Legislature(2015 - 2016)SENATE FINANCE 532
01/25/2016 09:00 AM Senate FINANCE
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| Presentation: 2015 Fall Forecast and Standard and Poor Report | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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SENATE FINANCE COMMITTEE
January 25, 2016
9:09 a.m.
9:09:45 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 9:09 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Randall Hoffbeck, Commissioner, Department of Revenue; John
Tichotsky, Chief Economist, Tax Division, Department of
Revenue.
SUMMARY
^PRESENTATION: 2015 FALL FORECAST AND STANDARD and POOR
REPORT
9:10:18 AM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
discussed the PowerPoint presentation, "Alaska Department
of Revenue: Fall 2015 Revenue Forecast Presentation," (copy
on file).
9:11:20 AM
Co-Chair Kelly recognized former Speaker of the House John
Harris in the room.
Commissioner Hoffbeck discussed Slide 3, "Structure of
Revenue FY 2013, FY 2014, FY 2015." The slide contained a
pie chart for each respective year. Each chart detailed the
change in restricted and unrestricted general fund dollars
from FY 13 to FY 15. He relayed that it was unlikely that
unrestricted revenues, as currently defined, would be a 50
percent ever again. He said that the recent revenue sources
book would reflect a breakdown of restricted revenues that
were available for appropriation; investment earnings that
had not historically been part of the annual appropriation,
but were available for appropriation.
9:12:46 AM
Commissioner Hoffbeck discussed Slide 5, "Methods: What Do
We Forecast at DOR?":
Mostly Petroleum and Non-petroleum Revenue
· We directly forecast Petroleum Revenue
o the largest component, accounting for 75%of
state unrestricted revenue in FY 2015
o "Petroleum Revenue" includes severance taxes,
royalties, corporate income tax, and all other
revenue from oil companies
· We directly forecast Non-petroleum Revenue
· We use someone else's forecast for Investment
Revenue
· We use the Federal Revenue authorized for spending
as the forecast
o It is typically 20%-30% more than actually gets
spent.
· DOR compiles all different revenue streams and
compiles them in the annual Revenue Sources Book
Commissioner Hoffbeck noted that moving forward, oil and
gas tax, revenue, and royalties would be considered at a
smaller percentage of the state's overall revenue.
9:14:16 AM
Commissioner Hoffbeck moved to Slide 6, "Oil Revenue
Forecasting,":
Three Factors for Production Tax Revenue Forecast
REVENUE = (Net value * Tax Rate) - Credits taken
against liability1
Net value = (Price*Production) -Costs
1.Price
2.Production
3.Costs
1.Capital expenditures
2.Operating expenditures
3.Transportation cost
1DOR also forecasts refundable credits, but these are
paid out of the General Fund and do not appear in the
revenue forecast.
9:14:50 AM
Commissioner Hoffbeck moved to Slide 7, "Fall 2015
Highlights,":
· Input changes relative to the 2015 Spring Forecast.
o Oil price forecasts have been reduced for all
years in the forecast.
ƒ Long term prices now expected to settle
around $50 -$70 real.
o Capital expenditures forecasts have been
reduced for all years in the forecast.
o Oil production forecasts have been reduced for
all years in the forecast.
o Correspondingly, unrestricted revenues have
been revised downward.
· Revenue impacts largely due to change in oil price
assumptions.
· Lease expenditure (or investment) in the oil fields
expected to decline, which will lead to less
expected "new" production in the future.
o Many projects have been deferred until oil
prices improve.
9:15:29 AM
Vice-Chair Micciche wondered how the department defined the
term "long term" on slide 7.
Commissioner Hoffbeck replied that for the purposes of the
forecast, "long term" indicated more than three years out.
He furthered that because of the lowered price point,
projects had been deferred until oil prices improved, which
meant less lease expenditure and more downward pressure on
new production until investments were made.
9:16:25 AM
JOHN TICHOTSKY, CHIEF ECONOMIST, TAX DIVISION, DEPARTMENT
OF REVENUE, discussed Slide 9, "Production History and
Forecast," noting that there was a plateau expected in the
declining oil production.
9:17:27 AM
Mr. Tichotsky moved to Slide 10, "ANS Production Forecast
Comparison." The slide offered a comparison of fall 2015
and spring 2015, which were nearly identical, and primarily
driven by price.
9:17:38 AM
Mr. Tichotsky moved to Slide 11, "ANS Oil Production
Forecast,":
· Volumes from Developed Reserves (Currently
Producing):
o Oil from wells that are in production and
following typical reservoir engineering
optimization without major investment.
o These volumes are from projects already in
place and thus remain unadjusted for risk.
· Volumes from Undeveloped Reserves and
additional/accelerated Developed Reserves:
o Oil from projects that will add incremental oil
to existing fields or will bring new fields
into production.
o Must have senior management approval and be
allocated funds in the company's budget.
o These volumes are risk-adjusted for commercial
uncertainty.
· Volumes from Contingent Resources:
o Oil from projects that are likely to occur in
the future, but have not met the requirements
of the previous category.
o Oil reserves must be known and recovery is
technically possible with current technology.
o These volumes are more strongly risk-adjusted
due to the commercial uncertainty and other
risks.
· DR + UDR + CR = Unrisked Investment Case
9:18:22 AM
Mr. Tichotsky moved to Slide 12, "ANS Production Forecast,"
which contained a line graph illustrating Alaska North
Slope production forecasted through 2025. He relayed that
it was possible that the decline could continue, but the
department expected the actual line to land between the
highest and lowest investment cases.
9:19:30 AM
Vice-Chair Micciche asked to revisit Slide 10. He wondered
how much of the production increase that was indicated on
the graph was unrisked and adjusted expected beyond 2017.
Mr. Tichotsky replied that the uptick in the spring shown
on the graph had been due to a higher price environment. He
said that in a lower price environment, short-term pullback
would be seen. He furthered that oil companies had provided
fairly accurate projections five years out, but their view
dropped off beyond the five year mark. He said that the
department was doing the production forecast because it
needed to produce a revenue forecast. The further out in
the future the projections, the less certainty in the
predictions.
9:22:05 AM
Vice-Chair Micciche appreciated the conservative nature of
the department's predictions for price and production
levels.
9:22:27 AM
Mr. Tichotsky discussed Slide 14, "ANS Production
Forecast," which contained a stacked area graph that
forecasted ANS production through 2025.
9:23:44 AM
Mr. Tichotsky discussed Slide 16, "Alaska North Slope Crude
West Coast Price," which contained a line chart detailing
the fall of oil prices between January 2014 and January
2016.
9:24:23 AM
Mr. Tichotsky moved to Slide 17, "Alaska North Slope West
Coast, West Texas Intermediate and Brent Crude Prices 2009
through 2016", which contained a line chart. He commented
that and commented that the state had not seen prices so
low since 2001 - 2002. He added that the three oil price
markers: West Texas Intermediate (WTI), Alaska North Slope
Crude (ANS), and Brent have less than a dollar difference
in price between them. He explained that physical
impediments had contributed to the low prices.
9:26:03 AM
Mr. Tichotsky moved to Slide 18, "Key Oil Price Drivers":
· Supply & Demand
· There are two main factors to monitor
o Global spare capacity, since it is both a
reflection of supply and demand. In other
words, the Organization of Petroleum Exporting
Countries (OPEC) spare capacity (flipping a
switch) is key.
o Cost of developing new oil supply.
· Current Events
o Weak global demand.
o Cost of supplying the marginal barrel has
decreased dramatically.
o OPEC (Saudi Arabia) maintains market share and
accepts lower prices.
o Cost of supply has fallen as new sources have
been defined and developed.
ƒ Oil shale is a prime example.
9:26:55 AM
Mr. Tichotsky discussed Slide 19, "OPEC's view of supply
and demand…," which contained a combo chart, based on
questions the committee had asked in 2015. He relayed that
OPEC predicted an uptick in the requirement for OPEC crude.
9:27:37 AM
Mr. Tichotsky moved to slide 20, "It's about spare
capacity…", which contained a line chart and a bar graph.
The line chart detailed global production and consumption
of crude oil and other liquids from 2011 to 2017, in
million barrels per day. The bar graph illustrated the
implied stock change from 2011 to 2017, in million barrels
per day.
9:28:49 AM
Co-Chair Kelly asked for further clarification on the
slide.
Mr. Tichotsky explained that previously, the supply of oil
that could come online quickly represented 30 percent of
the total demand. This made it easy to control the price.
Today, the marginal supply was thin, which would result in
price volatility into the future. He pointed out to the
committee that when the green bars on the bar graph dropped
below zero, which meant that demand outpaced supply,
driving up the price.
Mr. Tichotsky stated that if production surpassed
consumption, the price of oil would fall. He noted that the
bottom graph then reflected how much extra oil was on the
market.
9:30:45 AM
Senator Dunleavy asked whether the impact of a weak, or
strong, American dollar on the price of oil, would be
discussed.
Mr. Tichotsky replied that the impact of a strong or weak
U.S. dollar was considered, but was not an overriding
factor. He said that the need to track currency had been
non-existent. He reiterated that forecasts were difficult
when using volatile oil prices.
9:32:33 AM
Mr. Tichotsky stated that while the price of oil could go
down further, the investment dropped off for marginal oil
suppliers, curtailing supply.
9:33:35 AM
Senator Bishop thought Slide 20 was important. He surmised
that the 25 to 30 percent oversupply in the mid-1980s was
now less than 2 percent. He offered that a slight
disruption could cause a price shift because there was no
spare capacity.
Mr. Tichotsky concurred.
9:34:36 AM
Senator Olson queried the time lag between production and
consumption that affected the overall price per barrel.
Mr. Tichotsky responded that the time lag was a moving
number. He stressed that people were trying to nail down a
number worldwide. He stated that the current price
environment was unpecendented.
9:35:33 AM
Co-Chair MacKinnon offered her insight on the actions of
Saudi Arabia in the global oil market. She added that Iran
was flooding the market with an additional million barrels
per day.
Mr. Tichotsky confirmed that the number was 500,000 barrels
per day.
9:36:23 AM
Co-Chair MacKinnon referred to Slide 19. She and wondered
whether the state was confident in OPEC's projections. She
queried whether those projections offered the state a
realistic picture of the future oil market.
Mr. Tichotsky replied that a Harvard economist was slated
to testify before the committee on another subject in the
future, and would speak more in-depth on Saudi Arabia. He
felt that Saudi Arabia had failed to accurately predict the
current price of oil. He noted that Slide 19 reflected the
view of Saudi Arabia with standard economics; when energy
prices were low, demand increased. He mentioned that "gas
guzzling" vehicles, and the vehicle heavy populations of
China and India had contributed to high demand. He
explained that the increase in supply was due to
breakthroughs in technology over the last decade.
9:38:43 AM
Co-Chair MacKinnon wondered whether China was advancing at
the same pace in coal usage, rather than considering the
switch to a cleaner fuel, such as natural gas. She
understood that a large portion of the market consisted of
aviation fuel.
Mr. Tichotsky explained that electricity markets had relied
on renewables for over a decade. He said that the demand
for coal-fired electricity in the U.S. had decreased and
had been replaced by cheap, natural gas. He said that Asia
had been reluctant to move into nuclear energy. Germany had
rejected nuclear energy, but bought coal-fired electricity
from Poland. He relayed that the U.S. currently produced
less carbon emissions than Europe. He lamented that there
were unintended consequences related to the various sources
of energy that could not be predicted. He said that
aviation fuel was an important component, but automobile
transportation fuel drove the market.
9:42:19 AM
Co-Chair Kelly wondered whether changes in the market had
been anticipated when the Iran sanctions were lifted.
Mr. Tichotsky referred back to Slide 20, which showed how
500,000 barrels per day affected production and
consumption.
Co-Chair Kelly said that he had heard that Iran could
produce 2 million barrels per day, and higher.
Mr. Tichotsky said that he could not speak to those
numbers.
Co-Chair Kelly remarked on the growth of India and its lack
of a middle-class. He asked whether I was anticipated that
India would play a large part in drawing the world out of
recession.
Mr. Tichotsky expressed that he was more informed regarding
Chinese markets, but mused that if India could develop a
middle-class, that drove automobiles, that consumption
could spur economic growth.
Co-Chair Kelly asked about the portion of demand taken up
by the petrochemical industry.
Mr. Tichotsky replied that he did not know.
9:45:03 AM
Vice-Chair Micciche believed that all commodities
experienced volatility as one point or another; he asserted
that market instability always lurked under the surface. He
pondered whether instability was always temporary in a
commodity price.
Mr. Tichotsky countered that stability was also temporary.
He said that the markets were constantly shifting between
stability and instability. He relayed that short-term
equilibriums could be created, but concurrently there were
long-term changes. He related that traditional,
conventional oil had decreased, but due to technology,
hydrocarbons had been recognized as a resource. He said
that more hydrocarbons were accessible at economic prices.
He shared that hydrocarbons were a great way to store and
move energy, which was why they remained prevalent in spite
of emissions issues.
9:48:04 AM
Vice-Chair Micciche asserted that when thinking about
filling in the fiscal gap, short-term ideas could suffice.
He guessed that there would be a period of relative
stability at some time in the future. He contended that
savings had to be conserved for as long as possible, but at
some point the price of oil would rise.
Mr. Tichotsky thought that the volatility and instability
were the two things that could be counted on. He said that
the bigger economic problem for Alaska was that the state's
budgetary and revenue system revolved around oil price
volatility.
9:50:03 AM
Senator Hoffman referred to the recent climate change
summit in Paris where many countries had signed off on an
agreement to curb the use of fossil fuels, which he
understood lacked any real ability to effect change. He
wondered whether the agreement would affect the price
structure.
Mr. Tichotsky shared that when Germany rejected nuclear
power, Europe used and produced electricity with more
carbon emissions. He added that the U.S. had reduced its
reliance on coal by switching to natural gas, which
produced less greenhouse gasses. He reiterated that
unintended consequences and advancements in technology
would define the future rules of the how the oil markets
worked globally.
9:52:02 AM
Senator Dunleavy lamented that, in his brief time at the
table, oil price projections had never been accurate. He
wondered whether the state should budget well under the
predictions. He understood that the FY17 budget was
forecast at $56 per barrel.
Commissioner Hoffbeck clarified that the forecast was $50,
$56 had been used for FY16. He stated that DOR had always
endeavored to be conservative in its predictions.
Mr. Tichotsky stated the he was wild about a probabilistic
view of the world, one with ranges of possibilities. He
said that with commodity prices, the ranges were broad;
realistic numbers could range anywhere from $15 per barrel
to $120 per barrel. He relayed that deterministic prices
were only good if there was certainty about what would
happen next in the market, if there was uncertainty it
would be better to understand the range of possibilities
and be mostly right, than to be exactly wrong. He concluded
that if the view was too deterministic, disallowing the
ranges to inform a worldview, the result would be exactly
wrong and not mostly right.
9:56:51 AM
Mr. Tichotsky moved to Slide 22, "Consensus view that the
distribution is wide," and commented that the graphs
reflected that crude oil prices remained relatively low
through 2016 and 2017.
9:57:50 AM
Mr. Tichotsky moved to Slide 24, "'What if the oil price
is…' for the remainder of FY 2016," he offered that the
settling price could be anywhere from the mid-fifties to
the thirties.
9:58:38 AM
Mr. Tichotsky discussed slide 25, "Historical ANS West
Coast FY Oil Price Bands: Annual Average and Official
SPRING 2015 Forecast".
9:59:17 AM
Mr. Tichotsky moved to Slide 28, "COMPARISON-SPRING 2015
VS. FALL 2015 FORECASTS," noting that oil prices were
currently 25 percent lower than the earlier forecast. The
ANS oil production was 4 percent lower, and had been driven
by anticipated prices. The projected revenue forecast
between the spring and the fall showed at negative $605
million. The numbers for FY 17 had been driven by price.
9:59:54 AM
Mr. Tichotsky moved to Slide 29, "CONTRIBUTORS OF CHANGE IN
FY2016 REVENUE FORECAST," and said that the state was
getting over 500,000 barrels per day - into the next
several years.
10:00:39 AM
Mr. Tichotsky discussed Slide 30, "CONTRIBUTORS OF CHANGE
IN FY2017 REVENUE FORECAST," stating that it was based on a
belief that the price would recover. He asserted that the
price would drive the system, increased production was not
anticipated.
10:01:05 AM
Mr. Tichotsky moved to Slide 31, "NORTH SLOPE CAPITAL
EXPENDITURE FORECAST CHANGE". He related that less capital
expenditures were expected due to oil prices. He said this
would have a positive effect on revenues because capital
expenditures are deductible. He relayed that the less money
that was spent on capital expenditures in the present meant
less opportunity for production in the future. He noted
that operating expenditures between the spring and fall
reflected the lower price environment.
10:02:03 AM
Commissioner Hoffbeck discussed Slide 34, "Net Tax Credits
vs. Production Tax," explaining that it was an updated
version of a slide shown to the committee the previous
year.
10:02:37 AM
Commissioner Hoffbeck discussed Slide 35, "Unrestricted Oil
Revenue* and Tax Credits", which showed the net tax credits
versus unrestricted oil revenue and included petroleum
property tax, petroleum CIT, production tax, oil and gas
hazardous release, oil and gas conservations, rents, and
royalties.
10:03:03 AM
Co-Chair MacKinnon requested a chart with the information
on Slide 35 from the previous ten years.
Commissioner Hoffbeck agreed to provide the information.
10:03:29 AM
Mr. Tichotsky addressed Slide 37, "Fall 2015 Total Revenue
Forecast," explaining that both investment and petroleum
revenues were volatile. He noted that federal funding was a
steady source of revenue.
10:04:44 AM
Mr. Tichotsky addressed Slide 38, "FY 2017 General Fund
Unrestricted Revenue, with Price Sensitivity," and pointed
out how the curve increased exponentially with the price of
oil above $80 bbl.
10:05:54 AM
Mr. Tichotsky discussed Slide 39, "Total Revenue Forecast -
FY 2015 & 2016," which he described as a traditional way of
looking at the state's forecasted revenue. He noted that
unrestricted revue was projected to fall between $1 billion
to $2 billion.
10:06:44 AM
Mr. Tichotsky discussed Slide 40, "A New View of Revenue".
The slide reflected a categorization of what was subject to
appropriation. He pointed out to the committee that the
number was considerably larger than on the previous slide.
10:07:28 AM
Mr. Tichotsky discussed Slide 41, "General Fund
Unrestricted Revenues: Non-petroleum". He relayed that
there was a lot of volatility in mining license tax. He
reminded the committee the revenue related to oil eclipsed
all non-petroleum sources of revenue.
10:08:33 AM
Commissioner Hoffbeck commented that the information on
Slide 41 did not assume any changes within the current tax
structure.
10:08:47 AM
Vice-Chair Micciche asserted that, given the current oil
prices, the state was in better shape under SB 21 than they
would have been under Alaska's Clear and Equitable Share
(ACES). He asked whether Mr. Tichotsky had been involved as
an economist in the evaluation of the effects of changing
tax credits.
Mr. Tichotsky responded that his group produced the data
for all of the discussions on tax, as well as looking into
investment revenues. He said that the detailed elements of
those discussions would be revealed over the course of the
legislative session. He said that he had been focused on
the sovereign wealth portion of the analysis and that other
economists in his group had been working diligently
conducting analysis and running models. He said that the
current situation was a perfect storm, all the financial
issues were extremely pressing, and huge amounts of data
had been collected and boiled down in order to be presented
as simply as possible to the committee.
10:11:35 AM
Senator Hoffman wondered whether Mr. Tichotsky was working
to justify Governor Walker's revenue measures proposals.
Mr. Tichotsky replied that Governor Walker's proposals and
legislation was very data-driven and relied very heavily on
the information produced by economic research.
10:12:20 AM
Senator Dunleavy asked whether there had been an RFP put
forward contracting a study to examine the sovereign wealth
concept.
Commissioner Hoffbeck replied in the affirmative. He said
he was waiting for the appropriate hearing to present the
data.
Senator Dunleavy asked whether Mr. Tichotsky's work was
similar to the requested study.
Mr. Tichotsky specified that the MacKenzie Group had
evaluated the modeling that had been done by the department
and had offered criticism and feedback on their work.
10:13:24 AM
Co-Chair MacKinnon asked whether Mr. Tichotsky could share
success or failure rates on the models that had been run
for Governor Walker's sovereign wealth plan.
Commissioner Hoffbeck interjected that after the $3.3
billion draw proposed in the governor's model, the chances
of the ERA going to zero within a 24 year period of time
would be at 30 percent. He explained that the four-year
review period had been embedded in the bill so that the
draw could be modified before the account reached zero. He
asserted that the four-year review brought the failure rate
to near zero.
Co-Chair MacKinnon asked whether the failure rate had been
based on a 6.5 percent rate of return for all funds.
Commissioner Hoffbeck thought that the percentage was 6.9;
the MacKinzie Group had felt that 6.5 was not an adequate
assumption.
10:15:23 AM
Senator Hoffman asked whether the numbers assumed that
inflation proofing would continue
Mr. Tichotsky replied that inflation proofing was implicit
in the sovereign wealth fund worked - a set amount would be
drawn, which would allow the permanent fund to retain its
value in real terms. He said that the concept of having a
sustainable draw meant that inflation had been taken into
account.
10:16:11 AM
Co-Chair MacKinnon understood that there would not be a
deposit made that would be specifically described as
inflation proofing.
Mr. Tichotsky clarified that taking the $3.3 billion draw
accounted for inflation, but a specific amount of money
would not be set aside specifically to inflation proof.
10:16:48 AM
Senator Bishop understood that inflation proofing was
already embedded in the formula.
Mr. Tichotsky replied in the affirmative.
10:17:35 AM
Co-Chair MacKinnon asked whether the department could
provide the previous year's rate of return on the permanent
fund.
Commissioner Hoffbeck thought it was in the 3 or 4 percent
range.
Co-Chair MacKinnon said that the current legislation had a
specific appropriation amount for inflation proofing. She
stated that because of the asset allocation already in
place the state was inflation proofing by investment
strategy.
10:19:25 AM
Commissioner Hoffbeck referred to the report completed by
Standard and Poor's Ratings Services, "Alaska;
Appropriations; General Obligation; Moral Obligation" (copy
on file). He relayed that the report had come out after the
rating service downgraded the stew from an AAA to an AA
plus. He highlighted that Moody's and Fitch had yet to
follow suit, resulting in a split rating for the state. He
said that the ratings were metrics driven and that the
state had generally fallen outside of those metrics. He
said that the state should have received lower ratings in
the past, but had not due to its substantial savings. He
explained that the state had experienced several years of
low oil prices, which had resulted in the use of some of
the savings; use of the savings had been expected, but the
concern of Standard and Poor was the state's financial
stability going forward in the volatile oil market. He
relayed that low oil prices, and not the level of state
debt, had driven the downgrade. He stated that the rating
service had noted the state's substantial savings account
could provide opportunity to turn the problem around. He
related that Standard and Poor had pointed specifically to
the current legislative session as the time to bring the
negative outlook to stable. He stressed that Standard and
Poor had left the door open for the state to solidify its
rating, but they had made it clear that action had to be
taken to close the deficit during the current legislative
session.
10:22:05 AM
Co-Chair MacKinnon asked whether the commissioner had
influenced the language used in the report. She felt that
all of the language targeted the legislature, which she
found curious. She understood that the legislature was in
charge of appropriation, but she had never seen a rating
agency target the legislature while supporting the
Governor's proposal.
Commissioner Hoffbeck was unable to provide insight on the
language used in the document. He relayed that the person
who wrote the report had participated in a budget workshop
in Girdwood, AK during the summer of 2015. He said that
Standard and Poor had been more engaged, and had asked more
questions, than the other rating agencies.
10:23:49 AM
Co-Chair MacKinnon asserted that the commissioner had been
in discussions with credit raters prior to the TransCanada
buyout proposal. She asked whether policy discussions had
occurred during that time.
Commissioner Hoffbeck replied that he had discussed the
state's fiscal situation with Standard and Poor. He said
that the agency had asked what might happen with the
state's economy, and he had replied that the expectation
was that the legislature would act on the fiscal situation.
He contended that no information had been introduced to the
agency concerning the legislature. He stressed that he
simply answered their questions.
Co-Chair MacKinnon found it interesting that the rating
agency had not contacted the legislature before preparing
their summary.
Commissioner Hoffbeck agreed. He revealed that when the
agency had indicated the action that they would be taking,
the administration pushed back with the assertion that the
legislature had made the appropriate cuts and were working
to bridge the fiscal gap. He said that the administration
was surprised by the action taken by the rating agency.
Co-Chair MacKinnon understood that there were questions
from the rating agency pertaining to the fall revenue
forecast update and whether it was too high. She asked
whether the commissioner was in talks with the ratings
agency about the revenue forecast and offered assurances
that it was not overly optimistic.
Commissioner Hoffbeck replied in the affirmative. He added
that the ratings agencies worked against influencing
policy, which was why they did not communicate directly
with the legislature. He reiterated that the administration
had been surprised by some of the details within the
summary.
10:28:18 AM
Co-Chair MacKinnon wondered whether the legislature could
invite the author of the summary to testify before the
committee.
Commissioner Hoffbeck responded that he could not speak for
the agency. He offered to broach the subject.
Co-Chair MacKinnon felt that the agency had measured the
legislature without talking to them, while pushing
legislators to support policies that had yet to be
discussed. She asserted that the language in the summary
reflected unfairly on the legislature.
10:29:20 AM
Vice-Chair Micciche echoed Co-Chair MacKinnon's sentiments.
He felt that the downgrade had been unnecessarily
preemptive and the report "strangely unconventional." he
quoted Page 5 of the summary:
In our view, Alaska has sufficient financial resources
to stabilize general fund operations if it can
assemble the necessary political will to adopt the
necessary changes. We expect this will require asking
residents to accept reduced state spending, higher
taxes, and, if it is to use investment earnings, a
reconstituted -- and lower -- dividend payment.
Vice-Chair Micciche wondered whether the department had
looked into whether the summary was an unconventionally
political document.
Commissioner Hoffbeck replied that he had not analyzed the
document in that manner.
10:31:03 AM
Vice-Chair Micciche asked whether the policy statements
included in the summary could be considered unconventional.
Commissioner Hoffbeck replied that the report contained a
better understanding of Alaska's fiscal situation than he
had seen in past summaries; other documents had seemed more
generic statements on government spending. He stressed that
Standard and Poor had done considerable research before
crafting the document.
10:31:55 AM
Vice-Chair Micciche announced that he did not disagree with
the report. He queried whether the agency would continue to
downgrade the state if the legislature made substantive
improvements during the current legislative session.
Commissioner Hoffbeck felt if the state did not make
substantial changes its rating would continue to fall. He
reiterated that he had been working under the understanding
that the agency would not downgrade the state until after
the current legislative session. He felt that the biggest
issue was whether the state would be willing to use
earnings from investments as part of the fiscal solution.
10:33:38 AM
Vice-Chair Micciche queried Standard and Poor's definition
of "substantive."
10:33:55 AM
Senator Hoffman thought that an AA plus rating was not so
terrible, when compared to the rest of the country.
Commissioner Hoffbeck agreed. He added that the bigger
concern was that the state had a negative fiscal outlook
into the future.
10:35:07 AM
Commissioner Hoffbeck could not offer a positive
conclusion, and acknowledged that the legislature had
difficult decisions to make going forward.
Co-Chair Kelly stressed that the committee was acting with
the best interests of Alaskans and would not allow policy
to be set by bond raters "somewhere far away". He
reiterated that the legislature determines the fiscal
policy of Alaska.
10:36:37 AM
AT EASE
10:36:59 AM
RECONVENED
Co-Chair Kelly discussed housekeeping.
ADJOURNMENT
10:37:46 AM
The meeting was adjourned at 10:37 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012516 Fall 2015 Revenue Sources Book - PRINTABLE.pdf |
SFIN 1/25/2016 9:00:00 AM |
SB 139 |
| 012516 Standard and Poor's AK Rating.pdf |
SFIN 1/25/2016 9:00:00 AM |
SB 139 |
| 012516 FINAL Fall 2015 Revenue Forecast Presentation.pdf |
SFIN 1/25/2016 9:00:00 AM |
SB 139 |
| SB 139 DOR Response to SFC Questions 1 25 16.pdf |
SFIN 1/25/2016 9:00:00 AM |
SB 139 |
| SB 139 DHSS Response to questions 012516.pdf |
SFIN 1/25/2016 9:00:00 AM |
SB 139 |