Legislature(2009 - 2010)BARNES 124

03/29/2010 01:00 PM House RESOURCES

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01:16:31 PM Start
01:17:32 PM HB337
03:04:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
         HB 337-OIL AND GAS PROD. TAX: CREDITS/INTEREST                                                                     
                [Contains discussion of HB 308]                                                                                 
1:17:32 PM                                                                                                                    
CO-CHAIR JOHNSON  announced that  the only  order of  business is                                                               
HOUSE  BILL NO.  337, "An  Act  relating to  interest on  certain                                                               
underpayments  or overpayments  for  the oil  and gas  production                                                               
tax,  to certificates  for  certain oil  and  gas production  tax                                                               
credits for  qualified capital  expenditures, and  to alternative                                                               
tax credits for expenditures for  certain oil and gas development                                                               
and exploration  activities for the  oil and gas  production tax;                                                               
relating  to the  use  of the  oil  and gas  tax  credit fund  to                                                               
purchase certain  tax credit certificates;  and providing  for an                                                               
effective date."                                                                                                                
1:17:45 PM                                                                                                                    
CO-CHAIR JOHNSON  noted that  two proposed  committee substitutes                                                               
have been  drafted for the  committee to choose from  [Version R,                                                               
labeled  26-GH2057\R, Bullock,  3/29/10, and  Version E,  labeled                                                               
26-GH2057\E, Bullock,  3/29/10].  He explained  both versions are                                                               
identical, except  Version R would provide  the Alaska Retirement                                                               
Management  (ARM) Board  with  the ability  to  purchase the  tax                                                               
credit certificates.  He pointed  out, however, that according to                                                               
a  [3/28/10] memorandum  from [Mr.  Don  Bullock of]  Legislative                                                               
Legal  and  Research Services,  Version  R  violates the  single-                                                               
subject clause.   He said  his preference  is to adopt  Version E                                                               
and add  the ARM  Board provision  as an  amendment, but  that he                                                               
will yield to the committee's preference.                                                                                       
1:19:26 PM                                                                                                                    
REPRESENTATIVE  SEATON noted  [Mr.  Bullock's] memorandum  states                                                               
"may" expose the enactment to  legal challenge.  He distributed a                                                               
4/7/08  memorandum  from  [Mr. Alpheus  Bullard  of]  Legislative                                                               
Legal  and Research  Services which  details  the Alaska  Supreme                                                               
Court decisions in this regard.   To support his opinion that the                                                               
two subjects  are congruous because  both relate to  the proposed                                                               
tax credits,  Representative Seaton  read the  following portions                                                               
of the 4/7/08 memorandum [original punctuation provided]:                                                                       
     The  standard adopted  by the  Alaska Supreme  Court in                                                                    
     regard  to the  single-subject requirement  states that                                                                    
     an "act  should embrace  some one general  subject; and                                                                    
     by this is  meant, merely, that all  matters treated of                                                                    
     should  fall  under  some  one   general  idea,  be  so                                                                    
     connected  with  or  related   to  each  other,  either                                                                    
     logically or  in popular understanding, as  to be parts                                                                    
     of,  or germane  to, one  general subject."   ...   The                                                                    
     Alaska Supreme Court has held  that the purpose of this                                                                    
     constitutional provision  is to guard against  ... "the                                                                    
     practice  of   'deliberately  inserting  in   one  bill                                                                    
     several dissimilar or incongruous subjects....'"                                                                           
     Alaska's  single-subject rule  has been  interpreted by                                                                    
     the Alaska  Supreme Court to permit  very broad subject                                                                    
     matter in  a bill without violating  the single-subject                                                                    
     requirement.   In  construing the  single-subject rule,                                                                    
     the court  will "resolve doubts in  favor of validity."                                                                    
     ...    Specifically,  the court  has  held  that  bills                                                                    
     relating  to  such  broad themes  as  "civil  actions",                                                                    
     "taxation",    "transportation",    and   "land"    are                                                                    
1:22:19 PM                                                                                                                    
CO-CHAIR JOHNSON stated  he had both versions  drafted because it                                                               
is difficult to project what the courts will do.                                                                                
REPRESENTATIVE KAWASAKI  suggested that  if an amendment  has not                                                               
already been drafted  for inserting the ARM  Board provision into                                                               
Version E,  it may be easier  to start with Version  R and delete                                                               
the ARM Board provision if the committee so chooses.                                                                            
CO-CHAIR JOHNSON agreed this would  also be appropriate, but said                                                               
he still prefers to start with Version E.                                                                                       
1:23:18 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  pointed  out  that  while  the  legal                                                               
opinion  is simple  the  listing  of who  can  do something  then                                                               
raises  the  question of  whether  that  means everyone  else  is                                                               
excluded.   He  inquired whether  listing the  ARM Board  in this                                                               
particular case  would prohibit  anyone else  from being  able to                                                               
purchase the credits.                                                                                                           
DONALD   BULLOCK  JR.,   Attorney,  Legislative   Legal  Counsel,                                                               
Legislative  Legal  and  Research Services,  Legislative  Affairs                                                               
Agency, responded  he thinks the  maxim being referenced  is that                                                               
when a  list of things  is put  into statute, the  implication is                                                               
that there  are other similar  things that  may be added  to that                                                               
list.  He said this particular  case, however, has to do with the                                                               
authority of the ARM Board to  enter into negotiations to buy the                                                               
credits at  a discount and  then sell  them to the  Department of                                                               
Revenue for full fare.                                                                                                          
1:25:43 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  asked  whether  authorizing  the  ARM                                                               
Board to do  this would exclude any other state  entity from also                                                               
doing the  same thing.   He  maintained that  listing who  can do                                                               
this infers that those not listed cannot do it.                                                                                 
MR.  BULLOCK  replied in  this  case  it is  not  a  list; it  is                                                               
specific authority being granted to the ARM Board.                                                                              
1:26:05 PM                                                                                                                    
MR. BULLOCK, in  response to Representative Seaton,  stated he is                                                               
very familiar with  the concepts and broadness  addressed in [Mr.                                                               
Bullard's] 4/7/08 memorandum.   He said the  concern expressed in                                                               
his [3/28/10]  memorandum is that  this case  has to do  with the                                                               
authority of the ARM Board to  do something.  While it happens to                                                               
deal with  tax credits,  the substantive part  of the  ARM Board-                                                               
related sections  in Version  R deal  with the  power of  the ARM                                                               
Board.   Since  the revenue  from  taxes is  used throughout  the                                                               
state, the question is  where to draw the line as  to what is put                                                               
into it  because this is  a revenue-related bill.   Therefore, in                                                               
his opinion, Version R raises a serious single-subject problem.                                                                 
CO-CHAIR JOHNSON  understood Mr. Bullock  to be saying it  is not                                                               
because  it relates  to taxes,  but because  it is  expanding the                                                               
power of a board.                                                                                                               
MR. BULLOCK  answered right;  the substance  of it  is to  give a                                                               
power to the ARM Board.                                                                                                         
1:27:49 PM                                                                                                                    
REPRESENTATIVE  SEATON said  the 4/7/08  memorandum comes  from a                                                               
previous bill dealing  with scallop and crab  licenses and Alaska                                                               
Regional Development Organizations (ARDORs)  that came before the                                                               
House floor.  It  was ruled that this was not  a violation of the                                                               
single-subject rule because  ARDORs have some tie  to economic or                                                               
potential  economic  functions across  the  state.   He  said  he                                                               
believes this  issue is  much more  closely related  than scallop                                                               
and crab licenses and ARDORs.                                                                                                   
REPRESENTATIVE  SEATON  moved  to adopt  the  proposed  committee                                                               
substitute  (CS)  for  HB   337,  labeled  26-GH2057\R,  Bullock,                                                               
3/29/10  ("Version  R"), as  the  work  draft.   There  being  no                                                               
objection, Version R was before the committee.                                                                                  
1:29:37 PM                                                                                                                    
PAT  GALVIN, Commissioner,  Department of  Revenue, reviewed  the                                                               
differences  between  HB 337  as  originally  introduced and  the                                                               
proposed  committee substitute,  Version R.   He  said Conceptual                                                               
Amendment 1 presented  to the committee on  3/27/10 [and included                                                               
in Version R], would make  two changes to the governor's original                                                               
bill.  It would put  infield drilling credits under AS 43.55.023,                                                               
the  capital credit  section  of law,  rather  than putting  them                                                               
under  AS   43.55.025,  the  exploration  incentive   credit,  as                                                               
originally  proposed.   This new  language is  the same  language                                                               
used in HB  308.  The types of activities  the administration had                                                               
intended  to address  are still  addressed,  but just  structured                                                               
differently  within   the  statute.     The   administration  was                                                               
concerned about how to describe  the eligible expenditures if the                                                               
credit  was   put  under  AS   43.55.023;  however,   HB 308  was                                                               
subsequently amended  to tighten the language  of AS 43.55.023 to                                                               
intangible  drilling expenditures,  a well-established  principal                                                               
under  federal  tax  law  that  the  department  can  comfortably                                                               
implement.   Two other  types of  wells are  added that  were not                                                               
included in  the governor's original  bill - injection  wells and                                                               
stratigraphic test  wells -  to those  eligible for  the proposed                                                               
additional  credit.   The  implication remains  the  same as  the                                                               
governor's original  concept in terms  of what is  being provided                                                               
this additional incentive.                                                                                                      
1:31:55 PM                                                                                                                    
COMMISSIONER  GALVIN said  Conceptual Amendment  1 also  includes                                                               
provisions  dealing with  the calculation  of interest  rates for                                                               
the  underpayment or  overpayment  of  previous tax  liabilities.                                                               
The rate  under current law  is the higher  of 11 percent  or the                                                               
Federal  Reserve rate  plus  5 percent.   Under  HB  308, the  11                                                               
percent would be removed and  the float above the Federal Reserve                                                               
rate  would be  lowered to  3  percent.   Conceptual Amendment  1                                                               
would remove  the 11 percent  floor and keep the  Federal Reserve                                                               
rate plus  5 percent.   This particular interest rate  section of                                                               
the tax code also deals  with other tax categories, he explained.                                                               
A previous  alteration of  the interest  rate was  not completely                                                               
captured by  the conforming  amendment in  HB 308,  so Conceptual                                                               
Amendment  1 would  conform Sections  1  and 2  to existing  law;                                                               
other  sections make  the  reference  clear that  it  is to  this                                                               
particular method of calculating the tax.                                                                                       
COMMISSIONER   GALVIN    noted   that   in   addition    to   the                                                               
aforementioned, Version  R would  add measures regarding  the ARM                                                               
Board, along  with conforming amendments  to marry  the different                                                               
concepts together.                                                                                                              
1:34:31 PM                                                                                                                    
COMMISSIONER   GALVIN,  in   response  to   Representative  Tuck,                                                               
confirmed that the interest rate  provision is under Section 4 of                                                               
Version R.   In further response, he confirmed  that the language                                                               
on page 3,  line 1, Version R, which deletes  5 percent above the                                                               
Federal Reserve rate and inserts 3  percent is a mistake that was                                                               
missed and is not the administration's intent.                                                                                  
CO-CHAIR JOHNSON  observed that this  error is in both  Version R                                                               
and Version  E.   In response to  Commissioner Galvin,  he agreed                                                               
that a correcting amendment is needed.                                                                                          
1:36:00 PM                                                                                                                    
CO-CHAIR  NEUMAN  voiced  his concern  about  the  single-subject                                                               
clause and asked  whether having the ARM Board in  the bill title                                                               
will affect the Department of Revenue.                                                                                          
COMMISSIONER  GALVIN declined  to comment  on the  single-subject                                                               
issue,  saying that  that  issue  is for  the  committee and  its                                                               
attorneys to discuss.  Regarding  the provision in Version R that                                                               
would  remove the  obligation for  a small  producer to  continue                                                               
making investments  to qualify for  state purchase of  its credit                                                               
certificates, he said the intent is  to provide a new entrant the                                                               
ability to get full value for its  credit and not have to sell it                                                               
at reduced value  to an existing producer.   This provision would                                                               
provide   full  reimbursement   for  just   about  every   credit                                                               
certificate  that  the  small  producer could  not  take  off  of                                                               
existing production.   He said  he therefore does  not anticipate                                                               
that the  small producer  would have  to go to  the ARM  Board to                                                               
sell  the certificate  at  a discount  when it  can  come to  the                                                               
Department of Revenue and receive full dollar-for-dollar value.                                                                 
1:38:59 PM                                                                                                                    
CO-CHAIR NEUMAN understood Commissioner  Galvin to be saying that                                                               
to take  advantage of these  credits it  would be better  for the                                                               
small producer to not sell the certificates to the ARM Board.                                                                   
COMMISSIONER GALVIN  replied it is  up to the  taxpayer receiving                                                               
the certificate  to decide what  to do to get  value for it.   He                                                               
said he  would anticipate that  if a  taxpayer had the  option of                                                               
submitting the certificate  to the Department of  Revenue for 100                                                               
percent of the value or going to  the ARM Board to have the board                                                               
buy the  certificate for up to  92 cents on the  dollar, that the                                                               
taxpayer would choose the former.   The only situation where that                                                               
might  not  be  the  case  is  if  the  taxpayer  had  other  tax                                                               
obligations to the state that  the Department of Revenue would be                                                               
obligated to  offset before payment  could be  made.  He  said he                                                               
thinks  that  would  be  a  rare  instance  given  the  types  of                                                               
companies  that  would likely  come  forward  with this  type  of                                                               
credit certificate, and therefore he  does not anticipate the ARM                                                               
Board provision being utilized much, if at all.                                                                                 
1:40:24 PM                                                                                                                    
CO-CHAIR NEUMAN said HB 337 is  a very important bill to both the                                                               
governor and the  chair because the intent is to  help create job                                                               
opportunities.   He  inquired  whether a  reviser's  bill in  the                                                               
House Rules Standing Committee would be a better way to do this.                                                                
COMMISSIONER GALVIN  answered he does  not know if  the reviser's                                                               
bill would  be a place to  put an ARM Board  authorization to buy                                                               
tax credits.   While  he can  speak to  his anticipation  of what                                                               
value  a taxpayer  will be  looking  for, he  said the  committee                                                               
needs to  talk to  Mr. Bullock regarding  the question  about the                                                               
risk of legal exposure.                                                                                                         
CO-CHAIR  NEUMAN asked  whether there  are better  places besides                                                               
the  title of  HB  337  to provide  opportunities  to expand  the                                                               
purchase of the different production credits.                                                                                   
COMMISSIONER GALVIN responded he is  unaware of any other bill in                                                               
the body right now that adjusts the  powers of the ARM Board.  He                                                               
said the  remainder of HB  337 is about as  close as one  can get                                                               
for providing a market for tax credits.                                                                                         
1:43:08 PM                                                                                                                    
CO-CHAIR  NEUMAN  inquired  whether  Commissioner  Galvin  thinks                                                               
taxpayers would take advantage of  selling these credits if there                                                               
was new legislation that expanded ARM Board authorities.                                                                        
COMMISSIONER  GALVIN  replied  the  other provisions  of  HB  337                                                               
establish the state as the  primary market for these certificates                                                               
at full value on the dollar.  He  said he does not think there is                                                               
a  particular need  to expand  the  market by  including the  ARM                                                               
Board, so including  the ARM Board as a provision  in either this                                                               
bill or another bill would not make it any more attractive.                                                                     
1:44:40 PM                                                                                                                    
REPRESENTATIVE SEATON said House Bill  48, a bill that passed the                                                               
House but  died in the  Senate, would  have provided for  the ARM                                                               
Board  to  buy  these  tax  credits.    At  that  time,  as  now,                                                               
statements  were made  that the  state would  buy enough  so that                                                               
another vehicle was  unnecessary.  He reminded  members of recent                                                               
statements before the committee that  people trying to sell these                                                               
credits  could not  get them  reimbursed through  the state  fast                                                               
enough and  the credits could not  even be sold elsewhere  for 50                                                               
cents on the dollar.                                                                                                            
COMMISSIONER  GALVIN recalled  House  Bill 48  was considered  in                                                               
February  2007, but  it was  not until  the following  fall under                                                               
Alaska's Clear and Equitable Share  (ACES) that a change was made                                                               
to  allow  the  state  to  buy back  a  certain  portion  of  the                                                               
certificates.  A caveat of that  change was that the taxpayer had                                                               
to  continue its  investment, so  the department  is required  to                                                               
hold  the  certificates  until  the  taxpayer  demonstrates  that                                                               
additional spend and  this is what creates the lag  time in terms                                                               
of a taxpayer's  ability to have the state buy  the credits.  The                                                               
intention  of HB  337  is  to remove  all  restrictions to  quick                                                               
processing of the  certificates.  He allowed that  the ability to                                                               
get the  certificates filled is a  valid concern, so he  does not                                                               
think it is damaging to the  issue to provide taxpayers with [the                                                               
ARM Board]  alternative.  However, he  said he does not  think it                                                               
is likely because  he believes the department is  the place where                                                               
taxpayers will to want to sell their certificate.                                                                               
1:47:20 PM                                                                                                                    
REPRESENTATIVE SEATON noted the  committee has received testimony                                                               
that there is a problem with  speed of audits being available; he                                                               
surmised  that  that  would  be the  certificate  issuance.    He                                                               
understood there  is a $25-million-per-year  limit for  the state                                                               
to purchase credits.                                                                                                            
COMMISSIONER  GALVIN answered  no, not  any longer.   In  further                                                               
response,  he  said  the  ACES   legislation  removed  the  limit                                                               
CO-CHAIR JOHNSON  added he  thinks the  ARM Board  provision does                                                               
not do  anything and may jeopardize  the future of the  bill.  An                                                               
amendment may be made to take out the provision, he advised.                                                                    
1:48:36 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG,  referenced page  2 of  the Department                                                               
of Revenue's  4-page 3/29/10 handout and  noted that well-related                                                               
credits are something new.                                                                                                      
COMMISSIONER GALVIN  said right, they are  a separate, additional                                                               
credit for all wells.                                                                                                           
REPRESENTATIVE GUTTENBERG  understood the  graph on page  2 shows                                                               
what the production  tax revenue would have been  in fiscal years                                                               
(FY) 2008 and 2009 had this  credit been in place, along with the                                                               
projected revenue for fiscal years 2010-2013.                                                                                   
COMMISSIONER  GALVIN  replied  all  figures  are  approximations.                                                               
[The numbers  depicted on  the graph  for production  tax revenue                                                               
and the amount of  additional well-related credits, respectively,                                                               
are approximately:   FY 2008 - $2.4 billion and  $245 million; FY                                                               
2009 - $3.1 billion and $255  million; FY 2010 - $2.1 billion and                                                               
$297 million; FY 2011 - $2.4  billion and $327 million; FY 2012 -                                                               
$2.6 billion  and $336 million; FY  2013 - $2.9 billion  and $390                                                               
1:49:45 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG   noted  that   over  $1   billion  in                                                               
[additional]  credits is  projected for  fiscal years  2010-2013.                                                               
He  asked what  assumptions  are built  into  those credits;  for                                                               
example, increased production or the price of oil or both.                                                                      
COMMISSIONER GALVIN  answered the Department of  Revenue's fiscal                                                               
note for  HB 337 puts  an indeterminate  number on the  impact of                                                               
the  credits because  the department  did  not incorporate  those                                                               
potential  changes in  the amount  of production;  it is  not the                                                               
price that determines this.   Using the figures from fiscal years                                                               
2008   and  2009,   the   department   estimated  the   operating                                                               
expenditures it believed would qualify  for the credit, which was                                                               
25 percent,  and did  the same for  capital expenditures.   Those                                                               
approximated percentages  were then  applied to  the department's                                                               
current projections  for operating  and capital  expenditures for                                                               
fiscal years  2010-2013 to  derive the numbers  shown on  page 2.                                                               
Because  the  department  would expect  there  to  be  additional                                                               
investment  as  a result  of  these  [new] credits,  which  would                                                               
result  in  additional production,  there  would  be a  potential                                                               
change  from these  numbers.   There would  be more  expenditures                                                               
than  what the  department is  currently projecting,  which would                                                               
create more  credits, but the  at same  time there would  be more                                                               
production which  would create more  state revenue, which  is why                                                               
the fiscal note was left as  indeterminate in terms of the actual                                                               
impact on state revenue.   However, the department wanted to show                                                               
committee members what the magnitude  of this proposed new credit                                                               
might be, based upon current projections.                                                                                       
1:52:20 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  inquired whether the  information used                                                               
for these estimations came from the old standard deduction.                                                                     
COMMISSIONER GALVIN responded no,  other data became available to                                                               
the department  to calculate those  projections.  He  pointed out                                                               
that this is getting into the realm of confidential data.                                                                       
REPRESENTATIVE  GUTTENBERG   surmised  these  numbers   could  be                                                               
significantly lower or higher without increase in production.                                                                   
COMMISSIONER  GALVIN replied  correct.   These numbers  are based                                                               
strictly  upon  the  expected expenditure  levels  and  what  the                                                               
resulting credits would  be.  They are not  intended to represent                                                               
the  potential change  in revenue,  so they  are not  affected by                                                               
REPRESENTATIVE  GUTTENBERG presumed  that without  being affected                                                               
by production, the expense of  the credit being applied for could                                                               
be greater or less regardless of production in any given year.                                                                  
COMMISSIONER GALVIN answered correct.                                                                                           
1:54:18 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI said  he  believes  the word  "incurred"                                                               
should be  added to page  6, line 26, after  "expenditure", given                                                               
it  is the  department's  intent  that the  credit  be for  well-                                                               
related expenses  incurred between the  six years after  June 30,                                                               
2010, and before July 1, 2016.   In response to Co-Chair Johnson,                                                               
he said he  is comparing the wording of Version  R and Conceptual                                                               
Amendment  1  that  was  discussed   on  3/27/10,  and  the  word                                                               
"incurred" is missing from Version R.                                                                                           
COMMISSIONER GALVIN  recommended the word "incurred"  be included                                                               
in Version R.                                                                                                                   
CO-CHAIR JOHNSON  requested Representative Kawasaki to  make note                                                               
that an amendment is needed for  this because the intent is to do                                                               
what was agreed upon.                                                                                                           
1:57:00 PM                                                                                                                    
CO-CHAIR  NEUMAN,  in regard  to  there  being several  effective                                                               
dates and the department's workload,  asked whether the effective                                                               
dates in the  sections applicable to ACES should  be February 28,                                                               
2007, and the other effective dates should be January 1, 2010.                                                                  
MARCIA DAVIS,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department of Revenue,  responded that Version E  [and Version R]                                                               
did pick  up the portions of  ACES that needed to  be retroactive                                                               
to ease the department's workload.   The date that was not pushed                                                               
back was the  tax credit itself, which is in  Section 19, page 9,                                                               
lines 5-6,  of Version R.   She said the insertion  of subsection                                                               
AS 43.55.023(m)  is the proposed  new ACES capital credit,  so it                                                               
would be  helpful to the  department for  that date to  remain at                                                               
July 1, 2010,  because it is the expenditures  incurred from that                                                               
date forward that  are being talked about.   In further response,                                                               
she said  the credit is  to induce new and  additional investment                                                               
and that  past behavior  cannot be changed  by making  the credit                                                               
2:00:04 PM                                                                                                                    
CO-CHAIR NEUMAN inquired about the  retroactive effective date of                                                               
January 1, 2010, for Section 9 in Version R.                                                                                    
MS.  DAVIS   noted  that  Section   9  relates  to   the  current                                                               
requirement that credits  be split over two years.   She said the                                                               
effective date  of January 1, 2010,  is set where it  needs to be                                                               
set because  it enables  the credits  that happen  in 2010  to be                                                               
good in 2010.  For credits  that happened in 2009, half were good                                                               
in  2009 and  half were  good in  2010, so  making those  credits                                                               
retroactive  would  not  change   any  financial  impact  on  the                                                               
taxpayer.  In  further response, she said the  effective dates in                                                               
Version R for Sections 7-9 should  be okay.  The retroactive date                                                               
[for  Section 7]  goes  back to  the beginning  of  ACES and  the                                                               
petroleum  production profits  tax  (PPT), and  is the  provision                                                               
that would give  the department the ability to  waive interest on                                                               
an  underpayment of  tax during  the time  when there  was not  a                                                               
CO-CHAIR  NEUMAN said  he  has  talked to  other  members of  the                                                               
administration who felt otherwise about the dates.                                                                              
2:02:07 PM                                                                                                                    
COMMISSIONER   GALVIN,  in   response  to   Representative  Tuck,                                                               
confirmed the  production tax depicted  on page 2 of  the 3/29/10                                                               
handout  is  expressed  in  millions  of  dollars.    He  further                                                               
confirmed the  scale shown for  fiscal year  2010 is the  same as                                                               
that  for fiscal  years 2008  and 2009.   He  clarified that  the                                                               
number in  the box [on top  of the blue bar]  does not correspond                                                               
to the entire bar; it only represents the amount of credit.                                                                     
2:03:11 PM                                                                                                                    
REPRESENTATIVE TUCK  understood this  graph depicts  the expected                                                               
capital   credits   that   are   both   capital   and   operating                                                               
expenditures,  and   has  nothing   to  do  with   the  potential                                                               
production increase with those credits.                                                                                         
COMMISSIONER GALVIN replied correct.   He pointed out that page 3                                                               
of the handout provides a  breakdown of the capital and operating                                                               
expenditures that went into the boxes  on page 2.  The numbers do                                                               
not directly  track because page  3 deals with the  calendar year                                                               
2009 as  opposed to the  fiscal year 2009.   The blue bar  on the                                                               
left of page 2 represents  the capital expenditures for that year                                                               
[about $2 billion], the small grey  box represents the 20 percent                                                               
capital credits  that accrue  from the  blue bar  [$370 million],                                                               
and the white box represents  what the department estimates to be                                                               
the additional credits  that would be created by  the proposed 30                                                               
percent  infield  credit  [$90  million].    Regarding  the  bars                                                               
depicted  on  the right  of  page  2 for  operating  expenditures                                                               
[totaling  about $1.9  billion], he  explained that  there is  no                                                               
[grey] box  next to the  blue bar  because there is  currently no                                                               
capital credit  for operating expenditures.   However,  a portion                                                               
of the operating expenditures would  qualify for the proposed new                                                               
credit and that would generate  the additional $150 million shown                                                               
in the white  box.  Thus, the $90 million  and $150 million boxes                                                               
would  correspond to  a box  on page  2 if  there was  a box  for                                                               
calendar year 2009.   In further response, he  confirmed that the                                                               
reason for the differences [in the  white boxes] on the two pages                                                               
is that one is for fiscal year and one is for calendar year.                                                                    
2:06:09 PM                                                                                                                    
COMMISSIONER  GALVIN,  in   response  to  Representative  Seaton,                                                               
clarified  that of  the capital  and  operating expenditures  the                                                               
department  expects to  qualify  for this  credit, an  additional                                                               
credit beyond what is in current  law will be generated, and this                                                               
additional amount  is depicted in the  white boxes [on page  2 of                                                               
the 3/29/10  handout].   Thus, for  fiscal year  2009, it  is not                                                               
that $255  million of the  expenditures qualify for  the credits;                                                               
it is that  of the expenditures that qualify, the  result will be                                                               
an   additional  $255   million  in   credit  above   what  those                                                               
expenditures qualified for previously.                                                                                          
2:07:23 PM                                                                                                                    
REPRESENTATIVE SEATON  asked whether there is  anything depicting                                                               
the approximate amount of well-related expenses for those years.                                                                
COMMISSIONER GALVIN directed  attention to page 3  of the handout                                                               
and noted that of the $370  million in credit generated from 2009                                                               
capital expenditures, an additional  $90 million of credits would                                                               
be created.   This means about $900 million of  the total capital                                                               
expenditures  would be  expected to  qualify for  this additional                                                               
credit because  the proposed  credit would  add an  additional 10                                                               
percent.    For  the  operating  expenditures,  $150  million  of                                                               
additional  credit would  be created;  this would  be about  $500                                                               
million in  operating expenditures  because the credits  would go                                                               
from 0 percent to 30 percent.                                                                                                   
2:08:56 PM                                                                                                                    
REPRESENTATIVE SEATON  inquired where the operating  credits that                                                               
would  apply from  this are  located in  Version R.   He  said he                                                               
thought that  in the  earlier bill there  were credits  for well-                                                               
related  expenditures   and  that  operating   expenditures  were                                                               
amended out of the bill.                                                                                                        
COMMISSIONER  GALVIN explained  that  under  the current  system,                                                               
capital  expenditures and  operating  expenditures are  separated                                                               
based  upon  a  particular  definition of  what  qualifies  as  a                                                               
capital expenditure.   However, HB  337 would use  the definition                                                               
of   intangible   drilling   expenditures  to   determine   which                                                               
expenditures  qualify.   This  definition  includes some  capital                                                               
expenditures  and some  operating expenditures  and under  HB 337                                                               
all intangible  drilling expenditures  would qualify for  this 30                                                               
percent credit.   Thus, there is  no section of HB  337 that says                                                               
operating  expenditures  do  not  qualify for  the  proposed  new                                                               
credit.   The  charts  in the  handout are  based  upon past  tax                                                               
returns and  depict that portion of  current capital expenditures                                                               
the department expects will qualify  for this new credit and what                                                               
the implication  of the new  definition would be for  the current                                                               
division between capital and operating expenditures.                                                                            
2:11:45 PM                                                                                                                    
COMMISSIONER  GALVIN,  in response  to  a  further question  from                                                               
Representative  Seaton, explained  that the  numbers depicted  in                                                               
the handout  are nearly  the same  whether for  Version R  or the                                                               
governor's  original bill,  which would  have made  the provision                                                               
under AS  43.55.025.  The  difference is that well  workovers and                                                               
other activities  that increase  production will be  eligible for                                                               
this  proposed  credit and  there  is  not  a distinction  as  to                                                               
whether  they  are  operating  or   capital  expenditures.    The                                                               
language in  HB 337 gives  this additional credit, whether  in AS                                                               
43.55.025  under  the original  bill  or  in AS  43.55.023  under                                                               
Version R.   Therefore,  it is  not a function  of whether  it is                                                               
production or development.                                                                                                      
2:14:03 PM                                                                                                                    
COMMISSIONER   GALVIN,  in   response  to   Representative  Tuck,                                                               
confirmed   that  page   7,  lines   13-21,  where   well-related                                                               
expenditure  is  defined, is  what  is  being  referred to.    In                                                               
further response, he said this would not include disposal wells.                                                                
2:15:06 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  inquired  whether the  Department  of                                                               
Revenue has  talked with the  Department of Natural  Resources to                                                               
determine whether  any of  this work is  already scheduled  to be                                                               
done to stem  the decline in the production rate.   Or, he asked,                                                               
is  all  of  the  work  being  talked  about  meant  to  increase                                                               
production above that line.                                                                                                     
COMMISSIONER  GALVIN   said  he  does   not  think  there   is  a                                                               
straightforward  answer  as  to  whether  it  would  increase  or                                                               
decrease the line.  All  of the expenditures the department would                                                               
expect to qualify for this are intended to result in production.                                                                
2:16:26 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG asked  whether credit  would be  given                                                               
for something that is already scheduled to be done.                                                                             
COMMISSIONER  GALVIN answered  there has  been conversation  with                                                               
the Department of Natural Resources  regarding whether there is a                                                               
distinction to  be made between  what is  planned to be  done and                                                               
what is  not, and  DNR's plans  do not  get to  the "granularity"                                                               
where the  Department of Revenue  can use them for  that purpose.                                                               
The issue the  department faces with trying  to target incentives                                                               
to only  incremental additional  production is  that there  is no                                                               
baseline  with which  to  compare  it to,  that  if  there is  no                                                               
additional  investment there  would be  a decline  curve that  is                                                               
much steeper than what the department projects.                                                                                 
2:17:34 PM                                                                                                                    
REPRESENTATIVE   GUTTENBERG   inquired   whether  that   is   the                                                               
expectation with going ahead without  any additional well work or                                                               
with what is  already scheduled, or is this  meant to incentivize                                                               
work above that to increase that.                                                                                               
COMMISSIONER GALVIN  responded the issue faced  by the department                                                               
is that  production forecasts are  based upon what  the companies                                                               
have  provided   the  department  in  terms   of  their  expected                                                               
production profiles  based upon their expected  investment rules;                                                               
it is not detailed on a  well-by-well basis.  For that reason, HB
337 makes an across-the-board proposal  for an economic incentive                                                               
to do this type of drilling.   He said he fully anticipates there                                                               
are going  to be expenditures  that qualify for  these additional                                                               
credits that  would have  been done anyway.   However,  there are                                                               
workovers and  additional wells that  will be drilled  that would                                                               
not  have  been   done  without  this  additional   boost.    The                                                               
department believes  it is in  the state's interest to  provide a                                                               
credit targeted for  the work it is trying  to incentivize, which                                                               
would result in more jobs and more production.                                                                                  
2:20:01 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG allowed  that some  wells need  rework                                                               
just to stay  even.  He asked  whether there is some  way to hook                                                               
this credit onto increased production.                                                                                          
COMMISSIONER GALVIN replied one thing  that can be relied upon is                                                               
that  companies  are  going  to  be investing  in  this  type  of                                                               
expenditure solely because  of the expectation it  will result in                                                               
more production than if they did not do the investment.                                                                         
CO-CHAIR JOHNSON opened public testimony.                                                                                       
The committee took an at-ease from 2:22 p.m. to 2:28 p.m.                                                                       
2:28:11 PM                                                                                                                    
CO-CHAIR JOHNSON  left public  testimony open  after ascertaining                                                               
no one wished to testify today.                                                                                                 
REPRESENTATIVE  SEATON moved  to adopt  Amendment 2,  labeled 26-                                                               
GH2057\R.1,  Bullock,  3/29/10,   written  as  follows  [original                                                               
punctuation provided]:                                                                                                          
     Page 7, line 2:                                                                                                            
          Delete "that expenditure"                                                                                             
          Insert "the expenditures during a calendar year                                                                       
     that   exceed    the   average    annual   well-related                                                                    
     expenditures  for the  calendar years  2008, 2009,  and                                                                    
     2010; the producer or explorer  shall submit the amount                                                                    
     of  well-related expenditures  for  each  of the  years                                                                    
     2008, 2009,  and 2010 at  the time an election  is made                                                                    
     to apply the credit authorized by this subsection"                                                                         
CO-CHAIR JOHNSON objected for discussion purposes.                                                                              
2:29:26 PM                                                                                                                    
REPRESENTATIVE SEATON  explained the  figures for the  20 percent                                                               
capital  expenditure credit  show  that a  significant amount  of                                                               
work goes  on in the oil  fields.  He observed  that the proposed                                                               
additional credit  would be almost  twice as large  for operating                                                               
expenditures  as for  capital expenditures.    Amendment 2  would                                                               
incentivize the additional work that  is being talked about.  The                                                               
current  level of  expenditures  has been  fully  economic at  20                                                               
percent capital,  he maintained,  so Amendment 2  would stimulate                                                               
the  desired activity  without expending  money for  those things                                                               
that have been economic to date.                                                                                                
2:31:05 PM                                                                                                                    
CO-CHAIR  JOHNSON said  he  does  not think  it  is obvious  that                                                               
anything has been economic.                                                                                                     
COMMISSIONER GALVIN recognized that  the objective of Amendment 2                                                               
covers  the  earlier  discussion with  Representative  Guttenberg                                                               
about whether there is a mechanism  that could parse out the work                                                               
that  would  be   done  anyway  from  the  work   that  would  be                                                               
incentivized.  He said he thinks  this is a difficult exercise to                                                               
pursue or  achieve, and creates complications  and anomalies with                                                               
regard  to individual  taxpayers  that would  be  counter to  the                                                               
intent of the  bill.  From a structural standpoint,  it creates a                                                               
circular math equation that would need  to be worked out in terms                                                               
of averaging  the 2008, 2009,  and 2010 calendar years  since the                                                               
bill would become effective July 1, 2010.                                                                                       
REPRESENTATIVE SEATON  moved Conceptual Amendment 1  to Amendment                                                               
2  to strike  "and 2010"  from lines  4 and  6 of  the amendment.                                                               
Thus, the  average would be for  the years 2008 and  2009.  There                                                               
being no  objection, Conceptual  Amendment 1  to Amendment  2 was                                                               
2:34:19 PM                                                                                                                    
CO-CHAIR JOHNSON asked  when a workover in 2008  would be planned                                                               
and budgeted for.                                                                                                               
COMMISSIONER GALVIN responded  he does not know  because it would                                                               
be  different for  each company,  although it  would probably  be                                                               
shorter than the timeframe for exploration and new development.                                                                 
REPRESENTATIVE   SEATON  reminded   members   that  in   previous                                                               
testimony companies stated they continuously  look at a number of                                                               
projects to decide  what is economic.   Infield drilling projects                                                               
do  not  have the  same  kind  of  reservoir  risks and  are  the                                                               
shortest terms,  he opined, which  is why the amendment  does not                                                               
include the year 2007, the year that ACES started.                                                                              
2:35:47 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  said  Representative  Seaton's  point                                                               
about 2007  is well taken.   He asked whether  taxpayers applying                                                               
for  this proposed  credit would  be able  to go  back and  amend                                                               
their  tax returns  to add  work that  was not  eligible for  the                                                               
credit at that time.                                                                                                            
COMMISSIONER  GALVIN replied  no, the  additional credit  is only                                                               
available for expenditures  that are incurred from  July 1, 2010,                                                               
2:36:52 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  inquired whether  that would  still be                                                               
the case if there is a two-year average under this amendment.                                                                   
COMMISSIONER GALVIN  explained that a difficulty  in implementing                                                               
Amendment  2   would  be  the  new   definition  of  well-related                                                               
expenditures  in   HB  337,  which  cuts   expenditures  along  a                                                               
different  line  than current  statute.    By default,  taxpayers                                                               
would have to  provide updated information to  describe what they                                                               
believe would qualify  as a well-related expenditure  in 2008 and                                                               
2009  because a  significant portion  of that  will be  operating                                                               
expenditures that  did not qualify  for credit then and  so would                                                               
not have  been quantified  in that  way in those  tax years.   To                                                               
have  something to  compare  it  to on  a  go-forward basis,  the                                                               
taxpayers will have to give additional  data for 2008 and 2009 to                                                               
define what the well-related expenditures are for those years.                                                                  
2:38:51 PM                                                                                                                    
REPRESENTATIVE  SEATON  said  defining these  credits  for  well-                                                               
related expenditures  does not mean  the companies  would receive                                                               
credits  for those,  just  that  they must  do  the corollary  of                                                               
pulling out the  capital and operating expenditures  for 2008 and                                                               
COMMISSIONER  GALVIN   pointed  out   that  taxpayers   would  be                                                               
motivated to define  2008 and 2009 as  extremely small investment                                                               
years.   They will want to  define everything out of  those years                                                               
to  make that  number small  since it  is the  difference between                                                               
those years and  2010 forward that qualifies.  That  will put the                                                               
Department of  Revenue in the  inverse of the  standard deduction                                                               
situation where  the department will  have to audit the  2008 and                                                               
2009 claims of well-related expenditures  to try to say there are                                                               
other costs  the taxpayers  did not claim  that should  have been                                                               
included.  Amendment 2 would thus be difficult administratively.                                                                
2:41:30 PM                                                                                                                    
CO-CHAIR NEUMAN  presumed the  July 1,  2010, effective  date for                                                               
Section 11,  which is the  section Amendment 2 deals  with, would                                                               
add another layer of complication.                                                                                              
COMMISSIONER GALVIN  answered it would require  the department to                                                               
do a  lot of interpreting  through regulations or other  means to                                                               
understand what the intent would be.                                                                                            
CO-CHAIR JOHNSON  said he cannot  support Amendment 2  because of                                                               
the additional  work it  would put on  the Department  of Revenue                                                               
and because it  is splitting hairs.  He  maintained his objection                                                               
to Amendment 2.                                                                                                                 
2:43:14 PM                                                                                                                    
REPRESENTATIVE SEATON  said Amendment  2, as amended,  would mean                                                               
that any  additional well-related  activities above  a taxpayer's                                                               
average  expenditures   in  2008  and  2009   would  receive  the                                                               
additional enhanced tax credit.  This  way the state would not be                                                               
giving additional credit  for the same amount of  work a taxpayer                                                               
has been doing infield.                                                                                                         
REPRESENTATIVE P.  WILSON understood that if  Amendment 2 passes,                                                               
the state will be paying less than it would otherwise.                                                                          
CO-CHAIR JOHNSON  clarified the  state is  issuing credit  and is                                                               
not actually paying anything.                                                                                                   
REPRESENTATIVE P. WILSON  pointed out that that  still results in                                                               
less revenue to the state.                                                                                                      
CO-CHAIR JOHNSON agreed.                                                                                                        
A roll call vote was  taken.  Representatives Seaton, Guttenberg,                                                               
Kawasaki, and  Tuck voted  in favor of  Amendment 2,  as amended.                                                               
Representatives  Olson, Edgmon,  P. Wilson,  Neuman, and  Johnson                                                               
voted against it.  Therefore,  Amendment 2, as amended, failed by                                                               
a vote of 4-5.                                                                                                                  
2:45:42 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG explained that  the amendment he wishes                                                               
to move is  conceptual because it was for a  different version of                                                               
HB 337.   He moved to  adopt Conceptual Amendment 3,  labeled 26-                                                               
GH2057\A.1,  Bullock,  3/29/10,   written  as  follows  [original                                                               
punctuation provided]:                                                                                                          
     Page 1, line 2:                                                                                                            
          Delete ","                                                                                                          
          Insert "and"                                                                                                        
     Page 1, lines 3 - 4:                                                                                                       
          Delete ", and to alternative tax credits for                                                                        
      expenditures for certain oil and gas development and                                                                    
     exploration activities for the oil and gas production                                                                    
     Page 3, line 7:                                                                                                            
         Delete "AS 43.55.025(f) [AS 43.55.025(f)(2)]"                                                                      
          Insert "AS 43.55.025(f)(2)"                                                                                           
     Page 3, line 9:                                                                                                            
         Delete "AS 43.55.025(f) [AS 43.55.025(f)(2)]"                                                                      
          Insert "AS 43.55.025(f)(2)"                                                                                           
     Page 4, line 5, through page 9, line 5:                                                                                    
          Delete all material.                                                                                                  
     Renumber the following bill sections accordingly.                                                                          
     Page 9, lines 11 - 25:                                                                                                     
          Delete all material.                                                                                                  
     Renumber the following bill sections accordingly.                                                                          
     Page 10, lines 2 - 6:                                                                                                      
          Delete all material.                                                                                                  
     Renumber the following bill sections accordingly.                                                                          
     Page 10, line 19:                                                                                                          
          Delete "Sections 4 - 12 of this Act take"                                                                             
          Insert "Section 5 of this Act takes"                                                                                  
     Page 10, line 20:                                                                                                          
          Delete "sec. 17"                                                                                                      
          Insert "sec. 9"                                                                                                       
REPRESENTATIVE  GUTTENBERG said  HB  337 would  give credits  for                                                               
doing well-related work,  which the state has  never done before,                                                               
and Conceptual  Amendment 3  would eliminate  the credit  for all                                                               
well-related work that is in the bill.                                                                                          
2:47:37 PM                                                                                                                    
REPRESENTATIVE  P.  WILSON objected  and  asked  whether all  the                                                               
definitions would have to be changed.                                                                                           
REPRESENTATIVE GUTTENBERG  stated that  previous to HB  337, well                                                               
credits did  not exist.   Conceptual Amendment  3 would  take out                                                               
the  well-related credits  in this  bill, making  things as  they                                                               
were before  this bill.   In further  response, he  confirmed the                                                               
amendment would mean  that HB 337 would not have  any tax credits                                                               
for well-related work.                                                                                                          
CO-CHAIR  JOHNSON said  what  is being  talked  about is  infield                                                               
drilling, which  is the major purpose  of HB 337.   The intent of                                                               
the bill is  to increase production and jobs in  the places where                                                               
it is known that there is oil.                                                                                                  
2:48:54 PM                                                                                                                    
CO-CHAIR  NEUMAN understood  that  Conceptual  Amendment 3  would                                                               
remove any credits for the reworking of wells.                                                                                  
REPRESENTATIVE GUTTENBERG replied yes.                                                                                          
CO-CHAIR  NEUMAN  maintained there  would  have  been a  terrible                                                               
impact on  the amount  of oil  through the  Trans-Alaska Pipeline                                                               
System (TAPS)  had many of the  wells not been reworked  to date.                                                               
The  ability of  new technology  to produce  more oil  from those                                                               
wells is  why they are being  reworked; plus, it is  much cheaper                                                               
to rework wells than to drill  new ones.  Producing more oil from                                                               
existing  wells  creates jobs  and  more  revenue, probably  more                                                               
revenue than  the state's cost for  the increase in credits.   He                                                               
said taking  away the proposed  incentive for reworking  wells is                                                               
inappropriate, so he cannot support the amendment.                                                                              
2:51:02 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG explained  he is introducing Conceptual                                                               
Amendment 3 because the purpose of  HB 337 is to incentivize well                                                               
rework using a  new definition and a new credit,  but there is no                                                               
guarantee  written  into  the  bill that  any  rework,  jobs,  or                                                               
increased  production will  happen.   Since  the  first well  was                                                               
drilled  at  Prudhoe Bay,  industry  knew  that after  a  certain                                                               
period of  time it would need  to rework the wells  because these                                                               
things were  defined in  the development  plans for  Prudhoe Bay,                                                               
Kuparuk,  and elsewhere.   When  the state  put out  these leases                                                               
many years  ago, there  was an expectation  that this  work would                                                               
happen.   Had Alaska  exercised its  sovereignty, the  work would                                                               
have been  done at the start  of the decline.   Instead, industry                                                               
was  in  harvest  mode  and   uninterested.    Now,  industry  is                                                               
interested  because it  has to  be; both  industry and  the state                                                               
have a  large vested interest  in keeping the  facilities pumping                                                               
and oil moving through the  pipeline.  Industry did not undertake                                                               
this work  during the  years of the  economic limit  factor (ELF)                                                               
when there were  no taxes.  Now, taxes are  moderate and industry                                                               
is looking to erode them for work it would be doing anyway.                                                                     
2:54:40 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG continued, saying  he would like to see                                                               
industry do  something new  for the credits,  but instead  HB 337                                                               
would  give  credits  for  those   things  industry  was  already                                                               
expected to  do.  The  analysis of revenue is  incomplete because                                                               
the production  increase is  unknown.  The  bill would  give away                                                               
over  $1 billion,  and possibly  more,  in the  next four  years.                                                               
While the  bill gives industry  more money, it would  not benefit                                                               
the state because  there is no guarantee  of increased production                                                               
or jobs.  He  said he would like to hear discussion  on why it is                                                               
thought  that   HB  337  will  incentivize   industry  when  past                                                               
incentives have not resulted in the desired changes.                                                                            
2:57:06 PM                                                                                                                    
CO-CHAIR NEUMAN commented  that these things will  only happen if                                                               
it  is economical.   The  state must  create an  environment that                                                               
industry will thrive in or  else industry will go elsewhere since                                                               
these are  global companies.  Almost  30 percent of all  the jobs                                                               
in Alaska are  somehow connected to what is  happening in Prudhoe                                                               
Bay because  the producers  look to Alaska  companies to  do this                                                               
work.   The intent  of HB  337 is  to spur  new jobs  through new                                                               
production and exploration, which has  been lacking.  He inquired                                                               
how many people working in  Prudhoe Bay are employed by [Alaskan]                                                               
COMMISSIONER  GALVIN responded  he  does not  have those  numbers                                                               
with him,  although these numbers  were looked at  during earlier                                                               
versions of the bill.                                                                                                           
2:59:29 PM                                                                                                                    
CO-CHAIR NEUMAN  said he  is trying  to ensure  that most  of the                                                               
companies doing  this rework are  Alaskan.  He asked  whether the                                                               
lack of new investment was the original intent of the bill.                                                                     
COMMISSIONER GALVIN  replied the  intent of HB  337 is  to target                                                               
the state's tax  incentives, in terms of reducing  the tax burden                                                               
on the  taxpayer, to those that  are actually doing the  work and                                                               
to ensure  that it  is tied  to the amount  of work  the taxpayer                                                               
does.  The  more investment, the more jobs created,  the more tax                                                               
benefit the taxpayer will receive.                                                                                              
3:00:23 PM                                                                                                                    
CO-CHAIR  NEUMAN surmised  this  is based  upon the  department's                                                               
internal  information   and  is  a  strategic   move  within  the                                                               
administration after  weighing the  tax incentives and  the value                                                               
they would create for the state.                                                                                                
COMMISSIONER GALVIN answered the  general reaction to the current                                                               
tax  structure   was  an   increase  in   the  total   amount  of                                                               
expenditures,  along with  an  increase in  the  number of  jobs,                                                               
although there  has since been  some level of decline.   However,                                                               
there was  a decrease in  the number  of wells being  drilled, so                                                               
the department looked to a bill  that would target this issue and                                                               
that is why HB 337 increases  the amount of credits available for                                                               
well-related work.   He said the department  believes the overall                                                               
tax  structure  still  provides   a  very  attractive  investment                                                               
climate for  new development projects and  exploration plays, but                                                               
the department is trying to  increase the incentivizing nature of                                                               
the tax towards drilling more wells.                                                                                            
3:02:03 PM                                                                                                                    
CO-CHAIR  JOHNSON  inquired  how  much money  would  need  to  be                                                               
invested to rebate $1 billion.                                                                                                  
COMMISSIONER  GALVIN responded  that dependent  upon whether  the                                                               
expenditures are  for operating  or capital,  between $5  and $10                                                               
billion  in  additional  spending  would generate  a  $1  billion                                                               
rebate for the additional credits that would result from HB 337.                                                                
REPRESENTATIVE GUTTENBERG,  at the  request of  Co-Chair Johnson,                                                               
withdrew Conceptual  Amendment 3  so the committee  could adjourn                                                               
without any  business before it.   There was no objection  to the                                                               
amendment being withdrawn.                                                                                                      
[HB 337 was held over.]                                                                                                         

Document Name Date/Time Subjects
CSHB 337 v.R.pdf HRES 3/29/2010 1:00:00 PM
HB 337
CSHB 337 Amendment A.1 3.29.10.pdf HRES 3/29/2010 1:00:00 PM
HB 337
HB 337 Conceptual Amendment to A 7.46 3.29.10.pdf HRES 3/29/2010 1:00:00 PM
HB 337
CSHB337(RES)-REV-TAX-03-29-10 Oil and Gas Tax Adjustments.pdf HRES 3/29/2010 1:00:00 PM
HB 337
CSHB 337 v. E 3.29.10 12.30pm.pdf HRES 3/29/2010 1:00:00 PM
HB 337
HB 337 DOR info to add credits.pdf HRES 3/29/2010 1:00:00 PM
HB 337