Legislature(2023 - 2024)SENATE FINANCE 532

01/31/2023 09:00 AM Senate FINANCE

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09:00:31 AM Start
09:02:20 AM Administration Response to Prior Meetings: Department of Natural Resources
09:37:15 AM Administration Response to Prior Meetings: Department of Revenue
10:43:30 AM Administration Response to Prior Meetings: Office of Management and Budget
11:02:37 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Administration Response to Prior Meetings
- Department of Revenue
- Department of Natural Resources
- Office of Management & Budget
Bills Previously Heard/Scheduled
                 SENATE FINANCE COMMITTEE                                                                                       
                     January 31, 2023                                                                                           
                         9:00 a.m.                                                                                              
9:00:31 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair   Stedman  called  the   Senate  Finance   Committee                                                                   
meeting to order at 9:00 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Donny Olson, Co-Chair                                                                                                   
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Jesse Kiehl                                                                                                             
Senator Kelly Merrick                                                                                                           
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
John  Crowther, Deputy  Commissioner,  Department of  Natural                                                                   
Resources;  Adam Crum, Commissioner,  Department of  Revenue;                                                                   
Dan Stickel,  Chief Economist,  Economic Research  Group, Tax                                                                   
Division,  Department   of  Revenue;  Pam   Leary,  Director,                                                                   
Treasury Division,  Department  of Revenue; Neil  Steininger,                                                                   
Director,  Office of  Management  and Budget,  Office of  the                                                                   
Governor;  Cori Mills,  Deputy  Attorney  General, Office  of                                                                   
the  Attorney  General,  Department  of  Law;  Senator  Cathy                                                                   
ADMINISTRATION RESPONSE TO PRIOR MEETINGS                                                                                       
     DEPARTMENT OF REVENUE                                                                                                      
     DEPARTMENT OF NATURAL RESOURCES                                                                                            
     OFFICE OF MANAGEMENT and BUDGET                                                                                            
^ADMINISTRATION  RESPONSE TO  PRIOR  MEETINGS: DEPARTMENT  OF                                                                 
NATURAL RESOURCES                                                                                                             
9:02:20 AM                                                                                                                    
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL                                                                       
RESOURCES, (DNR) referred a letter from DNR (copy on file):                                                                     
     Capital expenditures                                                                                                       
     We understand  the Department of Revenue  (DOR) provided                                                                   
     information  responsive to this  during and  after their                                                                   
     hearing  on  the  revenue forecast.  Below,  we  provide                                                                   
     information that  is publicly available with  respect to                                                                   
     historical and  future expenditures on the  North Slope.                                                                   
     Although DNR  does have access to  information regarding                                                                   
     capital    expenditures   of    some   projects,    this                                                                   
     information   is  subject   to  confidential   treatment                                                                   
     defined under AS 38.05.035(a)(8)(D).                                                                                       
          A. Historical expenditures                                                                                            
          DOR    reports   that    the   allowable    capital                                                                   
          expenditure  on  the North  Slope  for fiscal  year                                                                   
          2022  was  $1.4 billion.  Source:  Revenue  Sources                                                                   
          Book,          page           44.          (source:                                                                   
          B. Future expenditures                                                                                                
          For the  next two fiscal  years, the  forecasts for                                                                   
          capital  expenditures  are  $2.3 billion  and  $2.7                                                                   
          billion,  respectively.  (source:  Revenue  Sources                                                                   
          Book,          page           44.          (source:                                                                   
               Capital  expenditures  are  estimated at  $2.6                                                                   
               billion.  Annual  operating  expenditures  are                                                                   
               estimated  at  $150  million.  Source:  Santos                                                                   
               Media             Release             (source:                                                                   
               ConocoPhillips:  Cost to develop  estimated at                                                                   
               approximately  $8  billion  (no  breakdown  of                                                                   
               expenditures   into  operating   and  capital)                                                                   
               BLM    Northern Economics Inc.  (consultant)'s                                                                   
               estimation  of  Willow expenditures:  Drilling                                                                   
               capital  expenditures range from  $3.6 billion                                                                   
               to    $3.9   billion.    Facilities    capital                                                                   
               expenditures  range from $4.5 billion  to $5.4                                                                   
               billion.  Operating  expenditures  range  from                                                                   
               $4.6  billion to $4.9 billion.  Source: Willow                                                                   
               Master    Development   Plan,    Environmental                                                                   
               Impact  Statement,  Volume  6: Appendices  E.8                                                                   
               through    E.16,    August    2020    (source:                                                                   
               Other developments:                                                                                              
               ConocoPhillips  plans  to invest  $25  billion                                                                   
               of  capital  for   the  period  2020     2030.                                                                   
               No   public  information   is  available   for                                                                   
               capital  expenditures  for  CRU  Narwhal  CD8,                                                                   
               MPU  Raven  Pad,  and KRU  Nuna  Torok.  These                                                                   
               were  the three  other  "key future  projects"                                                                   
               presented  on  slide  7  of  the  Department's                                                                   
9:06:47 AM                                                                                                                    
Senator Bishop  wondered whether  the drilling plan  was over                                                                   
the life of the project.                                                                                                        
Mr. Crowther  replied that  it was  a holistic assessment  of                                                                   
the project life.                                                                                                               
Co-Chair Stedman  asked for  an overview  of the royalty  and                                                                   
how it was produced and split.                                                                                                  
Mr.  Crowther replied  that  the Willow  project  was in  the                                                                   
Natural Petroleum  Reserve-Alaska  (NPRA), which was  federal                                                                   
lands to  the west of  the Prudhoe Bay  unit. He  shared that                                                                   
the royalty percentage  was allocated 50 percent  between the                                                                   
federal government  in the general  federal treasury;  and 50                                                                   
percent went  to the  state of Alaska,  but was  allocated to                                                                   
the  Community   Impact  Assistance   fund  primarily   under                                                                   
current state  and federal law.  He stated that  the revenues                                                                   
deposited  into that fund  went through  the legislature  and                                                                   
grant application  process in local communities  on the North                                                                   
9:08:29 AM                                                                                                                    
Co-Chair Stedman  surmised that there  was no cash  flow into                                                                   
the  treasury itself,  and the  impacted communities  applied                                                                   
for  grants  that  would  normally   exceed  the  50  percent                                                                   
Mr.  Crowther agreed.  He  stated that,  historically,  there                                                                   
were  not   significant   revenues  in   the  fund,   so  the                                                                   
applications  sometimes exceeded  the availability  of funds.                                                                   
He  remarked   that  there  was   an  anticipation   that  an                                                                   
increasing  amount  of funds  on  a  regular basis  would  be                                                                   
going  into  that   fund.  He  felt  that   the  funds  would                                                                   
significantly increase with the Willow project.                                                                                 
Co-Chair Stedman  stated that  there had been  some confusion                                                                   
on  the cash  flow to  the general  fund, so  he pointed  out                                                                   
where the money would be directed in the states coffers.                                                                        
9:10:38 AM                                                                                                                    
Mr. Crowther continued to refer from the letter from DNR:                                                                       
     Smith Bay development status                                                                                               
          Petroleum  News reported  in May  of 2022 that  the                                                                   
          Smith  Bay Company  planned  to pursue  unitization                                                                   
          and   drilling   in    2023.   A   unit   formation                                                                   
          application  was received  by the  Division  of Oil                                                                   
          and  Gas in October  2022. It  has not been  deemed                                                                   
          complete,  pending data  submittals  in support  of                                                                   
          the application,  so it  has not yet  been publicly                                                                   
          noticed for comment.                                                                                                  
          Two  wells  have  been  drilled in  the  Smith  Bay                                                                   
          lease  block,  though they  have  not been  tested.                                                                   
          The  Smith Bay Company  has purchased  and analyzed                                                                   
          seismic surveys for the area in the interest of                                                                       
          future   exploration.    Their   stated   plan   of                                                                   
          exploration  under  the  application  is  to  drill                                                                   
          during    the   20252026    winter    season.   The                                                                   
          application  cover  letter  has  been  attached  to                                                                   
          this letter.                                                                                                          
Senator Bishop wondered whether there was a new company                                                                         
operating the wells.                                                                                                            
Mr.  Crowther replied  that  that  the current  operator  was                                                                   
identified as  a Smith Bay  company, and believed  that there                                                                   
were some  transactions affecting  the ownership  and control                                                                   
of the  corporate entities managing  the prospect.  He agreed                                                                   
to follow up with further information.                                                                                          
Mr. Crowther continued to discuss the letter from DNR:                                                                          
     When confidential information becomes public                                                                               
          Information  received by  DNR and  requested  to be                                                                   
          held  public under  AS  38.05.035(a)(8)(C) and  (D)                                                                   
          does  not  ever  become   public  under  law.  This                                                                   
          includes  the information collected  from operators                                                                   
          in  support  of production  forecasts,  as well  as                                                                   
          any  information  in  support  of  lease  and  unit                                                                   
          plans    of    exploration,     development,    and                                                                   
          operations.  This longstanding statute is  in place                                                                   
          to  protect sensitive  commercial information  that                                                                   
          would  deter investment and  activity in  Alaska if                                                                   
          Data  received under  the  effectively repealed  AS                                                                   
          43.55.025  tax  credit  program  is released  on  a                                                                   
          varying  schedule  (210    years).  (see  available                                                                   
          data).  DNR  anticipates  data  under  the  program                                                                   
          will   continue  to  be   released  on   a  rolling                                                                   
          schedule  in  the  years ahead  until  all  periods                                                                   
          have expired.  Data received by the  Alaska Oil and                                                                   
          Gas    Conservation    Commission    (AOGCC)    for                                                                   
          development  wells  is  released  one  month  after                                                                   
          completion,  or  two  years  after  completion  for                                                                   
          exploration  wells.  Note that  well  data for  the                                                                   
          Smith  Bay wells  (CT-1 and  CT-2) was released  in                                                                   
          January 2020.  (see AOGCC data  website). Operators                                                                   
          can  request  extended confidentiality  in  limited                                                                   
          circumstances  described in law at  AS 31.05.035(c)                                                                   
          and applicable regulations.                                                                                           
          The  Department  of  Revenue may  have  tax-related                                                                   
          financial  data it  can release  in a limited  form                                                                   
          in accordance with federal law.                                                                                       
9:15:59 AM                                                                                                                    
Co-Chair  Stedman noted  that there had  been concerns  about                                                                   
the  disclosure  rules,  so  the   public  can  see  what  is                                                                   
happening  with  the state  funds.  He  felt that  maybe  the                                                                   
credit laws  could be changed,  in the event that  the credit                                                                   
discussion occurred in the future.                                                                                              
Mr. Crowther continued with the letter from DNR:                                                                                
     Cumulative volume of future North Slope projects                                                                           
          The  sum  of  the  volume   wedge  for  the  "Under                                                                   
          Evaluation"  or "UE"  category shown  in the  chart                                                                   
          on  slide 14  is 531.9 million  stock tank  barrels                                                                   
          of oil (mmstbo) over 10 years.                                                                                        
9:20:06 AM                                                                                                                    
Co-Chair  Olson  wondered  whether  the $19  billion  was  in                                                                   
reference to only Prudhoe Bay.                                                                                                  
Mr.  Crowther stated  that the  undervaluation  was meant  to                                                                   
capture  all   projects,  including  additional   development                                                                   
drilling in existing fields.                                                                                                    
Mr.  Crowther referred  to a  spreadsheet (copy  on file)  to                                                                   
compare with the points highlighted in the letter from DNR:                                                                     
     Facility capacity status                                                                                                   
          Attached  please find  a table describing  facility                                                                   
          capacity  status of  major North  Slope units.  The                                                                   
          following   is   an   explanation   of   the   data                                                                   
               1)  The facility  throughput limitations  with                                                                   
               regards  to oil, gas, and water  are estimated                                                                   
               using  public information;  if not  available,                                                                   
               are estimated  based on historical  peak rates                                                                   
               from  the  AOGCC  database,  in  case  of  the                                                                   
               historical   production  showing   decline  or                                                                   
               flat trends.                                                                                                     
               2)  Some facilities  still have upward  trends                                                                   
               in  water or have  produced very  little water                                                                   
               up  to date. Historical  peak rates  might not                                                                   
               reflect  the true facility capacity,  so those                                                                   
               estimates  are  not  given (indicated  in  the                                                                   
               table by a question mark).                                                                                       
               3)   Production  from  fields   with  multiple                                                                   
               facilities  is aggregated  to field  level due                                                                   
               to  the interconnectivity  between  facilities                                                                   
               and  no  clear  way  of  assigning  production                                                                   
               volumes  from  certain  wells  to  a  specific                                                                   
               facility  for  a  given period.  For  example,                                                                   
               Prudhoe Bay Unit.                                                                                                
               4)  Estimation of  facility capacity  is based                                                                   
               on  historical  peak  rates  and  so  may  not                                                                   
               reflect  the real nameplate capacities  of the                                                                   
               respective  facilities and fields,  but rather                                                                   
               our  best  estimate   if  the  facility  could                                                                   
               deliver  those   volumes  historically.  These                                                                   
               rates  may  or  may not  be  achievable  under                                                                   
               present  conditions.   Furthermore,  operators                                                                   
               may  remove equipment  from  service if  their                                                                   
               forecast  shows  historically  high rates  may                                                                   
               never be  achieved again, and it  is not cost-                                                                   
               effective to keep them in service.                                                                               
Co-Chair  Stedman   wondered  whether  it  was   possible  to                                                                   
increase 500,000 barrels  a day to 1 million  barrels per day                                                                   
with the current constraints.                                                                                                   
Mr. Crowther  replied that  there were  a variety  of factors                                                                   
to ensure optimization of output.                                                                                               
Co-Chair Stedman  surmised that a factor could  be because of                                                                   
the mix of oil and gas in the output.                                                                                           
Mr. Crowther agreed.                                                                                                            
Co-Chair  Stedman  asked  for   a  rundown  of  the  facility                                                                   
Mr. Crowther addressed  the column on the slide  that related                                                                   
to the  facility limitations.  He stated  that gas  and water                                                                   
were constrained  in the Prudhoe Bay field.  He remarked that                                                                   
the operations  of  managing both  gas and  water in a  field                                                                   
were significantly  complex in  a facility like  Prudhoe Bay.                                                                   
He  remarked that  water  management  required  a variety  of                                                                   
steps, and each step could be affected by many factors.                                                                         
Co-Chair   Stedman   wondered   whether   the   Prudhoe   Bay                                                                   
processing  facilities  had  been enhanced  by  an  increased                                                                   
flow of oil.                                                                                                                    
Mr. Crowther replied in the affirmative.                                                                                        
Mr. Crowther explained  continued to address  the limitations                                                                   
on the facilities.                                                                                                              
9:33:21 AM                                                                                                                    
Co-Chair  Stedman asked  that the  presentations include  the                                                                   
facility  limitations.  He  felt  that it  was  important  to                                                                   
understand  the   complicated  factors   that  go   into  oil                                                                   
production and output.                                                                                                          
Mr. Crowther agreed.                                                                                                            
9:34:21 AM                                                                                                                    
AT EASE                                                                                                                         
9:36:17 AM                                                                                                                    
^ADMINISTRATION  RESPONSE TO  PRIOR  MEETINGS: DEPARTMENT  OF                                                                 
9:37:15 AM                                                                                                                    
ADAM CRUM,  COMMISSIONER, DEPARTMENT  OF REVENUE,  introduced                                                                   
9:38:06 AM                                                                                                                    
DAN STICKEL,  CHIEF ECONOMIST,  ECONOMIC RESEARCH  GROUP, TAX                                                                   
DIVISION,    DEPARTMENT    OF    REVENUE,    discussed    the                                                                   
presentation,  "Fall  2022  Forecast  Presentation  Follow-up                                                                   
Senate  Finance Committee"  (copy  on file).  He  highlighted                                                                   
slide  2,  "Unrestricted Investment  Revenue:  POMV  Transfer                                                                   
Forecast, Inflation Adjusted."                                                                                                  
Co-Chair   Stedman  noted   the   lowering   of  the   actual                                                                   
purchasing power.                                                                                                               
Mr. Stickel  replied that examining  the issue in  real terms                                                                   
showed  that the  percent  of market  value  (POMV) would  be                                                                   
fairly stable, whereas  the nominal terms showed  an increase                                                                   
over time.                                                                                                                      
Co-Chair Stedman stated  that it would be better  to focus on                                                                   
the   increase,  because   expenditures   were  expected   to                                                                   
Mr.  Stickel pointed  to  slide 3,  "Unrestricted  Investment                                                                   
Revenue:  POMV Transfer  Forecast,  High  and  Low Case."  He                                                                   
stated that  the slide  showed a  high and  low case  for the                                                                   
transfer.  He remarked  that the  forecasted distribution  of                                                                   
potential  returns   was  provided  by  the   Permanent  Fund                                                                   
Corporation  investment  consultant, Callan  and  Associates.                                                                   
He  stated   that  the  numbers   had  been  run   through  a                                                                   
statistical analysis,  which generated a ninetieth  and tenth                                                                   
percentile for  potential transfers  to the general  fund. He                                                                   
noted  that the  low  case had  a  flat transfer  in  nominal                                                                   
terms, and  the high  case had an  transfer growth  even more                                                                   
than the  official  forecast. He  noted that  it was still  a                                                                   
fairly  stable  revenue  source  as  it  related  to  a  more                                                                   
volatile source such as oil revenue.                                                                                            
9:40:03 AM                                                                                                                    
Co-Chair  Stedman wondered  why there  was no divergence  for                                                                   
FY 24.                                                                                                                          
Mr. Stickel  stated that  the POMV  calculation was  based on                                                                   
the ending  balance of the permanent  fund in the  first five                                                                   
of  the last  six fiscal  years.  He explained  that using  a                                                                   
five-year  average  provided  stability  to the  transfer  to                                                                   
help filter out some of the volatility.                                                                                         
Co-Chair Stedman  felt that  it was  an important  concept as                                                                   
it relates  to predictability  of the  budget. He  noted that                                                                   
the POMV was roughly half of the revenue.                                                                                       
Senator  Wilson wondered  why  the low  case scenario  looked                                                                   
higher than the forecast from the previous slide.                                                                               
Mr. Stickel  replied that comparing  slides 2 and 3  showed a                                                                   
separate representation of nominal versus real terms.                                                                           
Co-Chair   Stedman  felt   that  adding   in  the   inflation                                                                   
adjustment would result in a more similar result.                                                                               
Mr. Stickel agreed to further examine that issue.                                                                               
Senator  Bishop   noted  that  the  slide  would   like  much                                                                   
different if  there was not the  addition of $9  million into                                                                   
the corpus of the fund.                                                                                                         
Mr.   Stickel   displayed   slide   4,   "Petroleum   Detail:                                                                   
Historical  North Slope  and Brent  Futures  Oil Prices."  He                                                                   
remarked that the  slide showed a comparison  of the forecast                                                                   
and several oil price outlook sources.                                                                                          
Co-Chair  Stedman   stated  that  the  chart   was  requested                                                                   
because  of the  common focus  on future  price. He  stressed                                                                   
the  consideration  of  accounting  for  the  possibility  of                                                                   
running out of cash.                                                                                                            
Mr.  Stickel  stated   that  the  futures  market   was  best                                                                   
representation  of a  most likely  case, but  agreed that  it                                                                   
was  within  a  wide  range of  outcomes  due  to  oil  price                                                                   
9:46:54 AM                                                                                                                    
Co-Chair Stedman  noted that  there was a  desire to  see the                                                                   
industry  be profitable  at  $60 per  barrel,  but the  slide                                                                   
showed profitability at around $80 per barrel.                                                                                  
Mr. Stickel addressed  slide 5, "Petroleum Detail:  Oil Price                                                                   
Forecasts." He stated  that the slide showed  a comparison of                                                                   
the  fall  forecast to  the  futures  market outlook  and  an                                                                   
average outlook from industry analysts.                                                                                         
Mr.  Stickel  looked  at  slide  6,  "Petroleum  Detail:  UGF                                                                   
Relative to  Price per  Barrel (without  POMV), FY  2024." He                                                                   
stated that the  chart showed the sensitivity  of UGF revenue                                                                   
relative to oil price.                                                                                                          
Mr.  Stickel  discussed  slide   7,  "Petroleum  Detail:  UGF                                                                   
Relative  to Price  per  Barrel  (without POMV),  FY  2024FY                                                                    
2026."  He stated  that the  slide reflected  the numbers  in                                                                   
slide 6, but in table form.                                                                                                     
Co-Chair  Stedman  recalled  that the  information  was  only                                                                   
recently included in the Revenue Sources Book.                                                                                  
Mr. Stickel  pointed to slide  8, "Petroleum  Detail: Changes                                                                   
to  North Slope  Petroleum  Production  Forecast, FY  2020FY                                                                    
2026." He shared  that the slide showed a  more narrow y-axis                                                                   
with  a   wider  outlook  to   show  the  direction   of  the                                                                   
production forecast in the upcoming five years.                                                                                 
9:51:07 AM                                                                                                                    
Mr. Stickel  looked at  slide 9,  "Petroleum Detail:  Changes                                                                   
to  North Slope  Petroleum  Production  Forecast, FY  2020FY                                                                    
2026."  He  also  displayed  slide   10,  "Petroleum  Detail:                                                                   
Capital Lease Expenditures."  He stated that the  slides were                                                                   
a    breakout   between    deductible    and    nondeductible                                                                   
Co-Chair  Stedman  asked  about  what  would  happen  to  the                                                                   
nondeductible expenditures.                                                                                                     
Mr.   Stickel    responded   that   the    deductible   lease                                                                   
expenditures  were  used as  part  of  the current  year  tax                                                                   
calculation and  impact current year tax revenues.  He stated                                                                   
that  any  nondeductible  lease expenditures  turned  into  a                                                                   
carryforward  annual  loss. He  stated  that  those could  be                                                                   
used to offset the two-year tax cut.                                                                                            
Senator  Bishop  noted  the  seven   year  timeline  for  the                                                                   
carryforward loss.                                                                                                              
Mr.   Stickel   explained   that   the   carryforward   lease                                                                   
expenditures  could  be  carried   forward  indefinitely.  He                                                                   
stated that  the unused  items would  see a reduction,  which                                                                   
was called  a  down lift  that  reduced them in value  by ten                                                                   
Co-Chair  Stedman queried  the time  value in  money on  that                                                                   
Mr.  Stickel  replied  that  adjusting  for  the  impacts  of                                                                   
inflation or cost  of capital would show that  the real value                                                                   
of those expenditures decreased over time.                                                                                      
9:55:27 AM                                                                                                                    
Co-Chair  Stedman  stressed that  it  was in  the  industrys                                                                    
best interest  to use those  expenditures sooner  rather than                                                                   
Mr. Stickel agreed.                                                                                                             
Co-Chair Stedman  remarked that  there might be  questions on                                                                   
the forward accumulation of those credits.                                                                                      
Mr.   Stickel   addressed  slide   11,   "Petroleum   Detail:                                                                   
Operating  Lease  Expenditures."   He  noted  that  the  vast                                                                   
majority  of  operating  expenditures  were  expected  to  be                                                                   
considered  deductible  expenditures,  because  most  of  the                                                                   
operating costs were  the cost of operating  units in current                                                                   
Mr. Stickel  pointed to  slide 12,  "Petroleum Detail:  North                                                                   
Slope  Allowable  Lease  Expenditures."  He stated  that  the                                                                   
Department of Labor  and Workforce Development  (DOLWD) had a                                                                   
current forecast  for oil and gas employment.  He stated that                                                                   
in FY  23 the  forecast was 700  jobs, and  a FY 30  forecast                                                                   
showing 9060 jobs.                                                                                                              
Commissioner   Crum  invited   Ms.  Leary   to  address   the                                                                   
9:58:19 AM                                                                                                                    
PAM  LEARY,   DIRECTOR,  TREASURY  DIVISION,   DEPARTMENT  OF                                                                   
REVENUE, discussed  a letter from  the tax division  (copy on                                                                   
     1.  Provide   information  about  management   fees  for                                                                   
     Treasury-managed  funds,   similar  to  the  information                                                                   
     provided  for  the Alaska  Retirement  Management  Board                                                                   
     (ARMB) and Permanent Fund in the Revenue Sources Book.                                                                     
     According  to the  Treasury  Division,  total costs  for                                                                   
     managing non-ARMB  assets in FY 2022 were  $4.0 million.                                                                   
     On June  30, 2022, the net  asset value of  these assets                                                                   
     was  $9.4 billion,  costs were  approximately 4.2  basis                                                                   
     points (0.042 percent) of net assets.                                                                                      
Co-Chair Stedman asked for a definition of basis points.                                                                        
Ms. Leary  replied that a  basis point was one  one-hundredth                                                                   
of one percent.                                                                                                                 
10:00:57 AM                                                                                                                   
AT EASE                                                                                                                         
10:02:29 AM                                                                                                                   
10:02:47 AM                                                                                                                   
Ms. Leary referred to the response letter from the DOR                                                                          
(copy on file):                                                                                                                 
     1.   Provide  historical   information   on  the   asset                                                                   
     allocation   and   performance   of   the   Power   Cost                                                                   
     Equalization  fund  and additional  information  to  the                                                                   
     Co-chairs   to   assist   in   evaluating   the   future                                                                   
     investment of the fund.                                                                                                    
     As  requested,   Attachment  1   presents  5   years  of                                                                   
     quarterly  target and actual  asset allocations  as well                                                                   
     as   quarterly  performance   compared  to   benchmarks.                                                                   
     Average  annual  performance   over  the  past  5  years                                                                   
     ending   was  2.43  percent,   slightly  ahead   of  the                                                                   
     benchmark of 2.42 percent.                                                                                                 
     Additionally,    to   assist   in   evaluating    future                                                                   
     investment   of   the  fund,   Treasury   is   preparing                                                                   
     information  for the  Co-chairs  on prospective  return,                                                                   
     risk,  and the impact  of downside  return scenarios  on                                                                   
     spending   using  both  3-year   smoothing  and   5-year                                                                   
     smoothing. Treasury  just received updated  2023 capital                                                                   
     market  assumptions  and it  will  take some  additional                                                                   
     time to incorporate them.                                                                                                  
10:05:17 AM                                                                                                                   
Co-Chair Stedman remarked that there would be a future                                                                          
presentation on Power Cost Equalization (PCE).                                                                                  
Ms. Leary looked at Item to of the letter:                                                                                      
     2. Did the  restructuring of airport system  debt extend                                                                   
     the amortization  period? What was this  savings due to?                                                                   
     Amortization   changes,   lower   interest   rates,   or                                                                   
     something else?                                                                                                            
     Bond  refinancing or  refunding  are used  by state  and                                                                   
     local  governments to  achieve debt  service savings  on                                                                   
     outstanding  bonds.  In  some cases,  the  refunding  of                                                                   
     bonds can  also be issued  to removed or  bond covenants                                                                   
     or to restructure  debt service payments.  In this case,                                                                   
     through  authorization  from  the State  Bond  Committee                                                                   
     and  the  AIAS,  in  August   2021,  AIAS  issued  $85.5                                                                   
     million  of Series 2021  A, B,  and C revenue  refunding                                                                   
     bonds,  which in  conjunction with  the contribution  of                                                                   
     $40.0 million  of cash and  prior debt service  funds on                                                                   
     hand of  the AIAS,  defeased/refunded $154.4  million of                                                                   
     par  of   then  outstanding  AIAS  revenue   bonds.  The                                                                   
     transaction   resulted  in   an   $81.8  million   gross                                                                   
     reduction  in  total  scheduled  debt  service  payments                                                                   
     between  FY2022   and  FY2036  and  net   present  value                                                                   
     savings of  approximately $24.9 million  associated with                                                                   
     the refunding  portion. The  transaction was  structured                                                                   
     to   frontload   maximum   benefit   of   airline   rate                                                                   
     reductions  over  the  first   two  years  in  order  to                                                                   
     provide  immediate  pandemic   relief  support  to  AIAS                                                                   
     customers.  The  restructuring  of outstanding  debt  of                                                                   
     the   airport  system   reduced   future  debt   service                                                                   
     payments  from FY2022 through  FY2036 without  extending                                                                   
     the   amortization.  Debt   service  savings   from  the                                                                   
     restructuring  were  realized   due  to  lower  interest                                                                   
     rates,  and  the  cash  contributions   of  the  airport                                                                   
Co-Chair Stedman noted that the state did not extend the                                                                        
Ms. Leary pointed to Item 3:                                                                                                    
     3.  Are  there   any  GeFONSI  funds  that   are  having                                                                   
     problems or are doing really well?                                                                                         
     There are currently  185 funds that are  invested within                                                                   
     the GeFONSI  funds. The Treasury manages  the GeFONSI as                                                                   
     one investment  fund and  each fund  that is  allowed to                                                                   
     receive earnings  by statute  is assigned earnings  on a                                                                   
     daily  basis. The  Treasury does  not, however,  analyze                                                                   
     how every  individual fund  within the GeFONSI  is being                                                                   
     used  by  agencies.  Rather,   it  is  the  Division  of                                                                   
     Finance,  the  Office  of   Management  and  Budget  and                                                                   
     Legislative  Finance  that  monitor balances  to  ensure                                                                   
     that the funds are not over appropriated.                                                                                  
Co-Chair Stedman noted that there was normally a briefing                                                                       
on the Legislative Finance Division (LFD), to point out any                                                                     
red flags and also fund balances.                                                                                               
Ms. Leary pointed to Item 4:                                                                                                    
     4.  How many  other funds  have  asset allocations  like                                                                   
     the Alaska Higher Education Investment fund?                                                                               
     There   are  five   funds  with   the  State's   highest                                                                   
     risk/return  asset allocation,  and they  are the  Power                                                                   
     Cost Equalization  Fund, The Public Schools  Trust Fund,                                                                   
     The  Alaska   Higher  Education  Investment   Fund,  the                                                                   
     Education  Endowment Investment  Fund, and the  Illinois                                                                   
     Creek  Mining  Reclamation  Fund.  All  five  funds  are                                                                   
     invested  in the  same underlying  asset class  building                                                                   
     blocks, but  they are not  commingled at the  fund level                                                                   
    and do not need to have the same asset allocation.                                                                          
Ms. Leary looked at Item 5:                                                                                                     
     5.  How exactly  is a  benchmark decided?  Are we  using                                                                   
     the right ones?                                                                                                            
     Asset class  benchmarks are  selected to best  represent                                                                   
     the  risk   and  return   that  could  be   produced  by                                                                   
     passively  investing  in  each underlying  asset  class.                                                                   
     The   State   used   the   following   industry-standard                                                                   
     benchmarks for each asset class:                                                                                           
     The   process  for   selecting   these  benchmarks   was                                                                   
     transparent  and  independent  and ultimately  the  fund                                                                   
     fiduciary went  through a diligent process  to make sure                                                                   
     they were  the right benchmarks.  All of  the benchmarks                                                                   
     are   subject  to   ongoing   scrutiny  by   compliance,                                                                   
     independent consultants, and investment advisors.                                                                          
     Fund benchmarks  are calculated  using a combination  of                                                                   
     the asset class  benchmarks and each fund's  asset class                                                                   
     target  weights over  time.  Performance measurement  is                                                                   
     the     responsibility      of     Treasury's     middle                                                                   
     office/compliance  group   and  is  independent  of  the                                                                   
     investment process.                                                                                                        
Co-Chair Stedman asked about the background on the Russell                                                                      
Ms. Leary replied that the Russell 3000 were common                                                                             
institutions that were known for index management.                                                                              
10:11:11 AM                                                                                                                   
Co-Chair Stedman surmised that it was 3000 of the largest                                                                       
funds by capitalization.                                                                                                        
Ms. Leary agreed.                                                                                                               
Co-Chair Stedman  stressed that his questions  were mostly to                                                                   
provide information.                                                                                                            
Ms.  Leary stated  that the  benchmarked  asset classes  were                                                                   
used as building blocks for the fund.                                                                                           
Co-Chair  Olson  queried a  tolerance  used  to called  it  a                                                                   
 missed benchmark.                                                                                                              
Ms.  Leary replied  that Attachment  1 showed  the change  in                                                                   
10:15:17 AM                                                                                                                   
Co-Chair Olson wondered  whether it fit into  the category of                                                                   
a basis point.                                                                                                                  
Ms. Leary replied in the affirmative.                                                                                           
Co-Chair  Hoffman  wondered whether  the  terminologies  were                                                                   
broadly the same when it comes to equities.                                                                                     
10:17:13 AM                                                                                                                   
Ms. Leary replied that they equated to one another.                                                                             
Co-Chair Hoffman  wondered whether  there was also  an impact                                                                   
on bonds.                                                                                                                       
Ms. Leary replied in the affirmative.                                                                                           
Co-Chair  Stedman wondered  whether  there  was a  difference                                                                   
between global equity and international equity.                                                                                 
Ms.  Leary replied  that there  were  different indexes,  and                                                                   
global equity was used in the response.                                                                                         
Ms. Leary pointed to Item 6:                                                                                                    
     6. Which funds have missed benchmarks?                                                                                     
     All  of the  underlying asset  classes outperformed  for                                                                   
     the 1-year  ended 12/31/2022. This is not  common and is                                                                   
     the byproduct  of a combination of investment  skill and                                                                   
     fortuitous cash flow timing.                                                                                               
     Both  broad market  fixed  income  and short-term  fixed                                                                   
     income  had  the highest  outperformance  and  benefited                                                                   
     from skillful  active investment management  by Treasury                                                                   
     staff during  a difficult market environment.  Staff has                                                                   
     a  long history  of adding  value  by actively  managing                                                                   
     these  portfolios  and  expects  to continue  to  do  so                                                                   
     moving forward.                                                                                                            
     The equity  strategies are invested in index  funds that                                                                   
     are   expected  to   closely   track  their   respective                                                                   
     benchmarks.  However,  cashflow  timing  can  result  in                                                                   
     modest  deviations  from the  benchmark  over time  that                                                                   
     are  outside  Treasuries   control.  During  2022  these                                                                   
     differences turned  out to be positive, but  this is not                                                                   
     expected  to repeat with  frequency. As  you can  see in                                                                   
     the   following  schedule,   relative  performance   was                                                                   
     positive  for the  1-year  period, but  there were  some                                                                   
     negative deviations over other periods:                                                                                    
     At the  fund level,  GeFONSI II was  the only  fund that                                                                   
     did  not  outperform since  it  had  a higher  level  of                                                                   
     initial cash  due to cash transfers at the  start of the                                                                   
     fiscal  year. All  of the  other  funds benefitted  from                                                                   
     the  outperformance   of  the  underlying   asset  class                                                                   
     building  blocks discussed  above. The  breadth of  this                                                                   
     outperformance  is  uncommon.   Treasury  manages  these                                                                   
     portfolios  with   tight  risk  controls   and  material                                                                   
     underperformance  is not  expected  moving forward,  but                                                                   
     modest    levels    of     both    outperformance    and                                                                   
    underperformance due to cashflow timing is normal.                                                                          
10:20:40 AM                                                                                                                   
Co-Chair  Stedman looked  at PCE,  he noted  the increase  in                                                                   
allocation  with a  reductio in  bonds.  He wondered  whether                                                                   
there  was  a discussion  on  making  allocations  slower  or                                                                   
faster depending on the market conditions.                                                                                      
Ms. Leary  replied that  asset allocations  were made  at the                                                                   
start of  a quarter, and there  was an attempt to  make those                                                                   
changes as soon as possible.                                                                                                    
Co-Chair   Stedman  queried   the   trigger   of  the   asset                                                                   
allocation in the first quarter of FY 23.                                                                                       
Ms. Leary  replied that  the change  occurred in response  to                                                                   
the legislation.                                                                                                                
Co-Chair  Hoffman queried  the prior  investment rule  before                                                                   
the prudent investment rule.                                                                                                    
Ms. Leary  replied  that the target  at that  point when  the                                                                   
change  was  made  was  that the  fund  should  receive  a  5                                                                   
percent  return  target,  which   had  been  lowered  from  7                                                                   
10:25:11 AM                                                                                                                   
Co-Chair  Stedman  requested  an examination  of  the  fourth                                                                   
quarter to first quarter from FY 21 to FY 22.                                                                                   
Ms. Leary agreed to provide that information.                                                                                   
Co-Chair  Hoffman  asked  for  a comparison  of  the  prudent                                                                   
investment rule  for the PCE to  the investment rules  of the                                                                   
permanent fund.                                                                                                                 
Ms. Leary agreed to provide that information.                                                                                   
Co-Chair  Stedman   felt  that  the  benchmarks   and  target                                                                   
returns should be included in that response.                                                                                    
Co-Chair Hoffman  looked at Item 4, and wondered  whether the                                                                   
categories  were  in the  prudent  investment  rule. He  also                                                                   
asked  when the other  funds went  into the  criteria  of the                                                                   
prudent investment rule.                                                                                                        
Ms.  Leary  replied  that the  prudent  investment  rule  was                                                                   
adhered to  by the  commission of  the Department  of Revenue                                                                   
(DOR) when  reviewing and setting  asset allocations  for the                                                                   
Co-Chair Hoffman  wondered whether the funds were  set by law                                                                   
to follow  the prudent investment  rule, as was  outlined for                                                                   
PCE in the year prior.                                                                                                          
Ms. Leary agreed to provide that information.                                                                                   
Co-Chair  Stedman  asked  for  a definition  of  the  prudent                                                                   
investment rule.                                                                                                                
Ms.  Leary  replied  that  the   prudent  investor  rule  was                                                                   
written in statute,  and detailed how a prudent  would invest                                                                   
a specific fund based on various factors. She agreed to                                                                         
outline the prudent investor rule.                                                                                              
10:33:20 AM                                                                                                                   
Co-Chair  Hoffman stressed  that he and  Co-Chair Olson  were                                                                   
the most  impacted by PCE.  He remarked  that there was  a 20                                                                   
percent  loss  to  the  fund   after  requiring  the  prudent                                                                   
investor rule to PCE.                                                                                                           
Ms.        Leary       pointed        to       Item        7:                                                                   
     7. Provide a copy of the Cash Deficiency MOU.                                                                              
     Cash  in  the  State's  General  Fund  is  essential  to                                                                   
     ongoing  day-to-day  operations.  Without  cash  in  the                                                                   
     fund,  the State  cannot  pay its  bills  and the  daily                                                                   
     operations  of the  State come  to a  halt. The  State's                                                                   
     daily  cash need can  be as  much as  $200 million  in a                                                                   
     single  day.  For purposes  of  this operating  plan,  a                                                                   
     cash deficiency  situation exists  any time  the General                                                                   
     Fund cash balance  is projected to, or  does, drop below                                                                   
     $400  million  and  is  expected   to  stay  below  $400                                                                   
     million  for five  days. In the  1990s, the  Departments                                                                   
     of  Law,  Revenue,  Administration,  and the  Office  of                                                                   
     Management   and  Budget   jointly   developed  a   Cash                                                                   
     Deficiency  Operating  Plan  to  accomplish  this  goal.                                                                   
     This  document is  updated  as needed.  The most  recent                                                                   
     update is provided as Attachment 2.                                                                                        
Ms. Leary pointed to Item 8:                                                                                                    
     8. Provide timing of the call for POMV disbursement.                                                                       
     The  POMV amount  and how  it will  be used  to pay  out                                                                   
     dividends and  support operations is known  at the start                                                                   
     of the fiscal  year based on the budget,  as approved by                                                                   
     the  legislature. For  fiscal year  2023, $1.68  billion                                                                   
     was  transferred  on  7/15/22   to  pay  dividends.  The                                                                   
     remaining  $1.68  billion  will be  transferred  to  the                                                                   
     general fund  during the second half of  the fiscal year                                                                   
     and  is somewhat dependent  on when  transfers from  the                                                                   
     general fund  to the CBRF  occur. For fiscal  year 2024,                                                                   
     the  total   POMV  draw  will  be  $3.52   billion.  The                                                                   
     Governor's budget  reflects $2.47 billion to  be used to                                                                   
     pay  dividends  leaving $1.05  billion  for  operations.                                                                   
     The timing of the transfer will again depend on cash                                                                       
     projections as the new fiscal year approaches.                                                                             
Ms. Leary discussed Item 9:                                                                                                     
     9. The presentation mentioned 14 defined benefit                                                                           
     funds. Could you let us know what these 14 funds are?                                                                      
    The 14 defined benefit funds include the following:                                                                         
     Public Employees' Retirement System (PERS)                                                                                 
          • Retirement Pension Trust                                                                                            
          • Retirement Health Care Trust                                                                                        
          • Occupational Death and Disability*                                                                                  
          • Police and Fire Occupational Death and                                                                              
          • Retiree Medical Plan*                                                                                               
          • Health Reimbursement Arrangement*                                                                                   
      Teachers' Retirement System (TRS)                                                                                         
          • Retirement Pension Trust                                                                                            
          • Retirement Health Care Trust                                                                                        
          • Occupational Death and Disability*                                                                                  
          • Retiree Medical Plan*                                                                                               
          • Health Reimbursement Arrangement*                                                                                   
      Judicial Retirement System (JRS                                                                                           
          • Retirement Pension Trust                                                                                            
          • Retirement Health Care Trust                                                                                        
      National Guard/Naval Militia Retirement System (MRS)                                                                      
          • Retirement Pension Trust                                                                                            
          *Defined benefit component of the defined                                                                             
          contribution plans                                                                                                    
10:38:26 AM                                                                                                                   
Co-Chair Stedman wondered whether there was reference to                                                                        
the old legislative pension that was only in place for one                                                                      
year thirty years prior.                                                                                                        
Ms. Leary replied the item related to the occupational                                                                          
death and disability funds for Public Employees' Retirement                                                                     
System (PERS).                                                                                                                  
Ms. Leary pointed to Item 10:                                                                                                   
     10. Provide a break down the $1.37 billion balances on                                                                     
     slide 13.                                                                                                                  
     The $1.37  billion as of  June 30, 2022,  represents the                                                                   
     cash  balance  of  $910 million  in  the  Constitutional                                                                   
     Budget  Reserve  Fund (CBRF)  and  $410 million  in  the                                                                   
     Statutory  Budget   Reserve  (SBR)  fund.   The  accrued                                                                   
     balances   of  these   funds  in   the  state's   Annual                                                                   
     Comprehensive  Financial  Report  (ACFR)  available  for                                                                   
     appropriation  on June 30, 2022,  are in the  process of                                                                   
     being audited.  Based on  discussions with  the Division                                                                   
     of Finance  and Office of  Management and  Budget (OMB),                                                                   
     the accrued  balance of  the CBRF as  of June  30, 2022,                                                                   
     is  estimated   to  be  $2.2  billion,   resulting  from                                                                   
     transfers  from the general  fund to  the CBRF  for fund                                                                   
     surpluses  and sweep  amounts.  The SBR  is expected  to                                                                   
     have an accrued  balance of $370 million as  of June 30,                                                                   
Commissioner Crum looked at Items 11 and 12:                                                                                    
     11. Provide  a minimum balance or minimum  range for the                                                                   
     Constitutional Budget Reserve Fund (CBRF).                                                                                 
     This   is  an   OMB  policy   and   will  be   addressed                                                                   
     accordingly in their response/presentation.                                                                                
     12. How would  rating agencies view a  $500 million CBRF                                                                   
     The rating  agencies view  of the State's  credit rating                                                                   
     profile as  very unique compared to other  States within                                                                   
     the U.S  due to the  State's economic concentration  and                                                                   
     dependence  on a  volatile  oil and  gas industry.  That                                                                   
     being  said, rating  agencies  have  viewed the  State's                                                                   
     rating outlook  as stable/positive due to  its financial                                                                   
     standing  (i.e. low debt  profile, reduction  in pension                                                                   
     obligations    and   other    postemployment    benefits                                                                   
     obligations     including    the    State's     sizeable                                                                   
     constitution budget reserve).                                                                                              
^ADMINISTRATION RESPONSE TO PRIOR MEETINGS: OFFICE OF                                                                         
MANAGEMENT and BUDGET                                                                                                         
10:43:30 AM                                                                                                                   
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,                                                                     
OFFICE OF THE GOVERNOR, introduced himself.                                                                                     
10:45:29 AM                                                                                                                   
AT EASE                                                                                                                         
10:47:23 AM                                                                                                                   
10:47:50 AM                                                                                                                   
CORI MILLS, DEPUTY  ATTORNEY GENERAL, OFFICE OF  THE ATTORNEY                                                                   
GENERAL,  DEPARTMENT  OF  LAW,  addressed  a  question  about                                                                   
statehood defense:                                                                                                              
     Senator  Olson  asked  what  the  success  rate  is  for                                                                   
     litigation relating to statehood defense, and what the                                                                     
     running total is for such costs.                                                                                           
     Currently,  Department  of  Law  has  many  cases  still                                                                   
     pending  in district  courts  or on  appeal, please  see                                                                   
     attached  list of  current litigations  funded with  the                                                                   
     multi-year  appropriations  for Statehood  Defense.  Out                                                                   
     of  all  these cases  four  were  lost in  the  district                                                                   
     court  and are currently  on appeal  (attachments  3 and                                                                   
10:50:22 AM                                                                                                                   
Co-Chair  Olson  queried  the percentage  of  decisions  made                                                                   
where there was a loss at the district level.                                                                                   
Ms. Mills replied that three were in the appeals court.                                                                         
Co-Chair Olson stressed  that the case was  important because                                                                   
it related to local control.                                                                                                    
10:54:14 AM                                                                                                                   
Co-Chair Hoffman queried the cost related to the case.                                                                          
Ms.  Mills  replied  that  the   estimate  was  approximately                                                                   
Co-Chair Hoffman  wondered why the  funds would be  asked for                                                                   
now, rather than a supplemental request.                                                                                        
Ms. Mills  replied  that the success  rate  on all cases  was                                                                   
not  yet known,  but the  navigability  cases were  generally                                                                   
successful. She stated  that it was difficult to  know when a                                                                   
case would suddenly be expensive.                                                                                               
Senator  Bishop  stated  that   he  would  ask  his  question                                                                   
Senator  Kiehl  requested  approximate   price  tags  on  the                                                                   
multiyear needs.                                                                                                                
Ms.  Mills replied  that only  certain cases  fit within  the                                                                   
appropriations. She agreed to provide an estimate.                                                                              
10:58:32 AM                                                                                                                   
Co-Chair  Stedman  noted  that  the state  defense  had  many                                                                   
angles. He asked about returning state artifacts.                                                                               
Ms. Mills agreed to look at the specific language.                                                                              
Co-Chair   Stedman  wondered   whether   there   was  a   new                                                                   
appropriation for $10 million.                                                                                                  
Mr. Steininger replied in the affirmative.                                                                                      
Co-Chair  Hoffman noted  the change in  direction on  whether                                                                   
the funds should be included in the operating budget.                                                                           
Mr. Steininger agreed.                                                                                                          
Co-Chair  Hoffman felt  that the  operating budget  may  be a                                                                   
better approach,  in order to fully examine  the specifics of                                                                   
the request.                                                                                                                    
Co-Chair  Stedman stated  that the  remaining responses  from                                                                   
OMB would be  presented at a later meeting.  He discussed the                                                                   
following day's agenda.                                                                                                         
11:02:37 AM                                                                                                                   
The meeting was adjourned at 11:02 a.m.