Legislature(2021 - 2022)SENATE FINANCE 532

01/20/2022 09:00 AM Senate FINANCE

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09:00:38 AM Start
09:02:27 AM Presentation: Revenue Forecast - Department of Revenue
11:05:24 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Revenue Forecast, Department of Revenue TELECONFERENCED
Dan Stickel, Chief Economist
Colleen Glover - Tax Director
Brian Fechter - Deputy Commissioner
Bills Previously Heard/Scheduled
                  SENATE FINANCE COMMITTEE                                                                                      
                      January 20, 2022                                                                                          
                          9:00 a.m.                                                                                             
9:00:38 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stedman called the Senate Finance Committee                                                                            
meeting to order at 9:00 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Click Bishop, Co-Chair                                                                                                  
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lyman Hoffman (via teleconference)                                                                                      
Senator Donny Olson                                                                                                             
Senator Natasha von Imhof                                                                                                       
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Dan Stickel, Chief Economist, Economic Research Group, Tax                                                                      
Division, Department of Revenue.                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
Colleen Glover, Director, Tax Division, Department of                                                                           
PRESENTATION: REVENUE FORECAST - DEPARTMENT OF REVENUE                                                                          
Co-Chair Stedman noted that the committee heard the revenue                                                                     
forecast from the Department of Revenue (DOR) every year in                                                                     
the beginning of session. He remarked that //                                                                                   
^PRESENTATION: REVENUE FORECAST - DEPARTMENT OF REVENUE                                                                       
9:02:27 AM                                                                                                                    
DAN STICKEL,  CHIEF ECONOMIST, ECONOMIC RESEARCH  GROUP, TAX                                                                    
DIVISION, DEPARTMENT OF REVENUE,  relayed that he had worked                                                                    
with the state  for 2004, and had been in  the role of chief                                                                    
economist since 2016.                                                                                                           
Co-Chair   Stedman  commented   that  Senator   Hoffman  was                                                                    
available online. He discussed meeting protocol.                                                                                
9:03:32 AM                                                                                                                    
Mr.  Stickel  drew attention  to  an  announcement that  was                                                                    
released  the previous  day concerning  internal updates  on                                                                    
oil  prices.  He  explained current  futures  market  prices                                                                    
indicated an  additional $281 million  in revenue for  FY 22                                                                    
and an additional  $467 million in FY 23.  He explained that                                                                    
everything  in the  presentation was  based on  the official                                                                    
fall forecast released in December  but based on current oil                                                                    
prices there could be extra money for FY 22 and FY 23.                                                                          
Co-Chair Stedman commented that  the committee would have to                                                                    
consider  how to  lock in  an oil  price to  work with  when                                                                    
drafting  the budget.  He said  that  historically the  fall                                                                    
forecast would  be used and  then adjust accordingly  to the                                                                    
spring forecast.  He thought some  policy work needed  to be                                                                    
done for  the legislature to  have an agreed-upon  figure to                                                                    
work with.  He thought  there could be  a risk  of different                                                                    
price numbers being used, which would be chaotic.                                                                               
9:06:53 AM                                                                                                                    
Senator  Wielechowski asked  whether  Mr.  Stickel would  be                                                                    
doing  updates in  the event  of  large market  fluctuations                                                                    
that could affect the state's investment income.                                                                                
Mr.  Stickel mentioned  a  projection  spreadsheet from  the                                                                    
Alaska Permanent  Fund Corporation  (APFC) that  was updated                                                                    
monthly. He  shared that DOR  looked to the UGF  revenue and                                                                    
would send out  notifications on a 10  percent variance from                                                                    
the official forecast.                                                                                                          
Co-Chair  Stedman   clarified  that  the  payout   from  the                                                                    
Permanent Fund used 5 percent  POMV, with a 5-year lookback,                                                                    
and would not  be affected by any variances.  He warned that                                                                    
other tax revenue  could be affected. He  understood that if                                                                    
the variance  was less than 10  percent   there would  be no                                                                    
Mr. Stickel answered in the affirmative.                                                                                        
Co-Chair  Stedman reiterated  the  importance  of having  an                                                                    
agreed upon number.                                                                                                             
9:08:27 AM                                                                                                                    
Mr. Stickel  discussed the presentation "Fall  2021 Forecast                                                                    
Presentation," (copy on file).                                                                                                  
Mr. Stickel looked at slide 2, "Agenda":                                                                                        
     1. Forecast Background, Economic Indicators, and Key                                                                       
     2. Fall 2021 Revenue Forecast                                                                                              
          ?Total State Revenue                                                                                                  
          ?Unrestricted Revenue                                                                                                 
     3. Petroleum Forecast Assumptions Detail                                                                                   
          ?Oil Price                                                                                                            
          ?Oil Production                                                                                                       
          ?Oil and Gas Lease Expenditures                                                                                       
          ?Oil and Gas Transportation Costs                                                                                     
          ?Oil and Gas Credits                                                                                                  
9:09:10 AM                                                                                                                    
Mr.  Stickel showed  slide 3,  "Forecast Background  and Key                                                                    
Mr. Stickel referenced slide 4,  " Background:  Fall Revenue                                                                    
     1. Historical, current, and estimated future state                                                                         
     2. Discussion and information about major revenue                                                                          
     3. Prepared in accordance with AS 37.07.060 (b)(4),                                                                        
     and supports long term plan under AS 37.07.020                                                                             
     4. Official revenue forecast used for Governor's                                                                           
     budget proposal; updated in spring                                                                                         
     5. Located at tax.alaska.gov                                                                                               
Mr. Stickel  noted that the  fall revenue forecast  had been                                                                    
published in  December 2021 and  was the  departments annual                                                                    
publication containing  historical and  forecasted revenues.                                                                    
Data had been  gathered from the tax  accounting system, the                                                                    
state  accounting system,  and numerous  state agencies.  He                                                                    
shared those  various models had been  maintained within the                                                                    
economic research  group for all  the states   major revenue                                                                    
sources over the  10-year time horizon of  the forecast. The                                                                    
forecast document fulfilled  two statutory obligations; that                                                                    
the  governor provides  a revenue  forecast for  the current                                                                    
and coming fiscal year, and  the statutory requirement for a                                                                    
long-term  fiscal  plan  document   out  of  the  Office  of                                                                    
Management and  Budget (OMB). The  fall forecast is  used to                                                                    
underlie the initial budget proposal  and was followed up by                                                                    
a spring forecast released in early April.                                                                                      
9:10:43 AM                                                                                                                    
Mr.  Stickel  turned  to  slide   5,  "Key  Alaska  Economic                                                                    
     1. Real State GDP:  $50.2 billion in Q3 2021                                                                               
          ?Down 0.6% from Q2 2021, up 0.2% from Q3 2020                                                                         
     2. Employment:  304,100 in November 2021                                                                                   
        ?Up 7,200 (2.4%) compared to November 2020                                                                              
     3. Wages & Salaries:  $4.8 billion in Q2 2021                                                                              
          ?Up 10.8% from Q1 2021, up 6.6% from Q2 2020                                                                          
     4. Alaska Bankruptcies:  214 for calendar year 2021,                                                                       
     313 for calendar year 2020                                                                                                 
          ?Compared to 400 for calendar year 2019                                                                               
     5. Foreclosures:  78 in Q1 2021, 395 for calendar year                                                                     
          ?Compared to 147 in Q1 2020 and 729 for calendar                                                                      
          year 2019                                                                                                             
     6. Housing Starts:  January -November: 1,496 in 2021                                                                       
     vs 1,335 in the same period for 2020                                                                                       
          ?1,493 for calendar year 2020 vs 1,689 for                                                                            
          calendar year 2019                                                                                                    
     7. Delinquency Rates: 0.6% for mortgages 30-89 days                                                                        
     delinquent, 0.4% for mortgages 90+ days delinquent at                                                                      
     end of Q2 2021                                                                                                             
          ?Compared to 0.8% for mortgages 39-89 days                                                                            
          delinquent,   0.6%   for    mortgages   90+   days                                                                    
          delinquent for the same period in 2020                                                                                
Mr. Stickel said  that 4  quarter numbers  for the GDP would                                                                    
be released  in March.  He said that  compared to  2020, the                                                                    
state was up  by approximately 7 thousand  jobs and compared                                                                    
to the  lows of the Covid  recession the state was  up by 26                                                                    
thousand jobs; the state was  still down by 51 thousand jobs                                                                    
from the  pre-Covid highs  in July  2019. He  mentioned that                                                                    
the biggest  job losses  were in  the areas  of hospitality,                                                                    
tourism,  and  oil  and  gas.  He  related  that  wages  and                                                                    
salaries in the state had  somewhat recovered from the Covid                                                                    
lows.  He discussed  federal help  with  housing during  the                                                                    
COVID-19  pandemic.  He  said  that  programs  with  private                                                                    
entities and  the government  had helped  to keep  people in                                                                    
their homes.                                                                                                                    
9:14:00 AM                                                                                                                    
Senator  von Imhof  asked  about a  table  to represent  the                                                                    
seven  items  on slide  5,  to  better observe  trends.  She                                                                    
pondered  the mortgage  delinquency  rate  and wondered  how                                                                    
much funding  the Alaska Housing Finance  Corporation (AHFC)                                                                    
had remaining from federal pandemic relief funds.                                                                               
Co-Chair Stedman asked Mr. Stickel  to bring the information                                                                    
to committee,  and informed  that AHFC  would be  before the                                                                    
committee  and could  speak to  the remaining  federal funds                                                                    
for mortgage relief.                                                                                                            
9:15:21 AM                                                                                                                    
Mr.   Stickel    considered   slide   6,    "Fall   Forecast                                                                    
       The economic impacts of COVID-19 are uncertain; DOR                                                                      
     has developed a plausible scenario to forecast these                                                                       
       Key Assumptions:                                                                                                         
          o  Investments:     Stable  growth  in  investment                                                                    
          markets,  5.86%  for  FY 2022  and  6.20%  for  FY                                                                    
          o  Federal:   The  forecast incorporates  stimulus                                                                    
          funding  as  of 11/30/2021,  partially  reflecting                                                                    
          IIJA funding.                                                                                                         
          o  Petroleum:   Alaska  North Slope  oil price  of                                                                    
          $75.72  per  barrel for  FY  2022  and $71.00  per                                                                    
          barrel for FY 2023.                                                                                                   
          o  Non-Petroleum:     No   explicit  COVID-related                                                                    
          adjustments for  FY 2022 forward,  except tourism;                                                                    
          full recovery assumed by 2023.                                                                                        
Mr.  Stickel noted  that  the department  had  been able  to                                                                    
incorporate  preliminary  numbers   related  to  forthcoming                                                                    
infrastructure funding and would  review prior to the spring                                                                    
revenue forecast. He said that the futures market projected                                                                     
$68/bbl.. for FY  31. He stated that  most economic activity                                                                    
had returned to pre-pandemic  numbers except for the tourist                                                                    
9:17:44 AM                                                                                                                    
Co-Chair Stedman asked about the futures price assumption.                                                                      
Mr. Stickel replied  that the quoted number  was $68/bbl. in                                                                    
2031,  which was  at the  end  of the  ten-year horizon.  An                                                                    
upcoming slide would address oil price specifically.                                                                            
Co-Chair  Stedman asked  about looking  back at  the futures                                                                    
price yearly for  the last eleven years. He  did not believe                                                                    
that todays price could have been predicted 11 years ago.                                                                       
Mr. Stickel  agreed there  was a  lot of  uncertainty around                                                                    
oil prices. He shared that  the department had done analysis                                                                    
and  found that  the futures  market tended  to provide  the                                                                    
lowest error rate.                                                                                                              
Co-Chair  Stedman   expressed  concerned  that   some  could                                                                    
consider there  was more certainty  in the price  than there                                                                    
actually was.                                                                                                                   
9:19:34 AM                                                                                                                    
Senator Olson  asked to  go back to  slide 5.  He considered                                                                    
the foreclosure  rate in item  5 and wondered  whether there                                                                    
was a difference between rural and urban Alaska.                                                                                
Mr. Stickel was  sure there was a difference  and offered to                                                                    
provide more detail.                                                                                                            
9:20:18 AM                                                                                                                    
Senator  von  Imhof  asked   about  POMV  projections  being                                                                    
updated  monthly.   She  worried  about   inflation  eroding                                                                    
returns.  She   asked  whether  Mr.  Stickel   did  anything                                                                    
internally  to look  at  assumption for  the  next 36  moths                                                                    
assuming  the  inflation  did   not  abate  to  pre-pandemic                                                                    
Mr.  Stickel  stated  that  the   department  did  not  make                                                                    
significant changes  to the projections  that came  from the                                                                    
APFC. He noted that the  APFC contribution had stability due                                                                    
to the POMV transfer.                                                                                                           
Senator von Imhof  thought inflation was hard  to track. She                                                                    
assumed  that the  department was  discussing how  inflation                                                                    
infiltrated their assumptions.                                                                                                  
9:22:21 AM                                                                                                                    
Co-Chair Bishop  asked about inflation  and what  number Mr.                                                                    
Stickel was using for inflation.                                                                                                
Mr. Stickel noted that the  inflation assumption used by DOR                                                                    
was 2.5 percent annually per  Callan and Associates. He said                                                                    
that there  had been talk surrounding  whether the inflation                                                                    
was transitory, and the issue was being closely followed.                                                                       
Co-Chair  Bishop  appreciated  that  DOR  was  watching  the                                                                    
number for possible readjustment.                                                                                               
Co-Chair Stedman thought current  inflation numbers would be                                                                    
larger  than 2.5  percent. He  commented  that an  inflation                                                                    
cycle of 5,  6, 7 percent   the entire  return would go into                                                                    
inflation proofing the permanent fund.                                                                                          
9:24:03 AM                                                                                                                    
Senator Wielechowski asked what  state budgetary costs would                                                                    
increase if the inflation number was significantly higher.                                                                      
Mr.  Stickel deferred  the question  OMB.  He thought  there                                                                    
would  be  some items  and  revenue  sources that  would  be                                                                    
impacted more than others.                                                                                                      
Co-Chair  Stedman thought  the committee  could ask  the OMB                                                                    
director to  detail what was  indexed to inflation  and what                                                                    
in the budget that was  linked to inflation. This would help                                                                    
the  committee  craft a  budget  in  preparation for  future                                                                    
inflation numbers.                                                                                                              
9:25:45 AM                                                                                                                    
Co-Chair   Bishop  commented   that  the   more  the   state                                                                    
considered  potentially  rising  inflation the  smaller  the                                                                    
supplemental ask in FY 24.                                                                                                      
9:26:03 AM                                                                                                                    
Mr. Stickel  displayed slide  7, "Relative  Contributions to                                                                    
Total  State  Revenue:   FY  2021,"  which showed  graphical                                                                    
representation  of relative  importance  in  the sources  of                                                                    
total state revenue:                                                                                                            
     Total State Revenue: $29.8 Billion                                                                                     
     Investment Earnings 65.7 percent                                                                                           
     Federal Revenue 25.4 percent                                                                                               
     Petroleum 5.3 percent                                                                                                      
     Other Revenues 2.7 percent                                                                                                 
     Non-petroleum Corporate Income 0.4 percent                                                                                 
     Fisheries 0.3 percent                                                                                                      
     Tourism 0.1 percent                                                                                                        
     Mining 0.1 percent                                                                                                         
Mr. Stickel  noted that there  had been two windfalls  in FY                                                                    
21, including an exceptionally high  return on the permanent                                                                    
fund  and  the revenue  from  the  various federal  stimulus                                                                    
Co-Chair Stedman noted that  the investment earnings revenue                                                                    
was mainly  the earnings of  the permanent fund and  was not                                                                    
the  5 percent  payout of  the fund,  which was  the revenue                                                                    
used for the budget.                                                                                                            
Mr.  Stickel  agreed  and  noted  that  the  permanent  fund                                                                    
returned  29.7 percent  for FY  21,  and then  the POMV  was                                                                    
based  on 5.25  percent of  the five-year  average. He  said                                                                    
there was  a significant amount of  additional earnings that                                                                    
amounted to approximately $16 billion.                                                                                          
Co-Chair Stedman  asked Mr. Stickel  to rework the  chart to                                                                    
include  the   5  percent  coming  into   the  treasury  for                                                                    
expenditures  considered by  the  committee.  He thought  it                                                                    
would provide  clarity as  to where  the revenue  was coming                                                                    
from that would be included in the yearly budget.                                                                               
Mr. Stickel  offered to restate  the slide to just  show the                                                                    
UGF revenue to the state.                                                                                                       
Co-Chair Stedman thought that would be sufficient.                                                                              
9:28:58 AM                                                                                                                    
Senator Wielechowski  asked about the return  for the Alaska                                                                    
Retirement Management (ARM) Board.  He assumed the ARM board                                                                    
returns were not included on the slide.                                                                                         
Mr.  Stickel  noted that  the  ARM  Board returns  were  not                                                                    
considered state revenue.                                                                                                       
Co-Chair Stedman asked  Mr. Stickel to elaborate  on the ARM                                                                    
board revenue.                                                                                                                  
Mr. Stickel explained that the  ARM Board managed retirement                                                                    
funds for  state and  other public  employees. He  said that                                                                    
returns on  the retirement funds  were not considered  to be                                                                    
state  revenue  for  the purposes  of  departments   revenue                                                                    
source document.                                                                                                                
Co-Chair Stedman  interjected that  there would be  a chance                                                                    
for the committee to look  deeper into the ARM board returns                                                                    
and compare them with those of the permanent fund.                                                                              
9:30:25 AM                                                                                                                    
Mr.   Stickel  displayed   slide  8,   "Fall  2021   Revenue                                                                    
Mr. Stickel looked at slide  9, "Total Revenue Forecast:  FY                                                                    
2021 to  FY 2023  Totals and Percent  Change from  FY 2021,"                                                                    
which showed a table that  represented another view of total                                                                    
state revenue from all revenue  sources. He relayed that the                                                                    
state  revenue  came  from four  primary  sources  including                                                                    
investments, federal  receipts, petroleum revenue,  and non-                                                                    
petroleum revenue.   He furthered that in  addition to those                                                                    
there were four  budget restriction categories: unrestricted                                                                    
general  fund  revenues,  designated  general  funds,  other                                                                    
restricted revenue,  and federal  revenue. He  explained how                                                                    
funds were  siloed into restricted and  unrestricted revenue                                                                    
in DOR budget  documents. He stated that in FY  21 the state                                                                    
received $29,764.6 in  total state revenue    the highest in                                                                    
the history  of the state.  Forecasted totals for FY  22 and                                                                    
FY 23  was $13,370.4  and $14,598.3, respectively.  The far-                                                                    
right column  offered the percentage  change in FY 20  to FY                                                                    
23 and FY 22 to FY 23.                                                                                                          
Co-Chair  Stedman  asked  for   more  detail  on  restricted                                                                    
revenues. He wondered  why it was dropping  from $16 billion                                                                    
in FY 21 to $1.4 billion in FY 22.                                                                                              
Mr. Stickel  informed that the largest  source of investment                                                                    
revenue was the  earnings on the permanent  fund. He pointed                                                                    
out  that the  revenue was  shown  in two  places, the  POMV                                                                    
transfer  under  UGF, and  earnings  on  the Permanent  Fund                                                                    
above the  POMV transfer, considered restricted  revenue. He                                                                    
related that  for FY  21, when the  fund returned  almost 30                                                                    
percent, the  transfer to the  UGF was $3.1 billion  and the                                                                    
additional  earnings  were  considered  restricted  revenue,                                                                    
which was the bulk of  the $16.3 billion of other restricted                                                                    
investment revenue.  Going forward the forecast  showed more                                                                    
modest earnings, and earnings  above and beyond the transfer                                                                    
were projected to  be less. He noted the  decline from $16.3                                                                    
billion  in FY  21,  to $1.4  billion in  FY  22, which  had                                                                    
entirely  to do  with the  outstanding returns  witnessed in                                                                    
9:35:17 AM                                                                                                                    
Co-Chair Stedman  thought markets  tended to regress  to the                                                                    
mean return, and  30 percent was not  the historical average                                                                    
for the  fund. He though  the state could expect  the number                                                                    
to be  substantially zero, or  the number  could potentially                                                                    
venture into the negative.                                                                                                      
Mr. Stickel  agreed. He added  that if the return  was shown                                                                    
to be  less than  the POMV transfer,  the number  would veer                                                                    
into the  negative. He  said that this  had happened  in the                                                                    
past. He stated that the  historical return on the permanent                                                                    
fund  had   been  approximately   9  percent   annually  and                                                                    
projections  of  a  6.2  percent,  long-term  annual  return                                                                    
incorporated the assumption that  returns would be less than                                                                    
they had been historically going forward.                                                                                       
Co-Chair  Stedman informed  that  the  committee would  soon                                                                    
have  updates  from  APFC,  and  the  fund  consultants  had                                                                    
projected  lower than  average  long-term  returns over  the                                                                    
next decade and  had cautioned about the very  high price of                                                                    
the  asset   classes.  He   thought  that   the  information                                                                    
presented today  could confuse some people  in the building,                                                                    
and  he   thought  any  presentations  should   explain  the                                                                    
situation in detail.                                                                                                            
9:37:47 AM                                                                                                                    
Senator   Wielechowski  was   confused  by   the  investment                                                                    
revenue. He  questioned the numbers on  the slide pertaining                                                                    
to the percentage of return on the permanent fund.                                                                              
Co-Chair Stedman  explained that the forecasted  numbers for                                                                    
FY 22 and FY 23 needed to be added together.                                                                                    
Senator  Wielechowski replied  that  he had  taken the  $1.4                                                                    
billion and divided  it by the value of  the permanent fund,                                                                    
which resulted in a 1.6 percent return.                                                                                         
Mr. Stickel  stated that there  were other  small investment                                                                    
pieces included  in the other restricted  revenue, above and                                                                    
beyond the  permanent fund. He  explained that the  value of                                                                    
the permanent  fund, the POMV  draw, and the money  in other                                                                    
categories  were all  part of  the equation.  He offered  to                                                                    
provide more detail on how the numbers were derived.                                                                            
Co-Chair Stedman understood  Senator Wielechowski's question                                                                    
and  asked  for  more  detail on  the  figures.  He  thought                                                                    
further information from Callan would be helpful.                                                                               
9:39:38 AM                                                                                                                    
Senator von  Imhof asked  to discuss  DGF. She  recalled Mr.                                                                    
Stickel  had mentioned  there  was DGF  that  went into  the                                                                    
"school fund." She which school fund he was referencing.                                                                        
Mr.  Stickel noted  that  there were  at  least two  school-                                                                    
related  funds. There  was  a school  fund  that received  a                                                                    
constitutionally  dedicated  portion  of royalties  and  the                                                                    
Public-School  Trust  fund  received  revenue  from  various                                                                    
Senator von  Imhof asked whether  the Higher  Education fund                                                                    
was involved.                                                                                                                   
Mr. Stickel answered "no."                                                                                                      
Senator von Imhof asked about  designated funds. She thought                                                                    
in  the  past  many  designated  funds  were  used  to  fund                                                                    
different programs each year.  She understood that recently,                                                                    
with  issues surrounding  the reverse  sweep,  the DGF  went                                                                    
into  the  general  fund.  She asked  how  the  DGF  revenue                                                                    
interrelated with the general  fund with the administrations                                                                    
new approach to the reverse sweep.                                                                                              
Mr. Stickel  explained that the revenue  forecast showed the                                                                    
revenue to each of the  designated funds and did not address                                                                    
the question of  the reverse sweep. He  thought the question                                                                    
was best addressed by OMB.                                                                                                      
Senator  von Imhof  thought that  they  were not  designated                                                                    
funds if they  ended up in the general  fund as unrestricted                                                                    
Mr.  Stickel noted  that  any of  the  DGF were  customarily                                                                    
appropriated  for   a  specific  purpose   were  technically                                                                    
available for the legislature to appropriate in any way.                                                                        
Co-Chair Stedman thought Senator von  Imhof had posed a good                                                                    
question  about the  reverse sweep.  He  explained that  the                                                                    
administrations  refusal  to honor  the reverse sweep  was a                                                                    
new  financial  exercise  that   the  committee  would  need                                                                    
resources to navigate.                                                                                                          
9:42:54 AM                                                                                                                    
Senator  Wilson asked  for  further  explanation on  federal                                                                    
receipts.  He  mentioned  American Rescue  Plan  Act  (ARPA)                                                                    
funds,  and  Coronavirus  Response and  Relief  Supplemental                                                                    
Appropriations Act (CRRSAA) funds.                                                                                              
Mr. Stickel stated  that the department had  worked with OMB                                                                    
to work through the federal  receipt numbers. He shared that                                                                    
FY 23 had the last of  the Covid-19 related funds. There was                                                                    
an assumption that federal  infrastructure receipts would be                                                                    
received over a 5-year time  horizon. He stated that the 10-                                                                    
year revenue forecast  showed a drop off in  the forecast in                                                                    
the  later 2020s.  He thought  OMB could  provide additional                                                                    
Co-Chair Stedman understood 40  percent of the federal funds                                                                    
would be through competitive grants.                                                                                            
Mr.  Stickel  clarified  that   in  preparing  the  forecast                                                                    
conservatively, the department had  not included the reverse                                                                    
sweep,  which was  why DGF  funds were  shown as  designated                                                                    
revenue. He  noted that return  assumption and  balances for                                                                    
the reserved  fund the  did not  include the  reverse sweep.                                                                    
There  was  a footnote  in  the  Revenue Sources  Book  that                                                                    
addressed the topic.                                                                                                            
Co-Chair Stedman stated that the footnote was significant.                                                                      
9:45:35 AM                                                                                                                    
Mr.  Stickel  addressed   slide  10,  "Unrestricted  Revenue                                                                    
Forecast:  FY 2021 to FY  2023 Totals," which showed a table                                                                    
with the following information:                                                                                                 
     Revenue Type: Unrestricted General Fund                                                                                
     Investment Revenue  Alaska Permanent Fund                                                                                  
     History FY 21 - $3,091.5                                                                                                   
     Forecast FY 22 - $3,069.3                                                                                                  
     Forecast FY 23 - $3,360.6                                                                                                  
     Investment Revenue  Other Investments                                                                                      
     History FY 21 - $29.4                                                                                                      
     Forecast FY - $13.0                                                                                                        
     Forecast FY 23 - $18.8                                                                                                     
     Petroleum Revenue                                                                                                          
     History FY 21 - $1,217.6                                                                                                   
     Forecast FY 22 - $2,274.6                                                                                                  
     Forecast FY 23 - $2,082.3                                                                                                  
     Non-Petroleum Revenue                                                                                                      
     History FY 21 - $444.3                                                                                                     
     Forecast FY 22 - $375.1                                                                                                    
     Forecast FY 23 - $476.1                                                                                                    
     FY 21 $4,782.8                                                                                                             
     FY 22 $5,731.9                                                                                                             
     FY 23 $5,937.7                                                                                                             
9:46:54 AM                                                                                                                    
Mr.  Stickel advanced  to  slide  11, "Unrestricted  Revenue                                                                    
Forecast:  FY  2021 and Changes to  Two-Year Outlook," which                                                                    
showed  a  table  reflecting the  historical  and  projected                                                                    
numbers  for   Alaska  North   Slope  Oil,   Permanent  Fund                                                                    
Transfer,  Unrestricted Revenue    excluding  Permanent Fund                                                                    
Transfer,  and Unrestricted  Revenue -  Includeing Permanent                                                                    
Fund Transfer.  He cited  that oil  prices had  increased by                                                                    
$14.72/bbl. for FY  22 to $17.72/bbl., $9.00/bbl.  for FY 23                                                                    
to $71.00/bbl..  He noted that the  rise had to do  with the                                                                    
recovery  and stabilization  of the  markets as  the economy                                                                    
recovered from  the Covid-19 recession.  He cited  no change                                                                    
to  the FY  22  forecast for  the  Permanent Fund  transfer,                                                                    
which  was calculated  on  the  first 5  of  the previous  6                                                                    
fiscal  years. He  said that  based on  strong returns,  the                                                                    
forecast for the transfer in FY 23 had increased by $153.6.                                                                     
Mr. Stickel addressed total unrestricted  revenue for FY 21,                                                                    
which was  $119.3 above the  forecasted number.  The numbers                                                                    
for FY  22 and FY  23 had  increase by $1,000.4  and $656.1,                                                                    
respectively. He noted that the  oil production forecast for                                                                    
FY 21  changed by $119.3,  FY 22 by  $1,000.4, and FY  23 by                                                                    
$809.7. He  related that current oil  markets suggested that                                                                    
there  could  be  more  money  above  and  beyond  what  was                                                                    
projected on  the slide.  He noted  that the  oil production                                                                    
forecast was  not reflected on  the slide. He  revealed that                                                                    
production  had increased  in FY  22 by  27,000 barrels  per                                                                    
day, and 24,000 barrels per day in FY 23.                                                                                       
Mr.  Stickel looked  at slide  12, "Unrestricted  Investment                                                                    
Revenue:   FY  2021 to  FY  2023 Totals,"  which provided  a                                                                    
table  showing more  detail on  the sources  of unrestricted                                                                    
investment   revenue.  The   permanent  fund   transfer  was                                                                    
expected  to  account for  between  half  and two-thirds  of                                                                    
unrestricted  revenue every  year  for  the 10-year  revenue                                                                    
forecast.  He stressed  the  importance of  the  fund as  an                                                                    
asset and  a source of revenue  for the state. He  said that                                                                    
the fund  transfers were just over  approximately $3 million                                                                    
and  included  a  small amount  of  additional  unrestricted                                                                    
investment  revenue  that  was primarily  earnings  on  cash                                                                    
balances in the general fund.                                                                                                   
9:50:29 AM                                                                                                                    
Mr.  Stickel  showed   slide  13,  "Unrestricted  Investment                                                                    
Revenue:     Percent   of  Market   Value  (POMV)   Transfer                                                                    
     ?Permanent Fund total return for FY 2021 of 29.7%                                                                          
     ?The statutory POMV rate changed to 5% beginning FY                                                                        
         ?For FY 2019 FY 2021 this rate was 5.25%.                                                                              
     ?Forecast assumes Permanent Fund's long-term total                                                                         
     return expectation of 6.20% for FY 2023+; 5.86% for FY                                                                     
     ?Differing Permanent Fund returns and petroleum                                                                            
     deposits could significantly alter actual POMV                                                                             
Mr.  Stickel relayed  that the  transfer from  the permanent                                                                    
fund  to  the general  fund  over  the  next ten  years  was                                                                    
estimated  to be  over $3  billion per  year, increasing  to                                                                    
$4.6 billion  by FY 31.  He reiterated the stability  of the                                                                    
fund as a revenue source for the state.                                                                                         
Senator  von Imhof  asked if  the projection  included a  $3                                                                    
billion ad hoc draw.                                                                                                            
Mr.  Stickel  replied that  the  baseline  forecast did  not                                                                    
consider   any  additional   draws   beyond  the   statutory                                                                    
Senator von Imhof asked whether  a stress test could be done                                                                    
that  overlayed actual  past returns  with projected  future                                                                    
Mr.  Stickel replied  in the  affirmative. He  added that  a                                                                    
fiscal model had been made  public that considered different                                                                    
permanent  fund  return  values,   including  an  option  to                                                                    
overlay historical returns in the model.                                                                                        
9:51:36 AM                                                                                                                    
Mr.  Stickel referenced  slide  14, "Unrestricted  Petroleum                                                                    
Revenue:  FY  2021 to FY 2023 Totals," which  showed a table                                                                    
of  the four  main sources  of petroleum  revenue: Petroleum                                                                    
Property   Tax,   Petroleum   Corporate  Income   Tax,   and                                                                    
Royalties.  He  said the  property  tax  was levied  by  the                                                                    
state, applied  to all  oil and gas  property in  the state,                                                                    
and was  a stable  revenue source,  generating approximately                                                                    
$100 million yearly.  He added that there  was an additional                                                                    
$400 million generated by municipalities each year.                                                                             
Mr. Stickel addressed corporate income  tax, Which was a tax                                                                    
on  the  profits of  certain  oil  and gas  companies  doing                                                                    
business  in   the  state.  He  shared   that  the  Covid-19                                                                    
recession  had been  challenging  for the  oil industry  and                                                                    
that the  state had paid out  $19 million in refunds  for FY                                                                    
21.  He  relayed  that  with  the  improvement  in  the  oil                                                                    
industry fundamentals the forecast  for positive revenue for                                                                    
FY 22 was $145 million and  $240 million in FY 23. There was                                                                    
a  provision of  the Coronavirus  Aid, Relief,  and Economic                                                                    
Security  (CARES)  Act  that  allowed  for  corporations  to                                                                    
carryback net  operating losses from tax  years 2018 through                                                                    
2020.  They could  carry those  back  up to  five years  and                                                                    
receive  refunds  for  previous taxes  paid;  the  provision                                                                    
applied to  certain companies  that saw  losses in  the 2020                                                                    
Covid-19  recession. He  said  that the  net  impact of  the                                                                    
provision was  $2.4 million in FY  21 and $50 million  in FY                                                                    
9:54:04 AM                                                                                                                    
Mr.  Stickel looked  at production  tax, which  consisted of                                                                    
the  severance  tax on  petroleum  and  on the  North  Slope                                                                    
included a  net profit tax  with a gross minimum  tax floor.                                                                    
Given the  current price levels,  it was expected  that most                                                                    
companies would be paying above  the minimum tax through the                                                                    
time  horizon  of  the  forecast.  He  pointed  out  to  the                                                                    
committee that the  forecasted production tax for  FY 22 was                                                                    
approximately $1 billion and $741 million in FY 23.                                                                             
Mr.  Stickel  spoke to  royalties,  which  were the  largest                                                                    
single   source   of   revenue  forecasted   to   bring   in                                                                    
approximately $1 billion over the  next two fiscal years. He                                                                    
added that additional  constitutionally mandated deposits to                                                                    
the permanent  fund and the  school fund were  not reflected                                                                    
on the slide.                                                                                                                   
9:55:09 AM                                                                                                                    
Senator  Wielechowski  asked what  the  impact  would be  to                                                                    
petroleum corporate income tax  if Hilcorp were incorporated                                                                    
as a C Corp as opposed to an S Corp.                                                                                            
Mr. Stickel  could not  speak to  specific companies  due to                                                                    
confidentiality rules.  He stressed  that not  all companies                                                                    
doing business  in the state  were subject to  the corporate                                                                    
income  tax.  He  cited  that about  70  percent  came  from                                                                    
companies that  were subject to  the tax. If the  state were                                                                    
to  extend  the  corporate  income  tax  to  the  additional                                                                    
companies it could potentially generate  $80 million to $100                                                                    
million in additional revenue at the forecast price.                                                                            
Senator  Wielechowski understood  that applying  the tax  to                                                                    
companies that operated  int eh state and  currently did not                                                                    
pay the corporate  income tax could generate  $80 million to                                                                    
$100 million in FY 22 and FY 23.                                                                                                
Mr. Stickel replied in the affirmative.                                                                                         
9:56:16 AM                                                                                                                    
Senator Wilson asked about  carryback provisions and whether                                                                    
the state had challenged the issue in court.                                                                                    
Mr. Stickel  was not sure about  challenging the provisions,                                                                    
but he  knew other states  had different ways  of conforming                                                                    
to federal tax code. He said  that some states had opted out                                                                    
of the  provisions but that  the state had not  attempted to                                                                    
do so.                                                                                                                          
Senator Wilson  asked whether the  idea had  been considered                                                                    
to protect state revenue.                                                                                                       
Mr. Stickel  stated that under  current law,  companies were                                                                    
not allowed  to carryback  losses. The CARES  Act provisions                                                                    
were specific to  2018, 2019, and 2020. He said  that if the                                                                    
federal  government were  to  change the  law  again in  the                                                                    
future,  the state  would  automatically  adopt the  federal                                                                    
law, but could opt out through legislation.                                                                                     
Senator Wilson  asked whether  DOR would put  in a  piece of                                                                    
legislation to make the change.                                                                                                 
Mr.  Stickel  thought  that the  deputy  commissioner  could                                                                    
speak to policy issues.                                                                                                         
9:58:33 AM                                                                                                                    
Co-Chair Stedman  noted that  the deputy  commissioner would                                                                    
be made available to respond to the question.                                                                                   
9:59:03 AM                                                                                                                    
Senator  Wielechowski pointed  out  that the  administration                                                                    
had testified  in committee that  it planned  to introducing                                                                    
legislation pertaining to the issue.                                                                                            
Co-Chair Stedman  said that the  question would be  asked of                                                                    
the deputy commissioner  and OMB. He noted  that staff could                                                                    
research  past committee  minutes  for the  content of  past                                                                    
conversations on  the issue in  committee. He said  that the                                                                    
35  percent severance  tax rate  had been  set to  match the                                                                    
federal corporate tax  rate. He noted that  the federal rate                                                                    
had been lowered  into the 20s and that the  issue should be                                                                    
10:00:17 AM                                                                                                                   
Senator  Wielechowski  asked whether  companies  compensated                                                                    
twice for  net operating  losses, one  at the  federal level                                                                    
and again at the state level.                                                                                                   
Mr. Stickel requested clarification of the question.                                                                            
Senator Wielechowski  explained that corporate  income taxes                                                                    
under  the  CARES Act,  allowed  companies  to go  back  and                                                                    
deduct losses.  He wondered  whether companies  were allowed                                                                    
to deduct  losses on federal  taxes and then again  on their                                                                    
state taxes and be doubly compensated.                                                                                          
Mr.   Stickel  stated   he  would   not   call  it   "double                                                                    
compensation." He explained that,  under CARES, if a company                                                                    
experienced  net income  loss in  2018, 2019,  or 2020,  the                                                                    
loss could  be carried back  and applied against  income and                                                                    
taxes paid  in a prior year  and receive a refund.  He added                                                                    
that it would be as if  the loss had occurred earlier in the                                                                    
process. For  federal income tax  purposes, a  company could                                                                    
retroactively reduce  its federal  tax liability.  He stated                                                                    
that state  tax liability  could be  reduced to  reflect the                                                                    
current percentage of tax liability.                                                                                            
10:02:32 AM                                                                                                                   
Mr.  Stickel  turned  to  slide   15,  "  Unrestricted  Non-                                                                    
Petroleum  Revenue:   FY  2021  to  FY 2023  Totals,"  which                                                                    
showed  a table  with additional  detail about  UGF revenue.                                                                    
The largest component was taxes, and typically non-                                                                             
petroleum corporate  income tax  generated the  most revenue                                                                    
at $102.8  million in  FY 21. He  furthered the  $15 million                                                                    
was forecasted in FY 22,  which reflected net operating loss                                                                    
related  refunds under  the CARES  act on  the non-petroleum                                                                    
industries.  He noted  that  there  were several  industries                                                                    
that had  been significantly impacted by  the recession. The                                                                    
tax was projected to increase to  $120 million in FY 23. The                                                                    
net  impact   of  carry-back  refunds  was   a  6.7  million                                                                    
reduction on  FY 21, and  $76.7 million  in FY 22,  and were                                                                    
incorporated into  the numbers on  the slide. The  state had                                                                    
received and paid some of  the refunds, which were currently                                                                    
coming to fruition.  He pointed out that  the Mining License                                                                    
Tax had brought  in $9 million in FY 21,  which was expected                                                                    
to increase  to $48.9  million in  FY 22.  He said  that the                                                                    
increase was related  to low collection if FY 21  due to the                                                                    
impact  of   Covid-19  and  the  recession   in  the  mining                                                                    
Mr. Stickel continued to address  slide 15. He mentioned the                                                                    
Refined Fuel  Surcharge, which generated $6.4  million in FY                                                                    
21, then was  shown as zero for  FY 22 and FY  23. He shared                                                                    
that the omission of  the tax in FY 22 and FY  23 was due to                                                                    
a change made to conform  with budget documents presented by                                                                    
OMB and LFD and would now  be shown as designated funds.  He                                                                    
the  department forecasted  the total  non-petroleum revenue                                                                    
for FY  22 and FY 23  at $375.1 million and  $476.1 million,                                                                    
10:05:23 AM                                                                                                                   
Senator  Wilson asked  about the  Alaska's corporate  income                                                                    
tax structure as compared to other states.                                                                                      
Mr.  Stickel  explained  that a  three-factor  apportionment                                                                    
methodology  was  used  for   corporate  income  tax,  which                                                                    
included  the  share  of property,  payroll,  and  sales  in                                                                    
Alaska,  compared to  the  rest of  the  country. The  three                                                                    
factors were  averaged to determine  the taxable  income. He                                                                    
said  this  was  like  other  states  and  there  were  many                                                                    
variations on the apportionment  factors, and different ways                                                                    
states  determined the  factors. There  were several  states                                                                    
that had gone  in other directions entirely such  as a gross                                                                    
receipts  tax. He  said that  broadly speaking,  the states                                                                     
methodology was not unusual.                                                                                                    
Co-Chair Stedman  referenced Senator  Wielechowski's earlier                                                                    
question and stated that not only  did the state have a look                                                                    
back provision  on petroleum corporate  income tax,  but all                                                                    
corporate  income tax;  to determine  the  full impact,  the                                                                    
taxes were all added together.                                                                                                  
10:07:25 AM                                                                                                                   
Senator Olson  asked about the reason  for the non-petroleum                                                                    
corporate income tax falling in FY 22.                                                                                          
Mr. Stickel relayed that the  $15 million forecast for FY 22                                                                    
incorporated  476.7  million  of estimated  refunds  due  to                                                                    
CARES. He  added that it also  incorporated lower historical                                                                    
levels of  payments as some companies  were still recovering                                                                    
from the recession.                                                                                                             
10:08:13 AM                                                                                                                   
Senator Wielechowski  was curious about new  mines that were                                                                    
expected to be listened to  cause the forecasted increase in                                                                    
non-petroleum corporate income tax in FY 22 and FY 23.                                                                          
Mr.  Stickel considered  the mining  license  tax and  noted                                                                    
that the state  was not incorporating any  new, large mines.                                                                    
He said  that the difference  between the numbers in  FY 21,                                                                    
compared to FY 22 and FY  23, was that FY 21 collections had                                                                    
been abnormally  low. Several of  the mines  had experienced                                                                    
challenges with the COVID-19  pandemic, which had negatively                                                                    
affected profits.  He stated that  with the recovery  in the                                                                    
economy,  and with  higher mineral  prices, the  collections                                                                    
were expected to bounce back to historical levels.                                                                              
10:09:12 AM                                                                                                                   
Mr.   Stickel   showed   slide   16,   "Petroleum   Forecast                                                                    
Assumptions Detail."                                                                                                            
Mr. Stickel displayed slide 17,  "Petroleum Detail:  Changes                                                                    
to Long-Term Price Forecast," which showed a line graph                                                                         
of the  fall 2021 oil  price forecast through  2030 compared                                                                    
to the spring  forecast. He relayed that  the department had                                                                    
made  a change  to  its oil  price  forecast methodology  in                                                                    
fall. The new  methodology looked at the  futures market for                                                                    
the next  two years and  assumed that prices  would increase                                                                    
with  inflation thereafter.  He  drew attention  to the  red                                                                    
dotted  line,  which  showed  a   steady  2  percent  annual                                                                    
increase to the forecast.  Beginning with the fall forecast,                                                                    
DNR  used  the futures  market  for  as  many years  out  as                                                                    
futures market  data was available.  The change was  made to                                                                    
provide  a more  accurate and  reasonable projection  of oil                                                                    
prices. He  shared that  the change had  been made  with the                                                                    
hope to  focus on  policy decisions surrounding  whether the                                                                    
oil  price forecast  was reasonable.  The Economic  Research                                                                    
Group had  found that the  more years of the  futures market                                                                    
incorporated  into the  forecast,  the  less possibility  of                                                                    
error  in   the  oil  price   forecast.  There   was  always                                                                    
uncertainty  around oil  price forecasts,  but it  was found                                                                    
that  the more  futures  market data  used,  the better  the                                                                    
forecast. He  thought the analysis had  been compelling, and                                                                    
the department  had collaborated with  OMB and LFD,  both of                                                                    
which had agreed it was a reasonable change.                                                                                    
Co-Chair Stedman asked  for the addition of a  line on slide                                                                    
17 representing the futures price back to 2018.                                                                                 
10:12:14 AM                                                                                                                   
Co-Chair Stedman  highlighted slide 18, "  Petroleum Detail:                                                                    
Nominal Brent Forecasts Comparison  as of January 11, 2022,"                                                                    
which  showed  a line  graph  comparing  how DNR's  forecast                                                                    
compares to  others over  the next few  years. He  said that                                                                    
the Brent crude  oil number was used  for comparison because                                                                    
it  was  a  global  benchmark crude,  had  widely  available                                                                    
information  and  forecasts, and  was  a  competitor in  the                                                                    
market  with ANS  crude. He  relayed that  given the  recent                                                                    
run-up in oil  prices over the previous  month, the forecast                                                                    
was on the  low end for a  couple of years and  fell in line                                                                    
with other sources of revenue forecasts in future years.                                                                        
10:13:19 AM                                                                                                                   
Mr.  Stickel looked  at slide  19, "Petroleum  Detail:   UGF                                                                    
Relative  to Price  per Barrel  (without POMV):   FY  2023,"                                                                    
which showed  a graph  showing how unrestricted  revenue for                                                                    
FY 23 would change with  different oil prices. He noted that                                                                    
the  baseline forecast  was $71/bbl..  for FY  23, and  $2.6                                                                    
billion  of  UGF  revenue,   excluding  the  permanent  fund                                                                    
transfer.   Once  above   the  oil   price  forecast,   each                                                                    
additional  dollar of  oil price  led  to approximately  $65                                                                    
million in increased UGF revenue for FY 23.                                                                                     
Co-Chair Stedman thought the committee  would ask for future                                                                    
presentations  to include  the "working  price", he  did not                                                                    
think that  any of  the oil companies  had testified  to the                                                                    
prediction  of  high  oil prices  and  that  they  generally                                                                    
focused  on the  lower  side of  prices  when budgeting  and                                                                    
making investment  decisions. He thought that  the committee                                                                    
should look at the  structural deficit under different price                                                                    
Mr.  Stickel stated  that  in  the department's  discussions                                                                    
with  oil   companies,  the   $50/bbl..  to   $60/bbl..  was                                                                    
generally   used  when   evaluating  project   economic.  He                                                                    
stressed  that while  the  hope was  for  high prices  would                                                                    
continue, investment decisions  were made using conservative                                                                    
numbers.   He  pointed  to Appendix  A1 on  page  91 of  the                                                                    
revenue sources book:                                                                                                           
Mr.  Stickel   relayed  that  the  table   showed  what  the                                                                    
unrestricted revenue  for FY 23, FY  24, and FY 25  would be                                                                    
at  a range  of prices  from $20/bbl..  up to  $120/bbl.. He                                                                    
said he would be happy to provide additional information.                                                                       
Co-Chair Stedman  commented that it  was nice to see  a full                                                                    
range of prices.                                                                                                                
10:16:20 AM                                                                                                                   
Mr. Stickel  addressed slide 20,  "Petroleum Detail:   North                                                                    
Slope Petroleum  Production Forecast,"  which showed  a line                                                                    
graph  showing slight  increases  to  production. The  graph                                                                    
assumed that drilling would resume  in existing fields, with                                                                    
the expectation  of new fields  coming on. He said  that the                                                                    
official production  forecast was  one scenario form  a wide                                                                    
range  of  potential  outcomes  and  depending  on  how  new                                                                    
developments   produced,  there   was   a   wide  range   of                                                                    
possibilities. He  noted that  fairly stable  oil production                                                                    
was forecasted.                                                                                                                 
Co-Chair  Stedman  commented  that he  had  requested  bugle                                                                    
charts  for numerous  presentations to  illustrate the  risk                                                                    
exposure  between high  and low  prices. He  appreciated the                                                                    
slide  and  commented  that  it was  easy  to  discern  risk                                                                    
exposure over different volumes and prices.                                                                                     
10:18:14 AM                                                                                                                   
Mr.  Stickel  advanced  to   slide  21,  "Petroleum  Detail:                                                                    
Changes  to  North  Slope  Petroleum  Production  Forecast,"                                                                    
which showed  a line graph  depicting the fall  forecast for                                                                    
ANS  oil  production compared  to  the  spring forecast.  He                                                                    
cited that  the forecast had increased  for FY 22 and  FY 23                                                                    
due to  increased drilling and activity  in existing fields.                                                                    
The graph  showed a slight  decrease in the forecast  in the                                                                    
out   years    due   to   uncertainties    surrounding   new                                                                    
10:19:09 AM                                                                                                                   
Mr. Stickel  looked at slide  22, "Petroleum Detail:   North                                                                    
Slope  Allowable Lease  Expenditures," which  showed a  line                                                                    
graph  overlaying a  bar graph  showing how  allowable lease                                                                    
expenditures had changed over the  past decade, as well as a                                                                    
10-year forecast  and information pertaining to  average oil                                                                    
and  gas industry  employment.   The graph  showed a  strong                                                                    
correlation  between company  spending  and employment.  The                                                                    
costs for  capital and operating  expenditures were  part of                                                                    
the production  tax calculation, were deducted  as such, and                                                                    
were and  an important  measure of investment  by companies.                                                                    
He shared  that North Slope  capital expenditures for  FY 21                                                                    
were  $1.5  billion  and operating  expenditures  were  $2.4                                                                    
billion; the  two expenditures added together  represented a                                                                    
decrease of  $2.7 billion, year  over year, in  oil industry                                                                    
investment  in  the  state.   The  department  forecasted  a                                                                    
rebound in  FY 22 and  FY 23,  as companies invested  in new                                                                    
developments and  resumed drilling in major  fields. He said                                                                    
that stabilization  of capital expenditures  was anticipated                                                                    
at approximately $2 billion per  year. He expected that cuts                                                                    
made over the  last year in operating  expenditures would be                                                                    
permanent  as companies  had discover  how  to operate  more                                                                    
efficiently.  He noted  that there  was an  increase in  the                                                                    
forecast  as   new  companies  came  online   later  in  the                                                                    
forecasted period.                                                                                                              
10:21:07 AM                                                                                                                   
Senator Wielechowski  asked whether the  permanent operating                                                                    
cuts  included  jobs  and  wondered   whether  there  was  a                                                                    
projection for  the number  of jobs in  the oil  field going                                                                    
Mr. Stickel  thought the Department  of Labor  and Workforce                                                                    
Development  produced  employment forecasts.  He  reiterated                                                                    
the strong  correlation between  company spending  and jobs.                                                                    
He thought it would be  reasonable to expect and increase in                                                                    
jobs going forward.                                                                                                             
Co-Chair Stedman  said that information on  the matter would                                                                    
be brough before the committee.                                                                                                 
Senator Wielechowski commented that  the state cut oil taxes                                                                    
in  2013 and  had an  oil tax  initiative and  referendum in                                                                    
2014, changes  which involved the expectation  of more jobs,                                                                    
more  investment,  more  revenue  to the  state,  a  growing                                                                    
permanent fund  dividend, and 1  billion barrels of  oil per                                                                    
day.  He  felt  that  none  of  those  things  had  come  to                                                                    
fruition.  In 2020,  there was  another initiative  that was                                                                    
supposed  to  save jobs  and  the  permanent fund  dividend,                                                                    
which resulted  in more  job losses  and the  permanent fund                                                                    
dividend  cut by  two-thirds. He  thought  it was  important                                                                    
that there  should be  some accountability  for the  lack of                                                                    
positive  results  to  the  state   based  on  the  oil  tax                                                                    
10:23:26 AM                                                                                                                   
Senator von Imhof  noted that the graph on  slide 22 started                                                                    
in 2012,  and previous graphs  began with 2018.  She thought                                                                    
it would be helpful go back  to 2012 in the previous graphs.                                                                    
She thought  it was important to  note that there was  a lot                                                                    
of factors that affected capital investment decisions.                                                                          
Co-Chair Stedman thought  that the numbers could  go back as                                                                    
far as 2008.  He thought it would be nice  to have the slide                                                                    
replicated  with   the  non-deductible  figures   above  the                                                                    
capital  and operating  expenditures. He  thought there  was                                                                    
confusion  over  the  cost   surrounding  property  tax  and                                                                    
deductible  and non-deductible  expenditures. He  recognized                                                                    
that  non-deductible  numbers  would  be  smaller  than  the                                                                    
deductible but felt  that the figure was  significant in the                                                                    
overall numerics. He asked the  x-axis of the graph on slide                                                                    
22 include the actual numbers for clarity.                                                                                      
10:26:42 AM                                                                                                                   
Co-Chair  Bishop commented  on the  employment numbers,  and                                                                    
though the  subject was worthy of  committee discussion with                                                                    
the Department of Labor and Workforce Development.                                                                              
Co-Chair Stedman agreed.                                                                                                        
10:27:40 AM                                                                                                                   
Mr. Stickel  spoke to  slide 23,  "Petroleum Detail:   North                                                                    
Slope Transportation  Costs," which showed a  bar graph with                                                                    
a similar history and forecast  for transportation costs. He                                                                    
noted that the  costs were also known as  net-back costs and                                                                    
were important  because they  reduced the  value of  the oil                                                                    
that was  subject to  both tax and  royalty. He  stated that                                                                    
the primary  costs of transportation were  the Trans-Alaskan                                                                    
Pipeline Tariff  and the marine transportation  costs. There                                                                    
were several  other minor  costs including,  feeder pipeline                                                                    
tariffs   and   quality   bank  adjustments.   The   average                                                                    
transportation costs  for North Slope oil  were estimated at                                                                    
$9.19/bbl. for FY  21, $9.70/bbl. for FY  22, and $9.09/bbl.                                                                    
in FY 23. The forecast  showed expected transportation costs                                                                    
of  under $10  per barrel  for the  next decade.  He related                                                                    
that any higher  costs were expected to be  offset by stable                                                                    
and increasing oil production.                                                                                                  
10:28:59 AM                                                                                                                   
Mr.  Stickel referenced  slide 24,  "Petroleum Detail:   Tax                                                                    
Credits  for Purchase  Detail,"  which showed  a bar  graph.                                                                    
Illustrating tax  credits for purchase detail.  He explained                                                                    
that prior  to 2016, there  were various credits  in statute                                                                    
which would be applied against liability or turned into                                                                         
credit  certificate that  the state  could then  purchase at                                                                    
face value. He shared that  in 2016 and 2017 the legislature                                                                    
put in place  sunset provisions for the tax  credits and all                                                                    
tax  credits available  for state  purchase had  been phased                                                                    
out. Companies  were not earning  new credits  available for                                                                    
state  purchase  but there  was  an  outstanding balance  of                                                                    
approximately   $587  million   in  FY22   for  tax   credit                                                                    
certificates for  activity performed  prior to  the sunsets.                                                                    
He noted  that there  was statutory formula  which suggested                                                                    
an annual  appropriation for purchase of  those tax credits,                                                                    
based on  10 or 15  percent on the estimated  production tax                                                                    
levied before  subtracting tax credits. Leading  up to 2016,                                                                    
the  legislature  funded the  full  amount  of eligible  tax                                                                    
credits for  purchase every  year, 2016  was the  first year                                                                    
that less than the full amount outstanding was purchased.                                                                       
He continued that FY 20 and  FY 21 were the first years that                                                                    
no appropriation was  made for purchase of  the tax credits.                                                                    
In FY  22, a total of  $54 million was appropriated  for tax                                                                    
credit purposes.  The chart showed  what the buy  down would                                                                    
look like if the statutory  appropriation was made for FY 23                                                                    
and beyond. He  said that the FY  23 statutory appropriation                                                                    
was  estimated at  $199 million;  if that  appropriation was                                                                    
made, and the statutory  appropriation each year after that,                                                                    
the full  balance of outstanding  tax credits would  be paid                                                                    
off by FY 26.                                                                                                                   
Co-Chair  Stedman noted  that the  issue, along  with budget                                                                    
cycles and fund sources, would  be discussed at the table in                                                                    
the  future. He  directed  committee attention  to the  fall                                                                    
2021 revenue sources  book and asked what  credits the state                                                                    
would have  to deal with in  2023. He asked for  Mr. Stickel                                                                    
to  speak to  Cook Inlet.  He  referenced chapter  8 of  the                                                                    
revenue sources book.                                                                                                           
Mr.  Stickel noted  that table  8-4 of  the revenue  sources                                                                    
book could be  found on pages 73 and 74  of the pdf. version                                                                    
of the book. (Copy on file.)                                                                                                    
10:32:36 AM                                                                                                                   
Mr.  Stickel stated  that in  terms of  oil and  gas credits                                                                    
that remained  available, there was a  small producer credit                                                                    
that had  a phase  out in  place. He  said that  the largest                                                                    
credit was  the taxable  barrel, which  was integral  to the                                                                    
oil  and  gas production  tax  system  and was  the  primary                                                                    
remaining credit.                                                                                                               
Co-Chair  Stedman cited  page  75 of  the  sources book  and                                                                    
requested  clarification  on  the $127  million  listed  for                                                                    
qualified  capital expenditures.  He  asked  Mr. Stickel  to                                                                    
continue down the list of expenditures  for FY 23 as laid on                                                                    
in the table.                                                                                                                   
10:33:40 AM                                                                                                                   
Mr. Stickel reiterated he was  looking at Table 8-4 on pages                                                                    
74 and  75 of the  2021 fall  revenue sources book.  The top                                                                    
half of the  table looked at credits purchased  by the state                                                                    
and  reflected all  the outstanding  tax  credits that  were                                                                    
earned back when companies could  turn activity into credits                                                                    
that could  be purchased  by the state.  He shared  that the                                                                    
table  reflected what  credits would  be purchased  with the                                                                    
$199  million statutory  appropriation.  He  noted the  $127                                                                    
million in FY 23 for  various capital expenditures and carry                                                                    
forward  credits for  North  Slope  activity. He  reiterated                                                                    
that those  credits had  been earned  years ago.  He relayed                                                                    
that  the same  break out  was  reflected on  the slide  for                                                                    
various   tax  credits   connected  to   the  $199   million                                                                    
Mr. Stickel pointed  to the bottom half of  the table, which                                                                    
showed credits  used against tax liability.  He related that                                                                    
these current  year credits were based  on current activity,                                                                    
the largest of which was  the per barrel credit amounting to                                                                    
approximately $1.2 billion  in FY 23. He  offered to provide                                                                    
more detail  in the future  on the  tax system. He  spoke to                                                                    
minor  amounts  for  small   producer  credits,  which  were                                                                    
estimated  at approximately  $1 million  for and  $3 million                                                                    
for non-ANS. The credit had a phase out provision in place.                                                                     
He said that the expectation for  FY 23 was $1.25 million of                                                                    
credits applies  against tax liability  and $199  million of                                                                    
potential state purchase for credits.                                                                                           
Mr.  Stickel  directed  committee   attention  to  line  22,                                                                    
 Carried-Forward Credits  Balance and Tax Value  of Carried-                                                                    
Forward  Annual Losses,   which  represented  any older  tax                                                                    
credits that were  held by companies that  were not eligible                                                                    
for  state  purchase or  had  chosen  not to  request  state                                                                    
purchase.  He  stated  that  with  the  elimination  of  the                                                                    
capital  expenditure credit,  companies  that  did not  have                                                                    
current  production to  apply lease  expenditures against  a                                                                    
tax calculation,  earned a carry forward  annual loss, which                                                                    
was  multiplied by  the  35 percent  statutory  tax rate  to                                                                    
estimate the tax  value of the carry  forward annual losses.                                                                    
He  said that  the $785  million  on line  22 represented  a                                                                    
potential claim against future tax revenue.                                                                                     
10:37:35 AM                                                                                                                   
Co-Chair Stedman asked Mr. Stickel  to look at the beginning                                                                    
of the chart that showed  the total credits purchased by the                                                                    
state  at   $199  million.  He   wondered  how   the  amount                                                                    
interacted  with  the  previous slide  in  the  presentation                                                                    
about oil tax credits for purchase.                                                                                             
Mr. Stickel  looked at slide 24  and noted at the  end of FY                                                                    
22 the department estimated $587  million of outstanding tax                                                                    
credits  available for  state  purchase.  He furthered  that                                                                    
calculating  in the  FY 23  statutory appropriation  of $199                                                                    
million   the  net result would be  $388 million outstanding                                                                    
at the end of 2023.                                                                                                             
Co-Chair  Stedman  asked  whether  slide  24  reflected  the                                                                    
numerics of the total credits purchased by the state.                                                                           
Mr. Stickel replied in the affirmative.                                                                                         
Co-Chair  Stedman  reminded  the public  that  the  expenses                                                                    
reflected  on the  slide were  a  liability that  had to  be                                                                    
addressed regardless of personal  feelings about the current                                                                    
tax structure.                                                                                                                  
10:39:35 AM                                                                                                                   
Senator  Wielechowski observed  that the  footnote on  slide                                                                    
     Per  AS 43.55.028,  statutory appropriation  is 10%  of                                                                    
     production tax  levied, before credits, when  ANS price                                                                    
     forecast is  $60 or higher. Statutory  appropriation is                                                                    
     15% of production tax levied,  before credits, when ANS                                                                    
     price forecast  is below $60. Does  not include changes                                                                    
     in company behavior or credit  transfers beyond FY 2022                                                                    
     as a result  of making no appropriation  or only making                                                                    
     statutory appropriation.                                                                                                   
Senator Wielechowski  pointed out that oil  was projected to                                                                    
be $71/bbl.  in 2023.  He cited slide  14, which  showed the                                                                    
2023  projected oil  and  gas production  tax  to be  $741.2                                                                    
million. He thought that 10  percent of $741.2 million would                                                                    
be  $74 million  and not  $199 million.  He argued  that the                                                                    
state  should  not  be  paying  out  $199  million  but  $74                                                                    
million.  He  cited $785  million  in  carry forward  annual                                                                    
losses cited in the revenue  sources book and wondered where                                                                    
the figure derived from.                                                                                                        
Co-Chair  Stedman  clarified  that there  was  a  per-barrel                                                                    
credit forecast to  be $1.2 billion that  would be generated                                                                    
in FY 23. He furthered that  other credits, in the amount of                                                                    
$199   million,  were   historically   generated  by   other                                                                    
companies. He thought it was  important to parse the credits                                                                    
and not to combine them.                                                                                                        
Co-Chair    Stedman   addressed    the   deductibility    of                                                                    
expenditures in  the tax structure  as mentioned  by Senator                                                                    
Wielechowski's  question. He  asked Mr.  Stickel to  provide                                                                    
further  detail  on  the accounting  process.  He  expressed                                                                    
concern for the mounting liability before the state.                                                                            
10:43:31 AM                                                                                                                   
Mr. Stickel  explained that generally  there were  two types                                                                    
of companies doing  business on the North  Slope. There were                                                                    
companies with  existing production and newer  entrants. For                                                                    
a  company  that did  have  current  production in  revenue,                                                                    
there  was a  slope-wide ring  fence when  calculating their                                                                    
oil production tax, which allowed  them to deduct costs from                                                                    
the  revenue  from  oil they  were  producing  elsewhere  in                                                                    
calculating their net profits  tax. He shared that companies                                                                    
without  current   production  earned   carry-forward  lease                                                                    
expenditures to  offset future  tax liability.  He explained                                                                    
that the  tax  value of carried forward  annual losses  line                                                                    
in the revenue sources  book represented the potential value                                                                    
of the expenditures that had  been made by new entrants into                                                                    
the future.                                                                                                                     
10:45:59 AM                                                                                                                   
Co-Chair Stedman  wanted to add that  the carryforwards were                                                                    
not  dissimilar  to depreciation.  He  used  the analogy  of                                                                    
purchasing  real estate,  through which  it was  possible to                                                                    
deduct expenditures. He stressed  that the quicker producers                                                                    
could   recover  their   cash   the   more  profitable   the                                                                    
10:50:00 AM                                                                                                                   
He argued that  the deductions of cost had to  be allowed to                                                                    
make the economics work and the  question was - how fast the                                                                    
deduction as allowed and how  many years could it be carried                                                                    
forward. He  said that most  deductions would be  capped. He                                                                    
discussed  the varying  ideas  at the  table  about how  the                                                                    
time-value  money equation  should be  handled. He  stressed                                                                    
that the  timing of  the cashflow would  affect the  rate of                                                                    
10:52:02 AM                                                                                                                   
Senator  Wielechowski  was  concerned  about  net  operating                                                                    
losses and  thought many of  the losses were  being incurred                                                                    
on federal  lands and fields  for which the state  would get                                                                    
zero  or  very  little  royalties or  production  taxes.  He                                                                    
emphasized that  the state needed  the funds now.  He wanted                                                                    
the  people  of  the  state  to  understand  the  connection                                                                    
between  the  deductible  oil tax  credits,  refundable  tax                                                                    
credits, net operating losses,  corporate income tax losses,                                                                    
and  other  corporate  welfare   and the  ability  to pay  a                                                                    
statutory dividend.                                                                                                             
Senator Wielechowski  continued his remarks. He  thought the                                                                    
state was giving money away. He thought the reason that //                                                                      
Co-Chair Stedman thought Senator Wielechowski's point                                                                           
10:54:28 AM                                                                                                                   
Co-Chair Stedman wanted  to make the point that  all oil was                                                                    
not  equal,  and depending  on  the  land ownership  in  the                                                                    
basin, severance  taxes and royalties  varied. He  said that                                                                    
when giving  incentives it was  important to know  who owned                                                                    
the land. He  asked Mr. Stickel to give a  2023 breakdown of                                                                    
field ownership within the basin.                                                                                               
Mr.  Stickel agreed  to  provide the  detail  for the  North                                                                    
Co-Chair   Stedman  reminded   that   when  setting   fiscal                                                                    
structure  and offering  stimulus it  was important  to know                                                                    
who owned the fields. He wanted  to put a finer point on the                                                                    
funds  coming into  the state  compared with  the incentives                                                                    
the state  was giving.  He believed that  separate ownership                                                                    
was a legitimate concern.                                                                                                       
10:56:54 AM                                                                                                                   
Senator Olson commented that the  issues being discussed had                                                                    
been discussed  at the table  for years and  thought nothing                                                                    
had  been  done  about  the matter.  He  thought  there  was                                                                    
resistance, particularly  in an election year.  He suggested                                                                    
that the committee focus on the big picture.                                                                                    
10:58:14 AM                                                                                                                   
Senator von  Imhof wanted  to point  out that  Senator Olson                                                                    
and  Senator Wielechowski  recently  mentioned revenue  from                                                                    
fields on federal lands that  the state would never receive.                                                                    
She stressed that  much of the revenue in  those fields went                                                                    
directly to Alaskans, bypassing state government.                                                                               
10:59:12 AM                                                                                                                   
Mr. Stickel  displayed slide 26,  "Oil & Gas  Production Tax                                                                    
Audit Status Report."                                                                                                           
COLLEEN  GLOVER,  DIRECTOR,   TAX  DIVISION,  DEPARTMENT  OF                                                                    
REVENUE  (via   teleconference),  noted  the   new  forecast                                                                    
methodology  and clarified  that the  division would  report                                                                    
both a  10 percent increase  and a 10 percent  decrease. She                                                                    
offered  to   follow  up  with   the  committee   with  more                                                                    
information regarding corporate income tax or other topics.                                                                     
Ms. Glover  pointed out  to the committee  that the  Oil and                                                                    
Gas Production Tax  program was the only program  that had a                                                                    
6-year  statute of  limitations for  assessments. All  other                                                                    
programs were on a 3-year cycle.                                                                                                
Ms. Glover  turned to  slide 26,  Oil  & Gas  Production Tax                                                                    
Audit Update:                                                                                                                   
     ?Audit Completion and Catchup Plan:                                                                                        
          o 2015 audits complete by 1Q 2022                                                                                     
          o 2016-2017 audits complete by 2Q 2022                                                                                
          o 2018-2019 audits complete by 2Q 2023                                                                                
          o 2020 audits complete by 1Q 2024                                                                                     
          o Reach and maintain three-year audit cycle by 2Q                                                                     
     ?Improvements to Reach Goal                                                                                                
          o Automated processes vs manual processes which                                                                       
          was a huge benefit due to teleworking                                                                                 
          o Ability for taxpayers to use customer portal                                                                        
          o Effective two-way communications                                                                                    
          o Continuous improvement                                                                                              
          o Consistent audit practices and documentation                                                                        
11:02:14 AM                                                                                                                   
Senator  Wilson  referenced additional  positions  requested                                                                    
for the audit  division to help with audits.  He thought the                                                                    
positions   had  been   eliminated.  He   asked  where   the                                                                    
department stood  on the  additional positions,  and whether                                                                    
the 3-year timeline could be met without them.                                                                                  
Co-Chair Stedman  asked Ms.  Glover to craft  a memo  on the                                                                    
status on  the backlog  of the  tax reviews  for collections                                                                    
and  refunds. He  asked Ms.  Glover to  help Mr.  Stickel to                                                                    
break  down   the  carry   forward  credits   for  committee                                                                    
Ms. Glover agreed to provide the information.                                                                                   
11:03:37 AM                                                                                                                   
Senator Wielechowski  asked whether  Ms. Glover  was certain                                                                    
that the 2015 audit would be completed on time.                                                                                 
Ms. Glover had  100 percent confidence that  the audit would                                                                    
be completed on time.                                                                                                           
Co-Chair Stedman  thanked the presenters for  their time. He                                                                    
discussed housekeeping.                                                                                                         
11:05:24 AM                                                                                                                   
The meeting was adjourned at 11:05 a.m.                                                                                         

Document Name Date/Time Subjects
012022 SFIN Fall 2021 Revenue Forecast Presentation 2022.01.20.pdf SFIN 1/20/2022 9:00:00 AM
DOR Fall Revenue Forecast
012022 DOR Response to Senate Finance Presentation 2022.02.06.pdf SFIN 1/20/2022 9:00:00 AM