HFIN-260514-1330

Okay, I'll go ahead and call this meeting of the House Finance Committee to order and let the record reflect that the time is currently 2:07 PM on Thursday, May 14th. 2026. And present today, we do have Representative Moore, Representative Bynum, Representative Co-Chair Schrag, Representative Co-Chair Josephson, Representative Galvin, Representative Tomaszewski, Representative Hannon, myself, Co-Chair Foster. And just a reminder, folks can mute their cell phones. And we have two bills up for us today, and that is House Bill 381, that is the Gas Line Bill.

We're going to, uh, go straight to the Department of Revenue presentation, and time permitting, we'll go over to Gaffney Klein, and then after that, House Joint Resolution 23, constitutional amendment, Governor's proposed budget resolution. I would like to allow for a little bit of time for the rest of our folks to come in. I think this presentation is going to be an important one, and so I'm going to take a brief at ease, but before I do, I know that we have to be back on the floor at 4:30, and at 4, I believe a number of us will also have meetings. And so we'll go till just before 4. I would love to, if it's not too late in the evening, come back after floor session if we need to and continue on.

So we also have with us Representative Ellard. And so just to allow Looks like we're missing two people. I'm just going to take a brief at ease.

Okay, House Finance back on record, and we do have our full complement. We've got Representative Stepp and Representative Jimmy. And, uh, so again, we're starting off with the gas line bill. Just so folks know, we also have from Department of Revenue Mr. David Herbert and Owen Stevens, both commercial analysts. And so the plan is to take up the Department of Revenue presentation and then hopefully get to Gaffney Klein before floor.

But if not, if we have to come back after floor, assuming it's not too late in the evening, we'll try to come back to Gaffney Klein. So I think this is a lot of the meat of kind of what we're doing between these two presentations. So I would say it's going to be some complex information. I think it's a 36-page slide deck for the DOR presentation. If folks want to ask questions as we go, feel free to do so.

So with that, Mr. Dan Stickel, Chief Economist, if you could please come up, put yourself on the record, and walk us through the presentation.

All right. Thank you. For the record, Dan Stickle. I'm Chief Economist with the Department of Revenue, and thank you for the opportunity to come and present our analysis of the House Bill 381.

All right. So slide 2 is a list of acronyms. We include this as a reference for the committee. Lots of jargon when we are dealing with oil and gas. Slide 3 is our overview of the presentation.

So we will start with a little bit of background around the property tax itself, which is being adjusted through the legislation. We will walk through our interpretation of the current committee substitute for the proposed legislation and the revenue impacts for each of the various provisions. Uh, we'll walk through the other side of the fiscal note, which is our implementation costs. And then the final, uh, set of information is detailed project modeling. We also have an appendix that we've made available to the committee that we could go into after, if desired, that has some additional questions that were provided to us.

So some background on the property tax on slide 5. So Alaska levies an oil and gas property tax statewide on the value of any property for exploration, production, and pipeline transportation in the state.

It's a 20 mills, or 2% of assessed value tax rate, and the state manages the appraisal and assessment process for all oil and gas property in the state. Municipalities are allowed to levy a property tax as well. They have to use the same municipal tax rate for oil and gas property that they levy on other property within their municipality. And any municipal taxes are allowed as a credit against the state tax. So from the industry standpoint, there's a 20 mills or 2% property tax on all oil and gas property regardless of whether that revenue goes to the state or the municipality.

The one exception is that LNG plants are not subject to state oil and gas property tax, but they are subject to local municipal property tax. So under current law, if there was an LNG plant, that would be taxable by the Kenai Peninsula Borough, but not at the state level.

Got a question, Representative Hannon. Thank you. Thank you, Chair Foster. Thank you, Mr. Stickel. Are there currently any exemptions or alternate taxes on oil and gas property in the state besides this LNG plants exclusion, or is every other asset currently subject to that tax?

Representative Hannan, through, through the chair, I, I believe generally the answer is no. So we have a definition of of the property tax. And then there are some exemptions, but there are no alternative taxes such as are being proposed in this, in this legislation at the state level. Representative Hannan. And could you expand on what the exemptions are?

Sure. Representative Hannan, through the chair. So the LNG plant is one exemption. There's exemptions for The definition of the tax base does not include distribution infrastructure. So for instance, a company like, like Enstar, their distribution infrastructure is not subject to the oil and gas property tax at the state level.

There's provisions around certain property not being taxable during construction. There's certain provisions around the construction of a pipeline with an AGDC ownership in it. So there are a variety of exemptions and tax credits available, but I think to the broader question of do we have a significant alternative tax such as being proposed under this bill, we don't. Thank you. Okay, please proceed.

Okay, so that just kind of gives a background of what is the property tax that we're proposing to change under this bill. So moving on to the proposed legislation and the revenue impacts. So first we start with a disclaimer on slide 7. So there are some preliminary interpretation of the bill provisions and how those would apply. We use our spring revenue forecast as kind of the baseline for current law revenue.

And then we have a spring 2026 version of our AKLNG model that has numerous assumptions which I'll get into later in the presentation. This model is based on the committee substitute version T, which passed out of the Resources Committee, and there are a few places where there's some uncertainty around the bill drafting and text. I think that was mentioned yesterday by one of the members. So our modeling is based on our understanding of the intent of those provisions.

And then again, there are some items which we will need to eventually develop regulations for. And so the presentation is not an official tax interpretation or tax guidance. We reserve the right to put a finer point on things in regulation on down the road. Representative Hannan. Thank you, Chair Foster.

Mr. Stickel, where you say that your modeling is based on your understanding of the policy intent where this differs from bill text, could you elaborate where you found those differences? Mr. Stickel? Sure. Representative Hannan, through the chair, so we have— we could give— we could give a few different examples. I think there was some discussion yesterday of potential uncertainty in the bill drafting.

One example is there is a provision around inflation adjustments, which as we read the bill language, it adjusts based on a 5-year inflation change each year. Our understanding of the intent is that it is an annual adjustment based on a 5-year average change. So there is just a couple words there that would line up the language with the intent. So we have modeled to what we understand the intent is. Which is that we will use an annual inflation rate and not something 5 times the rate of inflation.

Just one example. Okay, Representative Gelman. Thank you, Mr. Stickell. Appreciate you being here. So just thinking back on what you just shared with regard to the exemptions and such, wondering why LNG plants are not considered oil and gas property, you know, in terms of following the Alaska property tax laws.

Is it—. Is there a history there, or did maybe the LNG plants predate Alaska tax law? What, what is that? Sure. Representative Galvin, through the chair.

So I'm not intimately familiar with all of the background around that particular exemption. I believe it had to do with the export facility that existed on the Kenai Peninsula Borough for 50 years and basically allowing that to be not taxed by the state and taxed by the municipality. And so that really has to do with where we draw the definition of oil and gas property. Okay. Thank you.

Okay. Please proceed.

All right, moving on to slide 8. So broadly speaking, what would this proposed legislation do? So this legislation would create a policy framework for replacing certain state and municipal property taxes with an alternative volumetric tax, as we've heard. The specific impacts that impact Department of Revenue— there's eligibility conditions for the alternative tax, there's some optionality that is deferred to the municipalities, and then the, the actual property tax changes and alternative volumetric tax. And so I'll walk through each of those four provisions in more detail.

Slide 9. So we have a note on the fiscal note. So as we go through each of these provisions, we'll, we'll talk about the revenue impacts as part of the discussion. We do have an indeterminate fiscal note, and the reason for that is There is uncertainty around whether the AK LNG project proceeds with or without a tax change. So this bill is a tax decrease overall for the developer.

The magnitude of that tax decrease depends on decisions that are made by the municipalities. North Slope Borough and Kenai Peninsula Borough in particular have some important decisions that are deferred to them.

And so just that level of uncertainty is why we did provide an indeterminate on the front of the fiscal note and then provide a range of potential impacts for each of the provisions there. In addition to the direct revenues from the project, also significant impacts on production taxes, corporate taxes, and royalty revenues, both from from gas into the project, as well as associated oil development and potential for associated new development on the slope. Significant municipal impacts through the property tax exemptions, the alternative taxes, as well as potential for increased property tax from new development on the slope outside of the AK LNG project. And then, obviously, significant economic benefits benefits to the state beyond just the revenue impacts. Representative Josephson.

Thank you, Mr. Chair. Good to see you, Mr. Stickell. On bullet 2, the bill as written, you said depends on municipal decisions, but that is sort of the rub of central questions, right? About how to draft this is how wide or narrow that decision-making can be.

That's sort of one of the top 3 decision points. Is that right? Sure. Koji Josephson. So that's an important change that was added in the House Resources Substitute.

So in the original bill as introduced by the Governor, there was an alternative volumetric tax imposed for the entirety of the project. Gas treatment plant, pipeline, and LNG facility. Facility. This bill would apply an alternative volumetric tax to the pipeline, but then would leave the treatment plant and LNG facility would be subject to a municipal decision. And yes, that's a significant policy decision on whether to carve those two out.

Follow-up? Follow-up? And in bullet 3 on production tax, Senate Resources wrestled for a time with trying to parse out, um, what activities are purely gas-related, gas extraction-related, and, and what are duplicative of other oil operations that are incidental and should not be doubly reduced against profit, something like that. It's exceedingly complicated, but am I right that Senate Resources was waging into that with great zeal and then they've retreated from that and left it for another day? Is that roughly right?

Yeah, kuchardosusen. So for the upstream component, for the producers that would be selling gas into the project, we have a Statewide oil and gas production tax. We do— there are separate— there's a lot of complexity to it. There are some separate calculations for oil and gas, but for the North Slope, kind of the rub is that any lease expenditures incurred for production are allowed against the oil side of the tax calculation. Oil and gas come out of a reservoir and a well together.

So it's extremely difficult to allocate what share of production is attributable to oil and gas or what share of an expense is for oil and gas, especially for exploration and development. And so we— there was a proposal in their version of the bill to allocate those lease expenditures, and we provided testimony that that would be possible but extremely challenging and costly to administer and likely subject to litigation. And so our recommendation was that that was not the most efficient way to generate additional state revenue through production tax. Follow-up? Follow-up?

But Mr. Stiglitz, it's not about generating revenue as much as protecting revenue, I'm told. Isn't that right? Sure. As to the production tax side. Yeah, Representative Josephson, through the chair, and once we get into the detailed project modeling, we do have some slides that kind of show what that amount is.

There is a period of time during, during development of the AK LNG project that we do anticipate that the upstream producers would be making significant investments, in particular in Prudhoe Bay and Point Thompson, to do the drilling and development to bring the gas to market. The cost for that would be deductible in the production tax calculation, so there would be a few years where production tax revenue would be decreased as those investments are being made. Over the next decade and then life of project, it is still a significant positive to production tax revenue. Okay, thank you. Okay, please proceed.

All right. Slide 10, eligibility conditions. So the House Resources version of the bill sets various conditions for the project to be eligible for the property tax exemption and alternative minimum tax. So the owners of the— the owners of the project must commit to depositing $40 million into a community impact fund. They must commit to negotiating a project labor agreement.

For the gas pipeline, and they must commit to construction of a Fairbanks spur line.

And then slide 11 outlines a little bit more detail on that commitment for the Fairbanks spur line. And that was one of the significant discussions in the— and additions in the Resource Committee was around providing that gas to Fairbanks and the spur lines of The spur line needs to be of sufficient capacity to meet projected demand. It must be scheduled to begin operation within 2 years of commencement of operations of a major component of the, of the AKLNG project. It must connect to local infrastructure, deliver gas safely and reliably at the lowest reasonable cost. And importantly, the costs for that spur line need to be allocated system-wide.

And so it wouldn't just be the consumers in Fairbanks that would be essentially covering the cost of the spur line through tariffs. That would be allocated across the system, which would allow the residents of Fairbanks to enjoy the lower cost of gas that the rest of the state would potentially enjoy. The owner would be responsible for constructing the spur line and they must begin permitting and regulatory steps before or on or before completion of 730 miles of the gas pipeline. And so that 730-mile trigger is basically the end-state portion of the AK LNG project. There's two phases envisioned.

One would be a phase— Phase 1 would be the line to South Central, and then Phase 2 would extend that further on to Nkisi and the export terminal. And then that construction must begin within a year of receiving permits and regulatory requirements. So lots of parameters around that Fairbanks Spur Line were added in the House Resources version of the bill. Yeah, 2 questions. Representative Galvin, then Bynum.

Representative Galvin. Yeah, thank you. And I see— this is back at slide 10. There was particular interest for me where it said negotiate a project. It says on the fourth bullet, negotiate a project labor agreement for construction of the gas.

So do they only need to negotiate a PLA or do they need to execute the PLA and enter into one? Does it have to be finalized or— the wording is confusing when it says to negotiate it only. Sure. Yeah, Representative Galvin, through the chair. So the commissioner would make a determination that the project— the Commissioner of Revenue would make a determination that the the project developer has made commitments to do all of these things before allowing for the property tax exemption and the alternative tax.

Okay. And a follow-up, if I may. So similarly, so would— do they need to commit to build the spur line or do they actually complete the construction? That seems to create sort of a sequencing problem. Is the AVT in place during construction or prior to first gas?

How does that play out as it is implemented? Sure. Representative Galvin, through the Chair and the AGDC folks may be able to provide a little bit more color on this, but for this first eligibility condition, the developer would make the commitment to the satisfaction of the Commissioner of Revenue prior to being eligible for the, the alternative tax. I would envision that we would have a probably a robust process that we'd address through regulations where we would determine and certify that they've met those conditions. And then on slide 11, there's a little bit more of the information around what they have to do with regards to the Fairbanks Spur Line.

So, there is— they have to begin construction after receiving the permits and meeting the regulatory requirements. They commit to going through that permitting and regulatory requirement process. And there is the list of provisions here on Slide 11 around what the plans for the project must include. This does allow— some contingency if there's some sort of hiccups in that permitting and regulatory process. They commit to going through the process.

If they're denied the permits, that doesn't shut down the entire AKLNG project. So, follow-up, if I may. Representative Galvin. So the way I'm looking at this as a novice person who doesn't work in DOR, DONR, is that it's sort of like a this fits kind of like a plan of development and the commissioner or the department, in this case it is the commissioner, gets to oversee and be mindful of whether this is tracking according to this plan. Is that how I should be thinking about it?

Yeah, Representative Galvin, through the chair, I think plan of development would be a good way to look at it. Okay. Thank you. Okay. Representative Bynum.

Thank you, Co-Chair Foster, through the chair. Thank you, Mr. Stickell. I don't recall, can you remind us of who will be responsible or who will have ownership responsibility of the spur line? Representative Bynum, through the chair. So the project developer is required to construct the project of the spur line under this version of the bill.

So basically this will be a functionally just part of the overall gas line system and under the ownership of that. So the investment that's going to happen here is an investment for the total project, which is to include the spur. Rep. Bynum, through the chair, that's correct. And in our modeling, we've built in an assumption that the spur line costs will be incorporated into the project capital costs. Okay.

Representative Bynum. Thank you, through the chair. So when we look at the revenue component of that, is the cost of the spur basically going to be impacted from a revenue perspective? Is it an overall investor obligation? And, you know, or is it ultimately going to— will it in any way hamper or stop the investment component or harm that?

Mr. Stickle. Representative Bynum, through the Chair, so including the spur line will slightly increase the cost of the project. And I think we had— there was testimony from Gaffney Klein that the net impact on delivered prices would be something in the order of 2 cents per 1,000 cubic feet. So it is a slight impact to project economics, but a slight one. Follow-up?

Thank you. Through the chair, is that slight impact, is that only in-state gas, or is this also going to potentially impact Phase 2 export? Mr. Stickel? Representative Bynum, through the chair, so it's an increase in cost for the entire project that would have to be financed. Okay.

Representative Josephson? Yes. Mr. Stickel, when you say In your last bullet point, or second to last, owner responsible, and then you said that's the project developer. So could it be Whirley, or is it Glenfarn? Representative Josephson, through the chair, so this would be— so Glenfarn's the developer.

The owner would be right now Glenfarn, with AGDC having an option to buy in, and then Yeah, so Glenfarm would be the developer and then whichever— whatever consortium of investors that they bring in. Okay, thank you. Okay, please proceed.

All right, so slide 12. Assuming that the project meets those eligibility conditions, this bill would replace some of the state and municipal property taxes with the Alternative Volumetric Tax. The property would be exempt from the state and municipal property taxes.

The gas treatment plant would be include— excluded from state oil and gas property tax. So from the state standpoint, we would be exempting the entire project. We already don't tax the LNG plant. We would be exempting the pipeline portion of the project and then we We would also be exempting the gas treatment plant from the state property tax. For the municipalities, they would have the option to exempt, defer, or provide an alternative tax for the gas treatment plant or the LNG plant.

And if the municipality chooses to exempt the gas treatment plant or the LNG plant, This bill also provides a provision that they can negotiate for equity interest in lieu of the property tax.

There's a repeal provision that if the first 730 miles of pipeline has not begun construction by 2032, the alternative volumetric tax would repeal and the— we would go back to the full current law property tax. And that 730 miles again is related to Phase 1 of the pipeline. Question. I've got 3 questions. Representative Galvin, Stapp, and Josephson.

Representative Galvin. Thank you. Through the chair. So we've heard several times from the governor and Glen Farn that the purpose of this bill is to provide tax certainty. And for the, for the project.

But then I see that under the CS, it's really some of it is left to the municipalities and some of it is specific around negotiating and determining the tax on the treatment plant, carbon capture. And then the other one was the LNG, that LNG portion of it. The plant itself. So recognizing that that would be Phase 2, I'm just thinking, are we giving up on providing that tax certainty for Phase 2? Is that what we're doing here?

Sure. Representative Galvin, through the chair. So as you mentioned, the governor's original proposal was to provide the tax certainty for the entire project at the outset. Mm-hmm. What this bill does is it provides the tax certainty for the pipeline and the Phase 1 investment decision, and basically provides for the potential for the tax certainty for Phase 2.

We do provide certainty that the state would not be taxing the gas treatment plant, so that would be a tax reduction. For the gas treatment plant. But then the option for an alternative minimum tax or other arrangement, we leave that to the municipalities to negotiate for the treatment plant and the LNG facility under this version of the bill. And a follow-up, if I may? Follow-up?

And so that— I assume that Glenfarn accepts that uncertainty and is fine with that. It still makes me ponder about the Phase 2 and the lack of certainty for that phase, particularly as we think about investments ahead. And, you know, I know so much of the time we hear about, "Gotta have certainty." And so I'm just I was just pondering that and wondered if you wanted to remark about that. Yeah. Rep. Galvin, through the Chair, so I would defer the detailed comments on Glenfarn's position to Glenfarn.

Obviously, there is a balance between the tax certainty and also the importance of having the municipal buy-in to the project. And so I think carving out those two decisions was kind of an acknowledgment that the municipal buy-in was important, and that was one of the comments that came up in the Resources Committee. Thank you. Okay, Representative Stout. Thank you, Co-Chair Foster, through the Chair, Mr. Stickell.

I knew you would be back to the Committee. Mr. Stickell, thanks for coming. Forgive me if this has been asked of you, because I know you have probably sat in front of 50,000 legislative hearings over this already. But I'm curious about the interplay between the gas treatment plant and potential of, um, how it works in the upstream, because I know the, the gas treatment is a midstream asset. It's going to be exempted from basically our oil and gas tax structure, is going to be put in municipal code the way this bill reads.

But there is, there is some potential interplay with that gas treatment plant in actual producers, right? Because of the nature of what they're gonna do with the CO2, if they're gonna re-inject it in 45 pukes. So can you walk me through what that relationship is so I have a better understanding through the chair? Sure. Representative Stapp, through the chair, so the way the project plan has been laid out by AGDC and Glenfarm and the way that we're modeling the project is that the gas treatment plant would be entirely owned by the midstream developer and that the gas would be transferred in its entirety to the project at the inlet to the gas treatment plant.

Okay. Representative Staab? Yeah, I guess I'll wait for the full answer and then ask a follow-up. Sure. Representative Staab, through the Chair, so from the upstream standpoint, there would be a sale prior to the gas treatment plant of unprocessed gas, and that would be what would be taxable for the upstream, and then the midstream developer would take it from there.

If there were to be a different arrangement, that could be different, but that's how the project's been laid out and how we've modeled it. Yeah, Mr. Kachurwa? Yeah, and just for the record, I don't think this is something that you will ever solve in this bill until it happens, but I'm curious. I understand the first part of the relationship, so what about the second? Let's say I do the transfer of the gas cell that's taxed at the point of production at the cell.

What happens if I— when I push the CO2 back if I wanted to reinject it for EOR? Sure. Representative Staab, through the chair. So the way we understand the project and the way that we've modeled it is that there would be CO2 reinjection. It would take place by the midstream developer that owns the gas treatment plant.

Those would generate 45Q credits. Credits, and then those could be monetized in some way by the midstream owner. Follow-up, Mr. Co-Chair? Follow-up. So I guess that begs the question, how would the midstream developer be the one doing the reinjection if they're not the ones who are doing the upstream stuff?

Through the Chair. Sure. Representative Stout, through the Chair. So I would— I would probably defer that to Glen Farnham and AGDC for the specifics on the logistics of exactly how that would work in the negotiations for pore space and such. Follow-up, Mr. Coatsworth.

Representative Stout. Yeah, thank you, Mr. Foster, through the Chair. So I was going through HGR 1, looking at all the changes to this stuff, and I realized that they allow the entirety of the credit just to be transferable, right? So in theory, I know that's how we're modeling this, but they don't actually have to do that, right? In a gas sales agreement, can't they just negotiate a direct transfer of the credit if the producer wants to reinject it themselves through the chair?

Yeah, Representative Stout, through the chair. So we are, we are assuming that the midstream developer would be able to monetize those credits. And so, yes, the assumption there is that potentially if they can't, they would either apply them themselves or they would transfer them. They could certainly transfer them to one of the producers on the slope, they could transfer them to another company.

Okay, yeah, follow-up, I guess, real quick. Rep. Sandstaff. I know that there's probably no way of figuring this out, and I don't expect it to be done in the bill, but is there a way you could just kind of offset that with just an overall lift cost, depending on the value, like the estimated value of that? I don't know how you would incorporate that. I guess through the chair to Mr. Stickel.

Do you understand what I am asking?

Representative Stapp, through the chair, not entirely. But happy to work with you. Yeah, I will talk to you offline about things. We do have detailed assumptions around operating costs for the upstream. We have detailed assumptions around the value of those 45Q credits.

Happy to provide those. Yeah, just a quick follow-up. Yeah, on the, on the CapEx and the OpEx, like, I know that the credit in itself exists independently, but obviously it changes kind of the economics of the process because it's more valuable. And I don't know the geology well enough to ever kind of figure out if they want to— how you maximize that. But I, overall, I think it's a great thing because to me it looks like it's beneficial for production on the slope.

So I guess that'll be the end of my questions here. You think it would be more beneficial for future production on the slope if we had this thing and people were utilizing this kind of federal thing? Through the Chair. Sure. Representative Stout, through the Chair.

So the 45Q credits are material to the project. And so, yes, they are going to be materially beneficial to the entire project in both the upstream and the midstream. So they are an important component of the project economics. And I guess last question, I lied. Representative Stapp.

Thank you, Co-Chair. Through the Chair, Mr. Stickel, what about the CO2 that comes out of the midstream if it goes back to the upstream? I know we didn't model that because we're thinking the midstream producer does the everything. Is that like reversed or is that just completely exempted from structure? Through the Chair.

Representative Stapp, through the Chair. So we, we have not, we've not modeled that. You know, certainly there could be arrangements between the be the producers in the midstream to handle those. Okay, that's it. Thanks.

Okay, I've got Representative Josephson, Hannan, Bynum, Galvin. Representative Josephson. Thank you, Mr. Chair. It's slide 12.

Um, when you talk about— and I was aware because it's well known at this point— that municipalities would have an equity option under the bill, a version T. Um, would this be the 26th percent If the state opted in and found $10 billion and had an equity interest of 25%, would this be the 26th percent or would this be subject to the state not taking 25%? Representative Kocher, I may defer the details on that question.

I believe the concept here is that we provide the statutory framework for the municipality to make a negotiation with Glenfarm. So right now that statutory framework doesn't exist. The bill sets up the statutory framework for them to go forth and set up that negotiation. Alright, so— Representative Josephs? It sounds like— —there's potential ambiguity as to that part?

Except that it certainly authorizes that opportunity in some fashion. Co-chair Josephson, I may defer that question and get back to the committee. Okay. Thank you. Okay.

Representative Hannan. Thank you. As the continued evidence of representative staff and I being synchronized in our thinking. I'm interested in the carbon capture facility. And generally when we've been talking about this bill and when Glen Farm presented, it hasn't been called out as a separate facility.

And you're calling it a separate facility, but we're talking about the 45Q provisions dependent on carbon capture. And I guess engineering-wise when you're modeling it, it's co-located with the gas treatment plant and at midstream. Are there possibilities that it is upstream and other users who are not sending gas into the gas line? Because when we first talked about carbon capture 5 years ago, we weren't talking about it in association with the gas line, but that the number of producers up there for a variety of reasons might produce a carbon capture facility that they would all be using. So are there other users that would be able to access the carbon capture facility that we've placed into an alternative tax, but if they had it on their own site, it would be subject to the existing tax structure we have?

Or— because I don't understand the engineering, and I know you've had to develop a much greater depth of engineering knowledge via your economy background. So—. Right. Representative Hanna, through the chair, that's actually a really great question. I'm an economist, not an engineer.

Our understanding is that the carbon capture facility would be kind of part and parcel with the gas treatment plant and a significant portion of that part of the project to re-inject the carbon for both for the environmental benefits as well as to realize those 45Q credits. I guess I don't see why there could not be additional carbon injected in that treatment facility. And follow-up? Follow-up? And if that were happening, so if an upstream producer were using that carbon capture facility, it would not be subject to the tax they would have if they were using a different carbon capture facility, correct?

Because it's the facility that has the 45Q and alternative volumetric tax properties. Representative Hand through the chair. So the bill exempts the gas treatment plant carbon capture facility as a major component of the AK LNG project. Thank you. Okay.

Representative Bynum. Thank you, Co-Chair Foster, through the chair. Just was— want to take a— that's okay— take a step back from the conversation we've been having. We've been talking a lot about the tax mechanisms being put in place. Revenues coming to the state from that.

But then I start to think about, well, what is it that we're actually trying to build here? And what we're trying to build is an energy delivery system. And I then compare that to what are we doing in the state when it comes to electric cooperatives, energy systems that are owned by the state. And when we talk about those, we say we don't tax those. In general, uh, for property taxes at all.

Um, and when we do put taxes in place on even privately held, um, energy specifically for delivery to homes and communities, we generally look at them in a favorable way because they're providing a public good. And so when I think about Phase 1 of this project, the biggest part of Phase 1 is to make sure we're delivering gas to Alaskans, whether it's in Fairbanks or Southcentral, um, Kenai. Ultimately, we are trying to create a system to deliver energy, and that's for homes but industry as well. So can you talk a little bit about the economic benefit to our communities for having direct, reliable in-state gas available? I don't hear us really talking about that.

I hear us talking about how we're going to get money from this thing. The money from this thing comes when we export, not how we're dealing with internal use. So I'm trying to make this parallel comparison between what we do with electric utilities versus what we're doing with a gas utility here. Can you talk a little bit about that? Sure.

Representative Bynum, through the chair and your You're correct. From the state standpoint, our state policy is that we levy a state property tax on upstream and midstream oil and gas. And that is the only state property that we— property tax that we levy. So we don't levy on non-oil and gas property. We don't levy on downstream, which would be the distribution of gas to consumers.

In terms of the economic impacts, So we do have some slides later on that show the impact on end-state cost of supply. Obviously, that's the potential to deliver low-cost gas to Alaskans is an important part of the impetus for the project. You've heard the governor state that that's one of the primary driving forces behind the legislation. Inflation. And there's the, the economic benefits beyond that as well of supply certainty, the potential to support additional new development of, of major projects such as a fertilizer plant, data centers, supply to the Air Force Base, Army Base, things like that.

Follow-up, Representative Bynum. So as we see the infrastructure in place and we're beginning to see more uses, not just heating homes, but security to our military installations, seeing fertilizer opportunities that becomes an exportable product. Data centers is another question that's being brought up, that that brings volume up of in-state use, which ultimately brings down the cost to the consumer and our, and our Alaskans' homes. And How far out are we looking at the economics of that compared to exports? Take export off the table, but looking at how do we grow Alaska?

Sure. Representative Bynum, through the chair. So we have, we have some detailed assumptions around Phase 1 and the end state portion in the presentation that I'm delivering today is based on the assumption that the full project moves, moves along and that there is The Phase 1 approval followed shortly by the Phase 2 approval and construction. We provided— we did provide information to the Resources Committee, extensive information looking at potential for in-state only and what the impacts on that would be. Our modeling does assume that there are some baseload customers and some in-state industrial demand that is incentivized advise by the project.

Representative Bynum. Thank you, Co-Chair Foster. Through the Chair, final question for now is the other thing that comes up is when we talk about the property tax component. When I look across the state at boroughs and different policies they have put in place, I know that they are very favorable or generally very favorable, whether I'm talking about the Kenai, talking about Ketchikan Gateway Borough, talking about Anchorage. When we talk about large development, industrial development, We tend to say we want to provide an opportunity for either property tax reduction, we do abatement, we do deferrals to try to encourage that growth because we want to see those production facilities come in.

Have you guys looked at what generally has been the trend recently with regard to municipal property tax reductions or eliminations or or deferrals in the impacted areas that this gas line might be going for other industrial uses? Representative Bynum, through the chair, that's not something that we've looked at in a whole lot of detail. As far as the municipal property tax goes, that's— Department of Commerce is kind of an expert there, as well as Alaska Municipal League would be great sources of information. Thank you. Okay.

Representative Galvin.

Thank you, Co-Chair Foster. Through the chair, and this might not be a question for you particularly, but maybe you can speak to what the governor might think about such a conundrum.

If the municipalities enter AVT agreement or arrangement and the state doesn't like it, can the state simply remove this authority from the municipalities and, you know, effectively, you know, play bully and impose their own scheme? Like, what happens then if that becomes something that's not what the state is— it considers in the state's best interest, let's say? Commissioner Galvin, through the Chair, I would prefer to get back to the Committee with a response on that one. I would prefer not to opine on that off the cuff. Okay.

Thank you. Okay. Please proceed with the presentation.

All right. Slide 13 is the continued of the property discussion from slide 12. So in terms of the revenue impacts. So our official spring revenue forecast, which I had the pleasure of presenting here 2 months ago, we do not include— we conservatively do not include gas, the AK LNG project and gas production from that in the revenue forecast. So there is zero revenue impact from this bill under our official revenue forecast.

We do provide, if the project were to proceed without tax modifications, modifications under current law, the property tax revenue to the state would be $25 million estimated initially in 2029, ramping up to $244 million by 2033. And if the project were to proceed without tax modifications, the current law estimate of property tax to the municipalities is about $479 million per year in $1.3 billion, and we provide the breakout there of the 3 components of the project.

Got a question, Representative Stepp? Yeah, thank you, Co-Chair Foster. Through the Chair to Mr. Stickel. So our Glenfarm folks, they kind of brought up a concern about the way the bill is drafted, that they could be subject to double taxation on, say, gas treatment plant. I have looked at the oil and gas tax structure I've looked at the bill.

I don't necessarily see where they can come up with that argument, but I guess I'm going to ask you just a few questions. They can't— because of this agreement with the municipality, there's no way that they can impose like a throughput tax on this. It would just have to be the property valuation of the gas treatment plant, correct? Through the chair.

So, Representative Stapp, through the chair, what this bill would Allow the municipality to exempt the treatment plant from property tax and then they could, as we mentioned on the municipal optionality, they would have the ability to negotiate an alternative tax an equity arrangement or an alternative tax with the developer. Follow-up, Mr. Co-chair. Representative Stapp. So can that alternative tax in theory be above the 15 cents volumetric, your understanding, or no?

Representative Stapp, through the chair.

Probably. I don't have that version of the bill in front of me. We'll get back to the committee. I know that. Yeah, that's okay.

It might be a question for legal. Paul, through the chair, I'm so just on the— so the way I read the Alaska oil and gas tax law, just because we're doing this and we're giving what's called special dispensation in this bill to municipality, They can't, in theory, do anything that would artificially enhance the value of the property, or is it just arbitrary from your understanding? 'Cause we have a hard number here, $20 million on the gas treatment plant, and the way I read the bill currently, I'm— I don't know how you can set a number to that because you don't know exactly what the municipality is gonna want. Is that accurate through the chair? Sure.

Representative Stabsby, the Chair. So we have, in our modeling, we have not modeled an alternative arrangement. That would be something that the municipalities could negotiate.

The assumption there is that that would be a tax exemption deferment or reduction or potentially an equity arrangement. Okay. Thanks. Okay. And please proceed.

All right. Slide 14 then lays out the alternative volumetric tax. So we talked about what the property tax that would be reduced would be potentially. And then the replacement is the alternative volumetric tax begins at the commencement of commercial operations of a major component of the project. The bill as introduced had a ramp-up period and throughput threshold.

This bill does not have a ramp-up period or throughput threshold, so as soon as throughput begins, the alternative volumetric tax would apply. The tax would be 15 cents per 1,000 cubic feet transported through the gas pipeline, and there would be annual inflation adjustments based on a 5-year average of Consumer Price Index. And this was one of the minor technical issues that I, that I mentioned earlier, but that is our understanding of the intent is it is an annual adjustment based on a 5-year smoothed average inflation rate.

Moving on to slide 15, so the state would levy and collect that alternative volumetric tax. And then the legislature, it would be split 50/50. For the first 50%, the tax would go to the municipalities that the pipeline runs through, proportionally based on distance, with the state retaining the portion in the Unorganized Borough. The remaining 50% of the tax would go to municipalities across the state on a per capita basis. And so in total, about 81% of the revenue from the Alternative Volumetric Tax would be distributed to various municipalities throughout the state, with the remaining 19% retained by the state.

Again, there's a 2032 time limit there that the project construction has to begin by 2032 and a sunset date in 2056. So the idea with the sunset date is on down the road, eventually the project has recouped its investment and we will— after many years of operations, we would revert to the current law property tax.

Representative Hannan. Thank you, Chair Foster. Mr. Stickel, how many miles are in the unorganized borough on the proposed route, roughly? Representative Hannan, through the Chair, I don't have those exact numbers, so it maps out to that 19%.

Total, which would be about 38% of the length of the pipeline. I do have a lifeline if you would like an exact mileage. No, because what I am walking out in my head, Chair Foster, is the potential that what is currently unorganized, when the project is successful, that— and I am trying to figure out if it is just one or two sections, whether they are connected if all the unorganized borough along that route is connected geographically or if they are bifurcated by the Denali Borough. And I am struggling to remember the whole route in my head. But if that happened, if what is currently unorganized in 10 years became organized, then 100% of it would be going to local municipalities versus any to the state.

Rep. Hannan, through the Chair, that is correct. Okay. One unit? Representative Josephson.

Yes, and I apologize if I am missing something basic, but it is slide 14. What would be the $20 million equivalent of the 15%— sorry, 15 cents per MCF, what would be the—.

Sure. So, Co-Chair Josephson, so the numbers that we provided on Slide 13 would be the current law revenues to the state assuming the 20 mills tax were to apply to the project.

And so for pipeline, baseline. Yeah, you can see these are the values here.

The original bill had a 6-cent alternative volumetric tax that was intended to equate to roughly a 2 mils tax rate on the entire project given our baseline cost assumptions. Okay.

So the 15 cents just on the pipeline component would be somewhere in between that 2 mils and the current 20 mils. Okay. Thank you.

All right.

So I believe we had finished slide 15, and we are moving on to slide 16. So at the 15-cent alternative volumetric tax for the pipeline, that would equate to about $10 million in 2029 with first in-state gas and about $577 million come 2033 at full production. The state would receive 19% of that and no revenue for the other project components. General fund revenue to the state would be $2 million in 2029, increasing to $37 million by 2033.

Representative Tomaszewski. Then staff. Thank you, Co-Chair Foster. So what is considered full production? Sure.

Through the chair. So full production is full export operations with about 3.5 billion cubic feet per day into the project at the gas treatment plant and about 3.1 billion cubic feet per day of project exports. Thank you. Representative Staff. Yeah, thank you, Co-Chair Foster, Mr. Stickle.

Okay, this is probably going to be my dumbest question of the day. So when I talked to the Glenfarm folks, they were here and testified Committee, obviously they have a rub at this 15 cents. They prefer 6 cents. I basically wanted the material difference between 6 and 15. My simple brain math says it would be $4 million in 2029 and then $346 million by 2033.

That's probably not right. So what is the material difference? Through the chair. Sure. Representative Stapp, through the chair.

And I wanted to point out, as I'm looking at this slide, I realize We do have a typo here in that first bullet point with the $577 million represents the total for alternative volumetric tax as well as the remaining municipal property tax. And so that is a typo in the slide and we will provide a corrected version to the committee.

So to the question of what is the delta between current law and as proposed—.

Yeah, quick correction through the chair to Mr. Stickell. It would be what was in the original bill, I suppose, the 6-cent volumetric as opposed to 15 cents, because it doesn't seem that materially significant, especially at ramp-up, if I just take 60% off the value of $10 million. But I don't know if that's the proper equation. I would assume it's probably not. But I'm curious if you can help me out through the chair.

Sure. Representative Stapp, through the chair, I'm trying to see if I have the bill as introduced in front of me.

May not. May call on a lifeline to give those numbers.

Do we have one? Do we? Who are you referring to, Mr. Stickle? Probably Mr. Herbert, if he has those at his fingertips.

Okay. I have lots of paperwork, but I don't have that one with me. And did you say Mr. Fulford? Mr. Herbert. David Herbert.

Herbert. Okay. Mr. David Herbert, if you are online, can you put yourself on the record? Hello, for the record, I am David Herbert, Commercial Analyst for the Department of Revenue. Could I get the question repeated real quick?

Yeah, I think, Co-Chair Foster, through the chair— oh, sorry, Co-Chair, I didn't mean to jump in. Through the chair to Mr. Herbert. Yeah, I'm just— I'm trying to be simple person here. I just want to know what the math would look like at 6 cents volumetric as opposed to 15 cents. Through the chair.

I assume it would be $4 million instead of $10 million, but that is basic multiplication, so I'm curious. Through the chair.

So, uh, yes, it would be approximately that. I will— I'm sorry, through the chair, I'm David Herbert, Department of Revenue. It would be approximately that. I will note that the initial HB 381 as introduced had a period for which the tax was not charged until it reached certain group level.

Okay, follow-up, Mr. Co-chair. Representative Stab. So I know Mr. Stickell had talked about that 577 number being including all of the potential municipal property tax assessments. I said when I read that section of the bill, it says in Section 5 that it's not necessarily— it's a must be proportioned to the value determined if property were subjected to municipal property tax. And what I don't quite understand, and maybe you know this, Mr. Herbert, is because I've taken that section out of the bill and the folks at Glenfarn have talked about potential double taxation on these portions if we were to do that.

Is that capped at the 15-cent volumetric in the bill? Do we know? Or can they in theory charge, I don't know, a 10-15 mil equivalent? Through the chair.

Through the chair to representative staff, this is— Through the chair, again, David Herbert, Department of Revenue. I believe I'm not able to give you an answer I can't answer that at this point. Mr. Stickle. Sure, Dan Stickle for the record. I was going to say that's— we'll get back to the committee with details on that.

But to clarify, the original bill had a 6-cent AVT for the entire project with a 1% annual inflation rate and a ramp-up period. This bill has a 15% AVT just for the pipeline component with no ramp-up period and and a 2.5% inflation rate. So there are some differences beyond just that rate, but we'll provide those detailed numbers as well as a corrected version of this slide. Yeah, and quick follow-up just for clarification. Representative Stout.

Yeah, thank you, Mr. Chair, Mr. Secretary. Could you give me the delta too between what those numbers are? Yes, absolutely. Thanks, Dan, appreciate it.

Representative Hannon. Oops, I'm sorry, Representative Josephson, did you have a question first? I didn't, but as to this homework assignment, Mr. Stickle, if you'll route that through the whole committee and the co-chairs. Sorry. No, of course.

Representative Hammond. Thank you. We're going to add to the homework, Mr. Stickle. Thank you, Co-Chair Foster. Could you do it also at 12 cents?

It is my understanding that at one point in the Resources Committee that Glen Farn discussed as 12 cents being where they were comfortable, and I don't know whether you ever heard that on the record or whether you ever modeled it, but as we're doing the comparisons, I'd like to start where resources stopped versus all the way back at square one. We're now at version T, but version A is probably a little far back for us to go to do it. I don't know if you did modeling at each of those steps along the way, though. Representative Hanna, through the Chair, so we did provide in the Resources Committee, we did provide a 15-cent and 12-cent scenario at one point. So we'll come back to the committee with the numbers for AVT at a range of different AVT values, including 6, 12, and 15 cents.

Thank you. Okay, Representative Josephson. Yes, Mr. Stickle, could you remind me of the typo at line 2 of page 16 is what exactly? Sure, Co-Chair Josephson, through the Chair. So the way this reads is that the total revenue from the AVT would be $10 million increasing to $577 million, and that actually represents the total revenue from AVT and property tax.

So that includes the property tax, the assumption that current law property tax would remain on the treatment plant and the LNG facility. So the AVT numbers are significantly lower than what are printed on this slide. Gotcha. Thank you. Okay.

Please continue.

All right. So— and again, 19% of the AVT retained by the state, the remainder shared with municipalities.

Moving on to slide 17.

So this bill creates an Alaska Education Fund, subject to approval of a constitutional amendment and other conditions. 20% Of royalty gas revenue remaining after payment of the Alaska Permanent Fund would go to this energy grant fund, and the existing Affordable Energy Fund would be replaced. So this would effectively replace the existing energy fund with this new fund. And then remaining state revenue associated with the project would go to— this new— newly created education fund. So the gas royalty revenue all gets— that is retained by the state would all be devoted to various, various special designated funds.

Question, Representative Josephson. On bullet 3, page 17, you say bill would repeal Affordable Energy Fund, and I think that's I associate that with perhaps Senator Hoffman in 2013 or '14.

And the focus rather than— I thought rural energy would now be renewable energy grants. Is that right? Representative Josephson, that's correct. So it essentially replaces that affordable energy fund portion with this renewable energy grant fund. Portion.

Representative Josephson. And like everything we do here, this could be rerouted to anything. Is that right? It's a presumption that we could interrupt on day one of any session. Sure.

Co-chair Josephson. So the education fund would— the concept there is it would actually be a constitutional dedicated fund. But then the other funds, and then the permanent fund portion, 25% of that is dedicated by Constitution. An additional 25% is dedicated by statute for production from certain leases. But then the other, the remaining royalty revenues would have the same, you know, subject to legislative appropriation language that we have for other designated purposes and funds.

And Mr. Stickle, this is more of a comment on my part, and I realize you're— it's a policy decision, but just so folks know, I'm not a fan of switching the Affordable Energy Fund, turning that into the Renewable Energy Fund. It just takes rural Alaska's flexibility away, and so I'll be working to switch that back at some point. Representative Stapp. You have my support there, co-chair. Thank you very much, Representative Stapp.

And Rep. Foster— or co-chair Foster, so that was a provision that was added in the Resources Committee. That provision was not in the original version introduced by the governor. Correct, yes. Thank you very much.

And so anyway, yeah, thank you for that clarification. Okay, please continue with the slide deck. Oh, I'm sorry. Sorry, I get— okay, just gesturing. Mr. Stickle.

All right, moving on to slide 18. So many other provisions in the bill, some to point out. So the House Resources added a required report to the legislature before a final decision on Phase 2. So basically that would be an impetus to come back and take another look at the policy decision.

Couple years down the road.

As we mentioned earlier, the property tax repeal and the alternative volumetric tax framework are contingent on a DOR commission or determination that certain conditions have been met by the, the bill developer.

The repeal of the ABT provisions if construction hasn't begun by 2032 and then the repeal of the ABT, Alternative Volumetric Tax, repeal sunset in 2056 once the project has achieved its payback. Representative Josephson. Bullet 1, slide 18. This just seems so obvious. It's great to have it in statute.

AGC would be required to report before Phase 2. That's GTP or liquefaction. I mean, I would hope they'd report 10 times before then. But this just says they'll report. Yeah.

Koutour-Josephsen, that's correct. And so this would be, I would envision, significant report. I know we had, we had some similar language in statute when we enacted PPT and then ACES, that the administration came back before the legislature with a pretty comprehensive report on the status of those tax regimes. I would envision a fairly comprehensive report before the Phase 2.

Thank you.

And Mr. Stickel, I believe, are you going into the next section, which is the implementation costs section of the presentation? Yes. Okay, I think— let me double-check here really quick. We've got until about 4 o'clock.

You know, we might be able to get through this next section, and then what I'm hoping to do in the last 20 minutes of our time is just to bring up the next bill, and then we'll be hopefully coming back after the floor session. So maybe let's go ahead and get through this one. This looks like it's only about 3 slides for this section. So please proceed. And I am happy to move as quickly as the committee would like.

Take your time. It's a— this is, uh, it's a lot of information, and I think it's going to take us all a little while to fully, um, immerse ourselves and absorb all of the information. So, um, please proceed. So implementation costs, uh, fairly straightforward. So slide 20, uh, is our staffing plan.

So we're requesting 4 positions to fully implement the provisions of this bill. Um, we're requesting an appraiser, uh, to carry out the additional workload with appraisal and valuation. For the AQ&LG Project. So, there would still be a requirement to do an appraisal and assessment on the pipeline or the treatment plant and associated development associated with the project. We are requesting an auditor to administer the Alternative Volumetric Tax.

We are requesting an Oil and gas revenue specialist to support valuation and audit work associated with the major gas sales as well as new regulations. And then a commercial analyst to assist with project certification. That would be the DOR determinations that the various eligibility criteria have been met as well as just general increased commercial analysis related to gas.

Slide 21, we have a $500,000 capital request. This is an estimate for updates to our tax revenue management system in a short amount of time to implement the new alternative volumetric tax. This would be a new tax type within the Department of Revenue, and we believe that we can— we would also need a new regulatory regulations process around gas evaluation, we believe we can update those using current resources.

Slide 22 is a snip from the fiscal note that just shows these annual costs and then the capital costs, so a little over $800,000 per year to support those 4 additional positions.

Any questions on this fiscal note review? Seeing none, I think actually this might be the perfect opportunity to maybe take a break and let folks kind of come back with clear minds to tackle the gas line, because I think this next section is going to be a fairly long section, and it's going to be the one that I think a lot of people have a lot of questions on. And so I'm hoping that if floor doesn't go too long, we can come back after floor floor and tackle this. What I would like to do right now is we have a short— I believe it's a fairly short presentation on the next bill. So, Mr. Sickel, appreciate you being here, and we'll see you hopefully a little later.

What I'd like to do next is call up Representative Underwood, and she's going to introduce HGR 23. That's the constitutional amendment for the governor's proposed budget. And, uh, thank you for being here. This afternoon, and if you can put yourself on the record and walk us through the bill— or resolution, I should say.

The other reason I wanted to kind of hold off on this is just we're missing some folks. I think they're in bill hearings and so forth, and I think the modeling section of the gas line is probably a part that everyone should be here for. So with that, welcome, Representative Underwood. Thank you. Thank you, Co-Chair Foster and committee members.

Good afternoon. For the record, I am Representative Jubilee Underwood. I am the sponsor of House Joint Resolution 23, and I am joined via phone today by my staff buddy Whit. He will be assisting with the presentation and available for questions. We also have representatives from Legislative Legal and Legislative Finance on the phone.

HJR 23 proposes a constitutional amendment focused on the structure of Alaska's budget process. HJR, um, this resolution does not set any spending levels. It does not eliminate any programs. It does not raise any revenue. Instead, it addresses how the process begins.

Under Article 9, Section 12 of the Alaska Constitution, the governor is required to submit a budget and accompanying appropriation and revenue bills. Over time, statute has added structure and mechanics to that requirement, but the core constitutional obligation remains broad. HGR 23 asks whether Alaska would benefit from strengthening certain structural elements of the budget process at the constitutional level, ensuring that the legislature begins its work from a clearly defined and disciplined framework. This resolution does not remove legislative authority at all. It does not eliminate the governor's constitutional role.

It simply places before the voters the question of whether our fiscal framework should be clarified and strengthened. At its core, HJ23 is about institutional design and long-term stability. It is not about a single administration or a single fiscal year. It's about improving the structure that will govern every budget going forward. Thank you, Co-Chair Foster.

We have a short slide presentation to walk through, um, the current constitutional and statutory guidance governing the submission of a budget to the to the legislature and to explain structurally what HJR 23 would do to that framework. It is pretty short, or my staff, if you don't want the presentation, can go over the sectional, whichever you prefer. I think the presentation would be great. Would that be for Mr. Buddy Witts?

Yes, and I'll— okay, run the thing if I can figure it out. Okay, Mr. Buddy Witts, if you can put yourself on the record.

Yes, thank you, Mr. Co-chairman and members of the House Finance Committee. For the record, My name is Buddy Witt, staff to Representative Jubilee Underwood. I'll go through this quickly and then get right into the sectional focusing on the changes from the original bill.

Slide 2. As you're all very familiar with, and again, Mr. Co-Chairman Lurz, this was done in the lower committees to make sure everyone is aware of our budgetary process. The slide 2 goes through the constitutional requirements found in Article 9, Section 12. The governor must submit a budget for the next fiscal year, has to include all proposed expenditures, anticipated income, submit a general appropriation bill. He must submit revenue bills for new or additional revenue and submit at a time fixed by law.

Heading into the law, AS 3707-020A, Budget released publicly by December 15th, transmitted to the legislature on December 15th, and bills delivered before the 4th legislative day. Next slide. Again, under AS3707-020A, mental health appropriation bill, operating budget, capital budget, and revenue measures are all separate bills. They must be separate bills required by law. In subsection C of that same statute, those proposed expenditures may not exceed estimated revenue matching the budgetary requirements found in the Constitution.

Next slide. There must also be under AS3707.020 subsection B a 6-year capital improvement program as well as a 10-year fiscal plan projection. Next slide. Format and supporting information found under AS3707.020. 7.050.

Expenditures by agency must be separated out, as well as program objectives, prior comparisons, and all supporting financial data. Next slide.

And of course, as we're all very familiar with, especially in your committee, sir, the governor may submit amendments after the initial submission and may also submit supplemental appropriations. Next slide. So, What does House Joint Resolution 23 actually do? HJR 23 adds a new subsection to Article 9, Section 12 of the Constitution of the State of Alaska. The added provision simply requires that when the executive branch submits a budget as instructed under the subsection, the expenditure may not exceed anticipated revenue and the anticipated revenue cannot include money in the Budget Reserve Fund found under subsection— under Section 17, commonly referred to as the CBR.

Next slide, please. In closing, the current system begins with numbers. However, the bill sponsor is requesting that the system begin with a plan. And as long as the CBR is included as a fallback position for the executive branch to balance any budget, there is no real motive to create a plan. H.R.

23 Asks the legislature to lead and the people of Alaska to decide whether a stronger constitutional structure will improve fiscal discipline. A yes vote moves Alaska towards predictability, accountability, and long-term planning. Next slide. H.R. 23 Does not dictate policy.

It simply asks to strengthen the framework within which policy is made. I would like to now just quickly go through the sectional and speak specifically to the changes, both documents submitted to the committee. The original bill simply made a change to subsection A of Article 9, putting in that the executive branch could not include the CVR when formulating that initial budget. Submitted to the legislature. Subsequent to the Judiciary Committee, a new version of the bill was added after discussions with Legislative Legal as well as Legislative Finance.

They submitted that the language wasn't quite tight enough. A little bit of ambiguity was found. So you find version N, which is in front of you and being discuss today. So, subsection N— excuse me, version N makes the— does the following things. In Section 1 of the bill, it adds a new— or excuse me, it redefines Section 12 of Article 9.

It just makes it subsection A, and then we add subsection B. And then subsection B is the real heart of the matter. The language was thoroughly vetted, and we believe that this is tight enough that it simply says that the governor can use any fund available, any fund balance available when submitting that budget. We simply are asking that the next executive not use the CBR. And the hopes that we will be able to create a structure in which there can be a long-term fiscal plan in place, whether that be cuts or new revenues, whatever it may be.

The executive has the tools in order to come up with that plan. The other addition to the bill was the effective date change. The effective date now is January 1st, 2027. The motive for that being the year that we're in, there's going to be a new executive and that executive, new executive should have the opportunity to come up with a plan, have enough time to come up with a plan for the next budget submission. And that's the heart of the matter, Mr.

Chair. I'm happy to answer any questions, but as the bill sponsor mentioned, We have some subject matter experts in the ways of finance and law that may be a little bit better adept at answering any questions you may have. Great. Thank you very much, Mr. Witt. I've got 2 questions, then we'll go over to Representative Hannan.

And my first question just deals with process, and the second one will deal with what else is excluded in addition to the CBR. And so the first question in terms of process Um, is it two-thirds of the vote of both bodies combined or separate? And then of course it goes to the Board of the People. If you could just talk about that whenever we make a change to the Constitution.

Thank you. Through the Chair, Buddy Witt, staff to Representative Underwood. My understanding is that is a two-thirds 2/3 vote of each body, separate, not combined. Once the— if I should say the bill passes that threshold, it goes into the, uh, to the next ballot, statewide ballot, for the folks to vote on. Great.

Does that answer your question, sir? It does perfectly. Thank you. The other question, you said that the CBR is explicitly not included as a fund source for the governor. What about overdrawing the POMV and exceeding the 5% to dip into the ERA?

Would that be— is that excluded specifically somewhere? Thank you. Through the chair again, Buddy Witt, staff to Representative Jubilee Underwood. Those two items are not under discussion in this particular resolution. Sir.

So those are restricted by law, not by Constitution, and the current version of the bill does not undertake that subject. Okay, thank you. Got questions from Representative Hannon, then Tomaszewski. Representative Hannon. Thank you, Co-Chair Foster.

I guess I'll start with the two that are related to yours. Um, would it be your understanding, Mr. Witt, that other funds like the higher education Education Investment Fund or the PCE Fund would be excluded as sources for funding a budget submitted on December 15th for purposes outside those two designated traditional uses. Mr. Witt.

Through the chair, Buddy Witt, staff to Representative Underwood, to Representative Hammond, again, those items are not restricted by this particular resolution in its current form. Okay, thank you. Through the chair, so then my other— you've got a couple bullets, and when I first glanced through version N, we're speaking to revenue bills submitted. So my question is, are you asserting, or is the resolution crafted to your intent and understanding that if you had a budget that exceeded predicted revenues but you submitted a revenue measure, so the governor submitted at the same time as submitting the budget a proposed revenue measure that generated the additional revenue, that is satisfactory for submission of a balanced budget. Is that what that means?

Mr. Witts.

Thank you. Again, Buddy Witts, staff to Representative Underwood, through the chair to Representative Hannon. The executive branch is already instructed by law to submit additional revenue measures if needed. This would not change that that statutory requirement. And this resolution would simply put into place that any future executive would not be able to close a gap simply by throwing a CBR number in there.

A future executive could decide to go either way, with revenue bills or with cuts. And by law, if there are additional revenues or new revenues that are needed in order for the executive's initial budget to balance, by my understanding of the law, those bills would have to be submitted at the same time as the initial budget. Follow-up? Follow-up? So are you anticipating then that the executive would be restricted to only introducing revenue measures when they submit a budget that is not balanced?

Thank you. Through the Chair, Buddy Witt, Staff to Representative Underwood, to Representative Hannon. That, I would have to give a speculative answer, which I'm not prepared to give. Any future executive would be able to make a number of choices on how to mind that gap. The resolution just simply asks that the executive not do so using the CBR.

Does that answer your question? But, um, Representative Pannin. Thank you, Chair Musser. It's not— it's that your, uh, your PowerPoint presentation brings up revenue bills, both new and additional, and is linking it to the submission of the budget on December 15th. So my concern is, are we restricting them to revenue measures that are tied to that budget?

So I can only, if I were the executive, submit revenue measures if I have demonstrated that the budget I want to propose doesn't meet the existing revenue. And additionally, timing-wise, must I submit them in December? But if I came up with I can no longer submit a revenue proposal because I didn't submit it when I submitted my budget and tie it to a budget that demonstrated the need for that revenue. I see. Through the chair to Representative Hannan, I would probably defer this to legislative legal to to make sure I'm accurate, but my understanding of the current requirements is that that must be all be submitted to the legislature as a package.

But perhaps I can defer to Legislative Legal to provide some clarity there. Ms. Marie Marks, if you can put yourself on the record.

Yeah, Marie Marks with Legislative Legal Services. Through the Chair, Representative Hannan, the Constitution currently requires the Governor to submit a budget at a time fixed by law, and by law means in statute, and right now that's that December 15th time. And right now the Constitution requires the Governor to submit revenue bills in conjunction with the budget, with the idea that the Governor's submitting a full budget package. Package. The proposed constitutional amendment does not change that.

It is anticipated that the governor would submit his budget, and, um, to the extent that part of that budget relies on anticipated revenues from revenue bills, I anticipate the governor will include that. Historically, the governor has been able to submit revenue bills separately in addition to the budget ones. Um, bills to raise revenue, and nothing in the HJR 23 alters the governor's ability to really submit legislation at any time. And so I do not read that so restrictively. I think a common language reading of this would not restrict the governor from submitting bills to raise revenue outside of the budget process.

Thank you for that clarification. Okay, next up, Representative Tomaszewski. Thank you, Co-Chair Foster. And this is probably a question for Ms. Marks. The technical question on the, on the January 1st, 2027 effective date.

Technically, that's going to fall before the 4th legislative day of 2027. Is the governor going to be required to have bills submitted submitted or delivered before the 4th legislative day, considering it's actually after the effective date?

Marie Marks, Legislative Legal Services. Through the Chair, Representative Tomaszewski, what I believe happens historically is that the current sitting governor will submit one by December And the incoming governor then will submit the amended budget that is that governor's own amended budget. So I anticipate that that will be done by the time set in statute for amended budget. At that point in time, it will be after that January 1st deadline. So that amended budget that is being submitted in January would have to conform to the Constitution.

Thank you. Appreciate it. Follow-up, Representative Tomaszewski. Yeah, I don't know if that quite answered my question or not. I'm looking at the effective date for this bill being January 1st, 2027.

And, and it, it states that in Section 3 that the governor elected in 2026 would be subject to the provisions of the amendment for the budget submittal in December of 2027. So I'm taking that as that is going to be for FY 2028 budget and being, and then he would have to, he or she would have to submit bills deliver the bills before the 4th legislative day. I'm just saying that since this effective date is January 1st, 2027, the provision of bills delivered before the 4th legislative day, is that going to— is the next governor going to need to honor that? Or should we change this effective date to maybe July 1st? Ms.

Marks.

Yeah, Marie Marks, Legislative Legal Services. Through the chair, Representative Tomaszewski, yeah, I can see how there could be some ambiguity there on whether that would apply, um, to any budget submitted, um, on or after January 1st, 2027, including any, uh, amended— an amended budget. Um, and so I think that that would be a policy call. It was just how to clarify that. But it is something that absolutely could be clarified if there's a question.

Alternatively, the committee could just state very clearly its intent on the record whether it means to apply to any amended budget submitted on or after January 1st, 2027, or if it just is going to apply to the next December cycle starting in December 2027. I think either one, either clarification in the amendment itself or just a clear statement on the record of the legislative intent, would work. Okay, uh, thank you, uh, Ms. Marks. And just follow up, follow up. So I guess to the bill sponsor then, if we want to just clarify that with your intent on, um, and so it's like Ms. Marks just stated to us that it's clear that this takes effect January 1st, 2027, but it's not until the FY28 budget submitted in December of '27 that it's actually going to be taking place.

Representative Tomaszewski— sorry, Representative Underwood, and then Bynum. Representative Underwood. Thank you, Chair Foster. To Representative Tomaszewski, that is correct. The intent of this was to let the new governor settle in.

This wouldn't apply to the amended budget when they first get elected, but it will be in the next cycle, which would apply for 2028 when they submit their next one. Give them time to get their feet wet and present it then. Perfect, thank you. Okay, Representative Bynum. Thank you, Co-Chair Foster.

Through the Chair, is there a reason why we just wouldn't use July 1, 2027? And that would alleviate all the concerns about the budget cycle. Representative Underwood, through the chair, I have absolutely no issues with that. Okay, I think we're probably good for questions, it looks like, for now. And so, Representative Underwood, appreciate you introducing the bill.

Do you have anything further you wanted to mention before we close out for the day or recess? Thank you, Chair Foster. Just appreciate you guys taking the time to hear this bill and allowing me to have the presentation. Thank you. Great, thanks very much.

So with that, I am going to recess, and so I am not going to announce tomorrow's agenda. We are setting an amendment deadline for a bill we heard earlier, which was House Bill 104, Address Confidentiality. We'll set that for Saturday, May 16th at noon. So again, that was for HB 104, Address Confidentiality. Amendment deadline Saturday, May 16th at noon.

Noon. So with that, if there is nothing else come for the committee, we'll be recessed at 3:48 PM.