mr. Short  for his  service. She  discussed the                                                                    
FERC license  as a milestone,  and wondered if there  was an                                                                    
expiration  date  on  the suite  of  permits.  She  wondered                                                                    
whether  the demand  for the  supplied product  would change                                                                    
within the lifetime of the FERC permit.                                                                                         
Mr. Short  could not speak  to a specific expiration  of the                                                                    
FERC  license. He  said that  the state  of Alaska  had been                                                                    
pursuing the project for his  lifetime thus far, and had not                                                                    
achieved the FERC license or  induced any buyers. He thought                                                                    
that achieving a  FERC license and continuing  to attempt to                                                                    
get gas from  the North Slope to tidewater  was an important                                                                    
9:56:48 AM                                                                                                                    
Senator von  Imhof agreed, as  long as the FERC  license was                                                                    
transferrable.  She thought  clearly global  economics would                                                                    
determine the future of the project.                                                                                            
9:57:28 AM                                                                                                                    
Co-Chair  MacKinnon asked  who Mr.  Short thought  should be                                                                    
responsible for the marketing of Alaska's natural gas.                                                                          
Mr.  Short replied  that AGDC  played an  important role  in                                                                    
communicating with the market.  He listed the various reason                                                                    
why  the   project  was  exciting.  He   believed  that  the                                                                    
marketing of  Alaska's gas  rested on  the shoulders  of the                                                                    
State of Alaska.                                                                                                                
9:59:11 AM                                                                                                                    
Co-Chair  MacKinnon  referred  to initial  legislation  that                                                                    
contemplated  DNR as  a possible  marketer of  the gas.  She                                                                    
understood that  Mr. Short believed  that AGDC should  be in                                                                    
charge of marketing Alaska's gas.                                                                                               
Mr.  Short  responded   that  DNR  and  AGDC   had  been  in                                                                    
conversation about  streamlining the  process of  gas sales.                                                                    
He felt  that the biggest  challenge the board faced  was to                                                                    
be more  efficient. He said that  if AGDC and DNR  needed to                                                                    
craft  a cooperative  agreement  to be  able to  efficiently                                                                    
tackle  the  task  to  get to  market,  while  maintain  the                                                                    
discipline of DNR negotiating the  deal, then that should be                                                                    
the process that was pursued.                                                                                                   
10:00:32 AM                                                                                                                   
Co-Chair MacKinnon asked who  would benefit from competition                                                                    
in the  scenario under which  all the project  partners sold                                                                    
gas in the global market with all eyes focused on Asia.                                                                         
Mr.  Short  felt that  one  of  the biggest  challenges  was                                                                    
determining whether  to sell gas  through a  joint marketing                                                                    
agreement with our partners, or  under independent sales. He                                                                    
lamented that  it had  been difficult  to negotiate  a joint                                                                    
marketing  agreement with  four  separate  parties. He  said                                                                    
that at the  end of the day each gas  seller and buyer would                                                                    
have to negotiate a deal  and common economics would dictate                                                                    
that the  pricing would be  similar. He felt that  the state                                                                    
would benefit  if some level  of production and sale  of gas                                                                    
could be induced.                                                                                                               
10:02:31 AM                                                                                                                   
Co-Chair  MacKinnon asked  if one  was a  natural gas  buyer                                                                    
such as  Asia or China,  would the  price be better  of less                                                                    
people were marketing gas in Alaska.                                                                                            
Mr. Short  was unsure whether  there was an  absolute answer                                                                    
to the  question. He thought  that the cost  structure would                                                                    
dictate  the  available margin.  He  said  that the  buyer's                                                                    
ability to negotiate significantly  different deals based on                                                                    
the  same source  of gas  would  be limited  because of  the                                                                    
underlying cost structure of the entire infrastructure.                                                                         
10:04:01 AM                                                                                                                   
Co-Chair MacKinnon  hoped that someone could  explain to why                                                                    
putting more gas, from a  fourth seller, would be beneficial                                                                    
to the  state. She thought  that companies that  already had                                                                    
marketing potential in other regions  and nations would have                                                                    
an easier time at selling than the state.                                                                                       
Co-Chair MacKinnon thanked Mr. Short for his service.                                                                           
10:05:03 AM                                                                                                                   
AT EASE                                                                                                                         
10:05:49 AM                                                                                                                   
Co-Chair MacKinnon informed that  the committee would not be                                                                    
taking public testimony on the confirmations.                                                                                   
10:06:26 AM                                                                                                                   
WARREN  CHRISTIAN, APPOINTEE,  discussed his  qualifications                                                                    
for the Alaska Gasline  Development Corporation (AGDC) Board                                                                    
(copy on file).                                                                                                                 
10:08:25 AM                                                                                                                   
Vice-Chair  Bishop   asked  how  many  board   meetings  Mr.                                                                    
Christian had attended thus far.                                                                                                
Mr.  Christian specified  that he  had attended  all of  the                                                                    
board meetings that had been held since his appointment.                                                                        
Vice-Chair Bishop  asked whether Mr. Christian  had seen any                                                                    
opportunity  to bring  suggestions to  the project  to lower                                                                    
project costs.                                                                                                                  
Mr. Christian  stated that the  management team  had engaged                                                                    
him  in the  FERC process,  through which  he believed  cost                                                                    
reductions would be realized.  He said that permitting often                                                                    
increased the cost  of a project, but that he  could work to                                                                    
lower the permitting costs.                                                                                                     
10:09:45 AM                                                                                                                   
Senator  Dunleavy asked  whether  the goal  of  AGDC was  to                                                                    
receive a FERC license or  to determine the viability of the                                                                    
Mr. Christian opined that the  FERC process was critical. He                                                                    
said that the  FERC permit would be viable  for three years,                                                                    
after which there was a  possibility of extension. He stated                                                                    
that the third  party tolling and third  party financing, as                                                                    
well  as   the  federal  tax  exemption   because  of  state                                                                    
ownership, would  be beneficial  to the project.  He relayed                                                                    
that AGDC would  be returning to the legislature  to ask for                                                                    
additional  funding  because  the budget  only  covered  the                                                                    
project  through FY  18, and  the FERC  permit would  not be                                                                    
procured by that deadline.                                                                                                      
10:12:18 AM                                                                                                                   
Senator  Olson expressed  concern that  the project  was not                                                                    
being efficiently  handled. He worried that  the board would                                                                    
not  have  the  self-discipline  to cancel  the  project  if                                                                    
necessary. He  lamented that the  state had  poured millions                                                                    
of dollars into projects that had so far proved fruitless.                                                                      
Mr. Christian agreed with Senator  Micciche that there was a                                                                    
difference  between state  ownership and  state control.  He                                                                    
was  not in  favor  of  the state  running  anything in  the                                                                    
private sector.  He considered that  the method by  which it                                                                    
was possible to  determine if the project was  viable was to                                                                    
determine   whether   the   model   could   no   longer   be                                                                    
substantiated.  He did  not  think the  state  was ready  to                                                                    
discontinue the  project. He believed that  the FERC process                                                                    
should be continued to completion.                                                                                              
10:16:30 AM                                                                                                                   
Co-Chair MacKinnon asked Mr. Christian  who he though should                                                                    
be selling Alaska's natural gas.                                                                                                
Mr.  Christian thought  the reasonability  of marketing  the                                                                    
gas belonged  to DNR,  he added  that the  responsibility of                                                                    
marketing the project lie with AGDC.                                                                                            
10:17:12 AM                                                                                                                   
AT EASE                                                                                                                         
10:17:34 AM                                                                                                                   
FRED   STURMAN,   SELF,   SOLDOTNA   (via   teleconference),                                                                    
commented on  the AGDC  confirmations. He  expressed support                                                                    
for Mr. Short. He testified  that that the project should be                                                                    
10:19:32 AM                                                                                                                   
Vice-Chair  Bishop  FORWARDED   the  appointments  of  David                                                                    
Wight, Hugh Short,  and Warren Christian to  a Joint Session                                                                    
for  consideration in  accordance  with  Alaska Statute.  He                                                                    
relayed that  this did not  reflect an intent by  any member                                                                    
Senate  Finance  Committee  to   vote  for  or  against  the                                                                    
confirmation   of  the   individuals   during  any   further                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
10:20:14 AM                                                                                                                   
AT EASE                                                                                                                         
10:21:29 AM                                                                                                                   
SENATE BILL NO. 25                                                                                                            
     "An Act relating to the motor fuel tax; relating to                                                                        
     the disposition of revenue from the motor fuel tax;                                                                        
     relating  to  a  transportation maintenance  fund;  and                                                                    
     providing for an effective date."                                                                                          
10:21:37 AM                                                                                                                   
Co-Chair MacKinnon OPENED public testimony.                                                                                     
10:22:10 AM                                                                                                                   
JEFF WAFFORD, UPS, LOUISVILLE, KY (via teleconference),                                                                         
testified in opposition to SB 25. He discussed the impact                                                                       
the bill would have on UPS (copy on file):                                                                                      
     Thank you  for the opportunity to  provide testimony on                                                                    
     the  proposed Motor  Fuel Tax  Bill and  the impact  it                                                                    
     could have  on UPS and  the air cargo industry.  UPS is                                                                    
     one of several in our  industry that oppose an increase                                                                    
     in  the tax  on  jet fuel.  UPS  appreciates the  long-                                                                    
     standing  working   relationship  with  the   State  of                                                                    
     Alaska. We  have more than  1,100 employees  in Alaska,                                                                    
     including 489 pilots who are domiciled here.                                                                               
     Traditionally, Alaska  has played an important  role in                                                                    
     UPS's  global   reach;  not  only  do   we  deliver  to                                                                    
     thousands of  customers daily, but Anchorage  serves as                                                                    
     our gateway to the  Asia-Pacific region. Anchorage also                                                                    
     serves as the training  location for our Representative                                                                    
     Doogan-11 and 747 fleets.                                                                                                  
     UPS located in Alaska  because of the business-friendly                                                                    
     climate created by elected leadership.  We pay close to                                                                    
     $6 million in general and  aviation taxes here, as well                                                                    
     as approximately $7.2 million  in landing fees annually                                                                    
     to cover costs at airports.  We have also invested into                                                                    
     the local area, spending  millions on a flight training                                                                    
     center  that   celebrated  its  tenth   anniversary  in                                                                    
     Anchorage last year.                                                                                                       
     We sympathize  with the situation  you are  faced with.                                                                    
     We also  understand that the  budget outlook  in Alaska                                                                    
     for  future  years in  sunder  a  tremendous amount  of                                                                    
     scrutiny  given the  lower  price of  oil  and what  it                                                                    
     means to the budget of Alaska.                                                                                             
     UPS  is in  a unique  situation  as it  related to  the                                                                    
     proposed  motor fuel  tax bill.  First,  UPS faces  the                                                                    
     risk of  higher taxes on two  different business units;                                                                    
     ground in the  form of the motor fuel  tax increase and                                                                    
     air in the form of  the increased jet fuel tax. Second,                                                                    
     UPS actually  supports the increase  in the  motor fuel                                                                    
     tax as  it is a  pure user fee.  UPS uses most,  if not                                                                    
     all, of  the reads in  Alaska and we believe  we should                                                                    
     pay into maintenance of that infrastructure.                                                                               
     However, we oppose the jet fuel  tax as it's not a user                                                                    
     fee. UPS  and other airlines  already pay user  fees to                                                                    
     airports  in  terms of  landing  fees.  As I  mentioned                                                                    
     earlier, we  pay roughly $7.2  million in  landing fees                                                                    
     to the  Alaska International Airport System  each year.                                                                    
     AIAS  is self-sustaining  and  requires  little if  any                                                                    
     state funding as the  passenger and commercial airlines                                                                    
     pay   for   operational  support   and   infrastructure                                                                    
     In fact, the AIAS is  thriving, and making an important                                                                    
     economic  impact  on  the state.  According  to  a  DOT                                                                    
     study,  the AIAS  accounts for  17,000 jobs,  including                                                                    
     one in  ten jobs  in Anchorage  and one  in 20  jobs in                                                                    
     Increasing  the   jet  fuel  tax  also   increases  the                                                                    
     indirect  subsidy  to  airports   where  there  are  no                                                                    
    landing fees and which UPS does not regularly use.                                                                          
     UPS does contract with carriers  to deliver packages to                                                                    
     airports outside of the AIAS,  but this is on a minimal                                                                    
     basis,  and UPS  is already  paying jet  fuel taxes  on                                                                    
     domestic  flights to  subsidize  those airports,  along                                                                    
     with  fees to  the  contracted carriers  for any  costs                                                                    
     they may incur.                                                                                                            
     In  addition,  UPS, Delta,  and  other  members of  the                                                                    
     aviation   community,  including   those  involved   in                                                                    
     Airlines   for   America   and   the   Cargo   Airlines                                                                    
     Association, are concerned  that targeting the aviation                                                                    
     industry  for   a  budget   shortfall  could   cause  a                                                                    
     reduction on cargo and commercial flights to Alaska.                                                                       
     This  increase could  also  cause  an accelerated  push                                                                    
     toward  dependence on  newer aircraft  that can  bypass                                                                    
     Anchorage, as  at least one  cargo carrier  had started                                                                    
     to do already.                                                                                                             
     A  decrease in  the  number of  flights raises  further                                                                    
     concerns,   including  the   potential  of   diminished                                                                    
     investments in  infrastructure if not as  many airlines                                                                    
     are paying  into the aviation fund  through fuel taxes.                                                                    
     As  it  stands,   cargo-related  revenues  account  for                                                                    
     nearly  two-thirds of  AIAS revenues.  If higher  costs                                                                    
     cause carriers to fly  elsewhere, this could indirectly                                                                    
     lead to either a reduction  on revenues, or lead to the                                                                    
     remaining carriers  having to pay more  into the system                                                                    
     to account for those who bypass Alaska.                                                                                    
     Again, UPS empathizes with the  state of Alaska and its                                                                    
     budget  deficit. We  appreciate  the partnership  we've                                                                    
     had here  and the growth-friendly environment  that has                                                                    
     allowed UPS  to operate here  over many years.  We hope                                                                    
     that  you will  greatly  consider  the consequences  of                                                                    
     what an  increase in the jet  fuel tax can mean  to the                                                                    
     great state of Alaska.                                                                                                     
10:27:29 AM                                                                                                                   
DANA    DEBELL,   DELTA    AIRLINES,   LOS    ANGELES   (via                                                                    
teleconference),  testified  in  opposition to  SB  25.  She                                                                    
relayed that  Delta currently operated 17,  peak day flights                                                                    
to Alaska into Anchorage  and Fairbanks, where they operated                                                                    
year  round,   and  seasonally   into  Juneau,   Sitka,  and                                                                    
Ketchikan. She  expressed concern that the  increased income                                                                    
tax would  make an already  tough environment to  operate in                                                                    
even more  challenging. She expounded  on the  benefits that                                                                    
Delta doing  business in  Alaska brought  to the  state. She                                                                    
asserted that  the tax increase  would compound  the already                                                                    
challenging   competitive  environment.   She  shared   that                                                                    
through  the connection  to Delta  hubs  in various  cities,                                                                    
Alaska was only one-stop away  from over 600 destinations on                                                                    
5  continents. She  reiterated that  it was  a challenge  to                                                                    
operate profitably in Alaska.                                                                                                   
10:30:49 AM                                                                                                                   
FRED   STURMAN,   SELF,   SOLDOTNA   (via   teleconference),                                                                    
testified in  opposition to the  bill. He  expressed concern                                                                    
for the  budget shortfall in his  area of the state  and the                                                                    
subsequent  job  losses.  He did  not  believed  that  taxes                                                                    
should be implemented until further budget cuts were made.                                                                      
10:33:45 AM                                                                                                                   
AVES THOMPSON,  ALASKA TRUCKING ASSOCIATION,  ANCHORAGE (via                                                                    
teleconference), spoke in support  of the bill. He expressed                                                                    
support  the development  of a  balanced, durable,  and long                                                                    
term  fiscal plan  that utilized  cuts to  state government,                                                                    
use of permanent  funds earnings, and taxes  if required. He                                                                    
believed  that  the  tax proposed  in  the  legislation  was                                                                    
acceptable within the framework of  a long term fiscal plan.                                                                    
He  thought  that action  was  critical  during the  current                                                                    
legislative session. He said  that the association supported                                                                    
a  motor  tax  increase  if  the  funds  were  dedicated  to                                                                    
transportation needs.  He stated that the  trucking industry                                                                    
paid 45  percent of the  state motor fuel tax.  He suggested                                                                    
that  intent  language could  be  added  that would  make  a                                                                    
commitment to a highway fuel  tax account that could be used                                                                    
for roads and bridges. He hoped  that the uses of the Public                                                                    
Transportation Fund  could be  reined in  so that  the funds                                                                    
could  be  directed  toward transportation  maintenance.  He                                                                    
relayed that he supported the  change made by the house that                                                                    
extended the  implementation date to  $.08 in 2017,  and the                                                                    
same in 2019.                                                                                                                   
10:37:13 AM                                                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
10:37:45 AM                                                                                                                   
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
discussed the  presentation, "State of Alaska  Department of                                                                    
Revenue: SB  25 - Motor Fuel  Tax," (copy on file).  He said                                                                    
that  the   presentation  contained  information   from  two                                                                    
departments,   revenue  and   transportation,  as   well  as                                                                    
sectional analysis and fiscal note information.                                                                                 
10:38:16 AM                                                                                                                   
Commissioner  Hoffbeck turned  to Slide  2, "Motor  Fuel Tax                                                                    
     "An Act  relating to  the motor  fuel tax;  relating to                                                                    
     the  disposition of  revenue from  the motor  fuel tax;                                                                    
     relating  to the  transportation maintenance  fund; and                                                                    
     providing for an effective date."                                                                                          
10:38:57 AM                                                                                                                   
Commissioner  Hoffbeck  showed  Slide  3,  "Motor  Fuel  Tax                                                                    
     · Began in 1945                                                                                                            
     · Tax rates have increased over time, but structure                                                                        
        · Last increase: highway 1970, marine 1977,                                                                             
          aviation fuel 1994                                                                                                    
     · Tax was suspended from Sept. 1, 2008, to Aug. 31,                                                                        
     · In 2015, HB 158 added $0.0095 surcharge on                                                                               
     · motor fuels and some other refined fuels                                                                                 
        · Intended for spill prevention and response fund                                                                       
10:39:55 AM                                                                                                                   
Commissioner  Hoffbeck discussed  Slide  4, "Relative  Motor                                                                    
Fuel Tax Rate":                                                                                                                 
    · Alaska's fuel taxes are among lowest in U.S. (1)                                                                          
          o Highway fuel: lowest and the longest time since                                                                     
          o Jet fuel: 35thout of 50                                                                                             
          o Aviation gas: 24thout of 50                                                                                         
     · Under this bill, Alaska taxes would be:                                                                                  
          o Below national average for highway fuel                                                                             
          o Above national average for jet/aviation fuel                                                                        
   (1)Per Institute on Taxation and Economic Policy 2017                                                                        
   No comprehensive data for other states' marine fuel                                                                          
   However, we believe that in most states the "marine" rate                                                                    
   is the "highway" rate.                                                                                                       
   Therefore, our "marine" rate is likely also one of the                                                                       
   lowest in the country.                                                                                                       
10:41:51 AM                                                                                                                   
Commissioner  Hoffbeck turned  to Slide  5, "Motor  Fuel Tax                                                                    
Proposal," which  showed a table  that reflected  the change                                                                    
in  rates over  time under  the bill.  The current  price of                                                                    
highway fuel was $.08, and was  expected to go up 50 $.16 on                                                                    
July 1,  2017, and $.24 on  July 1, 2018. The  current price                                                                    
of marine fuel  was $.05, and was expected to  go up to $.10                                                                    
on  July 1,  2017, and  $.24 on  July 1,  2018. The  current                                                                    
price of  jet fuel was $.032,  and was expected to  go up to                                                                    
$.064  on July  1,  2017 and  $.096 on  July  1, 2018.  They                                                                    
current "off road use' credit  was -$.06 and was expected to                                                                    
change to -$.12 in July 2017, and -$.18 in July 2018.                                                                           
10:42:42 AM                                                                                                                   
Commissioner  Hoffbeck displayed  Slide 6,  "Motor Fuel  Tax                                                                    
Impacts  (examples),"  which  showed a  table  that  offered                                                                    
several examples of how the prices would affect Alaskans.                                                                       
10:44:25 AM                                                                                                                   
Commissioner  Hoffbeck moved  to  Slide  7, "Disposition  of                                                                    
     · Creates "Transportation Maintenance Fund" as a new                                                                       
        fund within the General Fund.                                                                                           
          o Aviation fuel taxes are other funds (dedicated                                                                      
             as required for participation in a federal                                                                         
             program) under current law                                                                                         
          o HB 60 moves taxes on highway and marine fuel                                                                        
             from Undesignated General Fund to Designated                                                                       
             General Fund for budgeting                                                                                         
          o Creates confidence that revenues from motor                                                                         
             fuel will be used to build and maintain                                                                            
             transportation infrastructure                                                                                      
Commissioner Hoffbeck said that  people were more willing to                                                                    
pay  a tax  when they  were given  assurances that  the fund                                                                    
would  support  the infrastructure  for  which  the tax  was                                                                    
being collected. He related that  though the funds could not                                                                    
be dedicated,  a designated fund structure  would be created                                                                    
within the  general fund.  [He noted  that the  slide should                                                                    
reflect SB 25, not HB 60.]                                                                                                      
10:45:24 AM                                                                                                                   
Senator Micciche asked how the  funds would be accounted for                                                                    
in the budgetary process.                                                                                                       
Commissioner Hoffbeck stated that the  money would be set in                                                                    
separate  funds:  aviation,  marine, and  highway,  and  the                                                                    
money to  fund the services  for those areas would  be drawn                                                                    
from the fund  first. He said supplemental  funds would come                                                                    
from other general funds sources.                                                                                               
Senator   Micciche  asked   whether  Commissioner   Hoffbeck                                                                    
envisioned earmarking the funds.                                                                                                
Commissioner Hoffbeck answered in the affirmative.                                                                              
10:46:39 AM                                                                                                                   
Senator  von  Imhof  wondered  whether  there  had  been  an                                                                    
analysis done on how the  increase would affect the fees and                                                                    
taxes already paid to the state by large jet airlines.                                                                          
Commissioner Hoffbeck  offered to provide a  report compiled                                                                    
by DOT that examined landing  fees and taxes associated with                                                                    
various airport operations in hub cities.                                                                                       
10:47:50 AM                                                                                                                   
Commissioner Hoffbeck spoke to Slide 8, "Revenue Impact":                                                                       
          o Additional revenue about $40 million first                                                                          
             year, $80 million per year thereafter                                                                              
               ƒ$0.4    million   will   be   shared   with                                                                    
                 municipal-owned airports                                                                                       
               ƒRemainder:    Transportation    maintenance                                                                    
                  fund, special accounts for road, water                                                                        
                  transport, and aviation facilities                                                                            
          o Estimates based on fall 2016 revenue forecast                                                                       
          o Does not account for changes in fuel demand or                                                                      
Commissioner   Hoffbeck  noted   that  approximately   $71.4                                                                    
million  would  come  from marine  and  highway  taxes,  and                                                                    
approximately  $9.3 million  from jet  fuel. He  shared that                                                                    
the  fall 2016  revenue forecast  assumed that  $370 million                                                                    
gallons of highway fuel would  be sold within the state, 120                                                                    
million gallons of  marine fuel, 130 million  gallons of jet                                                                    
fuel,  and 10  million gallons  of aviation  fuel. He  added                                                                    
that of  the 130 gallons  of jet  fuel that was  taxed there                                                                    
was  480 million  gallons that  were exempt  because of  the                                                                    
international flight exemption.                                                                                                 
10:49:05 AM                                                                                                                   
Co-Chair MacKinnon  clarified that  the tax was  proposed to                                                                    
collect $40 million additional dollars.                                                                                         
10:49:25 AM                                                                                                                   
Commissioner  Hoffbeck  addressed Slide  9,  "Implementation                                                                    
          o Dept. of Revenue must update:                                                                                       
               ƒTax Revenue Management System (TRMS)                                                                           
               ƒRevenue Online (ROL) which allows a                                                                            
                  taxpayer to file a return and apply for a                                                                     
                  dealer license online                                                                                         
               ƒTax return forms                                                                                               
          o One-time implementation cost of $50,000 to                                                                          
             recreate tax forms and reprogram and test the                                                                      
             tax system to accommodate the rate changes                                                                         
          o No additional costs to administer the tax                                                                           
Commissioner Hoffbeck qualified that  there was minimal cost                                                                    
associated with implementation of the tax.                                                                                      
10:49:59 AM                                                                                                                   
Co-Chair  Hoffman asked  which  airports in  the state  were                                                                    
municipally owned.                                                                                                              
Commissioner Hoffbeck  agreed to provide the  information at                                                                    
a later date.                                                                                                                   
Co-Chair  Hoffman  wondered  how much  the  average  Alaskan                                                                    
benefitted from the taxes on marine fuel.                                                                                       
Commissioner  Hoffbeck  deferred  the question  to  a  later                                                                    
10:51:09 AM                                                                                                                   
Vice-Chair  Bishop  understood  that   the  taxes  would  be                                                                    
collected at the wholesale level, and not the retail level.                                                                     
Commissioner Hoffbeck answered in the affirmative.                                                                              
Commissioner  Hoffbeck listed  the municipalities  that were                                                                    
receiving payments from the gas tax funds:                                                                                      
Venetie Tribal Government                                                                                                       
Thorne Bay                                                                                                                      
North Slope Borough                                                                                                             
Delta Junction                                                                                                                  
10:52:04 AM                                                                                                                   
Senator  Dunleavy  asked   requested  clarification  of  the                                                                    
definition of "off road use credit".                                                                                            
Commissioner Hoffbeck  explained that there was  a provision                                                                    
within  the   statute  that  allowed  users   to  apply  for                                                                    
reimbursement of  the tax  paid on  motor fuel  purchased in                                                                    
association  with the  highway tax  that was  used for  non-                                                                    
highway related purposes, such as a four-wheeler.                                                                               
Senator Dunleavy  surmised that  Alaskan's who used  the gas                                                                    
for their four wheelers could apply for the credit.                                                                             
Commissioner Hoffbeck answered in the affirmative.                                                                              
10:53:21 AM                                                                                                                   
Senator  Olson  wondered   whether  the  Origin  Destination                                                                    
exemption under  AS 43.40.100 would remain  intact under the                                                                    
Commissioner Hoffbeck  stated that  the bill did  not change                                                                    
the exemption in any way.                                                                                                       
Senator Olson  thought that the exemption  created an unfair                                                                    
advantage for carriers that traveled internationally.                                                                           
Commissioner  Hoffbeck replied  that  the justifiability  of                                                                    
the exemption  had been questioned.  He shared that  part of                                                                    
the  exemption  was  federally mandated;  if  a  flight  was                                                                    
leaving  Anchorage  or  Fairbanks   to  land  in  a  foreign                                                                    
destination it could  not be taxed. The  state had increased                                                                    
the exemption by  saying that if a flight  was arriving from                                                                    
a foreign destination it would  not be taxed, which expanded                                                                    
the  federally  required  exemption. He  admitted  that  the                                                                    
fairness  of  the  exemption  was   in  question,  but  that                                                                    
generating business was also a consideration.                                                                                   
10:55:35 AM                                                                                                                   
Senator  Olson wondered  if the  administration would  be in                                                                    
favor  of abolishing  the exemption,  in order  to create  a                                                                    
more equal playing field.                                                                                                       
Commissioner Hoffbeck said that  the economics of abandoning                                                                    
the   exemption  would   need   to  be   studied  before   a                                                                    
determination could be made.                                                                                                    
10:56:33 AM                                                                                                                   
MARK LUIKEN, COMMISSIONER,  DEPARTMENT OF TRANSPORTATION AND                                                                    
PUBLIC  FACILITIES,  referenced   the  presentation  "Alaska                                                                    
Department of Transportation and  Public Facilities - Senate                                                                    
Bill 25" (copy on file).                                                                                                        
Commissioner Luiken looked at Slide 2, "Scope":                                                                                 
          o This briefing addresses the Department of                                                                           
             Transportation & Public Facilities (DOT&PF)                                                                        
             operating budget.                                                                                                  
          o The funds generated by Alaska's Motor Fuel Tax                                                                      
             that   will   be    placed   in    the   Alaska                                                                    
             Transportation  Maintenance   Fund  (DGF/Other)                                                                    
             replace an equal amount of Unrestricted General                                                                    
             Funds  (UGF)   that  currently   fund  DOT&PF's                                                                    
             operating budget.                                                                                                  
              ƒUGF to DGF fund swap: $64.8M                                                                                    
               ƒUGF to Other fund swap (Aviation): $4.5M                                                                       
               ƒTotal fund swap: $69.3M                                                                                        
          o The budget components that are recipients of                                                                        
             the fuel tax revenue are the regional Highways                                                                     
             & Aviation components and the Alaska Marine                                                                        
             Highway System.                                                                                                    
SB 25 was HEARD and HELD in committee for further                                                                               
Co-Chair MacKinnon discussed housekeeping.                                                                                      
10:58:48 AM                                                                                                                   
The meeting was adjourned at 10:58 a.m.                                                                                         

Document Name Date/Time Subjects
SFC 2017 Confirmation Information Packet 2.pdf SFIN 3/27/2017 9:00:00 AM
Confirmations 2017
SB 25 Fuel Tax Letter to Governor Walker (FEB 2017) Asiana Airlines.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Alaska Fuel Letter Nippon Cargo Airlines.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Letter AtlasAirANC.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Supporting Document - DOR Presentation - 3.27.17.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB25 DOT Motor Fuel Tax Briefing - 27 March 2017.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 UPS Alaska Jet Fuel Tax Letter-Senate Finance Committee-March 27.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 DOTPF Response to Questions 3.29.2017.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 CAA Letter on AK Fuel Exemption and Fuel Tax.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Comparing Jet Fuel Taxes.docx SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 Atlas Air - International Fuel Tax Exemption.pdf SFIN 3/27/2017 9:00:00 AM
SB 25
SB 25 AIAS AAAC letter to Governor Walker 2-24-17.pdf SFIN 3/27/2017 9:00:00 AM
SB 25