Legislature tackles oil taxes, pension debt, school funding and gas pipelines
State lawmakers are grappling with oil taxes, a $10-billion-plus pension liability, a $10 billion-plus budget, school funding and gas pipeline issues as the 2012 legislative session nears the 30-day mark in its scheduled 90-day session.
Lawmakers are to adjourn April 15, although they can vote for an extension.
On oil taxes, the dominant issue of the session except for the budget, the Senate is to begin work on its proposal Feb. 10 with introduction of a new bill and the start of hearings in the Senate Resources Committee that day, Senate leaders said in a Feb. 7 briefing.
The bill that is introduced will be a “placeholder” for language yet to be inserted, Senate Resources co-chair Sen. Joe Paskvan, D-Fairbanks, said in the briefing. It will, however, contain changes in the “progressivity” formula in the state oil and gas production tax taken from Gov. Sean Parnell’s House Bill 110, which passed the state House last year and is now in the Senate, Paskvan said.
There will be changes coming to that formula as the committee does its work, as well as other changes to the state oil tax including possible adjustments to exploration and capital investment tax credits. More work will be done in the Senate Finance Committee.
On Feb. 10, the Department of Revenue will discuss problems with the current progressivity formula, which Parnell and oil and gas producers argue is at the heart of problems in the current state tax. The Senate committee will continue hearings through the week of Feb. 13.
One proposal that will be offered by Sen. Tom Wagoner, R-Kenai, in the Resources committee will be a “tax holiday” for a certain quality of new oil produced in existing fields. The idea is to give existing producers new incentives to tackle economically marginal and technically difficult deposits known to exist in the producing fields, particularly heavy oil.
“This would provide a way to get new oil into the trans-Alaska oil pipeline relatively quickly,” Wagoner said. Other incentives are aimed mainly at new exploration, and if discoveries are made it will take several years to get them into production.
Meanwhile, oil fiscal consultant Pedro van Meurs is to appear before the Senate Finance Committee Feb. 13 to brief its members on how Alaska’s fiscal system compares with that of other oil producing regions, Sen. Bert Stedman, R-Sitka, said at the Feb. 7 briefing by senate leaders.
Senate President Gary Stevens said the oil tax deliberations will consume substantial time in the Resources and Finance Committee, but he hopes to get the Senate’s bill to the House by mid-March, leaving 30 days for House members to consider the legislation.
On other matters, Stedman, who as Senate Finance co-chair is in charge of the state capital budget in the Senate, said he and other senators are still sifting through requests for capital budget appropriations from state agencies, institutions and communities.
Parnell has told legislators he will allow spending levels at about the same level as in the current year budget.
“Our capital budget for this year is about $2.8 billion with roughly $1 billion of that federal, so this gives us an idea of what we have to work with,” Stedman said. “We’re working now to get a better number,” on what an actual capital budget request might be.
Sen. Lyman Hoffman, D-Bethel, has responsibility for the operating budget as the other Senate Finance co-chair. In the briefing Hoffman said he has not set budget caps for the various budget subcommittees working with agencies, “but I am still urging restraint with the overall spending and the number of positions.”
Hoffman said he has met with his counterpart on the House Finance Committee, Rep. Bill Thomas, R-Haines, to establish timelines. Thomas is co-chair of the House Finance Committee.
Traditionally the House takes the lead in developing the operating budget first and then passing it to the Senate, while senators would have been doing homework for considering the House bill when it arrives, Hoffman said.
Things work the other way on the capital budget. Traditionally the Senate develops it first and sends it to the House. House Finance members are meanwhile doing their homework on possible capital appropriations under the direction of Rep. Bill Stoltze, R-Chugiak, who also co-chairs the House Finance Committee.
Meanwhile, a major issue under discussion among lawmakers is what can be done about a looming deficit in pension obligations to state, municipal and school district retirees. The deficit, now estimated at about $11 billion, is the difference between what the state’s current pension funds are expected to earn from investments and the obligations to retired public employees.
The state manages pension funds for municipalities and school districts as well as state workers and problems in financial markets several years ago and mistakes made by the state in managing the funds have resulted in the current estimate of a deficit.
Alaska’s deficit is large, but not as large or troublesome as public pension fund deficits in other states, however.
Still, Sen. Bert Stedman and other legislators believe the state should use some of a projected budget surplus this year and some other state funds held in reserve accounts to make a large payment into the pension funds, reducing the estimated deficit.
There is an existing plan to gradually pay down this deficit with the state helping municipalities and school make payments with a cost of about $600 million at present. Under the agreed plan the state’s responsibilities will increase to $1.2 billion a year or more over the next decade, which could be ruinous, crowding out other state programs, as oil production and state revenues decline, Stedman said.
“It’s time to take a hard look at buying down this debt with an infusion of equity,” into the pension funds, Stedman said. Legislators are talking various numbers, from $1 billion to $4 billion, “but $1 billion won’t do it. To have a meaningful impact it will take $2 billion to $4 billion,” Stedman said.
“If we don’t tackle this it will put the state in extremely uncomfortable position,” in a few years, he said. Unlike some other states, pension obligations to retirees in Alaska are guaranteed by Alaska’s constitution.
Parnell, however, is cautious about locking up some of the state’s current surplus, estimated at more than $13 billion not including the Alaska Permanent Fund. In comments in a briefing the previous week Parnell said he is concerned about putting reserve funds into the pension funds with the possibility of a downturn in revenues due to declining oil production.
Another issue of concern to lawmakers this session is school funding. School districts are putting intense pressure on legislators to increase the Base Student Allowance, the formula under which state funds are distributed to schools, to offset inflation and increases in energy costs.
Bills to increase the BSA formula are moving in the Senate are were before the Senate Finance Committee Feb. 8. Another bill, to make changes in the way the state helps school districts pay for school buses, is also moving in the Senate.
The House is so far more reserved on school funding, however. House Speaker Mike Chenault, R-Nikiski, has said he is uncomfortable with making changes in state formula funding with possible revenue shortfalls looming and would prefer one-time appropriations similar to grants to schools made last year to offset energy costs.
Parnell has voiced similar concerns about increases in school funding.
On another matter, the House Resources Committee began work Feb. 6 on a proposal to expand the authority of the Alaska Gasline Development Corp., a state corporation working on a 24-inch gas pipeline from the North Slope to Southcentral Alaska.
Hearings on the bill, a new version of HB 9, were to continue Feb. 8.
The AGDC was formed through legislation passed two years ago to pursue a smaller gas pipeline, to bring gas from the slope to Interior and Southcentral Alaska, in case a large 48-inch gas pipeline built to Canada through Interior Alaska stalls, which it apparently has.
Changes proposed for AGDC would allow it to be a vehicle for the state to become a partner in a larger pipeline if one is built to a southern Alaska port and an liquefied natural gas plant, a proposal Parnell is pushing on North Slope producers as an alternative to the all-land pipeline to Canada.
At the Feb. 6 hearings on the proposal members of Resources Committee expressed concerns over parts of the bill, particularly exemptions from regulation by the Regulatory Commission of Alaska until investors’ debt is repaid, an issued raised by Rep. Bert Gardner, D-Anchorage.
Rep. Mike Hawker, R-Anchorage, a cosponsor of the proposal along with House Speaker Mike Chenault, said one reason for the exemption is to avoid duplicate regulation by the RCA of the project. The regulatory commission retains authority to approve contracts to utilities for gas moved through the pipeline, and having authority over the pipeline itself would be duplicative, Hawker told the committee.
ADGC president Dan Fauske said the provision is important to secure financing for the project. Any potential that the RCA could change tariffs for gas shipped through the pipeline after it is constructed, at least until investors’ capital is recovered, would scare off financial markets, Fauske said.