HB 153-OIL AND GAS PROPERTY TAX  8:55:13 AM CHAIR MCCORMICK announced that the final order of business would be HOUSE BILL NO. 153, "An Act relating to oil and gas exploration, production, and pipeline transportation property taxes; and providing for an effective date." 8:55:27 AM REPRESENTATIVE CLIFF GROH, Alaska State Legislature, as prime sponsor of HB 153, paraphrased the sponsor statement [included in the committee packet], which read as follows [original punctuation provided]: Alaska's reliance on savings accounts to fill budget deficits is no longer sustainable without risking the future of the Permanent Fund. We need new revenues, and changing the oil and property tax is one way to raise new revenues in a predictable fashion. This bill proposes to increase the maximum mill rate from 20 mills (2%) to 30 mills (3%) on the full and true value of oil and gas property assessed under Alaska Statute 43.56. Currently, the total mill rate is capped at 20 mills, and municipalities may collect taxes up to that amount. The State retains the property tax not otherwise collected by municipalities, so the State's collections fall each time a municipality raises its property tax rate. Under this bill, the maximum municipal rate would remain at 20 mills leaving local communities harmless, but the State would tax an additional 10 mills that would generate revenue reserved for the State. HB 153 offers a fixed and predictable cost for the oil and gas industry. The petroleum property tax has not been raised since its establishment in 1973, and the proposed increase in the mill rate will offer a reliable source of revenue for the State. Depending on the price of oil, the property tax increase would be offset by existing oil production taxes and royalties. Given that offset the state would net up to approximately $250 million in new revenue under this bill each year. HB 153 suggests three tiers of designated appropriation, while not dedicating the funds: • 50% to the capital income fund to help pay down the deferred maintenance backlog; • 25% to the Department of Education and Early Development for investments in early education, including pre-K, childcare and early development; and • 25% to higher education investment to enhance the merit-based Alaska performance scholarship and needs-based Alaska education. HB 153 bill increases an existing, predictable revenue source to improve Alaska's quality of life and build opportunities for future generations. Thank you for your consideration. 8:57:49 AM CAMERON EBERSOLD, Staff, Representative Cliff Groh, Alaska State Legislature, on behalf of Representative Groh, prime sponsor, gave the sectional analysis for HB 153 [included in the committee packet], which read as follows [original punctuation provided]: Section 1: Amends AS 43.56.010(a) to include a new subsection (2) that increases the maximum mill rate an additional 10 mills. This only applies to taxable property as defined under AS 43.56.210. Section 2: Amends AS 43.56.010(d) with conforming language. This clarifies the municipal property tax under (a)(1) of the bill can only be credited to the taxpayer. Section 3: The estimated balance of the taxes collected in section one of this bill may be appropriated by the legislature as follows: 1. 50% to the Alaska Capital Income Fund; 2. 25% to Department of Education and Early Development for early childhood education programs, including pre-elementary programs, childcare, and educational programs; and 3. 25% to the Alaska higher education investment fund. Section 4: Establishes an effective date of January 1st, 2024. 8:59:07 AM REPRESENTATIVE MCCABE asked whether a dedicated fund would be established that may not be constitutional. He paraphrased a section in the fiscal note, which read as follows: For purposes of this fiscal note, the property tax revenue increase is shown as Designated General Fund but this bill directs the legislature to appropriate revenue as follows: (1) 50% into the Alaskan Capital Income Fund, (2) 25% to Department of Education and Early Development for specified programs, and (3) 25% into the Alaskan Higher Education Fund. While the bill directs the aforementioned distribution, the revenues are technically available for appropriation for any purpose. REPRESENTATIVE MCCABE stated that, in spirit, it may violate what the Constitution of the State of Alaska disallows, which is to earmark monies to go into specific funds. 9:00:05 AM REPRESENTATIVE GROH replied that Section 3 of the bill read that "the annual estimate balance of the account may be appropriated by the legislature"; therefore, it would be consistent with the constitutional language that is being referenced. 9:00:40 AM REPRESENTATIVE RUFFRIDGE asked what the effective tax rate would be by state - particularly in states that have a high amount of oil and gas production; he noted North Dakota has no property tax on oil and gas. He asked how Alaska ranked. REPRESENTATIVE GROH replied there are a mix of taxes that various states have, and he stated he did not have a precise ranking. He said he understood there is room to raise revenues here [in Alaska], and it should be seen in terms of the overall package of taxes on the oil and gas industry. REPRESENTATIVE RUFFRIDGE expressed concern over becoming a competitive disadvantage if Alaska would be at "that highest tax rate." 9:04:01 AM REPRESENTATIVE MCKAY agreed with Representative Ruffridge and said that he thought the concept needed a lot of study. He also acknowledged the need to look at the constitutionality of dedicated funds; it could be a big flaw with the bill, as well as how boroughs where production takes place could be affected. He reiterated his stance that the proposed legislation needs significant study for consideration. 9:06:37 AM REPRESENTATIVE GROH clarified that there would not be an effect on the property tax revenues, and he stated Mr. Andreassen is available to address what needs further clarification. 9:07:25 AM MR. ANDREASSEN stated that as the bill is currently drafted, it would not change existing law as it relates to local government collection of property taxes, it would apply to oil and gas property. 9:07:59 AM REPRESENTATIVE MCKAY expressed concern about the money that would be taken out in the private sector from the oil industry that would otherwise be used to drill new wells and give new production. 9:08:26 AM REPRESENTATIVE MCCABE asked for confirmation that the tax has nothing to do with production; it's simply land/property tax. REPRESENTATIVE GROH replied that is correct, and he stated Ms. Glover is available to address the issue further. 9:10:08 AM COLLEEN GLOVER, Director, Division of Tax, Department of Revenue, answered questions during the hearing of HB 153. She said HB 153 is specific only to the oil and gas property tax, and it has secondary impact on the production tax. She pointed out the fiscal note shows some negative impact on general funds because of the production tax. She explained there could also be some impact on corporate income tax dependent on the taxpayer. She provided a brief breakdown of percentages directed towards boroughs that may be affected. 9:13:52 AM REPRESENTATIVE HIMSCHOOT thanked Representative Groh for the "creativity in how we may solve this structural deficit problem." She asked to see the "full package" of how Alaska taxes the oil industry. 9:14:47 AM REPRESENTATIVE GROH replied that Ms. Glover can address the question. He further commented on the various oil and gas producing states that have suites or packages of taxes, of which oil and gas property tax may or may not be one. 9:16:16 AM MS. GLOVER explained that there are a few different taxes that the state imposes on oil and gas producers: oil and gas production tax; oil and gas property tax that the state administers on a statewide level; and corporate income tax for qualifying entities. She further explained that there are many details that go behind each program, and she noted a presentation is done each year and covers all the calculations regarding "how it all works." She allowed that the department is not an expert in other states' tax policies but could research and follow up with information. 9:18:18 AM REPRESENTATIVE GROH noted that the oil and gas property tax is a much more stable form of revenue for the state; it has been growing as a percentage of the oil and gas revenues. 9:19:26 AM REPRESENTATIVE MCKAY commented that Alaska is unique in that its reserves are publicly owned. He summarized what oil and gas properties include, and that the properties are assessed annually, which is then used to determine existing taxes paid. He stated his concern the proposed legislation may disincentivize further activity in the private sector, and he opined that due to an incomplete bill and fiscal note, there are open questions that need to be studied to determine whether there may be unintended consequences of the bill. 9:22:14 AM REPRESENTATIVE GROH responded that the additional revenues could revive the structural deficit the state faces. He commented that another committee could look at the issue that Representative McKay has raised, but he reiterated that this is a stable source of revenue. 9:23:31 AM REPRESENTATIVE MCCABE questioned whether the structural deficit in the state is a result of the major oil companies having been driven out of state by "willy nilly" tax procedures and the state focusing on the oil companies any time there is a fiscal disturbance. He stated that the oil companies are not a "piggy bank" or a revenue stream; they are a fixed asset. 9:24:59 AM REPRESENTATIVE HIMSCHOOT agreed about the bill needing further study. 9:25:48 AM REPRESENTATIVE GROH noted that the proposed legislation has a fixed cost, so it would provide more certainty. He also said the state needs to look out for itself and its people, and the proposed legislation would be one stab at confronting the growing structural deficit. 9:27:55 AM REPRESENTATIVE MCKAY referred to previous legislation and commented on the decline and increase of oil production on the North Slope. He stated his belief that the tax policies are working now, and HB 153 would disturb that stability greatly. He stressed the legislature must be very careful about the taxation of the state's biggest industry. 9:30:03 AM CHAIR MCCORMICK commented that it is important to be cognizant of the different elements of the state and what makes up Alaska's oil tax structure. He said he would like to see a comparison, but raised concern about the amount of money it would cost for a study that may turn out to be unnecessary. CHAIR MCCORMICK announced that HB 153 was held over.