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Operating budget trips on dividend amount
House Resources plans first hearing on governor’s plan to bond for tax credit payments; Senate bill moves from Resources to Finance Kristen Nelson Petroleum News
Gov. Bill Walker’s proposal to bond for tax credit payments has edged forward in the Senate but has only just been scheduled for its first hearing in the House. Whether that hearing will happen March 31 as scheduled is a question as this issue of Petroleum News goes to print: The House is focused on the operating budget, with the majority working to garner enough votes for passage.
The operating budget appeared to be moving toward House passage through a forest of amendments when enough majority and minority members, 21 of the 40-member body, voted in favor of raising the Permanent Fund dividend check, which had been in the budget at $1,258 per individual, to more than $2,600.
The higher amount would follow the formula which has, until recent years, governed the amount of the annual distribution.
For the last two years, driven by concerns over the state’s fiscal situation, the amount has been cut by about half, an approach which hits the state’s poorer residents hardest because the dividend forms a larger portion of their income.
Legislators have been unable to agree on a way to fund state government, other than using savings, and some argued that paying what has been the traditional full dividend endangers the dividend program in the long run, while others argued that since there was no agreement on other means to finance state government it was unfair to try to make the budget balance on the backs of the state’s poorest citizens.
The bonding bill As for the bonding bill, Senate Bill 176 and House Bill 331, Brandon Brefczynski, external affairs manager for the Alaska Oil and Gas Association, told Senate Resources in testimony posted on the committee’s website that AOGA supports expedited payment of the credits.
The state’s large producers were not eligible for the credits, which can be sold back to the state or to companies with tax obligations. Initially the state bought back all of the offered credits but that practice ended when oil prices tumbled, reducing the state’s income.
Brefczynski said delay in paying the credits has damaged the state’s reputation and put a chill on future investment, causing projects to be shelved.
He called the governor’s bonding plan an innovative approach but said AOGA has concerns about steep discount rates. The bonding bill provides that companies wishing to take advantage of the buyback would have to accept payment at a discount - the discount is designed to cover the state’s cost for the bonds.
Agency impacts A fiscal note on SB 176 from Chantal Walsh, director of the Alaska Division of Oil and Gas, said the Department of Natural Resources does not anticipate a fiscal impact from the bill.
Walsh said the division would “be required to conduct resource and commercial analyses of any overriding royalty interest agreement applications,” but said the staff time involved could be absorbed “if the number of applications are low. If many applications are received, this would require additional funding for contractual assistance.”
The issue here is that a company can lower its discount rate by providing an overriding royalty interest to the state.
Companies can also choose to wait regular appropriations.
Scope of credits A fiscal note from Ken Alper, director of the Department of Revenue’s Tax Division, said some $800 million in credits were outstanding at the end of calendar year 2017, with about half having requested repurchase in 2016 and the rest in 2017.
House Bill 111 repealed most cashable credits in 2017, but Alper said it will take some time for the remaining credits to work through the system. Revenue expects some $200 million in additional in credits to be awarded over the next several years.
Of this total of approximately $1 billion, Revenue expects that some $100 million will be sold to major producers to offset their taxes.
The state would pay between $700 million and $800 million of the remaining credits through the proposed bonding program, depending on the discount rate, with the state intending to pay off bonds over 10 years.
Discount rates would be determined by the amount of credits a company holds, when those credits were received and state repurchase requested, the proportion of certificates held by the company in a given year and expected annual statutory appropriation.
Also in the mix HB 330, allowing the DNR commissioner the ability to issue protective orders so that confidential information can be shared with those being audited in the context of a royalty audit, has been passed out by the House Judiciary and House Resources committees and is in House Rules. The companion bill in the Senate, SB 175, is in Senate Judiciary, its first referral, and has not yet had a hearing.
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