HB 230-AIDEA BONDS FOR PROCESSING FACILITIES  4:26:23 PM CHAIR OLSON announced that the next order of business would be HOUSE BILL NO. 230, "An Act allowing the Alaska Industrial Development and Export Authority to issue bonds for an oil or gas processing facility; and creating the oil and gas infrastructure fund to finance construction or improvement of an oil or gas processing facility." REPRESENTATIVE PAUL SEATON, Alaska State Legislature, offered to provide a brief refresher on HB 230. He stated that the purpose of the bill is to increase the throughput in Trans-Alaska Pipeline System (TAPS). He noted water constraints on some of the processing facilities on the North Slope and difficulties accessing others mean some small producers the ability to put oil in TAPS. This bill provides a means to finance processing facilities on the North Slope to increase the flow through TAPS. 4:28:07 PM REPRESENTATIVE SADDLER made a motion to adopt Amendment 1, [labeled 28-LS1053\U.1, Nauman, 2/24/14], which read Page 4, line 23: Delete "loan" CHAIR OLSON objected for the purpose of discussion. 4:28:18 PM REPRESENTATIVE SEATON explained this will delete the word "loan" that was inadvertently put into the Alaska Industrial Development and Export Authority (AIDEA) revolving fund. It is not a loan fund. CHAIR OLSON removed objection. There being no further objection, Amendment 1 was adopted. 4:28:50 PM REPRESENTATIVE SADDLER made a motion to adopt Amendment 2, [labeled 28-LS1053\U.2, Nauman, 2/24/14], which read: Page 5, line 2: Delete "(1)" Page 5, line 3: Delete ";" Insert "." Page 5, lines 4 - 8: Delete all material and insert: "* Sec. 6. AS 44.88.900 is amended by adding a new paragraph to read: (18) "oil or gas processing facility" means a project that is a facility that separates and cleans crude oil or natural gas by separating impurities to make the product suitable for transport through a pipeline or a facility that chemically converts natural gas to a liquid form; "oil or gas processing facility" does not include a facility that uses phase conversion of natural gas to liquid form." Renumber the following bill section accordingly. CHAIR OLSON objected for the purpose of discussion. 4:29:03 PM REPRESENTATIVE SEATON explained this amendment moves the definition of "Oil and Gas Processing Facility" from this section statute to AIDEA's general statute. This change is technical and does not change the definition. CHAIR OLSON removed his objection. There being no further objection, Amendment 2 was adopted. 4:29:37 PM REPRESENTATIVE SADDLER made a motion to adopt Amendment 3, [labeled 28-LS1053\U.4, Nauman, 2/24/14], which read as follows: Page 2, line 16, through page 3, line 12: Delete all material and insert: "* Sec. 2. AS 43.20.049(e)(3) is amended to read: (3) "qualified oil and gas service industry expenditure" (A) means an expenditure directly attributable to an in-state manufacture or in-state modification of tangible personal property used in the exploration for, development of, or production of oil or gas deposits;  (B) means an expenditure for the  construction or improvement of an oil or gas  processing facility, flow lines, or other  infrastructure of the facility north of 68 degrees  North latitude;  (C) [, BUT] does not include components or equipment used for or in the process of that manufacturing or modification.  * Sec. 3. AS 43.20.049(e) is amended by adding a new paragraph to read: (4) "oil or gas processing facility" has the meaning given in AS 44.88.168." Renumber the following bill sections accordingly. CHAIR OLSON objected for the purpose of discussion. 4:29:57 PM REPRESENTATIVE SEATON explained that Amendment 4 deletes the repetition of the tax credit language and refers to the tax provisions in SB 21 and keeps the provisions the same. 4:30:12 PM REPRESENTATIVE JOSEPHSON asked for explanation of Amendment 3, which is "U.4." He asked for clarification of subparagraph (B) in terms of its direct economic benefits to Alaskans. REPRESENTATIVE SEATON responded that this envisions that the components for a facility being constructed on the North Slope might be manufactured outside the state and those components would not qualify for tax credit. He clarified that if the module was made in Alaska, it would qualify for tax credits, but if it is made outside the state it would not qualify for the tax credits. He characterized the construction process as being a combination resulting in a completed processing facility. 4:31:35 PM REPRESENTATIVE JOSEPHSON expressed concern that litigation might arise from the suggestion that the tax credits should apply. He wondered whether the tax credits are "tight enough" to reflect the sponsor's intent. He asked whether he had any concern. REPRESENTATIVE SEATON answered no. It seems to be well understood that the goal is building a processing facility. He highlighted that subparagraph (A) relates to tangible personal property and wouldn't relate to the structure. Thus, it would be necessary to segregate out parts of the processing facility. He related that this doesn't relate to intangible property but subparagraph (B) does include the entire processing facility; however, it is limited to expenditures made in Alaska. 4:33:32 PM REPRESENTATIVE JOSEPHSON, with respect to Amendment [3], said that the existing statute, listed in subparagraph (A), relates to in-state manufacture or in-state modification of tangible personal property; however, subparagraph (B), does not do so. He said he likes this bill, but is curious about that aspect. TED LEONARD, Executive Director, Alaska Industrial Development & Export Authority (AIDEA), Department of Commerce, Community, & Economic Development (DCCED) related that this issue was previously discussed, although AIDEA can't answer questions on the tax credit itself. He recalled that the Department of Revenue (DOR) previously testified. He clarified that this statute is not under Alaska Industrial Development and Export Authority (AIDEA). 4:34:57 PM REPRESENTATIVE SEATON recalled that this was discussed with the Legislative Legal and Research attorney. He stated that this language was already adopted in SB 21 and is merely inserted in this section of statute. 4:35:55 PM The committee took an at-ease from 4:35 p.m. to 4:43 p.m. 4:43:50 PM REPRESENTATIVE JOSEPHSON referred to Amendment [3], which includes language for the definition of a qualified oil and gas service industry expenditure. He asked when an audit or accounting is completed whether it would be deemed legally significant that [subparagraph] (A) refers to in-state manufacturers and modification and [subparagraph] (B) doesn't. 4:44:35 PM EMILY NAUMAN, Legislative Legal Counsel, Legislative Legal and Research Services, stated that she was unsure from an auditing perspective; however, she agreed that it is true [subparagraph] (A) requires the taxable or tax credit event to occur in the state whereas the new language in [subparagraph] (B) does not require the activity to occur in state. She deferred to the DOR to answer any questions on auditing. REPRESENTATIVE SEATON pointed out that this refers to facilities north of 68 degrees North latitude. He suggested that it could specify Alaska, if necessary. 4:45:39 PM REPRESENTATIVE SADDLER referred to page 2, line 2 [of Version U] to a reference to the "pipeline." He asked whether it is necessary to specify the TransAlaska Pipeline System on page 2 and again on page 4 to similar references. MS. NAUMAN noted this is legislative intent language so it is not legally binding; therefore, it might not need to be as specific but it could be clarified. REPRESENTATIVE SADDLER stated that the sponsor said it was acceptable. 4:46:51 PM REPRESENTATIVE SADDLER made a motion to adopt Conceptual Amendment 1 on page 2, line 2, to change pipeline to "Trans- Alaska Oil Pipeline" and any other place in the bill that it is necessary to clarify the pipeline to the Trans-Alaska Oil Pipeline. REPRESENTATIVE SADDLER withdrew his amendment since procedurally an amendment was already on the table. 4:47:31 PM CHAIR OLSON withdrew his objection to Amendment 3. There being no further objection, Amendment 3 was adopted. REPRESENTATIVE SADDLER made a motion to adopt Conceptual Amendment 1, on page 2, line 2, remove the word "pipeline" and insert "Trans-Alaska Oil Pipeline" and again on page 2, line 4, and any place else in the bill where it is necessary to make that clarification. There being no objection, Conceptual Amendment 1 was adopted. 4:48:39 PM REPRESENTATIVE SADDLER made a motion to adopt Amendment 4, labeled 28-LS1053\ U.5, Nauman, 3/11/14, which read as follows: Page 5, lines 14 - 16: Delete "The processing facility, flow lines, and other surface infrastructure for the facility shall be used to secure bonds issued under this section." Page 5, line 17, following "exceed": Insert "the sum of" Page 5, line 18: Delete "may include" Delete "other" Insert "the" Page 5, lines 19 - 22: Delete "Notwithstanding AS 44.88.140, an oil or gas processing facility, flow lines, and other surface infrastructure for the facility constructed or financed by the oil and gas infrastructure fund (AS 44.88.168) are subject to taxes and special assessments of the state or a political subdivision of the state." Page 5, following line 22: Insert new subsections to read: "(b) The bonds authorized in this section may be (1) issued as either bonds that are a general obligation of the authority or as revenue bonds payable exclusively from the income and other money derived from the oil and gas processing facility, as the authority considers appropriate; (2) used to provide financing under another program of the authority. (c) Notwithstanding AS 44.88.140 and AS 29.45.030(a), an oil or gas processing facility, flow lines, and other surface infrastructure for the facility constructed or financed by the oil and gas infrastructure fund (AS 44.88.168) are subject to taxes and special assessments of the state or a political subdivision of the state." Reletter the following subsections accordingly. Page 5, line 23, following "AS 44.88.095(g).": Insert "The bonds authorized in this section may not be considered in calculating the authority's 12- month bonding limitation under AS 44.88.095(a)." Page 5, lines 24 - 27: Delete all material. 4:49:15 PM CHAIR OLSON objected for the purpose of discussion. REPRESENTATIVE SEATON stated that AIDEA recommended the language in Amendment [4]. He explained that AIDEA was concerned that it might limit revenue bonds; and depending upon the rates, it's important to have the flexibility to issue revenue and general obligation bonds as their normal process and AIDEA would use the most financially beneficial bonding for the project. 4:49:59 PM REPRESENTATIVE JOSEPHSON, with respect to Amendment [4], asked about the first deletion. He related his understanding that under existing law facilities could be used to secure bonds, but now they cannot be used. REPRESENTATIVE SEATON answered that is not intent of Amendment 4. He suggested the Legislative Legal and Research attorney could further explain. He reiterated that the intention is to insert suggested language from AIDEA to allow either type of bonds to be used. MS. NAUMAN responded that omitting the language does not mean that the processing facility flow lines or other infrastructure for the facility can't be used to secure bonds. Instead, this section is silent and leaves the option open. 4:51:28 PM REPRESENTATIVE JOSEPHSON assumed the idea is to give AODEA more flexibility on financing. MS. NAUMAN answered that is her best guess about the purpose. 4:51:56 PM REPRESENTATIVE SEATON referred to a letter from Ted Leonard, executive director of AIDEA stating what he believed Representative Josephson just said. 4:52:18 PM MR. LEONARD responded that the deletion is to assure that AIDEA has the flexibility to use either GO bond or revenue bond. He indicated that AIDEA's financial advisors indicate that rating agencies and the parties buying the bonds would assume it referred to a revenue bond based on the current language. Thus, Amendment 1 deletes the language and inserts the new subsection that indicates that AIDEA could fund this based on the revenues and project. He referred to page 2, line 19 of Version U, to a general description. He reiterated that the bonds issued could be either GO bonds of the authority or a revenue bond. CHAIR OLSON removed his objection. There being no further objection, Amendment 4 was adopted. 4:54:58 PM REPRESENTATIVE JOSEPHSON asked if the goal is to give credit on corporate taxes but not production taxes, up to $10 million. REPRESENTATIVE SEATON answered yes. He explained that Amendment 4 would give a 10 percent credit to stimulate in-state work and faster "flow" into the Trans-Alaska Pipeline System (TAPS). 4:55:33 PM REPRESENTATIVE JOSEPHSON asked whether the purpose of the bill is to aid independent [producers] more than others. REPRESENTATIVE SEATON answered that HB 230 is not a subsidy, but the purpose is to incentivize a more rapid build out of processing facilities to allow additional oil into TAPS. He offered his belief that it may affect one project or more. He related that he was aware of one smaller independent [producer] that this could aid; however, there are other independent [producers] and major producers that may have some use, as well. The legislature has already adopted the in-state manufacture credit. This ensures that it is applicable to processing facilities to promote production to TAPS. 4:56:57 PM REPRESENTATIVE CHENAULT expressed concern about tax credit. He asked what else the bill will do, for example, does it eliminate AIDEA's capacity for bonding. REPRESENTATIVE SEATON answered no. He explained that AIDEA has a $400 million general cap on bonds. This bill would establish a separate $200 million for oil and gas processing facilities in addition to the $400 million. 4:57:42 PM REPRESENTATIVE CHENAULT asked whether AIDEA's bond capacity is limited to $600 million or if it removes the limit for bonding capacity for the processing facilities. REPRESENTATIVE SEATON answered that it does not remove the limit. It would give [AIDEA] a $200 million [bonding capacity] for oil and gas processing facilities. He explained that AIDEA could not take the $200 million and invest in some other kind of project other than oil and gas processing facilities. He acknowledged that it is someone limited in that respect, such that it does not increase their general bonding limit; however, removing the $200 million from their bonding authority would "squeeze" many other projects around the state. 4:58:40 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 230. [HB 230 was held over.]