Legislature(2011 - 2012)SENATE FINANCE 532
04/09/2012 01:00 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB163 | |
| SB192 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 163 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 192 | ||
SENATE FINANCE COMMITTEE
April 9, 2012
1:06 p.m.
1:06:38 PM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 1:06 p.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lesil McGuire, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Weston Eiler, Staff, Senator Bert Stedman; Karen Rehfeld,
Director, Office of Management and Budget; Angela Rodell,
Deputy Commissioner, Tax Division, Department of Revenue;
Senator Cathy Giessel; Janak Mayer, Manager, Upstream and
Gas, PFC Energy;
PRESENT VIA TELECONFERENCE
Stephen Ribuffo, Interim Director, Port of Anchorage,
Anchorage; Allen Joseph, Vice-Chair, Sea Lion Corporation,
Bethel; Christine Klein, Calista Corporation, Anchorage;
Martin B. Moor Sr., City Manager, City of Emmonak, Emmonak;
Bosco Olson, Senior City Administrator, City of Hooper Bay,
Hooper Bay; Wilbur R. Hootch, Mayor, City of Emmonak,
Anchorage; Gordon Seversen, Michael L. Foster and
Associates, Anchorage; Jomo Stewart, Self, Fairbanks;
SUMMARY
SB 163 G.O. BONDS FOR PORTS
SB 163 was HEARD and HELD in committee for
further consideration.
SB 192 OIL AND GAS PRODUCTION TAX RATES
SB 192 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 163
"An Act providing for and relating to the issuance of
general obligation bonds for the purpose of paying the
cost of municipal port projects; and providing for an
effective date."
1:07:34 PM
Co-Chair Hoffman MOVED to ADOPT the proposed committee
substitute for SB 163, Work Draft 27-GS2769\D
(Finley/Kirsch, 4/7/12.)
1:07:44 PM
Co-Chair Stedman OBJECTED for the purpose of discussion.
1:08:01 PM
WESTON EILER, STAFF, SENATOR BERT STEDMAN, highlighted the
changes in the committee substitute (CS). He cited that
Page 1, line 1, contained a title revision that expanded
the bill's coverage exclusively from ports to other state
transportation projects. He added that Page 1, line 10,
amended the amount of the general obligation bonds (GEO) to
$453,499,200. He reported that on Page 2, line 1, renamed
the project fund to the "2012 State Transportation Project
Fund". He noted that on Page 2, line 8, Section 3 broadened
the grant award statutes, AS 37.05.316, and changed the
grant fund total to $188.4 million (line 13.) He listed the
transportation grant projects, which contained changes from
previous versions of SB 163. He read the list beginning on
Page 2 line 16:
PROJECT AMOUNT
Anchorage - Port of Anchorage $50,000,000
Expansion
Bethel - Harbor Dredging 4,000,000
Bristol Bay Borough - Port of Bristol Bay 7,000,000
Expansion and Pile Dock Replacement
Haines Borough - Boat Harbor Upgrades 12,000,000
Kodiak - Pier III Replacement 15,000,000
Kotzebue - Cape Blossom Road and Port 10,000,000
Matanuska - Susitna Borough - Bogard Road Extension
13,500,000
Matanuska-Susitna Borough - Port Mackenzie
30,000,000 Rail Extension
Nenana - Totchaket Resource Development 6,500,000
Corridor Access
Newtok Traditional Council - Mertarvik Evacuation
4,100,000
Road Construction
Nome - Port Design and Construction 10,000,000
Sand Point - Sand Point Road Rehabilitation
2,500,000
Seward - Marine Industrial Center Expansion
10,000,000
Sitka - Sawmill Cove Industrial Park Dock 7,500,000
St. George - Harbor Reconstruction 3,000,000
Togiak - Waterfront Transit Facility 3,300,000
Mr. Eiler directed attention to Section 4, line 6, which
added a new section that authorized (AS 37.07.080(e)) the
Department of Transportation and Public Facilities (DOT) to
appropriate the following from the 2012 State
Transportation Project Fund:
PROJECT AMOUNT
Anchorage - Glenn Highway, Hiland Road to Artillery
Road 35,000,000 Reconstruction
Anchorage - Glenn Highway/Muldoon Road Interchange
15,000,000 Reconstruction
Anchorage - New Seward Highway/36th Avenue
26,000,000 Reconstruction
Anchorage - New Seward Highway - MP 75 - 90
10,000,000 Bridge Repairs
Anchorage - O'Malley Road Reconstruction 15,000,000
Fairbanks - Elliott Highway, MP 108 - 120
Reconstruction 6,500,000
Fairbanks - Old Steese Highway to McGrath Road
24,000,000 Reconstruction and Extension
Fairbanks - Wendell Street Bridge Replacement
14,400,000
Haines - Maintenance Shop Replacement 3,000,000
Juneau - Glacier Highway, MP 4 - 6 Improvements
5,500,000
Juneau - Mendenhall Loop Road Improvements 6,000,000
Kenai - Kenai Spur Road Rehabilitation 20,000,000
Ketchikan - Shelter Cove Road Construction and
Improvements 19,000,000
Mat-Su - Fairview Loop Road Reconstruction 10,000,000
Mat-Su - Knik Goose Bay Road Reconstruction
15,000,000
North Pole - Plack Road Improvements 5,000,000
Platinum Airport Runway Extension 3,100,000
Port Clarence Access Improvements 4,000,000
Richardson Highway - Ruby Creek Bridge Replacement
11,000,000
Sitka - Katlian Bay Road Construction 14,000,000
Mr. Eiler noted that Section 5, Page 4 contained
instructions and authorizations for the State Bond
Committee. He read the following language (Page 4, Lines 11
- 15):
If the issuance of the bonds is ratified by a majority
of the qualified voters of the state who vote on the
question, the amount of $3,599,200 or as much of that
amount as is found necessary is appropriated from the
2012 state transportation project fund of the state to
the state bond committee to carry out the provisions
of this Act and to pay expenses incident to the sale
and issuance of the bonds authorized in this Act.
He concluded with Section 7 (Page 4, line 26), which
contained the ballot question and the total amount
[$453,499,200] of the bond package.
1:15:09 PM
Senator Thomas referred to Page 3, line 23; Fairbanks -
Elliott Highway, MP 108 - 120 Reconstruction 6,500,000 and
indicated that the project was located 118 miles outside of
Fairbanks. He did not want the project attributed to
Fairbanks.
Co-Chair Stedman replied that the language would be
remedied later on in the process.
Co-Chair Stedman REMOVED his OBJECTION. There being NO
further OBJECTION, Work draft 27-GS2769\D was ADOPTED.
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
spoke to the original version of the bill. She reported
that the original version of SB 163 authorized $350,000,000
in general obligation bonds for six port projects around
the state. Four new projects were incorporated into the CS.
ANGELA RODELL, DEPUTY COMMISSIONER, TAX DIVISION,
DEPARTMENT OF REVENUE, spoke to the fiscal note. She
explained that $3,500,000 of the bond total, $453,499,200
was the associated costs to issue the bonds. Upon ballot
approval, the first issuance would begin in February, 2013
and would continue into FY 14 and FY 15. She assured the
committee that the proceeds would be expended in a timely
manner. She expected a low cost for the first bond issuance
of approximately 2.6 percent. She commented that the
projects were long-term and anticipated a 20 year bond
issue. The administration planned to finance the projects
over the 20 year period to free up funds for other
priorities.
Co-Chair Stedman cited the fiscal note from the Department
of Revenue (DOR) that appropriated $900,000 in general
funds for FY 2013.
1:19:47 PM
STEPHEN RIBUFFO, INTERIM DIRECTOR, PORT OF ANCHORAGE,
ANCHORAGE (via teleconference), testified in support of SB
163. He thanked the committee for the additional funding
totaling $50,000,000 but related that the funding fell
short of the $350,000,000 requested by the municipality. He
considered the port a statewide project and felt that it
benefited the entire state.
ALLEN JOSEPH, VICE-CHAIR, SEA LION CORPORATION, BETHEL (via
teleconference), expressed his support of SB 163. He worked
in collaboration with the city of Hooper Bay on various
projects. Currently, the community sought to construct a
small boat harbor at a cost of $8,000,000 and to extend a
road at a cost of $700,000, for the transportation of goods
that arrive by barge. The harbor was unprotected and the
goods brought in by barge were trucked on the beach. The
residents of Hooper Bay were concerned that a barge or
truck accident would affect subsistence fishing. He
requested the project's inclusion in SB 163.
CHRISTINE KLEIN, CALISTA CORPORATION, ANCHORAGE (via
teleconference), testified in support of including the
Emmonak port project in SB 163 and clarified that the
project was included in earlier versions of the
legislation. She explained that the Emmonak port was the
hub for villages along the Yukon River. The port was relied
on for fuel deliveries and utilized by the fisheries plant
that provided jobs for residents. She detailed that the
project design was complete and it was "shovel ready." The
total cost was $16,500,000. The cost of Phase 1 was $10
million for construction of the dock and wharf. The landing
ramp cost $6,400,000. The project was supported by Kwik'Pak
Fisheries, the City of Emmonak, Calista Regional
Corporation, and the Tribe of Emmonak.
1:24:24 PM
MARTIN B. MOOR SR., CITY MANAGER, CITY OF EMMONAK, EMMONAK
(via teleconference), testified in support of including the
Emmonak port and dock facility project in SB 163. He noted
that the city was located 10 miles from the mouth of the
Yukon River and served as the regional hub. He served the
city since 1963, which included some time as mayor. He
spoke of interior Alaska's increasing costs for fuel and
basic necessities, which threatened rural Alaska's physical
survival. Every necessity must be shipped in. He shared
that expanding the Emmonak port benefited the entire region
and could potentially reduce the costs.
BOSCO OLSON, SENIOR CITY ADMINISTRATOR, CITY OF HOOPER BAY,
HOOPER BAY (via teleconference), expressed his support of
the inclusion of the road extension and the small boat
harbor in SB 163. He explained that the road extension
would expand the road over a slough and that the small boat
harbor protected boats from potentially destructive storms
in the fall.
1:31:45 PM
WILBUR R. HOOTCH, MAYOR, CITY OF EMMONAK, ANCHORAGE (via
teleconference), testified in support of including the
Emmonak port and dock facility project in SB 163. He
remarked that the region was experiencing a crippling
energy crisis and listed the positive effects of the
project for the region.
GORDON SEVERSEN, MICHAEL L. FOSTER AND ASSOCIATES,
ANCHORAGE (via teleconference), testified in support of the
City of Emmonak's port and dock facility project. He voiced
that in 2009, 80 barges off loaded 1,500 containers in
Emmonak. The dock area was too small, congested, and
inadequate. Barge offloading caused bank erosion.
JOMO STEWART, SELF, FAIRBANKS (via teleconference),
testified in support of expanding the legislation to
include funding in SB 163 for solutions to the "crippling
energy needs" in Fairbanks. He remarked that the actual
definition of "port" in the statutes was fairly broad; "a
facility of transportation related commerce located within
the state." He briefly shared his ideas for funding.
1:38:40 PM
SB 163 was HEARD and HELD in committee for further
consideration.
1:38:43 PM
AT EASE
1:46:13 PM
RECONVENED
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax;
and providing for an effective date."
JANAK MAYER, MANAGER, UPSTREAM AND GAS, PFC ENERGY,
discussed a PowerPoint presentation titled "Discussion
Slides: Alaska Senate Finance Committee, April 9, 2012 (copy
on file).
1:47:21 PM
Mr. Mayer announced that the information in the
presentation was in response to questions from the
committee on CSSB 192 and previous testimony. He explained
Slide 2, titled "Cost Sensitivity-From April 3 Testimony
and Discussion - Impact of Rising Revenue Costs." The slide
graphed the "Revenue Difference Between ACES and
Progressive Severance Tax Options under Different Opex/bbl
Assumptions" for the producer, proposed in CSSB 192. He
determined that the impact of the tax systems varied
depending on the level of costs the producer incurred. He
noted that the chart, originally presented on April 3, 2012
was slightly outdated since the committee recently
increased progressivity from .25 to .27. The impact
increased taxes for the producer at the $80/bbl. to
$100/bbl. (price per barrel) range as a result of the
change. He pointed out that the cost sensitivity was
calculated on opex (Operating Expenditure). Capital
expenses (capex) were not factored in because of the
impacts of the capital credit for the producer and that
typically, high cost capital expenditure was associated
with new production. New production received reduced tax
rates under CSSB 192. Cost sensitivity was relative to
opex. He reminded the committee that the system was
calibrated to be revenue neutral at $100/bbl. at average
operating costs of $12/bbl. as forecast by the Department
of Revenue (DOR) for FY 2013. He related BP's (British
Petroleum) previous testimony that the consequence of the
revenue neutral structure meant the producer incurred a
higher tax burden in CSSB 192 than under ACES if the per
barrel costs were higher than the average operating costs.
He concurred with BP's point of view. He recapped that if
opex rose as production declined and opex costs were not
variable on a cost per barrel basis the result was a tax
increase.
1:52:24 PM
Mr. Mayer pointed out that the effect was a direct result
of the committee's desire to structure a tax with more
incentive for cost control and less state support for
spending at high levels of progressivity "because of the
interaction of high progressivity with full capital
deductibility" under ACES. He exemplified a scenario under
ACES where progressivity was triggered and the producer
incurred a production tax rate of 40 percent, each dollar
of operating or capital costs can be deducted from the
production tax liability. Since the production tax per
barrel also decreased the result was to move "further down
the curve of progressivity." He emphasized that under ACES
the costs were fully deductible from the 25 percent
production tax but under CSSB 192 progressivity was no
longer taxed on the net. The ability to reduce
progressivity as costs escalated was lost. He believed that
conclusion was the fundamental difference between ACES and
CSSB 192. He reiterated that CSSB192 created a tax
structure that reduced "excessive support" for rising costs
and incentivized cost control. He stressed that the direct
consequence of increasing incentives for cost control was
higher taxes for producers with higher costs.
Mr. Mayer indicated that CSSB 192 did offer a substantial
form of mitigation, which was the reduced rate of
progressive tax on the gross for new production in new
areas and on incremental production above the decline
curve. Also, companies producing in a completely new area
incurred only a 5 percent tax for seven years which
diminished the impact on costs. He warned that the seven
year cycle limited the impact of lower taxes on higher
operating costs overall. He reminded the committee that new
production incurred the highest operating costs. In order
to achieve cost sensitivity it was imperative that recently
completed developments like Oooguruk was included under new
production due to high costs well above the $12 fixed rate
designated in CSSB 192. The effect reduced taxes for the
first seven years. He cautioned that the reduction was
offset by the full tax rate kicking in after the 7 year
period. He suggested that extension or elimination of the
seven year period could mitigate the impact. Similarly,
mitigation was possible by reducing or excluding
progressivity and simply charge the base tax. The same
scenario applied to high cost incremental (new production)
production from existing fields.
1:58:23 PM
Mr. Mayer addressed the conclusion of the DOR testimony on
CSSB 192 that sensitivity to higher costs encouraged a
"further retreat to harvest mode" since companies would
"face lower tax rates due to lower costs that dis-
incentivized harvest production." He disagreed with the
conclusion. He reasoned that as production falls operating
costs were likely to stay flat and costs per barrel rose.
"Harvest mode did not imply low costs per barrel."
Mr. Mayer refuted DOR's assumption that tax incentives for
existing production under CSSB 192 were not as strongly
supported as under ACES. New capex, which created new
production and was taxed at a lower rate, acted as an
offset. He revealed that DOR's testimony ignored that
interaction. Lastly, he contended that production volume
and the resulting revenue generated was more significant
than the tax rate. It would take an "extraordinary
reduction in tax" to incentivize a producer to deliberately
produce less revenue, especially if costs were not
decreased.
Mr. Mayer addressed Slide 3, "FY 2013 v Lifecycle Analysis
- Impact of Costs & 7 year Time Limit." The slide
reproduced slides from previous presentations from April 4,
2012 and April 5, 2012 that related to government take for
new development under CSSB 192. He clarified that the
slides contained seemingly conflicting data on government
take. The FY 2013 data showed government take in the mid-
sixties percent and the lifecycle slide in the mid-
seventies percent. He explained that one analysis was based
on FY 2013 and the later benchmarking data was done as a
life cycle analysis. The April 4th analysis was based on FY
2013 outcomes factoring in revenue neutrality at $100/bbl.
The April 5th data was based on benchmarking, which was
always based on lifecycles. A lifecycle analysis used
generic new development costs as opposed to North Slope
average costs for FY 2013 which moved the government take
upward. In addition, the FY 2013 data included the new
production cap of 5 percent, which drove government take
down.
Mr. Mayer stated that the lifecycle analysis included the
higher tax rate on new production after the 7 year, 5
percent cap expired, which increased government take.
2:04:23 PM
Co-Chair Stedman surmised that one analysis was run using
life cycle new production data and the other was run on FY
2013 blended numbers. Mr. Mayer agreed.
Mr. Mayer discussed the slide 4:
Some Goals Are Mutually Exclusive
•Achieve decoupling
•Reduce high levels of support for spending, and poor
incentives for cost control
•Minimize complexity, including need for separate cost
accounting
•Reduce government take on new/incremental production
•No increases on any taxpayers
•Revenue neutral at $100+ /bbl.
•More even split between state and companies above
$100/$120/bbl.
He stated that the fundamental issue was that all goals
cannot be achieved in any single tax structure.
Mr. Mayer turned to slide 5:
Some Goals Are Mutually Exclusive
ACES with a 40% Cap
•Achieve decoupling
•Reduce high levels of support for spending, and poor
incentives for cost control
•Minimize complexity, including need for separate cost
accounting
•Reduce government take on new/incremental production
•No increases on any taxpayers
•Revenue neutral at $100+ /bbl
•More even split between state and companies above
$100/$120 / bbl
[Items in Bold were achievable goals.]
Mr. Mayer moved to slide 6:
Some Goals Are Mutually Exclusive
ACES with a 40% Cap & SB 305-Style Decoupling
•Achieve decoupling
•Reduce high levels of support for spending, and poor
incentives for cost control
•Minimize complexity, including need for separate cost
accounting
•Reduce government take on new/incremental production
•No increases on any taxpayers
•Revenue neutral at $100+ /bbl
•More even split between state and companies above
$100/$120/bbl.
[Items in Bold were achievable goals.]
Mr. Mayer directed attention to slide 7:
Some Goals Are Mutually Exclusive
HB110
•Achieve decoupling
•Reduce high levels of support for spending, and poor
incentives for cost control
•Minimize complexity, including need for separate cost
accounting
•Reduce government take on new/incremental production
•No increases on any taxpayers
•Revenue neutral at $100+ /bbl
•More even split between state and companies above
$100/$120 / bbl
[Items in Bold were achievable goals.]
2:11:04 PM
Mr. Mayer addressed slide 8:
Some Goals Are Mutually Exclusive
CSSB192
•Achieve decoupling
•Reduce high levels of support for spending, and poor
incentives for cost control
•Minimize complexity, including need for separate cost
accounting
•Reduce government take on new/incremental production
•No increases on any taxpayers
•Revenue neutral at $100+ /bbl
•More even split between state and companies above
$100/$120 / bbl
[Items in Bold were achievable goals.]
Mr. Mayer pointed out that CSSB 192 accomplished all of the
goals except for one; no increased taxes. He believed that
the committee must consider "fundamental tradeoffs" to
achieve all of the goals. He summarized the ways to
mitigate increased taxes: eliminate progressivity on new
and incremental production, raise the progressivity
threshold, or compromise on the goal of revenue neutrality
at $100/bbl.
Mr. Mayer discussed Slide 9 titled, "Regime Competiveness:
Relative Government Take." He spoke to previous testimony
that suggested that ACES was a good system at $100/bbl. but
at higher prices was problematic or that 75 percent levels
of government take was a desirable goal. He shared that PFC
Energy held the position that approximately 75 percent
government take under ACES at $100/bbl. depicted in the
ranking on slide 9, was very high by world standards. He
noted the ranking was higher than any oil producer in the
Lower 48 states. The Lower 48 states were faced with much
lower costs, which increased its competiveness with Alaska.
He observed that Norway's government take was higher but
maintained a National Oil company. Norway provided active
equity participation through Petoro, which ensured ongoing
investment in its oil sector. He explained that instead of
setting a target rate for a desired outcome, PFC Energy
recommended incentivizing production. He detailed that new
investment was typically accompanied by high production
costs. Flexibility in government take must be built into a
tax regime in order to incentivize production. He
reiterated the ways to accomplish reduced government take
on new production.
2:17:18 PM
Senator Thomas asked for clarification regarding the chart
on slide 2. Mr. Mayer responded that the chart illustrated
the difference between ACES and CSSB 192 at different price
levels and opex assumptions. The horizontal axis was set at
zero. Any point below the zero line represented a revenue
or tax decrease. Conversely, every point above the zero
line represented a tax increase compared to ACES.
Senator Thomas asked for a clarification on the second goal
on slide 8, "Reduce high levels of support for spending…"
Mr. Mayer interpreted the goal as high levels of support
from the state to industry.
Co-Chair Stedman exemplified that the state cannot
subsidize capital expenditures at levels close to or above
100 percent. Mr. Mayer agreed.
2:21:47 PM
SB 192 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
2:21:47 PM
The meeting was adjourned at 2:21 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 163 - CSSB 163(FIN) version D.pdf |
SFIN 4/9/2012 1:00:00 PM |
SB 163 |
| SB 192 April 9 PFC Energy Alaska Senate Finance.pdf |
SFIN 4/9/2012 1:00:00 PM |
SB 192 |