Legislature(2015 - 2016)BARNES 124

03/14/2016 06:00 PM RESOURCES

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06:00:00 PM Start
06:00:46 PM HB247
07:55:13 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                        
6:00:46 PM                                                                                                                    
CO-CHAIR  NAGEAK announced  that the  only order  of business  is                                                               
HOUSE BILL NO. 247, "An  Act relating to confidential information                                                               
status and public record status  of information in the possession                                                               
of the Department of Revenue;  relating to interest applicable to                                                               
delinquent tax; relating to disclosure  of oil and gas production                                                               
tax credit information;  relating to refunds for  the gas storage                                                               
facility tax  credit, the liquefied natural  gas storage facility                                                               
tax   credit,   and   the   qualified   in-state   oil   refinery                                                               
infrastructure expenditures  tax credit; relating to  the minimum                                                               
tax for certain  oil and gas production; relating  to the minimum                                                               
tax  calculation for  monthly installment  payments of  estimated                                                               
tax;  relating to  interest on  monthly  installment payments  of                                                               
estimated  tax; relating  to limitations  for the  application of                                                               
tax credits; relating  to oil and gas production  tax credits for                                                               
certain  losses and  expenditures;  relating  to limitations  for                                                               
nontransferable oil and  gas production tax credits  based on oil                                                               
production  and  the  alternative  tax credit  for  oil  and  gas                                                               
exploration;  relating to  purchase  of  tax credit  certificates                                                               
from the oil  and gas tax credit fund; relating  to a minimum for                                                               
gross  value  at  the  point of  production;  relating  to  lease                                                               
expenditures  and tax  credits for  municipal entities;  adding a                                                               
definition   for  "qualified   capital  expenditure";   adding  a                                                               
definition for  "outstanding liability  to the  state"; repealing                                                               
oil  and   gas  exploration  incentive  credits;   repealing  the                                                               
limitation on  the application of  credits against  tax liability                                                               
for  lease   expenditures  incurred   before  January   1,  2011;                                                               
repealing provisions related to  the monthly installment payments                                                               
for  estimated tax  for oil  and gas  produced before  January 1,                                                               
2014;  repealing  the  oil  and gas  production  tax  credit  for                                                               
qualified  capital expenditures  and  certain well  expenditures;                                                               
repealing   the  calculation   for  certain   lease  expenditures                                                               
applicable before January 1,  2011; making conforming amendments;                                                               
and providing for an effective date."                                                                                           
CO-CHAIR NAGEAK re-opened public testimony on HB 247.                                                                           
6:01:38 PM                                                                                                                    
MERRICK PEIRCE testified in  support of HB 247.  He  said it is a                                                               
very good  piece of legislation  and is a  good start to  fix the                                                               
significant errors  and problems that  are within Senate  Bill 21                                                               
[passed in  2013 by the Twenty-Eighth  Alaska State Legislature].                                                               
He posited  that a  $4 billion  deficit has  been created  as the                                                               
partial consequence  of Senate Bill  21's passage,  a significant                                                               
deficit  that threatens  the future  of the  state.   The current                                                               
throughput in the Trans-Alaska Pipeline  System (TAPS) is roughly                                                               
515,000  barrels a  day at  a price  of $35  [per barrel].   This                                                               
comes  out to  about  187 billion  barrels of  oil  pumped on  an                                                               
annual basis,  worth a total  of $6.5 billion.   Alaska's current                                                               
severance structure  as a consequence  of Senate Bill  21 results                                                               
in a  net negative on  the state's severance structure  and makes                                                               
Alaska  look like  a "banana  republic"  where it  does not  even                                                               
collect a  severance on its  valuable resource.   He said  HB 247                                                               
makes the first modest steps at  trying to fix some of the errors                                                               
within Senate Bill  21.  Mr. Peirce recalled that  years ago when                                                               
Mr. Hugh  Malone was  commissioner of  the Department  of Revenue                                                               
there was a fight regarding the  simple interest that was paid on                                                               
deficient or delinquent  oil taxes to Alaska.  That  was fixed to                                                               
be a compound  rate of return to the state  and was an inducement                                                               
for oil companies to get their  taxes paid.  A horrible provision                                                               
of Senate Bill  21 is the 4 percent  simple interest calculation.                                                               
This provides no  incentive for oil companies to  pay their taxes                                                               
because they  can get an  11-12 percent internal rate  of return.                                                               
Under HB 247 this provision of simple interest would be fixed.                                                                  
MR. PEIRCE  said he is an  investor so he pays  attention to some                                                               
of the  publically traded companies  that do business  in Alaska.                                                               
He said  the state has  gone completely overboard on  credits and                                                               
HB 247  takes some  modest steps towards  addressing some  of the                                                               
giveaway provisions  within the credits.   The magnitude  and the                                                               
giveaways of  the credits  are shielded  from the  Alaska public.                                                               
Some of  his own  research shows  that the  credits the  State of                                                               
Alaska has  paid are far more  than the value of  the resource in                                                               
question.   For example, the  Henry Hub  price of natural  gas is                                                               
about $2  per million  British Thermal  Units (BTUs);  the amount                                                               
Alaska is  paying in the  credits is exponentially more  than the                                                               
value of  the resource at  around $70-$80  per million BTUs.   At                                                               
the end of  the day after paying multiples beyond  what the value                                                               
of the resource  is worth, the State of Alaska  does not even own                                                               
the  gas.   He stated  his  support for  HB 247.   Responding  to                                                               
Representative Josephson, Mr.  Peirce said he is  an investor and                                                               
that he  owns some of these  major oil companies because  from an                                                               
investment perspective they are good companies to invest in.                                                                    
6:07:17 PM                                                                                                                    
LOIS GILBERT offered her support for  HB 247 and for higher taxes                                                               
on  oil.   She  said  the state  constitution  requires that  the                                                               
state's  resources  be  developed  for  maximum  benefit  of  the                                                               
public, but that  is not happening.  Alaska would  not be in this                                                               
situation  if it  was getting  the same  price for  its oil  that                                                               
Norway is  getting for its oil.   She recalled a  talk by Senator                                                               
Wielechowski  about how  little  Alaska is  getting  for its  oil                                                               
compared to  other countries and  other states, and at  that time                                                               
the oil companies were making a  profit of $20-some per barrel on                                                               
Alaska oil and making $2 per  barrel on Iraqi oil.  The companies                                                               
do not  have to  dodge bullets  in Alaska like  they do  in Iraq.                                                               
Alaska needs  to start  getting a  fair price for  its oil.   She                                                               
noted that she is disabled  and said people with disabilities are                                                               
having the benefits for their needs  severely cut back.  There is                                                               
no  need  for  this,  she  maintained,  because  Alaska  has  the                                                               
resource that can be paying for these needs.                                                                                    
6:09:22 PM                                                                                                                    
The committee took an at-ease from 6:09 p.m. to 6:19 p.m.                                                                       
6:19:23 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony.                                                                                                               
TOM LAKOSH  stated it appears in  HB 247 that the  production tax                                                               
credit may  still reduce the  tax liability of producers  down to                                                               
$0, which is  clearly an inappropriate reduction in  taxes to the                                                               
extent the  state loses the  value of the  oil being sold  on the                                                               
market  to an  unacceptably low  level,  whereas if  left in  the                                                               
ground the  oil might actually  accrue more value.   There should                                                               
clearly be a higher alternative  minimum production tax placed on                                                               
the oil sold  so that the state  does not have to  rely solely on                                                               
royalties.   He urged  that HB  247 be amended  to show  a higher                                                               
minimum production  tax such  that credits  cannot be  applied to                                                               
make a  tax liability of zero.   He said committee  members might                                                               
want to  extend the buy-ability of  tax credits out for  a longer                                                               
period of  time and  added that  the public's  oil should  not be                                                               
sold  on the  market if  there is  such a  low return.   The  oil                                                               
should be left  in the ground until its value  accumulates to the                                                               
point where  value can be  gotten out of  it.  Responding  to Co-                                                               
Chair  Nageak, Mr.  Lakosh stated  he  is a  33-year resident  of                                                               
Alaska and is testifying on his own behalf.                                                                                     
6:22:06 PM                                                                                                                    
KEITH LIPSE  urged that  the oil companies  not be  taxed because                                                               
they are  already overtaxed.   If the  government wants  to raise                                                               
more money  then maybe it should  tax the people who  are working                                                               
here.   A large  number of people  work in the  state but  do not                                                               
live here, they take money  and leave the state while complaining                                                               
about how  much their home state  taxes them.  The  oil companies                                                               
should not be  taxed when they are not drilling  for oil anymore.                                                               
Three more rigs are  being shut down and he will be  out of a job                                                               
in April  because of  that.   More bad than  good is  being done.                                                               
Other  ways  should  be  found  to  get  money  than  taxing  oil                                                               
companies, such  as taxing the  workers who are taking  money out                                                               
of the state.                                                                                                                   
6:24:02 PM                                                                                                                    
GEORGE PIERCE stated  that HB 247 was introduced to  fix the mess                                                               
of Senate Bill 21.   It is plain to see  how legislators given in                                                               
to  big oil,  he said,  but these  are the  residents' resources.                                                               
Why don't legislators represent the  voters more than the big oil                                                               
companies?    It  should  be  maximum  yield  for  Alaskans,  not                                                               
corporations.  This bill is a  start, but needs some fixing.  The                                                               
4 percent  floor in Senate Bill  21 should be fixed  and Alaska's                                                               
resources should  stop being given  away.  The production  tax is                                                               
how the  state gets  revenue.   The downsizing  of oil  was fully                                                               
ignored and  now the state is  reduced to paying the  industry to                                                               
takes the  state's resources.   He  stated his  disagreement with                                                               
Senate Bill  21 and  said all production  tax receipts  have been                                                               
based on  the minimum 4  percent tax and  Senate Bill 21  is one-                                                               
fifth of  the state's budget  money.  He thanked  Governor Walker                                                               
and the Tax Division for  the impact report regarding the effects                                                               
of Alaska's  current tax policy.   The state is in  a deficit and                                                               
the oil and gas industry is  suspending its production due to the                                                               
oil prices.  Industry cannot afford  to do business and the state                                                               
cannot afford  to give credits.   Senate Bill 21 was  supposed to                                                               
result in  more production and  more employment and has  not done                                                               
either one,  but industry sure gets  its tax breaks.   He said he                                                               
cannot  believe all  the credits  that legislators  have supplied                                                               
for the oil  companies.  Alaska's current tax  policy was modeled                                                               
and  drafted in  2013  with oil  prices between  $80  and $100  a                                                               
barrel.   Senate Bill 21  does not  address anything under  $80 a                                                               
barrel and that  is absurd.  He said HB  247 analyzes Senate Bill                                                               
21  and it  shows Alaskans  that the  state's current  tax policy                                                               
does  not  work   like  Alaskans  were  led  to   believe.    The                                                               
legislature created  this mess and  the legislature needs  to fix                                                               
it and  quit charging residents  for the  legislature's mistakes.                                                               
Legislators need  to step up  to the plate and  represent Alaska,                                                               
not these  corporations.  If  oil companies  do not like  the tax                                                               
structure they can pack their bags  and leave.  Alaska is not for                                                               
sale, but it  seems like Alaska's legislators are.   He supported                                                               
HB 247, but said to adjust it and get rid of Senate Bill 21.                                                                    
6:28:48 PM                                                                                                                    
The committee took an at-ease from 6:28 p.m. to 6:32 p.m.                                                                       
6:32:35 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony on HB 247.                                                                                                     
KAITLIN VADLA  said HB 247  is long  and complicated so  she will                                                               
address only that portion related to  the cash credits.  The bill                                                               
is not  perfect, she added, but  it is needed.   The state cannot                                                               
afford the current  system and she would like to  ask where it is                                                               
planned to  get the money to  pay the cash credits.   She offered                                                               
her  understanding  that  this  year   the  state  will  pay  out                                                               
somewhere between  $500 and $700  million and she does  not think                                                               
the system is going to work.   She questioned whether the credits                                                               
are necessary  for exploration  and noted that  the price  of oil                                                               
cannot be controlled.  The  industry is contracting now even with                                                               
this cash credit  system, so maybe the state  can experiment with                                                               
not having it.  She thanked the committee for its work.                                                                         
REPRESENTATIVE OLSON thanked Ms. Vadla for calling in.                                                                          
6:35:36 PM                                                                                                                    
The committee took an at-ease from 6:35 p.m. to 6:43 p.m.                                                                       
6:43:14 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony on HB 247.                                                                                                     
NELMA  TREIDER  testified  that she  opposes  continuing  in  the                                                               
current tax credit  structure.  She said the heart  of the matter                                                               
is that refineries are a business  and she does not believe it is                                                               
customary to  give tax credits,  especially of this  enormity, to                                                               
the regular  small businesses  on the  street.   So, why  are tax                                                               
credits being  given to businesses that  deal internationally and                                                               
have a  very healthy bottom  line?  Businesses open  knowing that                                                               
some  years  might  be  leaner  than others  and  do  not  expect                                                               
monetary help during a lean year  from the citizens living in the                                                               
location  of  the  business.    The  legislature  has  said  that                                                               
everybody must  tighten their belts and  most citizens understand                                                               
that and are  willing to do their  part, but not as  long as oil-                                                               
related businesses  are given vast  amount of money that  is then                                                               
passed along to  their shareholders, most of whom do  not live in                                                               
Alaska.   These  tax  credits amount  to  taking necessary  state                                                               
funding that benefits all Alaskans,  such as education and public                                                               
safety, and  sends those funds  to the bank accounts  of refinery                                                               
shareholders.  It  seems utterly and totally wrong  to think that                                                               
this is an appropriate way to distribute funding.                                                                               
6:46:12 PM                                                                                                                    
The committee took an at-ease from 6:46 p.m. to 6:57 p.m.                                                                       
6:57:52 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony on HB 247.                                                                                                     
RAMI JASSER  stated his  opposition to  the proposed  increase in                                                               
oil and  gas taxes at  this point,  saying his opposition  is for                                                               
the sake  of North Slope  jobs.   Given the current  situation on                                                               
the North Slope,  he said he would be hesitant  in doing any more                                                               
to shut down more rigs and have less oil in the pipeline.                                                                       
6:59:14 PM                                                                                                                    
The committee took a brief at ease.                                                                                             
7:00:40 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony on HB 247.                                                                                                     
LISA  REIDER  noted  she  is  an engineer  employed  in  the  oil                                                               
industry and is  an independent consultant.  The  numbers and the                                                               
percentages that are changing are  complicated, she said, but she                                                               
can comment that there certainly seems  to be a lot of changes in                                                               
the tax which  makes it very difficult for  industry employers to                                                               
maintain any stable  planning and business models.   She said she                                                               
is unhappy to  see Senate Bill 21  be overturned by HB  247.  The                                                               
climate  right  now  is  very   uncomfortable  for  those  people                                                               
employed in  this industry  as there are  multiple layoffs.   The                                                               
decreasing  supply  of  oil   obviously  affects  everybody,  but                                                               
increasing the  taxes to accommodate the  decreasing revenues due                                                               
to the decreasing [price] and  decreasing volume does not make it                                                               
a good  climate for industry  employers to  operate.  All  of her                                                               
peers  are   very  uncomfortable   with  the   current  unsettled                                                               
situation.   It does not  bode well  for the residents  of Alaska                                                               
who are  employed in  the industry or  the other  industries that                                                               
rely on the oil  industry.  The big picture is  that HB 247 would                                                               
take away  all of  the things  that were put  in place  by Senate                                                               
Bill 21 and she does not approve.                                                                                               
7:03:34 PM                                                                                                                    
REPRESENTATIVE SEATON noted that HB  247 has two components:  one                                                               
would raise the tax and harden  the floor and the other would cut                                                               
the amount  of cash credits  the state pays.    He  asked whether                                                               
Ms. Reider  sees those as the  same or two different  things.  In                                                               
response to  Ms. Reider  he clarified that  that the  cash credit                                                               
segment is  money that the state  pays out and the  other segment                                                               
would raise  the minimum  tax from  4 percent to  5 percent.   He                                                               
asked  whether Ms.  Reider sees  a difference  in perspective  of                                                               
raising taxes versus cutting the state's expenditures.                                                                          
MS.  REIDER  responded that  reducing  the  credits also  has  an                                                               
impact because many of her peers  in the industry are employed by                                                               
some of  the smaller companies  and she knows  from conversations                                                               
that  the  credits  are  important  to  them,  so  [reducing  the                                                               
credits]  makes  their  viability  less stable.    She  said  her                                                               
understanding is that the raising  of the other taxes affects the                                                               
larger companies  which is where  the majority of the  people are                                                               
employed and  there are quite  a few layoffs  going on.   So, she                                                               
continued, she cannot  see that one is better than  the other and                                                               
she does not like either one.                                                                                                   
REPRESENTATIVE SEATON  understood that  Ms. Reider is  opposed to                                                               
raising  taxes  on the  industry  and  said  he was  making  sure                                                               
committee members understood whether  Ms. Reider is talking about                                                               
all components of the bill or just raising taxes.                                                                               
MS.  REIDER  answered  all  components,  including  the  credits,                                                               
because those benefit the smaller companies.                                                                                    
7:06:25 PM                                                                                                                    
JAMES "HOTAI"  WILLIAMS testified that  raising taxes on  the oil                                                               
companies  must  be done  intelligently.    He urged  members  to                                                               
research what  the Europeans have  done, Norway and  Iceland have                                                               
raised  taxes the  oil companies  are  still there.   Alaska  got                                                               
bamboozled when the  oil companies got the giveaway of  a year or                                                               
so ago;  they were going to  protect jobs and promptly  fired 400                                                               
people.   The state must  tax the oil  companies as much  as they                                                               
can  pay because  the Lower  48 and  the rest  of the  world buys                                                               
Alaska's oil  and gas and that  is the money the  state lives on.                                                               
He does not  work for the oil  companies, but he used to.   He is                                                               
not against the  oil companies, but they need to  be paying their                                                               
fair  share.   The  oil  industry will  use  lobbyists and  scare                                                               
tactics  on legislators  to keep  the state  from taxing  them at                                                               
all.  Tax the oil companies  but use good common sense, he urged.                                                               
The oil  companies should  be taxed  intelligently and  should be                                                               
made  to pay  for the  goods  they take  out of  the ground  that                                                               
belong to the state.                                                                                                            
7:09:11 PM                                                                                                                    
The committee took an at-ease from 7:09 p.m. to 7:19 p.m.                                                                       
7:19:28 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony on HB 247.                                                                                                     
MARY LEE GUTHRIE offered her support  for HB 247, saying the bill                                                               
addresses issues  of scale, focuses  on a minimum tax  floor, has                                                               
transparency,  and provides  transition.    It is  understandable                                                               
that  having enjoyed  the world's  best incentive  program, these                                                               
changes may be  met with an outcry  of a world of hurt.   But, it                                                               
is really  important for legislators  and for Alaska  citizens to                                                               
take care of  the legacy capital that is the  product of Alaska's                                                               
natural  resources  and  the  state's  hardworking  oil  and  gas                                                               
industry, and  this is not being  down now.  The  tax credits and                                                               
incentives  have  grown  into  a  gigantic  "pick,  click,  give"                                                               
program that  Alaska's residents are  involuntarily participating                                                               
in.  Contributing $500-$700 million  a year to one sector exceeds                                                               
what  is  spent on  10  agency  budgets in  unrestricted  general                                                               
funds; the  scale is out of  line.  She urged  that the committee                                                               
consider  HB 247  with a  sense of  respect for  the oil  and gas                                                               
industry  and respect  for good  use of  Alaska's legacy  capital                                                               
that is essential to the state's  future.  She further urged that                                                               
the state's capital not be burned on a bridge to nowhere.                                                                       
7:22:15 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
7:22:59 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and continued                                                               
public testimony on HB 247.                                                                                                     
ELSTUN LAUESEN  related that  he has heard  a number  of industry                                                               
folks talk about how essential the  tax credits program is to the                                                               
development of the  state's oil and gas.  However,  he is put off                                                               
by  that because  critical programs  are being  cut and  everyone                                                               
must  share  this burden  together,  including  the oil  and  gas                                                               
industry.  He  offered his understanding that the  other body has                                                               
cut $500,000 from disabled senior  citizens services, yet he also                                                               
understands  that  in 2015  Hilcorp  Alaska,  LLC, received  $130                                                               
million  in credits  and  then  gave a  $100,000  bonus to  every                                                               
employee nationwide  at the end of  2015.  Five of  those bonuses                                                               
could have paid for the cut  to disabled senior citizens.  If the                                                               
purpose of these credits is  to ensure that capital investment is                                                               
being made  in Alaska and  putting Alaskans to work,  then audits                                                               
must  be done  on the  use of  those credits  to ensure  that the                                                               
credits are  being used  for the  stated purposes.   A  "but for"                                                               
criteria must also  be applied - "but for" those  funds a company                                                               
could  not have  made  that  investment.   That  is essential  to                                                               
protect  the integrity  of the  state's  budget and  legislators'                                                               
fiduciary responsibility  to the people  of the state  of Alaska,                                                               
not  the corporate  persons.   He urged  that the  committee give                                                               
positive consideration to the governor's proposals.                                                                             
7:26:29 PM                                                                                                                    
The committee took an at-ease from 7:26 p.m. to 7:54 p.m.                                                                       
7:54:56 PM                                                                                                                    
CO-CHAIR NAGEAK  called the meeting  back to order  and adjourned                                                               
the hearing.                                                                                                                    
[HB 247 was held over.]                                                                                                         

Document Name Date/Time Subjects
HSE RES 3.15.16 HB 247 LOS.pdf HRES 3/14/2016 6:00:00 PM
HB 247
HSE RES 3.15.16 HB 247 Oppose Communications.pdf HRES 3/14/2016 6:00:00 PM
HB 247