HOUSE STATE AFFAIRS STANDING COMMITTEE May 8, 1994 5:00 p.m. MEMBERS PRESENT Representative Al Vezey, Chairman Representative Pete Kott, Vice Chairman Representative Bettye Davis Representative Gary Davis Representative Harley Olberg Representative Jerry Sanders Representative Fran Ulmer MEMBERS ABSENT None COMMITTEE CALENDAR SB 377: "An Act relating to state agency fiscal procedures, including procedures related to the assessment and collection of certain taxes; and providing for an effective date." HELD IN COMMITTEE WITNESS REGISTER TOM WILLIAMS, Alaska Tax Counsel BP Exploration P.O. Box 196612 Anchorage, AK 99515 Phone: 564-5955 POSITION STATEMENT: Opposed CSSB 377(FIN)am and the proposed HCSCSSB 377(STA) TOM THERIOT, Manager Alaska Interest Organization Exxon Company of America P.O. Box 196601 Anchorage, AK 99519 Phone: 564-3778 POSITION STATEMENT: Opposed CSSB 377(FIN)am PREVIOUS ACTION BILL: SB 377 SHORT TITLE: STATE AGENCY FISCAL PROCEDURES SPONSOR(S): FINANCE JRN-DATE JRN-PG ACTION 04/13/94 3633 (S) READ THE FIRST TIME/REFERRAL(S) 04/13/94 3633 (S) FINANCE 04/13/94 3650 (S) FIN WAIVED UNIFORM RULE 23 04/14/94 (S) FIN AT 09:00 AM SENATE FIN 518 04/20/94 (S) RLS AT 06:45 PM FAHRENKAMP ROOM 203 04/21/94 (S) FIN AT 10:00 AM SENATE FIN 518 04/21/94 (S) RLS AT 02:15 PM FAHRENKAMP ROOM 203 04/21/94 3839 (S) FIN RPT CS 6DP 1DNP SAME TITLE 04/21/94 3839 (S) FN TO SB & CS PUBLISHED(ADM) 04/21/94 3839 (S) ZERO FN TO SB & CS PUBLISHED (REV) 04/22/94 3870 (S) RLS RPT 3CAL 1NR 4/22/94 04/22/94 3876 (S) READ THE SECOND TIME 04/22/94 3877 (S) FIN CS ADOPTED Y12 N8 04/22/94 3877 (S) AM NO 1 MOVED BY KERTTULA 04/22/94 3882 (S) QUESTION: AM NO 1 GERMANE? 04/22/94 3883 (S) AM NO 1 GERMANE Y17 N3 04/22/94 3883 (S) AM NO 1 ADOPTED Y14 N6 04/22/94 3883 (S) AM NO 2 MOVED BY DONLEY 04/22/94 3884 (S) AM NO 2 FAILED Y9 N11 04/22/94 3884 (S) ADVANCED TO THIRD READING UNAN CONSENT 04/22/94 3884 (S) READ THE THIRD TIME CSSB 377(FIN) AM 04/22/94 3884 (S) PASSED Y16 N4 04/22/94 3885 (S) EFFECTIVE DATE PASSED Y17 N3 04/22/94 3885 (S) Pearce NOTICE OF RECONSIDERATION 04/22/94 3885 (S) TAKE UP RECON ON SAME DAY WITHDRAWN 04/22/94 3937 (S) RECON TAKEN UP SAME DAY Y18 N2 04/22/94 3937 (S) PASSED ON RECONSIDERATION Y16 N4 04/22/94 3938 (S) EFFECTIVE DATE SAME AS PASSAGE 04/22/94 3941 (S) TRANSMITTED TO (H) 04/27/94 3746 (H) READ THE FIRST TIME/REFERRAL(S) 04/27/94 3747 (H) STA, O&G, JUDICIARY, FINANCE 05/07/94 (H) STA AT 08:00 PM CAPITOL 102 ACTION NARRATIVE TAPE 94-57, SIDE A Number 000 CHAIRMAN AL VEZEY called the meeting to order in the Butrovich Room at 5:07 p.m. Members present were REPRESENTATIVES KOTT, SANDERS, G. DAVIS and ULMER. REPRESENTATIVES BILL HUDSON AND JEANNETTE JAMES joined the committee table. (REPRESENTATIVE OLBERG joined the meeting at 5:08 p.m.) SB 377 - STATE AGENCY FISCAL PROCEDURES TOM WILLIAMS, ALASKA TAX COUNSEL, BP EXPLORATION, testified in opposition to CSSB 377(FIN)am and the proposed HCSCSSB 377(STA). He said, "I was Commissioner of Revenue for Alaska from 1979 to 1982. In my work for the state, I was the actual draftsman of almost all of the tax regulations that underlie the outstanding disputes over past taxes. I joined BP in 1987 - five years after leaving government service. During those five years I worked as an attorney in private practice on real estate and banking matters, and as general counsel for an Alaska Native Corporation. "I am here today to testify on behalf of BP against the proposed retroactive changes to the statute of limitations that appear as sections 1, 8, 9 and 14 of the Senate's version of SB 377, and as sections 1, 2, 3 and 7 of the Administration's proposed House CS for SB 377 that Attorney General Botelho gave the committee yesterday afternoon. These retroactive changes are substantially the same in both versions. "Because oil and gas taxes are not very familiar to those who don't specialize in them, let me take a few moments to review how the process currently works. Today, the North Slope should produce about 1.6 million barrels of oil. Almost half of that oil is BP's. By the end of next month, we will have to pay production tax on our oil. When we do, we will also file tax returns explaining how we calculated the amount of our tax. Then the ball is in the state's court. The Department of Revenue has the right to audit our tax returns, and they do. If the auditors believe BP should have paid more tax than we actually did, they give us a bill for the extra tax, plus interest. This bill for additional tax is called an assessment. That's all an assessment is - a bill for additional tax. "When a taxpayer gets this bill or assessment, he has several choices. He can pay the whole bill. He can dispute the whole assessment by filing an appeal. Or he can pay some of the assessment and dispute the rest. Alaska's tax laws and regulations require taxpayers to pay any portion of the tax bill that they do not contest. "Now getting an assessment or tax bill doesn't necessarily mean that you actually owe the additional money. Auditors being human, they can make mistakes just like anyone else. And BP has received assessments in the past where there were arithmetic errors - in one case the total amount of the assessment was $2 million more than the sum of the individual parts. Other times the auditors may have misread the tax laws and regulations and made a claim that is incorrect or not allowed. "Whatever the nature of a mistake in an assessment, a taxpayer has the right to ask the state to correct the error. The way a taxpayer asks for the correction is to file an appeal. If the mistake is a simple one - say the auditor added two plus two and wrote down five instead of four - the taxpayer should ask for an informal conference because it shouldn't take much to show the mistake to the department and get it corrected. In fact, BP has usually requested informal conferences when we appeal in order to try to iron out the computational errors, such as the $2 million mistake I mentioned a moment ago. "It has probably been suggested to at least some of you by the Administration that BP has asked for these informal conferences in order to drag out the appeal and postpone the time we have to pay up. Let me state clearly now for the record that BP asked for informal conferences, often with encouragement from the department itself, in order to first work out these computational items and other simple matters, so that any more difficult underlying issues can then be presented and dealt with on their own, without distractions from these side issues. "After the simple matters are addressed in the informal conference, the taxpayer can ask for a formal hearing on the more difficult questions, such as whether the auditors misread the tax statutes and regulations. If the assessment was clean in terms of math errors and the like, the taxpayer can bypass the informal conference and go directly to formal to address questions of legal interpretation and sound tax policy. After the formal hearing, the Department's hearing officer writes a decision. The Commissioner of Revenue then reviews that decision. If the Commissioner approves the decision, it is formally issued, and becomes the official department position on the matter. At that stage, the taxpayer has 30 days to appeal the decision to court. So that, in outline, is how this tax appeals works. "Now how does the statute of limitations fit into this scheme? While the statute may seem complicated, it really isn't if you remember just two simple rules - three years to audit, six years to collect. The Department has three years from the filing of a tax return in which to audit it and send the taxpayer a bill for any additional tax that the auditors think should have been paid. Then it has six years from the time it sends that bill, in which to go to court if necessary to collect it. The six year statute is satisfied if, within the six years, the Department considers and decides a tax appeal and the appeal gets into court. In other words, when the appeal does get into court, it becomes a `judicial proceeding' of the type that the six-year statute talks about. So, let me restate the two simple rules about the statute of limitations - three to audit, six years for the Department to hear and decide the appeal. "Now I would like to talk about what SB 377 and the Administration are proposing with respect to the statute of limitations. One is to change the three-year audit statute so that, even after the three years are up, the auditors can raise new and unrelated issues and increase their claims without limit for more tax at any time so long as the Department has not finished its consideration of the appeal and issued its formal hearing decision. The second is to change the six-year statute so that the clock for the six years isn't running while the tax assessment is being appealed within the Department of Revenue or in court. "Think about what this means. The six-year statute currently sets a time limit on how slowly the Department can consider and decide a tax appeal. It has to get its work done on the appeal in those six years. But under SB 377 and the Administration's proposed House CS, the six-year clock won't be running while the Department considers the appeal. So the Department will, under this legislation, be free to take 10 years, 15, 20, maybe even half a century, to make a final decision. And, under the change proposed to the three-year statute, at any point during all that time while the Department is thinking about the appeal, it can change its mind about what the tax laws meant years ago when that taxpayer originally filed its return. This changing of the Department's mind during the course of an extended protracted tax appeal, is one of the most pernicious problems Alaska has with its present tax system. And because of tax confidentiality, it is one of the most difficult to explain to the public with real life examples. In effect, this revisionism in tax policy makes it impossible for a taxpayer to know what the correct amount of tax is when he has to file the return and pay the tax. Absolutely, impossible. "Really? you ask. Yes, really. Suppose I go the Commissioner Rexwinkel and say, here's what's happening with my oil, what I'm selling it for, what I'm trading it for, what others are selling their oil for. And I ask him, how do I compute my tax liability? How much do I owe? And suppose he gives me an answer. Is that the correct and final answer? No, it's not -at least not in our experience. He's just the commissioner. "There are a number of issues where taxpayers, in our experience, including us and our predecessor Sohio, went to the Department while I was commissioner, and they were told how to deal with an issue. They were given answers, by me, and by other people who were policy-makers in the Department of Revenue at that time. And basically the taxpayers followed the answers they were given. Although the auditors now admit that what taxpayers were told was really the policy of the Department back then, they claim that they are not bound by prior policy, that it was a mistake, and they can correct it and impose their new and very different tax policy back through time to the periods when the Department's original policy was different. "Let me give you just one real-life example of this. It's from last year's ARCO tax decision by the Alaska Supreme Court. Under the separate accounting tax statute, taxpayers were specifically allowed a tax deduction for interest on money they borrowed to build the pipeline. The regulations specifically allowed it, too. But the auditors claimed that the interest was deductible only if the pipeline company itself had actually borrowed the money. If the parent company borrowed the money first and then lent it to the pipeline company, they claimed the interest wasn't deductible. Nothing in the regulation required this strained reading, where the mere form of a deal would dictate the tax substance. So in 1985, Commissioner Mary Nordale, with Bruce Botelho as her Deputy Commissioner, amended the regulation to make it absolutely clear that the interest was deductible regardless of whether it was the parent company, the pipeline company or some other affiliated company that first borrowed the money to build the pipeline. But that still wasn't the end of it. In 1986 or `87 the auditors began claiming that only part of the interest was deductible, even though they admitted that all of it was paid on money borrowed to build the pipeline. They argued that a ratio should be applied to the interest, based on ARCO's share of cost of the pipeline versus ARCO's total assets. Such a ratio was used under separate accounting, to limit the deductible interest on any money ARCO borrowed to develop Prudhoe Bay - it was prescribed in the statute, in the regulations, and the details for calculating it were set out on the tax form. But there was nothing like that ratio anywhere in the statute, regulations or the tax form with respect to pipeline interest. The auditors simply made it up, or their consultants helped them. And ARCO had to appeal this all the way to the Alaska Supreme Court before it was finally overturned. The ARCO case is published in the Pacific Reporter, and you can find it, if your interested, across the street. The full record in the case is open to the public now, and if you're really interested, you can probably go to the courts, they probably still have the files in the case and you could look through and confirm this for yourselves. I am not making it up. "And after all this, have the auditors finally stopped on the pipeline-interest issue? No. I can't go into details because of confidentiality, but since the ARCO case, they have begun raising a new theory to limit BP's deductible pipeline interest to something less than what we actually paid. "This story illustrates a subtle change over the last 10 to 15 years in the State's objective in auditing tax returns. Instead of trying to audit and determine the correct amount of tax, the objective has become one of trying to find the largest possible amount of tax that can be claimed, regardless whether it has any relation to the right amount of tax or not. All that matters is that there at least be some slim reed of rationalization to support the claim. That way, if a company settles its tax disputes with the State, it will have to pay something - maybe only five cents on the dollar - to settle that claim. But, even at a nickel on the dollar, those are nickels that wouldn't be collected if the claim hadn't been made. "Now the state itself has been giving indications that his change has been happening. A few years back, Bruce Botelho as Deputy Attorney General told a Senate committee that some of the claims for past taxes were long shots in terms of winning, but the dollars involved were so large the State couldn't just back off and abandon them. And Bill Floerchinger, who was Director of Oil Tax Audits and then Assistant Revenue Commissioner under the Cowper Administration, testified to the legislature that the assessments had `a lot of water' in them - a gripping metaphor for something big with little substance to it. "The proposed changes to the statutes of limitations would ratify this process and enshrine the authority to continue it for all tax periods before this year. Even if this is legal-and we contend it isn't - is this fair, is this wise tax policy? I don't think so. Neither does the Administration, because they want to cut it off for taxes beginning this year. They must recognize the need for certainty about the tax has to be satisfied if the oil companies and others are going to make investments here in the future. That's why their proposal for the future is a rule that gives the Department five years to audit and make its claim for more tax, and after that the tax claim cannot be increased. "But I ask you this, if their proposal for the past is such poor policy that even they don't want it for the future, why should it be allowed for any tax period, past or future? I don't think it should. Enacting it just for the past does not mean that Alaska will escape from the effects for the future. Because enacting the retroactive changes sends this message to all investors - if the state wants your money badly enough, it will do anything, even change its laws retroactively, in order to get it. That's pretty ominous to someone thinking about putting real money here. It scares them. It scares us. "Now what about the Administration's claim that this retroactive legislation is necessary to keep nearly $3 billion in tax claims from falling off the table? Are the oil companies walking away from all responsibility for that money because of a technicality? "To answer that, let me point out that for some taxpayers, including BP, the tree-year periods and the six-year periods have already run out. It's not that they are about to run out. The already have. Those events have happened, and there is no way to legislate them away, any more than you could legislate that the earth is flat. "So things have happened that have legal consequences and effects. Exactly what those consequences and effects are, is a matter of dispute. We say that the three-year statute prevents the state from raising new claims after that time. The auditors raised them anyway. Whether those claims can legally be raised, is a question that is now before the Alaska Supreme Court, in the Exxon case. "Similarly, for some of the assessments against BP and others, more than six years have run since those assessments were issued. We say the statute means what it say, and it's too late for the state to collect the money it billed in those assessments. The State says the clock under the present law should be stopped during the time our appeal is going on. Courts in other states have read similar limitations on collection as having an implied `time out' provision as the State contends. Again, this is a matter for the Alaska courts to decide, they have not decided it so far, but presumably they will in the future. "Now just because our legal position is that the late claims could not be made and that the oldest assessments cannot be collected, does not mean we think we should pay nothing on those claims at all in settlement. There is a material litigation risk that our legal positions will be rejected by the courts, and the State's position upheld. Just look at the record, since 1970 in the number of tax cases, which is over 20, that the Alaska Supreme Court has decided, taxpayers have won only two. So the odds are against you. If the State's position is upheld, we will have to pay and the statutes of limitation won't prevent the State from getting all the money it's entitled to. On the other hand, if we win, then some of the State's claims will be lost. "That may sound like a harsh result, but it's no different from the case where someone gets hit by a car and then files suit for damages the day after the statute of limitations runs out for filing such lawsuits. It's too bad, but the plaintiff can't sue. That's what the statute of limitations does. "Passing this retroactive legislation won't mean that the statute of limitations issue will be resolved. Far from it. Over 18 years of retroactivity is a long time to be reaching back and changing things. It is likely there will be litigation over that. And if there is, there will once again be litigation risk for each side that the other side will win. The cases on retroactivity suggest that the State should win if the retroactive change cures some technical flaw in the current statute, as opposed to materially changing the substance of the current statute. If it is not a curative change, the retroactivity should be unconstitutional. "Much of the question of whether retroactivity is curative or not, will depend on what the present laws mean. If they mean, what the State, in court, is arguing they mean, then SB 377 is probably curative and the retroactivity will be okay. Of course, if the courts rule in the State's favor on the meaning of the present laws, then you don't need for 377 because they already mean what the amendment would do. And on the other hand, if the courts rule that the present laws don't mean what the State is arguing for, then SB 377 is probably not curative and its retroactivity will be unconstitutional. "Representative Ulmer was very interested at yesterday's hearing about whether the proposed retroactive changes in this legislation are really nothing more than affirmation of the Department of Revenue's longstanding practice and position, or whether they are material departures from prior practice. As a former Commissioner of Revenue, I have some qualification to answer her question. "The three-year statute of limitations was enacted in 1976. The Department of Revenue's very first regulation about that statute after its enactment was a regulation adopted under the separate accounting tax, former AS 43.21. This regulations was section 700(e) of chapter 12 of the Department's regulations, adopted early in 1979. Around 1981 the chapter number was changed to 21 instead of 12, but the regulation itself was left unchanged. I wrote that regulation. John Messenger, the Deputy Revenue Commissioner at that time, was my boss and he worked closely with me in reviewing my drafts of the separate accounting regulations. He is now one of the State's outside legal counsel in these cases, and he was here for the negotiations over this legislation during the past few days. If he is still around, you could ask him to confirm what I tell you about the separate accounting regulations. "At any rate, section 700(e) says, and I quote: `Returns and assessments under this section are subject to amendment for three years from the date of the original notice of assessment.' Let me repeat the key part - assessments are subject to amendment for three years from the date of the original notice of assessment. This doesn't sound to me like a statement that new amendments can be made after the three years are up. Does it to you? "In point of fact, it was intended to mean - and as its draftsman, I ought to know what it's supposed to mean - just what it says. Three years to audit and issue the final tax bill. No further amendments after that time is up, unless the three years were extended by mutual agreement with the taxpayer. "Actually, and enough time has passed that I can safety say it now, section 700(e) was really kind of a stretch of the statute of limitations to begin with. The statute says it runs from the date the taxpayer files its return. Under separate accounting, that was no later than April 15th, following the tax year. But section 700(e) says the three years start running from the date of the notice of assessment, which was August 15. Now there were aspects of the separate accounting that made it more like an ad valorem tax, in which the tax obligation is fixed when the tax assessor sends you the tax bill. With separate accounting, the obligation to pay up was fixed, subject to audit, by the issuance of the tax bill or the assessment in August and not by the return filed in April. And so Mr. Messenger and I both felt this bit of a stretch was justifiable given the peculiar nature of separate accounting. But the point is, the Department's policy and practice, as reflected in this 1979 regulation and recodified in 1981, did not contemplate issuing amended assessments after the three-year period, plus extensions, had expired. "In February 1984 state auditors issued BP's predecessor, Sohio, an assessment for 1978 separate accounting taxes, purporting to amend an earlier assessment issued in 1981 and which Sohio had appealed. The three years under section 700(e) of the regulations had expired August 15, 1982. That meant the first assessment in `81 was within the three years, the second assessment in 1984 was after the three years. Sohio protested the new assessment, arguing it was barred by the three-year statute, that was in April 1984. On October 16, 1984, the Attorney General's Office issued a formal opinion, asserting that amendments to a timely assessment could be made, even after the time was up, so long as the appeal over the on time assessment was still pending in the Department of Revenue and hadn't made it into court. "To my knowledge as a former Commissioner, this 1984 Attorney General's Opinion was the first public assertion, by any agency of the state of Alaska, of the proposition that the three-year statute does not prevent the Department from issuing new claims after the three years are up, if the appeal is still in the Department. I can say categorically that this position now being asserted was not the Department's position or policy while I was Commissioner from April 16, 1979 to December 6, 1982. "Sometime in late 1984 or 1985 Sohio wrote to Commissioner Mary Nordale, asking her whether the 1984 AG's Opinion reflected the position of the Department. She replied to the effect that, while it was highly persuasive because the Attorney General, after all, is legal counsel for the State, it would not be addressed as a matter of formal departmental policy until the issue had been presented in due course through a formal tax appeal, at which time she or her successor would decide whether, as a matter of policy, they would seek to go as far as the AG's Opinion said the Department could go. "In March 1987, Sohio sued the State, seeking declaratory judgement that the 1984 AG's Opinion was wrong. The Attorney General, representing the Department of Revenue, argued that the courts should not decide this issue until the Department of Revenue had the chance to take a position on it. In making this argument, the Attorney General pointed to Commissioner Nordale's 1985 letter saying the question would be formally decided by the Department in due course through a formal hearing. Those arguments were vigorously made throughout the course of Sohio's lawsuit from 1987 until 1989. The Alaska Supreme Court decided that case April 21, 1989. While noting that Commissioner Nordale's letter made it appear very likely that the Department would end up following the AG's Opinion, the Court agreed with the Attorney General that the Department had not yet formally taken this position. And so the Court ordered the Sohio to go back to its tax appeal in the Department to find out the Department's position is in due course. Now what all this means is this, up until that decision on April 21, 1989, when the Alaska Supreme Court decided the case, the Department of Revenue was earnestly and strenuously arguing to the courts that it had not taken a position on the interpretation of the three year statute of limitations. The Department can't have it both ways. Either it didn't have a position on the three year statute, just as it told the courts, which conflicts with what the Administration is telling you now, or you're being told the truth now, and it did have a position then and the Department simply lied about to the Alaska Supreme Court. "Now I don't actually believe that anyone has been deliberately lying to anyone about this issue. And I don't have to decide whether people were forgetful about things back in 1989 or whether they are forgetful now. The fact is, the Alaska Supreme Court ruled in 1989 that the Department did not then have a position on the three-year statute. If it had ruled otherwise, it would not have sent the tax back to the Department. So that question has been already considered and adjudged. The Department has a position it has formally held for less than five years and is asking you to use that as justification for rewriting the law retroactively by more than 18 years. "In conclusion, BP opposes the retroactive changes to the statute of limitations for the following reasons. First, it won't move the tax disputes any closer to a resolution. It only makes a procedural change to allow both sides' litigation teams to duke it out to the end. Second, it won't save the alleged $3 billion from falling off the table. Either it has already fallen, or the present laws have already kept it from falling off. Either way, SB 377 won't change this. Third, the legislation usurps the authority of the Judicial Branch by attempting to dictate the outcome of litigation pending before the courts. We are willing to let the courts decide, despite the State's "home court" advantage. Remember, they're 20 plus to 2. We're willing to let the courts decide. Why isn't the State? Fourth, changing the rules retroactively by more than 18 years sets a dreadful precedent. If the State does this and gets away with it, what will keep it from similarly desperate retroactive measures in the future as it struggles with the looming budget crunch? Fifth, it singles out one single industry - oil - for unfair and unequal treatment. Sixth, it sends a message to us and to all others who might invest here that the usual stability one expects in the United States is not really the case in Alaska. "Thank you, Mr. Chairman and members of the committee for this opportunity to testify." Number 411 CHAIRMAN VEZEY stated he would forego questions to hear from the next witness. Number 418 TOM THERIOT, MANAGER, ALASKA INTEREST ORGANIZATION, EXXON COMPANY U.S.A., gave the following testimony in opposition of SB 377: "Mr. Chairman, members of the committee, my name is Tom Theriot. I am manager of the Alaska Interest Organization for Exxon Company, U.S.A. In this position, I have management stewardship for Exxon's production interest on the North Slope of Alaska. Let me thank you up front for allowing me the opportunity to testify before your committee this afternoon. I am here this afternoon to voice strong opposition to SB 377 because of the unfavorable statute of limitation provisions, which were formerly SB 185. As you may be aware, Exxon has strongly opposed the legislation since it was first introduced in April of last year, for reasons I'll cite in a moment. Obviously, we support the position of the Alaska Oil & Gas Association in opposition to the bill, and we do appreciate the efforts of many others from the business community, including some Alaska Native corporations, and others who have come out in opposition to this legislation. Our General Tax Counsel, Mr. Paul Sullivan, has testified in opposition to this legislation on two occasions - In April of 1993 before the Senate Judiciary Committee, and then again in April of this year before Senate Labor and Commerce. I have provided copies of the more expansive 1993 testimony for your reference. As you study it, should you have any questions, I'll be happy to try to answer them. "I'll be very brief this afternoon, and I really only want to touch on the negative aspects of the legislation from a businessman's point of view. As Manager of Exxon's Alaska production assets, a primary responsibility of mine is one of ongoing planning and consideration of future investments. In looking at the legislation from the standpoint of managing the business and making investment decisions on how best to develop the oil and gas reserves, this legislation is bad policy, it sets a bad precedent in the State, and it sends the wrong signal in terms of the business climate here in Alaska. The retroactivity aspects of the bill, back to 1976, are particularly onerous, and certainly erode our confidence in our ability to do business in the state. "We recognize this is a business that involves risks, and we are prepared to deal with what I call the traditional risks. For example, will the recovery of oil live up to our production expectations? Can we reasonably estimate the investments required to recover the oil? What is a reasonable range of future prices that we can expect? These are risks we accept and learn to deal with to help us assess the economic viability of investment opportunities. "What is very difficult to contemplate are the risks that materialize for me as a businessman as a result of legislation like SB 377. Specifically, what are the tax and other state rules that affect the project? When we invest, can we have the confidence and faith that those rules won't change? Or are we at risk that they might change? Not just for the future, but maybe for the past too. It would clearly be desirable that our investment decisions would not have to include this added risk - a risk that further diminishes the attractiveness of that investment. "Obviously, we need clarity and stability in the legislative and regulatory climate in fiscal and other matters. We will always want that, and will always ask the legislature to do what you can to help build and create that climate. "I am aware of some of the concepts that have been offered up in the committee substitute, that purportedly add certainty to what taxpayers and investors can expect in the State prospectively. Indeed, these provisions may be beneficial, but at the same time, they are tainted as they are part of legislation which provides for retroactive changes to other aspects of the tax law. While these provisions lay out some ground rules for doing business in the future, one would have to question for how long? A year, two years, or until the State decides to change them again? With passage of this legislation, precedent in the State would suggest that the policy makers truly don't value the stability and certainty that the business community so desperately needs. "For the reasons, I've stated, Exxon strongly opposes legislation containing retroactive statute of limitations provisions as currently written in SB 377. We urge this committee and the legislature to reject SB 377. Thank you very much for the opportunity to testify before you." Number 471 ADJOURNMENT CHAIRMAN VEZEY stated the House State Affairs Committee would reconvene at 8:00 a.m., May 9, 1994, thereby adjourning the meeting at 5:43 p.m.