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Contact Information:
Toll Free:(800) 665-2689
In the Homer Area:(907) 235-2921
Via Mail or in Person: 345 W. Sterling Hwy., Suite 102B
Homer, Alaska 99603
Fax:(907) 235-4008
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The special session fell apart late in the night, just before adjournment, after long days of waiting around for conference committee negotiations to make progress on the Petroleum Profits Tax (PPT). In the end the House had 13 yes and a combined 25 no votes from members who thought the tax bill was too high and had voted against the original, and those who thought it was too low. I was in the later camp. The conference committee reduced the progressivity tax rate from the House number which created an equal share at a price of about $166 per barrel to a rate that did not reach the equal share until about $204. The base tax rate would also have been lowered from the House 23.5% to 22.8%, closer than ½ way to the Senate's 22.5%. Although lots of numbers had been thrown around about the addition money the State would have made, those were all calculated on oil at the historic high price of $70 per barrel. This net profit tax is price and cost sensitive and would generate less than the present ELF below about $35 per barrel. The bill had a retroactive date of April 1, 2006 but contained a provision that no additional tax was due above that calculated under the old ELF tax for 10 months. No interest was to accumulate on the unpaid amount so it is not lost by delay. If we are able to arrive at a solution in the next several months I believe the April 1, 2006 effective date will remain in place. Many other provisions had been corrected in the House version, which were not controversial.
As I have said before, I believe continuing the special session without a break from the regular session was a mistake as everyone started out extremely tired and without a chance to reorganize their business and family life. I think this showed in the frustration that accumulated over the last 30 days and contributed to the impasse. It is my impression that we will probably be called back by the Governor to deal with these important issues in another special session in July, but it could be after the primary elections in August instead.
Special Session Legislation
SB 2001 the PPT legislation was the focus of much debate during the special session. I worked with other legislators on the bill throughout the committee process, negotiating for a 23.5% tax rate and a .25% progressivity. I also helped negotiate the removal of the proposed Gas Revenue Exclusion (GRE) from the bill. The GRE created three different tax regimes for gas: for gas produced on the North Slope, companies were allowed to deduct 1/3 of the gross revenue in calculating their net taxes. For Cook Inlet gas, 2/3 of the revenue could be deducted. For the rest of the state 1/2 of the gas revenue could be deducted. The effect with this system was that after the taking of allowable credits, gas producers in Cook Inlet would pay no production tax at all. And potentially all other discoveries across the state would pay none as well – so we are all glad it is gone.
I also worked to insert requirements that capital expenditure credits and allowable deductions be taken only on capital, overhead and activities within Alaska. My goal is to ensure that companies are not writing checks in Alaska for assets elsewhere and claiming them as expenditures against their Alaska Production Taxes. This measure did not make it into the final versions of SB 2001, but I will continue to work on such safeguards if or when the PPT is re-introduced.
would give original jurisdiction to the Alaska Supreme Court for trial of any suit against the Stranded Gas pipeline contract It was amended in the House to increase the public comment period on the contract to 90 days from the 30 day legal minimum comment period (which we are in now) and would have given people a 90 day limit after contract signing in which to file such a suit instead of the current 60 days. The Senate did not agree to those changes but no conference committee met to work out the differences.
sought to create a new public corporation in the Department of Revenue to finance, own and manage the State’s 20% interest in the gas-line project. The draft gas-line contract calls for the formation of Limited Liability Corporation (LLC) "project entities" to fund and manage the construction and operation of the gas-line. The state will be trading in its standing as a sovereign (for adjudication and regulatory purposes as related to the construction and management of the pipe and it’s capacity) when it joins in the LLC with the producers. Therefore, the legislature is approaching this concept with many questions. This bill died at adjournment, after passing out of House Judiciary committee.
attempted to amend the Stranded Gas Development Act, the legal blue-print for gas-pipeline contract negotiations. The administration added items to the draft contract beyond the scope of the law. A provision allowing modification to oil taxes to be part of a gas-line contract was one example. SB 2004 was designed to give the administration this legal authority. House Resources amended this bill significantly. One major sticking point was the provision in SB 2004 allowing the Commissioner of the Department of Revenue to modify taxes passed by voter initiative. I offered an amendment that would bar the commissioner from doing this. The administration is attempting to de-activate the Gas Reserves Tax that will be on the ballot in November, which they contend will ruin the economics of the gas-line deal. However, I do not believe that the legislature should give the administration legal standing to thwart the will of the people.
Another change that we made to the bill was to limit the length of time that "fiscal certainty" will apply to the project. The draft contract calls for a 30 year lock-in of oil taxes, from the date the contract is signed. We lowered this to 12 years beginning at project sanction, which is when construction really begins (4-5 years). We also required that the working agreements made on the part of the state as part of the LLC or "project entity" be subject to legislative review and authorization. The Senate bill only contains a few of these modification so I will be sure to offer these amendments when the bill is next considered.
Summer Reading
You can read documents related to the Gas Line Contract generated by the Legislature's consultants on the Legislative Budget and Audit web-site (). These valuable documents provide insight into the many issues under debate when considering a project with such broad legal implications.
Summer Schedule
My fish tendering plans and presence in the District are subject to further Special Session options. I plan to be at local community meetings in June to personally report and answer questions about Session. Louie will be traveling back to Homer next week and Katie will be based at the Homer LIO for the remainder of the interim – although I hope she can make another "legislative bicycle trip" across the District this summer.
Contact Us
If you would like to speak to me regarding a specific issue, it is helpful to first get in touch with the member of my staff handling related issues. You can click on their email addresses to send them a note, or just give us a call at the office. Please provide your full name, address and phone number on any correspondence with the office. Your time and effort are much appreciated.
Louie Flora
State Affairs, Resources, Fisheries, HB 328
(907) 465-4963
Katie Shows
Health Education and Social Services, PERS/TRS, Budget, HCR 5, HCR 28, HB 238
(907) 465-2028
Rep. Paul Seaton
House District 35
(800) 665-2689
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