HOUSE FINANCE COMMITTEE April 22, 1994 8:35 A.M. TAPE HFC 94 - 139, Side 2, #000 - end. TAPE HFC 94 - 140, Side 1, #000 - #247. CALL TO ORDER Co-Chair Larson called the House Finance Committee meeting to order at 8:35 A.M. PRESENT Co-Chair Larson Representative Hoffman Vice-Chair Hanley Representative Martin Representative Foster Representative Navarre Representative Brown Representative Parnell Representative Grussendorf Representative Therriault Co-Chair MacLean was not present for the meeting. ALSO PRESENT Rod Wilson, Technical Engineer, Engineering Division, Department of Transportation and Public Facilities; Ken Boyd, Deputy Director, Division of Oil and Gas, Department of Natural Resources; Bret Thomas, (Testified via teleconference), President, Time Frame Incorporated, Anchorage; Dugan Petty, Director, Division of General Services, Department of Administration; Larry Meyers, Director, Income and Excise Audit Division, Department of Revenue. SUMMARY SB 151 An Act providing for oil and gas exploration incentive credits for certain activities on certain land in the state; and providing for an effective date. HCS CS SB 151 (FIN) was reported out of Committee with a "do pass" recommendation and with zero fiscal notes by the Department of Revenue dated 3/07/94 and the Department of Natural Resources dated 2/02/94. SB 212 An Act relating to publications produced by state agencies and to the procurement of property, property interests, and services by state agencies. 1 HCS CS SB 212 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Department of Administration, the Department of Transportation and Public Facilities dated 2/09/94 and a zero fiscal note by the Department of Administration. SENATE BILL 212 "An Act relating to publications produced by state agencies and to the procurement of property, property interests, and services by state agencies." Representative Brown referenced Section #8 asking if the intent of the legislation would be to provide regulations or procedures for a pilot program. ROD WILSON, TECHNICAL ENGINEER, ENGINEERING DIVISION, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOTPF), replied that it was the intent of the Department to establish regulations through and in conjunction with the Department of Administration and added that procurement information currently is available through the regulations. Representative Brown pointed out that Section #8 would establish an Innovative Construction Procurement Methods Pilot Program within DOTPF for a period of two years. She thought more time would be needed in order to establish innovative methods of regulations. Representative Brown proceeded to ask how the bonus program would work. Mr. Wilson noted that a bonus would be used for determination of an award being placed at the end of the program. He indicated that the advantage would be to not allow a preference; the federal government also does not allow preferences. Mr. Wilson commented that Section (b) explains current process granting an administrative benefit to the State and would cut costs. Discussion followed between Representative Brown and Mr. Wilson regarding the program's economic benefit to Alaska. Representative Brown suggested the program become a subsidy. DUGAN PETTY, DIRECTOR, DIVISION OF GENERAL SERVICES, DEPARTMENT OF ADMINISTRATION, addressed Representative Grussendorf's question regarding Section #5 and the publication productions. He commented that state agencies are defined in statute and that the cost of the forms would not be covered. Representative Grussendorf requested that 2 the Department provide a guaranteed performance bond with the legislation. Mr. Petty understood that to be a procurement issue and suggested that it should have been included in the bidding process. BRET THOMAS, (TESTIFIED VIA TELECONFERENCE), PRESIDENT, TIME FRAME INC., ANCHORAGE, spoke in support of the legislation pointing out that the State has not been capable of handling the changes occurring in reproduced materials. Representative Martin MOVED to report HCS CS SB 212 (L&C) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 212 (L&C) was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Department of Administration and the Department of Transportation and Public Facilities dated 2/09/94 and a zero fiscal note by the Department of Administration. SENATE BILL 151 "An Act providing for oil and gas exploration incentive credits for certain activities on certain land in the state; and providing for an effective date." KEN BOYD, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, stated that the Exploration Incentive Credit (EIC) bill would extend the program that already exists on State lands to all lands in the State. It would provide a means for the State to obtain exploration data to which it would not normally be entitled and would encourage exploration on lands that would enhance the exploration of adjacent or nearby State lands. He added that the EIC's are currently offered by the State as a means to encourage exploration on State lands. Under AS 38.05.180(i), the Commissioner of Natural Resources may authorize the use of incentive credits to encourage exploration of state leases through either geophysical work or the drilling of a well. Geophysical EIC's could be earned if the work was performed during the two seasons immediately preceding an announced lease sale on land included within the sale area, and if the geophysical work was made public following the sale. He added that drilling EIC's are based on the footage drilled and the region in which the well is situated. Mr. Boyd noted that Governor Hickel's proposal would be to expand the current EIC program to all areas of the State, with certain modifications and restrictions. The new 3 legislation would provide $50 million dollars that could be used over a period of ten years, with each individual project capped at $5 million dollars. Credits of up to 50 percent on state-owned land and 25 percent on non state owned land would be allowed. Mr. Boyd continued that the new legislation would also provide for credits to be applied against income and other taxes in addition to the severance tax. The credits would remain transferable under the provisions of the bill, and as with the current plan, amounts due the Permanent Fund must be calculated prior to application of any credits. Discussion followed between Representative Brown and Mr. Boyd regarding the program changes in the legislation. Mr. Boyd explained that any amount of financial obligation due would be transferred to the Permanent Fund first and then the credit would be determined from that remaining amount. Representative Brown MOVED to adopt Amendment #1. [Copy on file]. Mr. Boyd advised that the amendment would clarify the Department's intent and that the Department would support it. There being NO OBJECTION, Amendment #1 was adopted. Representative Brown MOVED to adopt Amendment #2 which would make the requirement to adopt regulations mandatory instead of discretionary. [Copy on file]. Mr. Boyd agreed that it was the intent of the Department to adopt regulations and that the Department would support the amendment. There being NO OBJECTION, Amendment #2 was adopted. Representative Brown MOVED to adopt Amendment #3 which would determine the total credit which the Commissioner of DNR could offer. [Copy on file]. Representative Brown summarized that the credit would include "all" credits to "all" companies. The amendment would delete "$50 million dollars" and then insert "$30 million dollars". Mr. Boyd agreed that $30 million dollars would be a sufficient and reasonable amount. (Tape Change, HFC 94-140, Side 2). Representative Martin OBJECTED to Amendment #3. A roll call vote was taken on the MOTION. IN FAVOR: Parnell, Therriault, Brown, Grussendorf, Hanley, Hoffman. OPPOSED: Foster, Martin, Navarre, Larson. Representative MacLean was not present for the vote. 4 The MOTION PASSED (6-4). Representative Brown offered a language change to Amendment award" to Page 3, Line 14. The concept of the amendment would be to discontinue the credits to companies who owed a debt to the State. Representative Brown MOVED to adopt the amended Amendment #4. Representative Hanley questioned the definition of "debt" in the amendment. Mr. Boyd agreed the amendment would be a policy call of the Legislature and that it would be difficult to determine a "debt". LARRY MEYERS, DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE, advised that the application of Amendment #4 would reference an outstanding unpaid assessment. Representative Brown WITHDREW Amendment #4. There being NO OBJECTION, it was withdrawn. Representative Navarre MOVED to report HCS CS SB 151 (FIN) out of Committee with individual recommendations and with the accompanying zero fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 151 (FIN) was reported out of Committee with a "do pass" recommendation and with zero fiscal notes by the Department of Natural Resources dated 2/02/94 and the Department of Revenue dated 3/07/94. ADJOURNMENT The meeting adjourned at 9:30 A.M. HOUSE FINANCE COMMITTEE April 22, 1994 8:35 A.M. TAPE HFC 94 - 139, Side 2, #000 - end. TAPE HFC 94 - 140, Side 1, #000 - #247. CALL TO ORDER Co-Chair Larson called the House Finance Committee meeting to order at 8:35 A.M. PRESENT Co-Chair Larson Representative Hoffman Vice-Chair Hanley Representative Martin 5 Representative Foster Representative Navarre Representative Brown Representative Parnell Representative Grussendorf Representative Therriault Co-Chair MacLean was not present for the meeting. ALSO PRESENT Rod Wilson, Technical Engineer, Engineering Division, Department of Transportation and Public Facilities; Ken Boyd, Deputy Director, Division of Oil and Gas, Department of Natural Resources; Bret Thomas, (Testified via teleconference), President, Time Frame Incorporated, Anchorage; Dugan Petty, Director, Division of General Services, Department of Administration; Larry Meyers, Director, Income and Excise Audit Division, Department of Revenue. SUMMARY SB 151 An Act providing for oil and gas exploration incentive credits for certain activities on certain land in the state; and providing for an effective date. HCS CS SB 151 (FIN) was reported out of Committee with a "do pass" recommendation and with zero fiscal notes by the Department of Revenue dated 3/07/94 and the Department of Natural Resources dated 2/02/94. SB 212 An Act relating to publications produced by state agencies and to the procurement of property, property interests, and services by state agencies. HCS CS SB 212 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Department of Administration, the Department of Transportation and Public Facilities dated 2/09/94 and a zero fiscal note by the Department of Administration. SENATE BILL 212 "An Act relating to publications produced by state agencies and to the procurement of property, property interests, and services by state agencies." Representative Brown referenced Section #8 asking if the intent of the legislation would be to provide regulations or procedures for a pilot program. 6 ROD WILSON, TECHNICAL ENGINEER, ENGINEERING DIVISION, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOTPF), replied that it was the intent of the Department to establish regulations through and in conjunction with the Department of Administration and added that procurement information currently is available through the regulations. Representative Brown pointed out that Section #8 would establish an Innovative Construction Procurement Methods Pilot Program within DOTPF for a period of two years. She thought more time would be needed in order to establish innovative methods of regulations. Representative Brown proceeded to ask how the bonus program would work. Mr. Wilson noted that a bonus would be used for determination of an award being placed at the end of the program. He indicated that the advantage would be to not allow a preference; the federal government also does not allow preferences. Mr. Wilson commented that Section (b) explains current process granting an administrative benefit to the State and would cut costs. Discussion followed between Representative Brown and Mr. Wilson regarding the program's economic benefit to Alaska. Representative Brown suggested the program become a subsidy. DUGAN PETTY, DIRECTOR, DIVISION OF GENERAL SERVICES, DEPARTMENT OF ADMINISTRATION, addressed Representative Grussendorf's question regarding Section #5 and the publication productions. He commented that state agencies are defined in statute and that the cost of the forms would not be covered. Representative Grussendorf requested that the Department provide a guaranteed performance bond with the legislation. Mr. Petty understood that to be a procurement issue and suggested that it should have been included in the bidding process. BRET THOMAS, (TESTIFIED VIA TELECONFERENCE), PRESIDENT, TIME FRAME INC., ANCHORAGE, spoke in support of the legislation pointing out that the State has not been capable of handling the changes occurring in reproduced materials. Representative Martin MOVED to report HCS CS SB 212 (L&C) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 212 (L&C) was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Department 7 of Administration and the Department of Transportation and Public Facilities dated 2/09/94 and a zero fiscal note by the Department of Administration. SENATE BILL 151 "An Act providing for oil and gas exploration incentive credits for certain activities on certain land in the state; and providing for an effective date." KEN BOYD, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, stated that the Exploration Incentive Credit (EIC) bill would extend the program that already exists on State lands to all lands in the State. It would provide a means for the State to obtain exploration data to which it would not normally be entitled and would encourage exploration on lands that would enhance the exploration of adjacent or nearby State lands. He added that the EIC's are currently offered by the State as a means to encourage exploration on State lands. Under AS 38.05.180(i), the Commissioner of Natural Resources may authorize the use of incentive credits to encourage exploration of state leases through either geophysical work or the drilling of a well. Geophysical EIC's could be earned if the work was performed during the two seasons immediately preceding an announced lease sale on land included within the sale area, and if the geophysical work was made public following the sale. He added that drilling EIC's are based on the footage drilled and the region in which the well is situated. Mr. Boyd noted that Governor Hickel's proposal would be to expand the current EIC program to all areas of the State, with certain modifications and restrictions. The new legislation would provide $50 million dollars that could be used over a period of ten years, with each individual project capped at $5 million dollars. Credits of up to 50 percent on state-owned land and 25 percent on non state owned land would be allowed. Mr. Boyd continued that the new legislation would also provide for credits to be applied against income and other taxes in addition to the severance tax. The credits would remain transferable under the provisions of the bill, and as with the current plan, amounts due the Permanent Fund must be calculated prior to application of any credits. Discussion followed between Representative Brown and Mr. Boyd regarding the program changes in the legislation. Mr. Boyd explained that any amount of financial obligation due would be transferred to the Permanent Fund first and then the credit would be determined from that remaining amount. 8 Representative Brown MOVED to adopt Amendment #1. [Copy on file]. Mr. Boyd advised that the amendment would clarify the Department's intent and that the Department would support it. There being NO OBJECTION, Amendment #1 was adopted. Representative Brown MOVED to adopt Amendment #2 which would make the requirement to adopt regulations mandatory instead of discretionary. [Copy on file]. Mr. Boyd agreed that it was the intent of the Department to adopt regulations and that the Department would support the amendment. There being NO OBJECTION, Amendment #2 was adopted. Representative Brown MOVED to adopt Amendment #3 which would determine the total credit which the Commissioner of DNR could offer. [Copy on file]. Representative Brown summarized that the credit would include "all" credits to "all" companies. The amendment would delete "$50 million dollars" and then insert "$30 million dollars". Mr. Boyd agreed that $30 million dollars would be a sufficient and reasonable amount. (Tape Change, HFC 94-140, Side 2). Representative Martin OBJECTED to Amendment #3. A roll call vote was taken on the MOTION. IN FAVOR: Parnell, Therriault, Brown, Grussendorf, Hanley, Hoffman. OPPOSED: Foster, Martin, Navarre, Larson. Representative MacLean was not present for the vote. The MOTION PASSED (6-4). Representative Brown offered a language change to Amendment award" to Page 3, Line 14. The concept of the amendment would be to discontinue the credits to companies who owed a debt to the State. Representative Brown MOVED to adopt the amended Amendment #4. Representative Hanley questioned the definition of "debt" in the amendment. Mr. Boyd agreed the amendment would be a policy call of the Legislature and that it would be difficult to determine a "debt". LARRY MEYERS, DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE, advised that the application of Amendment #4 would reference an outstanding unpaid 9 assessment. Representative Brown WITHDREW Amendment #4. There being NO OBJECTION, it was withdrawn. Representative Navarre MOVED to report HCS CS SB 151 (FIN) out of Committee with individual recommendations and with the accompanying zero fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 151 (FIN) was reported out of Committee with a "do pass" recommendation and with zero fiscal notes by the Department of Natural Resources dated 2/02/94 and the Department of Revenue dated 3/07/94. ADJOURNMENT The meeting adjourned at 9:30 A.M. 10