Legislature(2015 - 2016)BARNES 124

03/21/2016 01:00 PM RESOURCES

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Heard & Held
Heard & Held
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           HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                        
1:05:58 PM                                                                                                                    
CO-CHAIR NAGEAK  announced that  the first  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."                                                                                           
[Before the committee was the  proposed committee substitute (CS)                                                               
for HB 247, Version 29-GH2609\P,  Shutts, 3/18/16, adopted as the                                                               
working document on 3/19/16.]                                                                                                   
1:06:29 PM                                                                                                                    
CO-CHAIR  NAGEAK  stated  that  the Department  of  Revenue  will                                                               
provide the committee with a presentation on Version P.                                                                         
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
on  behalf of  the governor,  provided a  PowerPoint presentation                                                               
entitled, "Oil and Gas Tax  Credit Reform, Initial Reaction to CS                                                               
HB  247(RES)\P."   He began  by  thanking the  committee for  the                                                               
opportunity  to  respond to  Version  P,  the proposed  committee                                                               
substitute for  HB 247.   He explained that slides  2-3, "History                                                               
of Oil  and Gas  Production Tax Credits,"  lay the  groundwork on                                                               
[the reason  for HB 247].   The state's program of  refunding tax                                                               
credits  began to  grow in  roughly 2010,  he said,  although the                                                               
state  has refunded  tax  credits since  fiscal  year (FY)  2007.                                                               
Drawing attention to the chart  labeled, "Refunded Tax Credits by                                                               
Region,"  he pointed  out that  the trend  over the  last two  or                                                               
three  years has  been from  being  a very  North Slope  centered                                                               
expenditure to a very non-North  Slope, predominantly Cook Inlet,                                                               
centered  expenditure.   For 2015,  the last  complete year,  the                                                               
expenditure on refunded tax credits  was $628 million, of which a                                                               
little over $400 million was for outside the North Slope.                                                                       
MR.  ALPER  moved to  slide  3,  recounting  that last  year  the                                                               
governor line-item  vetoed the tax credit  appropriation language                                                               
limiting the  spend for  the current  year to  $500 million.   Of                                                               
that $500  million, about $473  million has actually  been spent.                                                               
Of that  $473 million, [58]  percent was non-North Slope,  so the                                                               
trend is continuing from last year  - about $200 million was from                                                               
North  Slope  and  $273  million  was from  Cook  Inlet  and  the                                                               
Interior.   The payout  in credits  was predominantly  on credits                                                               
that were  earned based on  activity that took place  in calendar                                                               
year 2014.  The department  is anticipating $700 million in total                                                               
demand, but those will generally  not be issued until this summer                                                               
and  will be  paid in  the next  fiscal year.   The  gap of  $200                                                               
million between the $500 million  authorized and the $700 million                                                               
expected is built into DOR's forecast number for FY 2017.                                                                       
1:09:10 PM                                                                                                                    
MR. ALPER displayed slide 4,  "Major Bill Themes," and noted that                                                               
the governor's  bill as originally  brought before  the committee                                                               
had several larger  themes of what the  administration was trying                                                               
to do and why.   One theme was to reduce  the state's annual cash                                                               
outlay, something  that is very  important in  a cash-constrained                                                               
environment.   Another  theme was  to protect  the net  operating                                                               
loss  [credits]   because  those  level  the   playing  field  by                                                               
providing  a   benefit  to  the  entities   trying  to  establish                                                               
themselves  in  the  oil  patch   as  opposed  to  the  incumbent                                                               
producers.   Another theme was  to put limits on  repurchasing so                                                               
that single companies  do not get very large amounts.   The other                                                               
themes were to:   strengthen the minimum tax so  that the state's                                                               
minimum  revenue  in  these  low   price  environments  would  be                                                               
protected in  some way; seek  more open and  transparent activity                                                               
so names and numbers could be  talked about better; and honor and                                                               
pay the credits earned to date through any transition period.                                                                   
MR.  ALPER showed  slide 5,  "Major Bill  Concepts in  Governor's                                                               
Proposal," and stated  he will discuss the six  major concepts in                                                               
the  governor's original  proposal, how  those concepts  evolved,                                                               
and how  they have  been amended  in Version  P.   Those concepts                                                               
are:  the  exploration credits; the Cook  Inlet drilling credits;                                                               
the repurchase  limits; the removal of  exceptions/loopholes; the                                                               
strengthening of the minimum tax; and other smaller provisions.                                                                 
1:10:27 PM                                                                                                                    
MR. ALPER presented  slide 6, "Summary of  Major Bill Provisions,                                                               
Exploration Credits," and examined  the exploration credits.  For                                                               
the most  part, Version  P keeps  intact what  the administration                                                               
was  looking to  do.   For the  North Slope  and Cook  Inlet, the                                                               
alternative credit for exploration  under AS 43.55.025(a) expires                                                               
on July  1, 2016; for Middle  Earth this credit expires  in 2022.                                                               
The original  bill allowed  these to expire,  as does  Version P.                                                               
The "super  credits," the  jack-up rig credit  in Cook  Inlet and                                                               
the  frontier basin  credit  in the  Interior  expire this  July.                                                               
These credits are allowed to  expire under both the original bill                                                               
and Version  P.   A provision in  the original  bill preemptively                                                               
repealed  several unused,  dormant,  exploration credit  programs                                                               
[in AS 38.05.180(i) and AS 41.09]  in order to clear the decks of                                                               
those and to clarify that it  is not the intention to have stand-                                                               
alone exploration credit  programs on the books.   This provision                                                               
was retained in Version P.                                                                                                      
MR.  ALPER continued  examining exploration  credits on  slide 6,                                                               
explaining that the original bill  included a specific Department                                                               
of  Natural Resources  (DNR) data  sharing  requirement [from  AS                                                               
43.55.023(b)].  The  department worked with the  committee to try                                                               
to revise  that and make  it work, but  in the end  the committee                                                               
chose to not keep this  provision in Version P, primarily because                                                               
there  is a  data sharing  requirement under  AS 43.55.023(a)(2),                                                               
the capital credit for exploration  that does provide the data to                                                               
DNR.  Since  that credit is going to remain  on the books another                                                               
data sharing  provision does not  need to be explicitly  added in                                                               
the bill's language.  Responding  to Representative Josephson, he                                                               
clarified  that Version  P maintains  the  20 percent  [qualified                                                               
capital  expenditure]  credit;  AS  43.55.023(a)(2)  allows  that                                                               
credit  to be  paid for  exploration expenses  and that  spending                                                               
includes a  link to the  language in the exploration  credit that                                                               
says seismic and  other data must be shared with  DNR, data which                                                               
DNR can eventually release to the public.                                                                                       
1:12:37 PM                                                                                                                    
MR. ALPER  brought attention to  slide 7, "Summary of  Major Bill                                                               
Provisions, Cook Inlet Drilling Credits,"  and said that the more                                                               
material change in Version P was  made to the Cook Inlet drilling                                                               
credit section  of the  bill.   The governor's  original proposal                                                               
looked  to repeal  completely the  20 percent  [qualified capital                                                               
expenditure (QCE)]  credit [AS 43.55.023(a)]  and the  40 percent                                                               
[well   lease  expenditure   (WLE)]   credit  [AS   43.55.023(l)]                                                               
effective July 1,  2016.  The decision in Version  P was to phase                                                               
out  the WLE  [credit] over  2017 and  2018 and  to keep  the QCE                                                               
credit in  place until 2022.   He said 2022 is  a forward looking                                                               
year tied to  the plan for a broader Cook  Inlet tax reform bill.                                                               
The governor's  original bill looked  to maintain the  25 percent                                                               
[net operating  loss (NOL)]  credit, while  Version P  reduces it                                                               
from 25 percent to 10 percent [beginning in 2017].                                                                              
MR. ALPER  continued on slide  7 and  outlined the impact  of the                                                               
changes in the  aggregate of Version P.  The  governor's bill, he                                                               
said, was  looking to  reduce the total  support for  spending in                                                               
Cook  Inlet to  25  percent  beginning in  FY  2017.   Version  P                                                               
reduces  that  total  support  to  30  percent  beginning  midway                                                               
through FY 2018, a delay of  18 months in the full implementation                                                               
versus what the  governor's bill proposed.  By  preserving the 20                                                               
percent capital  credit and reducing  the loss credit,  Version P                                                               
changes somewhat the actual companies  that will be receiving the                                                               
credit  support, specifically  the  companies  outside the  North                                                               
Slope that are  producing oil and gas and that  if profitable are                                                               
held harmless under  the Cook Inlet tax caps that  go back to the                                                               
production  profits tax  (PPT) bill  of 2006.   Under  Version P,                                                               
those   companies  that   may  be   profitable  and   not  paying                                                               
substantial  taxes  would  be  able to  receive  the  20  percent                                                               
capital  credit, whereas  in the  governor's original  bill those                                                               
companies would not get any credit  support.  Version P also adds                                                               
language  setting  up  a  legislative working  group  to  get  to                                                               
planning towards the broader Cook  Inlet tax reform that needs to                                                               
be on the books by 2022.                                                                                                        
1:14:50 PM                                                                                                                    
MR. ALPER addressed  slide 8, "Summary of  Major Bill Provisions,                                                               
Repurchase Limits."   He noted that these  are statewide changes,                                                               
although  predominantly understood  North  Slope  projects.   The                                                               
governor's original bill  proposed a per company per  year cap of                                                               
$25 million,  meaning if  a company earned  credits in  excess of                                                               
that number those would have to  be carried forward into the next                                                               
year  or  held onto  until  that  company  had a  tax  liability.                                                               
Version  P has  a $200  million per  company per  year cap.   The                                                               
governor's original  bill also looked at  three other provisions:                                                               
to exempt  any payment at  all for  very large companies  with an                                                               
excess of  $10 billion  of annual revenue;  to provide  an Alaska                                                               
resident  hire provision;  and  to provide  a  10-year sunset  on                                                               
carried-forward  credits  where  those   credits  could  be  lost                                                               
outright.  Version P eliminated those three provisions.                                                                         
MR. ALPER  said the impact  of the  $200 million per  company per                                                               
year cap  is to protect  the state in the  event of a  very large                                                               
outlier project, such as proposed  by Mr. Armstrong [of Armstrong                                                               
Oil &  Gas Inc., owner  of the Pikka  Unit].  For  example, DOR's                                                               
modeling of  a comparable project  shows that the  state's credit                                                               
liability in  advance of getting substantial  revenue could reach                                                               
as much as  $800 million per year.  He  clarified that Version P,                                                               
as currently written,  does not consider the  possibility that if                                                               
Mr.  Armstrong were  to proceed  with this  project and  bring in                                                               
three  partners, each  of the  four partners  could receive  that                                                               
$200 million  cap and  the state would  potentially have  an $800                                                               
million liability.                                                                                                              
1:16:27 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  posed a hypothetical scenario  in which                                                               
Armstrong Oil &  Gas Inc. has two partners and  asked whether the                                                               
state's liability would become $2.4  billion or would remain $800                                                               
MR. ALPER  replied that the  modeling done by Tax  Division staff                                                               
looked at  the economics of  the overall  project life cycle.   A                                                               
large  project  like  that  had   about  $9  billion  in  capital                                                               
expenditure associated with  it, so the lifetime  total amount of                                                               
credits was about  $3 billion over several years.   The peak year                                                               
of  credits,  regardless of  the  number  of partners,  was  $800                                                               
million.  The $200 million cap  if it were a single company would                                                               
change that project somewhat.  If  the project owner came in with                                                               
multiple  partners it  would be  less of  a change,  meaning that                                                               
three partners or  four partners could earn $600  or $800 million                                                               
collectively  and only  the difference  between  that number  and                                                               
$800 million would be carried forward into the next year.                                                                       
1:17:29 PM                                                                                                                    
REPRESENTATIVE SEATON  asked what  the state's exposure  would be                                                               
in a scenario  of 750 million barrels of shale  oil with multiple                                                               
players within a unitized area.                                                                                                 
MR. ALPER responded  that the North Slope taxpayers pay  tax as a                                                               
company based on the company's  total North Slope operation.  The                                                               
state does not  have any sort of ring fencing  from unit to unit.                                                               
Regardless of  how many partners  there were, each could  earn up                                                               
to  the $200  million  cap.   The  governor's  original bill  was                                                               
structured  the same  way as  Version P,  only the  limit in  the                                                               
original bill  was $25 million instead  of $200 million.   With a                                                               
35 percent net operating loss  credit, which is the primary North                                                               
Slope credit,  a company would need  to have $471 million  a year                                                               
in operating  loss at 35 percent  to earn the full  $200 million.                                                               
So,  multiple partners  in a  shale development  earning at  that                                                               
level would be a very large project.                                                                                            
1:19:09 PM                                                                                                                    
MR. ALPER resumed his presentation,  turning to slide 9, "Summary                                                               
of Major  Bill Provisions,  Repurchase Limits  (cont'd), Historic                                                               
Notes on  large annual credits."   He  explained that a  look was                                                               
taken  at DOR's  historic record  from 2007  through the  current                                                               
fiscal year to  get a sense for how many  of these large payments                                                               
there have been  over time.  There has been  only one instance of                                                               
a company in a single year  earning more than $200 million a year                                                               
in  tax  credits.   There  have  been  five instances  where  one                                                               
company received between  $100 and $200 million in a  year.  And,                                                               
there  have  been  eleven  times where  a  company  has  received                                                               
between  $50 and  $100  million  [in one  year].   Those  sixteen                                                               
transactions  are  the  difference between  what  the  governor's                                                               
original bill  was suggesting.   There is  an even  larger number                                                               
between $25 and  $50 million, he added, but there  was not enough                                                               
time to do that much research.                                                                                                  
1:19:59 PM                                                                                                                    
REPRESENTATIVE HERRON,  in regard  to repurchase limits,  posed a                                                               
scenario of four  partners.  He asked whether  all partners would                                                               
automatically  get  the credits  or  whether  a process  must  be                                                               
followed such that some partners would get more than others.                                                                    
MR. ALPER  replied that  the answer depends  on who  the partners                                                               
are and  the ratio of  their expenditures.  Four  equal partners,                                                               
each spending  $571 million per year,  could each max out  at the                                                               
[$200 million]  level.   It is  an operating  loss credit  and to                                                               
qualify  all those  expenditures would  have to  qualify; certain                                                               
types of activities do not qualify  for credit.  If some of those                                                               
credits had a smaller participation,  a company's credit would be                                                               
capped  at 35  percent of  its  actual spend.   If  a partner  in                                                               
question  was a  major producer  that is  ineligible to  get cash                                                               
because of  the existing  limit in statute  where a  company with                                                               
more  than 50,000  barrels a  day in  production cannot  get cash                                                               
credits, that  producer would have  to use its credits  to offset                                                               
its tax  liability.   If the  producer had  a tax  liability, the                                                               
producer could wipe  it down to zero.  But,  if the producer does                                                               
not have  a tax  liability, the  producer would  have to  roll it                                                               
forward into the next fiscal year.                                                                                              
REPRESENTATIVE  HERRON, regarding  the historic  instances, asked                                                               
whether Mr.  Alper has  a ballpark figure  of how  many companies                                                               
have received $49 million and below.                                                                                            
MR. ALPER answered that that would  be hard to do.  Including the                                                               
current fiscal year,  he said, a touch less than  $3.5 billion in                                                               
checks for  credits have been  written.  "Looking at  the numbers                                                               
before us," he continued, "this  represents about a billion and a                                                               
half dollars,  I'm guessing;  so, another  $2 billion  in smaller                                                               
credits in smaller numbers."                                                                                                    
REPRESENTATIVE HERRON  inquired whether  that is spread  over 20,                                                               
30, 40, or 50 companies.                                                                                                        
MR. ALPER  replied it is  probably a  much larger number.   There                                                               
are some  very small  numbers, there are  some very  small junior                                                               
partners in large  fields who happen to own a  little acreage who                                                               
are getting a tiny share of it.   There is a very large number of                                                               
transactions in  a year.  There  is a concentration in  a few big                                                               
ones, but there is a lot of line items.                                                                                         
1:22:20 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  addressed   the  previously  mentioned                                                               
hypothetical project of 750 million  barrels, a large Pikka-sized                                                               
project, with $800 million theoretically  if there was or was not                                                               
a number of  partners.  He asked whether  the $500-$600 [million]                                                               
in repurchasables would be in  addition to the $800 million, such                                                               
that the  state's exposure with  what Mr.  Armstrong contemplates                                                               
would be $1.4 billion at least in FY 2017.                                                                                      
MR. ALPER  responded that DOR  currently has no such  projects in                                                               
its forecast.   If,  say, DOR  is forecasting  $600 million  in a                                                               
given year and  then a company comes  in and says it  is going to                                                               
spend $2 billion  next year, then, yes, DOR would  have to adjust                                                               
the forecast  by 35  percent of  that in addition  to what  it is                                                               
already forecasting.                                                                                                            
1:23:23 PM                                                                                                                    
MR. ALPER returned to his  presentation, noting that the historic                                                               
instances outlined  on slide 9 are  for both the North  Slope and                                                               
Cook Inlet, although  the larger numbers are  concentrated in the                                                               
larger North Slope projects that have occurred.                                                                                 
MR. ALPER  moved to slide 10,  "Remove Exceptions/Loopholes," and                                                               
thanked  the co-chairs  as well  as committee  staff for  working                                                               
with DOR  and allowing  DOR to make  its case on  this.   For the                                                               
most  part,  he  said,  these  issues were  left  intact  in  the                                                               
committee substitute.  Under Version  P, a company cannot use the                                                               
gross  value  reduction (GVR),  the  new  oil tax  reduction,  to                                                               
increase the size  of a net operating loss credit.   As was shown                                                               
by  the legislature's  consultant, Mr.  Mayer of  enalytica, this                                                               
could lead to instances of  companies getting very large credits,                                                               
in some cases greater than 100  percent of their loss.  The other                                                               
provision kept  in Version P  is the municipal  utility exception                                                               
where if a  municipal utility is selling a portion  of its gas to                                                               
a third party,  the utility only gets to deduct  a pro-rata share                                                               
of its  lease expenditures against  that sale for the  purpose of                                                               
calculating any credits.                                                                                                        
MR.  ALPER  displayed slide  11,  "Strengthen  Minimum Tax,"  and                                                               
pointed out that several subsections  in the original bill looked                                                               
to  strengthen or  increase the  size of  the minimum  tax floor.                                                               
Provisions that  would have impacted the  legacy/major producers,                                                               
included:   the idea  that a  [net operating  loss] credit  in an                                                               
extended low  price scenario  cannot be  used to  reduce payments                                                               
below the [4  percent] floor; the idea that  at true-up companies                                                               
cannot  use  per-taxable-barrel  credits   earned  in  one  month                                                               
against  taxes  accrued  in  another   month;  and  the  idea  of                                                               
increasing  the  minimum  tax  from   4  percent  to  5  percent.                                                               
Provisions that  would have impacted new  oil producers included:                                                               
extending  the  minimum  tax  to   GVR-eligible  new  oil,  which                                                               
currently can go  as low as zero; disallowing  the small producer                                                               
credit  from   reducing  tax  payments   below  the   floor;  and                                                               
increasing  the  minimum  tax  from   4  percent  to  5  percent.                                                               
However, he said, all of  the aforementioned provisions impacting                                                               
the minimum tax are removed in Version P.                                                                                       
1:26:09 PM                                                                                                                    
MR. ALPER reviewed  slide 12, "Summary of  Major Bill Provisions,                                                               
Other  Provisions."   Regarding  interest rates,  he thanked  the                                                               
committee for  keeping in  Version P  the provision  for compound                                                               
interest.    He  said  DOR  strongly  believes  that  the  simple                                                               
interest  resulting  from a  late  amendment  to Senate  Bill  21                                                               
[passed in  2013, Twenty-Eighth Alaska State  Legislature] was an                                                               
inadvertent change.   The department thinks  compound interest is                                                               
a more  appropriate way  to treat this.   However,  he continued,                                                               
Version  P maintains  the current  statutory interest  rate of  3                                                               
percent  above the  federal discount  rate, currently  that is  4                                                               
percent interest.  The original  bill proposed 7 percent over the                                                               
federal rate.   Prior to the reforms of Senate  Bill 21, the rate                                                               
was  11   percent  above  the   federal  rate.    In   regard  to                                                               
confidentiality  and transparency,  he  noted  that the  original                                                               
version  of HB  247 proposed  making  public the  names of  those                                                               
companies receiving  credits and how much  each company received,                                                               
but that section  is removed in Version P.   Another provision in                                                               
the  original bill  was that  transportation costs  cannot reduce                                                               
gross  value at  the point  of  production below  zero, and  this                                                               
section  is  removed in  Version  P.    However, Version  P  does                                                               
preserve the  authority to  use a tax  credit certificate  to pay                                                               
off  another obligation  to the  state.   Currently if  a company                                                               
owes  taxes, DOR  can withhold  credit certificates  to help  pay                                                               
those  taxes,  but  DOR  was  looking to  expand  that  to  other                                                               
liabilities  such as  royalty obligations  that might  be unpaid.                                                               
While  Version P  substantially  rewrites  and restructures  this                                                               
provision, the  net effect is  roughly the  same - DOR  will have                                                               
the authority to make sure that state agencies are kept whole.                                                                  
1:27:42 PM                                                                                                                    
REPRESENTATIVE  TARR observed  that in  Version P,  Section 7  is                                                               
about  the natural  gas  storage facility  credit,  Section 8  is                                                               
about liquefied natural gas storage  facility credit, and Section                                                               
9  is  the  in-state   oil  refinery  infrastructure  expenditure                                                               
credit.  Noting  these were not included in  the original version                                                               
of HB  247, she requested  Mr. Alper to discuss  these provisions                                                               
and how they apply to the outstanding liability of the state.                                                                   
MR. ALPER  answered that Sections  7, 8, and  9 of Version  P are                                                               
purely conforming changes; similar  references were made to these                                                               
credits  in Sections  9, 10,  and 11  of the  governor's original                                                               
bill.    These three  credits  are  earned inside  the  corporate                                                               
income tax statutes,  AS 43.20, but are unique in  that among the                                                               
corporate  income tax  statutes they  are cashable,  they can  be                                                               
repurchased using  money in  the tax  credit fund,  AS 43.55.028.                                                               
Restrictive language needed  to be added in  those three sections                                                               
to say  the state does  not want to pay  those if a  company owes                                                               
other obligations to  the state.  Although it  has been rewritten                                                               
dramatically by the  legislative drafters, the net  effect is the                                                               
same.   What is seen  is new language  that says "Subject  to the                                                               
requirements in  AS 43.55.028(e)."   He  offered his  belief that                                                               
the committee will see an  amendment eventually that changes that                                                               
to  (j).   Version  P,  Section  17,  subsection .028(j)  is  new                                                               
language that  talks about the  mechanism by which the  state can                                                               
ensure that it does not pay out  tax credits in cash if a company                                                               
owes another obligation to the state.                                                                                           
1:29:45 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON drew attention  to the last statement on                                                               
slide 12 regarding the other  provisions of Version P, "Preserves                                                               
authority to  use Credit certificates  to satisfy  obligations to                                                               
the state before repurchase."   He recalled Mr. Alper's inference                                                               
that this could be lived with.   He said the basic distinction he                                                               
sees is that  under the governor's original bill  the state would                                                               
make  no   payment  whatsoever   until  other   obligations  were                                                               
satisfied,  but under  Version  P only  the  difference would  be                                                               
paid,  not the  full  amount.   Although  he  could see  industry                                                               
saying that [the  original version] was too coercive,  he said he                                                               
views [Version P] as a serious distinction.                                                                                     
MR.  ALPER  clarified  that it  was  never  the  administration's                                                               
intent  to hold  back the  whole  credit.   The discussion  among                                                               
committee staff and  himself was that the  way the administration                                                               
wrote it  might be interpretable that  way, but that was  not the                                                               
administration's  intent.   The desire  is  only to  pay off  any                                                               
obligation that  is actually owed  to the state agency  and still                                                               
pay the  company the remainder  of the credit.   Much of  what is                                                               
seen in  Version P clarifies  what the  administration's original                                                               
intent was.   Version  P adds another  restriction in  Section 17                                                               
which requires a  company to authorize DOR to  pay the obligation                                                               
on  the  company's behalf,  with  the  alternative, he  supposed,                                                               
being that  DOR is effectively  an escrow account by  holding the                                                               
money  on behalf  of both  the company  and the  state agency  to                                                               
which the company owed money, but  DOR would be unable to pay the                                                               
state  agency   without  the   company  giving   DOR  affirmative                                                               
permission to do so.                                                                                                            
1:31:37 PM                                                                                                                    
MR. ALPER  continued his presentation,  noting that  slides 13-18                                                               
provide example scenarios  of how the changes in  Version P would                                                               
impact different  types of producers and  developers in different                                                               
parts of  the state.   He explained that these  example scenarios                                                               
are updates  to similar slides  that he provided in  his original                                                               
presentation in February.   Regarding slide 13,  "Bill CS Impact:                                                               
Example Scenarios,  North Slope  Major Producer," he  stated that                                                               
for the  North Slope  major producer  there is  no change  at any                                                               
price as to  how such producers would be impacted  by the changes                                                               
in Version P versus current statute.                                                                                            
MR. ALPER showed  slide 14, "Bill CS Impact:   Example Scenarios,                                                               
North  Slope New  or  Smaller Producer,"  and  explained that  at                                                               
higher oil  prices there would  be no  change for new  or smaller                                                               
producers.  However,  for a new producer with  an operating loss,                                                               
either because  prices are very  low or because the  new producer                                                               
is still  building out  its field  and operating  at a  loss even                                                               
though it is  producing and selling oil, the  provision where the                                                               
size  of the  NOL credit  cannot be  increased through  the gross                                                               
value  reduction will  have a  material impact  on those  new and                                                               
smaller producers.                                                                                                              
REPRESENTATIVE  JOSEPHSON  inquired  whether  he  is  correct  in                                                               
recalling that  the governor's original bill  projected that this                                                               
feature might save the state $12 or $13 million.                                                                                
MR. ALPER  replied that that may  have been what he  said a month                                                               
ago  and sounds  about right.   However,  based upon  more recent                                                               
information that number is a  bit larger, because with the prices                                                               
as low as they are more companies are going to be impacted.                                                                     
1:33:17 PM                                                                                                                    
MR.  ALPER  resumed his  presentation  and  brought attention  to                                                               
slide 15,  "Bill CS Impact:   Example Scenarios, North  Slope New                                                               
Project  Developer."   In  this scenario,  he  said, the  project                                                               
developer would  not have any  change, with the exception  of the                                                               
very large  project limited by  the $200 million per  company per                                                               
year cap.  That $200 million  a year reflects 35 percent of about                                                               
$570 million  [a year] in  capital spending for a  single company                                                               
to reach  the $200 million  limit.   So, short of  that threshold                                                               
there is no change in Version  P from current law, but above that                                                               
threshold  an outlier  project like  the Armstrong  project would                                                               
start bumping up against the $200 million cap.                                                                                  
MR.  ALPER  looked  to  slide  16,  "Bill  CS  impact:    Example                                                               
Scenarios,  Cook  Inlet  Existing  Producer,"  noting  that  Cook                                                               
Inlet's current statutory  tax caps sunset in 2022  and Version P                                                               
maintains this.  Under current  law the state's credit support is                                                               
45-65  percent through  the [qualified  capital expenditure]  and                                                               
[well lease expenditure] credits,  and existing producers are not                                                               
eligible for  the [net operating  loss] credit.  Version  P would                                                               
reduce the state's support to 20-30  percent in 2017, and then to                                                               
20  percent beginning  in  2018  and through  the  sunset of  the                                                               
credits.  The [qualified capital  expenditure] credit is repealed                                                               
in 2022 and Version P has  lots of language that conforms to some                                                               
statutory changes being  made six years from  now in anticipation                                                               
of another  change, a  new tax regime  that the  legislature will                                                               
develop sometime between now and then.   Version P includes a new                                                               
section that  requires a [legislative]  working group,  a process                                                               
with a  report to the  legislature sometime in the  first session                                                               
of the  Thirtieth Alaska State  Legislature in the early  part of                                                               
2017.   The  report will  have recommendations  on different  tax                                                               
regimes for Cook  Inlet as well as for the  other non-North Slope                                                               
areas of  the state.   In  2022, without  any change,  Cook Inlet                                                               
will revert  to a  very high  tax of 35  percent net  profits tax                                                               
with only  a 10  percent net  operating loss  credit and  no per-                                                               
barrel or  capital credits.   This underlying tax system  in Cook                                                               
Inlet is quite high, he  advised, and therefore probably unstable                                                               
and that is why  there is a need to find some  way to replace it.                                                               
The key  thing and major change  in Cook Inlet is  that Version P                                                               
continues support  for capital spending  at the 20  percent level                                                               
while  the  governor's original  bill  would  have replaced  that                                                               
number with zero.                                                                                                               
1:35:53 PM                                                                                                                    
MR.  ALPER  addressed  slide  17,   "Bill  CS  Impact:    Example                                                               
Scenarios, Cook Inlet New Field  Developer," explaining that this                                                               
developer  would be  building something  but would  not currently                                                               
have sales.  In 2017 that  company would receive about 35 percent                                                               
credit  support, whereas  presently that  company receives  50-55                                                               
percent.  Currently  there is the blend of the  20 and 40 percent                                                               
plus the 25  percent net operating loss.  Version  P reduces that                                                               
to  a  blend  of 20  and  30  percent  plus  the 10  percent  net                                                               
operating  loss, for  an aggregate  of  about 35  percent.   That                                                               
would only be for one year.   Beginning in 2018, the reduction of                                                               
the   [well  lease   expenditure]  credit   to  20   percent,  or                                                               
alternatively  its   repeal,  is   an  immaterial   dollar  value                                                               
difference.   The reduction  of the  [net operating  loss] credit                                                               
will result  in a 30  percent credit  support, the state  will be                                                               
paying for  30 percent of the  cost of an ongoing  development in                                                               
Cook   Inlet   between   the  20   percent   [qualified   capital                                                               
expenditure]  credit  and the  10  percent  [net operating  loss]                                                               
credit.   Very large projects  would theoretically be  limited by                                                               
the $200  million per company per  year cap.  However,  with a 10                                                               
percent [net operating  loss] credit it would be  very, very hard                                                               
to reach  these kind  of numbers, it  would take  extremely large                                                               
investments by a single company  to approach the $200 million per                                                               
company per year cap in Cook Inlet.                                                                                             
MR. ALPER drew  attention to slide 18, "Bill CS  Impact:  Example                                                               
Scenarios,  Interior /  Frontier  Area Explorer."   The  Frontier                                                               
Area  super credits  will sunset  July 2016,  he said,  while the                                                               
exploration  credits are  extended through  2022.   Extending the                                                               
exploration  credits  means   that  qualified  expenditures  will                                                               
continue to  be paid  at 50 percent,  roughly 40  percent through                                                               
the  exploration  and  10 percent  through  the  operating  loss.                                                               
Addressing the  first bullet, he  explained that once out  of the                                                               
exploration phase and into the  development phase, a company's 20                                                               
percent  capital  credit  and 10  percent  [net  operating  loss]                                                               
credit would result in about  a 30 percent credit support, lining                                                               
up with the Cook Inlet numbers beginning in 2018.                                                                               
1:37:59 PM                                                                                                                    
MR. ALPER  explained that slide  19, "To-date Cost  of Sunsetting                                                               
Credits," provides  an aggregate  sense of  the dollar  values of                                                               
the  credits that  are intended  to be  sunset, that  without any                                                               
legislative action  are going  to be  disappearing over  the next                                                               
several years.   Regarding the various  exploration credits since                                                               
2007 until  sunset, the  state has  refunded/paid out  about $270                                                               
million in  credits on the  North Slope, and companies  have used                                                               
about $190 million to offset their  tax liability.  Off the North                                                               
Slope  in Cook  Inlet and  the Interior,  the state  has refunded                                                               
about $160  million and nothing  has been used  against liability                                                               
because typically the Cook Inlet  explorers are not taxpayers and                                                               
even if  they were  there is very  limited tax  liability against                                                               
which to offset their taxes,  their credits.  Regarding the small                                                               
producer credit, he  explained that a single company  can earn up                                                               
to $12  million per year of  this credit, and there  are multiple                                                               
companies  that  are able  to  claim  it.   Currently  about  $50                                                               
million a year  is used on the North Slope  and over the lifetime                                                               
of the credit through 2016, there  will be smaller numbers in the                                                               
years as the  credit trickles out.  The state  has given out $340                                                               
million in credits  against liability on the North  Slope and off                                                               
the North  Slope the state has  given out about $60  million.  He                                                               
pointed out that small producer  credits cannot be refunded, they                                                               
can only  be used to  offset a tax liability.   In sum  total for                                                               
these sunsetting credits,  the state has either  paid or foregone                                                               
revenue of slightly over $1 billion between their start and now.                                                                
1:39:40 PM                                                                                                                    
MR.  ALPER reviewed  slide 20,  "Revenue Impact,  Changes in  CS,                                                               
Preliminary Analysis of Bill Changes  ($millions), (based on Fall                                                               
2015  Forecast)."   He  said the  chart on  this  slide tries  to                                                               
summarize the  fiscal impact  of Version  P.   He advised  that a                                                               
fiscal  note  is  forthcoming that  takes  this  information  and                                                               
extends it  into the  future.   Also forthcoming  will be  a more                                                               
detailed fiscal note that DOR is  working on to break out many of                                                               
the subcomponents of  the bill.  He explained that  this chart is                                                               
based on the fall 2015 forecast.   The [2016] spring forecast was                                                               
released in preliminary form this  morning, he continued, but DOR                                                               
has not  yet internalized those  numbers into this chart.   Under                                                               
Version  P  the expected  reduction  in  state spending  is  $400                                                               
million in FY 2017, $325 million  in FY 2018, and $200 million in                                                               
FY 2019.  In FY 2019  the drop-off is tied primarily to unknowns,                                                               
not  knowing  what  kind  of  money companies  are  going  to  be                                                               
spending  and  therefore  DOR  cannot  project  credits.    Under                                                               
Version P  the expected increase  in revenue is  $50-$100 million                                                               
per year.   "By  eliminating the floor  minimum tax  changes," he                                                               
said, "those numbers are reduced to zero ..."                                                                                   
REPRESENTATIVE  OLSON, regarding  the  forthcoming fiscal  notes,                                                               
pointed out  that the  committee's next meeting  is tonight.   He                                                               
presumed Mr. Alper is not meaning tonight.                                                                                      
MR. ALPER responded  that he redrafted both of  the fiscal notes,                                                               
they are completed  and in the review process, and  need to go to                                                               
through the governor's office.   The Department of Revenue issued                                                               
two fiscal notes,  one tied to the bill itself  and the increases                                                               
in  revenue in  the detailed  description  of the  bill, and  the                                                               
other tied to the  fund cap, to the money that  is going into the                                                               
tax credit fund  and the reduction in annual money  coming out of                                                               
it.  He said the hope is  that the committee will have the fiscal                                                               
notes today or tomorrow morning.                                                                                                
1:41:32 PM                                                                                                                    
MR.  ALPER,  at  Representative Seaton's  request,  repeated  his                                                               
review  of slide  20.   The governor's  original bill  envisioned                                                               
three sets  of changes,  he said.   On the  revenue side  was the                                                               
minimum  tax changes  -  the  hardening [of  the  floor] and  the                                                               
increase from 4 percent to 5  percent.  The original bill foresaw                                                               
$100 million in the near-term years  and $50 million in the outer                                                               
years.  [In Version P] those  numbers are reduced to zero because                                                               
the minimum  tax is left  intact.  On  the side of  reductions in                                                               
spending  there is  the North  Slope category  and the  non-North                                                               
Slope category.  There are two  distinctions in the credits.  The                                                               
first is the  credits that are eliminated or reduced;  the law is                                                               
actually changed  to say that  a certain  credit is not  going to                                                               
exist anymore, or  the number is being changed, or  a loophole is                                                               
being closed and people are not  going to get that money anymore.                                                               
The second  is the credits  that are deferred; the  companies are                                                               
going to  continue to  earn the  credits, generally  speaking the                                                               
certificate  credits,  but because  of  the  caps that  would  be                                                               
added, most  importantly the $25  million cap, the  companies are                                                               
not  going to  get all  of that  money and  must instead  roll it                                                               
forward into a future year.   By putting in the $200 million cap,                                                               
the  so-called deferred  category is  zeroed out,  there are  not                                                               
going to be any credits deferred  in our forecast the way DOR has                                                               
it structured.   Should  something large  happen, in  other words                                                               
should something like  the Pikka project be  sanctioned and large                                                               
amounts  of  money  start  to  be spent,  DOR  would  modify  the                                                               
forecast and then  there would be a fiscal impact  to the changes                                                               
in  Version P  based on  the $200  million cap.   Because  of the                                                               
numbers that  DOR has in its  forecast, the changes in  Version P                                                               
eliminate the  savings from deferred  credits, which  then brings                                                               
things  to the  credits eliminated  or  reduced.   For the  North                                                               
Slope the  main difference  is the GVR/NOL  thing, which  is left                                                               
intact; in  FY 2017  and FY  2018 the  number is  essentially the                                                               
same,  that number  is reduced  at  the number  DOR forecast  it.                                                               
Because  of the  delay in  the effective  date, FY  2017 ends  up                                                               
being  half of  a  year.   For  the Cook  Inlet  the changes  are                                                               
related  to  the   change  in  the  credits:     the  well  lease                                                               
expenditure credit  is eliminated over an  18-month period rather                                                               
than immediately,  the [qualified capital expenditure]  credit is                                                               
maintained, and the [net operating  loss] credit is reduced.  The                                                               
effect of those changes is going  to have a smaller fiscal impact                                                               
for three reasons:  because  the numbers are smaller; because the                                                               
numbers  are  delayed;  and because  support  is  maintained  for                                                               
producers who would  not otherwise be getting  any credit support                                                               
under  the   structure  of  the   governor's  bill.     The  best                                                               
preliminary estimates, which will evolve  over time, are that the                                                               
fiscal impact  of Version P  will be  a reduction in  the state's                                                               
credit outlay of roughly $50 million or $60 million per year.                                                                   
1:45:15 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON understood that  Version P would largely                                                               
keep  the state  where it  is currently,  although this  would be                                                               
less so in Cook Inlet in the out  years.  He asked what the other                                                               
oil and  gas producing states  that are suffering the  exact same                                                               
oil and gas recession are doing with their credit packages.                                                                     
MR. ALPER answered he is  not aware of comparable credit packages                                                               
in the U.S.   Alaska is the only state in the  U.S. that taxes on                                                               
net profits  and Alaska  has a more  sophisticated tax  regime, a                                                               
more sophisticated incentive regime.   He offered his belief that                                                               
North Dakota's gross  tax does get reduced at  low prices because                                                               
it  is structured  as a  tax and  a surtax.   He  added that  the                                                               
Competitiveness  Review Board  has  put out  a  good report  that                                                               
highlights those  things.  He  said he  would not say  things are                                                               
being kept intact; Version P  definitely making changes, they are                                                               
simply  not  as aggressive  as  was  originally proposed  by  the                                                               
REPRESENTATIVE SEATON  asked whether  he is correct  in observing                                                               
on  slide 20  that for  Cook Inlet/Middle  Earth in  FY 2017  the                                                               
difference between the governor's original  bill and Version P is                                                               
$130 million.                                                                                                                   
MR.  ALPER  replied, "To  the  best  we  could determine  in  the                                                               
limited time available,  yes."  Continuing, he said FY  2017 is a                                                               
bit  deceptive  because  the  governor's  original  bill  had  an                                                               
effective date  of July 1 [2016],  the beginning of FY  2017; but                                                               
Version P does  not bring in any changes at  all until January 1,                                                               
[2017], which is  halfway through FY 2017.  Also,  [in Version P]                                                               
the [well  lease expenditure] credit  in FY 2017 is  only reduced                                                               
from 40 percent  to 30 percent, which is quite  a material number                                                               
in Cook  Inlet.  Thus, a  couple of things conspire  to drag down                                                               
the number specifically in FY 2017 as a percentage of the total.                                                                
1:47:38 PM                                                                                                                    
MR.   ALPER   reviewed   slides  21-22,   "Implementation   Cost,                                                               
Transition."  Addressing  slide 21, he noted  that the governor's                                                               
original  bill was  written with  an  effective date  of July  1,                                                               
2016.  In Version P the  predominant effective date is January 1,                                                               
2017, with  the full repeal or  the full reduction to  20 percent                                                               
of the [well  lease expenditure] credit not until  2018, which is                                                               
about  an 18-month  delay.   Version  P retains  the fiscal  note                                                               
initially proposed in the governor's  original bill, which adds a                                                               
fund  capitalization  of $926,575,000.    That  is not  a  random                                                               
number, he  explained, it is  the number  that when added  to the                                                               
number in the operating budget comes  up with an even $1 billion,                                                               
which is  the number the  administration looked to for  funding a                                                               
transition from the current system into  the new system.  That is                                                               
more than enough  money to cover any anticipated  expending in FY                                                               
2017, but [DOR] expects the  legislature will need to appropriate                                                               
more money before getting to the  end of FY 2018 and then beyond.                                                               
[The impact of Version P] on  the transition is that the money is                                                               
still there,  but will not  go as far and  so more money  will be                                                               
needed  to  maintain the  program  because  the program  and  the                                                               
state's liability would be larger in years to come.                                                                             
REPRESENTATIVE SEATON understood  the initial fund capitalization                                                               
was included  because the credit amounts  were being dramatically                                                               
reduced, but in Version  P that is not going to  happen or is not                                                               
going  to happen  for a  deferred time.   Noting  that Version  P                                                               
retains  the fund  capitalization, he  inquired where  that money                                                               
will come from.                                                                                                                 
MR. ALPER responded  that his original understanding  was that an                                                               
appropriation  would  be  made  from  the  constitutional  budget                                                               
reserve (CBR) to endow this  transition fund, and that that would                                                               
be  part of  the larger  package of  implementing the  governor's                                                               
entire fiscal plan.                                                                                                             
RANDALL  HOFFBECK,  Commissioner,  Department of  Revenue  (DOR),                                                               
confirmed that the original intent  in the governor's bill was an                                                               
appropriation from the CBR to endow the fund.                                                                                   
1:50:24 PM                                                                                                                    
REPRESENTATIVE  SEATON asked  where the  authorization for  a CBR                                                               
vote or an intent for a CBR vote is located in Version P.                                                                       
MR. ALPER  replied the  fiscal note  for fund  capitalization was                                                               
written by DOR, but  in some ways was on behalf  of the Office of                                                               
Management & Budget  (OMB).  He understood that,  like any fiscal                                                               
note, it  would be  attached to the  operating budget  and become                                                               
part of the final vote  on the conference committee substitute of                                                               
the operating  budget.  It  would be a  separate line item  and a                                                               
separate vote with the final passage of the operating budget.                                                                   
REPRESENTATIVE SEATON  said he has  not before seen  fiscal notes                                                               
just  freely following  that  are  not required  or  do not  have                                                               
statutory  authority,  and the  fiscal  note  is instituting  the                                                               
statutory requirement proposed in the  bill.  He asked whether it                                                               
is in here or  whether this is just a proposal  to put $1 billion                                                               
someplace  without  any  statutory  requirement  and  could  this                                                               
fiscal note then go by itself without any bill to attach it to.                                                                 
MR.  ALPER answered  he  has  seen in  the  past the  conditional                                                               
language  in  budgets and  fiscal  note  sections, or  that  this                                                               
appropriation  is contingent  on the  legislature passing  a bill                                                               
that is  equivalent to "HB so  and so."  He  envisioned that that                                                               
is how it  would end up being structured by  whoever writes those                                                               
fiscal  notes into  the final  version of  the operating  budget.                                                               
But,  he  continued,  there  is  no  explicit  reference  to  the                                                               
spending  in  HB  247,  there  is  no  reference  to  the  actual                                                               
appropriation in the bill language.                                                                                             
REPRESENTATIVE SEATON remarked that  it seems very problematic to                                                               
start down  the road of  putting appropriations into a  bill that                                                               
does not include any statutory authority in the bill to do that.                                                                
MR. ALPER  responded that, broadly  answering this  question, the                                                               
intent  of  HB 247  as  originally  proposed  was to  reduce  the                                                               
state's  annual  cash  outlay to  the  neighborhood  of  $50-$100                                                               
million a year.   That number in  many ways lines up  with the 15                                                               
percent  in the  language in  statute that  creates the  [oil and                                                               
gas] tax  credit fund,  so it would  be sort  of self-sustaining,                                                               
and then this  $1 billion was intended to be  the transition, the                                                               
money that  would get  the state  over the  hump between  the old                                                               
plan  and the  new.   Version P  is somewhat  different, it  is a                                                               
different paradigm  and may  impact how  this transition  fund is                                                               
treated or how it is kept in  budgets moving forward.  He said he                                                               
does not have a complete answer.                                                                                                
1:53:33 PM                                                                                                                    
MR.  ALPER recommenced  his presentation.   Displaying  slide 22,                                                               
"Implementation  Cost," he  explained that  employees of  the Tax                                                               
Division who  work day to day  with the tax credit  program, with                                                               
the  production  taxes,  will  to   have  to  change  their  work                                                               
somewhat.   The [Tax  Revenue Management  System (TRMS)]  and the                                                               
[Revenue  Online  (ROL)] will  have  to  be reprogrammed  because                                                               
there are different calculations,  different formulas, online tax                                                               
paying forms, and so forth.   The department has not yet received                                                               
a solid  estimate [from the  software developer] and  an estimate                                                               
may not come  until it is better  seen what the bill  is going to                                                               
look like.   However, DOR has  put a placeholder capital  cost of                                                               
$1.5  million into  the  fiscal  note to  pay  the contractor  to                                                               
reprogram the system;  no cost is anticipated  for the department                                                               
itself to  administer the  program because it  will be  done with                                                               
existing  resources and  existing staff.   There  will also  be a                                                               
fairly  robust regulatory  process  to implement  the changes  in                                                               
this or any  version of the bill.  The  Department of Revenue has                                                               
a couple  of other large oil  and gas regulatory projects  on the                                                               
back  burner  waiting  for the  completion  of  this  legislative                                                               
session  and  DOR anticipates  doing  all  of  them at  the  same                                                               
starting this summer.                                                                                                           
1:54:44 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
1:55:55 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON returned  to slide 7 and  noted that the                                                               
last bullet states, "By preserving  'capital' and reducing 'loss'                                                               
credits, increases  payments to producers (who  pay zero taxes)."                                                               
He surmised  this means it is  status quo and that  the producers                                                               
are not getting  more under Version P, but are  getting what they                                                               
got at least until the middle of 2017.                                                                                          
MR. ALPER answered  that the use of the word  "increases" in this                                                               
bullet is meaning an increase  from the governor's original bill.                                                               
It  is actually  a decrease  from  what is  currently being  paid                                                               
because in some  cases the producers in question  are getting the                                                               
40 percent  [well lease expenditure]  credit in  combination with                                                               
the 20  percent [qualified capital  expenditure] credit.   [Under                                                               
Version P]  producers would,  by the beginning  of 2018,  only be                                                               
getting the 20 percent [qualified capital expenditure] credit.                                                                  
1:56:52 PM                                                                                                                    
REPRESENTATIVE   SEATON  noted   that  the   governor's  original                                                               
proposal  would implement  a change  date of  the state's  fiscal                                                               
year, while Version  P would implement a change  date in January,                                                               
which is  a tax  year for  the companies.   Regarding  well lease                                                               
expenditures, he  inquired whether there  is any reason  why that                                                               
cannot  be  implemented mid-year  of  a  cycle, since  those  are                                                               
different  than the  tax rate  or the  tax liability  because the                                                               
credits are based  on when the money is expended  and so would be                                                               
independent  of  such  things  as   the  company's  tax  rate  or                                                               
operating loss.                                                                                                                 
MR. ALPER confirmed  that Representative Seaton is  correct.  For                                                               
the credits that  are tied to spending - the  capital, well lease                                                               
expenditure, and  exploration credits -  as long as  the receipt,                                                               
the activity,  the spending takes  place before the  cutoff date,                                                               
DOR can very easily parse out  that set of expenditures and write                                                               
a credit; the  department does not need to be  tied to a calendar                                                               
year or  a tax year.   With the exploration credits  being sunset                                                               
on  July 1,  [2016],  companies  will be  coming  to  DOR with  a                                                               
project and DOR  is only going to be paying  them on the spending                                                               
that took  place prior to July  1.  The credit  that gets awkward                                                               
if it is changed in the middle  of the year is the operating loss                                                               
because that  is tied to an  overall year's profit and  loss, and                                                               
so this would become a very difficult accounting exercise.                                                                      
1:59:02 PM                                                                                                                    
CO-CHAIR  NAGEAK  advised  that  the  co-chairs  are  considering                                                               
hearing  some  of the  members'  amendments  to HB  247  tonight,                                                               
depending upon how  many amendments are received  by the deadline                                                               
of  5:00  p.m.  tonight.    He asked  whether  members  have  any                                                               
comments  on whether  to  start  amendment consideration  tonight                                                               
versus waiting until tomorrow.                                                                                                  
REPRESENTATIVE TARR  stated it would  be difficult to  respond to                                                               
the  amendments  because  members  have not  yet  seen  them  and                                                               
therefore it would be nice to have the evening to review them.                                                                  
CO-CHAIR  NAGEAK  agreed to  wait  until  tomorrow to  start  the                                                               
consideration of amendments.                                                                                                    
CO-CHAIR NAGEAK,  responding to  Representative Seaton,  said the                                                               
co-chairs would like  to receive the proposed  amendments in both                                                               
electronic and hard copy formats.                                                                                               
[HB 247 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB286 ver A.pdf HRES 3/21/2016 1:00:00 PM
HB 286
HB286 Sponsor Statement - Governor's Transmittal Letter.pdf HRES 3/21/2016 1:00:00 PM
HB 286
HB286- Fiscal Note F&G-CO-2-2-16.pdf HRES 3/21/2016 1:00:00 PM
HB 286
HB286 ADFG Hearing Request Letter 2-4-16.pdf HRES 3/21/2016 1:00:00 PM
HB 286
HB286 - Sectional Analysis.pdf HRES 3/21/2016 1:00:00 PM
HB 286
HSE RES HB 247 - DOR Response to House Resources - 3 20 16.pdf HRES 3/21/2016 1:00:00 PM
HB 247
HSE RES CS for HB 247, ver P Sectional Analysis 3.21.16 Final.pdf HRES 3/21/2016 1:00:00 PM
HRES 3/22/2016 1:00:00 PM
HB 247
2.3.16 - HSE RES - HB247 Sponsor Statement - Governor's Transmittal Letter.pdf HRES 3/19/2016 1:00:00 PM
HRES 3/21/2016 1:00:00 PM
HB 247
2.3.16 - HSE RES - HB 247 Sectional Analysis.pdf HRES 3/19/2016 1:00:00 PM
HRES 3/21/2016 1:00:00 PM
HB 247
2.3.16 - HSE RES - HB 247 - DOR Summary of Key Features of Oil Credit Bill.pdf HRES 3/19/2016 1:00:00 PM
HRES 3/21/2016 1:00:00 PM
HB 247
HB247 Fiscal Note - FUNDCAP-OIL & GAS TAX CREDIT FUND-2-1-16.pdf HRES 3/21/2016 1:00:00 PM
HB 247
HSE RES CS for HB 247, ver P - Summary of Changes.pdf HRES 3/21/2016 1:00:00 PM
HRES 3/22/2016 1:00:00 PM
HB 247
HSE RES CS for HB 247 - 29-GH2609 - ver P.pdf HRES 3/21/2016 1:00:00 PM
HRES 3/22/2016 1:00:00 PM
HB 247
HSE RES HB 247 - 3.21.16 Presentation - DOR reaction to CSHB247(RES).pdf HRES 3/21/2016 1:00:00 PM
HB 247