SFIN-260519-1330

Call Senate Finance Committee to order. It's May 20th. It's 12 minutes to 4. Present today: Senator Olson, Senator Steadman, Senator Keehl, Senator Merrick, Senator Kaufman, Senator Cronkite, myself, Senator Hoffman. We have 4 items on the agenda today.

We'll start with the first one, HB 110, Social Work Leisure Compact. This has been before the committee before. Do any members have comments? Seeing none, will the committee— Senator Steadman. Thank you, Mr. Chairman.

I move the Senate Finance Committee substitute for House Bill 110, Version W, from committee with attached fiscal notes and individual recommendations. Is there objection? Seeing none, that bill will go to the next committee of referral, which will be the Rules Committee. The second item is HB 195, pharmacist prescription authority. Do members have any questions on this piece of legislation?

Senator Steadman, the will of the committee. Thank you, Mr. Chairman. I move House Bill 195, version G, from committee with attached fiscal notes and individual recommendations. Thank you, sir. Is there objection to that motion?

Seeing none, that bill passes Any other amendments from committee? The third item is HB 193, unemployment benefits paid parental leave. We have an amendment, Senator Keele. Thank you, Mr. Chairman. I move amendment number 1.

I'll object. I'll object for explanation. Senator Keele. Thank you, Mr. Chairman. Amendment number 1 is my best effort at solving the sick leave dilemma that is in the bill came to us by completely exempting all seasonal workers from the ability to earn or use any paid sick leave.

As the voters put in the ballot measure, I think we take a big step backwards both in terms of the will of the voters but in terms of the health and safety of both seasonal workers, workplaces, and in the case of tourism, the traveling public. Mr. Chairman, what Amendment Number 1 would do is put some limits on seasonal workers' use of sick leave. First of all, it would take seafood processing workers who are on seasonally, and just like fishermen, just like agriculture workers, they would be exempt. For other seasonal employees, it would ratchet down what could be used to 12 hours in a month. And none would roll forward year over year.

So a season is just a season. If you bring somebody back for a second hitch, the next year they start at zero again. It's a pretty tight limit, Mr. Chairman. And the goal here is to solve that problem that was described of the end of the year or end of the season no-shows. The potential for abuse.

In conversations with some of the members and some folks in the industry, I don't know that this particular amendment has enough support to do the job. I would very much like to keep working with members on it before this bill makes the floor. It is greatly concerning to me the way the bill is written now, but for the time being, this version doesn't have enough support, so I will withdraw Amendment 1. Withdraw the motion. Brief at ease.

We're going to roll HB 193 to the bottom of the calendar, waiting for an amendment.

That brings us to HB 280, which is oil and gas property tax immunity. We have with us Senator Giesel. I think she's accompanied by Senator Wielechowski. If both of them want to come to the table, introduce themselves, and give us their presentation.

Thank you, Mr. Chairman. For the record, I'm Cathy Giesel. I have the honor of representing Senate District E in Anchorage. Uh, Senator Wilkowski. Thank you, Mr. Chairman, members of the committee.

For the record, Bill Wilkowski, State Senator for East Anchorage. Mr. Chairman, uh, we are presenting Senate Bill 280 to you. This is the, uh, Supporting a Gas Line for Alaskans Act. Mr. Chairman, I want to respect your time, and so What— we do have a PowerPoint, but I believe the staff is distributing right now a document that looks like this that will more expeditiously take us through the topics, and we can flesh them out based on questions. What the document is that's being handed out is a topical summary of the bill.

There are 5 Senate Resource Committee goals. Listed on it, and you see that in the second box. The goals we set for addressing the gas line was one, protecting Alaska natural gas ratepayers. Number two, protecting Alaska communities statewide. Increasing AGDC oversight and transparency so that we know as shareholders in this representing the state what's going on.

Revenue measures to offset at construction-related costs and losses, and lastly, contingency provisions if the project doesn't go forward. These laws won't stay in place. We want them to repeal. So, Mr. Chairman, you see in item number 1, the protection for ratepayers. We set a cost overrun cap, Mr. President— or Mr. Chairman.

Again, to protect Alaska consumers. We actually heard last night the governor state that he was very, um, thankful for, uh, addressing the issue of cost overruns. That's in the bill, Mr. Chairman. Uh, gas rates were capped as well. We used numbers that the governor had cited for in-state price with only the gas pipeline, as well as in-state price once the LNG project got going.

And you see the $12 per MCF for Phase 1, that's the pipeline only. Now I will tell you, Mr. Chairman, this project originally was Phase 1 pipeline only. However, it morphed in the 36 meetings that we've had in the last 2 months so that now it's a pipeline and a small gas treatment plant on the North Slope. Originally they told us they would be getting the gas from Great Bear's Pantheon lease. They have not produced anything at that lease, Mr. Chairman, and so they have changed.

Now they'll be getting the gas from the North Star lease on the north, on the North Slope, and from Exxon at Point Thompson. The Regulatory Commission of Alaska will have the authority to oversee those caps. We required the construction construction of a spur line, Mr. Chairman, to Fairbanks. As members may be aware, I know more than half of this committee, this is not the first go-around with a gas pipeline. But the pipeline will run right by Fairbanks.

But without that spur line, the gas can't get to that community. They need help getting that built. So we put that requirement in. Is that a spur line or is that a takeoff point. The takeoff point will be on the main pipeline itself, the flange.

Then there's a pipe— that's the spur line, the actual pipe that goes to a location in Fairbanks where then their distribution system can tap into it. So that's what's meant. Thank you for the question. Thank you, Mr. Chairman. This is new to us, so we'll probably be asking some pretty basic questions, I think, that when we get rolling.

But the old proposal where we had 3 producers in the state all in alignment, all each with roughly 25% ownership, there was multiple takeoff points, one of which was Fairbanks. But I think we had spent quite a bit of time talking about one north of the Yukon and then further down the line to facilitate other, you know, population areas in Alaska. These are I was wondering if you could just touch on that, what the status of that is. Mr. Chairman, Senator Steadman, there is not currently on the table any proposal for other off-take points. It is true what you said.

We did have others, an off-take there at the Yukon River, perhaps for manufacturing of propane to send up and down the river, perhaps in Cantwell, for example. But none of that has been discussed by Glen Farn, the current project owner. So, but Fairbanks has been referred to and we've put it into the, into the bill that that will be required. That's an understatement. Thank you, Mr. Chairman.

Yeah, I think when Glen Farn comes here, we should ask him that, some of the other options that we had available to the citizens. Thank you, Senator Steadman. Mr. Chairman, Senator Steadman, that would be a good idea, especially since this is touted as a gas pipeline for Alaskans. Moving on, Mr. Chairman, Cook Inlet gas producers. We had an amendment from Senator Rauscher urging us to allow Cook Inlet producers to also access the pipeline if they needed to for the Cook Inlet gas.

Then in-state utilities would have the priority out of— over out-of-state export of the gas. Again, gas for Alaskans. I'll stop there and see if there's any questions, Mr. Chairman. Do Senate members have questions of Senator Diesel? Please proceed.

Second bullet point priority, protection for Alaska communities. So we put in place two accounts that would offset the impacts on communities, communities along the pipeline, and then also to address the impacts that would be statewide. So first of all, there's the Gas Line Construction Impact Fund, and that's a one-time $50 million payment from the developer. Some members may remember with the producer-led pipeline, there was a mayor's group that got together and discussed what a fair PILT would be—payment in lieu of taxes—to the communities that would be impacted. Well, those mayors met, they met with the producers, and the producers at one point told them, look, we'll invest $600 million you guys decide how to break it up.

Well, we started out with an impact account that large. It was not widely accepted by Glenfarm, so the amount is smaller, Mr. Chairman. It's $50 million, but it would be administered through DCCED, and the communities would then apply. You know, we've had an impact on our roads or schools, air quality, whatever, and they could access some of this $50 million. Then there's a statewide Gasline Impact Account.

This is $30 million per year for 5 years. So that's $150 million total. When you add it to the other $50 million, that's $200 million total. That could be distributed to every community in Alaska that— through the Community Assistance Program. So it would be a way of monetizing that Community Assistance Program, Mr. Chairman.

So that was a— that was our focus on Alaska communities and impact. I'll stop there, Mr. Chairman. You mentioned the word could be, not will be. Why is that?

Well, people would have to apply for the construction impact. The gas line impact The $30 million, the $150 million total would be placed through the community assistance program. It will be then. It would be. It would go into community assistance.

Not just the corridor communities, but statewide. For a period of 5 years. Senator Keogh. Thank you, Mr. Chairman. So the construction impact account, the $50 million one-shot, it Is that intended to be the source of funding for the additional services that municipalities need to provide whenever there's a boom?

More housing, more public safety, more— there'd be some kids in schools, all the things that come with a great boom. Mr. Chairman, Senator Keel, that's a great question. These were some of the questions that we asked Glen Farn. How will communities who are impacted remediate those impacts. What we were told is that Glenfarm has a highway use agreement with the Department of Transportation and any road disruptions, they themselves, Glenfarm, they will have contractors who will repair that on their dime.

This is what they told us. In terms of housing and things like that, public safety, EMS, They described to us the plan for the work camps would be isolated facilities, controlled access and egress, self-contained EMT, self-contained services, so that as they described it to us, there wouldn't be a lot of the workforce integrating with and moving out into the community to buy t-shirts go to bars or restaurants or movies. So that was what was described to us. So they would be required to stay in that community or would they be encouraged to stay in that community and they could go out and have a Saturday night in Fairbanks? And need to access some public safety?

Mr. Chairman, yes. That was what we asked and they said this would be very controlled. They would be almost— they would be— it was described as being isolated units. Glenfarn would provide the transportation for their workforce apparently from the airport to the work camp and back to the airport for the person to go home. That's how it was described to us.

And that informed these impact funds. If I were Fairbanks and the line was going to be built over 5 to 10 years, $50 million is not even going to be able to address the concerns that possibly Fairbanks might have, let alone the rest of the impacted areas of the state. Mr. Steadman.

Yeah, thank you, Mr. Chairman. So, you know, I guess we were little— not little kids, but we were high school age and right out of high school when they built TAPS. But as I recall, a lot of workers came from Texas and Oklahoma and Louisiana and brought their families because it was, you know, a couple weeks on, a couple weeks off. They weren't up working. One year straight.

And there was a lot of families that came up with kids and all, because they were up here for the duration of the construction, and a lot of them stayed. So did they, are they not expecting any of these imported, 'cause as I recall they were talking about 8,000 people needed to construct the facility. And I would guess we'd be lucky to get 1,000 of them, because every Alaskan's got a job that can function and wants one up there right now. They're going to have to import a lot of workforce. Have they talked about the families?

Mr. Chairman, Senator Steadman, actually I was out of college and was a working person during the construction of TAPS. Yes, it was a wide variety of people, single individuals and some families. What Glenfarm has told us is that they do expect people who are coming up to work on the Kenai and then maintain and operate the export facility to have families. But their description to us was out-of-state employees coming in, living in a controlled work camp. Mr. Chairman, I also probably could share at this point the only project labor agreement that's been negotiated so far has been with what's called international unions.

These are unions outside the state, the larger unions who have the very specialized workforce. None of our local unions have completed negotiations with Glenfarn in terms of jobs at this time. Could I ask Senator Wilkowski if he has anything to add on that? Sen. Wilkowski. I understand the parties are negotiating a project labor agreement and that Glenfarm has said to the unions that they will not be signing one until a PILT agreement is passed by the legislature giving them $1 billion a year in tax breaks.

Sen. Steadman. Yeah, unfortunate if that's their opinion. But I wish them luck building anything of this magnitude without project labor agreements. That's not going to work at all. So I guess we'll work on that issue as we go forward.

But you've got to have skilled— a skilled workforce. And we've been putting funds in the budget to try to get some of our younger Alaskans mid-age ones too if they want to, get trained so they can get some of these better jobs that are going to be available. Mr. Chairman, Senator Steadman, when we started these hearings with Glen Farn, it was described to us that there would be 10,000, a workforce of 10,000 people. It has since expanded to 12,000 people. Clearly we don't have a workforce with the skills to that number.

So it appears that there will be a significant number of out-of-state employees.

Senator Stegman. Well, just, you know, this is just our first hearing, but Mr. Chairman, I think at some point we should hear from the Department of Labor how many skilled oil workers, construction workers, you know, heavy construction camp-type support people are even available. If they need 12,000 people, they're going to import virtually the vast majority of them. I mean, I couldn't imagine them finding 2,000 or 3,000 people across the state looking for work.

Mr. Chairman, Senator Steadman, I don't know if you remember this, but when the pipeline construction was completed, we had a saying. Happiness for Alaskans is a Texan headed south with an okie under each arm. Yes, there were a lot of out-of-state employees here.

Please proceed, Senator Keel, if you have a question. Thank you, Mr. Chairman. I apologize for missing something earlier, but we kind of hit on $15 billion as the maximum amount of construction costs that could be worked into rates. Can you talk to us about the Resources Committee's work on what the construction cost of a Phase 1 line is likely to be? What is the level of certainty?

Is this a— what's the basis for that number? Mr. Chairman, Senator Kiel. If I could. Please, Senator Wilkowski. This has been one of the challenges of working on this bill.

We don't know what the cost of this project is. We— the Department of Revenue has given us a series of projections based on estimates from 8 to 10 years ago. They're still telling us in all their projections that they expect this project to be $46.2 billion. And when you look at the base case analysis for what they expect the rates to be, for what they expect the cost of gas to be to consumers in South Central, for example, they're basing all these on 8- to 10-year-old projections, $46.2 billion. We all know this project is absolutely not going to be $46.2 billion.

It's probably at least $10 billion, maybe $30, $40, $50 billion more. And that has an enormous impact on the rates that consumers will be paying. That has an enormous impact on the property taxes that the municipalities will be losing. And so we— We were working to a large degree in the dark. We asked for this information repeatedly and we did not get that information.

The best estimate we have is that the pipeline portion will be around $16 billion.

Senator Kiel. Thank you, Mr. Chairman. I'm hopeful that we can work in on some information with great respect the folks at Department of Revenue, they don't build pipelines. So updating somebody else's estimates is probably not the best way for us to analyze the finances. So I'm hopeful we'll spend a little work on that as a Finance Committee.

Thank you, Senator Keele. Senator Kaufman. Thank you. I'm just curious, the statewide gas line impact account, saying that it goes to all communities. I'm trying to understand that, the logic behind it.

It would seem to me that you would not want to dilute funding for the communities that are actually impacted by the construction activities there. And so I guess if you could tell me how Kodiak will be impacted by the pipeline and why we would not be focusing the money on the directly impacted communities or more, you know, more Specifically the zones where the work is being staged, the camps are being placed. Thank you. Senator Giesel. Senator Wilkoski.

Senator Kaufman, through the chair. That's a great question, and that is something that we spent a lot of time trying to figure out how to crack. Here's the challenge. If you look at where the pipeline is running, it's only running through a couple miles in Fairbanks. And yet Fairbanks has going to bear the enormous brunt.

And so if you were to just strictly limit this through communities which this project runs, Fairbanks would get very little. Anchorage gets nothing in property taxes. And Anchorage will be— we expect to have quite a bit of burden. We expect there will be quite a bit of services that are expected to be provided. And so this was our attempt to come up with a solution that was fair.

You raise a great point. If there's a better solution, I'm sure the committee will evaluate it. But there are communities that will be impacted all up and down this pipeline that will get no property taxes. Senator Keel. Senator Kaufman.

Yes, sir. Not to try and create an amendment here, but I would think some source of resource loading factor that could be applied to communities would be a way of adjusting for the amount of activity that is is going to be sustained in a community. And that could be where the prefabrication work or laydown or, you know, materials handling, that type of thing could be looked at as a more direct way to assign those costs. Earlier it was mentioned that the pipeline might escalate in cost. We have to remember that one of the big risks of that is us with what we do and the time we take Meanwhile, materials price escalation, all of those things are always chewing away in the background of a major capital project.

Thank you. Thank you, Senator Kaufman. Mr. Chairman? Senator Giesel? There is an additional answer to the question.

It is on page 3 of the summary document you have before you. We haven't gotten to this part yet, but you will recall that the Governor proposed instead of property tax, which is 20 mils, that we use an alternative volumetric tax. So the amount of gas going through the pipeline and we charge that way. Well, Mr. Chairman, we took that and took the AVT and divided it. So you see in Phase 1, there is just a gas pipeline and now there is also a GTP.

Gas treatment plant. Those would both be taxed at 6 cents an MCF flow-through through that pipeline. Then if you go down to the AVT sharing, it's, uh, below those bullet points. 50% Of the gas treatment plant tax goes to the North Slope Borough. The other 50% will go to the state.

The pipeline tax is split 50% to the corridor municipalities by mileage and then the other 50% to the state. The LNG plant, 50% of that tax will go to the Kenai Peninsula, the other 50% will stay with the state. But you see up there in Phase 2 when the export facility comes on, it's 10% 10 cents per MCF of throughput through the GTP and 15 cents through the pipeline as the throughput increases. Then when the LNG plant comes online, that's 15 cents per MCF from the date commercial operations begin. So these are the phased AVT, alternative volumetric taxes, and how they would be distributed not only to the impacted communities but also throughout the state.

Remember that Seward is going to be the likely import port, if you will, where pipe will likely be brought in, in a majority of cases. The railroad has a terminus there. We had the railroad come before the committee. They talked to us about the The fact that they will need to lease flat cars. They don't have enough, nor do they have ones of a size that's needed.

They will need additional engines. But having that offtake, the, the pipe and main amount of equipment coming into Seward, getting on the train there and beginning their route— there's also road access— that community is going to be impacted. They need to have some of that impact that community impact money, they need to have some of the volumetric tax. Senator Steadman. Thank you, Mr.

Chairman. Probably in this packet, but we just started this today. So when we look at— just take Phase 1, and we can do either of the phases or whatever— but you got 6 cents per MCF, but the value of that line, or the cost of that line, if we converted that to the equivalent millage rate, what would that be? Have you guys done that conversion factor?

Senator Wilkowski. Through the Chair, the Department of Revenue did do a number of projections like that. I don't have them right in front of me. But the Governor is asking for roughly a 90% tax cut. So the estimate was that Under the governor's plan, the taxes would be around $74 million, that's a total of 6 cents per MCF.

Based on the $46.2 billion projection, the total taxes would be, upon full completion, would be, I believe, around $700 million. As the price goes up, obviously, the value of the pipeline goes up, so that's why we think it closer to $1 billion in property taxes is the real estimate. And so the governor is asking the state and the local communities to forego $900 million roughly in property taxes, we estimate. Annually? Annually, yes.

For the life of the—. For the life of the gas line? Yes. And that was another thing that we heard from our expert in Gaffney and Klein, Nick Wolff heard that in the lower 48 they do give often significant property tax relief, not always, but often. But when they do, it's for 10 years, and this project would, would have it forever.

And so that is why we have a provision in this bill that after 10 years it reverts back from the alternative volumetric tax, which by the way is used nowhere in the lower 48 according to our expert. Would revert back to the status quo property tax structure that we have right now. When does the clock start ticking on the 10 years? Is that first flow of gas or is that during construction? Mr. Chairman, the 10 years would start upon gas flowing out of the LNG plant.

We wanted to give them the in-state break and then once the project hit Phase 2 and started— gas started flowing out of the LNG plant, that is when the 10-year timeframe would start. Senator Steadman. Thank you, Mr. Chairman. Yeah, I think we should have that converted with Department of Revenue. One of the things that you run into here at the table is they talk about big dollars, and it's hard to relate what the big dollar actually is.

I mean, should the dollars be a lot bigger because it's a bigger facility or smaller. So we just need to be, you know, be a little careful that we're actually using values and how we deal with if the value of the in-state line is $15 billion or $10 billion or some other number, we can work on that. But it would be beneficial because I think we all kind of have a feel for millage rate because we all pay property tax. And I guess one member doesn't pay property tax. He's shaking his head, he doesn't like to pay property tax.

Most of us here at the table pay property tax, if we need to or not.

So it's pretty easy to gauge that issue. And also the industrial facilities in the state all pay property tax, virtually, in the organized areas.

Please proceed, Senator Giesel. Mr. Chairman, I think it's also important on— as long as we're on page 3 talking about this AVT, volumetric tax, to remind the committee the governor proposed 6 cents per MCF for all components of this project: the GTP, gas treatment plant, the pipeline, and the LNG facility. What we're proposing here is more than 6 cents. Originally, we actually had, if I recall correctly, 10 cents per MCF for the pipe, 15 for the— was it 15 for the gas treatment plant and 25 for the LNG? Again, looking at the value of each component, we realized that was quite a bit more than the governor had proposed.

We're talking 30 cents here or more. And so we did reduce it in our final CS. But what you're talking about is exactly what the Resources Committee wrestled with also. This is valuable infrastructure and 6 cents for the whole project. Anyway, just thought I'd throw that in.

So the question, Senator Wilkowski, regarding the 10-year window of tax relief, is there a stair-step back to 20 mils or what's the process there in your bill? Mr. Chairman, the process is that after 10 years it reverts back. There is no stair-step. The tax holiday ends after 10 years.

And according to I think according to Mr. Faulford, he didn't feel that was an unreasonable approach because that is the approach that is typically done in the lower 48.

Senator Giesel, please proceed. All right. I'm back on page 2, Mr. Chairman. We had jumped just a little bit, but bullet 3, AGDC, Alaska Gas Line Development Corporation oversight and transparency. Mr. Chairman, transparency has been an issue.

Issue in this project. And so we address different things. We require 10 days public notice for meetings, confidentiality limits. We understand contract terms sometimes can't be shared, but we did make provisions there for sharing them with the legislature. Legislative approval for AGDC bonds, just like the railroad does, Mr. Chairman.

This committee hears the railroads' requests for bonds, bonding authority, often. So we put that into this bill. We also require that if there's going to be a sale of, of equity to a foreign entity, this legislature needs to know that. If there's sale of part of this project, we want to know. So that's been incorporated.

We want also have at least 12 months. When it's our turn to think about investing equity, we were being given 6 months in the original bill. We extended that to 12 months, Mr. Chairman, so that this legislature, this committee, and similar in the House, would have time to actually consider it. And we required the Department of Revenue to be available to assist us. Address in that.

And then revenue accountability, we do— any of these monies that are earned are put into separate accounts. Lastly, they must use in-state contractors and suppliers to the maximum extent possible. To get the committee up to date as quickly as possible on these 5 points, starting with protection of Alaska ratepayers all the way through Number 4, each item, can you provide questions that were asked of Glenfarm and the reason for those, only those questions that weren't answered by Glenfarm? Mr. Chairman— If possible. Did I understand you were wondering what we didn't have opportunity to ask of Glenfarm?

No. Oh. Questions you asked of Glen Farn on these 5 topics and what was the reason, only those questions that Glen Farn did not answer. Very good. We will prepare something like that, Mr. Chairman.

Senator Sedlmayr. Again, it's early. I'm going to have to get spun up here a little bit because we've got gas in Point Thompson and And the other field, Hilbert has, it's gonna supply the gas, understand that. But they pay the severance, they pay the income tax, they pay the royalty. And for them to pay the royalty, we need to know how much gas is going in the pipe.

And then, Also, we've got the barrel of oil equivalency issue for tax deductions against the oil. So we need to sort that out and make sure we understand that mechanism because they've got to disclose that stuff to do the taxes. And we talk about it all the time here at the table, how much oil is going in the pipe, out of what field, across the different fields we have, and that's no secret. And we have it in the revenue forecast. So we'll need to know what's, you know, going in the pipe, and if there's a tax on that gas that's left over from the old discussion when we were going to own 25% of the project under previous one, which was the structure we looked at when the law— when the statutes were set up.

And this is a whole different issue. We have no alignment. But they still, between our royalties and the tax bite out of the other project, was about 25%. So we need to unravel that and get up to speed on that because that's— we've got a tax structure that was put in place for a structure of a project where 2 other companies owned each roughly 25%, we owned 25% from the beginning to the end of the project. This is totally different.

So we need to understand that. Could you help at all? Yeah. With some preliminary stuff on that? Mr. Brillacoste?

Yes, Mr. Chairman, thank you. And we knew this would be a concern for this Committee, and you in particular because of your work on this issue years ago over the course of the summer that we all spent together. Decoupling oil and gas, it's a huge problem. And the problem that we have fundamentally is that you have our oil tax structure, which is a net oil tax structure at 35%. It's an effective rate of around 4%.

But we have a gross gas tax structure, and that's 13%. And so the, the, the problem is the law as it's currently written allows the oil companies to write off of their— even though we have a gross gas tax structure, the oil industry is allowed to write off the expenses on gas development on their oil taxes. The problem that this creates is when— and so we looked into this issue and we initially had a provision that said, well, you can't deduct your lease expenditures from your gas off of your oil. Industry had concerns. AOGA came in and other industry members had concerns.

Because how do they apportion what is oil development, what's gas development? When they're drilling a well, it's all mixed together. It became kind of a big mess. And so working, we met with DOR, Department of Revenue, and we said, hey, what are some options to address this problem? Because we do have a number of projections in here.

There will be losses to the state. In fact, in the first few years of this project, there will be tens of millions of dollars in losses as oil companies develop gas and write it off their oil taxes. So the state will go negative in some of its financials while this is ramping up. The way and what revenue— they didn't suggest this idea, but they said, well, one solution to address that instead of the complicated lease expenditures through decoupling— that was our preferred way to do it— was to simply raise— to ameliorate this problem with be to simply raise the gross floor from 4% to 6%. They thought that would cover a lot of the issues and concerns that we had.

And so that's what we did in the bill. We had a gross floor raised from 4% to 6%. Senator Steadman. Which is something, by the way, that the Governor had recommended in another bill. Just as a concept or discussion, I know there's a CS on a bill and it's a very it's just a shell and we really don't even— it's just the beginning of the analysis part.

So you can ignore the tax structure in it and all that, the tax rates. But the fundamental concept is to limit the amount of severance tax revenue, gross severance tax, limit the amount we would give up against carry forwards. Yeah. In cash. Mm-hmm.

Right? So if you made $100 million in severance tax owed the state, the state would only give you back, say, $40 million of it and keep $60 million of the cash flow. And that retards the economics in the industry, so you got to adjust the tax rate to keep things in balance. But we Hopefully we'll take a little bit of consideration here through this process to make sure we don't put ourselves in a position that you just referenced where we can go negative. Because we have bills to pay.

And that doesn't work. Mr. Chairman, if I could— Senator Wilkowski. We recognize this problem. This is a huge problem. And I do just want to mention this, that the governor with the property tax reduction he's seeking, roughly $1 billion, $900 million roughly, all that does for this project is reduce the price of the ultimate gas per MCF by 43 cents.

Okay? It reduces it by 43 cents. Now, the other aspect of the testimony that we heard was from the Department of Revenue. The internal rate of return for the industry, slope-wide, Point Thompson, Prudhoe Bay, will be 83% on the gas that they produce. And that's assuming $1.50 gas.

So if it's— their projection is that it will cost 45 cents for industry statewide to produce this gas, and they're going to sell it for $1.50 and make a $1.05 profit. One of the things that we really struggled with and said was, well, why is the state of Alaska the only— why are we the only ones being asked to give up a billion dollars in revenue when the industry stands to make an 83% rate of return. When this project goes fully into production, we expect, according to DOR, the profits for the developer here will be approaching $5 billion per year. $5 Billion per year. So why is the state of Alaska being asked— the people of Alaska, our communities who are bearing the burden here— being asked to give up a billion dollars in taxes when industry is going to reap enormous profits, and the developer will reap enormous profits, and we will be getting very little.

$74 Million according to the governor's projections. That just wasn't fair. And so that's where we started to get into this issue of how do we— how do we address that issue of we're— the developer is putting a gas line on the doorstep of the producers. They're going to have to put their gas into it. They're going to make enormous profits.

Billions and billions of dollars in profits. How do we make it fair so that Alaskans aren't the only ones bearing the burden? And that's what we really struggled with. We had scenarios where we increased the gas tax slightly, and that could be something that the committee looks to do. We had scenarios where, exactly like you're saying, Mr. Co-chair, you either increase from 4 to 6% on the gross floor, or you figure out a way to decouple so that Alaskans aren't bearing more of the burden.

This shouldn't be a project that everybody else makes money in the state, except the people of Alaska and the communities. That should not be how this project goes forward. That is a fundamental principle that we had in our committee. Senator Steadman. Just a point I wanted to bring up, Mr. Chairman.

I think it's a different concept. The current tax structure we've had for years, there is no limit on the amount that you could throw against your severance tax. Most Sovereigns limit that exposure.

Thank you, Senator Steadman. Senator Giesel, please proceed. Mr. Chairman, along these lines, $1.50 for gas at the wellhead. One of the things we heard initially was if this gas came from Great Bear, Pantheon's lease, that Great Bear would simply give them the gas for free.

Because it was not what they were there to produce. They were there with interest in the oil. And so as we put this bill together, we require the Department of Revenue to determine a prevailing value and to make sure that our gas that's being sold is meeting a prevailing value of price on the North Slope, that it can't be given away for free, which means our severance her royalty would both be affected. So we put that into place. The other group that we listened to, Mr. Chairman, was the Alaska Oil and Gas Conservation Commission.

I had concern about the Point Thompson unit. It is a retrograde gas reservoir. It is extremely complex and expensive to develop. We had a wonderful meeting with AO GCC explaining how they reached the determination that gas could be removed from that reservoir and how their estimate has changed now over the last 10 years. What they found is as the gas is removed, that the rocks actually consolidate so that it becomes more difficult to get the concentrate out, which is the valuable liquids from that reservoir.

So that's a very interesting meeting, a very interesting presentation, Mr. Chairman, that I think this committee would be interested in. Because that concentrate is of high, high value. It is very— it is very— I'm missing the word, but it's not heavy oil. It's very light oil. And so I think that would be a valuable discussion for you to have with AO GCC.

Again, the value of Alaska's asset. Um, Senator Wielekowski talked about the $5 billion profit. Glenfarm will become the largest company in Alaska if this project goes through to full production LNG export. How did we hear that number? Well, we also asked the Department of Revenue to to model the S corporation tax, the pass-through entity tax that's in this bill also.

And they showed that in about 2035, I believe it was around that year, that the pass-through entity tax, which Glenfarn is, an LLC, would amount to over $450 million a year. Extrapolated, they say that they have a 10% IRR. That means extrapolated out, they're making $5 billion, nearly $5 billion a year, if that's what they're paying in our corporate income tax. So that is in there also. It's on page 3, the pass-through tax.

You can look at that, the modeling for it. And then lastly, on page 4, The governor had suggested in another bill, I believe it was before this committee, a surcharge for oil passing through TAPS and that funding devoted to the Dalton Highway. We did the same thing in this, Mr. Chairman, except that instead of 15 cents, we made it 30-cent surcharge on every barrel of oil going through TAPS that would be dedicated to the Dalton Highway Pipeline Corridor Maintenance Fund. So dedicated there, obviously not— well, designated there, not dedicated. But again, a way to maintain the infrastructure that serves the oil fields that's not on the back of Alaska taxpayers.

We had an estimate from DOT, I believe it was $75 million $100,000 a year to maintain that road. This would bring in about $60,000, so it doesn't even cover it completely, but it's a step forward. And then we have, as Senator Wielechowski has already alluded to, the contingency provisions that these aspects, these taxes and so forth, all expire after 10 years should they go to full production. But let's say that the project fails, then pieces of this bill are repealed so that we don't have laws on the books that are obsolete and that we might be held to in the next proposal, which will be completely different again. We still have laws from Senate Bill 138, which was the producer project, that are obsolete, but we're still held to those.

This would provide for repeal of those. And what time—. What triggers that repeal? It would be failure, for example, for the pipeline to be built. That would be a trigger for pulling back these things.

If it weren't— and on page 4 under number 5, contingency provisions, the second bullet, if pipeline construction has not been begun by January 1st, 2028 The exemptions expire and prior property tax law is restored. If at least one major component has not been completed by January 1, 2032, the exemptions expire and prior law is restored. Uh, if the developer misses the $30 million community payment, the AVT is suspended for that year and property tax is restored. So you see, we tried to think of different scenarios where we would want to suspend these provisions, these revenue— revenue we're giving up if the project was not going forward as promised. And would that include basically all the provisions that were made under this legislation would expire?

There are provisions for policies in this bill to expire. They are not— all the repealers are not enumerated here, Mr. Chairman. We can certainly get you that document. Further questions of the presenters today? Senator Steadman?

Just as a brief comment, you know, I guess sometime in the '60s when we ended up or we put in our original royalty contracts, there was no reopeners. And we still have them today. And when BP sold to Hillcorp, those royalty contracts transferred with the sale. And that was a huge oversight on the state's part. The state's part to never have a reopen, because economic times are substantially different today than they were in 1965 and 1970.

And I don't know if the reopen should be every 20 years or 25 years or 15 years, or there should be some kind of review on these contracts, because it always, it doesn't always move in one direction. I just thought I'd mention that because we've struggled with that issue here.

Further questions of the presenters? We would like to possibly address the presentation maybe tomorrow. I don't know what the schedule is, but I'm sure that this gas line is not going to be going away because it is —a priority of the governor's. So, Senator Wilkowski. Just a closing comment if I could, Mr. Chairman.

People talk about this, or some people talk about this, as this is the bill to get us the gas line. This is not the bill to get us the gas line. The gas line can be built right now. There is no legislation needed. The permits are there.

The developer can go and do this. In fact, the developer promised to go to FID in December 2025. January 2026, in February 2026, in March 2026. They've made a lot of promises also. They promised that they would support the S-Corp provision, and then they backtracked on that.

They promised they would support a provision that cost overruns couldn't be— go on to consumers. They backtracked on that. They provided us with no information about the cost of the project, no information about the cost of the gas, no information about the internal rate of return, no information— we have no idea what this contract looks like. We don't know what penalties the AGDC or the state might be exposed to if this goes forward or if it doesn't go forward exactly how they expected it. So there are a lot of unanswered questions, but this project can go forward without this gas line tax break bill.

This is not a gas line bill. This is a billion-dollar tax break. And I do want to mention, for those people saying that this is all about low-cost gas for South Central, according to Don Levy's Department of Revenue, best case scenario, this project goes forward, best case scenario, we're paying $10 to $13 per MCF right now in South Central. Best case scenario, if this goes forward in 2023, assuming no inflation and $1.50 gas, we're looking at $22.96 gas if this project goes forward. Not the $5 or $12 gas the governor is talking about.

$22.96 Gas. And that's best case scenario. The more realistic scenario is probably around $27 to $30 gas. That's a doubling, if not tripling, of our current gas prices in South Central under the best-case scenario that this project goes forward. So I would urge you to very carefully evaluate this project so we don't stick Alaskan consumers with a multi-billion-dollar tax giveaway and high-cost gas forever.

Thank you. First of all, I'd like to say those are the types of questions that At least this committee needs to know what were asked and not answered by Glen Farn. I would say that it's our responsibility of the Senate Finance Committee to look at the fiduciary aspects of this. It is Alaska's gas. It's all of our people's gas.

And the impetus isn't just to get a gas line built, it's to make sure that the state of Alaska gets its fair share of the resource that Alaskans own. And in the process, the last time we had a gas bill before this committee, I had asked why Alaskans weren't benefiting by the, the construction of a gas line during the Parnell administration. And I asked for some of those revenues to go to address energy costs in the state of Alaska. It's those types of issues that we need to be well aware of, understanding that this is Alaska's gas. And I believe that it was a little bit of an oversight when the oil line was built and no provisions were made for Alaskans to benefit or get access to that oil.

So we're living in the state where we have the highest energy costs, and at that point we We're providing 25% of the energy to the United States and none to Alaskans. So is there any additional comments that committee members may have before we set this bill aside? Senator Giesel. Mr. Chairman, you were reflecting on the days that TAPS was being debated, whether we build it, and one of the proudest things I I think that came out of that was ANILCA, the Alaska Native Claims Land Settlement Act. Very proud that that happened.

You stopped— you, Alaska Native people, stopped the construction of that pipeline until they said, wait, this is our land. I appreciated that, Mr. Chairman. Thank you. Thank you, Senator Giesel. We will set this bill aside and take a brief at ease while we see where we are on the last, the third item on our agenda.

We're at ease.

We'll call the Senate Finance Committee back to order. We will take up HB 192, unemployment benefits and paid parental leave. We have a conceptual amendment Senator Steadman. Thank you, Mr. Chairman. I'd like to move Amendment No.

1, Conceptual Amendment No. 1. And I will object. Brief addies.

Come back to order. Senator Steadman, please explain your amendment. Thank you, Mr. Chairman. I think there was a concern here in this bill that a child age for being able to stay home with your child be pulled back to smaller kids. So on line 18, we would insert after the adoption of a child who is younger than 5 years of age.

And on line 21, we insert after child who is younger than 5 years of age. And on line 22, we insert after child who is younger than 5 years of age. So that would preclude then adopted children over the age of 5 from the benefits of allowing the parent to stay home. Do you move that amendment? I move Amendment Number 1.

I think I heard Is there discussion? Senator— Representative Merrick. Thank you, Mr. Chairman. Do we know how many children this will affect per year? So we can get a cost estimate of how much money this would save.

Is the sponsor or their staff here? Please come forward to see if we can get an answer. But it's not the best bill. I'm 93, right? So— That probably is going to fluctuate, but we have a rough— I'll call the meeting back to order.

Did you hear the question from Senator Merrick? I'm sorry, I did not. I was walking in. Thank you, Mr. Chairman. I'm curious how many children would not qualify for the maternity leave with an adoption between 5 and 17 years of age.

Like, how many kids is that per year? So I'm trying to get an idea of how much money this amendment will actually save.

For the record, Joan Wilkerson for Rep. Hall.

Senator Merrick, through the co-chair, I don't have a figure on that, but I'm happy to get it for you. I don't have it.

Oh, Senate Finance Committee backdoor. Order. We will be holding this until tomorrow to get a reply on that question that Senator Merrick has. Senator Kaufman? Thank you.

And I think while considering this, it would be good to think about some of the slightly older kids that may have gone through trauma. You know, if you're adopting an infant, there's those basic needs that an infant has. You get a get a little bit older, you might have some more complicated cases. And so I think it's worth thinking about as we think about cost, also think of impact. Can members contemplate that before we take this bill up hopefully tomorrow morning?

Any additional questions or comments before we set this bill aside? Seeing none, we'll set this bill aside. That concludes this afternoon. Meeting on recess. Brief endies.

Call the Finance Committee back to order. We will be recessing depending on what additional calls the majority may have. Of the Finance Committee. We are in recess.