Legislature(2015 - 2016)BELTZ 105 (TSBldg)

01/28/2016 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
03:30:44 PM Start
03:31:40 PM SB100
04:50:12 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Overview and Update by Randall Hoffbeck
Commissioner, Department of Revenue
-- Public Testimony --
        SB 100-NORTH SLOPE GAS PROJ PROP TAX; ASSESSMENT                                                                    
3:31:40 PM                                                                                                                    
CHAIR  BISHOP announced  the consideration  of SB  100. He  noted                                                               
that the bill was reviewed during  the interim and the purpose of                                                               
the meeting  is to provide the  committee and the public  with an                                                               
update.  He stated  that no  action would  be taken  on the  bill                                                               
3:32:33 PM                                                                                                                    
SENATOR MACKINNON  asked whether public testimony  would be taken                                                               
CHAIR BISHOP answered yes.                                                                                                      
3:32:49 PM                                                                                                                    
RANDALL  HOFFBECK,  Commissioner,  Alaska Department  of  Revenue                                                               
(DOR), presented information on Payment  in Lieu of Taxes (PILT).                                                               
He explained that  last year DOR submitted SB 100  as a structure                                                               
for negotiating a  PILT under the provisions of SB  138. The bill                                                               
was structured  on "how to  negotiate a PILT," however,  soon the                                                               
department  realized that  a different  strategy was  needed. The                                                               
structure of  negotiating a  PILT was  not going  to result  in a                                                               
final resolution; the numbers had to be negotiated.                                                                             
3:33:00 PM                                                                                                                    
CHAIR BISHOP noted the arrival of Senator Hoffman.                                                                              
COMMISSIONER  HOFFBECK reported  that a  tentative alignment  had                                                               
been  reached  with  the  producer   parties  on  the  amount  of                                                               
construction-related payment  in lieu of  tax (CPILT) and  on the                                                               
structure  and target  amount for  operations-related payment  in                                                               
lieu of  tax (OPILT). These  agreements have  to do with  how the                                                               
state will  deal with impacts  during construction and  with PILT                                                               
payments during the operation of the pipeline.                                                                                  
3:35:01 PM                                                                                                                    
COMMISSIONER HOFFBECK  further explained CPILT. The  total amount                                                               
of  impact  payments  during construction  is  $800  million  and                                                               
includes  BP,  Conoco-Phillips,  Exxon,   and  AGDC  because  the                                                               
project will  be paying  the PILT. There  is some  question still                                                               
regarding AGDC's  portion, whether  the state  will pay  itself a                                                               
PILT, and how much the municipalities will get.                                                                                 
3:36:01 PM                                                                                                                    
SENATOR  MACKINNON  asked whether  the  project  and the  state's                                                               
ownership of the project would be exempt from federal taxes.                                                                    
COMMISSIONER HOFFBECK offered to get back to Senator MacKinnon.                                                                 
SENATOR MACKINNON  explained her question relates  to the benefit                                                               
of the state's 25 percent ownership of the project.                                                                             
3:36:52 PM                                                                                                                    
COMMISSIONER HOFFBECK  explained that  the expected  payout would                                                               
be  over  the  five-year  construction period.  The  schedule  of                                                               
payments has not been finalized.                                                                                                
SENATOR  STEDMAN requested  a breakdown  of the  total amount  of                                                               
$800  million and  to know  whether DOT  has a  list of  targeted                                                               
infrastructure improvements.                                                                                                    
COMMISSIONER  HOFFBECK  explained  that   the  $800  million  was                                                               
negotiated and  is about four  times the amount  negotiated under                                                               
"stranded gas," as far as impact  payments. He noted it was early                                                               
in the  process and  there is no  project design  or construction                                                               
schedule.  It would  be difficult  to  construct a  PILT at  this                                                               
time. The amount  does not include infrastructure,  which will be                                                               
paid  elsewhere  in  the  project.   It  does  cover  impacts  to                                                               
communities,  such as  the need  to hire  police, teachers,  fire                                                               
fighters, etc.                                                                                                                  
SENATOR  STEDMAN  asked  how  the  number  was  derived  and  the                                                               
mechanics behind  it. He  pointed out that  some projects  do not                                                               
require a PILT.                                                                                                                 
3:39:14 PM                                                                                                                    
COMMISSIONER HOFFBECK  answered that  the allocation of  the $800                                                               
million  is  under discussion  with  the  Municipal Advisory  Gas                                                               
Project Review Board (MAGPRB). There  are two sides to the issue,                                                               
the cost  of the PILT  - which is  critical for the  project, and                                                               
the allocations  - which are  between the state and  the impacted                                                               
communities.  The   dollar  amount   was  settled  and   now  the                                                               
department  is  working on  the  allocations.  He said  they  are                                                               
looking  at  a "grant"  program  where  the municipalities  would                                                               
apply  for impact  funds. He  stressed that  it is  early in  the                                                               
CHAIR BISHOP noted  there would be a more  in-depth discussion in                                                               
the future.                                                                                                                     
3:41:12 PM                                                                                                                    
COMMISSIONER HOFFBECK  provided information  on the  OPILT, whose                                                               
target amount  totals $15.7 billion to  be paid out over  the 25-                                                               
year  period of  the contract.  The actual  payment amounts  will                                                               
vary based  on the  average five-year  flow rate  against project                                                               
design.  The  payments  could  exceed, or  be  less  than,  $15.7                                                               
billion in  the case of  expansion or interruptions. He  said BP,                                                               
Conoco-Phillips, Exxon,  and AGDC are  included in  the contract.                                                               
The  payment  schedule  incorporates  a  1  percent  increase  in                                                               
payment each year, which is included in the target amount.                                                                      
He related that  currently there is discussion  between the state                                                               
and local jurisdictions regarding payout allocations.                                                                           
3:42:56 PM                                                                                                                    
COMMISSIONER   HOFFBECK  addressed   the   methodology  used   to                                                               
determine the  OPILT. He explained  the initial formula  that was                                                               
used. It was  the first iteration of taking  current property tax                                                               
statutes and  simplifying them into  a formula that  would derive                                                               
an estimated payment that would  be equivalent to what status quo                                                               
would  have generated  under property  tax structure.  There were                                                               
simplifying assumptions and projections made  in order to run out                                                               
25 years.  He said  the idea was  to replicate  current statutory                                                               
language,  as  interpreted  by  the Supreme  Court  in  the  TAPS                                                               
COMMISIONER  HOFFBECK   highlighted  the  initial   formula:  the                                                               
capital  cost times  an inflation  factor,  times a  depreciation                                                               
factor,   times  a   functional   obsolescence  calculation   for                                                               
throughput, with a scaling factor  attached, times the mill rate.                                                               
He noted  that is  how TAPS  is being  valued currently.  He said                                                               
MAGPRB also made recommendations for  inputs and said the capital                                                               
costs should be the FID  estimate times 1.1, the cover overrides,                                                               
with the inflation  factor at 4 percent, appreciation  based on a                                                               
50-year  floating life,  with actual  throughput  on a  five-year                                                               
floating average, and the actual scaling factor would be one.                                                                   
3:45:10 PM                                                                                                                    
SENATOR STEDMAN pointed  out that it appears  that property taxes                                                               
would be a  big portion of the value the  state would receive and                                                               
the weighing  of that will  be significantly higher than  that of                                                               
the oil  line. For example,  when TAPS was  set up there  were 20                                                               
mills  and  the  weighting  of  the property  tax  was  not  that                                                               
significant,  yet  today,  the  property  tax  is  a  significant                                                               
portion. He  questioned the use  of 20 mills today  and cautioned                                                               
to not  drive too much value  to too few communities  because the                                                               
asset  is  owned  by  everyone  in the  state.  He  stated  great                                                               
interest in the impact of the dollar flow.                                                                                      
3:48:28 PM                                                                                                                    
COMMISSIONER HOFFBECK explained that the  reason 20 mills is part                                                               
of the  formula is because  the starting  point for PILT  is what                                                               
would have been  paid in property tax if the  PILT did not exist.                                                               
He stressed  that in all  the hearings it  was made clear  to the                                                               
municipalities  that they  should  not have  an expectation  that                                                               
monies would  flow the  same as  they did  under the  current tax                                                               
statutes. Within the PILT structure  will be an allocation method                                                               
whereby the  state would reserve a  substantially greater portion                                                               
to themselves  and use statewide  allocations, as well  as direct                                                               
impact  allocations.   He said  that  is the  position MAGPRB  is                                                               
taking  right now.  He predicted  the  discussion of  allocations                                                               
would be  a difficult one.  He stressed that  the decision-making                                                               
was up to the legislature.                                                                                                      
3:50:22 PM                                                                                                                    
SENATOR  MACKINNON asked  if  the  state owns  a  portion of  the                                                               
property the proposed route will  take and whether the state will                                                               
receive a PILT payment.                                                                                                         
COMMISSIONER  HOFFBECK  answered  that  a  good  portion  of  the                                                               
property runs through unincorporated  portions of the state where                                                               
the state would have the taxing authority.                                                                                      
SENATOR MACKINNON  noted her interest in  seeing charts depicting                                                               
how the money  will move; the $200 million fronted  money and the                                                               
receiving money.                                                                                                                
COMMISSIONER HOFFBECK offered to provide that information.                                                                      
3:51:35 PM                                                                                                                    
COMMISSIONER  HOFFBECK  described  the  modified  OPILT  formula,                                                               
which he called  a simplified version of the  TAPS litigation and                                                               
the basis of SB 100. The  formula is the original cost, times the                                                               
inflation  factor,   times  the  depreciation  factor,   times  a                                                               
throughput factor,  times 20 mills.  The inputs were  not defined                                                               
and  will be  negotiated.  He explained  that  the original  cost                                                               
would be  fixed by pre-FID  project specific data.  The inflation                                                               
factor and the  depreciation factor would be fixed  by the fiscal                                                               
agreement. The  actual throughput  is the  operational measurable                                                               
throughput.  The  design throughput  would  be  fixed by  pre-FID                                                               
project  specific data,  and  the  mill rate  would  be fixed  by                                                               
3:52:43 PM                                                                                                                    
COMMISSIONER  HOFFBECK  highlighted  the current  OPILT  formula,                                                               
which was reached by tentative  alignment and includes input. The                                                               
formula  includes  original  cost, times  an  escalation  factor,                                                               
times  a  depreciation  factor, times  a  throughput  adjustment,                                                               
times a  blended mill rate. The  original cost was assumed  to be                                                               
$55 billion, which the project  participants want to lower. There                                                               
is no true up included against actual cost.                                                                                     
3:53:56 PM                                                                                                                    
SENATOR MACKINNON asked if the  gas treatment plant and off point                                                               
are included, or if just pipeline is included.                                                                                  
COMMISSIONER  HOFFBECK  replied  that   it  includes  the  feeder                                                               
pipelines, the  gas treatment  plant, the  pipeline, and  the LNG                                                               
SENATOR  MACKINNON  asked  whether   the  valuation  method  uses                                                               
property values in distant communities  and all capital costs are                                                               
included, not just  the cost of the pipe and  the transmission of                                                               
COMMISSIONER HOFFBECK said that was correct.                                                                                    
CHAIR BISHOP asked if the $55  billion amount is "hard and fast,"                                                               
even if there is a $5 billion overrun.                                                                                          
COMMISSIONER HOFFBECK said that was  correct. It is also hard and                                                               
fast if it comes in at $50 billion.                                                                                             
COMMISSIONER  HOFFBECK  continued  with  an  explanation  of  the                                                               
current formula's  escalation factor of  2.5 percent, which  is a                                                               
composite of a  3.25 percent inflation rate, minus  a .75 percent                                                               
adjustment for  obsolescence of technology that  would occur over                                                               
25 years.                                                                                                                       
3:55:42 PM                                                                                                                    
COMMISSIONER HOFFBECK  explained that the depreciation  factor is                                                               
based on  a 30-year life  and is a modified  floating/fixed life.                                                               
There  were two  positions regarding  the pipeline.  The floating                                                               
life position  was for  gently reserved growth  over the  life of                                                               
the assets  with an expectation  of more  reserves at the  end of                                                               
the 25th  year than were estimated  at the beginning of  the life                                                               
of the pipeline and the pipeline  would not be empty at 30 years.                                                               
The department  proposed that for  every year the  pipeline aged,                                                               
it would  "grow a year," as  well. So, at 30  years, the pipeline                                                               
would be 30 years old with a 60-year life.                                                                                      
He  said  the  producers'  position  was that  the  life  of  the                                                               
pipeline  should be  fixed  over  30 years  and  its value  would                                                               
decline.  A   compromise  was  reached   that  blended   the  two                                                               
positions, ending  up that the  life would  increase by a  half a                                                               
year every year of the life of the asset.                                                                                       
3:57:31 PM                                                                                                                    
SENATOR STEDMAN asked what would happen after 30 years.                                                                         
COMMISSIONER HOFFBECK  answered that  the assumption is  that the                                                               
pipeline  valuation would  revert to  standard property  tax. The                                                               
expectation is that  before the end of the  contract, the parties                                                               
would seek  to negotiate an extension.  The Municipality Advisory                                                               
Group's report  to the  Governor provides for  the option  to re-                                                               
negotiate the PILT.                                                                                                             
SENATOR STEDMAN noted Sitka's paper mill  used to have a 3.5 mill                                                               
rate  that worked  fine for  the community.  He pointed  out that                                                               
there is  a big  difference between  3.5 mills  and 20  mills. He                                                               
said property tax is a  heavy burden. He requested the department                                                               
explain the estimated  split on the value stream  coming into the                                                               
state, including royalties and property tax.                                                                                    
4:01:10 PM                                                                                                                    
COMMISSIONER HOFFBECK commented that  the relative size is driven                                                               
by the price  point on the gas.  He agreed that there  is a price                                                               
point  on  gas where  this  project  is  still viable  where  the                                                               
property tax could be as much as  a third of the total take. That                                                               
is also a  benefit to the state because if  gas prices fluctuate,                                                               
there will be variable revenue.  The property tax stream would be                                                               
the one fixed revenue stream that  the state could count on which                                                               
the others don't have.                                                                                                          
SENATOR STEDMAN noted  his concern about the  one-third value and                                                               
how it  is split  up. He called  attention to  British Columbia's                                                               
solution of an impact fund.  He pointed out that Southeast Alaska                                                               
is  not going  to have  much control  over this  project, but  he                                                               
expected fair allocation of resources.                                                                                          
COMMISSIONER HOFFBECK  related that  under any of  the proposals,                                                               
the state would get the largest share from PILT.                                                                                
4:03:57 PM                                                                                                                    
COMMISSIONER HOFFBECK  turned to the actual  throughput under the                                                               
current  formula,  which  is   based  on  operational  measurable                                                               
throughput on  a five-year rolling  average that buffers  loss by                                                               
interruptions in revenues.  He said design throughput  has yet to                                                               
be  determined. The  department is  reviewing a  proposal by  the                                                               
producers on how to allocate the  PILT to the various portions of                                                               
the pipeline,  where to measure  the gas,  and how much  value to                                                               
associate with each  section in order to reach  the $15.7 billion                                                               
SENATOR BISHOP commented that throughput  is measured at pump one                                                               
for TAPS.  He asked  if there would  be three  measurements taken                                                               
along this project.                                                                                                             
COMMISSIONER HOFFBECK  said that  was correct. He  explained that                                                               
the  reason was  to deal  with expansion  or introduction  of gas                                                               
into the pipeline at some point downstream.                                                                                     
4:05:38 PM                                                                                                                    
COMMISSIONER HOFFBECK  addressed the mill rate  under the current                                                               
formula,  which is  a blended  rate at  13.75 mills.  That is  20                                                               
mills for  the gas  treatment plant, 20  mills for  the pipeline,                                                               
and 7.5 mills for the LNG plant.  The reason for a lower rate for                                                               
the LNG  plant is  because it is  locally assessed  under current                                                               
statute. The  7.5 mill rate  for the Kenai Peninsula  Borough was                                                               
done by the state in consultation with the Borough.                                                                             
SENATOR  STEDMAN asked  what taxing  authority the  Kenai Borough                                                               
may gain or lose due to the new $25 billion plant.                                                                              
4:07:25 PM                                                                                                                    
COMMISSIONER HOFFBECK  replied that currently their  mill rate is                                                               
slightly over  10 mills and  a new asset  will have an  effect on                                                               
the  mill rate.  The Borough  estimated  a mill  rate range,  and                                                               
Commissioner Hoffbeck said he chose a number within that range.                                                                 
CHAIR BISHOP clarified that with  the upcoming plethora of assets                                                               
soon to appear  in the Kenai Peninsula  Borough, they tentatively                                                               
agreed to handicap themselves down to a 7.5 mill rate.                                                                          
4:09:10 PM                                                                                                                    
COMMISSIONER HOFFBECK said that was  true only to the extent when                                                               
trying to calculate  what the status quo property  tax would have                                                               
yielded.  There  will ultimately  be  a  PILT regarding  the  LNG                                                               
SENATOR MACKINNON  discussed how property taxes  use valuation to                                                               
extract a payment  for services in a community. She  said it begs                                                               
the question  of what needs for  new services the new  asset will                                                               
create.  She shared  her experience  in Anchorage  with taxation.                                                               
She questioned  the fairness  of using valuation  as a  base. She                                                               
asked if it was defined like that in statute.                                                                                   
4:11:27 PM                                                                                                                    
COMMISSIONER  HOFFBECK  said  it   was.  He  related  that  under                                                               
property tax  theory, land ownership  and ownership of  assets is                                                               
an indication  of ability  to pay.  Taxation is  not tied  to the                                                               
impact a development might have on  the community or the needs it                                                               
engenders, but is  an indication of the ability of  the entity to                                                               
pay the tax.                                                                                                                    
SENATOR  MACKINNON  spoke of  California's  impact  fees for  new                                                               
housing developments based on a "cost causer/cost payer" idea.                                                                  
4:12:56 PM                                                                                                                    
COMMISSIONER HOFFBECK  said the  current formula  "got us  to the                                                               
$15.7 billion," but  must be converted to a PILT.  There were two                                                               
ideas that  need to  be embedded  in the PILT.  The first  one is                                                               
that governments do better with  escalating revenues. This can be                                                               
done  by starting  at  a lower  starting point  to  get to  $15.7                                                               
billion. It also reduces early  payments when the project is most                                                               
economically challenged.                                                                                                        
SENATOR MACKINNON  asked what the  thousand cubic feet  (MCF) gas                                                               
price in the model was.                                                                                                         
COMMISSIONER HOFFBECK  answered that it  is not sensitive  to the                                                               
gas price, only the cost of construction and the throughput.                                                                    
SENATOR MACKINNON noted  the state's facing a  $4 billion deficit                                                               
currently and not much profit in  oil. She said she has been told                                                               
there is less  profit in gas. She inquired what  MCF number would                                                               
generate  half a  billion dollars  a  year going  forward to  pay                                                               
property taxes, which could be a third of the state's profits.                                                                  
4:15:21 PM                                                                                                                    
COMMISSIONER HOFFBECK said  they could run that  analysis, but it                                                               
would  be largely  based  on producer  information  of costs  and                                                               
return investments.                                                                                                             
SENATOR MACKINNON requested that information.                                                                                   
SENATOR STEDMAN  asked if  PILT, at one-third,  was a  fixed cost                                                               
and whether the  remaining royalty share would  be very sensitive                                                               
to the gas end price and  would fluctuate depending on the market                                                               
COMMISSIONER HOFFBECK  said yes, to  the extent that on  the spot                                                               
market,  versus   on  long-term   contracts,  that   price  could                                                               
fluctuate. He clarified  that the one-third amount was  just at a                                                               
price point  where the  pipeline was still  a viable  project. If                                                               
the gas  is at  a substantially higher  rate, the  one-third goes                                                               
down very quickly.                                                                                                              
4:17:17 PM                                                                                                                    
SENATOR MACKINNON wished to know  "the ballpark we're playing in"                                                               
and  if local  communities  are assuming  $15  billion is  coming                                                               
their  way. She  said she  wants to  be realistic  in discussions                                                               
with communities.                                                                                                               
CHAIR  BISHOP commented  that the  state  has 25  percent of  the                                                               
risk, too.                                                                                                                      
COMMISSIONER HOFFBECK  agreed. He noted  that most of  the mayors                                                               
were sensitive  to the  fact that some  of their  early decisions                                                               
were  made in  order  to  help accommodate  the  project to  move                                                               
4:18:44 PM                                                                                                                    
COMMISSIONER HOFFBECK  discussed the conceptual  project benefits                                                               
from PILT target payments. He said  there are two areas where the                                                               
agreement  provides  some  relief  on the  front  end  where  the                                                               
project is  most challenging  due to  low cash  flow. One  is the                                                               
CPILT at  $800 million, which  is between a  half and a  third of                                                               
what the project  would have collected under  a standard property                                                               
tax regime. For the first five  years of the project, CPILT would                                                               
lessen the burden. He explained  that the second economic benefit                                                               
is  the  five-year  floating  average   of  throughput.  It  also                                                               
benefits  municipalities by  providing stability  of payments  in                                                               
the out years.                                                                                                                  
4:20:39 PM                                                                                                                    
COMMISSIONER HOFFBECK  turned to OPILT target  payment components                                                               
yet to be  determined. He said the agreement still  needs work on                                                               
the volume for setting the design rate.                                                                                         
CHAIR BISHOP  asked if  those numbers have  yet to  be determined                                                               
due to a possible change to a 48-inch pipeline.                                                                                 
COMMISSIONER  HOFFBECK  said  that   was  correct,  however,  the                                                               
contract has been  negotiated so the throughput will  be based on                                                               
a design that  is commensurate with $55 billion.  If the pipeline                                                               
goes to  48 inches  instead of  42 inches,  that would  allow for                                                               
greater  throughput  and  would  increase  the  target  payments.                                                               
Rather than having to go  back and re-calculate everything, tying                                                               
everything to  the throughput  allows those  kinds of  changes in                                                               
the discussion. The process is dynamic.                                                                                         
4:22:31 PM                                                                                                                    
SENATOR  STEDMAN asked  how  hard the  numbers  actually are.  He                                                               
stated a goal to move smoother than during the TAPS process.                                                                    
COMMISSIONER HOFFBECK explained that this  would be a part of the                                                               
fiscal package  for the  pipeline and part  of the  contract, and                                                               
the PILTs would be set for 25 years.                                                                                            
SENATOR  STEDMAN stated  that he  looks at  it as  the difference                                                               
between  "how  we  engage  and make  agreements  with  our  three                                                               
partners, versus  how we interact  with the state's  portion." He                                                               
said he understood that this would  be tied down for 25 years and                                                               
the  state  would  be  giving up  its  appropriating  power  when                                                               
dealing with  the property  tax issue  on the  gas line  for that                                                               
period. He stated  that he is talking about  changing the state's                                                               
internal 25 percent, not the  partnership split. He asked why the                                                               
state should do that.                                                                                                           
COMMISSIONER HOFFBECK  clarified that  "this is  not part  of the                                                               
cash flow for  our 25 percent, this is a  separate cash flow with                                                               
the project." He explained that  the allocation between the state                                                               
and  the  municipalities  can  be   left  as  open-ended  as  the                                                               
legislature feels  necessary. The important part  for the project                                                               
is total  dollars, in  order for the  producers to  calculate the                                                               
economics of the project in  relation to all the other negotiated                                                               
components. The  statutory language  regarding the state  and the                                                               
municipalities would be in the hands of the legislature.                                                                        
4:24:53 PM                                                                                                                    
SENATOR STEDMAN asked if this is in addition to the 25 percent.                                                                 
COMMISSIONER HOFFBECK said it was.                                                                                              
SENATOR  MACKINNON  clarified  that  the   state  is  part  of  a                                                               
megaproject and has a 25 percent ownership in that project.                                                                     
COMMISSIONER HOFFBECK agreed.                                                                                                   
SENATOR  MACKINNON  asked  whether Governor  Walker  is  bringing                                                               
forward  a fiscal  package with  various  components that  affect                                                               
project viability and the economics  of that project. There are a                                                               
variety of fiscal  certainties needed in order for  the state and                                                               
its partners to enter the project and make it successful.                                                                       
COMMISSIONER  HOFFBECK said  yes  - there  are certain  contracts                                                               
that give certainty on both sides that need to be negotiated.                                                                   
SENATOR MACKINNON  summarized that there  is a gas price,  as far                                                               
as  taxing on  a  production level,  in a  different  bill and  a                                                               
second  component, property  tax, in  SB 100,  and that  value is                                                               
made certain for the state and its parties through a PILT.                                                                      
4:26:37 PM                                                                                                                    
COMMISSIONER HOFFBECK said that was correct.                                                                                    
SENATOR MACKINNON understood  that as long as the  fixed total of                                                               
the property tax  stays the same, the state can  do what it wants                                                               
with its  share and it  will not affect the  project's economics.                                                               
She asked whether it is up  to the legislature to decide to share                                                               
more   or   less  with   the   municipalities   or  whether   the                                                               
municipalities can count on that  agreement staying fixed over 25                                                               
COMMISSIONER HOFFBECK said that answer  is still to be determined                                                               
and MAGPRB is  clarifying their position. It has  been made clear                                                               
to MAGPRB  by the state  that the expectation is  the legislature                                                               
will determine the proper way to make allocations.                                                                              
SENATOR STEDMAN  noted comments  on the royalty  share made  at a                                                               
Senate  Resources Committee  meeting the  previous day,  where it                                                               
was stated  that the property  tax component  was part of  the 25                                                               
percent. He asked for clarification.                                                                                            
COMMISSIONER HOFFBECK offered to look into it.                                                                                  
4:28:34 PM                                                                                                                    
COMMISSIONER  HOFFBECK returned  to the  subject of  OPILT target                                                               
payment components yet to be  determined. It has not been decided                                                               
whether  the  flow  rate  measurements   will  be  based  on  Mcf                                                               
(thousands of cubic  feet) or mmbtu (millions  of British Thermal                                                               
Units). Whether  the measurement location  will be taken  at each                                                               
component (GTP,  Pipeline, LNG) individually  or at  one location                                                               
for the  entire project has  not been decided. Also  undecided is                                                               
whether the measurement will be taken  at the inlet or the outlet                                                               
of project components.                                                                                                          
SENATOR MACKINNON questioned the  flow rate measurement and asked                                                               
whether   there  would   be  individual   propane  offtakes   for                                                               
communities in rural Alaska.                                                                                                    
COMMISSIONER HOFFBECK said  that would be part  of the discussion                                                               
and there could  also be gas offtakes. The PILT  would have to be                                                               
set at the place it is measured.                                                                                                
SENATOR  STEDMAN   voiced  concern   about  the   possibility  of                                                               
disproportionate payments  to small  areas of  the state  and the                                                               
state's appropriating power.                                                                                                    
4:30:45 PM                                                                                                                    
CHAIR BISHOP thought  that the flow rate  measurement was already                                                               
known based on Prudhoe Bay gas and might be quickly decided.                                                                    
COMMISSIONER  HOFFBECK  said  the  producers  have  provided  the                                                               
department with multiple scenarios to choose from.                                                                              
4:31:45 PM                                                                                                                    
COMMISSIONER HOFFBECK  addressed the next steps  for MAGPRB: they                                                               
need to provide recommendations  on proposed structure and target                                                               
amounts  for CPILT  and OPILT  in their  report to  the Governor,                                                               
provide  recommendations   on  allocation  and   disbursement  of                                                               
payments  among state  and local  jurisdictions,  draft the  2015                                                               
MAGPRB Annual Report, and provide recommendations legislation.                                                                  
4:32:49 PM                                                                                                                    
CHAIR BISHOP noted that this is an early discussion of the PILT.                                                                
SENATOR STEDMAN commented that it would  be nice to see how other                                                               
jurisdictions deal with this issue.                                                                                             
COMMISSIONER HOFFBECK  replied that  there were  discussions with                                                               
the  producers,  particularly  on construction  impact  payments,                                                               
where some of their other  agreements were shared. He pointed out                                                               
that a PILT agreement to cover construction impacts is common.                                                                  
4:34:31 PM                                                                                                                    
CHAIR  BISHOP  asked  that   Commissioner  Hoffbeck  provide  the                                                               
committee with the scenarios, if possible.                                                                                      
COMMISSIONER  HOFFBECK agreed  to  do so.  He  stressed that  the                                                               
agreement with  the producers is  tentative, the MAGPRB  has been                                                               
brought along and informed and is in general alignment.                                                                         
4:35:27 PM                                                                                                                    
CHAIR BISHOP opened public testimony.                                                                                           
4:35:36 PM                                                                                                                    
JEFF  STEPP, Special  Assistant, Office  of the  Mayor, Fairbanks                                                               
North Star  Borough, testified in  support of SB 100.  He related                                                               
that Mayor Kassel  has been a member of MAGPRB  since November of                                                               
2015. Much  of the  work on  PILT had  already been  completed at                                                               
that  time. He  voiced appreciation  for the  work that  has been                                                               
done on  PILT by various entities,  but said there is  still much                                                               
work to be  done by all stakeholders so  the commercialization of                                                               
gas becomes a reality and benefit all Alaskans.                                                                                 
4:37:54 PM                                                                                                                    
CHARLOTTE  BROWER,  Mayor,  North  Slope  Borough,  testified  in                                                               
support of  SB 100, with  revisions. She recalled the  passage of                                                               
SB 138, which  created the framework for the  Alaska Gas Pipeline                                                               
Project.  She noted  a primary  concern regarding  how the  state                                                               
would  address  property taxes  on  the  project. She  said  that                                                               
taxable oil and gas properties  represent 97 percent of the North                                                               
Slope Borough's full value determination.  The Borough has a good                                                               
working relationship  with the oil companies  and experience with                                                               
property taxes and PILT.                                                                                                        
She said the  Borough is looking at further  development with the                                                               
LNG  project and  would  like  to see  the  project also  benefit                                                               
fellow Alaskans. She suggested that  the system SB 100 determines                                                               
should be  allocated with  respect to the  location and  value of                                                               
the respective  assets. Once the  system and allocation  plan has                                                               
been  agreed upon  by the  municipalities, state,  and producers,                                                               
the Borough would like to  see annual payments made directly from                                                               
the taxpayers  to the impacted  municipalities. She  stressed the                                                               
importance of a direct payment.                                                                                                 
4:42:25 PM                                                                                                                    
CLAY WALKER,  Mayor, Denali Borough,  testified in support  of SB
100, with  revisions. He  said he  has served  on MAGPRB  for the                                                               
past two years and supports their  work. He pointed out that PILT                                                               
language  is included  in SB  138. He  said he  saw SB  100 as  a                                                               
starting point, but  it needs revisions. He  described the MAGPRB                                                               
as being fair  and reasonable for municipalities,  the state, and                                                               
project  partners regarding  the  tax structure.  He thanked  the                                                               
committee for its work.                                                                                                         
4:44:03 PM                                                                                                                    
At ease.                                                                                                                        
4:44:35 PM                                                                                                                    
CHAIR BISHOP called the committee back to order.                                                                                
4:45:20 PM                                                                                                                    
CHARLES  MCKEE,   representing  himself,  testified   during  the                                                               
discussion  of  SB  100. He  requested  transparency  during  the                                                               
4:49:07 PM                                                                                                                    
CHAIR BISHOP closed public testimony.                                                                                           
4:49:44 PM                                                                                                                    
CHAIR BISHOP commented that he feels honored to work with such a                                                                
fine committee. He held SB 100 in committee.                                                                                    

Document Name Date/Time Subjects
SB 100 Fiscal Note.pdf SCRA 1/28/2016 3:30:00 PM
SB 100
DOR MAGP Board Review Final - 1 28 16.pdf SCRA 1/28/2016 3:30:00 PM
SB 100
SB 100 Mayor Brower Testimony 1.28.16.docx SCRA 1/28/2016 3:30:00 PM
SB 100