Legislature(2023 - 2024)SENATE FINANCE 532
01/20/2023 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Revenue Forecast - Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
January 20, 2023
9:00 a.m.
9:00:56 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:00 a.m.
MEMBERS PRESENT
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
Senator Lyman Hoffman, Co-Chair
Senator Jesse Kiehl
ALSO PRESENT
Adam Crum, Commissioner, Department of Revenue; Dan
Stickel, Chief Economist, Economic Research Group, Tax
Division, Department of Revenue; Colleen Glover, Director,
Tax Division, Department of Revenue; Senator Cathy Giessel.
SUMMARY
^REVENUE FORECAST - DEPARTMENT OF REVENUE
9:02:07 AM
ADAM CRUM, COMMISSIONER, DEPARTMENT OF REVENUE, introduced
himself. He recalled that he was previously the
commissioner of the Department of Health and Social
Services (DHSS). He stated that his goal as the
commissioner of Department of Revenue (DOR) was to bring
stability to the department.
Co-Chair Stedman requested the commissioner's finance
background.
Commissioner Crum stated he was an entrepreneur, but had
most recently served as commissioner for the Department of
Health and Social Services, which split into two
departments during his tenure.
Co-Chair Stedman stated that there would be flexibility
granted to Commissioner Crum, because he was new to the
position.
Commissioner Crum introduced the testifiers that would
participate in the presentation.
9:05:05 AM
DAN STICKEL, CHIEF ECONOMIST, ECONOMIC RESEARCH GROUP, TAX
DIVISION, DEPARTMENT OF REVENUE, introduced himself.
Co-Chair Stedman requested background information.
Mr. Stickel discussed his professional background and
history with DOR.
9:05:57 AM
COLLEEN GLOVER, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, introduced herself.
Mr. Stickel discussed the presentation, "Fall 2022 Forecast
Presentation; Senate Finance Committee Department of
Revenue January 20, 2023" (copy on file). He pointed to
slide 2, "Agenda":
1. Forecast Background and Key Assumptions
2. Fall 2022 Revenue Forecast
•Total State Revenue
•Unrestricted Revenue
3. Petroleum Forecast Assumptions Detail
•Oil Price
•Oil Production
•Oil and Gas Lease Expenditures
•Oil and Gas Transportation Costs
•Oil and Gas Credits
4. Oil and Gas Production Tax Audit Update
Mr. Stickel looked at slide 4, "Background: Fall Revenue
Forecast":
1. Historical, current, and estimated future state
revenue
2. Updates key data from Fall Revenue Sources Book
3. Official revenue forecast used for final budget
process
4. Located at tax.alaska.gov
Mr. Stickel addressed slide 5, "Fall Forecast Assumptions":
• The economic impacts of COVID-19 and geopolitical
events are uncertain; DOR has developed a plausible
scenario to forecast these impacts.
• Key Assumptions:
o Investments: Stable growth in investment
markets, 7.00 percent for FY 2023 and 7.05
percent for FY 2024+.
o Federal: The forecast incorporates stimulus
funding as of December 1, 2022, includes updated
estimates of IIJA funding.
o Petroleum: Alaska North Slope oil price of
$88.45per barrel for FY 2023 and $81.00 per
barrel for FY 2024.
o Non-Petroleum: Continued economic growth. 90
percent of capacity assumption for 2023 cruise
season, minerals prices based on futures markets.
9:11:52 AM
Co-Chair Stedman queried the potential comfort level of the
$88 per barrel which was in the current projection, with
the possibility of the state going under water.
Mr. Stickel replied that there was an updated revenue
estimated, and the oil price was largely on track and the
futures market.
Mr. Stickel discussed slide 6, "Relative Contributions to
Total State Revenue: FY 2022":
Total State Revenue: $8.7 Billion
Federal Revenue: 79.6 percent
Petroleum: 47.0 percent
Other Revenues: 8.3 percent
Non-Petroleum Corporate Income: 1.4 percent
Fisheries: 1.5 percent
Tourism: 0.8 percent
Mining: 0.8 percent
Investment Earnings (39.4 percent)
Mr. Stickel highlighted slide 7, "Relative Contributions to
Total State Revenue: FY 2023":
Total State Revenue: $15.4 Billion
Investment Earnings: 33.5 percent
Federal Revenue: 32.0 percent
Petroleum: 27.5 percent
Other Revenues: 4.4 percent
Non-Petroleum Corporate Income: 0.8 percent
Fisheries: 0.7 percent
Tourism: 0.6 percent
Mining: 0.4 percent
9:14:29 AM
Mr. Stickel addressed slide 9, "Unrestricted Revenue
Forecast: FY 2022 and Changes to Two-Year Outlook." He
noted that the table showed changes between the two recent
forecasts. He noted the decrease in oil price in FY 23 and
FY 24. He remarked that the Spring Forecast was released
just as the war in Ukraine was beginning, so there was
uncertainty at that time. He stated that the expected
transfer for FY 24 had been reduced from that forecast. He
noted the numbers within the chart on the slide. He
remarked that the slide did not show oil production, which
showed a slight decrease.
Co-Chair Stedman asked why the Permanent Fund transfer had
not seen fluctuation and queried the mechanics of the
lookback.
Mr. Stickel stated that that the Permanent Fund transfer to
the general fund was based on the average ending value of
the first five of the last six fiscal years, therefore it
was 5 percent of that average ending value. He stated that
the transfer for FY 24 was known with certainty.
Co-Chair Stedman assumed that roughly 46 percent of UGF was
stable and predictable.
Mr. Stickel agreed.
Mr. Stickel looked at slide 10, " Total Revenue Forecast:
FY 2022 to FY 2024 Totals." He stated that revenues were
categorized into four parts: Unrestricted General Fund
(UGF), Designated General Funds (DGF), Other Restricted
Revenue, and Federal Revenue.
Mr. Stickel highlighted slide 11, "Unrestricted Revenue
Forecast: FY 2022 to FY 2024 Totals." He stated that
investments are some of the largest sources of unrestricted
revenue along with petroleum. He stated that investments
contributed just under $3.1 billion of UGF in FY 22. He
remarked that the forecast for FY 23 was $3.4 billion, and
the forecast for FY 24 was $3.5 billion.
Mr. Stickel discussed slide 12, "Unrestricted Investment
Revenue: FY 2022 to FY 2024 Totals." He stated that the
slide showed the detail of the investment portion of
unrestricted revenue. He stated that the Permanent Fund
transfer was expected to account from between 43 and 62
percent of unrestricted revenue in the ten-year forecast
period.
Senator Wilson recalled the in the DNR portion of the
Revenue Source Book, and wondered whether there was a table
that addressed the management fees associated with the
retirement and benefits.
Commissioner Crum agreed to provide that information.
9:23:22 AM
Mr. Stickel pointed to slide 13, "Unrestricted Investment
Revenue: Percent of Market Value (POMV) Transfer Forecast":
•Permanent Fund total return for FY 2022 of -1.32
percent.
•The statutory POMV rate changed to 5 percent
beginning FY 2022.
•For FY 2019 FY 2021 this rate was 5.25 percent.
orecast assumes Permanent Fund's long-term total
return expectation of 7.05 percent for FY 2024+; 7.00
percent for FY 2023.
•Differing Permanent Fund returns and petroleum
deposits could significantly alter actual POMV
amounts.
Co-Chair Stedman requested the inflation component.
Mr. Stickel replied that the inflation assumption in the
forecast was 2.25 percent.
9:25:09 AM
Co-Chair Stedman assumed that the forecast would remain
horizontal on the graph.
Mr. Stickel agreed.
Co-Chair Stedman asked there be an update provided to the
committee on inflation integration.
9:25:36 AM
Mr. Stickel discussed slide 14, "Unrestricted Petroleum
Revenue: FY 2022 to FY 2024 Totals." He noted the four
primary sources of unrestricted petroleum revenue. He noted
the state corporate income tax. He recalled that there was
a provision of the Coronavirus Aid, Relief, and Economic
Security (CARES) Act.
Co-Chair Stedman recalled that the corporate income tax
federal alterations, and asked how those changes affected
the state.
Mr. Stickel replied that there was a tax code provision
that adopts the federal tax code. He remarked that a change
in the federal income tax would be automatically change the
state corporate income tax code.
9:30:21 AM
Co-Chair Stedman recalled that the change applied to all
corporations, and was not specific to one particular
industry.
Mr. Stickel agreed.
Co-Chair Stedman appreciated the delineation of the royalty
split between restricted, unrestricted, and property tax
revenue.
Mr. Stickel looked at slide 15, "Unrestricted Non-Petroleum
Revenue: FY 2022 to FY 2024 Totals." He remarked that the
largest component was taxes.
Senator Wilson asked about the decline in the mining
license tax.
Mr. Stickel replied that a modest decrease was expected
because of the expectation that mineral prices would
moderate, along with cost pressures within the industry.
Senator Bishop wondered whether the downturn could be
attributed to the price of fuel.
Mr. Stickel replied in the affirmative.
9:34:55 AM
Mr. Stickel highlighted slide 17, "Petroleum Detail:
Changes to Long-Term Price Forecast." He stated that the
futures market was used as the basis for the oil price
forecast, which would result in a timely methodology for
the forecast. He stated that there was an inflation
adjustment from 2030 to the future. He noted that the later
years in the forecast showed only a decrease of $2 per
barrel. He reiterated that the Spring forecast was made at
a time of volatility in Ukraine.
Co-Chair Stedman wondered whether the futures market was
the sole source of the forecast numbers.
Mr. Stickel replied in the affirmative.
Co-Chair Stedman asked for one-year increment futures
market numbers.
Mr. Stickel agreed to provide that information.
Co-Chair Stedman expected that there was no convergence in
2028.
Mr. Stickel stated that the futures market was fairly
volatile "in the front months, and calmed in the longer
term.
Co-Chair Stedman requested a lookback of the futures market
and forecasts beginning in 2019.
Mr. Stickel agreed to provide that information. He
reiterated that there was currently a period of
uncertainty.
Mr. Stickel pointed to slide 18, "Petroleum Detail: Nominal
Brent Forecasts Comparison as of January 17, 2023." He
stated that the chart showed the DOR forecast compared to
other sources.
Co-Chair Stedman wondered whether there could be a chart
outlining the forecast comparison in the near years.
Mr. Stickel agreed to provide that information.
9:40:33 AM
Mr. Stickel addressed slide 19, "Petroleum Detail: UGF
Relative to Price per Barrel (without POMV): FY 2024." He
stated that the slide outlined what would happen in the
forecast was not met.
Co-Chair Stedman asked that there be an updated version of
the slide.
Mr. Stickel stated that there would be an updated version.
Co-Chair Stedman asked for a sensitivity table that had
five dollar increments in a $20 range.
Mr. Stickel remarked that the Revenue Sources Book had some
numerics showing price sensitivity to revenue.
Mr. Stickel discussed slide 20, "Petroleum Detail: North
Slope Petroleum Production Forecast." He stated that the
slide showed the forecast of North Slope oil production
over the upcoming ten years, including a high case and a
low case.
Co-Chair Stedman remarked that the basin was holding up, so
it was unlikely that the state would be at the bottom of
the projection.
Mr. Stickel agreed.
9:45:34 AM
Mr. Stickel looked at slide 21, "Petroleum Detail: Changes
to North Slope Petroleum Production Forecast." He stated
that it was a comparison of the fall production forecast to
the prior spring forecast.
Co-Chair Stedman asked that the chart be truncated, because
he assumed that the industry provided an update of
potential every five years.
Mr. Stickel agreed, and stated that there were meetings
with the industry to gather information for the forecast.
He stated that the two components were production
information and follow up with the industry.
Co-Chair Stedman remarked that shortening the projection to
four or five years, there would be a better fit of
concentration for the committee. He felt that the chart
should also reflect the increase on the North Slope.
Mr. Stickel agreed to provide an updated chart.
Co-Chair Stedman wondered whether production was better
than anticipated prior.
Mr. Stickel replied that there were some fields that were
coming in stronger than expected, and others that were
lighter.
Co-Chair Stedman hoped that the larger fields were seeing a
positive net number.
Mr. Stickel stated that in FY 23 there was a slight
reduction to the forecast, so the forecast was now that
production would increase slightly less than the initial
spring forecast.
9:50:03 AM
Co-Chair Stedman remarked that there was a concern about
slowing the natural decline of the fields.
Mr. Stickel stressed that, absent significant work by
operators, production was expected a precipitous decline.
Co-Chair Stedman requested that the presentation in the
other body incorporate some background related to efforts
and expenditures of aging fields.
Mr. Stickel pointed to slide 22, "Petroleum Detail: North
Slope Allowable Lease Expenditures." He stated that the
slide discussed the ten-year history of allowable lease
expenditures.
Senator Bishop wondered whether drilling was captured under
capital or operating expenditures.
Mr. Stickel replied that most drilling would be considered
a capital expenditure.
Senator Bishop wondered about work over rigs.
Mr. Stickel replied that they would primarily be in capital
expenditures, but may also be operating.
9:55:38 AM
Co-Chair Stedman requested non-deductible expenditures.
Co-Chair Olson wondered whether there was not an
anticipation of exploration.
Mr. Stickel replied that the projection of capital and
operating expenditures included an assumption that there
would be a modest amount of ongoing exploration.
Co-Chair Olson wondered whether the slide included National
Petroleum Reserve Alaska (NPR-A) lands.
Mr. Stickel replied that the lease expenditures shown
included all expenditures subject to state production tax.
Senator Bishop requested an employment forecast.
Mr. Stickel replied that DOR did not forecast employment,
but the Department of Labor and Workforce Development
(DLWD) could provide that information.
Co-Chair Stedman wondered whether the lease expenditures
would carry forward as credit.
Mr. Stickel replied that any lease expenditures not applied
in the year incurred would a carried forward annual loss.
Co-Chair Stedman remarked that some of the comments were
about background to help those who may not be as familiar
with the subject matter.
10:00:23 AM
Mr. Stickel addressed slide 23, "Petroleum Detail: North
Slope Transportation Costs." He stated that the
transportation costs were all costs for getting the oil to
market, from the well head on the slope to the delivery.
Ms. Glover discussed slide 24, "Petroleum Detail: Tax
Credits for Purchase Detail." She stated that the slide
displayed a subset of tax credits. She remarked that for FY
23 there was a statutory appropriation amount of $341
million, and the fall forecast included $60 million that
was a part of the supplemental appropriation from the
previous year.
Co-Chair Stedman remarked that there was a hope that the
liability would not remain on the credits. He asked about
glitches in the current budget that would be contingent on
the issue.
Ms. Glover replied that in FY 24, the remaining balance was
$43 million, so there needed to be an appropriation for the
$43 million.
10:08:02 AM
Co-Chair Stedman wondered whether there needed to be a
supplemental to deal with the clean up.
Commissioner Crum replied that there was an examination of
where the numbers would be for the Spring FY 23 forecast,
and whether those numbers could be used or whether there
needed to be a supplemental request.
Co-Chair Stedman requested language related to the issue,
so there could be clean up language incorporated in
future budgets.
Commissioner Crum agreed to provide that information.
Co-Chair Stedman explained that budgets were created with
the best information applied to the estimates.
10:10:13 AM
Senator Bishop queried the status of the audits in the
industry.
Ms. Glover replied with slide 26, "Oil and Gas Production
Tax Audit Update":
• Audit Completion and Catchup Plan:
o All audits through 2017 are complete
o 2018 and 2019 audits complete by 3Q 2023
o 2020 audits complete by 4Q 2024
o Goal is to strive for three-year cycle
•Improvements to Reach Goal
o Continue to leverage technology
o Ability for taxpayers to use customer portal
o Effective two-way communications
o Consistent audit practices and documentation
o Stable Tax Regime
10:14:11 AM
Co-Chair Stedman wondered whether there was effort to focus
on cleaning up the backlog.
Senator Bishop surmised that there was not a request for
new employees.
Ms. Glover replied that there were some vacancies and
turnover, but there was good stability within her division.
Senator Bishop wondered whether that was attributed to the
increase in wages that the legislature applied a few years
prior.
Ms. Glover was not familiar with the wage increase.
10:15:31 AM
Co-Chair Stedman surmised that the backlog had been caught
up, and there was a point of a fairly routine process.
Ms. Glover agreed.
Co-Chair Stedman stressed that it was good news.
Senator Wilson congratulated Ms. Glover on the
accomplishment.
Mr. Stickel looked at slide 29, "State Petroleum Revenue by
Land Type." He stated that it was an appendix slide
included as a resource for the committee that showed the
status of land. He stressed that not oil was the same.
Co-Chair Stedman requested information about NPR-A.
Mr. Stickel replied that the NPR-A was federal land, with
some private leases. He stated that half of the federal
royalty was shared with the state, and was considered
restricted revenue to benefit communities impacted by that
development.
Co-Chair Stedman felt that the chart was helpful, and
provided information about the oil revenue.
10:21:46 AM
AT EASE
10:22:07 AM
RECONVENED
Co-Chair Stedman discussed the following week's schedule.
ADJOURNMENT
10:22:48 AM
The meeting was adjourned at 10:22 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012023 Fall 2022 Revenue Forecast Presentation.pdf |
SFIN 1/20/2023 9:00:00 AM |