COMMITTEE SUBSTITUTE FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 96(FIN) "An Act relating to deposits to the Alaska permanent fund from mineral lease rentals, royalties, royalty sale proceeds, net profit shares under AS 38.05.180(f) and (g), federal mineral revenue sharing payments received by the state from mineral leases, and bonuses received by the state from mineral leases, and limiting deposits from those sources to the 25 percent required under art. IX, sec. 15, Constitution of the State of Alaska; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Representative Norm Rokeberg, sponsor, testified that this is straightforward legislation "that returns the statutory deposits for new fields after December 15, 1979 and bonus bid incomes from February 1, 1980 from the statutory limit of 50-percent deposits to the base limit in the constitution of 25-percent." He indicated that Article 9 Section 15 of the Alaska Constitution states that at least 25-percent of all mineral lease rental, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the state shall be placed in a permanent fund. Representative Norm Rokeberg shared with the Committee that he had been looking at this matter for about three years. He stressed that he feels the timing is overdue, given the decline in production of the Prudoe Bay field and the potential production and revenue increases for the State Of Alaska in other North Slope oil fields. Because of declining revenue in the Prudoe Bay field, he believed that the ratio of new revenues deposited into the permanent fund versus deposits to the general fund should be returned to a 25%-75% respective balance. Representative Norm Rokeberg noted that the House of Representatives had adopted the provisions in this legislation as part of its long-range fiscal plan. He pointed out specific impacts on the spreadsheets attached to his sponsor statement. (Copy on file.) The first spreadsheet he referred to is titled "Short Stack", which he said was prepared by the Department of Revenue and is based on oil price projections of $13 per barrel. He showed where the spreadsheet projects that this legislation would infuse $10.96 million additional revenues to the general fund in fiscal year 2000 and an average impact of $16 million per year over the next 15-20 years using a sensitivity matrix. However, he pointed out those projections were made prior to the recent decline in oil prices. His personal calculations indicated that for each dollar increase in the Alaska North Slope (ANS) Market, there would be an approximate $1.25 million impact to the general fund. Representative Norm Rokeberg commented that the spreadsheet does not include the additional funds received from mineral revenues. He had requested that information from the Department of Natural Resources, and said the amount could vary from a couple hundred thousand dollars up to approximately $1 million each year. He believed the actual amounts are on the lower end of the scale. Representative Norm Rokeberg further noted that the Department of Revenue's spreadsheet does not include any bonuses. He stressed that any bonus money would be in addition to the projected revenue. He gave as an example the first North Slope area-wide lease sale in June 1998 in which the state received $53.5 million in bonuses. He said this amount was the forth-highest lease sale in the state's history. Were this legislation in place, he stated, the general fund would have had an additional $12.5 million available for appropriations. Representative Norm Rokeberg next referred to the "Permanent Fund Contribution rates for North Slope Oil Fields - Alaska Department of Revenue Spring 1999" spreadsheet also attached to his sponsor statement. (Copy on file.) He pointed out that the spreadsheet shows how most oil fields are contributing more than 25-percent to the permanent fund. He qualified that the fifty-percent figure quoted for the NPRA field is inaccurate due to other legislation. Representative Norm Rokeberg summarized by saying this legislation has a negligible impact on the dividend and that he had requested further information from the Permanent Fund Corporation to quantify this. The letters and statements he had thus received from the corporation assures there will be no impact on the 1999 dividend and future impacts as low as $1.70 on future dividends. Senator Gary Wilken asked why the fiscal note is zero. Representative Norm Rokeberg could not answer this and felt there should actually be a positive fiscal note. Senator Pete Kelly had thought the general fund increases would be larger and asked for clarification. Representative Norm Rokeberg responded that the projections were based on $13 per barrel and future expansions as predicted in the Fall Forecast. He explained that this legislation would reduce the percentage of contributions to the permanent fund only for leases entered-into after December 15, 1979 and bonus bids received after February 1980. He stated that a significant number of lease deals have been made since those dates. As an example of lease deals made after the aforementioned dates, he gave Milne Point with a 37.59-percent contribution to the permanent fund. He said only Prudoe Bay and Kuparak were deals made before the ratio increase and that only 25-percent of the state's revenues from those fields are deposited into the permanent fund. Because these two fields make up such a large portion of the revenues, he explained that the proposed ratio changes on the newer fields would not result in the high figures Senator Pete Kelly may have anticipated. He stressed that this legislation is necessary for the state to receive maximum benefits from future oil field developments. Senator Loren Leman asked why subparagraph 2 of AS 37.13.010(a), which refers to net profit shares, is being deleted from existing statute. Representative Norm Rokeberg responded the "net profit" language was just taken from existing statute and was used in lieu of "royalty." He assured that it still represents the allocation to the permanent fund or the general fund. Amendment #1: This amendment adds two new bill sections. Section 1. AS 37.05.530(g) is amended to read: (g) Amounts received by the state under 42 U.S.C. 6508 and not appropriated for grants to municipalities under (d) of this section lapse at the end of each fiscal year as follows: (1) 25 [50] percent to the principal of the Alaska permanent fund; (2) .5 percent to the public school trust fund (AS 37.14.110); and (3) the remainder to the general fund for use by the state for the following facilities and services: (A) planning; (B) construction, maintenance, and operation of essential public facilities; and (C) other necessary public services. Sec. 2. AS 37.05.550(b) is amended to read: (b) The legislature may appropriate to the fund money received by the state as Alaska marine highway system program receipts or from a settlement or final judicial determination of the Dinkum Sands case (United States v. Alaska) and the North Slope royalty case (State v. Amerada Hess, et al.) and not deposited into the Alaska permanent fund under AS 37.13.010(a)(1) [AS 37.13.010(a)(1) or (2)] or into the public school trust fund under AS 37.14.150." Co-Chair Sean Parnell moved for adoption. Co-Chair John Torgerson explained that this amendment applies to federal lease sales and lowers the percentages of those revenues deposited into the permanent fund to 25-percent as well. He told Representative Norm Rokeberg that this amendment is similar to one provided by the bill sponsor and the only difference is the addition of section two, which is technical and inserted at the recommendation of the bill drafter. Senator Al Adams noted he had a similar amendment that addresses section one and he had no objection to this amendment. Representative Norm Rokeberg stated that he did not have any objection to the addition of section two. Without objection Amendment #1 was ADOPTED. There was no further discussion on the bill. Co-Chair Sean Parnell offered a motion to report from Committee, SCS SS HB 96(FIN). There was no objection and the bill was REPORTED OUT with individual recommendations and the accompanying Department of Revenue zero fiscal note. The committee took a brief at ease.