Legislature(2005 - 2006)SENATE FINANCE 532
04/20/2006 01:00 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SJR19 | |
| SB271 | |
| SB10 | |
| SB305 | |
| Adjourn | |
| SB305 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SJR 19 | TELECONFERENCED | |
| += | SB 271 | TELECONFERENCED | |
| + | SB 10 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 305 | ||
MINUTES
SENATE FINANCE COMMITTEE
April 20, 2006
1:05 p.m.
CALL TO ORDER
Co-Chair Lyda Green convened the meeting at approximately
1:05:56 PM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Fred Dyson
Senator Bert Stedman
Also Attending: SENATOR GARY STEVENS; ROD BETIT, President and
Chief Executive Officer, Alaska State Hospital and Nursing Home
Association; RICHARD MANDSAGER, MD, Director, Division of Public
Health, Department of Health and Social Services; JOHN
MACKINNON, Deputy Commissioner, Department of Transportation and
Public Facilities; TONY NEWMAN, Program Officer, Division of
Juvenile Justice, Department of Health and Social Services; DAN
DICKINSON, CPA, Consultant to the Department of Revenue; CHERIE
NIENHUIS, Petroleum Economist, Tax Division, Department of
Revenue;
Attending via Teleconference: From an offnet location: CATHY
HANSEN, Attorney, Office of Victims' Rights, Legislative Affairs
Agency; ROB MINTZ, Assistant Attorney General, Oil, Gas and
Mining Section, Civil Division, Department of Law; From
Anchorage: STACY STEINBERG, Chief Assistant Attorney General,
Statewide Section Supervisor, Collections and Support Section,
Civil Division, Department of Law; GAIL VOIGTLANDER, Chief
Assistant Attorney General, Statewide Section Supervisor, Torts
and Worker's Compensation Section, Civil Division, Department of
Law; From Kenai: LARRY KREJCI
SUMMARY INFORMATION
SJR 19-TASK FORCE ON HOSPITAL INFECTIONS
The Committee heard from the sponsor, the Department of Health
and Social Services and a hospital association. An amendment was
adopted and the resolution was reported from Committee.
SB 271-AUTHORIZE HWY PROGRAM PARTICIPATION
The Committee heard from the Department of Transportation and
Public Facilities. The bill was reported from Committee.
SB 10-PARENTAL LIABILITY FOR CHILD'S DAMAGE
The Committee heard from the sponsor, the Office of Victims'
Rights, the Department of Law, the Department of Health and
Social Services and a parent. The bill was held in Committee.
SB 305-OIL AND GAS PRODUCTION TAX
The Committee heard a presentation by the Department of Law and
a consultant to the Department of Revenue. The bill was held in
Committee.
1:06:17 PM
SENATE JOINT RESOLUTION NO. 19
Relating to creating the Task Force to Assess Public
Reporting of Health Care Associated Infections.
This was the first hearing for this bill in the Senate Finance
Committee.
1:06:23 PM
SENATOR GARY STEVENS, sponsor of the resolution, explained it
would create a task force to make recommendations on the
establishment of a reporting system. Approximately two million
infections are acquired each year in hospitals and an estimated
90,000 people die as a result of these infections. The cost to
consumers is between $4.5 and $11 billion a year. This problem
must be addressed.
Senator Gary Stevens outlined the interim task force that would
be appointed to review experience to date with public reporting
of hospital-associated infections. The task force would also be
charged with drafting legislation for consideration during the
next legislative session. Additionally the task force would
provide a timeline for implantation of the recommendations and
establish a reporting system.
1:09:05 PM
Co-Chair Green asked whether the January 31, 2007 termination
date of the task force would be appropriate.
1:09:17 PM
Senator Gary Stevens answered the time allowed would be
sufficient, as the work could be completed in three meetings.
Co-Chair Green asked the process to determine membership on the
task force.
Senator Gary Stevens affirmed that in conjunction with the
Department of Health and Social Services, it was determined that
the membership of the task force would be comprised of
professionals and legislators.
1:09:55 PM
Co-Chair Wilken, citing the language of lines 15 through 17 on
page 2, asked why the resolution specifically prohibited the
public members of the task force from receiving reimbursement
for travel expenses. He understood the decision to not provide
compensation, but suggested that travel costs be reimbursed.
Senator Gary Stevens agreed this would be appropriate. The
intention was to secure membership from those willing to
participate at their own expense. Such reimbursement by the
State would incur some cost, but he was willing to support the
proposal. The task force members representing the Alaska Native
Tribal Health Consortium (ANTHC), the Alaska Chapter of the
Association of Professionals in Infection Control and
Epidemiology and the Alaska State Hospital and Nursing Home
Association (ASHNHA) could also represent "a consumer of health
care who resides in rural Alaska" or "a consumer of health care
who resides in urban Alaska".
1:11:08 PM
Co-Chair Wilken acknowledged this, but surmised that volunteers
willing to participate in holding the seats designated for a
consumer of health care residing in rural Alaska and the
consumer of health care who resides in urban Alaska should
receive reimbursement for at least their travel and lodging
expenses.
Co-Chair Green pointed out that legislators and State employees
holding positions in similar commissions do not receive special
compensation. Travel and lodging is paid however.
Senator Gary Stevens suggested that the meetings be held in
Anchorage, where most members would reside.
1:12:19 PM
Amendment #1: This conceptual amendment would provide State
reimbursement of travel and other expenses for the seats
designated for "a consumer of health care who resides in rural
Alaska" and "a consumer of health care who resides in urban
Alaska".
Co-Chair Wilken moved for adoption. He noted those holding the
remaining designated seats would receive reimbursement from the
agencies or organizations they represent.
There was no objection and the amendment was ADOPTED.
1:14:42 PM
ROD BETIT, President and Chief Executive Officer, Alaska State
Hospital and Nursing Home Association, testified in support of
the resolution. The issue is important and should be addressed
in a timely manner. He agreed the number of hospital acquired
infections could be reduced.
1:17:26 PM
RICHARD MANDSAGER, MD, Director, Division of Public Health,
Department of Health and Social Services, testified to his
efforts with the sponsor to conceive the proposed task force.
Six other states have reporting requirements for infectious
diseases contracted in hospitals. The task force could review
these systems and garner information from both the positive and
negative aspects of the other states' programs.
Dr. Mandsager informed that the state of Vermont formed a
similar task force a year prior, which proposed legislation
based in its findings. The resolution before this Committee
would allow for the same process.
Dr. Mandsager spoke to complexities of the issue in Alaska.
Twenty-five years ago, only 30 percent of surgical care was
performed as outpatient care; currently, almost 75 percent is
done in this manner. Although the title of the resolution
specifies "health care associated infections", he recommended
the focus should be inclusive and consider all forms of surgical
care delivery. This would make the task force progress more
difficult.
Dr. Mandsager further cautioned that data reporting would be
problematic with smaller institutions. Because the volume of
smaller institutions is low, the reported percentages of any
infections could be misleading.
1:19:18 PM
Senator Olson asked the hardship such reporting requirements
would cause smaller health clinics that are not in-patient care
facilities.
Dr. Mandsager told of preliminary discussions held with the
ASHNHA on this issue. The Association as well as the ANTHC would
participate in the task force because of the potential impacts
to its member health care providers. Recommendations of the
task force would ultimately be determined by cost and value
returned from investment. To be a "worthwhile exercise" the
process must ensure that institutions could afford to
participate so consumers could receive accurate information of
value.
Senator Olson asserted that accreditation is important for
smaller hospitals, and asked whether this process would impact a
clinic's efforts in achieving or maintaining accreditation.
1:20:33 PM
Dr. Mandsager responded that a joint commission, which awards
accreditation, was undertaking the same effort of reporting
hospital surgical standards. The states that have already
implemented reporting requirements of hospital acquired
infectious diseases include the process in the licensure and
certification of institutions allowed to operate in that state.
The same would occur for Alaska if similar reporting
requirements were instituted.
1:21:00 PM
Senator Olson asked how less commonly known infections would be
addressed under the proposal.
Dr. Mandsager replied that the "scope" of which diseases would
require reporting would be determined by the task force. The
states that appear to have the most success with implementing a
reporting system have opted to limit the number of infection
types to be reported to those with higher frequency and have
broad applicability. The size of the data system and the costs
would be too large if reporting of all infection types were
required. Once capacity and "learning" has been established for
a limited number of types, the governing body could determine to
require reporting of additional types of infections.
1:22:18 PM
Senator Dyson commented on Dr. Mandsager's goal of achieving an
extensive health education and information system for the State.
This resolution represents "a step in the first portion" of
accomplishing this.
1:23:32 PM
Senator Dyson offered a motion to report SJR 19, 24-LS1657, as
amended, from Committee with individual recommendations and a
new fiscal note.
Without objection, CS SJR 19 (FIN) was MOVED from Committee with
a forthcoming fiscal note. The zero fiscal note, dated 4/24/06,
from the Legislature, was submitted to the Senate Secretary.
AT EASE 1:24:03 PM / 1:24:32 PM
1:24:36 PM
SENATE BILL NO. 271
"An Act authorizing the commissioner of transportation and
public facilities to participate in certain federal highway
programs and relating to that authorization; relating to
powers of the attorney general to waive immunity from suit
in federal court related to those programs; and providing
for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Green reminded that this bill would provide the
statutory authority necessary for the establishment of a pilot
program proposed by US Congressman Don Young of Alaska. The
provision relating to immunity waivers is necessary to reduce
delays.
1:25:46 PM
Senator Stedman clarified that no changes were proposed to the
original version of the bill previously heard in Committee.
Co-Chair Green affirmed.
Senator Stedman recalled that concern was expressed about the
amount of the fiscal note and the increased number of positions
this bill would entail. Funding for additional positions is
included in the FY 07 Operating Budget earlier reported from
Committee. He was not convinced that the proposed program would
improve the process to the extent that the costs would be
warranted.
1:27:19 PM
JOHN MACKINNON, Deputy Commissioner, Department of
Transportation and Public Facilities, testified that funding for
the additional positions as listed in the fiscal note is not
included in the FY 07 Operating Budget. The program would be
funded primarily with federal funding, but would require State
matching funds. The Department supports the creation of this
program. It would benefit Alaska by streamlining the process and
allowing for decision-making "in house" within the Department
rather than by the federal government. The cost is low in
comparison to the large program. The cost savings incurred in
one year from streamlining a project would pay for the operation
of the program.
1:29:23 PM
Senator Stedman expressed concern of the potential risk exposure
to the State by waiving this sovereign immunity. He asked if
more exposure to liability could occur than anticipated.
Mr. McKinnon had contacted the federal Highway Administration
and learned it had little litigation history on this issue. In
cases of litigation resulting from accidents the court directed
that certain changes be made to prevent additional crashes. He
told of a case involving the state of Utah in which hearings on
an environmental impact statement were held as an open meeting
forum and information was inadvertently posted and made public.
1:31:33 PM
Senator Stedman pointed out that few roads had been constructed
in Alaska in the last 20 years. New roads would improve commerce
and travel. He asked if this legislation is intended to
facilitate the construction of new roads or just shorten the
length of time to resolve "the inevitable" litigation by one
year.
1:32:08 PM
Mr. McKinnon expressed the Department's intent to address this
undertaking "seriously" by following procedure correctly but
also to provide "checks and balances" to ensure against errors.
This program would provide no guarantee against litigation. In
the history of these State projects, two cases have been
litigated against; Illiamna/Nondalton road and bridge project,
which is still pending, and the Whittier Tunnel. The State and
federal agencies have prevailed to date on all actions relating
to these projects.
1:32:59 PM
Senator Olson asked the amount of time until the federal funding
is eliminated and the State would be required to assume all
costs to operate this program, as is occurring with many other
programs.
1:33:26 PM
Mr. McKinnon answered that the provisions of this legislation
would be part of the federal highway aide program. The federal
funding is assured for five years for this six-year program. He
presumed that if federal funding for highway construction were
eliminated nationwide "serious mutiny" would occur.
1:34:06 PM
Senator Olson clarified that State funding would not be required
to "backfill" a reduction or elimination of federal funding for
five years.
Mr. McKinnon responded the federal funding would be assured for
at least five years and most likely longer.
Senator Olson asked if State assumption of this process would
affect the eligibility to receive federal funding.
Mr. McKinnon surmised this undertaking would not make the State
more or less eligible for federal funding for transportation
projects.
1:34:53 PM
Co-Chair Wilken offered a motion to report the bill, 24-
GS2042\A, from Committee with individual recommendations and
accompanying fiscal notes.
There was no objection and SB 274 was MOVED from Committee with
fiscal note #1 for $647,400 from the Department of
Transportation and Public Facilities and zero fiscal note #2
from the Department of Environmental Conservation.
1:35:12 PM
CS FOR SENATE BILL NO. 10(JUD)
"An Act relating to civil liability for damage to or
destruction of property by minors; relating to court
revocation of a minor's privilege to drive; relating to
restitution for certain acts of minors; and amending Rule
60, Alaska Rules of Civil Procedure."
This was the first hearing for this bill in the Senate Finance
Committee.
Senator Dyson, co-sponsor of this legislation with Senator
Gretchen Guess, told of significant vandalism perpetrated by
minors. He and Senator Guess combined their efforts to address
this issue.
1:36:35 PM
Senator Dyson explained this bill would continue efforts of
establishing a "common law" system to recompense victims for
damages against them and restore the victim to a pre-offense
condition. The trend is "moving away from" a system practiced in
American law in which "you pay your fines to the king."
Senator Dyson qualified that the provisions of this bill could
appear "awkward", but assured they would ensure that the person
who causes the property damage would be the "first one up" to
recompense the victim. This would also apply to minors who
commit these offenses. A minor would be responsible for the
first $5,000 in restitution. The minor offender's driver's
license could be revoked, Alaska Permanent Fund Dividend
garnished, and a payment schedule imposed that could extend to
beyond their reaching the age of 18 until the debt is satisfied.
Senator Dyson noted that if the minor offender has a parent,
that parent could be held liable for restitution of that portion
of damages that exceed $5,000, with a maximum liability of
$15,000. Liability for that portion of damages exceeding $20,000
would revert to the minor who would be required to pay the
restitution until the victim was fully compensated.
1:38:44 PM
Senator Dyson addressed the issue of an "uncontrollable child",
informing that this legislation includes a provision to exempt
parents from this liability if the parent notified authorities
that the child was a runaway. In these instances, the minor
would be liable for restitution of all damage costs. For those
minors held in State custody, this bill would exempt foster
parents from the liability with the State paying the parental
obligation.
Senator Dyson stressed that someone must be held responsible for
repaying the victim.
1:41:21 PM
CATHY HANSEN, Attorney, Office of Victims' Rights, Legislative
Affairs Agency, testified via teleconference from an offnet
location that this legislation includes several positive aspects
to assist in securing restitution for victims. The Office of
Victims' Rights (OVR) supports the concept of consistency
involving laws that affect the ability of a crime victim to
obtain restitution. The cost of the damage and the ability of
the victim to collect restitution should not depend on whether a
juvenile is sentenced to informal probation, adjudicated as a
delinquent or whether the offender or his parents are sued in
instances in which the State chooses to not prosecute the
offence.
Ms. Hansen reported that an important part of the criminal
process for victims is restitution. Victims often "pay a high
emotional price" and should not additionally be required to bear
the economic cost of the juvenile delinquent acts. Victims must
bear the financial cost upfront and must often wait months or
years for payment. This delay includes the process of
adjudication of the offender and collection. Some victims are
never paid.
Ms. Hansen reminded that voters in 1994 approved an amendment to
the Alaska Constitution that instituted a constitutional right
to victims' restitution. The OVA supports full restitution for
victims and prompt payment when possible, but could not support
any legislative change that would not promote this goal.
Ms. Hansen therefore expressed concerns with the language of
this bill that would limit a juvenile's responsibility to $5,000
of the total cost of damage. The victims should be paid "first".
Parents paying on behalf of the juvenile have the ability to
withhold dividends and obtain repayment in other manners.
Requiring the juvenile to make the payment directly could
interfere with the victim's right to obtain restitution.
Ms. Hansen furthered that parental liability should not be
limited to $15,000, especially if the parent has the financial
ability to pay more. Making the parent totally responsible for
the restitution would provide incentive to the parent to ensure
the debt is paid.
1:48:00 PM
Senator Dyson asked if these concerns were raised when this bill
was heard by the Senate Judiciary Committee.
Ms. Hansen answered they were, reiterating notes from her
testimony provided to that committee.
1:48:41 PM
STACY STEINBERG, Chief Assistant Attorney General, Statewide
Section Supervisor, Collections and Support Section, Civil
Division, Department of Law, testified via teleconference from
Anchorage that the Section collects restitutions in juvenile
delinquency cases that have undergone the formal adjudication
process in which the court has ordered a restitution judgment.
The Collection and Support Section does not become involved in
informal restitution cases. She was available to speak to the
Department's ability to collect restitutions for victims under
the provisions of this bill.
Ms. Steinberg directed attention to Section 13 of the Senate
Judiciary Committee substitute, which would insert new
subsections to AS 47.12.120 and pertaining to restitution in
formal juvenile delinquency cases. Under the provisions of the
new subsections, collecting restitution would take longer and
would require more resources of the Department to collect the
same amount of money.
Ms. Steinberg continued that the provisions of Section 13 would
eliminate joint and severable liability between the juvenile and
the parent and would also establish a structure in which
liability would be divided between the juvenile and the parent.
Ms. Steinberg explained that under the existing joint and
severable liability procedure, a court order for the juvenile to
pay $5,000 in damages also holds the parent responsible. The
Department could collect the entire amount or any combination of
the entire amount from either parent or the juvenile, depending
upon which party has the financial resources.
Ms. Steinberg gave an example of how the provisions of this
legislation would be executed "in the practical world". Under
the proposed system, collection of the $5,000 could only be
received from the juvenile. Approximately two-thirds of the
cases the Section handles involve $5,000 or less. Generally, the
juvenile does not have many financial resources and payment is
primarily secured through garnishment of Alaska Permanent Fund
dividends. Under the existing system, in situations in which the
juvenile and parents have limited financial resources, up to
three dividends could be garnished each year; one from each
parent and one from the juvenile, until the debt is paid. The
proposed system would only allow for garnishment of the
juvenile's dividend. This would extend the amount of time before
the victim is recompensed from approximately two years to five
years for a restitution of $5,000.
Ms. Steinberg explained that the Collections and Support Section
currently "opens one file" for each claim. Under the proposed
system, three files would be necessary. More resources would be
required to collect the same amount of restitution. The fiscal
note reflects this in listing the addition of a paralegal or
legal assistant position at a cost of $110,000 per year, in
addition to approximately $6,000 in the first year to purchase
equipment and other necessities for the position.
Ms. Steinberg continued that the Section would be required to
establish and administer payment plans for juveniles, a process
that requires more time and resources than a one-time
collection.
1:56:35 PM
Senator Dyson appreciated the witness' comments about joint and
severable liability. In reality, many of the cases involve a
single parent who is "struggling" to raise the child. He
understood that the existing system allows collection from a
non-custodial parent who could have little involvement in the
child's life.
1:57:14 PM
Ms. Steinberg responded that the Department could only collect
from a parent who is listed in the judgment. In some cases two
parents are listed, and other cases only list one parent. The
Department does not receive information explaining why two
parents are not listed in a judgment.
1:58:29 PM
Senator Dyson had anticipated Ms. Steinberg would speak to the
public policy issue of whether collecting from both parents is
appropriate. However, he understood the witness' testimony to
expound on the issue of effectively and efficiently collecting
judgments.
Ms. Steinberg affirmed.
1:59:14 PM
Senator Dyson agreed that a provision requiring the juvenile
offender to pay the first $5,000 of restitution could delay the
process of recompensing the victim. He asked if Ms. Steinberg
could suggest an alternative amount.
Ms. Steinberg responded that generally juveniles do not have the
necessary financial resources to fulfill the restitution
obligation. Juveniles should be attending school and at most,
would have a part-time job. The most common means of collection
of restitution from juveniles is through garnishment of Alaska
Permanent Fund dividends. She preferred restitution be ordered
as a joint judgment from the juvenile and the parent. Otherwise,
she would suggest the juvenile be held responsible for a lesser
amount.
2:01:00 PM
Senator Dyson emphasized that the witness's suggestions were
based on practicality. However, the Alaska Constitution
stipulates the responsibility for rehabilitating juvenile
offenders. Holding them responsible for restitution could assist
in their rehabilitation. He asked if personal property, such as
vehicles and electronic equipment could be confiscated from the
offenders.
2:01:47 PM
Ms. Steinberg stressed that the Collections and Support Section
does not have the resources to undertake that sort of collection
activity. Even if able to obtain a court order to confiscate
property, the Section does not have a system to sell the
property and give proceeds to the victim.
2:02:27 PM
Senator Olson asked about instances in which an offender, upon
realizing the Alaska Permanent Fund dividend would be garnished,
does not apply to receive the dividend.
Ms. Steinberg replied that in most instances the juvenile does
apply to receive the dividend. The court could order that an
application be filed and a provision requiring such a court
order included in this legislation would be beneficial. She
would research the number of instances in which the juvenile did
not apply for a dividend knowing it would be garnished.
2:04:26 PM
Senator Dyson cited Section 7 of the committee substitute, which
allows the court to order an offender to apply for the dividend
for the purpose of satisfying restitution.
2:05:24 PM
GAIL VOIGTLANDER, Chief Assistant Attorney General, Statewide
Section Supervisor, Torts and Worker's Compensation Section,
Civil Division, Department of Law, testified via teleconference
from Anchorage to Section 5 and Section 6 of the committee
substitute. Section 5 would amend AS 34.50.020(a) to allow a
"governmental organization" to recover damages in addition to a
private party and inserts language providing for the allocation
of the first $5,000 of liability to the juvenile, up to $15,000
liability to the parent, and any additional liability to the
juvenile. Section 6 would repeal and reenact AS 34.50.020(b) to
provide for State liability for an act of an unemancipated minor
in the custody of the State. The Torts and Worker's Compensation
Section has been contacted by victim's rights organizations
expressing concern that these provisions would hamper
restitution efforts.
Ms. Voigtlander stated this legislation would create a "strict
liability" for parents. Alaska case law includes two case
rulings establishing the parental responsibility for addressing
behavioral problems of their children. However, some minors,
especially when older, could be difficult to control.
Ms. Voigtlander pointed out that foster parents and others
overseeing juveniles in State custody would not be held liable
for property damage. Only a small percentage of juveniles held
in State custody are institutionalized and under the direct
supervision of State employees. Most are in the care of foster
parents, other relatives, or parents. The State is only involved
in the placement of these children and not in oversight of their
behaviors. Therefore, she questioned the State's financial
liability for damages inflicted by a juvenile while held in
State custody.
Ms. Voigtlander stated that under the provisions of this
legislation, a juvenile could be ultimately held liable for more
than $20,000. This debt could provide a disincentive for
offenders to improve themselves and secure a good job.
Ms. Voigtlander pointed out that the language of the Senate
Judiciary Committee substitute would not provide clarity in
exempting foster parents, "runaway" shelters, and other similar
care givers, from liability.
Ms. Voigtlander informed that existing regulation provides that
foster parents in certain circumstances could request up to
$5,000 restitution from the Department of Health and Social
Services for damages caused by a juvenile in their care. This
bill would eliminate this ability and require foster parents to
seek recompension from the juvenile.
2:13:53 PM
LARRY KREJCI testified via teleconference from Kenai, on behalf
of himself and his wife, Olga. They have ten children, all of
whom have been home-schooled and receive "good grades". One
daughter, however, left the house without their knowledge or
permission and was subsequently date raped. Since that
experience, this daughter's behavior changed. She would run away
to Anchorage, overdosed on drugs and was sexually active. They
attempted to help her and arrange for counseling, but with no
success. Police officers could return her home, but the parents
could not legally detain her in the house. They had her driver's
license revoked, although she indicated intent to drive
regardless and ultimately wrecked her car. He was concerned
about their liability for her actions.
2:18:06 PM
TONY NEWMAN, Program Officer, Division of Juvenile Justice,
Department of Health and Social Services, introduced himself and
read his testimony into the record as follows.
The Division appreciates any effort to assist it in its
mission to hold juvenile offenders accountable for
behaviors that cost Alaskans emotional and financial
difficulty. We've appreciated the co-sponsor's willingness
to consult and work with us to try and create a bill that
enhances juvenile accountability.
The mission of the Division of Juvenile Justice, as
described in AS 47.12.010, is to promote a balanced
juvenile justice system that imposes accountability of
juvenile offenders, equips juvenile offenders with the
skills needed to live responsibly and productively, and
also affords protection and redress to victims.
It is this third piece - promoting the safety and
restoration of victims and communities - that we are
concerned is jeopardized by this bill.
The restitution payment structure set up by the bill (with
the YOUTH ONLY is responsible for the first $5,000 in
damages, the parent for the next $15,000, and the YOUTH
ONLY responsible for any remainder) will likely slow down
the speed with which victims are repaid for damages and
will not encourage youth and their parents to work together
to address the damages caused by delinquent acts.
Whether a juvenile case is managed informally or formally,
the provisions of the bill related to juvenile restitution
removes the current joint and [severable] liability system
that encourages parents and youths to work together to see
that restitutions to victims are repaid promptly and in
full. While this conceivable my have the effect of holding
juveniles more directly and individually accountable to
their victims, in the end it will result in victims having
to wait for the youth to gather, either through permanent
fund dividend payments or through work, the money.
Imagine a youth who has committee $3,000 in damage. Under
current statute, Juvenile Justice staff or the courts are
able to order and collect that restitution directly from
parents or the courts are able to order and collect that
restitution directly from parents and the youth at once.
Even if the youth and parent have no other source of cash
income, they'd be able to repay most (if not all) of that
restitution within a year by together using their permanent
fund dividends. If you remove the requirement that parents
participate, the victim would now have to wait three years
for the youth to make annual payments of approximately
$1,000 each.
So: while we support efforts to hold youth accountable, we
are concerned about doing this at a cost to victims. AS
47.12.010, the statute describing the goals and purpose of
the state's juvenile justice system, states that one of
Alaska's goals is to "ensure that victims of crimes
committee by juveniles are afforded the same rights as
victims of crimes committed by adults". This bill
contradicts that statute by providing a restitution
repayment scheme that will take longer for victims of
juvenile crimes to be repaid than victims of crimes by
adults, and as such, gives us serious concern.
An additional concern with the bill is that related to
driver's license revocations. The bill states that a
juvenile formally adjudicated for any delinquent offense
shall have their driver's license revoked. (Currently,
driver's licenses shall be revoked only for minor consuming
violations, misconduct involving a controlled substance,
and offenses involving the illegal use or possession of a
firearm.)
The Division is unaware of any evidence linking
effectiveness of driver's license revocations with reducing
offenses that have nothing to do with driving. The Division
has spent the past few years focusing and investing heavily
in research-based approaches to work with delinquent youth.
Legislation that imposes far-reaching punitive measures
without regard to whether the proposal has been linked to
reduction in offenses is inconsistent with the mission of
the Division and a data-driven approach.
I want to re-emphasize that the Division takes its mission
of holding juvenile offenders accountable seriously. We
have worked to see that juvenile offenders managed through
informal processes have repaid over 90% of the restitution
payments owed to victims over the past several fiscal
years; and we have worked closely with the Department of
Law, collections unit to ensure that restitutions ordered
through the formal court system are repaid promptly and in
full.
The Division is eager to work with the Legislature to
explore ways that further increase accountability for
juvenile offenders in ways that are compatible with out
obligation toward victims and the community.
2:22:14 PM
Senator Dyson asked if the witness intended to infer that no
evidence exists to demonstrate that revocation of a juvenile
offender's driver's license would motivate them to repay their
debt.
Mr. Newman clarified that evidence is not available supporting a
theory that revocation would result in behavior changes.
2:23:47 PM
Senator Dyson requested Committee members share concerns and
suggestions regarding this legislation with him.
Co-Chair Green ordered the bill HELD in Committee.
AT EASE 2:24:10 PM / 2:32:02 PM
2:32:05 PM
CS FOR SENATE BILL NO. 305(RES)
"An Act providing for a production tax on oil and gas;
repealing the oil and gas production (severance) tax;
relating to the calculation of the gross value at the point
of production of oil or gas and to the determination of the
value of oil and gas for purposes of the production tax on
oil and gas; providing for tax credits against the tax for
certain expenditures and losses; relating to the
relationship of the production tax on oil and gas to other
taxes, to the dates those tax payments and surcharges are
due, to interest on overpayments of the tax, and to the
treatment of the tax in a producer's settlement with the
royalty owners; relating to flared gas, and to oil and gas
used in the operation of a lease or property under the
production tax; relating to the prevailing value of oil or
gas under the production tax; relating to surcharges on
oil; relating to statements or other information required
to be filed with or furnished to the Department of Revenue,
to the penalty for failure to file certain reports for the
tax, to the powers of the Department of Revenue, and to the
disclosure of certain information required to be furnished
to the Department of Revenue as applicable to the
administration of the tax; relating to criminal penalties
for violating conditions governing access to and use of
confidential information relating to the tax, and to the
deposit of tax money collected by the Department of
Revenue; amending the definitions of 'gas,' 'oil,' and
certain other terms for purposes of the production tax, and
as the definition of the term 'gas' applies in the Alaska
Stranded Gas Development Act, and adding further
definitions; making conforming amendments; and providing
for an effective date."
This was the 13th hearing for this bill in the Senate Finance
Committee.
2:32:13 PM
DAN DICKINSON, CPA, Consultant to the Department of Revenue,
introduced Mr. Mintz.
2:33:10 PM
ROB MINTZ, Assistant Attorney General, Oil, Gas and Mining
Section, Civil Division, Department of Law, testified via
teleconference from an offnet location and gave a presentation
titled "Comparing CSSB 305(RES) to CSSB 305(FIN) (version P)"
[copy on file]. He explained the color coding system utilized in
the presentation with red text indicating key words and phrases
that are unchanged from the original version of the bill; Yellow
text indicating changes included in the Senate Resources
Committee substitute, and Pink text indicating changes included
in the Senate Finance Committee substitute, Version P.
[NOTE: In the text of these minutes, the color coded language is
contained in quotation marks proceeded by the version of the
bill in which that language was amended, (RES) or (FIN).
Language color coded as red to indicate it is unchanged from the
original version of the bill introduced at the request of
Governor Murkowski is shown in quotation marks also and is
preceded by (GOV). Brackets shown in the presentation have been
inserted by the authors of the presentation. Quotations not
proceeded by a bill version reference were inserted by the
authors of the presentation.]
2:34:20 PM
Page 2
RES, Section 32
FIN, Section 37
New production tax provisions apply to oil and gas produced
on or after:
April 1, 2006 (RES)
July 1, 2006 (FIN)
Mr. Mintz noted the difference effective dates of the proposed
Petroleum Production Tax (PPT).
2:34:53 PM
Page 3
RES, Section 5
AS 43.55.011(e)
There is levied upon the producer … a tax for all "oil and
gas" (GOV) produced "each month" (GOV) … "[except for] a
lessor's royalty interest" (RES) … The tax is equal to "25"
(RES) "percent" (GOV) of the "production tax" (RES) "value"
(GOV) … under AS 43.55.160.
Mr. Mintz outlined the changes made in the Senate Resources
Committee substitute to the original bill.
2:35:30 PM
Page 4
FIN, Section 5
AS 43.55.011(e)
There is levied upon the producer … a tax for all "oil and
gas" (GOV) produced "each month" (GOV) … "[except for] a
lessor's royalty interest" (RES) … The tax is equal to "25"
(FIN) "percent" (GOV) of the "production tax" (RES) "value"
(GOV) … under AS 43.55.160.
Mr. Mintz pointed out that the language of the Senate Finance
Committee substitute is identical to the Senate Resources
Committee substitute with the exception of the percentage rate.
2:35:50 PM
Page 5
RES, Section 5 (cont.)
AS 43.55.011(f)
There is levied upon to producer … a tax for all oil and
gas produced each month … the ownership or right to which
constitutes a "lessor's royalty interest" (RES) … The tax
is equal to "five percent of the gross value at the point
of production" (RES) … ["for existing leases" (RES)]
- BUT…
Mr. Mintz explained this language pertains to tax on private
royalty share. Private royalty shares comprise a small amount of
production; however, the issue must be resolved.
2:36:38 PM
Page 6
RES, Section 5 (cont.)
AS 43.55.011(f) (cont.)
The tax is equal to "1.5 percent of the gross value at the
point of production" (RES) … ["for existing COOK INLET
BASIN leases" (RES)]
- AND…
Mr. Mintz noted the exception provided in the Senate Resources
Committee substitute for operations located in Cook Inlet.
2:36:48 PM
Page 7
RES, Section 6 (cont.)
AS 43.55.011(f) (cont.)
The commissioner shall "recommend to the legislature" (RES)
the rate of tax ["for FUTURE leases" (RES)]
Mr. Mintz qualified this language would only apply to leases
already in effect.
2:37:08 PM
Page 8
FIN, Section 5 (cont.)
AS 43.55.011(f)
There is levied upon to producer … a tax for all oil and
gas produced each month … the ownership or right to which
constitutes a "lessor's royalty interest" (RES) … "five
percent of the gross value at the point of production"
(RES) "of the oil … 1.667 percent of the gross value at the
point of production of the gas [PERIOD]" (FIN)
Mr. Mintz stated this represents significant changes made in the
Senate Finance Committee substitute.
2:37:56 PM
Page 9
FIN, Section 36
The Department of Revenue is directed to study and report
to the legislature by 2013 on the private royalty tax rates
and whether they should be changed in the future.
Mr. Mintz read this language inserted in the Senate Finance
Committee substitute.
2:38:32 PM
Page 10
RES, Section 5 (cont.)
AS 43.55.011(g)-(h)
[When West Coast ANS is "above $40/Bbl" (RES)] there is
levied upon the producer "of oil" (RES) a tax … equal to
"(West Coast ANS - 40) * .2% *
(ANS Prevailing Value) * 75% *
(amount of oil production)" (RES)
Mr. Mintz noted this language pertains to the progressivity tax
that would be levied when oil prices were high.
2:39:10 PM
Page 11
FIN, Section 5 (cont.)
AS 43.55.011(g)-(h)
When "price index is above 45" (FIN) there is levied upon
the producer of oil "or gas" (FIN) a tax equal to ".1%"
(FIN) of "production tax value" (FIN) times price index
"price index = production tax value per barrel - 45" (FIN)
Mr. Mintz stated that the language of the Senate Finance
Committee substitute is similar to that of the Senate Resources
Committee substitute. He explained the price index calculation.
2:40:59 PM
Page 12
So…
The Resources CS has three production tax components:
(1) 25% of net value (now called "production tax value")
except for lessor royalty share
(2) 5% or 1.5% of gross value for lessor royalty share
(3) A progressive-rate tax on prevailing value of oil only,
including lessor royalty share
Mr. Mintz overviewed this information.
2:41:32 PM
Page 13
And…
The Finance CS also has three production tax components:
(1) 22.5% of net value (now called "production tax value")
except for lessor royalty share
(2) 5% of oil gross value and 1.667% of gas gross value for
lessor royalty share
(3) a progressive-rate tax on net value of oil gas
(excluding 2.3 of gas gross value), no including lessor
royalty share
Mr. Mintz gave a comparison of the variations of the three
components between the Senate Resources Committee Substitute and
the Senate Finance Committee substitute.
2:42:44 PM
Senator Stedman understood the intent of the discussion is to
address the issue of progressivity at a later time.
2:42:55 PM
Mr. Mintz affirmed.
2:43:31 PM
Mr. Dickinson stated that additional information would be
overviewed later in the presentation.
2:43:56 PM
Page 14
RES, Section 22
AS 43.55.160(a)
"production tax" (RES) "value" (GOV) … is the total of the
"gross value at the point of production" (GOV) of … oil and
gas … from "all leases or properties" (GOV) in the state,
Less "lease expenditures" (GOV) … as "adjusted" (GOV)
Mr. Mintz read this language.
2:44:41 PM
Page 15
AS 43.55.160(a)
"production tax" (RES) "value" (GOV) … is the total of the
"gross value at the point of production" (GOV) of … oil and
"one-third of the gross value at the point of production of
the gas" (FIN) … from "all leases or properties" (GOV) in
the state,
Less "lease expenditures" (GOV) … as "adjusted" (GOV)
Mr. Mintz noted the Senate Finance Committee substitute follows
the basic concept of the Senate Resources Committee substitute,
with one significant change pertaining to gas.
2:45:24 PM
Page 16
RES, Section 28
FIN, Section 32
AS 43.55.900(7)
"gross value at the point of production" means
For "oil" (GOV), the value … at the … meter … in …
"pipeline quality" (GOV)
For "gas" (GOV) … the value … where … metered ["after any
separation or gas processing" (GOV)]
And
Page 17
RES, Section 20
FIN, Section 24
AS 43.55.150(a)
… gross value at the point of production is calculated
using the reasonable "costs of transportation" (GOV) …
Mr. Mintz noted neither committee substitute changes the
original language.
2:46:23 PM
Page 18
RES, Section 21
AS 43.55.150(d)
"if the commissioner completes a detailed fiscal analysis
and determines … the long-term fiscal interests of the
state [would be served]" (RES) …the department "may allow"
(GOV) … gross value [to be calculated based upon "DNR or
U.S. Dep't of Interior" (GOV)] royalty … valuation [or]
another "formula … that reasonable estimates" (GOV) a value
…
Mr. Mintz explained this language of subsection (d) of the
Senate Resources Committee substitute.
2:47:02 PM
Page 19
FIN, Section 25
AS 43.55.150(d)
"if the department determines [it would improve efficiency
& economy of tax administration and be reasonably accurate
and not biased toward understating tax]" (FIN) … the
department "may allow" (GOV) … gross value [to be
calculated based upon "DNR or U.S. Dep't of Interior"
(GOV)] royalty … valuation [or] another "formula … that
reasonable estimates" (GOV) a value…
Mr. Mintz accepted the concept expressed in the language of the
Senate Finance Committee substitute, but cautioned that it would
change the "details of the determination" in ways "more
specifically relevant to the reasons why" it would or would not
be "desirable" to allow "use of a simplified formula". A
simplified formula would not produce the same result for each
month as would application of a standard calculation. However,
over time, the simplified formula should never understate the
tax liability.
2:48:21 PM
Page 20
RES, Section 22
FIN, Section 26
AS 43.55.160(c)
… lease expenditures … are the "total" (GOV) costs
"upstream" (GOV) of the point of production … on or after
"April 1" (RES) "July 1" (FIN), 2006 … that are the
"direct, ordinary, and necessary" (GOV) costs of "exploring
for, developing, or producing" (GOV) oil or gas … in the
state.
Mr. Mintz remarked this page demonstrates that the basic
definition of lease expenditures has not changed; only the
effective date.
2:48:57 PM
Page 21
RES Section 22
AS 43.55.160(c) (continued)
In determining … ["direct, ordinary, and necessary" (GOV)]
costs … the department shall give substantial weight … to
typical "industry practices and standards" (GOV) … as to
[billable] costs … under "unit operating agreements" (GOV)
… and ["DNR net profits share lease regulations" (GOV)].
Mr. Mintz explained this language, which has not been changed in
either committee substitute. The Department of Natural Resources
would be directed to follow industry practices and standards
utilized in joint operating agreements between partners.
2:49:54 PM
Page 22
FIN Section 26
AS 43.55.160(c) (continued)
This CS gives priority to industry practices and standards.
DNR's net profit share lease regulations are looked to only
if industry practices and standards do not address a
subject or are not clear or not uniform.
Mr. Mintz characterized this as an "important refinement".
2:50:48 PM
Page 23
Section 22/26
AS 43.55.160(d) provides specific examples of, and
exclusions from, "direct costs"
· FIN CS adds "depletion" to exclusion of
depreciation/amortization
· FIN CS clarifies language of several exclusions
· FIN CS deletes RES CS exclusion for "disuse",
dismantlement, restoration, etc.
Mr. Mintz stated this page provides additional detail of
deductible lease expenditures provisions.
2:52:32 PM
Page 24
Section 22/26 (cont.)
· FIN CS retains RES CS fair market rule for non-arm's
length transactions but deletes RES language referring
to IRS provisions.
· Note: fair market rule for adjustments to lease
expenditures is moved from subsec. (l) to sub-subpar.
(e)(3)(A)(ii)
· FIN CS deletes RES CS treatment of "relinquished
assets"
Mr. Mintz supported the concept contained in the Senate
Resources Committee substitute. The Department of Revenue could
review and make adjustments if a transaction did not reflect
fair market value.
2:54:35 PM
Mr. Dickinson elaborated on the concept to adjust for assets
that were "turned", defining this as equipment purchased and
disposed in one year, and new equipment that would perform the
same function purchased the following year. This issue could be
significant in rural areas such as the North Slope.
2:55:20 PM
Page 25
RES, Section 22
AS 43.55.160(g)
… a producer that is "qualified" (GOV) … and "produces
under 55,000 BOE/day" (RES) may reduce the net value by
"deducting an allowance" (GOV) … "equal to the following
fraction of the production tax value: (5,000 - 0.2*
[average daily production - 5,000]) ÷ average daily
production" (RES)
Mr. Mintz noted the Senate Resources Committee substitute
replaced the language providing a $73 million allowance
contained in the original version of the bill with language
providing for 5,000 BOE average daily production. This change
would eliminate one tax and institute a different tax at higher
oil prices.
2:56:18 PM
Page 26
RES, Section 22
AS 43.55.160(h) - producer's "qualification" (RES) for an
allowance. "Expires 12/31/2013)." (RES)
This is an anti-splitting provision to prevent abuse of the
per producer allowance under AS 43.55.160(g).
It is essentially the same anti-splitting provision that is
in sec. 21 of the original bill, for the $73 million per
producer allowance.
Mr. Mintz told how this language stipulates that the producer
must demonstrate to qualification to the Department of Revenue.
2:56:41 PM
Page 27
FIN, Sec. 26 (cont.)
"Allowance" (RES) provision in RES CS version (AS
43.55.160(g) & (h)) is replaced with a new "credit" (FIN)
provision in FIN CS (AS 43.55.170)
Credit = "22.5% of production tax value" (FIN) of up to
"5,000 barrels per day" (FIN) of production
Up to $14 million/yr, non-transferable, not carried
forward, expires 2016
Mr. Mintz stated that because the tax rate is 22.5 percent the
credit rate is also 22.5 percent, and would offset the tax
"exactly" if an operator produced no more than 5,000 barrels per
day.
Mr. Mintz qualified this provision "has some limitations" in
that as production increased, operators would still receive
credit for 5,000 barrels per day.
2:58:09 PM
Page 28
FIN, Sec. 26 (cont.)
Credit provisions of AS 43.55.170 has essentially the same
anti-splitting provision as the Governor's bill and the RES
CS
AS 43.55.170(c)
Mr. Mintz read this information into the record.
2:58:30 PM
Page 29
FIN, Section 36
Department of Revenue is directed to study the effects of
the AS 43.55.170 credit on exploration, encouraging new
entrants, etc., and report to the legislature by 2015,
including recommending whether to extend credit provision.
Mr. Mintz pointed out the lapse date of the credit provision.
2:59:07 PM
Page 30
RES, Section 13
AS 43.55.024(a)
… a producer … that incurs a "qualified capital
expenditure" (GOV) … may … elect … to take a "tax credit"
(GOV) in the amount of "20 percent" (GOV) of that
expenditure.
Mr. Mintz noted this is another credit provision that is
identical in the original version of the bill and the Senate
Resources Committee substitute.
2:59:29 PM
Page 31
FIN, Section 12
AS 43.55.024(a)
… a producer … that incurs a "qualified capital
expenditure" (GOV) … may … elect … to take a "tax credit"
(GOV) in the amount of "25 percent" (FIN) of that
expenditure.
["But only if the producer agrees to share exploration data
with DNR - as in SB 185" (FIN)]
Mr. Mintz outlined the changes contained in the Senate Finance
Committee substitute. This provision qualifying the tax credit
on providing the Department of Natural Resources with
exploration data is intended to make the new tax structure
consistent with statutes enacted a previous legislative session
as SB 185.
3:00:24 PM
Page 32
Section 12/13 (cont.)
AS 43.55.024(h)(2)
"qualified capital expenditure" does "not" (RES) include an
expenditure incurred … "for … an extended period of disuse,
dismantlement, removal … or abandonment … or for the
restoration of a lease, field, [etc.]" (RES)
FIN CS deletes that exclusion.
Mr. Mintz explained this pertains to the definition of
"qualified capital expenditure". The Senate Resources Committee
substitute added an exclusion, which was deleted in the Senate
Finance Committee substitute. The difference would likely be
negligible as these types of expenditures would generally not be
capital expenditures.
3:01:19 PM
Page 33
Section 12/13 (cont.)
AS 43.55.024(b)
A producer … may elect to take a "tax credit" (GOV) … of
"25" (RES) "22.5" (FIN) percent of a carried-forward
"annual loss" (GOV) [which is the amount of a previous
year's "lease expenditures" (GOV) that were "not
deductible" (GOV) because they would have reduced the
"production tax value" (RES) of the oil and gas below
zero].
Mr. Mintz stated that the reduction of the tax credit in the
Senate Finance Committee substitute is necessary to offset the
change of the production tax to 22.5 percent made in the same
committee substitute.
3:02:13 PM
Page 34
Section 12/13 (cont.)
AS 43.55.024(d)-(f)
A producer entitled to a tax credit may apply to the Dep't
of Revenue for a "transferable tax credit certificate"
(GOV). Once issued, a certificate may be used for its face
value, but a transferee may not apply a certificate to
reduce its tax liability by more than "20 percent" (GOV)
during a calendar year.
Mr. Mintz pointed out this provision is unchanged from the
original version of the bill.
3:03:01 PM
Page 35
Section 12/13 (cont.)
AS 43.55.024(i) - "nontransferable credit for transitional
investment expenditures" (RES)
… transitional investment expenditures [TIE] are … "capital
expenditures" (GOV) [incurred "4" (RES) "/2001 through"
(GOV) "4" (RES) "/2006" (GOV)] ["7" (FIN)/2001 through "7"
(FIN) /2006] … less … [proceeds from] the "sale … of
assets" (GOV) … acquired … as a result of [those] capital
expenditures.
Mr. Mintz stated the dates are changed to conform.
3:03:13 PM
Page 36
Section 12/13 (cont.)
AS 43.55.024(i) (cont.)
· A producer may … take a "tax credit" (RES) … of "20
percent" (RES) of the producer's ["TIE" (RES)] but
only [up to] "one-half of the producer's qualified
capital expenditures" (RES) … during the month
· Credits are "non-transferable" (RES)
· Credit provision "expires April 1" (RES) ["July 1"
(FIN)] ", 2003" (RES)
Mr. Mintz noted this pertains to the same subsection (i) as the
previous page.
3:03:29 PM
Page 37
FIN, Sections 13-17
AS 43.55.025 (from SB 185)
The FIN CS
· Extends the sunset for these exploration credits to
2016 statewide
· Fixes an ambiguity re: $20 million cap for Cook Inlet
· Makes conforming amendments
Mr. Mintz overviewed these changes contained in the Senate
Finance Committee substitute.
3:04:32 PM
Page 38
RES, Sections 7, 12
AS 43.55.020(a) and (g)
· 95 percent of principal production tax (AS
43.55.011(e)), net of credits, due each month.
Remaining portion due at end of next calendar quarter.
· 100 percent of tax on lessor royalty interest (AS
43.55.011(f)) due each month.
· Bill does not specify payment of progressive-rate oil
tax (AS 43.55.011(G)).
Mr. Mintz remarked this relates to payment of the tax.
Discrepancies in payments of less than 95 percent of the actual
tax would be subject to interest. No interest would be assessed
on discrepancies of up to five percent of the actual tax because
that amount would not be due until the following quarter of the
calendar year.
3:06:06 PM
Page 39
FIN, Section 7
AS 43.55.020(a)
"95 percent" (RES) of "total" (FIN) production tax (AS
43.55.011(e)-(g)), net of credits, due "each month" (RES).
Remaining portion due "March 31 of following year" (FIN).
Mr. Mintz contended this provision would be "much simpler" for
both the tax payer and the Department of Revenue. The "true-up"
was changed from quarterly to annual because financial
information is not available by the end of the next calendar
year quarter.
3:07:03 PM
Page 40
FIN, Section 11
AS 43.55.020(f) - "Prevailing value"
The Governor's bill clarified that prevailing value applies
where there is "no actual sale" (GOV) of oil or gas. The
FIN CS also clarifies that where there is a sale,
prevailing value may be calculated for the "month during
which the sale occurred" (FIN) when that makes more sense
than the month during which the oil or gas was produced.
Mr. Mintz commented that this language does not pertain to the
PPT system, but is nonetheless important.
3:08:59 PM
Page 41
And finally …
RES Section 25, FIN Section 29
The RES CS increased the oil conservation surcharge under
AS 43.55.300 from 3 cents per barrel to 5 cents.
The FIN CS increases it from 3 cents per barrel to 4 cents.
Mr. Mintz overviewed this information.
3:09:44 PM
Senator Hoffman, referencing Page 24, asked the justification of
deleting the language in the Senate Resources Committee
substitute relating to "relinquished assets".
Mr. Mintz deferred to Mr. Dickinson. Mr. Mintz surmised the
issue to be more theoretical than problematic.
3:10:39 PM
Mr. Dickinson defined "relinquished asset" as provided for in
the Senate Resources Committee substitute as "an asset that is
first acquired by the producer before the effective date of this
section and has been replaced by the producer's later purchase
of an asset that serves substantially similar function as an
asset that was relinquished." This language should be included
as "a test" in determining eligibility of capital investments
made by producers on the North Slope. Producers would be
unlikely to import assets to the North Slope for only the
purpose of receiving a tax credit.
3:11:44 PM
Senator Hoffman asked if this would apply even for high value
purchases.
3:11:52 PM
Mr. Dickinson could not guarantee this would not occur. However,
the process required proof that the asset was new.
3:13:07 PM
Co-Chair Wilken spoke to private royalty interest. He recalled
debating the issue and subsequently directing the commissioner
to provide the legislature with recommendations on future
private royalty exploration and development and production.
However, the language of the Senate Finance Committee substitute
stipulates five percent of oil gross value and 1.667 percent of
gas gross value for lessor royalty share up to the year 2013. He
asked the reasoning for this change.
3:13:52 PM
Mr. Dickinson replied that the Senate Resources Committee
substitute provided that the commissioner would set the future
tax rate. The Murkowski Administration determined this would be
inappropriate and that the legislature should instead establish
the rate in statute. It would be appropriate for the
commissioner to make a recommendation of the tax rate and to
implement the rate established by the legislature. The two
branches of government should remain separate.
Mr. Dickinson also pointed out that the Senate Resources
Committee substitute provided a specific tax on private
royalties for existing leases. However, producers considering
new leases would not know the future rates. Although the
legislature could always implement changes to existing rates,
the proposed system would provide no rates whatsoever. Therefore
a rate for all private royalties should always be in place. The
commissioner could recommend the rate be changed or remain
unchanged.
Mr. Dickinson addressed the establishment in the Senate
Resources Committee substitute of a rate of five percent for oil
and 1.667 percent for gas. The Administration did not support
the geographic differentials, although a separate rate for some
gas projects could be appropriate. Administratively, "there is
no confusion over what's gas and what's oil;" however "net
value" is unclear. "A reduction at the gross value level" would
instead be appropriate and would "have the additional virtue of
keeping the twenty percent applied to everything." A two-step
process would be applied for gas resulting in a "lower effective
rate". Because the gross value is utilized, the two "implicit"
rates are stated in the presentation.
Co-Chair Wilken indicated he would return to this issue at a
later time.
3:17:15 PM
Senator Hoffman asked the effect on the State of the removal and
abandonment costs as provided for in the Senate Finance
Committee substitute and overviewed on Page 23 of the
presentation.
3:18:12 PM
Mr. Dickinson replied, "I don't believe the dollars at stake are
[a] huge issue." He continued, "I believe that the costs of
abandonment: abandoning something, dismantling it, restoring
what was there back to the State required by the lease is an
important part of the business cycle. It's a duty. It falls on
the person who's done the leasing." Although perceived as "a
company leaving the state," as the fields "mature" some would be
shut down yet the producers would still operate elsewhere in
Alaska. Two small fields in Prudhoe Bay are no longer operable
and the holders of those leases continue to operate other
fields.
Mr. Dickinson noted this matter was not addressed in the
original version of the bill or in the Senate Finance Committee
substitute. As a result, these costs would be treated the same
as any other "ordinary, necessary business expense."
3:19:22 PM
Senator Hoffman asked if the original Trans Alaska Pipeline
System (TAPS) was not intended to be "covered" under this
provision, as it was anticipated to extend to the year 2050.
3:19:43 PM
Mr. Dickinson explained that a "fraction of the penny" or "over
a penny now" is paid for every barrel transported through TAPS
and held specifically for future abandonment costs. This
legislation would not change the existing system.
3:20:42 PM
Co-Chair Wilken, referencing the same presentation page, asked
if the exclusions from direct costs would allow for "double
counting", as normal accounting practices require holding funds
aside in anticipation that a site would be abandoned. These
would be considered annual operating expenditures at this point.
At the time of actual abandonment, the costs could be deducted
again if the specific exclusion were not included in this
legislation.
3:21:21 PM
Mr. Dickinson answered this is not the intent. Before an expense
could be accounted for as a future liability it must be
"identifiable with a sufficient amount of certainty." A reserve
account could be established, but funds deposited into it could
not be deducted from income at the time of deposit. He gave the
value of pension funds as an example of this situation.
Mr. Dickinson emphasized the "focus" is on actual costs or cash
flows. For example, amortization, depletion or depreciation is
not allowed. Only a "cash outlay" would be considered a direct
cost. The only exception would be payment of a tariff for a
downstream asset.
3:23:06 PM
Co-Chair Wilken clarified that funds deposited into a producer
established "sinking fund" would be an expense to the producer,
but not considered an expense for tax purposes.
3:23:35 PM
Senator Stedman reposed the question noting, "When there is
abandonment and there's a PPT tax calculated, there is no credit
taken against the PPT tax for abandonment." He asked if "any
other charges taken against it from the abandonment the PPT
tax."
3:23:58 PM
Mr. Dickinson affirmed that capital is an investment for future
benefit; abandonment would not generally be considered as such.
Abandonment costs would be considered an ordinary and necessary
expense. Each dollar spent on abandonment would reduce the PPT
tax by 22.5 percent under the provision of the Senate Finance
Committee Substitute.
3:24:59 PM
Senator Bunde understood that abandonment costs, when expended
would be considered ordinary business deductions that could be
taken against corporate income tax.
Mr. Dickinson affirmed.
Senator Bunde asked if these expenses could also be deducted
from the PPT tax liability.
Mr. Dickinson again affirmed.
Senator Bunde characterized this as "double dipping".
Mr. Dickinson explained that this would involve two different
taxes. Costs of operation on the North Slope would be considered
a deduction from both PPT and corporate income tax.
3:26:59 PM
Senator Olson questioned the absence of a geographical
differential on investments related to natural gas development
because operations in Cook Inlet are mostly developed but not
developed on the North Slope.
3:27:43 PM
Mr. Dickinson agreed that Cook Inlet contains "very mature
wells"; however, new development is still occurring in that
region.
3:29:10 PM
Senator Hoffman noted the deletion of additional audit of lease
expenditures requirements in Section 26(c) of the Senate Finance
Committee substitute. He asked the reason for this.
3:29:44 PM
Senator Stedman furthered that changes to this subsection would
also reduce a penalty from 20 percent to 5 percent.
3:30:08 PM
Mr. Dickinson read the language of the committee substitute as:
"the Department of Revenue may authorize a producer, including a
producer that is an operator, to treat as it's lease
expenditures under this section, the costs paid by the producer
that are billed to the producer by an operation in accordance
with the terms of a unit operating agreement or similar
operating agreement if the Department of Revenue finds that (1)
the terms and conditions of the operating agreement are
substantially similar with the Department of Revenue's
determinations, and (2) at least one working interest owner
party to the agreement, other than the operator, has a
substantial incentive and ability to effectively audit billings
under the agreement."
Mr. Dickinson understood this provision has remained unchanged
from the original bill and the Senate Resources Committee
substitute.
3:31:22 PM
Mr. Mintz affirmed. An "immaterial change" was made to clarify
the inclusion of a producer that is also an operator.
3:31:40 PM
Mr. Dickinson informed that most operations occurring on the
North Slope are through joint ventures involving one operator
performing the functions and other working interest owners. He
exampled activities at Prudhoe Bay in which BP Exploration is
the operator. BP Exploration expends the funds necessary to
operate the field and each month, Conoco Phillips reimburses 36
cents on the dollar and ExxonMobil reimburses an additional 36
percent.
Mr. Dickinson stressed that multiple experts employed by the
working interest owners continually review and audit the
billings submitted by the operator. The working interest owners
have a substantial interest in ensuring that the expenses are
valid and accurate. The intent of the provision of Section 26(c)
is to allow the State to benefit from these efforts. The State's
right to audit would not be forfeited.
3:34:40 PM
Mr. Dickinson then began over-viewing a handout titled, "PPT
Revenue Studies, Senate Finance Committee, April 20, 2006" [copy
on file.]
[Note: The pages in this document are not numbered and were not
presented in the same order as contained in the packet. Several
pages are untitled. For reference purposes, the Senate Finance
Committee Secretary made a notation on each page of the
corresponding timestamp in which that page was addressed in this
hearing. General descriptive information of each page is
provided in the body of these minutes when feasible. A copy of
the handout can be obtained by contacting the Legislative
Research Library at (907)465-3808.]
Mr. Dickinson stated that this presentation pertains to several
technical questions posed in the previous two hearings on this
bill.
3:35:41 PM
Cook Inlet
[Bar graph showing Daily Production BOE (6000 mcf gas =
1Bbl oil) of amounts 5,000 through 35,000 in 5,000
increments for Taxpayer listed as A, B, C, D, E, F, and G
and delineated by Oil [blue], Gas [white], and Taxable Gas
(after exclusion) [green]. A red dotted line indicates
5,000 BOE equivalent credit. ]
Mr. Dickinson corrected an error on the page, which incorrectly
stated "Annual Production BOE…" He identified the Taxpayer
lettering as "typical taxpayers in the last year."
Mr. Dickinson noted that oil production has declined in this
region, with two producers producing approximately 6,000 barrels
per day and "four or five producers producing significantly
less." Subsequently most oil produced in Cook Inlet would not be
taxable under the provision of the "effective first credit".
Most production in this region is of natural gas.
Mr. Dickinson continued explaining the bar graph as follows.
The combination of the white and green bars up there
constitute the gas. What we've done here, is we've done a
barrel of oil equivalent based on the BTU basis rule of
thumb. It takes 6,000 cubic feet of gas makes one barrel of
oil BTU equivalent. Clearly the values don't translate
quite the same way, but for these purposes we're just going
to use a six to one ratio of for a thousand cubic feet for
a barrel of oil.
On that basis there are three producers who have large
quantities of gas, in fact, well, one of them also has oil,
but two of them don't have very much gas. The rule that you
will see there is of the gas that they have, when they go
to calculate their base PPT two-thirds of that will not
calculate in the tax. Two-thirds of the revenue from that
gas will not calculate in.
So what you will see here is, what is left after that
exclusion is applied, is a very small about ten thousand
cubic feet a day barrel of oil equivalent 60,000 cubic feet
a day of taxable gas from those three tax payers.
There will be the two places where the blue lines extend
above the red dotted line. In other words where there is
more than 5,000 barrels of oil being produced by a single
producer. There will also be some tax on the oil.
I hope what this slide illustrates is that through these
two mechanisms, I think the taxpayers in Cook Inlet, both
of these mechanisms, which are limits on size, effectively
cover much of the production from the Cook Inlet.
This is a simplified diagram of how Cook Inlet might look
as these two, the 5,000 barrel a day equivalent credit and
the reduction in gas, are applied.
3:39:20 PM
Senator Stedman asked for clarification of the calculation of
one-third of the gross revenue on gas and whether the
calculation would be made before or after expenses were
deducted.
3:39:54 PM
Mr. Dickinson explained that one-third of gross revenues derived
from natural gas operations would be added to all gross revenues
from oil operations. All upstream costs would be deducted from
that amount, and the total would be taxed 22.5 percent for PPT.
3:41:17 PM
Senator Stedman predicted an adverse affect of this provision in
situations involving an operator that only produces gas and has
no revenues from oil production. Because all expenses would be
deducted from one-third of the gross revenue, the tax due on the
balance would be very low if any.
3:42:04 PM
Mr. Dickinson responded, "You would adversely affect your tax
base both ways. Doing it the way the bill lays out would affect
it more." He began to reference another page of the
presentation.
3:42:21 PM
Senator Stedman interjected to request the presentation be made
in an orderly manner, as his follow-up question was the affect
of progressivity on natural gas development.
3:42:44 PM
Mr. Dickinson reiterated that the "six to one is really a Btu
[British thermal units] equivalent". The price of oil was
currently $70 and a six-to-one equivalent would equal
approximately $12 of thousand cubic feet (mcf) of gas. Most
prices for Cook Inlet natural gas would be significantly lower
at approximately $3 to $4. In utilizing actual proceeds in
calculating progressivity, Cook Inlet gas would "not be driving
much of the progressivity calculation".
3:43:53 PM
Senator Stedman understood that progressivity would not be a
significant factor in tax revenues collected on Cook Inlet
natural gas productions. He deferred future discussion on this
matter.
3:44:01 PM
Senator Bunde asked if the same provision of basing the tax on
one-third of gross revenues derived from natural gas production
would apply statewide.
Mr. Dickinson affirmed this provision would apply to all natural
gas operations in the state. Currently gas is only produced from
Cook Inlet with the exception of a small amount produced from
the North Slope.
Senator Bunde shared Senator Stedman's concern that this
provision would be "very taxpayer friendly". He suggested
deducting expenses from the gross revenues and taxing one third
of the net amount would provide greater return to the State. He
requested a comparison of the two methods.
3:44:55 PM
Mr. Dickinson could create "a standard model or a standard
deduction type arrangement". However, "As an average, it would
be an average of a fairly broad range of costs associated with
gas."
Senator Bunde wanted a comparison of the two methods for the
taxpayer represented on the bar graph as "B".
3:45:47 PM
Co-Chair Green asked for clarification that "the one-third
calculation [is] another way of saying that for the price on gas
is $7.50 and the price on oil is $22.50 and we've just said it's
one-third."
3:46:13 PM
Mr. Dickinson replied that the reverse would be true only in the
effect that "where there is only a gross value at point of
production, in other words where the royalty value is based on
gross value at point of production, which is how private royalty
interests are taxed. I think that the numbers put into this bill
were meant to reflect the gas revenue exclusion. They're meant
to line up with each other. I'm not saying which one drove the
other. Clearly in terms of volume there's a much larger volume
in the non-royalty tax than there is on the royalty tax. But
they are supposed to be exactly parallel."
Co-Chair Green asked if "it would be easier to understand, if
you took the gross value of the gas and the gross revenue and
then just multiplied it by 7.5 rather than take your expenses
away from the total but then just multiply by 7.5 and then it's
more clearly set out that the gas is intended to be less a unit
versus the price per unit of oil."
3:47:39 PM
Mr. Dickinson agreed that such a calculation would essentially
"have the same mathematical effect."
3:48:07 PM
Senator Stedman requested an explanation of the methodology of
using the "one-third, which is 7 and a half" and clarification
of how expenses would be applied, whether to the gross or the
"one-third side". He understood that this method, as opposed to
a method in which portions of each facility were identified as
either producing oil or gas, is proposed for a reason. Providing
"one point of calculation" is part of the reasoning.
Mr. Dickinson answered, "I think the Chair is absolutely
correct. You could do it that way and I think what that
emphasizes is that we are not reducing the incentives for
production for gas. The credits are still available. The
deduction at the higher rate is still available. And so, what's
being created here is when those investments are being made. The
PPT system is meant to support all those investments including
explorations, which you can't differentiate. So the methodology,
(a) it's difficult to do, and (b) it doesn't really line up with
the vision of how this would work to [provide incentive for]
investment. Certainly the step that the Chair has laid out is
mechanically gets you to the same place."
3:49:47 PM
Co-Chair Green remarked that the discussion was "going way too
deep" on an issue "that in the whole scheme of things is fairly
minor."
3:49:57 PM
Senator Bunde understood the concept that gas is less valuable
per unit and that a lower tax rate would be appropriate.
However, he questioned the deduction of expenses from net
revenue rather than gross revenue. He asked the monetary
differences to "government take" or "industry loss".
3:50:29 PM
Mr. Dickinson reposed the question to ask how costs would be
allocated between oil and gas activities and whether it would be
done on a value basis, specific engineering identification
basis, or volumetric basis. Costs associated with a "hole in the
ground" from which both oil and gas was produced would be
difficult to separately account for as either oil or gas related
expenses. Instead under the method proposed in this legislation,
"you really wouldn't be identifying costs so much as setting up
a rule to create two buckets of cost."
3:51:01 PM
Senator Bunde clarified that under the provisions of the current
committee substitute, expenses would be subtracted from the
identified one-third of gross revenues from gas. He asked the
difference of deducting expenses from the total gross revenue
from gas before calculating one-third from which to base the
tax. The expenses would be the same in either case.
3:51:33 PM
Mr. Dickinson responded that to utilize the second method
suggested by Senator Bunde, it would be necessary to multiply
some expenses by one rate and other expenses by a different
rate. He posed a scenario of a producer expending $7 million to
operate a facility that receives well fluid and separates it
into gas and oil. Senator Bunde's method would require a
determination of which of those expenses are related to oil
production and which to gas production."
Senator Bunde surmised that under the provisions of the bill,
one-third of gross revenues from gas production would be taxed
after all expenses were deducted. He again wanted to know the
difference, given that the expenses would be unchanged, of
deducting these expenses from the total gross revenue from gas
rather than one-third of the gross revenue from gas.
Mr. Dickinson identified the problem as determining the amounts
of the total expenses were related to gas activities versus oil
activities. An arbitrary rule, such as that contained in the
legislation could be established, or calculations of the
expenses could be made. The costs for producing oil and gas are
simple to calculate. Dividing those costs between oil and gas
production is complicated.
3:53:04 PM
Senator Bunde acquiesced due to time constraints, but contended
that the costs could be deducted from either the full gross
revenue from gas or one-third of the gross revenue from gas.
Deducting costs from the one-third net would result in less tax
paid to the State.
3:53:23 PM
Co-Chair Wilken referenced a chart that was earlier projected by
Mr. Dickinson but not identified. Co-Chair Wilken asked if the
axis would reflect all of Alaska.
Mr. Dickinson affirmed.
3:53:37 PM
Senator Stedman emphasized the point that revenues from gas
taxed at a rate of 22.5 percent would be too high. Either form
of calculation of the tax of one-third of the revenues would
produce similar results.
3:54:25 PM
Per Barrel Progressivity Surcharge 2010
[Line graph depicting Per Barrel Progressivity in amounts
of $0 to $50.00 shown in $5 increments and ANS Price of $40
through $120 shown in $10 increments of the House Resources
Committee substitute, the Senate Resources Committee
substitute, and the proposed Senate Finance Committee
substitute.]
Mr. Dickinson noted that this chart, included in the handout,
had already been addressed.
3:54:44 PM
Total Progressivity Surcharges 2006-2030 ($B)
[Line graph depicting Progressivity Surcharge ($B) in
increments of 50 between zero and 200 and ANS Price in $10
increments of $40 through $120 for the House Resources
Committee substitute, the Senate Resources Committee
substitute, and the Senate Finance Committee substitute.]
Mr. Dickinson explained that a rate would be applied against the
calculated tax base. This is the progressivity. He referenced a
chart presented at the previous hearing on this bill that
addressed the effect per each barrel. The slide currently before
the Committee "translates" the data into cumulative terms over
25 years and "adds up the difference." At current prices, the
progressivity surcharge would add $2 to $3 billion in additional
revenue over the 25 year period. Under the provisions of the
House Resources Committee substitute, the additional revenue
generated during this time period from oil priced at $120 per
barrel would be approximately $200 billion.
3:56:49 PM
Distribution of Future Cash Flows Under SQ, Gov's Bill, Sen
Res and Proposed Sen Fin CS* FY 2007-2016
[Spreadsheet and line graph listing Government Share of the
current tax system and the various versions of SB 305 based
on Alaska North Slope West Coast (ANS WC) price per barrel
as follows:
Status Quo:
$30 ANS WC $/bbl 56.2%
$40 53.7%
$50 52.6%
$60 51.9%
$70 51.4%
$80 51.1%
Governor's Bill
$30 ANS WC $/bbl 57.2%
$40 57.1%
$50 56.5%
$60 56.5%
$70 56.6%
$80 56.6%
Senate Finance
$30 ANS WC $/bbl 58.1%
$40 57.9%
$50 57.7%
$60 57.9%
$70 58.5%
$80 59.1%
Senate Resources
$30 ANS WC $/bbl 60.2%
$40 59.9%
$50 60.7%
$60 61.5%
$70 62.3%
$80 63.2%]
*Assumes the Progressive tax is deductible only once
from the PPT calculation for Resources CS; it is not
deductible for Finance CS.
Mr. Dickinson explained this page relates only to progressivity
and calculates the government share of the cash flow in "a
year". This data demonstrates the effect of a change of one-
tenths, two-tenths or three-tenths of a percent of the
progressivity rate.
3:57:55 PM
Senator Bunde noted that if the long-range forecasted price of
$40 per barrel is realized, no progressivity tax would be
collected.
Mr. Dickinson affirmed. The Senate Resources Committee
substitute would provide for the progressivity tax for prices of
$41 per barrel and higher.
Mr. Dickinson qualified that because this information is based
on a 25 year model, the costs could vary. The Senate Finance
Committee substitute progressivity provision is "cost
sensitive"; therefore progressivity would not be levied at
prices of $60 per barrel if costs were higher than $15 per
barrel.
3:59:25 PM
Senator Bunde asked why less tax would be collected on prices of
$60 per barrel than $40 per barrel under the provision of the
Senate Finance Committee substitute.
Mr. Dickinson replied that the State has a regressive system. He
continued, "PPT does much to correct that"; however the
situation would remain due to "the nature of" royalty and
property tax. He emphasized, "As the total dollars goes up, the
percentage goes down."
4:00:24 PM
Distribution of Future Cash Flows Under Sen Fin CS with
.1%, .2% and .3% Progressivity FY 2007-2016
Spreadsheet and line graph listing Government Share at
Alaska North Slope West Coast (ANS WC) price per barrel for
three progressivity rates under the provisions of the
Senate Finance Committee as follows:
Senate Finance CS .1% Progressivity:
$40 ANS WC $/bbl 57.9%
$50 57.7%
$60 57.9%
$70 58.5%
$80 59.1%
$90 59.6%
Senate Finance CS .2% Progressivity:
$40 ANS WC $/bbl 57.9%
$50 57.7%
$60 58.0%
$70 59.1%
$80 60.2%
$90 61.3%
Senate Finance CS .3% Progressivity:
$40 ANS WC $/bbl 57.9%
$50 57.7%
$60 58.1%
$70 59.7%
$80 61.3%
$90 63.0%]
Mr. Dickinson noted this demonstrates the trend depicted on the
previous page over a longer time period.
4:00:44 PM
Cumulative Revenues Attributable to Progressivity
Sen Fin CS and Sen Res CS, 2007-2030
Low Volume Scenario
[Line graph depicting the Revenues at certain ANS West
Coast Prices under the provisions of the two committee
substitutes as follows:
Senate Finance Committee Substitute:
$50 ANS WC $0
$60 $0.2 billion
$70 2.6 billion
$80 6.0 billion
$90 10.4 billion
$100 15.7 billion
Senate Resources Committee Substitute:
$50 ANS WC $4 billion [approximately]
$60 7.7 billion
$70 13.7 billion
$80 21.1 billion
$90 29.9 billion
$100 40.1 billion
Mr. Dickinson explained this page presents the same information
as provided in earlier presentations, although as cumulative
revenues attributable to progressivity.
4:02:26 PM
Senator Hoffman noted this page presented the low volume
scenario and that a high volume scenario was not provided. He
asked if, "the high volume scenario would be with the lower
taxes, more to the Governor's version and the low volume
scenario would be more toward the Senate Resources [committee
substitute] because of exploration incentives."
Mr. Dickinson responded, "Yes, we'd like to think that the high
volume scenario lines up with what is happening with incentives
and as a consequence there would be much more volume and much
more revenue. The progressivity lines, I believe, would move
exactly proportionately because the - it'd simply be more - the
same thing happen in two more barrels."
4:04:18 PM
Effect of Tax Rate: Annual Oil Severance Tax ($Millions)
Senate Finance CS with 22.5% and 25% Tax Rate at $20, $40,
and $60 per bbl, Low Volume Scenario
[Line graph depicting the trend of Severance Tax
($Millions) of zero through 3,000 for the years 2005
through 2030 for tax rates of 22.5 percent and 25 percent.]
Mr. Dickinson pointed out that the differences in the amount of
revenue would remain fairly consistent. He qualified this chart
does not calculate in other factors and assumes all other
provisions are consistent.
4:06:16 PM
Senator Dyson clarified this information represents a low volume
scenario.
Mr. Dickinson affirmed.
4:06:22 PM
Cumulative Severance Tax Revenue, Senate Finance CS, with
Tax Rates of 22.5% and 25%, 2007-2030 ($B), Low Volume
[Line graph showing Cumulative Sev Tax Revenue ($B) at ANS
Price for the two tax rates with certain amounts noted as
follows:
22.5 percent tax rate:
$40 ANS Price $18.9 billion
$50 28.9 billion
$60 39.6 billion
$70 52.4 billion
$80 66.2 billion
25 percent tax rate:
$40 ANS Price $21.8 billion
$50 33.0 billion
$60 44.8 billion
$70 58.8 billion
$80 73.7 billion
Mr. Dickinson pointed out the increased variances between the
effects of the two tax rates as the price of oil increases.
4:07:04 PM
Senator Hoffman requested a comparison of this information to
the existing tax structure to demonstrate the increases that
would occur under the proposed methods.
Mr. Dickinson stated he would prepare such a comparison.
4:07:30 PM
Senator Stedman asked if the amount of $70 "non-discounted" is
held constant to the year 2030 in these charts. He surmised, "If
we double that back in today's dollars that gap would severely
implode in present value terms."
Mr. Dickinson affirmed this would occur "in present value
terms." The presentation utilizes "real dollars" but does not
account for the "time value of those dollars."
4:08:54 PM
Value of Credits against Capital Expenditures Under Senate
Finance CS, at 20% and 25% Credit Rates, 2007-2030 Low
Volume
[Line graph showing Value of Credits ($mm) for Year at a
20% rate and a 25% rate with certain years and
corresponding amounts noted as follows:
20% credit rate:
Year 2007 $212 million
2011 210 million
2015 205 million
2019 197 million
2023 188 million
2027 180 million
2030 178 million
25% credit rate:
Year 2007 $265 million
2011 263 million
2015 256 million
2019 246 million
2023 235 million
2027 226 million
2030 222 million]
Average annual credit value is $50 million greater under
25% credit rate than under 20% credit rate.
Mr. Dickinson continued his presentation, explaining that the
credits would be calculated after the rate was calculated for
both progressivity and the tax base. The figures represented on
the graph are driven by the assumptions of the level of capital
investment more so than by price.
4:09:24 PM
Senator Stedman asked the dollar amount of capital expenditures
utilized to generate these findings.
Mr. Dickinson responded that a figure of approximately $1.1
billion was utilized for the year 2007. The amounts utilized
decline over the next 20 years to approximately $600 million.
4:09:57 PM
Senator Stedman asked the expectation of production in relation
to capital expenditures.
Mr. Dickinson relayed arguments made to the Committee by other
presenters contend that at the current level of investment, the
low volume forecast would not be achieved. The data used in
compiling this graph considers the current levels of investment
and attempts to "create distribution of those dollars that we
think will create the barrels that we're modeling." However,
Senator B. Stevens "correctly identified the issue" that if this
legislation was "successful" investment would increase. The
graphs presented are intended to demonstrate the difference that
"such an investment" would cause under the rates of 20 and 25
percent.
4:11:10 PM
Senator Hoffman requested clarification that "over 20 years, the
total credit value would be $1 billion additional between 20 and
25 percent."
Mr. Dickinson affirmed this is correct.
4:11:45 PM
Cumulative Revenue Loss Attributable to 5000 Bbl Mechanism
Sen Fin CS and Sen Res CS, 2007-2030
Low Volume Scenario
[Line graph depicting the trend of Revenue Loss ($B) at ANS
West Coast Price under the provisions of the committee
substitutes with certain amounts noted as follows:
Senate Finance CS
$20 ANS WC Price $0.1 billion [approximately]
$30 0.6 billion
$40 0.8 billion
$50 1.3 billion
$60 1.3 billion
$70 1.3 billion
Senate Resources CS
$20 ANS WC Price $0.2 billion
$30 0.4 billion
$40 0.5 billion
$50 0.6 billion
$60 0.8 billion
$70 0.9 billion
Mr. Dickinson reminded that, under the provisions of the Senate
Resources Committee substitute, production of less than 5,000
barrels would not be taxed. At production of more than 5,000,
the number of barrels exempt from tax would decline. No
exemption would be granted on production of 30,000 or more. The
five largest producers operating in Alaska would receive no tax
benefit from this provision.
Mr. Dickinson then reiterated that the provisions of the Senate
Finance Committee substitute would exempt tax on at least 5,000
barrels for every producer. The effect of this would be minimal
for large producers, although would still be granted.
Mr. Dickinson pointed out that due to these provisions, the
Senate Resources Committee substitute would "have less effect on
revenue" than the Senate Finance Committee substitute. The
Senate Finance Committee substitute would allow certain credits
that the Senate Resources Committee substitute would not.
4:13:59 PM
Co-Chair Wilken clarified that the difference of the impact of
the two bill versions would be $300 million annually at an ANS
price of $40.
Mr. Dickinson corrected that the amount would be cumulative over
the period of 2007 through 2030. The amount would be
approximately $100 million at significantly higher prices.
4:14:57 PM
CHERIE NIENHUIS, Petroleum Economist, Tax Division, Department
of Revenue, testified that the 5,000 barrel credit provision of
the Senate Finance Committee substitute would only be effective
through the year 2016. The results are charted on this graph as
cumulative through the year 2030.
4:15:44 PM
Distribution of Future Cash Flows Under SQ, Gov's Bill, Sen
Res and Proposed Sen Fin CS* FY 2007-2030
*Assumes the Progressive tax is deductible only once from
the PPT calculation for Resources CS; it is not deductible
for Finance CS.
[Spreadsheet and line graph listing Government Share at ANS
WC Price at follows:
Status Quo:
$30 ANS WC $/bbl 56.9%
$40 54.1%
$50 52.7%
$60 52.0%
$70 51.5%
$80 51.2%
Governor's Bill:
$30 ANS WC $/bbl 57.4%
$40 57.4%
$50 57.1%
$60 57.2%
$70 57.3%
$80 57.3%
Senate Finance:
$30 ANS WC $/bbl 59.2%
$40 58.9%
$50 58.8%
$60 58.9%
$70 59.4%
$80 59.9%
Senate Resources:
$30 ANS WC $/bbl 61.4%
$40 61.9%
$50 61.7%
$60 62.5%
$70 63.3%
$80 64.1]
Mr. Dickinson explained this information is calculated after
capital expenses are deducted. The percentages represent both
State and federal taxes.
Mr. Dickinson detailed the chart.
4:18:00 PM
Senator Stedman surmised that the difference of the impact of a
22.5 percent tax rate should equally reflected between the 20
percent tax rate included in the original version of the bill
and the 25 percent tax rate included in the Senate Resources
Committee substitute. However, the Senate Finance Committee
substitute figures are closer that those of the Governor's
budget. He asked if this is due to the higher credit rate
provided in the Senate Finance Committee substitute.
Mr. Dickinson answered, "Let's look at $40. I believe that
you've correctly identified that should form part of that shift.
We can certainly go in and look at it more." He assured, "That
certainly would have been my first reaction as well."
4:18:58 PM
Senator Stedman asked for verification that the information
presented for the Senate Finance Committee substitute accounts
for a 25 percent credit, the Senate Resources Committee
substitute and the original bill versions account for a 20
percent credit.
4:20:19 PM
Effective Severance Tax Rate
Sev Tax / Wellhead (less royalty)
Low Volume Scenario
[Line graph comparing Eff Sev Tax Rate of ANS West Coast
Price of the bill versions with certain percentages noted
as follows:
Status Quo:
$20 ANS WC Price 4.9% [approximately]
$30 5.0%
$40 4.9%
$50 4.9%
$60 4.9%
$70 4.8%
Governor's bill:
$20 ANS WC Price >1.0% [approximately]
$30 5.6%
$40 9.5%
$50 11.4%
$60 12.9%
$70 14.0%
Senate Finance Committee Substitute:
$20 ANS WC Price >2.0% [approximately]
$30 7.6%
$40 11.7%
$50 13.9%
$60 15.5%
$70 17.3%
Senate Resources Committee Substitute:
$20 ANS WC Price >4.0% [approximately]
$30 10.4%
$40 14.5%
$50 17.9%
$60 20.5%
$70 22.6%]
Mr. Dickinson detailed this information, noting this represents
effective tax rates on gross value at the point of production.
4:22:02 PM
Senator Stedman asked if the targeted tax rates shown are
calculated without the offset of the credits. The percentages
would be lower with the inclusion of the credits.
Mr. Dickinson responded that the credits are included in these
calculations. The percentages represent the tax obligation as a
ratio to the total wellhead value.
Senator Stedman asked if the credit data reflects historical
investment amounts or the amount of investment anticipated with
the increased incentives provided in the change of the tax
system.
Mr. Dickinson answered that this graph utilizes historical
spending. Increased investment would reduce the percentage of
tax liability in the years those investments were expended.
Additional production as a result of increased investment would
increase the percentages.
4:23:40 PM
Senate Finance CS Transition at 20% and 25%,
Annual Revenue Loss, 2007-2003
[Line graph depicting a Net Value of Allowance ($mm) of 100
for the years 2007 through 2013 at a rate of 20 percent and
approximately 125 at a rate of 25 percent for the same time
period.]
Mr. Dickinson explained this information as follows.
If you look at the transition, transition investment
expenditures they are - and this is not a difference
between two bills. But the Senate Finance bill - the CS you
have in front of you, generally has a 25 percent deduction
for capital expenditures. However, the transitionals, the
TIE, the transitional expenditures have a 20 percent. So
this is simply indicating the effect every year that you
would get. It's a difference between these two assuming
they were utilized effectively at 70 percent. So I won't
tell you, it's a sophisticated piece of analysis here.
These are just two strait lines. But it just shows you the
effect of roughly $12 million a year from the difference
between the 20 and the 25 percent."
Co-Chair Wilken requested clarification.
Mr. Dickinson corrected his calculations and estimated the
difference to be approximately $100.
4:25:45 PM
Effective Date Change From 04/01/2006 to 07/01/2006 at $60
per Barrel Oil
[Line graph showing a line labeled as $418 million]
Mr. Dickinson indicated that Senator Olson had requested the
effect of changing the effective date from April 1 to July 1.
The difference would be $418 million calculated at oil prices of
$60 per barrel. The actual amount would be higher, given that
prices are currently $70 per barrel.
4:26:23 PM
PPT and GRE Revenue in FY 2007 at $60 per Barrel Oil
[Bar graph stating that Severance Tax Revenues of PPT Oil
Revenue at a price of $60 per barrel is approximately $2.2
billion and Severance Tax Revenues of GRE is approximately
$100 million.]
Mr. Dickinson explained this demonstrates the effect of the "gas
revenue stream". The total Severance Tax Revenues of PPT Oil
Revenue at $60 per barrel and Gas Revenue Exclusion (GRE) for FY
07 would be $2.3 billion. The GRE represents approximately "five
percent reduction in the total tax take, as a consequence."
4:26:59 PM
Cumulative Severance Tax Revenue under Governor's Bill as
Written, with 22.5/20, and with 25/20, Low Volume Scenario
2006-2030
[Bar graph listing Cumulative Revenues of the existing tax
structure and of different tax rates of a PPT structure at
certain prices as follows:
Status Quo:
$20 ANS WC Price $2,095 million
$40 8,001 million
$60 12,496 million
Gov 20/20:
$20 ANS WC Price $ 256 million
$40 15,587 million
$60 33,259 million
Gov with 22.5/20:
$20 ANS WC Price $ 455 million
$40 18,120 million
$60 37,989 million
Gov with 25/20:
$20 ANS WC Price $ 670 million
$40 20,654 million
$60 42,719 million]
Mr. Dickinson qualified this information was requested, although
it does not reflect the provisions of the Senate Finance
Committee substitute. Instead, it demonstrates the effect of
different PPT tax percentage rates under the provisions of the
original version of the bill. While revenues generated from a
PPT structure would be greater than revenues generated under the
existing tax structure at higher oil prices, revenue would be
less than the status quo at lower oil prices.
4:28:30 PM
Cumulative Severance Tax Revenues under Governor's Bill as
Written, with 22.5/20, and with 25/20, High Volume Scenario
2006/2050
[Bar graph listing Cumulative Revenues of the existing tax
structure and of different tax rates of a PPT structure at
certain prices as follows:
Status Quo:
$20 ANS WC Price $5,042 million
$40 12,947 million
$60 20,331 million
Gov 20/20:
$20 ANS WC Price $ 129 million
$40 20,917 million
$60 54,907 million
Gov with 22.5/20:
$20 ANS WC Price $ 207 million
$40 24,982 million
$60 63,208 million
Gov with 25/20:
$20 ANS WC Price $ 285 million
$40 29,046 million
$60 71,509 million]
Mr. Dickinson noted this chart presents the data from the
previous chart, although for a high volume scenario.
4:28:52 PM
Co-Chair Wilken requested information regarding distribution of
future cash flows under the provisions of this legislation
utilizing a 25 percent tax rate and 25 percent credit rate.
Senator Bunde added a request for this information utilizing a
22.5 tax rate and 25 percent credit rate.
4:29:53 PM
Senator Stedman requested a comparison of the progressivity
provision under consideration in the House of Representatives
applied to the Senate Finance Committee substitute, similar to
the comparison created by the consultant to the legislature,
EconOne. He asked that this information be presented in one
chart.
4:31:04 PM
Senator Bunde and Co-Chair Green thanked Mr. Dickinson and Ms.
Nienhuis for their efforts in preparing this presentation.
Co-Chair Green announced that possible changes to the Senate
Finance Committee substitute should be prepared for the
following hearing on this bill.
AT EASE 4:31:34 PM / 4:32:13 PM
ADJOURNMENT
Co-Chair Lyda Green adjourned the meeting at 4:32:10 PM
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