Legislature(2001 - 2002)
03/19/2001 03:40 PM Senate RES
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ALASKA STATE LEGISLATURE
SENATE RESOURCES COMMITTEE
March 19, 2001
3:40 pm
MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Drue Pearce, Vice Chair
Senator Rick Halford
Senator Pete Kelly
Senator Robin Taylor
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
SENATE BILL NO. 136
"An Act relating to resource development and to grants for the
purpose of promoting resource development from appropriations of a
portion of the revenue derived from the extraction of certain state
natural resources."
MOVED SB 136 OUT OF COMMITTEE
SENATE BILL NO. 143
"An Act authorizing the Department of Natural Resources to enter
into agreements with a person or persons desiring to own an oil or
natural gas pipeline proposed to be located on state land for the
purposes of providing for payment of the reasonable costs incurred
in preparing for activities before receipt of an application under
the Alaska Right-of- Way Leasing Act and for activities relating to
the processing of an application under that Act; and providing for
an effective date."
MOVED SB 143 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
SB 136 - No previous action to record.
SB 143 - No previous action to record.
WITNESS REGISTER
Mr. Pat Carter
Staff to Senator Pearce
State Capitol Bldg.
Juneau AK 99811
POSITION STATEMENT: Commented on SB 136 for sponsor.
Ms. Sue Schrader
Alaska Conservation Alliance
Alaska Conservation Voters
P.O. Box 22151
Juneau AK 99801
POSITION STATEMENT: Opposed SB 136.
Mr. Steve Conn, Executive Director
Alaska Public Interest Research Group
Anchorage AK
POSITION STATEMENT: Opposed SB 136.
Ms. Pam LaBolle, President
Alaska State Chamber of Commerce
Anchorage AK
POSITION STATEMENT: Supported SB 136.
Mr. Rudolph Vetter
No address provided
Fairbanks AK
POSITION STATEMENT: Supported SB 136.
Ms. Carol Caroll, Director
Division of Administrative Services
Department of Natural Resources
400 Willoughby, #500
Juneau AK 99811
POSITION STATEMENT: Neutral position on SB 136.
Mr. Darwin Peterson
Staff to Senator Torgerson
State Capitol Bldg.
Juneau AK 99811
POSITION STATEMENT: Commented on SB 143 for sponsor.
Mr. Patrick Coughlin
Special Assistant to the Resources Committee
State Capitol Bldg.
Juneau AK 99811
POSITION STATEMENT: Commented on SB 143.
Mr. Bill Britt, Pipeline Coordinator
Department of Natural Resources
550 West 7th Ave. Suite 1400
Anchorage AK 99501
POSITION STATEMENT: Commented on SB 143.
ACTION NARRATIVE
TAPE 01-22, SIDE A
Number 001
SB 136-RESOURCE DEVELOPMENT: BD./GRANTS/FUND
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:40 p.m. and announced SB 136 to be up for
consideration.
MR. PAT CARTER, staff to Senator Pearce, sponsor of SB 136, said
that Alaska is unique in that it is an owner state and its
resources are held in trust to benefit all Alaskans. He said:
When it comes to resource extraction, we currently rely
on our business partners, industry, to promote that
resource extraction. The problem with that is that our
partners can go, and sometimes do go, elsewhere to
conduct their business and we do not have that option. So
if we begin with the premise that Alaska's economy is
going to be reliant upon resource extraction for the
foreseeable future, it seems that it would be a wise
investment to financially support and promote such
activities.
Recent studies have shown that our resource extraction
industry, as well as our tourism industry have played a
significant role in our workforce and, therefore, our
economy. However, the vast majority of economic impacts
from the tourism industry are seasonal and are generally
low paying jobs. These studies show that a diversified
economy is necessary to sustain a healthy economy. A
majority of the environmental community does not agree
with that concept as they continue to oppose nearly all
development of our resources while offering no economic
alternative. We need to strike a balance between
development and protection of the environment and avoid
the extreme positions of locking up everything. We feel
the best way to protect Alaska's environment is through a
strong and diversified economy. We invest in our tourism
and seafood industry as well as opening the coastal plain
of ANWR to responsible development in order to benefit
our economy. We believe that it would also be a wise and
prudent investment to invest in our diversified mineral
resources like timber, as well as oil and gas
development. By creating the Resource Development Board,
we will further our constitutional mandate of developing
our resources by making them available for maximum use in
an environmentally responsible manner.
SENATOR ELTON said the preliminary figures he has received indicate
the fund would be capitalized with about 99.6 percent from the oil
and gas industry, .4 percent from the mineral industry and nothing
from the timber industry. He asked if that sounded right.
MR. CARTER responded that that sounded very close.
SENATOR ELTON said his first reaction is that, "It's not in my
nature to support something in which we are going to go out and try
to increase the amount of business, but we increase the amount of
business and we're still not going to get anything from it. It
seems to me somewhat unfair to tap the oil and gas industry
exclusively for funding of this effort and yet some of the benefits
are going to be reaped by industries that aren't going to be
kicking anything in."
SENATOR ELTON asked why it is being funded by only one industry if
other industries have designated seats.
MR. CARTER said they had discussed the possibility of money being
distributed according to industry, but it's almost contrary to the
intent of the legislation, which is in order to have a healthy
economy, we may need to have a diversified economy. He added, "We
hear from the oil and gas industry continually that they get tired
of being the sole source of funding for government."
MR. CARTER said he thought the timber industry, for instance, has
suffered greatly from misinformation and it has changed the way it
does business so that it is more environmentally sensitive. He
stated, "I think it's important to get that message out."
SENATOR ELTON said he thought it would be equally easy to point to
problems in the fishing industry: the steller sea lion issues and
transboundary issues. He asked why the resource industry of fishing
wasn't included.
MR. CARTER responded that they considered fishing, tourism and
other industries, but the legislature established ASMI for seafood
marketing and a tourism marketing council and an agriculture board.
SENATOR ELTON said, "I understand that we have an ASMI that is
receiving no general fund dollars for any of its promotions and the
money that it receives now is raised from a tax on salmon
harvesters; it's raised on a tax on land based processors and on
ocean based processors. The money is laundered through the general
fund, but in fact, the money being used for promotions is coming
from the industry, which is significantly different from this. I
think they would probably appreciate the opportunity to tap into
general fund dollars like they used to be able to."
CHAIRMAN TORGERSON commented that they may not have a member on the
board, but that doesn't preclude them from receiving a grant.
SENATOR ELTON said he realized that, but if he wanted to include
the fishing industry, the .25 percent collected from fishing
industry fees would raise about 17 times what timber and minerals
would raise. It would be advantageous to include the fishing
industry.
MR. CARTER responded that no effort was made to exclude a
particular industry, but they felt it was redundant. There are also
taxes generated through the oil and gas industry through severance
taxes, royalties and lease sales.
SENATOR ELTON responded that the distinction is, "The marketing and
education effort are being paid for directly by the harvesters and
directly by the offshore processors and the onshore processors with
taxes that disappear if the salmon harvesters don't want to pay it
any more or if half of the processors vote and say the program
doesn't work and to take their money out."
MR. CARTER asked if it was because they are not forced to do it.
SENATOR ELTON replied that the processor tax is established by a
vote of 50 percent plus 1 of the processors and the harvester tax
is established by the legislature and renewed every three years.
SENATOR PEARCE asked if he wanted the fishing industry added to the
bill and to take additional taxes from them.
SENATOR ELTON answered that he was asking that, but he didn't see
it as taking additional money from them. He thought if they applied
the same formula to the fishing industry, it would not increase
taxes, it would divert one quarter of one percent of the taxes they
are already paying.
SENATOR PEARCE asked which taxes.
SENATOR ELTON said it would be everything from the landing tax to
the raw fish tax to the marine fuel tax and others.
MR. CARTER asked if Senator Elton wanted ASMI money (about $6.9
million) to be diverted.
SENATOR ELTON responded that he thought the harvester assessment
raises between $2 million and $2.4 million each year depending on
the value of the product landed. The assessment on the processors
raises about $3 million to $4 million. He is not suggesting that.
"That is an assessment that has the word 'may' as this bill does.
I'm looking at the revenues that are similar to the revenues that
you're looking at from the other resource industries that are paid,
for example landing tax, raw fish tax, marine fuel taxes, the other
assessments that are on the industry. Not the assessments that are
voluntary assessments and are renewed periodically."
CHAIRMAN TORGERSON asked if he thought the fishing industry should
have a seat on the board.
SENATOR ELTON said he thought they should. The difficulty would be
that unlike some of the other resource extraction industries, there
is no central statewide association. The group that would recommend
three names might be more difficult to identify.
Number 1000
SENATOR TAYLOR asked if this would pose an additional assessment on
fishermen.
SENATOR ELTON responded that his understanding of this bill is that
it creates no new money; it diverts a quarter of a percent of the
existing monies that are coming in from the other resource
industries. He thought if they did it to the fishing industry, it
would just divert a quarter of a percent from the revenues that are
already coming in.
MS. SUE SCHRADER, Alaska Conservation Alliance and Alaska
Conservation Voters, said:
Conservationists throughout the state are committed, have
been committed and will continue to be committed to
maintaining a healthy economy for the benefits that it
provides all Alaskans. We do believe strongly that the
state can enjoy a healthy economy without sacrificing our
clean air, our clean water, our salmon habitat and our
wild lands. We also believe that resource development
industries can prosper and can meet their shareholder's
expectations while complying fully with state and federal
laws that protect the environment.
The concept of using general funds for grants to non-
profits that are going to be promoting for-profit
industries, many of which are huge international
corporations that employ significant numbers of non-
residents is rather nonsensical. We believe most Alaskans
will not endorse this idea of taking state revenues that
could go to improving education, social services, filling
pot holes on the roads, or any other number of
significant needs and using these monies to do the
promotion and advertising work the resource industry can
clearly do for themselves.
MS. SCHRADER said they are also concerned with the makeup of the
board because a representative from a conservation group is not on
it.She noted:
The mining industry in Alaska has been reported in an
Anchorage Daily News article of being valued at $1.12
billion in 1999. At the same time from a Department of
Labor report, we see that 30.7 percent of their workforce
in Alaska are non-resident. We really don't think Alaskan
families should be asked to pay this industry's
advertising bill. We urge you to oppose this legislation.
SENATOR PEARCE asked why she thought the bill pays for advertising
and said, "That's not what the bill does."
MS. SCHRADER answered the sponsor statement speaks about what the
grants would be used for: promotion, education, advertising and
other items. Language in the bill relates to what the grants would
be used for on page 3, line 20: "conducting market research,
advertising, promotion and education."
SENATOR PEARCE clarified that wasn't meant to be advertising for a
company, but for general sales of that resource. She asked why she
thought any board needed a specific person appointed by an
environmental organization in order to have people who care about
protecting the environment on it.
MS. SCHRADER replied that many of the environmental organizations
in the state have staff who have expertise in a variety of areas
and they have shown in the past they can be very important
contributors to task forces and boards they have sat on.
SENATOR TAYLOR asked what her group's annual budget was.
MS. SCHRADER said she doesn't deal with the budget, but she could
get him that information.
MR. STEVE CONN, Executive Director, Alaska Public Interest Research
Group, said that development in Alaska is already at the highest
levels at the time and said, "The bill strikes me as fighting the
last war."
MR. CONN said that President Bush and our congressional delegation
provide a constant drum beat of promotion of development in Alaska.
The bill creates what might be termed as a "slush fund" for
industry to substitute Alaska state money that we need for our
basic services for their own money. Also, freeing up industry money
poses the question of what industry is doing with it. He just heard
that Exxon, after promising $10 million over 80 years to the
National Fish and Wildlife Foundation received its first corporate
award for commitment to the environment. "If one is cynical, one
would suggest that Exxon went out and bought itself a conservation
award just a day short of the 12th anniversary of the Exxon Valdez
spill to try to cover up the fact that [indisc] it has not yet paid
the $5 billion to Alaskan. One has to consider the ripple effect of
such an endeavor as proposed in this bill. I think the industries
are deep pockets and if they want to promote Alaska development,
they are more than well positioned to do so."
MR. RUDOLPH VETTER, Fairbanks resident, asked if SB 136 would
promote his mining operation.
CHAIRMAN TORGERSON said he didn't think so. The bill pertains to
non-profits that are doing resource development. They are eligible
for grants, but they have to go before the board that will make the
decision of who gets what.
MR. VETTER supported SB 136.
MS. PAM LABOLLE, President, Alaska State Chamber of Commerce,
supported SB 136. She said, "The people of Alaska rely on the
development and marketing of the state's resources to drive the
economic engine of the state and we think SB 136 is a responsible
step towards assuring that there's a future of resource
development."
SENATOR ELTON said he saw a fundamental difference between money
coming from any source, whether it's from organizations outside the
state or business organizations being used for an educational
purpose and a bill like this, which provides that only general fund
dollars are being used. "I am wondering why we would want to
constrain ourselves in this bill to exclude some industry, like the
tourism industry or the fishing industry, if, in fact, we're not
using private dollars, but instead we're using public dollars that
are out of the general fund."
MS. LABOLLE responded that the other industries are not excluded
from having grants to promote those industries and there is no one
doing this for the industries named in the bill at this point.
Number 1700
MS. CAROL CARROLL, Department of Natural Resources, said they had
reviewed the bill and provided the committee with fiscal impact
information and would be happy to answer questions about that. They
do believe the legislature has discretion to use funds for policies
such as this. "The Department, if this legislation passes, will do
everything we can to assist it…"
SENATOR ELTON said he assumed the board would be subject to the
Executive Budget Act.
MS. CARROLL answered yes.
SENATOR ELTON asked her to explain the opportunities and
constraints that may happen when a board has to operate through it.
MS. CARROLL explained that there would have to be public notice,
some kind of review of the grant and they have to follow all of the
stipulations to make sure that money is handled correctly.
SENATOR ELTON asked if the review process entailed a board review
or whether they used state employees.
MS. CARROLL responded that her perception is that state employees
would provide some assistance to the board, but wouldn't be making
the decisions on which grants would be awarded.
SENATOR ELTON said that one of the things that isn't on the fiscal
note is any kind of an administrative charge.
MS. CARROLL responded that that charge is built in and is an 8.1
percent indirect charge.
SENATOR ELTON asked how they handled contracts if money is carried
forward into the next year.
MS. CARROLL responded, "I believe that if a contract is a valid
contract at the end of one year, that the money until the contract
is complete continues with the obligation."
SENATOR TAYLOR asked if in the fiscal note DNR assumes the three
funds, the Permanent Fund, the School Fund and Constitutional
Budget Reserve Fund, would receive their full share of revenues
from the general fund.
MS. CARROLL answered yes.
SENATOR TAYLOR asked where the administration stands on this bill.
MS. CARROLL said that they are neutral and think it's a policy call
of the legislature.
SENATOR TAYLOR moved SB 136 from committee with individual
recommendations.
SENATOR ELTON objected and said that there were some fundamental
questions that needed to be answered and he also had a problem,
because he didn't think they were fixing something that was broken.
He is already comfortable with the process that happens through the
legislature when they do specific grants for discrete projects. He
said, "The fundamental difference here is that we're using state
general fund dollars to do it and it's not new state general fund
dollars. They are state general fund dollars that we're diverting
from other purposes."
TAPE 01-22, SIDE B
SENATOR PEARCE said that generic marketing is being done in other
areas, like the Tourism and Marketing Council, but it seems that,
If we don't continue to educate Alaskans on how you do it
right - how you can be both environmentalist and
conservationist and at the same time, believe in
developing our resources in a proper manner - we're not
going to have any revenue that's going to pay for schools
or for any other services in the state. We can't expect
the multinational companies that do business in Alaska,
who have opportunities in other parts of the world to do
that education process and that marketing process for us.
We should be out on the world stage advertising our oil
and gas lease sales when they happen. DNR hasn't had the
money to do that for years. So we sit here and complain
that we don't have other companies coming to Alaska to
partake in lease sales, but we don't have the money in
the department to help market those lease sales to try
and get new people to come to Alaska so we will have more
competition in the state for the resources. I see this as
a logical extension…
SENATOR PEARCE concluded by saying, "We are an owner state and
we're never going to get away from that. It's our resource and if
we want it to be developed, then we are going to have to do part of
that marketing."
Number 2300
SENATOR TAYLOR said he wouldn't be able to support this in another
state where they didn't have ownership of the resource, because he
thought it would be inappropriate. "I think we have a trust
obligation, part of the public trust, that we have to be good
managers and good stewards of our resources. You can't be good
stewards of a resource if you don't have the money to manage it,
protect it, enhance it unless you do some marketing of that
resource."
SENATOR ELTON asked if this was the appropriate way of doing it. He
used the example of Arctic Power and the role the legislature
played in the merger last year in terms of its doing what needs to
be done. He asked them to think of alternative structures for doing
this.
CHAIRMAN TORGERSON called for a roll call vote. SENATOR ELTON voted
nay; SENATORS TAYLOR, KELLY, PEARCE AND CHAIRMAN TORGERSON voted
yea; and SB 136 moved out of committee with the accompanying fiscal
note.
SB 143-RIGHT-OF-WAY LEASING ACT:APPLICATION COST
CHAIRMAN TORGERSON announced SB 143 to be up for consideration.
MR. DARWIN PETERSON, staff to Senator Torgerson, told members:
One of the legislature's priorities is commercialization
of North Slope gas. Any sponsor of a pipeline project
will have to obtain a right-of-way across state lands.
this bill would authorize the state to be reimbursed for
work performed by the State Pipeline Coordinator's Office
[SPCO] in preparing to receive and process an application
for a right-of-way lease. It also clarified that an
applicant must reimburse the SPCO for costs incurred in
processing an application whether or not the application
is granted.
AS 38.35.140 provides that lessee shall reimburse the
state for all reasonable costs incurred in processing an
application filed for a right-of-way lease. Although the
SPCO has entered into an agreement with a lessee seeking
renewal of a lease to reimburse the state for costs
incurred before receipt of the renewal application,
legislative legal services has questioned whether this is
authorized under existing law and whether the state can
be reimbursed for costs incurred before the receipt of an
application. The SPCO anticipates that it will be asked
to perform substantial work by prospective gas pipeline
lessees this year in anticipation of filing applications
later this year or early next year. Much of the cost of
this work would clearly be reimbursable to the state if
the prospective lessee actually had a pending
application. It is important to insure that the state is
reimbursed for the significant cost that it will incur in
performing work in anticipation and furtherance of the
application process.
Additionally, the SPCO, in the past, has required a
prospective lessee to reimburse the state for costs
incurred in processing [an] application even if the
application has not been granted. This bill would conform
the law to existing practice between the SPCO and
prospective lessees to make clear that the state must be
reimbursed for the costs of processing an application
whether or not the lease is ultimately granted.
Prospective lessees cannot expect the state to pay for
services requested by them on routes that ultimately are
not selected or on applications that may ultimately be
withdrawn, suspended, or otherwise not granted.
SENATOR ELTON said, "I think this is a great idea." He asked Mr.
Coughlin how much it cost for the pre-application process.
MR. PATRICK COUGHLIN, Special Assistant to the Resources Committee,
answered that this hasn't ever happened in this large of an amount
before. Mr. Britt's fiscal note indicates they expect to need $4
million through the first half of the fiscal year. His best
estimate is that at least 50 percent would otherwise be
reimbursable.
SENATOR PEARCE said she noticed on page 1, line 9, the word
"reasonable" is already in statute and asked what a reasonable cost
would be versus one that the state would not expect to have
reimbursed.
MR. COUGHLIN said he was just reading the fiscal note and that his
understanding based on a conversation with Mr. Britt is that 100
percent of this current budget is based on program receipts which
are based on agreements that his office negotiates with lessees to
cover the cost of running that office.
SENATOR PEARCE asked if these were written agreements.
MR. COUGHLIN answered yes and their purpose is to detail the scope
of work between the Pipeline Office and the prospective lessee or
an applicant, in the case of this bill, so it is clear to the SPCO
what is being asked of them and how they are going to be
compensated.
CHAIRMAN TORGERSON asked Mr. Britt why he estimates he can only
collect 50 percent of the application fees.
MR. BRITT, Pipeline Coordinator, answered:
In normal circumstances, my office is entirely funded
through program receipts. The difference here is
procuring the amount of starting up a gas pipeline office
that didn't previously exist and coordinating with our
Canadian and federal counterparts. In the normal course
of things, we would be working on a specific application
with a specific project proponent and 100 percent of our
costs would go to that project proponent….This is
unprecedented. We have a number of project proponents and
allocative costs between as many as nine separate
potential gas pipeline project proponents for costs that
are likely to be applicable. Whichever route comes in is
going to prove to be challenging, I expect. I really
won't know what percentage of the total costs will be
reimbursable until I have completed negotiations with a
suite of those project proponents.
CHAIRMAN TORGERSON said he appreciated that explanation, but he
knows that the fiscal note says 50 percent is all they are going to
get back and that is incorrect. He stated, "If it was me, I'd have
a long discussion with you in Finance [Committee] about what the
other 50 percent was going to be for before I'd approve the fiscal
note."
MR. BRITT responded that he expects to negotiate aggressively. He
thought 50 percent was a low-end estimate.
CHAIRMAN TORGERSON said he didn't think they would have a project
by 2003 and he wouldn't vote for a large appropriation for setting
this office up.
MR. BRITT responded that his challenge at this point is simply
having enough resources to interact with the proponents. "They are
making more requests of my office than I have people and money to
support at this point. Rather than being ahead of the curve, we are
actually behind, at this point."
CHAIRMAN TORGERSON said he understood that, but the intent of this
bill is that, "You should respond to them, but they should pay you
for it. Not us go out and make trips to Canada or wherever else
you're talking about going. The Canadians - you should take
something off their sheet. They're way ahead of you anyway….We
couldn't have that much overhead cost until we actually have a
project."
SENATOR TAYLOR moved to pass SB 143 from committee with the
accompanying fiscal note and individual recommendations. There were
no objections and it was so ordered.
CHAIRMAN TORGERSON adjourned the meeting at 4:45 pm.
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