Legislature(2019 - 2020)ADAMS ROOM 519

04/16/2019 01:30 PM FINANCE

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Audio Topic
01:30:15 PM Start
01:30:40 PM Presentation: Spring 2019 Revenue Forecast
02:35:25 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 4/17/19 at 9:00 am --
+ Presentation: Spring 2019 Revenue Forecast by TELECONFERENCED
Commissioner Bruce Tangeman, Dept. of Revenue
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 16, 2019                                                                                            
                         1:30 p.m.                                                                                              
1:30:15 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:30 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Tammie Wilson, Co-Chair                                                                                          
Representative Jennifer Johnston, Vice-Chair                                                                                    
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Bruce  Tangeman, Commissioner,  Department  of Revenue;  Dan                                                                    
Stickel,  Chief  Economist,  Economic  Research  Group,  Tax                                                                    
Division, Department  of Revenue; Ed King,  Chief Economist,                                                                    
Office  of  Management  and   Budget;  Colleen  Glover,  Tax                                                                    
Director, Department of Revenue.                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
SB 25     EXTEND BOARD OF DENTAL EXAMINERS                                                                                      
          SB 25 was SCHEDULED but not HEARD.                                                                                    
PRESENTATION: SPRING 2019 REVENUE FORECAST                                                                                      
Co-Chair Foster reviewed the meeting agenda.                                                                                    
Co-Chair  Wilson  relayed  the   agenda  for  the  afternoon                                                                    
^PRESENTATION: SPRING 2019 REVENUE FORECAST                                                                                   
1:30:40 PM                                                                                                                    
BRUCE   TANGEMAN,  COMMISSIONER,   DEPARTMENT  OF   REVENUE,                                                                    
introduced   the  PowerPoint   presentation:  "Spring   2019                                                                    
Revenue Forecast Update." He wanted  to have Dan Stickel and                                                                    
Ed King to the table for back-up.                                                                                               
Commissioner  Tangeman turned  to slide  2: "Overview."  The                                                                    
presentation was  an update to  the fall forecast.  The fall                                                                    
forecast  was more  robust and  took several  months to  put                                                                    
together.  He noted  that  the publication  put  out by  the                                                                    
Department of  Revenue (DOR) each year  [The Revenue Sources                                                                    
Book] was a  good resource for legislators to  refer to. The                                                                    
presentation   would   not   be  as   substantial   as   the                                                                    
department's fall  forecast presentation. He would  touch on                                                                    
the   revenue  forecast   and  the   changes   to  it.   The                                                                    
presentation would  also cover  the ANS oil  price forecast,                                                                    
the  oil   production  forecast,   the  North   Slope  lease                                                                    
expenditures forecast, and the  oil credits forecast and tax                                                                    
credit bonding update.                                                                                                          
Commissioner Tangeman  continued that  in the  fall forecast                                                                    
for FY 19 the department  was forecasting just under $68 per                                                                    
barrel. In the  spring forecast which was  released on March                                                                    
15, 2019, the  department was estimating just  under $69 per                                                                    
barrel. As  of the previous Friday,  the actual year-to-date                                                                    
price of oil  was almost $70 per barrel -  a month later the                                                                    
price of oil was out-pacing  the spring forecast by about $1                                                                    
per barrel. In  the current price range $1  equated to about                                                                    
$70  million  of the  state's  bottom  line. He  thought  it                                                                    
reflected an  uptick in oil  prices. Although the  state was                                                                    
not going to  rely on oil prices to fix  its financial woes,                                                                    
it was  positive to see  the increase. He reported  that the                                                                    
average for the month of March  was about $68 per barrel and                                                                    
the average for April at  the current mid-point of the month                                                                    
was  about $71.50  per  barrel. The  state  was seeing  some                                                                    
healthier prices for  oil as it closed out  the fiscal year.                                                                    
He hoped the price would stay at current levels.                                                                                
Commissioner  Tangeman  indicated  that  on  the  production                                                                    
side, the  state was at  about 100,000 barrels per  day. The                                                                    
fall  forecast reflected  526 and  the  spring forecast  was                                                                    
511. The state was about  2.5 percent under pace compared to                                                                    
the spring forecast.                                                                                                            
Commissioner  Tangeman advanced  to slide  4 which  compared                                                                    
the  Fall 2018  forecast  to the  Spring  2019 forecast.  He                                                                    
pointed  to the  unrestricted general  fund (UGF)  petroleum                                                                    
revenue at  the top without significant  changes. The second                                                                    
section showed the UGF non-petroleum  revenue. The total UGF                                                                    
revenue for FY  19 in the third section  reflected a deficit                                                                    
of  $90 million.  He  reminded members  that  the price  was                                                                    
about $1  per barrel over  the forecast which  almost closed                                                                    
the  gap.  The  department  was forecasting  a  $40  million                                                                    
surplus  for 2020.  The last  section at  the bottom  of the                                                                    
slide was  the Permanent  Fund transfer that  the department                                                                    
pulled out  of UGF to show  as a separate line  item. It had                                                                    
not changed much from fall to spring.                                                                                           
Commissioner  Tangeman  would  have  Mr.  Stickel  walk  the                                                                    
committee through  some of the  details of the  changes from                                                                    
the previous slide.                                                                                                             
1:35:12 PM                                                                                                                    
DAN STICKEL,  CHIEF ECONOMIST, ECONOMIC RESEARCH  GROUP, TAX                                                                    
DIVISION,  DEPARTMENT OF  REVENUE,  explained  that slide  5                                                                    
walked  through  some  of  the key  changes  from  the  fall                                                                    
forecast to  the spring  forecast for  FY 19  and FY  20. He                                                                    
conveyed  that for  FY  19 the  department  reduced the  UGF                                                                    
revenue forecast by  $89 million. The main  component of the                                                                    
reduction was  related to  the oil  and gas  production tax.                                                                    
Higher oil prices  would have increased the  forecast by $25                                                                    
million but was more than  offset by some impacts that moved                                                                    
production tax in  the other direction. He  offered that the                                                                    
state  had lower  than expected  cash payments  from refiled                                                                    
tax returns  related to some  amended terra filings  for the                                                                    
Trans  Alaskan  pipeline. He  referred  to  them as  Federal                                                                    
Energy Regulatory Commission (FERC)  payments. The state had                                                                    
unexpected  refunds  for the  calendar  year  2018 and  some                                                                    
other  company-specific   items.  Altogether   they  reduced                                                                    
production tax by about $105 million  for a net impact of an                                                                    
$80  million  reduction.  The  state  also  had  lower  than                                                                    
expected income  tax payments  in the  last quarter  of 2018                                                                    
which reduced  the state's non-petroleum  corporate forecast                                                                    
by  $15  million.  The state  also  had  some  miscellaneous                                                                    
revenues that were reduced by  $2 million and an increase to                                                                    
the royalty forecast  of $8 million based on  the higher oil                                                                    
price  forecast.  Adding  up  the  4  items  he  highlighted                                                                    
equaled $89 million in reductions for FY 19.                                                                                    
Mr. Stickel suggested  that looking at FY  20 the department                                                                    
increased the  forecast by $39  million. Production  tax was                                                                    
the largest piece increasing by  $45 million. Royalties were                                                                    
increased by $19 million. Both  were offset by non-petroleum                                                                    
corporate   income   tax   and  some   other   miscellaneous                                                                    
non-petroleum revenues  that pulled the revenue  forecast in                                                                    
the other direction to get to the net $39 million increase.                                                                     
Representative  Knopp  asked  for  clarification  about  the                                                                    
revenue flow and whether it was  based on the fiscal year or                                                                    
calendar  year.  Commissioner  Tangeman clarified  that  the                                                                    
forecast was on a fiscal year basis.                                                                                            
Vice-Chair  Johnston noted  that in  Commissioner Tangeman's                                                                    
opening  remarks  he mentioned  $71.50  per  barrel and  the                                                                    
ratio  of  $70 million  for  every  $1  - which  filled  the                                                                    
deficit gap of $89 million.  She was looking at the previous                                                                    
slide. She  wondered if his  statement held true  looking at                                                                    
the extra revenue from higher prices.                                                                                           
Commissioner Tangeman  explained that the $71.50  per barrel                                                                    
price was  the average in  April thus far.  Year-to-date the                                                                    
average was  just about  $70 per  barrel. He  furthered that                                                                    
the current forecast being reviewed  was based on a forecast                                                                    
of $69  per barrel.  The forecast  was a  month old  and had                                                                    
already  increased by  about $1.  He suggested  that if  oil                                                                    
prices stayed  steady at $70  the state would  realize about                                                                    
$70 million more.  The state was showing a  deficit of about                                                                    
$89 million. It would make up a big difference.                                                                                 
Representative  Carpenter  was  looking   at  the  UGF  non-                                                                    
petroleum revenue  on slide 4,  the projection  was negative                                                                    
numbers continuing out  to FY 28. He thought  it reflected a                                                                    
continuation of a recession of  some sort that was less than                                                                    
economic growth  in the non-petroleum  economy. He  asked if                                                                    
he was accurate.                                                                                                                
Mr. Stickel responded that the reduction in the non-                                                                            
petroleum  revenue  forecast primarily  had  to  do with  an                                                                    
expectation  of lower  mineral  prices.  The department  had                                                                    
reduced  the non-petroleum  corporate  income tax  forecast.                                                                    
The primary  weakness was  in the  mining sector.  The state                                                                    
had also reduced  its forecast for mining  license tax which                                                                    
was the severance tax on  the mining industry. He reiterated                                                                    
that there  was not  a projection of  lower activity  in the                                                                    
industry.  It  was simply  lower  profitability  due to  the                                                                    
price forecast  used. He would  be turning  the presentation                                                                    
over to Mr. King to address  the following few slides on the                                                                    
oil price forecast.                                                                                                             
1:40:47 PM                                                                                                                    
ED KING,  CHIEF ECONOMIST, OFFICE OF  MANAGEMENT AND BUDGET,                                                                    
reviewed  slide  7:  "Price  Forecast  Summary."  The  slide                                                                    
showed  a  time  series  of   the  price  forecast  for  the                                                                    
following 10 years  starting in the current  fiscal year and                                                                    
moving out to FY 28. He  highlighted that only the first two                                                                    
years showed  a change  which reflected  the fact  that when                                                                    
DOR was  putting the  spring forecast  together there  was a                                                                    
recognition  that current  prices  were  exceeding the  fall                                                                    
forecast.  The department  used  the  actual futures  market                                                                    
price for the rest of FY 19  and a rounded number for FY 20.                                                                    
He  concurred with  the commissioner  that  since the  March                                                                    
15th  release  of  the  spring  forecast,  prices  had  been                                                                    
consistently higher. Oil prices  were closing just under $72                                                                    
per barrel at  present. As the department  moved forward and                                                                    
prices continued to increase the  FY 19 number increased. It                                                                    
was difficult to tell whether  the factors currently pushing                                                                    
up  prices  would  hold  and   encourage  a  change  in  the                                                                    
following fiscal year or 10 years  from now. It did not make                                                                    
sense to change the longer-term forecasts.                                                                                      
Co-Chair Wilson  asked how  long the  price increase  had to                                                                    
stay  static   before  the  forecast  was   adjusted  again.                                                                    
Commissioner  Tangeman responded  that  the department  only                                                                    
put out  the forecast twice per  year, once in the  fall and                                                                    
again in the spring.                                                                                                            
Co-Chair  Wilson asked  if  it  was normal  to  only do  the                                                                    
forecast  for 2  years. Commissioner  Tangeman replied  that                                                                    
the department  made a change  to FY 20 because  the numbers                                                                    
he was  seeing in  the range  between $6  to $70  range were                                                                    
very  accurate. The  department  was using  half  a year  of                                                                    
actual  oil  prices.  Dropping  down to  $64  did  not  seem                                                                    
realistic which  was why the  department brought  the amount                                                                    
up  to  $66  and  continued   out  with  the  previous  fall                                                                    
forecast. The department was not  seeing anything to justify                                                                    
making changes in years 3 through 10.                                                                                           
Representative  LeBon returned  to slide  4. He  wondered if                                                                    
the   UGF  non-petroleum   revenue   numbers  included   the                                                                    
elimination   of   the   petroleum   property   tax   share.                                                                    
Commissioner  Tangeman   responded  in  the   negative.  The                                                                    
forecast did not take into account any legislation in play.                                                                     
Vice-Chair Ortiz  asked about  the reasons  for the  bump in                                                                    
the month.                                                                                                                      
Mr.  King responded  that  what had  been  happening in  the                                                                    
previous 30  days had much to  do with what was  going on in                                                                    
Venezuela. Venezuela was  experiencing civil unrest, certain                                                                    
sanctions were  applied, and there  were some  power outages                                                                    
that disrupted production of about  500,000 barrels per day.                                                                    
Currently, there were also  sanctions on Iranian production.                                                                    
He  reported  that  6 countries  had  waivers.  The  waivers                                                                    
expired  in   the  following  month   and  there   was  some                                                                    
uncertainty  about  whether  they  would  be  extended.  The                                                                    
uncertainty was driving  some of the risk of  price as well.                                                                    
Also,  there  was  civil unrest  in  Libya  threatening  oil                                                                    
production, although it had not  caused any disruptions thus                                                                    
far. The  risk of disruption  was driving the price  up. The                                                                    
same thing to  a lesser extent was happening  in Nigeria. He                                                                    
continued that with Saudi Arabia  and Russia both committing                                                                    
to  cut production  to  hold  prices up  in  the $70  target                                                                    
range,  it had  helped  significantly with  the price  being                                                                    
above the $60  to $65 range that the  market would otherwise                                                                    
support.  The  geopolitical   factors  and  the  intentional                                                                    
supply cuts were pushing up on prices.                                                                                          
Mr.  King noted  some disruption  in the  mid-continent with                                                                    
shale  production.  There  were  some  problems  with  cargo                                                                    
deliveries  being rejected  because the  sulfur content  was                                                                    
too  high.  Also,  some  capital  investors  were  having  a                                                                    
difficult  time  finding  capital.  However,  now  that  the                                                                    
prices had been up higher, he  starting to see the rig count                                                                    
increase. Presently,  over the  current week  he had  seen a                                                                    
flat line.  Over the previous 2  weeks he had seen  a steady                                                                    
increase  in the  price. It  was starting  to stabilize.  As                                                                    
soon  as the  uncertainties were  resolved, he  would expect                                                                    
the prices  to drop  back down  again. The  department would                                                                    
not want  what was  going on in  the current  environment to                                                                    
influence  the  department's  projections in  the  following                                                                    
year or 10 years into the future.                                                                                               
1:46:39 PM                                                                                                                    
Representative  Knopp  asked   if  the  department  followed                                                                    
things  such  as Rampco  going  public  or the  Chevron  and                                                                    
Anadarko merger.  He wondered if fluctuations  were included                                                                    
in the  department projections. Mr.  King responded  that he                                                                    
monitored the news.  However, the department did  not have a                                                                    
price model  to inject  changes into.  They were  factors he                                                                    
was paying  attention to and trying  to understand. However,                                                                    
in  the  long-term  the department  focused  on  supply  and                                                                    
demand.  He noted  that in  the near-term  price forecasting                                                                    
the   focus   was   more   on   geopolitics,   mergers   and                                                                    
acquisitions, and  access to capital.  He paid  attention to                                                                    
certain things that were not actually modeled.                                                                                  
Vice-Chair  Ortiz asked  if Commissioner  Tangeman would  be                                                                    
talking   about   the  production   forecast.   Commissioner                                                                    
Tangeman indicated  they only  touched on  the issue  on one                                                                    
slide.  It  was mostly  a  Department  of Natural  Resources                                                                    
(DNR) issue.                                                                                                                    
Vice-Chair  Ortiz asked  if global  warming would  interfere                                                                    
with  the   production  season  and  production.   Mr.  King                                                                    
indicated that  the legacy  fields such  as Prudhoe  Bay and                                                                    
Kuparuk did  not use  ice roads. The  ice road  season would                                                                    
not  impact  their  production  as  much  as  it  would  for                                                                    
exploration activity.  He continued that whenever  there was                                                                    
not a  permanent road for moving  out West or East,  a short                                                                    
ice road season  would mean a shorter  production window. In                                                                    
other words,  it would  take longer  to get  facilities into                                                                    
production  which meant  it  would cost  more.  In terms  of                                                                    
production  inside  Prudhoe  Bay,   it  was  true  that  the                                                                    
production facilities  worked more  efficiently when  it was                                                                    
colder. However, it did not  necessarily mean there would be                                                                    
a reduction in production. It  meant that it would take more                                                                    
effort to produce the same amount of oil.                                                                                       
Mr.  King  had  already  talked  to all  of  the  points  on                                                                    
slide 8.                                                                                                                        
1:50:23 PM                                                                                                                    
Mr.  King moved  to  slide 9:  "Potential Macroeconomic  and                                                                    
Global Drivers  of Price Change."  One of the  large factors                                                                    
that people were  paying attention to was  global demand and                                                                    
the  long-term  projections  of global  demand.  There  were                                                                    
concerns around global trade. He  suggested there would be a                                                                    
call  for a  change  in demand  forecast.  It was  currently                                                                    
holding  prices   down  slightly.  If   trade  conversations                                                                    
resolved, he would expect that  prices would increase as the                                                                    
demand   forecast   increased.    There   were   also   many                                                                    
conversations  going on  about  whether  the current  growth                                                                    
pattern  was  sustainable  globally  and  whether  it  would                                                                    
flatten out or correct. If  it did, he expected prices would                                                                    
fall in  line. China and  other trade partners and  what was                                                                    
going on in  the European Region were very  important to the                                                                    
future direction of prices.                                                                                                     
Mr. King  brought up that  new fields were  being discovered                                                                    
everyday as  exploration activities occurred. As  new fields                                                                    
came  online  it would  increase  supply  and push  down  on                                                                    
price. It  was a matter  of timing  on the new  resources as                                                                    
far as  what they  would do to  the price.  Also, technology                                                                    
was  always changing.  New technology  that made  production                                                                    
more efficient  and less  costly would  likely push  down on                                                                    
prices.  The same  was true  with  demand. If  the need  for                                                                    
fuels  was  reduced, demand  would  be  reduced, and  prices                                                                    
would likely fall. There were  several things the department                                                                    
was paying attention  to in the long-term  that suggested it                                                                    
was unlikely  the price  would return  to triple  digits. He                                                                    
also  noted   that  the   geopolitical  factors   were  more                                                                    
temporary in nature,  and the world was seeing  many of them                                                                    
presently. When the issues were  resolved he expected prices                                                                    
to return to a fundamental level.                                                                                               
Mr. King turned to slide 10.  He reported that the slide was                                                                    
an  illustration  of  the Energy  Information  Agency  (EIA)                                                                    
forecast relative  to DOR's.  The black  dashed line  in the                                                                    
center represented DOR's forecast.  He pointed out that they                                                                    
were in inflation  adjusted terms which was  why they looked                                                                    
much flatter  than they  would if  the Revenue  Sources Book                                                                    
numbers were  inserted on  a plot.  He highlighted  that the                                                                    
DOR forecast  tracked fairly closely to  the EIA's forecast.                                                                    
He  also pointed  out the  wide  range around  what the  EIA                                                                    
expected. All of the factors  he talked about and mostly the                                                                    
geopolitical factors  could push up on  prices very quickly.                                                                    
as the market had to  adjust there were situations where the                                                                    
prices could  correct very severely in  the other direction.                                                                    
There was  a wide  range of prices.  He would  not interpret                                                                    
the chart as EIA suggested that  prices would run up to $120                                                                    
and  grow from  there.  Rather, the  chart  was saying  that                                                                    
there  would be  volatility. The  price would  bounce around                                                                    
within the range.                                                                                                               
Co-Chair Wilson asked what EIA stood for.                                                                                       
Mr. King responded that it  stood for the Energy Information                                                                    
Agency. It  was part  of the  administration of  the federal                                                                    
government that tracked energy.                                                                                                 
Mr.  King  turned  to  the chart  on  slide  11:  "Petroleum                                                                    
Analyst  Consensus  Price   Forecasts."  It  compared  DOR's                                                                    
revenue  forecast to  what other  analysts  were saying.  He                                                                    
pointed out that the  department's forecast was more-or-less                                                                    
in  line  with  the  midrange  of  forecasts  of  the  other                                                                    
analysists at  investment firms.  There was a  similar range                                                                    
of ideas  in the  near-term but  not as wide  of a  range as                                                                    
what  the EIA's  long-term forecast  suggested. He  reminded                                                                    
members  that  prices  were   unpredictable.  He  could  not                                                                    
determine what  the prices would  be but could  explain what                                                                    
was  going  on  and  the  range  of  possible  outcomes  the                                                                    
legislature could plan around.                                                                                                  
Co-Chair Wilson  asked about the "Real  Brent." She wondered                                                                    
if it had to do with actual prices.                                                                                             
Mr.  King  responded that  the  term  "real" for  economists                                                                    
meant adjusted for inflation.                                                                                                   
Mr. King  moved to slide  12: "Summary of  Price Forecasts."                                                                    
The  slide  reflected all  of  the  forecasts lined  up.  He                                                                    
pointed to  the red  line representing  the New  York Market                                                                    
Exchange (NYMEX).  He explained  that NYMEX was  what people                                                                    
in the  market were  actually paying for  the right  for the                                                                    
option  to  buy  at  a   future  price.  The  Department  of                                                                    
Revenue's forecast  tracked the  red line  for 2  years into                                                                    
the  future   using  those  numbers  as   the  forecast.  He                                                                    
highlighted  that  the  department's forecast  was  slightly                                                                    
higher than NYMEX which was  normal. He elaborated that when                                                                    
commodity traders  were purchasing options they  were buying                                                                    
in some  risks and  opportunity costs. The  long-term future                                                                    
prices  were always  lower with  the  NYMEX than  analysists                                                                    
expected.  They  were  not necessarily  predictive  of  what                                                                    
future  prices would  be, rather,  they  were reflective  of                                                                    
what people were willing to pay for future delivery.                                                                            
Co-Chair Wilson asked what NYMEX stood for.                                                                                     
Mr.  King  indicated  that  it stood  for  New  York  Market                                                                    
1:56:22 PM                                                                                                                    
Vice-Chair  Ortiz queried  about  long-term forecasting  and                                                                    
whether   the  department   factored   in   the  growth   of                                                                    
alternative energies and them  having an impact on long-term                                                                    
demand for oil.                                                                                                                 
Mr. King responded that in  the past when the department had                                                                    
its  forecasting sessions  many  items  were discussed.  The                                                                    
department  brought in  experts  to talk  about what  future                                                                    
demands might look like and  how things were changing in the                                                                    
market  place. Participants  took the  information and  made                                                                    
judgements about  how those  factors would  influence future                                                                    
prices.  The   department  also  looked  at   the  forecasts                                                                    
generated by other entities. Several  things were taken into                                                                    
Representative Josephson  asked why the  department compared                                                                    
its  price  to   Brent  crude  as  opposed   to  West  Texas                                                                    
Intermediate  (WTI) or  something else.  He wondered  if had                                                                    
something to do with the type of oil being produced.                                                                            
Mr.  King  explained  that  it  had  to  do  with  logistics                                                                    
surrounding  crude oil.  He explained  that when  a producer                                                                    
was  putting  oil onto  a  tanker  and  bringing it  into  a                                                                    
refinery, it  was going  to a refinery  in Anacortes  or Los                                                                    
Angeles. The  proper way to value  the crude was to  look at                                                                    
what was  being paid for  other crudes coming into  the same                                                                    
refineries. Brent crudes  were coming in on  ships that were                                                                    
competing with  or augmenting ANS  crude in  the refineries.                                                                    
He continued  that because there were  no pipelines crossing                                                                    
the  Rocky Mountains  none of  the WTI  crudes entered  into                                                                    
those refineries  except occasionally  by rail car.  The two                                                                    
markets  were bifurcated.  The pricing  was the  opportunity                                                                    
cost of bringing a barrel of oil from Alaska.                                                                                   
Representative Josephson  was surprised  that the  Brent oil                                                                    
field area  in the middle of  the North Sea was  much closer                                                                    
to Northern  Europe than the  North Slope was to  Long Beach                                                                    
or Washington State.                                                                                                            
Mr. King replied that there  were dozens of marker crudes in                                                                    
the  world.  However, the  two  largest  marker crudes  were                                                                    
Brent and WTI. He furthered  that when a contract was signed                                                                    
for delivery, the  contract might say Brent minus  $1 or WTI                                                                    
plus $2.  The benchmark  crudes were  how they  were pricing                                                                    
2:00:07 PM                                                                                                                    
Commissioner Tangeman continued to slide  14 - the one slide                                                                    
in  the  presentation on  the  oil  production forecast.  He                                                                    
indicated   the   Department   of  Natural   Resources   was                                                                    
responsible for the forecast.  Slide 14: "10-Year Production                                                                    
Forecast:  Changes since  Fall  2018  Revenue Sources  Book"                                                                    
showed 2 years of actual  productions and were above 500,000                                                                    
barrels of  oil per day.  Production was fairly  stable. The                                                                    
orange  line represented  the fall  forecast. The  blue line                                                                    
depicted the  spring forecast. It  accounted for  the slight                                                                    
dip he had mentioned earlier  from 526,000 to 511,000 as the                                                                    
department's  forecast  number  for  FY 19.  The  state  was                                                                    
mostly  back  on track  for  the  out years  for  production                                                                    
compared  to the  fall forecast.  He  highlighted that  from                                                                    
FY 17 to  FY 28 the  state was  at about 500,000  barrels of                                                                    
oil per  day. He thought  several years of  flat forecasting                                                                    
was  positive.  He would  never  bank  on a  stable  revenue                                                                    
stream  for  the State  of  Alaska  because of  the  state's                                                                    
dependency on oil production and  price. However, having the                                                                    
Earnings  Reserve Account  (ERA)  draw was  nice and  stable                                                                    
equal to about  $3 billion in the  following year increasing                                                                    
to  about  $3.5 billion  within  10  years. Price  was  also                                                                    
fairly stable  with the potential  to increase  slightly. He                                                                    
did not  think there were  wide sidebars on the  price, high                                                                    
or low.  The production forecast  seemed stable as  well. He                                                                    
suggested that  as far as  stable revenues went, it  was the                                                                    
best picture the department had seen in a while.                                                                                
Co-Chair Wilson commented  that in order to  remain flat new                                                                    
oil would have to continue  to flow into Alaska's pipes. She                                                                    
did not think it was  only about current production. It also                                                                    
encompassed new projects as they came online.                                                                                   
Commissioner  Tangeman  agreed.  He suggested  there  was  a                                                                    
significant year-over-year  decrease of  6 to 8  percent. He                                                                    
believed that when  the state flattened out and  there was a                                                                    
couple  of years  of  increases, it  was  attributed to  the                                                                    
legacy  fields. Producers  were investing  more and  getting                                                                    
more  for  less.  He  noted the  legacy  fields  were  still                                                                    
declining.  However, new  production was  coming on  to fill                                                                    
the void. There  might be a bump in upcoming  years when the                                                                    
new fields came online.                                                                                                         
Commissioner Tangeman  turned the  presentation over  to Mr.                                                                    
Stickel to discuss the lease expenditure forecast.                                                                              
2:03:24 PM                                                                                                                    
Mr.  Stickel   reviewed  the  chart  on   slide  16:  "Lease                                                                    
Expenditures  Forecast: North  Slope Capital  Expenditures."                                                                    
He explained  that lease expenditures  were important  for 2                                                                    
reasons.  First, they  were  a part  of  the production  tax                                                                    
calculation. Monies  that companies  spent in their  oil and                                                                    
gas  operations  directly  impacted  the  revenue  forecast.                                                                    
Second, they  were an important indicator  of investment and                                                                    
future  production. The  slide showed  the state's  forecast                                                                    
for  North  Slope capital  spending  in  both the  fall  and                                                                    
spring forecasts. The state had  about $1.7 billion in North                                                                    
Slope  capital  spending in  FY  18  which was  expected  to                                                                    
increase  slightly in  FY 19  and increase  significantly in                                                                    
FY 20 and FY 21 to over  $3 billion per year. It represented                                                                    
investment in new  fields which was exactly  what was needed                                                                    
to bring  the new oil into  the pipe as Co-Chair  Wilson had                                                                    
suggested. The state was seeing  major spending beginning in                                                                    
FY  20 on  fields  like Moose's  Tooth,  Pikka, Willow,  and                                                                    
other  new developments.  The slight  increase from  fall to                                                                    
spring had to  do with some increased  understanding of what                                                                    
the  cost of  the  new  projects would  be.  There was  some                                                                    
uncertainty  about  what it  would  take  to bring  the  new                                                                    
production online based on  conversations with the operators                                                                    
and  review of  public  information and  information on  tax                                                                    
returns.  The  department  increased the  forecast  slightly                                                                    
from fall to spring.                                                                                                            
Representative  Josephson referred  to the  $3.1 billion  to                                                                    
$3.3 billion expenditure in FY  21. He wondered if the state                                                                    
would  pay $0.35  for  every  dollar spent  in  the form  of                                                                    
deducted taxes.                                                                                                                 
Mr. Stickel replied that the  expenditures would be deducted                                                                    
against the  production tax to  the extent that  the company                                                                    
was paying  at the  net tax  rate. They  would receive  a 35                                                                    
percent benefit.  It was  not always  the case  depending on                                                                    
what  company was  making the  expenditure.  The net  impact                                                                    
would likely be less than a full 35 percent.                                                                                    
Representative  Josephson asked,  without the  deduction, if                                                                    
they would be  paying a flat tax of 35  percent assuming net                                                                    
rather than gross.                                                                                                              
Mr. Stickel replied  that the statutory net  tax rate before                                                                    
deductions and credits was 35 percent.                                                                                          
Co-Chair Wilson  asked how much  of an investment  a company                                                                    
would  have  to  make  before deductions  could  be  applied                                                                    
against the 35 percent tax.                                                                                                     
2:06:44 PM                                                                                                                    
Commissioner Tangeman  responded that he had  heard it would                                                                    
take an investment  of about $5 billion to get  an oil field                                                                    
similar  to Pikka  or Willow  to production.  If the  fields                                                                    
were being  developed by a company  already producing, there                                                                    
would be  a different tax implication.  For new investments,                                                                    
the  monies  were being  invested  up  front and  would  not                                                                    
realize the true  impact of the ax system until  a field was                                                                    
brought  into production.  There were  many moving  parts in                                                                    
the  tax  structure that  made  it  difficult to  provide  a                                                                    
number based  on a  question in a  setting like  the current                                                                    
hearing. The system was much more complicated.                                                                                  
Co-Chair Wilson  wanted the public to  understand that there                                                                    
was  a  significant  amount  of  risk  that  accompanied  an                                                                    
investment. A  company had  to go  beyond production  to the                                                                    
point of making  a profit before receiving a  tax credit for                                                                    
the  35 percent.  She emphasized  the  risks companies  were                                                                    
taking by making investments. The  tax structure had changed                                                                    
such that the  state no longer gave the tax  credits it used                                                                    
to provide for the initial $5 billion start-up costs.                                                                           
Commissioner Tangeman agreed with  Co-Chair Wilson. He added                                                                    
that he was  also seeing that the further  away from Prudhoe                                                                    
Bay and the trunk line, mostly  to the West and the East, it                                                                    
would get  more and more  expensive to explore  and develop.                                                                    
The fields  such as Pikka,  Willow, and the  Greater Moose's                                                                    
Tooth  have confirmed  the  resource.  However, the  farther                                                                    
away  the  location  was,  the  more  expensive  it  was  to                                                                    
Co-Chair Wilson  asked if additional pipeline  was a portion                                                                    
of  the investment  made by  new companies  establishing new                                                                    
Commissioner Tangeman  responded that it was  a huge portion                                                                    
of  investment. Not  only did  a company  have to  reach the                                                                    
site for the development phase,  but the product also had to                                                                    
be brought back to the main facilities and trunk lines.                                                                         
Representative  Josephson asked  if a  producer like  Conoco                                                                    
Phillips  could  offset  their  costs to  the  East  and  in                                                                    
Prudhoe  Bay   before  a  field   in  the  West   came  into                                                                    
production.  In other  words, because  they had  profits and                                                                    
were  in  the  black,  they  would  be  able  to  enjoy  the                                                                    
deductions  in the  Eastern fields  immediately  and in  the                                                                    
same year. He asked if he was correct.                                                                                          
Commissioner Tangeman replied, "Yes,  that's correct. He had                                                                    
already noted that it was  very different for a company that                                                                    
was  already  developing  fields,   earning  a  profit,  and                                                                    
reinvesting  its profits  to develop  more oil  further away                                                                    
from the  infrastructure. A new  entrant would not  have any                                                                    
other production to offset the costs.                                                                                           
Co-Chair  Wilson thought  more investment  was a  good thing                                                                    
for   Alaska.  Commissioner   Tangeman   responded  in   the                                                                    
affirmative.  He   reiterated  that  it  was   getting  more                                                                    
expensive  to  develop   further  from  the  infrastructure.                                                                    
Co-Chair  Wilson  thought  everyone  wanted  to  see  monies                                                                    
invested in Alaska rather than somewhere else.                                                                                  
2:10:51 PM                                                                                                                    
Mr.  Stickel   had  a  comment   to  add  to   the  previous                                                                    
discussion. The information presented  on slide 16 and slide                                                                    
17  represented  allowable  lease expenditures  against  the                                                                    
production tax  calculation. There were certain  costs, some                                                                    
of  which were  significant that  were not  included in  the                                                                    
numbers.   For  instance,   lease   acquisition  costs   and                                                                    
financing  charges  were a  major  cost  for a  new  company                                                                    
coming in  and doing business  that were not  represented in                                                                    
the numbers.                                                                                                                    
Mr.  Stickel  continued  to slide  17:  "Lease  Expenditures                                                                    
Forecast:  North Slope  Operating  Expenditures." The  slide                                                                    
looked at the state's  forecast of operating expenditures on                                                                    
the  North  Slope. In  the  fall  and spring  forecasts  the                                                                    
department was  seeing fairly stable  operating expenditures                                                                    
of  about $2.5  billion per  year for  the existing  fields.                                                                    
There  was  a  slight  increase  at  the  FY  23  to  FY  24                                                                    
timeframe. It represented the  additional cost of operations                                                                    
for the new fields the state expected to come online.                                                                           
Vice-Chair Ortiz  returned to the  issue of taxes.  He asked                                                                    
if the effective tax rate had  been 8 percent rather than 11                                                                    
percent.  He  wondered  if there  was  a  presentation  that                                                                    
provided the information.                                                                                                       
Mr. Stickel  responded that the department  presented in the                                                                    
other  body some  analysis that  showed that  for FY  20 the                                                                    
estimated effective tax  rate for North Slope  oil was about                                                                    
8 percent. It represented  the department's revenue forecast                                                                    
to the  state divided  by the production  tax value  in that                                                                    
particular year.                                                                                                                
Vice-Chair  Ortiz asked  about  the fluctuation  of the  tax                                                                    
rate per company.                                                                                                               
Mr.  Stickel suggested  that the  tax rate  would fluctuate.                                                                    
Some companies were small producers  and were able to offset                                                                    
most or  all of their  tax liabilities. Some would  pay zero                                                                    
and some  might pay 8  percent. He clarified that  8 percent                                                                    
was the North Slope average.                                                                                                    
2:14:02 PM                                                                                                                    
Mr. Stickel scrolled to the  chart on slide 18: "North Slope                                                                    
Transportation   Costs   Forecast."   The   slide   examined                                                                    
transportation  costs, the  costs  of getting  oil from  the                                                                    
fields  on  the North  slope  to  market. The  Trans  Alaska                                                                    
pipeline  tariff  was the  largest  portion  of the  number.                                                                    
There  was  also  marine  transportation  costs  and  feeder                                                                    
pipeline costs. He highlighted the drop  from FY 18 to FY 19                                                                    
from $9.5 per  barrel to $8.40 per  barrel in transportation                                                                    
costs. The  primary reason  for the  drop was  because there                                                                    
was an  agreement on a  new methodology for  calculating the                                                                    
Trans  Alaska  Pipeline tariff  implemented  in  FY 19.  The                                                                    
transportation costs  between the fall and  spring forecasts                                                                    
had not changed much.                                                                                                           
Co-Chair  Wilson  asked  where  the  tariff  started  for  a                                                                    
company with a smaller line  going into the larger pipeline.                                                                    
She wondered  if the cost for  the shorter line would  be at                                                                    
the company's expense.                                                                                                          
Mr.  Stickel  responded  that generally  the  cost  for  the                                                                    
pipeline  within the  unit  would be  a  gathering line  and                                                                    
would  be  deductible  as  a  lease  expenditure.  The  line                                                                    
outside  the  unit  and  connecting into  the  rest  of  the                                                                    
transportation  line  was  called  a  feeder  pipeline.  The                                                                    
feeder  pipeline costs  were  going to  be  included in  the                                                                    
transportation cost number.                                                                                                     
Co-Chair  Wilson  asked   for  further  clarification  about                                                                    
transportation costs attached to  oil. Mr. Stickel responded                                                                    
that generally  for new fields  the transportation  cost was                                                                    
higher. Prudhoe  Bay had no  feeder pipeline costs.  Oil was                                                                    
placed directly into the Trans  Alaska Pipeline. The further                                                                    
away   from   Prudhoe   Bay,  the   more   significant   the                                                                    
transportation costs were to get it to the line.                                                                                
Co-Chair Wilson asked  if a company was required  to share a                                                                    
feeder  line.  Mr. Stickel  replied  that  her question  was                                                                    
beyond   his  area   of  expertise.   Commissioner  Tangeman                                                                    
suggested that the question should be directed to DNR.                                                                          
Co-Chair  Wilson  was  unsure  whether  there  would  be  an                                                                    
advantage and  costs would  go down.  She was  curious about                                                                    
the  potential for  recouping  costs. Commissioner  Tangeman                                                                    
assumed there  were agreements  put into  place with  DNR on                                                                    
how feeder  pipelines were  handled. Co-Chair  Wilson asked,                                                                    
"Through  the lease  agreement,  most likely?"  Commissioner                                                                    
Tangeman responded affirmatively.                                                                                               
Representative Josephson  thought a  unified tax  system for                                                                    
each tax  payer meant that  when a legacy field  was largely                                                                    
paid  for and  additional investments  were made  outside of                                                                    
that field,  they could apply their  new investments against                                                                    
the  profits  derived  from the  established  and  paid  for                                                                    
fields.  He wondered  if it  was a  consequence of  having a                                                                    
unified tax system.                                                                                                             
Mr. Stickel suggested  that to say a field  was largely paid                                                                    
for was a debatable point. It  was true that a company had a                                                                    
slope-wide  production tax  calculation for  all of  its oil                                                                    
and  gas  investment  on the  North  Slope.  Each  company's                                                                    
specific production  tax value would  be based on  the value                                                                    
of  all  of their  oil  sold,  the  value of  their  capital                                                                    
expenditures,  and their  operating  expenditures pooled  to                                                                    
make the calculation.                                                                                                           
Commissioner  Tangeman indicated  that the  department's tax                                                                    
director would comment on the last few slides.                                                                                  
2:18:52 PM                                                                                                                    
COLLEEN GLOVER,  TAX DIRECTOR, DEPARTMENT OF  REVENUE, began                                                                    
her portion of  the presentation with slide  20 which showed                                                                    
the tax credits  available for repurchase by  the state. She                                                                    
clarified  that it  was the  forecasted payoff  assuming the                                                                    
state did not go forward  with the bonding. The chart showed                                                                    
that by  FY 24 all of  them would be paid  off. She reported                                                                    
that for  FY 19 there had  been about $100 million  that was                                                                    
paid off  leaving a current  balance of about  $740 million.                                                                    
There  were  no  new  oil  and gas  tax  credits  that  were                                                                    
available  anymore. The  program ended  with the  passage of                                                                    
HB 111 [Legislation  passed in 2017  - Short Title:  Oil and                                                                    
Gas Production Tax; Payments; Credits].                                                                                         
Co-Chair Wilson asked what the  statutory payment amount was                                                                    
for  the current  year.  Commissioner  Tangeman thought  the                                                                    
amount was $170 million for  FY 20. Co-Chair Wilson asked if                                                                    
it  would   be  stretched  out   a  little  longer   if  the                                                                    
legislature did  not pay that amount.  Commissioner Tangeman                                                                    
responded in the affirmative.                                                                                                   
Ms. Glover  turned to  slide 21  which provided  the current                                                                    
status of the  tax credit bonding bill - HB  331 that passed                                                                    
in the prior year. There  was open litigation concerning the                                                                    
bill  and   the  department  was   on  stand-by   until  the                                                                    
litigation  was  resolved.   The  official  spring  forecast                                                                    
assumed the bonding passed and  all of the credits were paid                                                                    
off in FY 21.                                                                                                                   
Commissioner Tangeman added that  the plaintiff appealed the                                                                    
case  to the  Supreme Court  in the  previous February.  The                                                                    
department  was  estimating  another 12  months  before  the                                                                    
issue was  resolved. In the  following year, he hoped  to be                                                                    
prepared to hit the market to  sell the bonds soon after the                                                                    
litigation  was completed.  The department  was not  selling                                                                    
the  bonds presently  because of  the risk  of selling  them                                                                    
while a  legal issue  was in  a dispute.  It was  prudent to                                                                    
wait. He hoped there would  be a positive resolution and the                                                                    
state would be able to bond for the balance.                                                                                    
Co-Chair Foster asked if the  commissioner had a sense about                                                                    
how much of the $740 million  was expected to fall under the                                                                    
bonding.  He  wondered  about the  percentage.  Commissioner                                                                    
Tangeman answered that  the state would bond  for the entire                                                                    
balance. If there was an  appropriation made for the current                                                                    
year, the department would bond for the balance.                                                                                
2:21:58 PM                                                                                                                    
Co-Chair Foster commented that not  all of the oil companies                                                                    
would choose  to participate. He  wondered if  the companies                                                                    
had expressed  enthusiasm about the  bonding. He  was hoping                                                                    
for  an approximate  percentage.  Commissioner Tangeman  did                                                                    
not know.  The credits  had been  available for  purchase on                                                                    
the open  market, but  there was no  interest thus  far. The                                                                    
department  was  proceeding  on   the  assumption  that  the                                                                    
remaining amount would be bonded.                                                                                               
Co-Chair  Foster understood  that the  full amount  would be                                                                    
bonded and  that not all  oil companies would decide  not to                                                                    
participate. Instead of getting one  lump sum they would get                                                                    
payments over  a series  of years.  His second  question was                                                                    
regarding the  Supreme Court. It was  his understanding that                                                                    
there was some  expectation that they might  decide the case                                                                    
by  early October  of the  current  year. He  asked if  that                                                                    
information was accurate.                                                                                                       
Commissioner Tangeman  explained that  DOR had asked  for an                                                                    
expedited  ruling.  He  was uncertain  if  the  court  would                                                                    
comply with the state's request.  He was not optimistic, but                                                                    
the  department  would  be  prepared.  In  response  to  the                                                                    
representative's  question, a  company  could choose  either                                                                    
path. He thought  companies realized that if  they wanted to                                                                    
take  the hair  cut of  close to  10 percent,  it was  their                                                                    
choice  -  but they  would  be  paid immediately  under  the                                                                    
bonds. Alternatively,  they could  sit in  the cue  and wait                                                                    
subject to appropriation.                                                                                                       
Representative Josephson asked how  much was appropriated in                                                                    
the February  13, 2019  budget for the  payment of  the cash                                                                    
bonds. Co-Chair Wilson interjected  that the amount was $170                                                                    
million in  the governor's original budget  paid out through                                                                    
other  funds.   Commissioner  Tangeman  answered   that  the                                                                    
statutory  minimum was  $170  million for  FY  20 paid  with                                                                    
Alaska Industrial  Development and Export  Authority (AIDEA)                                                                    
Representative   Josephson  thought   there   had  been   an                                                                    
additional  amount.  Commissioner  Tangeman  responded  that                                                                    
there was  an addition of $84  million for FY 19  from AIDEA                                                                    
receipts. The total was $254 million.                                                                                           
Co-Chair  Wilson  noted there  was  also  an additional  $27                                                                    
million that was left in  the operating budget for the first                                                                    
payment in  anticipation that the bonding  would go forward.                                                                    
Commissioner  Tangeman  responded,  "On  the  debt  service,                                                                    
2:25:36 PM                                                                                                                    
Representative  Josephson suggested  that  because the  bond                                                                    
package was not authorized  or suspended pending litigation,                                                                    
the   administration    believed   that    the   legislature                                                                    
underfunded in  FY 19 in  terms of the requirement  noted in                                                                    
the  footnote  on  the  slide. He  suggested  that  the  $84                                                                    
million was a catch-up amount.                                                                                                  
Commissioner  Tangeman  responded  in  the  affirmative.  He                                                                    
elaborated   that  the   previous  administration   and  the                                                                    
previous   legislature  appropriated   $100  million   as  a                                                                    
backstop because  everyone assumed  the bonding  issue would                                                                    
take affect  the previous fall.  Someone sued  and currently                                                                    
things were  delayed. He agreed it  was probably appropriate                                                                    
for addressing  the issue in  the prior year. The  amount of                                                                    
$84 million  was a  recognition that  only $100  million was                                                                    
appropriated. He conveyed that  $184 million would have been                                                                    
the  number.  It was  a  catch-up  amount as  Representative                                                                    
Josephson had suspected.                                                                                                        
Co-Chair Wilson  noted that there was  $70 million currently                                                                    
in  the budget.  She wondered  how the  money would  be paid                                                                    
out. Ms. Glover  explained that the state  was still working                                                                    
against credits  that were earned  in FY 15 and  applied for                                                                    
in FY 16. The state had  been paying off a percentage of the                                                                    
remaining  amount. The  division  was going  back  to FY  15                                                                    
credits and  taking the  $70 million  and allocated  just as                                                                    
the  division did  for  the $100  million.  Anyone that  had                                                                    
applied for tax  credits more recently was in the  cue for a                                                                    
later date.                                                                                                                     
Co-Chair Wilson  thought that  the money  would not  be used                                                                    
for someone willing  to take the haircut. It had  to do with                                                                    
when  the  amount  came  in   and  when  the  projects  were                                                                    
certified  in terms  of the  state owing  money. Ms.  Glover                                                                    
responded  that  they  were  based  on  outstanding  credits                                                                    
earned in  FY 15.  Co-Chair Wilson wanted  to make  sure her                                                                    
memory was correct.                                                                                                             
Representative   Josephson   suspected  that   the   bonding                                                                    
agencies  thought Alaska  was  off  the rails.  Commissioner                                                                    
Tangeman  thought Representative  Josephson's reference  was                                                                    
an appropriate  one. He  reported that  when the  loans were                                                                    
being made in  2013, 2014, and 2015 payments  were going out                                                                    
in whole  year-after-year. At  the time the  state was  in a                                                                    
much  different revenue  situation. The  lenders were  under                                                                    
the  assumption that  whole payments  would  continue to  be                                                                    
made. The  amount was  vetoed and  reduced to  the statutory                                                                    
minimum,  and lenders  were trying  to figure  out what  was                                                                    
happening. He thought it was  clearer what the situation was                                                                    
at present. There had been a  couple of years where only the                                                                    
minimum was paid out and a  bond proposal idea was caught up                                                                    
in litigation. There  was really nothing else to  do. It was                                                                    
a waiting game.                                                                                                                 
Representative  LeBon thought  the  lenders  were keeping  a                                                                    
close  eye  on  the   situation  and  waiting.  Commissioner                                                                    
Tangeman agreed.                                                                                                                
Co-Chair Wilson commented that  the negative consequences of                                                                    
having  the   credits  outstanding   was  that   what  could                                                                    
potentially  be  occurring  on   the  North  Slope  was  not                                                                    
happening because companies did  not have access to funding.                                                                    
She asked if she was accurate.                                                                                                  
Commissioner Tangeman thought she  was accurate. He believed                                                                    
everyone was  looking closely  at how  and where  they would                                                                    
invest  their capital.  Things that  occurred  in the  prior                                                                    
year  most  likely   affected  their  decision-making  going                                                                    
Vice-Chair  Johnston  mentioned   that  third  parties  were                                                                    
gravely   affected  from   the   state   not  honoring   its                                                                    
agreements,  even though  statute  allowed the  state to  do                                                                    
what  it was  doing. She  thought it  had a  huge impact  on                                                                    
investment in Alaska.                                                                                                           
2:30:55 PM                                                                                                                    
Representative Carpenter  asked to return  to macroeconomics                                                                    
on  slide 9.  He asked  what factors  were being  considered                                                                    
when talking about the national  economy. He wondered if the                                                                    
national economy was staying stagnant.  He thought there was                                                                    
a  deficit problem  within the  national government.  As the                                                                    
state grappled with  the issue over the  following 10 years,                                                                    
he wondered how the solutions  would impact prices of oil if                                                                    
there  was a  decrease in  federal spending  over the  long-                                                                    
term.  Commissioner Tangeman  responded that  he would  have                                                                    
Mr. King responded.                                                                                                             
Mr.  King  relayed  that  the department  did  not  have  an                                                                    
explicit model to use to turn  knobs on the economy in order                                                                    
to see  how things flowed  through it. The department  had a                                                                    
prototype of  a model  but had  not gone  live with  it. The                                                                    
reality  was  that  all of  the  different  factors  created                                                                    
uncertainty   which,  in   turn,  created   volatility.  The                                                                    
volatility parameter was included  in the department's model                                                                    
to understand how far prices  could move. The department did                                                                    
not attempt  to say  that there  would be  a war  that would                                                                    
raise the price.  The department might say at  some point in                                                                    
the future  an event was  likely to happen.  The uncertainty                                                                    
parameters drove the range of  possible outcomes. He thought                                                                    
that  if  deficit  spending  continued  and  resulted  in  a                                                                    
reduction in travel for vacation  and other things, it would                                                                    
potentially drive  the price down.  All factors  played into                                                                    
what happened in Alaska mostly through oil prices.                                                                              
Co-Chair Wilson  indicated the committee would  be recessing                                                                    
the meeting until April 17, 2019 at 9:00 AM.                                                                                    
2:35:25 PM                                                                                                                    
The meeting was adjourned at 2:35 p.m.                                                                                          

Document Name Date/Time Subjects
Spring Forecast Slides.HFIN.pdf HFIN 4/16/2019 1:30:00 PM
HFIN - DOR Spring Revenue Forecast