SENATE RESOURCES COMMITTEE  March 27, 2000 3:25 p.m. MEMBERS PRESENT  Senator Rick Halford, Chairman Senator Pete Kelly Senator Jerry Mackie Senator Lyda Green MEMBERS ABSENT  Senator Robin Taylor Senator Georgianna Lincoln Senator Sean Parnell COMMITTEE CALENDAR  SENATE BILL NO. 283 "An Act relating to the accounting for and appropriations of state land disposal program revenue; and providing for an effective date." -HEARD AND HELD SENATE BILL NO. 258 "An Act relating to registration for commercial set gillnet fishing sites; relating to leases for shore fisheries development; and providing for an effective date." -HEARD AND HELD SENATE BILL NO. 38 "An Act relating to certain audits regarding oil and gas royalty and net profits and to audits regarding costs relating to exploration incentive credits and oil and gas exploration licenses; and providing for an effective date." -HEARD AND HELD SENATE BILL NO. 257 "An Act relating to notice requirements for certain final findings concerning the disposal of an interest in state land or resources for oil and gas; relating to administrative appeals and petitions for reconsideration of decisions of the Department of Natural Resources; and providing for an effective date." -MOVED SB 257 OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION  SB 283 - No previous action to consider. SB 258 - See Resources Committee minutes dated 3/20/00. SB 38 - No previous action to consider. SB 257 - No previous action to consider. WITNESS REGISTER  Mr. Bob Loeffler, Director Department of Natural Resources Division of Mining, Land, and Water 3601 C St. Ste 800 Anchorage, AK 99503-5935 POSITION STATEMENT: Supported SB 283 and SB 257. Mr. Kevin Banks Division of Oil and Gas Department of Natural Resources 550 West 7th Ave., Suite 800 Anchorage, AK 99503 POSITION STATEMENT: Supported SB 38. Mr. Jim Hansen, Lease Sale Manager Division of Oil and Gas Department of Natural Resources 550 West 7th Ave., Suite 800 Anchorage, AK 99503 POSITION STATEMENT: Supported SB 257. ACTION NARRATIVE  TAPE 00-14, SIDE A  Number 001 SB 283-NAT RES.REVENUE: FISH/TIMBER/LAND  CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:25 p.m. and announced SB 283 to be up for consideration. MR. BOB LOEFFLER, Director of the Division of Mining, Land, and Water in the Department of Natural Resources (DNR), said this is a simple bill. Many Alaskans consider the sale of state lands to private citizens to be one service their government should provide. Unfortunately, it costs a lot to sell land despite the fact that sales bring a profit to the treasury. This bill is an attempt to solve that problem by providing a stable funding source and assuring that the land disposal program provides a return to the State beyond the cost of selling land. By using a separate accounting system, DNR hopes this bill will provide a mechanism to enable the legislature to understand the fiscal consequences of land sales. The program receipts would have to be appropriated by the legislature to the land sales program each year. CHAIRMAN HALFORD commented that SB 283 will create a new state land disposal revenue category in designated program receipts. It will ensure funding for a program that generates revenue. SENATOR MACKIE asked how much land DNR sold last year. MR. LOEFFLER answered that in 1999, DNR sold 120 parcels, equaling about 2,000 acres worth $1.5 million. The actual revenue will be received in years to come. In fiscal year 1999, $2.4 million was received based on land sales from previous years. SENATOR MACKIE asked if the program has an ongoing revenue stream because of the time period provided to pay for the land. MR. LOEFFLER said that is correct and that contracts extend from two to 20 years. SENATOR MACKIE asked if any amount over $5 million would go directly to the general fund and why DNR chose $5 million. MR. LOEFFLER said DNR believes the program should return revenue not just for the sake of more land sales, but also because the privatization of state land should provide a return for all Alaskans. DNR ran a number of different projections and found that once the fund reaches $5 million, DNR could have a reasonably large land sale program and earn tens of thousands in interest per year. CHAIRMAN HALFORD said he supports a maximum of $5 million, otherwise the program will accumulate a lot of money and be targeted for something else. He asked Mr. Loeffler what his position would be if the committee added another program to this bill that follows the same program receipt format. MR. LOEFFLER responded he thought that would be fine. CHAIRMAN HALFORD said the committee would hold SB 283 for further work. SB 258-SET NET SITES/ SHORE FISHERIES DEVELOPMT  CHAIRMAN HALFORD announced SB 258 to be up for consideration. He noted that during a previous hearing, the committee heard very strong opposition to doing away with the shore fishery lease program and creating a registration program. He would like to change the bill to create the same kind of provisions to preserve and protect the shore fishery leases with designated program receipts. They currently generate $360,000 per year while the program costs $300,000. It would have the same kind of "dumping" provision as SB 283 so that it will not create a large fund that will be targeted for other purposes. He felt it is ridiculous to repeal a program that is making money and is supported by the users. He said he would like to prepare a committee substitute and bring it before the committee. He noted that, regarding timber sales, one problem is whether DNR has any. SENATOR TAYLOR commented that every time DNR wants to do a timber sale, the legislature has to take capital budget funds that could have been used to get federal funding. Then, any revenue generated by the sale gets put in the general fund and disappears. CHAIRMAN HALFORD asked if there is any revenue from timber sales right now. SENATOR KELLY said there has been for the last four years but right now is a down time. SENATOR MACKIE said this is a good suggestion for the shore lease program, as well as for timber sales, and he would support putting all three programs into one bill if it can be done. CHAIRMAN HALFORD expressed concern about adding things to the shore fishery lease program bill that might be controversial and create problems. SENATOR LINCOLN commented that she thought they should keep the shore fishery lease program bill as a separate piece of legislation. CHAIRMAN HALFORD said the shore fishery lease program and land sale program could be combined into one bill. In both programs, the activity generates the money. He said his concern about the timber sales program is that it needs to be a piece of the puzzle that is ready to go. He announced they would prepare a committee substitute for whatever they can make work and hear it on Wednesday. SB 38-OIL & GAS AUDITS  CHAIRMAN HALFORD announced SB 38 to be up for consideration. MR. KEVIN BANKS, Division of Oil and Gas, DNR, said SB 38 is a housekeeping bill that transfers the authority to audit royalty revenue that comes to DNR via lease contracts and other methods from the Department of Revenue (DOR) to DNR. It also provides DNR with tools to conduct the audits effectively. DNR's current statute (AS 38) has a confidentiality requirement but it contains no criminal penalties for misconduct. Under SB 38, DNR's audit requirements would be tighter and would reflect those in AS 43, which governs the audits done by DOR. SB 38 also gives subpoena authority to DNR when conducting an audit, which DOR now has. The fiscal note reflects a cost of $233,000 to pay for the transfer of staff from DOR to DNR. CHAIRMAN HALFORD asked why the money in the fiscal note is listed as permanent fund corporate receipts. MR. BANKS replied that's because last year DOR identified the positions as funded with permanent fund revenue. Those same funds will be coming DNR's way. CHAIRMAN HALFORD said he would want to know that the permanent fund is the potential beneficiary to determine whether that is the right funding source. MR. BANKS explained that DNR has some staff who "check the checkers" on current audits. They are also doing contract reviews for royalty settlements and looking at various royalty and kinds of audits that are not now covered by AS 43. With the combination of staff, including those from DOR, it would approximately equal the portion of the revenue stream that goes to the permanent fund, about 27 percent of their royalty revenue. After transfer of this authority, they would have seven or eight people on staff doing audits. Three of them would be funded by this $233,000. CHAIRMAN HALFORD asked if three-eighths of the activity is to the benefit of the permanent fund. MR. BANKS agreed that is about right but it is possible that more is coming out of the permanent fund than it receives in terms of benefits. He said it is a hard number to arrive at. SENATOR GREEN asked if SB 38 will allow DNR and DOR to exchange information and thereby increase the exposure of very confidential information to more eyes or whether that is not a consideration in this bill. MR. BANKS replied that under current law, DNR has access to audit reports and summaries. In addition, according to Department of Law opinions written in the 1980's, for the purposes of conducting DNR's royalty function, DNR should have access to any information it deems necessary. His staff would have to meet the requirements for maintaining confidentiality of information received from DOR and be subject to AS 43 criminal penalties. CHAIRMAN HALFORD said it looks like, in either case, the penalty is a felony for disclosing the information. He said he didn't have any trouble with this legislation but would hold it until Wednesday. SB 257-DEPT NAT RES ADMIN APPEALS/ OIL & GAS    CHAIRMAN HALFORD announced SB 257 to be up for consideration. MR. LOEFFLER, DNR, explained that SB 257 is a simple bill that creates a uniform appeal process and fixes a technical error with respect to the Division of Oil and Gas's public notice problems. DNR's current requirements for appeals are sometimes found in Title 38 and sometimes found in the Administrative Procedures Act. Because of the different requirements, the effect is to have multiple tracks with slightly different requirements, which makes it possible for a person to appeal multiple times. The second problem is that the appeal processes set out in Title 38 have a slightly different time line than those in Title 46. Some have a 30-day notice requirement and some have a 20-day notice requirement, which confuses the public. SB 257 creates a standard appeal process that allows one appeal to the commissioner. If a person is dissatisfied with the commissioner's decision, the case can be taken to court. MR. JIM HANSEN, lease sale manager in the Division of Oil and Gas, said the technical correction pertains to a notice that goes out 30 days prior to issuing a final best interest finding prior to a lease sale. Currently, when DNR issues the preliminary finding, it notices that the final finding will be issued a certain number of days after the public comment period. In addition, DNR must issue a notice of the final finding 30 days prior to it. DNR notices the sale when the finding comes out. Right now the public gets three notices - one is redundant and confuses the public. SENATOR MACKIE moved SB 257 from committee with individual recommendations. There were no objections and it was so ordered. CHAIRMAN HALFORD adjourned the meeting at 3:52 p.m.