HB 397-SURCHARGE ON CRUDE OIL;ARCTIC TRANS. FUND  7:16:13 PM CO-CHAIR TARR announced that the next order of business would be HOUSE BILL NO. 397, "An Act relating to a surcharge on oil produced in the state; establishing the Arctic transportation and resource access fund; and providing for an effective date." 7:16:42 PM REPRESENTATIVE PAUL SEATON, Alaska State Legislature, read from the "Letter of Intent for HB 397," included in the committee packet, as follows [original punctuation provided]: It is the intent of the committee in creating the Arctic Transportation and Resource Access Fund (ATRA) that the initial project funded from the fund will aid in the construction of approximately 15 miles of gravel road from the Colville River East to the Kuparek [sic] road network, replacing the annual temporary ice road. Furthermore, it is the intent of the committee that commercial tolls be collected from the use of this road. All tolls collected will be deposited into the ATRA fund. Proceeds from these tolls are intended to be used to offset future state maintenance costs of this initial project, as well as construction and maintenance costs of other projects constructed from this fund source. REPRESENTATIVE SEATON explained that the goal is to improve efficiency on the North Slope; yet, a fund source is needed. He stated that the 9 per barrel charge on all oil refined in the U.S. was terminated as of January 1, 2018. He suggested that during the time the federal government puts this charge in abatement, the state could collect the 9 per barrel and put it into a fund used to improve the efficiencies on the North Slope. REPRESENTATIVE SEATON continued with the use of a PowerPoint presentation, entitled "HB 397 Surcharge on Crude Oil; Arctic Trans Fund," dated 4/4/18 and included in the committee packet. Referring to slide 2, entitled "HB 397 - Background," he reiterated that the federal 9 per barrel tax at the refineries applies to all oil refined in the U.S. and, therefore, includes Alaska oil. The funds are deposited into the federal Oil Spill Liability Trust Fund (OSLTF), which is used for cleanup; the tax generates about $500 million per year; and the fund currently contains about $5.7 billion. He offered that since the federal government has abated the fund, it is a potential source of funding for Alaska - generating about $16 million per year. REPRESENTATIVE SEATON turned to slide 3, entitled "HB 397 - What the bill does," and relayed that the proposed legislation is proactive and was drafted after the federal government abated its program. The intent was to collect the surcharge retroactively and cease to collect it if the federal government reinstated the tax. He continued by saying that the federal program was reauthorized effective March 1, 2018. Consequently, a committee substitute (CS) was introduced, which has no retroactivity or transition. The CS states that in the future, if the federal government stops collecting the surcharge, the state would collect the surcharge for as long as the federal government is not collecting it; or if the federal government does not collect the full 9 per barrel, the state will collect the balance. He added that HB 397 would establish the Arctic Transportation and Resource Access Fund (ATRA) to be used to improve efficiency on the North Slope. 7:21:48 PM REPRESENTATIVE SEATON turned to slide 4, entitled "HB 397 - History of Federal Fund," and pointed out the sunsets and reinstatements of the fund to demonstrate the potential for an on-and-off source of money for Alaska. He said that with the low oil company taxes that Alaska receives currently, there is no [other] source of money for Alaska to invest [in the fund]. He stated that the U.S. Bipartisan Budget Act [of 2018] temporarily reinstated the tax effective March 1, 2018; however, the tax expires December 31, 2018. REPRESENTATIVE SEATON turned to the graph on slide 5, entitled "Projected Revenue," to demonstrate the projected revenue for Alaska under the proposed legislation, if the federal program is not reinstated beyond December 31, 2018. He maintained that the charges and lowering of the price for Alaska North Slope (ANS) West Coast is already occurring and built into the price; therefore, if the 9 per barrel is not collected [by the federal government], then Alaska should use it to help with the infrastructure of the North Slope. 7:23:42 PM CO-CHAIR TARR moved to adopt the CS for HB 397, labeled 30- LS1310\O, Nauman, 3/30/18, as the working document, referred to as "Version O". There being no objection Version O was before the committee. 7:24:22 PM ARNOLD LIEBELT, Staff, Representative Paul Seaton, Alaska State Legislature, pointed out that Version O is identical to the original version for Sections 1-8; Section 9, containing transitional language, was removed; Section 10, addressing retroactivity back to January 1, 2018, was removed; and Section 11, containing an immediate effective date, was removed. He paraphrased from the sectional analysis for Version O, which read as follows [original punctuation provided]: Section 1 (page 1, line 4) Adds new surcharge to AS 43.55.023(c) preventing tax credits under this section from offsetting this surcharge. Section 2 (page 2, line 4) Adds new surcharge to AS 43.55.023(e) preventing tax credits under this section from offsetting this surcharge. Section 3 (page 2, line 27) Adds new surcharge to AS 43.55.025(h) preventing tax credits under this section from offsetting this surcharge. Section 4 (page 3, line 14) Adds new surcharge to the list of expenditures in AS 43.55.165(e) not deductible for the purpose of calculating net production tax Section 5 (page 6, line 15) Makes clear that all three surcharges are cumulative. Section 6 (page 6, line 21) Makes clear that all three surcharges are cumulative. Section 7 (page 6, line 27) Adds new section AS 43.55.350 Alaska Conditional Surcharge on Oil Subsection (a) (page 6, line 29) Creates a new per barrel surcharge equal to 9c per barrel, less the amount of any imposed under 26 USC 4611 (c) (2) (B). Subsection (b) (page 7, line 4) States that the surcharge under section (a) is in addition to tax imposed by AS 43.55.011 and the two existing surcharges under AS 43.55.201 and 43.33.300. Also states the surcharge imposed is due on the last day of the month on oil produced during the preceding month. Subsection (c) (page 7, line 8) Requires reporting of production by the producer on March 31st of the following calendar year as required for tax imposed under AS 43.55.011 43.55.180 Subsection (d) (page 7, line 11) Exempts for the new surcharge oil used for operation of a lease or for re- pressuring determined to be waste by the Alaska Oil and Gas Conservation Commission. Subsection (e) (page 7, line 14) The surcharge will be deposited in the general fund. Subsection (f) (page 7, line 16) describes the conditional imposition of the surcharge. Requires the commissioner to determine if the federal government is collecting a tax under 26 USC 4611 (c) (2) (B) and impose or suspend the surcharge as appropriate. Subsection (g) (page 8, line 6) makes clear that failure of the commissioner to notify producers does not waive the surcharge under this section. Subsection (h) (page 8, line 8) makes clear that if the surcharge under this section and a federal tax are imposed simultaneously because of retroactivity of the federal tax, the surcharge paid will not be refunded. Subsection (i) (page 8, line 11) surcharge proceeds will be accounted for separately and deposited into the Arctic Transportation and Resource Access Fund, created under AS 43.55.360 Section 7 (page 8, line 14) Adds a new section AS 43.55.360 establishing the Arctic Transportation and Resource Access Fund (ATRA) as a separate account in the general fund. Describes the fund as proceeds from the surcharge and tolls collected from infrastructure constructed with funds from the ATRA fund. Clearly states that the legislature may appropriate the actual balance of the fund for infrastructure projects north of 68 degrees. Section 8 (page 8, line 24) Defines the term surcharge as used in the AS 43.550.350 and AS 43.55.360. REPRESENTATIVE SEATON referred to the Department of Natural Resources (DNR) PowerPoint presentation, dated 4/4/18 and included in the committee packet; it reports on the condition of the arctic roads, which have been deteriorating in the winter seasons. He mentioned that the construction of the gravel road from Colville River to the North Slope pad would cost about $27 million. 7:31:22 PM REPRESENTATIVE BIRCH posed the question: Why not leave the money in the industry's hands and let them build the roads? Additionally, he pointed out that if the Stand for Salmon initiative passes, there would be no road building. He suggested that the $8-9 million in prospective receipts be redirected to the Stand for Alaska initiative. REPRESENTATIVE TARR responded that, of course, the legislature would not appropriate money to a ballot initiative. REPRESENTATIVE SEATON commented that if one believes that efficiency is gained through gravel roads and the industry has not built them, then possibly the state can help. [HB 397 was held over.]