Alaska Legislature: Joint Conference on HB381, 6/27/26, 2PM

I call this meeting of the Conference Committee for House Bill 381 to order. The time is now 2:05 PM on Saturday, June 27th, 2026. Present today, we have Chair Hoffman, Senator Steadman, Senator Cronk, and in the House, Representative Edmond, Representative Ruffridge, and myself, Chair Schraggy. We'll begin this afternoon's meeting where we left off this morning with Glenfarm's presentation on the changes made to HB 381 by Senate Finance and on the Senate floor. Following that presentation, we will then hear their second presentation, which they have and which we will take a moment to pull up when the time is right.

Our presenters for AGDC and Glenfarm are Matt Kissinger, commercial director of AGDC, and Adam Prestidge, Glenfarns president. The two of you are at the table, thank you. When you're ready, please put yourselves on the record and begin where you left off. This is Adam Prestidge, president of Glenfarns Alaska. And this is Matt Kissinger, commercial director for AGDC via a consultation contract.

And before I carry on, I think there was a question left by Senator Hoffman that he wanted me to address when we came back, so through the chair, I am here on behalf of AGDC, purely on behalf of AGDC, not on behalf of H-Star or the developer in any way. Much like when the senators and representatives meet with their caucus, we certainly do meet together and discuss things and we attempt to be on the same page on everything that we can. But we deliberate and we don't always agree and we go back and forth on things and I sometimes move him and he sometimes moves me. So when I am here, I am standing here on behalf of AGDC and the state. Senator Hoffman.

With that in mind, the presentation, how should we take your role on the issues that are being brought forward to us under Glen Farnes' title?

Senator Hoffman, through the chair, I would just hope that when I am speaking and testifying that you take that as me testifying and speaking on behalf of AGDC and not on behalf of the developer. Thank you. Okay, thank you. Any other opening questions or comments? With that, please continue.

Thank you, Chair Sharkey. This is Adam Prestidge. I'll continue, uh, the presentation where we were. We were talking through the Senate finance version of the bill, uh, a commentary on some of the provisions and some of what may or may not present challenges or issues for the project or be— or that the project would be neutral on. And so I will continue on that.

I have got a few more slides here to go on the Senate Finance version specifically. Then I have got some slides on the Senate floor version and then a bit more discussion beyond that which I will get to. So continuing with the Senate Finance version, the Senate Finance version sets out some criteria for eligibility for the tax adjustment. There are 3 of them. I'll take them each one slide at a time.

The first is that we establish the Municipal Impact Fund. So there was a bit of a discussion on that in our prior session here today. But to reiterate, it would be $40 million that is funded within 60 days of FID on Phase 1. And then an additional $40 million that is funded within 60 days of FID on Phase 2.

Please continue.

The second conditional requirement is that there is a PLA, a Project Labor Agreement, entered into for construction of the gas pipeline with your allowance Chair Sharkey, I would like to defer discussion of that until the end of my presentation. We will talk about that in some detail. As you wish. Thank you. Then the last conditional requirement relates to— and I apologize, I want to make this totally clear— relates to the Fairbank Spur Line and the project's commitment to incorporate the spur line.

So there was a lot of discussion on that in Senate Finance from a number of different parties. The only commentary we have on that, this was discussed a bit in Senate Finance, is that as currently set up in the bill, the costs of the Fairbanks Spur Line are borne on a system-wide basis to all customers, including export customers. We think that having international export customers pay for the cost of the Fairbanks Spur Line is is pretty far from the concept of— the RCA testified and talked about the concept of the causer of the cost should be the payer of the cost. This— the idea of having international LNG buyers pay for the Fairbanks Spur Line stretches that principle pretty far. It also just adds competitive pressure by raising the cost of LNG exports from Alaska LNG.

And so our proposal would be that the Fairbanks-Sperling costs are spread only to domestic Alaska customers.

Please continue.

Last, in terms of conditional effect, we think that it would provide certainty to all parties involved that if there were language clarifying that after the Department of Revenue Commissioner makes a determination of eligibility, —that determination of eligibility can't be revoked. And so the language in the bill sets out the clear requirements to establish eligibility. The commissioner makes that determination, and it would give comfort and certainty to lenders and investors if that determination were irrevocable.

Please continue. Okay. Chair Sharkey, that takes me through all the commentary on the Senate finance version. So now I will shift into talking about the amendments that were passed on the Senate floor.

The first is Amendment 3. This goes back to the discussion around the project deadlines, 2028, 2032, 2037. Amendment 3 provided force majeure allowance, basically that if there is a date, a deadline for the project, it can be reasonably extended by the Department of Revenue Commissioner in the event of a force majeure. That is a helpful addition. It is good for the project.

It could be a little bit broader because force majeure is really kind of acts of God outside of the control of the project. There can be other delays to a project like this that wouldn't necessarily be picked up within a force majeure definition, such as archaeological finds or shipping delays. And so we'd advocate that it would be beneficial to the project to look at broadening that definition a little bit. But regardless, the inclusion of a force majeure extension is beneficial to the project.

Please continue. Amendment 5 added an expanded amendment relating to the definition of a project labor agreement. I would like to discuss that momentarily. Very good. A few minutes.

Again, Amendment 12 introduced Inflation language relating to the gas sales contracts from the pipeline to customers. Just to reiterate a bit of what we described earlier, this makes sense, but we'd suggest that it takes into account the inflation agreed between the project and the customer. That contract, of course, gets reviewed and approved by the RCA, and the project would not object to having a cap on that inflation of 3%. We just suggest that being US CPI, not Alaska CPI. Please continue.

Amendment 14, uh, um, Summarizing, relates to the state's clawback option, which we discussed at some length in the hearing yesterday. It basically takes the carefully negotiated arrangement between Glenfarm and AGDC and removes all of the, I guess, the careful considerations around it and institutes an automatic reversion to the state with no compensation to, to the developer in the event that a milestone is lapsed. It's— we'd view that as extremely punitive to the project. Our legal counsel advises us that that could potentially qualify as an unconstitutional taking and potentially a violation of the Contracts Clause of the U.S. Constitution and would severely hinder the developer's ability and willingness to continue to operate in the state of Alaska. What I will say again to recap, if there is any concern that actions by the committee to institute— if actions by the legislature to provide tax arrangements for the project were to be put in place, then that value, the monetary value of that tax arrangement, would not be factored in for any repurchase that would come up in this scenario.

So we would be supportive of putting that into legislation.

Thank you. Please continue.

Amendment 15 relates to an expansion of the cost overrun language that is already in the bill.

Glenfarm has been supportive for quite some time on the record very clearly that we do not intend for customers to bear the risk of cost overruns, and we've been supportive of language that was added to the bill saying that customers cannot be exposed to the risk of cost overruns. The Amendment 15 basically our view is redundant and also fairly confusing. It defines cost overruns using a basis of the original cost estimate. It's unclear what that actually is. It also takes into account the original cost estimate, but also taking into account the final cost at FID.

Generally, our view is that it's confusing It is drafted in a way that would be punitive to the project and to lenders and investors, and it doesn't accomplish anything that isn't already accomplished by the provision prohibiting cost overruns from being exposed to customers.

Okay. Please continue.

Amendment 16 is somewhat similar to some of— to the AGDC provisions that we discussed earlier that require notification to the legislature of certain transactions. This Amendment 16 requires notification of any relationship with a foreign entity. That goes significantly beyond, beyond just ownership. It's really any contract, any joint venture, any type of agreement. That type of disclosure requirement would be unique and burdensome and would be a deterrent to counterparties potentially from wanting to be associated with the project, recognizing that they wouldn't have any commercial confidential protections.

Again, we think that the solution here is to rely on instead all of the project's federal disclosure obligations, make sure that that the right level of federal disclosures are also shared with the state. As I mentioned to Senator Steadman this morning, that's something that we're willing to work on to make sure that we get to the right reasonable disclosure requirement. But as it stands, Amendment 16 would really chill off-takers and investors in the project.

Not seeing any questions. Please continue. Okay, from there I'll shift the discussion from a— instead of talking about provision by provision in the bill, I'll talk specifically about project labor, how the project's going to be built, the accommodations and agreements that the project has reached with labor unions. There's a proposal that was passed, an amendment for an expanded project labor agreement requirement that we view as unnecessary. And so I'll take a few minutes here to talk about why that is.

And first I'll give a bit of a history. On June 11th, uh, Glenn Fahren signed, executed, and announced a binding memorandum of understanding with the building trades councils from Fairbanks and Anchorage. And so, uh, what did that do? It set up a framework for future project labor agreements. And just a reminder, the way a project labor agreement is set up is it's not actually between the project and the labor union.

It's actually between the contractor that does the construction work or the services on the project and the labor union. The MOU that we signed, it requires an Alaska First labor prioritization, but it recognizes that if there's not adequate personnel or labor in the state of Alaska to fill all of the union roles, then the project contractors can then get a backfill of labor from the US or Canada. Um, as I mentioned, contractors, not the owner, are, are the ones who sign these agreements. Um, the MOU provides— dedicates significant portions of the project to being committed to be done by labor unions. And so it articulates over a couple different pages of detail what scopes those are.

But it does also exclude from being done— from work being done by labor unions specialty work and work that is done out of state. And so a couple of examples of those are when you have original equipment, manufacturer equipment that is produced by a manufacturer and then delivered. They might have very technical, very specialized laborers who work for those manufacturers, specialize in installing those specific pieces of equipment. And so that kind of specialty work is excluded from being done by Alaska labor unions. And then there's a potential for some of the machinery in— that will be installed for the Alaska LNG Project to be fabricated at offsite module yards.

That's a highly standard way of building LNG facilities that keeps costs down. And obviously, if we're building large liquefaction or other modules out of state or, or in international fabrication yards, it wouldn't make any sense for that to be covered by Alaska labor unions. So those are— there's a bit of a highlight of what is in the MOU. It's a binding MOU. There was an unfortunate incident where a reporter mistakenly reported in a headline that it is a non-binding MOU.

That was factually inaccurate. That was a mistake by that media outlet. I believe it was then subsequently retweeted by the Governor's office with the non-binding headline in it. We asked, we quickly asked both the reporter and the Governor to change those, and I believe that they were both changed. Regardless of what ended up, uh, in, in tweets on X, uh, the language of the, of the MOU is clear.

There's nothing in it anywhere that says that it's non-binding. And so we think that was a misunderstanding that it was irrelevant by, by the media. Our position is clear, as it says here on the screen. It's a binding MOU.

Just a bit of a graphical representation here. It was a big deal. This labor MOU was negotiated on a very careful, very intensive basis. A lot of time, a lot of meetings, a lot of people involved in a 6-month negotiation process to reach an agreement that worked for both sides. And I think both sides were very happy with the outcome of the negotiation where a significant portion of the project was allocated to be constructed and worked on by labor unions.

And also we were able to put it together in a way that would work for the project's construction plan. So I know that here at the signing ceremony everyone is very happy and excited. And we continue to be very, very, very confident and emboldened by the fact that we'll be able to get this project done relying on the incredible workforce here in the state of Alaska and their ability to accomplish really impressive things.

That brings me to the amendment that was proposed on the floor, which expanded the PLA requirement in the bill. So my understanding is that this was not requested by the labor representatives themselves. That's what I've been told. But that it was instead offered by legislators who were intending to be helpful and make sure that labor's requirements were being met. We think that labor requirements are being met, and I'll walk through some of the ways that they are.

But more concerning is that the scope of the amendment that was offered on the floor is very broad and doesn't reflect the careful discussion that the two parties worked on over the course of a 6-month negotiation and doesn't reflect the level of detail and complication that goes into labor planning for a mega project like this. And so I talked at the outset a little bit about the scope, how there are some exclusions. Most of the— a significant part of the project is allocated to be worked on by labor unions. The amendment that was proposed removes all of that and simply says all phases, all scopes, all contractors, all subcontractors must sign a PLA. Again, that removes some of the key exclusions that are necessary to actually make the project work, such as offsite fabrication, specialty work, original equipment manufacturer, or work that needs to be done by certified technicians in order to maintain warranties.

It— as written, it applies to labor hours that were performed out of state or internationally. And just frankly doesn't work on a practical level for those reasons on scope.

Not seeing any questions. Please continue.

The PLA requires prevailing wages to be paid on all scopes and all elements of the project. Our MOU agrees to pay prevailing wages. It agrees to pay prevailing wages for anyone working on any of the labor elements of the project.

That's not the issue. We don't have an objection to that. It even requires prevailing wages to be performed on some of the non-union work that is conducted in-state. So that is already accounted for in the MOU itself.

The amendment is far broader than that. It doesn't capture kind of the detail and the complications of it. It just says that all work anywhere must be performed, must be paid prevailing wages. Again, if we take the example of some of the offsite fabrication that could be done internationally, paying Alaska prevailing wages at a fabrication yard in Korea, for just one example, doesn't make any sense and wouldn't be economically viable for the project.

Please continue. A bit of an extension of that point, the MOU already gives the project's commitment to pay prevailing wages. It gives— it provides a detailed framework for calculating prevailing wages, including defined rate lock periods, periodic updates to what the prevailing wages are. It aligns with the Alaska Department of Labor wage practices, and really, you know, we think again the reason that the project and the labor unions signed the binding MOU is because it adequately addresses the payment of prevailing wages to labor workers.

Senator Sudman. Thank you, Mr. Chairman. So is this confusion over the binding/non-binding, has it been recognized by the labor organizations that it is binding? Are they still in the opinion that it's not? Or, you know.

Senator Steadman, I don't think there's any question on the labor side that this is a binding agreement. I think there was confusion or there was a concern that others out there thought that it wasn't, but I certainly believe that they agree that it's binding, want it to be binding. We feel the same way. It just seems that unfortunately some have interpreted it based on those headlines as non-binding, and that might be why some legislators thought it would be helpful to insert this amendment. So my point here is we do have a binding MOU and so additional legislation is not necessary.

Senator Hoffman. Thank you, Mr. Chairman. Do we have anything in writing from those unions saying that they believe that it is binding at this point? Senator Hoffman, I don't have anything from them, but I I can just tell you from conversations I have every expectation that they believe it is binding. I think that's uncontroversial.

Thank you, Mr. Chairman. Representative Ruffridge. Thank you, Chair Sharkey. Maybe correct my memory for a second. Before we established this amendment that we're discussing, the bill that passed Senate Finance already required a project labor agreement that was binding in order for this— the tax provisions that we've all been discussing to be implemented.

Is that correct? Representative Rutherford, through the chair, that's exactly correct. It's another reason why we would make the argument that this isn't necessary, because the bill already had a very clear requirement requiring a project labor agreement for the project. Okay, thank you. Thank you.

Additional questions from committee members? Not seeing any, please continue. Thank you, Chair Schwalbe. I think the last piece that comes up, or maybe not, sorry, second to last piece that comes up in the amendment— pardon me, there's a few more. The next one is the requirement for a broad apprenticeship requirement.

And so the language of the amendment says 15 hours— 15% of all hours across the project must be performed by apprentices. I want to be totally clear, we are fully supportive of having an apprenticeship program on the Alaska LNG Project. We think it's fantastic. We want to be part of building a workforce for Alaska. We want to be a part of training skilled workers.

We want to support the growth and new opportunities and workforce development. But having a bright line 15% requirement creates a lot— creates unworkable challenges for the project. First of all, there's no consideration in the amendment if there weren't available enough personnel to perform 15% of the hours as apprentices. It's just a flat requirement, 15% of the hours must be done by apprentices. And so the question would immediately come up, Well, if there weren't enough apprentices available to perform that much work, would we lose our tax eligibility?

According to the language of the amendment, we would. And so that's a punitive and unworkable risk. There's also not any discussion regarding qualifications or safety elements. And so again, we have no objection to having an apprenticeship program We'd be very happy to work on the right way to do that. It wasn't something that was requested in the MOU, but we'd be happy to incorporate that into this.

You'll find that our recommendation here at the end is that the bill could and should incorporate some language requiring an apprenticeship program. So the point here is just as written, as a broad mandate, it doesn't— it's not workable for the project. Representative Ruffridge. Thank you, Chair Sharkey. I'm trying to work through this language and a general question first.

This apprenticeship requirement, I can't tell whether it is a requirement that those apprentices are union apprentices. Is that something that you could speak to or would this include non-union apprenticeships as well. Representative Ruffridge, through the chair, I can't speak to that. I've got the only— the same language as you, and that's certainly one of the types of details that I'd prefer to work out in a detailed discussion with the unions rather than having it settled in legislation. Understood.

And a follow-up, Mr. Chair? Follow-up? I mean, I assume that of the large scale of work that needs to be performed not all of the items that need to be done would have union work capacity to do it. Is that something that you can speak to?

I mean, there are certainly aspects of the project where you would have to use some non-union workforce in order to accomplish the project. Is that correct?

That is correct. Although I will say our MOU commits very broad scopes of the project to being done by union workers, and we are very happy to have commitments by us and the unions to build this project. I think it's a very good thing for the project. There are, as I said earlier, technical portions where it wouldn't work to be done by union labor because they're technical or specialized or required in order to maintain warranties. But again, that question that you're asking is discussed in detail in the MOU that we signed.

Okay, thank you.

Additional questions from committee members? Not seeing any, please continue. Thank you. Another, I guess, Representative Ruffridge, a bit of an additional answer to that. One of the key elements of our signed binding MOU is, is an agreed labor standard.

And so we have an agreement that will prioritize Alaska labor first. That's been something Glenfarn has been committed to since day one of our agreement with AGDC. We've now memorialized it in the binding MOU itself, but we recognize that if there isn't available union labor to do the work required, it does allow for the project to backfill from the U.S. or Canada. Again, if it's backfilled from U.S. or Canada, it would be paid under prevailing wages under the same principles. It's not— you don't have that kind of labor arbitrage concern.

There's also what I would call as a project protection, which is that the workforce must be qualified and competitive. And so if anyone's working on this project, we will— we are 100% committed to our first principle of safety first. And so first and foremost, we need qualified workers who can deliver a project safely. And so the MOU preserves that principle. That we'll have qualified workers building the project.

Senator Steadman. Help me a little bit with the pension guarantee or pension backfill or some pension clause in there also.

Senator Steadman, that's something that we spent a fair bit of time working with the labor unions on. It relates to— in some instances, a project can be liable or be on the hook for underfunded pensions. And some unions have pensions that are underfunded. And so what we agreed to talk about, what we agreed to solve in our project— definitive project labor agreements is how we would solve issues where a union is starting the work and starting with an underfunded pension already, and so we want to make sure that the project is not held accountable to fund— to top up an underfunded pension for work that was done prior to the project.

Okay. Thank you. Please continue.

Again, Just to highlight the MOU we signed, again, negotiated over the course of 6 months, very detailed. It— the MOU considers the reality that there are multiple phases, multiple work packages, numerous construction contractors, and reflects an agreed— an agreement between the project and the counterparties— sorry, between the project and the unions to address all of those different phased elements of the project. And so that type of phasing, that type of detail isn't reflected in the amendment.

As I mentioned, at the end of the day, the PLAs will be signed not between the owner and the unions, but there will be numerous PLAs signed between the contractors themselves and the unions performing the work. Again, that's something that should be— that was over— that was more— that was too broadly stated in the amendment.

Please continue. Thank you. Last of the issues, a bit of a recap on the safety concern with apprenticeships. We have every expectation that the unions would put together a safe, a safe program, that apprentices in Alaska would do fantastic work and be just, just top-notch apprentices that could work on a project anywhere. At the same time, the project needs to have protections for itself to make sure that we are able to comply with OSHA and PHMSA, Pipeline Hazardous Safety Administration, and other safety standards.

We need to be able to maintain a drug-free, safe safe construction site. And as much as I have every expectation that the unions would provide apprenticeship program that would be in compliance with all of that, we don't have the ability under the amendment that was offered to be able to enforce those safety standards. The, the amendment just requires us to have 15% of apprenticeship hours no matter what. And so These, again, these are the types of thoughtful considerations that should be addressed in a longer-form agreement. We'd be very happy to have them addressed.

Glenfront supports, fully supports, a responsible and safe apprenticeship program.

In conclusion, our suggestion is that instead of having a broad amendment that dictates a few high-level principles about project labor agreements, we could instead legislate into law a requirement that the PLAs entered into will be substantially consistent with the binding MOU that was already executed between the project developer, between Glenfarm and the building trades councils. We, as I said, we have an agreement in place. Glenfarn stands by it with full commitment, and if it is— if we're asked to put that agreement into law as a legal requirement, we're totally okay with that. We are very grateful and thrilled to have this project be worked on by the incredible labor force of the state of Alaska. Uh, we just needed to have the laws and regulations that apply to the project be conducive to actually financing it and getting lenders and investors to, to put the money in to build it.

Uh, the last point is, in addition to adding language to the bill that would mandate the MOU and basically make the MOU legally— make the MOU the requirement of the legislation, we'd be fully supportive of taking an additional step to have the bill, the legislation, require that the project establish an apprenticeship program that is consistent with industry standards and would be negotiated between the project and the appropriate labor unions, so we'd be very happy to include that. Again, these are not substantive— I wouldn't call these substantive labor concerns. You know, I think you saw we're very proud of the signing ceremony we had with the unions. We're very proud of the role that they'll play on this project. We just need the legislation to be written the right way, and so I would call these more, you know, legislative drafting issues than anything else.

So that's my last slide. I appreciate the attention. Speaker Edgeman. Yes, can we take a brief at ease, please? Brief at ease.

Back on the record at 2:47 PM.

Mr. Prestidge, I wanted to ask just at a high level, as I think there's confusion in the public on the difference between an MOU and a PLA, and what about an MOU is binding. Can you please elaborate further on that topic? Chair Sharkey, happy to do so. The MOU, Memorandum of Understanding, is a contract signed by various parties.

It is signed by 8 Star Alaska. It's signed by the Building and Construction Trades Council of Southcentral Alaska, the Fairbanks Building and Construction Trades Council, and the Alaska Petroleum Joint Crafts Council. It's governed by Alaska law. It's a contract. It sets out mutual understanding and framework for future project labor agreements between 8 STARS contractors and the building trades.

And so it is more— it captures a more high-level understanding and framework for the future agreements that will be entered into. By the contractors themselves. It's— anytime you have a contract between two parties that's signed, it is assumed to be binding unless there is explicit language calling it non-binding. Sometimes when you sign a memorandum of understanding, the commercial terms are not binding. That is a pretty standard thing in commercial practice.

And so I can understand why some— why that confusion might have arisen for some of the media covering this process. However, there's nothing in the MOU that was signed with the labor unions that says that it is non-binding. Okay, thank you. Senator Hoffman. Thank you, Mr. Chairman.

Mr. Kissinger, do you agree with all the statements that were made by Glen Farn regarding the MOU and PLA agreements? Senator Hoffman, through the chair, that is also my understanding of the MOU. Thank you.

Additional questions or comments before we move to the next topic?

Not seeing any. I'll ask you to continue to your next presentation, which we have pulled up, and I believe we'll be inviting Mr. Steve Mahoney up. To provide expertise as tax counsel for Glenfarm. Is that correct? That's correct.

And Chair Sharkey, I will stay here at the table to answer kind of developer-specific questions. Matt will take a seat, and then if I may, I'll invite Mr. Mahoney to join me up here. Very good, please do. Thank you, Chair.

Mr. Mahoney, welcome to the table. Thank you, Chairman Cherrig.

When you're ready, please put yourself on the record and proceed with your presentation. For the record, my name is Stephen Mahoney. I'm of counsel for the law firm of Manley Frodigan Bankston in Anchorage, Alaska. I have been dealing with Alaska taxes since 1979 when I started as a junior tax accountant for Exxon Corporation. Corporation.

I worked through separate accounting in the early '80s with Will Condon and Tom Williams. I'm a 40-year Alaskan. I was an audit coordinator for Exxon on state income taxes for the 50 states that we paid taxes in back then. Last in the industry, I was the VP of Tax for ARCO. Most recently, I've had about 20 years of of practicing tax law in Anchorage and around the state.

For most, I would say almost all the major taxpayers in the state, oil and gas and otherwise, as well as nonprofit corporations, we have a lot of IRS dealings. I was asked by Glen Farm to assist in a clinical review of this Amendment 2 and other tax issues that came before you.

Interestingly, our firm and myself, we work with an organization called Bloomberg Tax. Bloomberg Tax has the treatise on taxes in the United States. They deal with all 50 states, they do federal, they do trusts. We are the editors for Alaska, for Alaska corporate net income tax. So we have analyzed that tax in relation to any investor coming to the state would look at that to see how they are impacted in taxes.

Most recently, we are— we've been asked to be editors for the PTE tax throughout the United States. So the individual states that apply PTE taxes, pass-through entity taxes, we edit the Bloomberg Tax Treatise for all those states, including the state of Alaska. I guess I start by— with Glenfarm, or any potential taxpayer in the state of Alaska, the number one goal is to have certainty in the taxes that they're going to pay. Understanding those taxes, understanding the way the taxes impact the company starts with the statute. The more clear and definitive the statute is, the more clear and definitive your understanding as a taxpayer of the taxes are.

And in Glenfarm, we have a different circumstance than we've had in the past with a lot of our corporate net income. Taxpayers. This is a new type of organization in terms of financing one of the largest capital projects this country is ever going to see. And the financing arrangements that an entity like the Glenfarm entity— or I'm sorry, H-Star and the entities of which Glenfarm is a member— are based on those types of financing and therefore the interests of the investors in that financing is an extraordinarily important aspect of moving projects forward. Those investors need to know, as well as the entity that's paying the tax, what those tax liabilities will be, because their ability to generate revenue and profits from the activity are going to be impacted by the taxes that are paid.

I'm a tax geek, forgive me. I talk code, I talk sections. I've been doing it for so long, I don't know that I can get out of that. Taxes are complex. I'm going to try to keep this at a high level with just the specific issues I found in the clinical analysis.

I'm not talking about policy circumstances here with this tax. It's just the clinical analysis of the tax. So I start first with what— how is this tax being created? How are we putting it together? And I find it in terms of the other projects that I've been involved in, and I've been involved in them forever here in the state.

This one is a little bit rushed. It's targeted, and the way it's drafted, it can be volatile. There's been, by my count, about 15 attempts since 2019 to impose a PTE, but those attempts until this draft and this Amendment 2 that was proposed, it's the first time that it's looking at an entity like Glenfall. Glennfarm. And the other items and the other times the tax has been reviewed, we've been reviewed with other taxpayers in mind.

So when I look at this, I look at it in terms of Glennfarm as an organization and 8 Star and what we're trying to do in building this pipeline. And I find that there doesn't appear to be enough meaningful analysis of what this amendment is proposing. I look Mr. Stickell and Mr. Stammes are coming up after me, I believe, to give a presentation. I looked at one of the pages that they are offering, and it is page 15 of their presentation, and they call this concerns of pass-through provisions. I go down that list, and their list and mine are almost identical as to what the concerns are.

They are concerned about difficult and expensive for taxpayers to compute and understand the tax liability, unclear what the Under the circumstances, the department would be required both ADHD, AGDC, and Glenfarm to file returns. That would go as well for investors. It's a relatively novel concept, they say, and there may be unintended consequences, which I agree, and unforeseen difficulties potentially. One of the issues that's very important to this investment is they suggest that other than the public corporation federally exempt entities like nonprofits are not exempt from this tax. Meaning although it would have the entity pay the tax, that cost would be borne by the investors, which in this instance could be nonprofits.

And we're— I mean, think of the permanent fund. If the permanent fund invested in this project, they would have to— the project would pay a tax here, the entity, and then that would be less revenue It could go to the permanent fund. So when the permanent fund or any one of retirement funds throughout the United States, which are the investors that might be looking at this project, would look at this, they'd say, "Oh, right off the bat, we have a lesser return than we might otherwise have if we were an LLC in many other states." I, as a matter of fact, almost every other state. So those things are important in terms of our investors. We want to do what we can for our investors.

The amendment here is similar in structure to the prior bills, which again didn't really consider one of those taxpayers could be the Glenfarm and the 8 Star entity. This uncertainty in application chills— I believe it chills investor opportunities. What I would suggest is clarity, continuous nature, and then allow our investors to understand their tax liability so they understand their investment. One thing that I understood has been discussed a number of times— oh, how do I— whoops, sorry. Can you use the arrow button on the screen?

Use the arrow button on the keyboard. Sorry. Forgive me, technologically not always competent here. Forgive me. Well, all right, I think we're headed—.

We got there. Please continue. So as regards Amendment 2, this tax is unlike other states. If we look at all the states in the United States, there's about 37 that impose a PTE tax. But in almost every instance, that's an elective tax, meaning the taxpayer and the entity elect to be chosen to be taxed as a PTE, a single entity, rather than the owners themselves.

A pass-through entity passes through the tax attributes to its owners. And so in most circumstances, and the reason we have pass-through entities is so that the owners themselves can pay the taxes wherever they reside. Alaska doesn't have a personal income tax, so if we had a person here who was elected to have the tax go to them, they wouldn't pay a state income tax. In other states, there are state personal income taxes, so that election of paying as the entity itself, the pass-through entity, or as the to the person is a little bit of a different question. Most of the time it's offered as an election because under the way personal income taxes for federal purposes are calculated, you actually have a benefit of paying at the entity level at 21%, like a corporation, instead of at a personal level at 38% as an individual.

And then the state tax goes on top of that 38%. So relatively speaking, if I could deduct I could deduct those taxes from my personal income taxes, that would be wonderful. But I can't. But if it's taken by the PTE, if the tax is paid by the PTE, that's less taxable money that's distributed to me at 38%. So in the end, I pay 21% tax instead of 38% tax.

And most of the reasons why there is PTE taxes in the states is because of that. In fact, the state of California called their PTE tax, the Small Business Relief Act. Even though it created a tax liability, it generated because it was a relief act. In fact, when I look at the states, there are only 4 states that have what we would call a mandatory PTE. That is, there will be a tax on the entity that is a pass-through entity as if it was a corporation.

But those tax liabilities are relatively small. California is only 1.2%. Is 5.5%. The highest we could find is New Hampshire at 7.5%. But all the other states that have a pass-through tax are elective.

You can decide to be taxed that way or not. One of the things that our— like with any tax, it's going to increase the burden. It's going to increase the burden on doing business here. But the burden we're concerned with— how much of the burden is a policy call on your part, not ours. But the burden we're concerned with is the uncertainty.

It's measuring the burdens so that you know what you're going to have to pay. And that's a concern that we have with regard to this amendment.

So if I go to the next slide. Please continue. One of the problems in the draft that we have here with this amendment is kind of shoehorning PTE into our corporate income tax. We do so, and the draft specifically says that notwithstanding the Alaska section that incorporates the federal income tax code, we will move forward and tax this organization. Hmm.

So what we're saying is that for our corporate net income tax, we always start with federal taxable income, but the first thing we're gonna do is ignore the statute in Alaska that incorporates all of the rules with regard to calculating federal taxable income, which is problematic only in that the very next sentence says we're gonna treat it like a C corp. But it doesn't say how we're gonna treat it like a C corp, it just says we're gonna treat it like a C corp, 'cause we've already removed consideration of all of the rules rules that define a C-Corp federal taxable income. And it takes us to the sections in our law which are apportionment. Apportionment basically just says if I do some business in one state and some business in another state, I'm not going to get taxed twice on the same business. I'm going to reflect and apportion the amount of tax in each— I'm sorry, the amount of business in each state And the tax will apply to the amount of business in that state.

It's called apportionment. Standard and state income taxes. But in our circumstance, our amendment goes back to those apportionment principles, which the very first statement in the apportionment principles is you start with federal taxable income to determine how to apportion the tax. But we don't have any. So in essence, what our amendment is what the bill is saying is you create a pseudo or a pro forma federal income tax.

And that is you create pro forma federal income, and then you tax it at the rate that we've decided we're going to tax in Alaska. It's difficult. It's— there are no real rules. We're starting from scratch. We kind of don't want to create tax law, especially in regulation.

Statutes should be clear enough that regulations only fill in the rights, not create new sentences in the law. So if we think about that in those terms, we have to— I would suggest if we are going in this direction, that maybe we don't have this tax effective right away. We give people time to learn. We give regulations time to be established and so on. If we are going to go in that— make that policy call.

For instance, something simple. Right now, there's a definition for taxable income. We're not starting with federal taxable, we're going to create one. And it includes industries that— one of the industries that says is carbon capture and carbon storage, which certainly if you're an oil company or you're in the oil business and you have those types of activities, okay, that's directly associated with the oil, it's directly associated with gas, it fits. But we also in the state of Alaska, of companies exploring seaweed carbon storage.

There are entities out there doing research and creating an entity that's actually going to try to put that in place. This law would start to tax, presumably, that company. An unintended circumstance, uh, something we didn't expect. And when you have time and energies and you put that into a real review and understanding of an amendment like this, you would get those things certain, some are more certain. You can't— everything's not perfect, but it would become more certain, and that would be a suggestion.

One of the things we get here too is we have what we call qualified entities, because they want to define what is a PTE entity that's going to be subject to tax. And in the statute, one of the qualified entities is a sole proprietorship. Oh, I'm confused. Sole proprietorship can't be an S corporation under federal tax law. That's one of the PTEs.

It can't be a partnership under federal tax law because there's only one. One. It's a sole. And a sole partnership in any dictionary is going to tell you it's a person who does business. But we don't have an individual income tax.

So something like that needs to be clarified. How does that fit in? Where does it fit in? Even a suggestion, one of the statements that's made in the state's presentation is that a sole proprietor, that's a question in relation to if it's a natural person. The funny thing is in the statute amendment itself, it says a natural person is not a taxable entity.

But a sole proprietor is, but a natural person is not, but they're the same thing. Just clarification and clarification. Clearing. But one question that arises in terms of certainty and understanding is if we removed all the provisions from the federal tax code from this rule, this amendment, how do we get the deductions and credits that normal C corporations are permitted? Any corporation doing business.

At a minimum, we want to be on balance with all other states. It doesn't matter what the policy call is on on charges and what the fees are, what the tax rate is. But as to how you calculate income and how an investor understands what they're going to get back from their investments, it's very, very important that there is some form of conformity. Right now, I don't know what that is because I don't know what the federal rules are in Alaska. And as an investor, I'd be asking the company executives, uh, tell me how I'm going to calculate this tax.

How are you going to pay tax and what am I going to at the end of the day after you've paid your tax. It's very difficult to do that with this amendment.

If I may? Please continue. Thank you. My last slide, but not my last statement, is I'll do an ambiguity, confusion, and risk in relation to our amendment. And I'm going to do an old Laurel and Hardy.

Who's on first? So what I've drawn here is a very simplified version of who might be the investors in our LLC entity, and I don't care who the LLC entity is right now. We're talking about an LNG entity. There are 3 potential groups of investors. Those investors could be tax-exempt entities, the permanent fund, retirement funds throughout the nation.

There's a whole bunch of nonprofits that have— I'm I'm sorry, non-exempt taxable entities that have money to invest and they're looking for investments. Another would be natural persons, just people who invest. And then another is corporations. So we really have kind of three options here, who would be our investors. Well, if I go to the far right, corporations.

Well, under our normal CIT, the Corporate Net Income Tax, if a corporation is an owner of an LLC, That LLC is already in part of the combination of the corporation that's subject to tax in the state of Alaska. So that arm right there is already taxable no matter what we do with the LLC entity. Natural persons. Well, if we're an Alaska person, we have no tax liability because there's no personal income tax. So the tax would flow to that person, that person investing otherwise than in that energy.

In that entity would not be paying any state tax. And that's the law. That's what we've decided is going to be the way we're going to run the state. The third group, which is tax-exempt entities, look at all of their investments in relation to return. They would look at this entity and say, wow, in this LLC, I'm going to get 9.4% less of the income returned to me because it's going to be taxed in the state of Alaska, in the entity.

However, I could invest in other activities or other investments, and that would not be the case, 'cause I'd invest in an LLC in some other state or some other jurisdiction, and the tax liability would flow through to me, and since I'm tax-exempt, I'm not gonna pay any tax. In our tax code, we have incorporated 501— it's 509A is the code section, but exempt entities, and they are not subject to tax. But wait a minute, we already said notwithstanding those provisions, we've removed them from the statutory framework in relation to this amendment. I go to Section F in the amendment, and Section F is a small section that says if a payment is made to an investor, that payment will reduce the amount of income that the entity reports. So there wouldn't be tax paid on that.

My concern is that— I'll do a tax geek here. Senator Steadman, you might be with me on this one. But a payment is not income. A payment is a cash transfer or a distribution to someone. So in a normal sense, in a pass-through entity, I get a K-1.

It's a report from the pass-through entity to the investor that says, of all of the of the tax activity we have, this is your share. And one of those shares is business income. It's the very first box in a K-1. Business income is not cash. Business income is the amount of revenue less those expenses you've been allowed.

A lot of those expenses don't have any cash involved. Depreciation. Depreciation is an expense. It reduces your income, but there's no cash outlay. It just means something you paid what I paid for years ago has become less valuable from use.

Well, now I'm going to have a— I'll pretend I have a lot of cash because in the debt service provisions of our financing arrangement, we're not going to have a lot of cash in the early years. But when I do have cash, I'll pass out a cash payment. But that had nothing to do with the amount of income that that individualist investor should have been allocated. So why am I reducing the income subject to tax for the payment. And I think that goes as poorly for the state as it does for the taxpayers.

Because there will be some years when there will be cash distributions to investors when there's little income in the company. And all of a sudden you're going to reduce that income by the payments that's been made because of cash? I'm not saying there might not be a valid way to do that, but I don't think payments is the correct definition of the way to do that. For one of the subjects in terms of taxable entities is the manager, and it just is comma comma manager. Well, I don't, I don't know what the physical end result of these project facilities are going to be, but I could foresee that you might hire— sorry, 8 Star or one of the entities that's investing might hire an outside manager that has nothing to do with ownership, has nothing to do with the gas that's passing through the plant but would manage the plant on behalf of the gas owners.

Is that person to be subject to this tax? Under the way we've defined taxable entities, they are going to be subject to this tax. Again, maybe an unintended result. Again, clarity is what I'm clinically looking at this amendment for. Clarity is what I hope and suggest that we have.

That is the end of my slides. Thank you, Mr. Mahoney. Committee discussion. Senator Steadman. Thank you, Mr. Chairman.

So what would be the recommendations to clean up the issue dealing with institutional investors if it's pension plans or retirement plans from around the country that are obviously a potential source of investment? To make it so we don't imbalance the playing field where they are forced to pay a tax if it's 9% or some other number relative to another project in California or Maine or New York or wherever. Senator Sedman, through the Chair, I might suggest that simply changing the wording from entity to taxpayer and then defining a taxpayer so that the LNG entity itself wouldn't pay the tax. It would flow through to each of the investors. So that would be the taxpayer.

And you define the taxpayer as anyone who owns an interest in the LNG entity. Now, there's going to be a question. You're going to get a constitutional tax lawyer jump on down and say you have to have nexus, meaning an attachment to be taxable. We can put in the statute that if you own an LNG entity and define what that is, just as we have done, you have nexus in the state of Alaska if you're an owner. That would mean the natural persons, if we had a personal income tax, would be taxable.

Corporations, you'd go through the standard C-Corp. The tax-exempt entity would be transferred income, but since they're a tax-exempt entity, they not owe a tax. So one of the ways you might do that is to just redefine the entity as the taxpayer and have a taxpayer be any one of the owners. And would that then take care of a person that happened to own a large company in Alaska? Again, we would have to do it definitionally.

Currently, if that person had nexus in the state, they would be subject to a personal income tax if we had one. If we did not, they would not. If their companies had nexus because of that, then the companies would become a corporation subject to the tax simply because they were an owner in the LNG entity. I'm not saying that would resolve every issue in relation to that step of entity ownership. That might be one way to do it.

The other way to do it might be to make it elective and have a certain restriction on how you can elect. So you can elect if, and that election might be if you have tax-exempt entities as owners, if you have corporations as owners, and not have if you have natural persons as owners. Senator Steadman. Yes, and if it's not— well, let's just lay it out so it's a lot simpler Um, several years ago BP was in play in the state and they were one of the 3 major companies here, Exxon and Conoco and BP. BP sold out to Hillcorp, who's an LLC, so that took away a third of our income tax out of our oil basin and the income tax is part of a 4-point balancing act we do when we calculate our government share.

There's royalties and severance and property tax and corporate income tax. So that gap was created on that sale, and that's been a concern of some of my colleagues for years. And how do we rebalance that?

When we work through the government sharing relationship, for those watching at home, that's a split of the oil profits and revenue. There's these, those 4 components that make up the state's share.

And some folks feel that there's that imbalance. So this LLC tax, would impact that if you were an owner of one of those companies. So what clarity do we need in this legislation if we were to clean it up to make sure we don't have any inadvertent issues that may arrive, like, you know, You're talking about imposing taxes on some nonprofits or what have you.

Senator Sedna, through the Chair. Yes, Mr. Mahoney. I might suggest that if that was the case, that as we have with our corporate net income tax, we've defined certain provisions to apply to oil companies differently than to non-oil companies. Corporate income tax applies to all corporations, but different corporations are treated differently based on their industry or practice. We could do the same with this when we define what a taxpayer is.

So we could define the taxpayer to be the pass-through entity and that it would be applied to those entities as they are described. One of the entities that could be a taxable entity is an entity that is in a certain business, if that's what we wanted to do. And so you'd avoid the LNG entity and therefore not impact the individual investors necessarily. But if the policy decision was that one type of investor needed to be impacted, we can do that. And we've shown that it's constitutional because we've done it with our corporate income tax directly.

Senator Stubben. Yes, I think on this amendment, the rate would be the highest in the country for states that don't have income tax. I think the other one is maybe 7% range or something like that, and this is a little over 9%.

So is there— of course, it's kind of a policy question— a balancing range from your perspective that you would recommend— not that we would take your recommendation, but what you'd recommend that the legislature look at if we were to consider imposing some form of a tax on LLCs. Senator Sanders, through the chair. Significant-sized companies dealing with oil and gas, LNG included when I say gas. Mr. Mahoney. Understood.

I think, again, we're looking at a circumstance where in the past, and forgive me, I cannot remember the legislation that allowed it, but we had a non-codified section of statute that basically directed the Department of Revenue to do an analysis specific to a legislative intent and request in regard to issues. And what I might suggest is we could do, have the department step back, However we deal with the amendment in the law today, one of the provisions might be for the department to do an analysis and review of the other states. There's a couple of methods you could look at. You could look at other states in relation to the size of their economy in relation to their tax rate. So for instance, California is a huge economy and their mandatory tax rate is 1.5%.

4%. Connecticut has the same thing. It's a smaller economy, but it's 6%. And maybe they do an analysis and determine in the size of an economy what a reasonable rate is for an investment, as investors would do when they're investing, and suggest a rate, a policy, as to what an appropriate rate would be for this type of entity and this type of investment. That might be one way to do it.

And that goes back to really one of my earlier statements was is, to the extent an effective date is part of what we might do here, giving industry and giving investors time, both to understand, to maybe get some regulations out, and to change the way they do business, maybe, because taxpayers do that when the laws change. 3 Or 4 years until this becomes effective would allow for a full analysis and understanding of what the best rate rate of tax might be, and also regulations which would clarify and make certainty that's required— or, I'm sorry, required by investors, and allow others to adjust the framework of their businesses. You may see people make very big changes in their business. Maybe this natural person becomes a C corporation because there are other benefits that the non-tax payment had outweighed before, but now if there's going to be a tax payment, that may no longer be the case and it'll fix itself. Follow-up, Senator Steadman.

Just a clarity question, and you already answered. I just want to make sure, because none of us are tax lawyers, we don't have one in the building, um, or, or under our employ.

So if you're a C corporation, you can't do an LLC and avoid the tax?

Avoid tax. Is that correct? Senator Sedmond, in a non-tax environment, in the state of Alaska that has no income tax, in the state of Alaska, the corporate statutes apply first. So if you have a corporation, period, you are subject to the corporate net income tax. You want to play games with underneath you with different entities with different structures, doesn't make a You go up the chain of entities as far as you need until you find a corporation, and if that's the case, you apportion activity to the state, and that apportioned activity is taxable.

Senator Stebbins. Mr. Chairman, I think that was one of the concerns that many of my colleagues have had over the years, that other companies, C corps, Businesses in the oil patch would change their structure, thereby avoiding the tax because we have no income tax. So that helps with the clarity on the issue quite a bit, actually. It can't be done.

Senator Sedman, through the Chair. I would agree with you. I think it would be extraordinarily, unbelievably difficult to do. Never say never. Thank you, Mr. Mahoney.

Additional committee discussion?

Senator Cronk. Oh, thank you, Chair Schroedter. I guess I'm a little frustrated. I'll probably not make people happy here, but we had a bill sitting here all session about this tax, and in my mind it was not passable through both bodies, so it was not moved. But now we're trying to actually put this in a clean gas line bill to move a gas line forward, and it's really frustrating to people.

I'm thankful we have this out in the public, we're doing this out in the public, but it's really frustrating to see that. I mean, those are the facts. This bill wasn't— that S-Corp tax wasn't going to pass. Maybe pass one's body, but it's not going to pass the other body. But yet we're trying to negotiate and put forward a clean gas line bill that could possibly build a gas line for us.

Yet we're trying to put a tax in this bill to stymie the waters of having a clean gas line built that, you know, I know there's a lot of Alaskans looking forward to having a gas line built and providing that energy for Alaska. So I just want to put that on the record for being very frustrated. I think we do a good job of keeping things clean, and this does— this is major. It's not clean. It's real dirty.

Thank you, Senator Cronk. Speaker Edgeman. Fascinating discussion, and I appreciate you being here, Mr. Mahoney, and thank you for your expertise and your, I think, your pretty direct counsel. A lot of things are going through my mind right now, and to Senator Cronk and the bill that was before the body, all due respect a bill like that will never pass because it's a tax and there's directed opposition to it in every form along the way. And that bill has been around for a number of years and it's not been able to get traction for a whole bevy of reasons.

And I'm a little frustrated because I just counted here, we got this bill 99 days ago. 99 Days ago, the bill that we have before the body now. Special Session Number 2.

And what I'm hearing is the issue is technical in nature, it's about certainty, it's about application, it's about complexity in terms of the pass-through impacts and administering the tax and thereabouts. I guess I'm not hearing that there's opposition to the underlying tax itself if it were properly constructed. I have to— Imagine there is stark opposition to the underlying tax no matter how we construct it. I just have to imagine that because the developer here who, you know, with great respect, has taken this gas line project a lot further than anybody ever has since the first drop of oil came through the pipeline in 1977. It's their fiduciary duty probably to oppose this.

So I'm not sure what to make of this discussion. I can understand the technical confusion here, and I think your remarks were highly cogent.

But I feel like we're here representing the state of Alaska. I know I'm not speaking for or against an S corp tax provision in the bill, but I know having been through this discussion for for how many of these, you know, 99 days, which some of those days were exclusively devoted to this one topic, that there are a number of legislators who are watching these discussions, some who are adamantly opposed to any version of this being in the bill, others who are saying we cannot support the bill unless there's something in the bill itself.

And, you know, I'm in the camp where I'm I want to make this thing go. I want to get to an agreement. I want to have something that sort of connects all those polar opposites on the concentric circles that define all this. But I'm also here to represent, speaking of fiduciary responsibility, the State of Alaska. And I look at those supposed profit numbers later on, you know, in the lifecycle between now and 2062, and there's going to be enormous profit being derived from this project to the developers who, you know, ostensibly, certainly, they've taken all the risk.

They deserve to be rewarded for their involvement, if you will. But what I want to bring all this back to my point is, is the opposition to this more technical in nature in terms of the construction of the way it's being presented, or is it because there is just opposition from every level, whether or not we were, you know, if we were to hire you, Mr. Mahoney, and have you be our consultant on this side of the table, would you put something together for us? Would that work or not? So I guess I'm a little frustrated because I would really have appreciated a more deliberative sort discussion on this element. In deference to what Senator Cronk was saying, maybe we could take more time to look at this thing and find out from a pass-through entity standpoint this is just not a good thing to do.

The other thing, we have a representative from the Department of Revenue coming forward. I sit here and wonder why wasn't this analysis done with other states? 99 Days later. You know, why on behalf of Alaska's interests did we not do the benefits? Because when I see these numbers, Alaska's PT, Proposed Rate, of 9.4% essentially tower over what other states that have non-elective taxes.

To Senator Steadman's point, they've got a whole plethora of taxes that probably make this 9.4% look pretty damn attractive. You know, so I'm sitting here a little frustrated too, maybe for different reasons than my colleagues here, because, you know, there's a sense of being flat-footed here, right? You know, and being caught in between countervailing forces that we just don't have the time to really sort of dig into it. So a little bit of a rant there, Mr. Chairman, and I guess I'll circle back for a third time to either Mr. Prestidge or Mr. Mahoney. Is this about opposition to the tax itself or is this about the need to fix it?

I think that's a question probably for Mr. Prestidge.

Thank you, Representative Edgeman, through the Chair. Last week, Glenfarm put out a public statement articulating our views and our oppositions to the tax. I think first and foremost, as Steve has said, Mr. Mahoney has said, we agree that certainty is a core driving principle for infrastructure development, infrastructure investment, and the presentation today has walked through some of the uncertainties that this creates, and so that's certainly part of the opposition. The second point point of opposition does go to the state comparison, to comparing Alaska as a state and a place where investors can decide to do business or not. With the Alaska LNG Project, a $54 billion project, Alaska is on the verge of one of the largest investment attraction capital formation opportunities that any state has ever had.

And so, um, undertaking, uh, that opportunity and that capital formation event and also layering in, uh, a, a tax, uh, regime that is uniquely higher than other states, uh, is, is incongruous and would really be defeating some of the incredible opportunity for growth, uh, that the state has in front of it. Senator Steadman did ask Mr. Mahoney some of the ways that that could be ameliorated and Mr. Mahoney walked through some of those. But again, those are the kind of two primary points of opposition for Glenfarm. Thank you, Mr. Prestidge.

Representative Ruffridge and Senator Steadman after. Thank you, Chair Schraggy, and Mr. Mahoney, thank you for being Being here today, I believe that you have received potentially 2 job offers already by sitting here. I'm not putting words in Senator Steadman's mouth, but I think that was a job offer, certainly from Speaker Edmond. I think Speaker Edmond was speaking about complexity, and I want to ask a very simple question first, which is I get this distinct sense that one of the concerns that you have about specifically Amendment 2 is that the language of the amendment is just not ready for prime time. Is that an accurate description of the language of the amendment in this bill?

Mr. Mooney. Representative Ruffridge, I think that's a valid way to state it. It's not ready for prime time. Representative Ruffridge. Thank you, Chair Sharagi.

And I I think that in the interest of sort of taking the priority list or triaging as we do in healthcare, the things in the value level, I think the first thing that we should, you know, have as a take-home is that we started this process talking about tax— property tax abatement and how that would potentially bring a project to fruition, a project that has a lot of upside in the form of revenue if it comes forward to the end. I guess, Mr. Mahoney, this is just going to ask you to guess here, but you mentioned an adapting, I think is the correct word, that companies would do if there was a different type of tax put forward.

I feel like I've seen it in my own personal business life. People find ways to not pay taxes. And there's a lot of different ways to either invest dollars, make payments to other things.

In your opinion, and I'm going to ask the same question of the Department of Revenue, is the way that this tax is structured just a boon for revenue to the state of Alaska.

Mr. Mahoney. Representative Ruffridge, through the chair. Boy, that's a tough one. I have been in numerous circumstances in the past where with taxpayers we have created, removed, dissolved, changed, amended, or done business differently to have a different tax liability.— I've spent my entire career refining and defining to taxpayers that their requirement was to do the right thing and pay the taxes that are appropriate. There are ways to change your tax liability perfectly legitimately with due analysis and balancing the issues involved in the change.

If I were If I were looking at this bill and it were becoming something that was going to be part of our law, I might be going to my clients and saying, you know, we could change the way we're doing business or our structures and maybe be impacted in a different way than this law. As to whether or not it's just boon dollars, I'm not sure how to answer that. It would likely generate revenue. I don't know how much from Glenfarm in the near term, the debt service and the other expenses involved in activity, but I believe that to be the case. Thank you.

One follow-up question. Follow-up question. Thank you. And this is, I think, to Mr. Prestidge. And I think maybe Speaker Edgman was asking this question in the sense of, are you opposed to the tax as just a general rule, or is it the elements of it?

Benefit. And I think for me it seems like it's both. But I wanted to ask what your assessment is of the viability of the project if something like this were to move forward. I sit here and I think the number one way that we can ensure that we're maximizing benefit to Alaskans and ensure that we have some sort of high-level revenue coming to the state is to maximize our resource development. I think that seems clear.

We've heard over and over that this project, I think, brings not only revenue to communities that are not on the pipeline path, but also revenue to the state and in many cases a lot of revenue.

What is your position as company about this specific type of language making the project itself more difficult. Sure. Mr. Prestidge. Thank you, Representative Rafferty, through the chair. I will refer to the diagram where we have LNG Entity LLC, and you can take that as this project or any other project finance infrastructure infrastructure project.

And so taking a step back, the Alaska LNG project is different from producers on the North Slope. It's different from— it is a project finance entity. And so what that means is there is not a single corporate shareholder, or once the project is in construction and is in operations, there won't be one single corporate shareholder that owns the entire project. The project will instead be funded through outside lenders coming into the box below the LNG Entity LLC, and then investors coming into that box below. And so that becomes what's called your project finance vehicle, and that's a— become an extremely standard way of financing projects like this.

From a project perspective, I appreciate your point. We've done a lot of things over the course of deliberation on this tax arrangement to reduce the tax burden on the project. Putting this pass-through entity tax in the place where it would assign the pass-through entity tax of 9% at the LNG LLC level would be a unique burden on any project finance vehicle. Typically a project finance vehicle is set up as a pass-through entity and the upstairs shareholders pay tax on that because— so that they can all invest under their different arrangements. And the LNG Entity LLC is evaluated on a pre-tax basis without taking into consideration the loss of, you know, 9% at that level.

Individual investors can all make their own decisions based on the tax liability, that they would have. In summary, my point is putting the project entity tax, or the project, sorry, the pass-through entity tax on the project entity level would put a unique burden on this project that conceptually would offset or decrease a lot of the benefits that we have talked about here with the alternative volumetric tax. Thank you. Senator Steadman. Thank you, Mr. Chairman.

I got a little different view. So here we sit today, we've got a loss in BP, they're gone, so we've got an impact on our split and to Hilcorp's credit, they've increased the production and increased it substantially. So it's not a clear-cut debate on that issue in any means and we're looking at that. We also have— a constitutional blockage of commitment to freezing taxes. We can't do that.

So I'm not so sure it would be fair to the investors with the momentum being built in the state to put billions of dollars on the table in equity and have tens of billions in in debt and have us change the tax structure midstream. You know, the day they open the liquefaction plant, we convene the legislature and decide to put a tax on it. Game's over, they can't do anything about it, right? So I think that we should give this some consideration for stability's sake so they know that that we have a system in place that they can count on for 30 years or 20 years or whatever, a significant amount of time. But when I look at the LNG project here, which was— we've been spending more time on just the pipe, but it looks like there wouldn't be any taxable income because of the depreciation shield and operating losses for years, loss carryforwards.

Like maybe up to 2 decades.

How the full project looks, we don't know. We haven't, you know, talked about it much. And we certainly haven't been privy to a cash flow model. But it appears that it's a decade to 2 decades out before there would be taxable income on the in-state gas line. That's what we build and that's all we build.

But I'm not so sure it's fair to the investors because there is a mood and concern in the state on this, the significance of the assets that we have, resource that we have that we're selling, that we shouldn't have that discussion in a structure. And I'm not advocating for the 9%, I have no idea what the number is. That looks a little high. I recognize and would agree that some delayed issue, delayed date for working out details so we have something that works and investors have time to restructure for their own personal needs. But I don't think it would be fair to put put a $55, $60 billion project in play and then the day they turn it on we reconvene and decide we're going to put a little revenue generator on it, because that's just not fair.

Senator Steadman, through the Chair. I mean, that is one of the issues involved in any form of change, and the ability and the timing to allow taxpayers to incorporate what's being considered and incorporate the policy as to what's being averted, averred. That's why, again, I would suggest that we give some time and implementation. Maybe we go, you know, 4 years from today or 4 years from the end of the year, it's going to be in place as far as tax in the state is concerned. That provides everybody a time frame within which they can be comfortable, understand, make investment decisions, or adapt act as they might in their corporate activities.

Thank you, Mr. Mahoney. I think we've had a good committee discussion. Is there follow-up, Senator Steadman? No, but I think that's a serious issue that, you know, if you've got a $60 billion project, people want stability and predictability. And if we're going to do something, we need to let them know early, not later.

And not, I would say, price ourselves out of the investment game. That would be just downright stupid. We got to stay competitive. Thank you, Senator Steadman. Senator Cronk.

Thank you, Chair Schroedter. Since this is brought up, I wanted to bring it up. I've been actually thinking about this a lot because we use the term maximum benefit. You hear that all the time, and I just want to read something. Maximum benefit means the state must manage its natural resources is for the long-term good of all the people.

And there's a, there's a term, you know, and I did AI this, I'm going to give that, you know, credit. But it does say, just beyond the cash, maximum benefit does not simply mean making the most money or collecting the highest taxes. It means providing citizens with maximum access, use, and long-term prosperity. And in this case, what we're looking at is long-term, low-cost energy for the state as well as long-term revenue that we're bringing. So I just wanted to highlight that because I'm having trouble with that, because if we look at our logging industry, especially in the interior, our stumpage rates aren't that high.

We're not bringing that much revenue into the state. But the benefit of that is we have companies providing employment for people. They're bringing logs in, they're probably— they're doing value-added through that. And then the stumpage rates will keep access roads open so people can go hunt. Fish trap have access to that.

That is also maximum benefit to our— the people. So I think we have to step back, and, and we, we honestly, we have not solved our energy issues. Um, this, this has been a long time coming, and this, for me, this project is one of those things that not only solves the long-term energy project, it does bring in revenue, it creates jobs and services across a lot of communities that we're desperately desiring right now because we're watching people leave. So just wanted to add that. Thank you.

Thank you, Senator Cronk. Mr. Chairman, Speaker Edgeman, uh, sorry, Senator Simon, were you hoping to jump in there? Yeah, just real quick. I don't know, never met anybody that wanted to pay taxes yet, so if anybody wants to pay, just raise your hand. Speaker Edgeman, I do.

No, not true. Yeah, just as a concluding comment, thank you, Mr. Chairman, and everyone around the table and certainly people at the far end of the table for this discussion because I think it has been very fruitful. And Mr. Mahoney, I like that you shed light on the complexity of the ownership sort of profile of this project as Mr. Prestidge also underscored that this is going to be quite unique, very different than in 2014 when we were here contemplating a project with 3 majors who had the balance sheets to do this on their own and not have to have, you know, all this pass-through activity taking place, whether it be the corporate income tax or whatever it might be. But, you know, you can't help but just sit here and think that this is a multidimensional issue that we just simply don't have the multidimensional time time to really get into. I completely support the comment by Senator Steadman that aligns with your comments as well, Mr. Mahoney, about certainty and about stability and about a state that is going to be seeking revenue in ways that we perhaps can't imagine in the 34th Legislature, but in the 36th or the 37th or the 40th Legislature, you know, is the highest cost state environment in the state.

We're seeing a state not able to pay for its basic services. So anyway, so being able to put something that's modest in place that's, you know, fair, if I could use that term, at the initial part of this project that makes this thing come to fruition, gets this thing up and going to every, you know, the comments around the table that this is a transformative project that doesn't need to be restated. But here we are. And I don't know if we have the time or the tools to even give this a fair go at this point. And of course, that leads into political mess that this whole thing kind of sits in right now.

Thank you for those comments. Thank you, Representative Ruffridge. Yeah, thank you, Chair Sharagi. So, Mr. Mahoney, you said that there's been approximately 15 attempts to impose a pass-through entity tax in the state of Alaska. Wouldn't you say that at the moment we're actually probably not classified as a stable environment?

Mr. Mooney. Representative Ruffridge, for the chair, um, that has been a commentary for some time.

I— one of the benefits of social media is the ability to have information immediately. One of the strange parts about social media is I understand that all of the investors in this project may actually be watching me talk right now. And they're listening to you, they're listening to what's happening today on the ground in Juneau, and it makes a difference in their decision-making. I would suggest that the more we go back and forth and relish and not necessarily argue but disagree, and the more uncertainty is involved. Mr.

Chair, thank you. I really appreciate that answer because I I think it speaks to the opportunity for us to instill some stability in the idea of choosing an opportunity that's sitting in front of us, particularly an opportunity, as Speaker Edgeman so eloquently put it, for revenue for our state and not in the form of some sort of pass-through tax. I'm wondering, Mr. Prestidge, if you could remind us of what the estimate is in state revenue should this project find its way to Phase 2 at full operation?

Representative Rafferty, through the Chair, my recollection of Department of Revenue calculations is that in full operations, the project produces approximately $800 million a year in various revenue streams to the state. Thank you, Mr. Prestidge. And one follow-up, if I may, Mr. Chair. Follow-up, Representative Rafferty.

Thank you. And I think, Mr. Mahoney, you said I think very clearly that the opportunity in front of us is to pick a lane and get in it.

It seems like to me, and it sounds like you've watched this often, what do you feel like has been the barrier, what has been the thing that has stopped the legislature from implementing a pass-through entity tax? In all the attempts that it has gone through in this body. Representative Rafferty, the chair. Beyond the fact that I think there is confusion as to what exactly the law would do, and I think that's repeated confusion, as much as I believe the department has worked hard to try to make it to the best of their ability into something that is manageable and reasonable, I think we haven't gotten there there yet. And I think what really needs to happen is, if we want to do this, a stated focus over a period of time where we hash the whole thing out, having done some research, understanding what other states do, understanding how investors feel, even to the extent where we might ask some investors.

You know, talking to technical clinical people is fine to discern what the bill says, but what it does, sometimes you You have to ask the taxpayer. Those taxpayers are the investors in a situation like this. It's not easy like it used to be. Exxon, BP, and the gang puts up their funds and they do what they want to do. We're in a different world.

That really changes the way we should be looking at this. Thank you. Thank you. Senator Cronk. Sorry, I wasn't going to talk again.

Thank you, Chair Schuch. I just have to go back after After, you know, again, we've had lots of meetings and I really go back and reference Mr. Sims from Enstar and his stressing the importance of having this ability to have this gas sooner than later. I've got people in Fairbanks screaming right now. I don't know if people have seen the energy— not that rural Alaska, we already know those energy costs, but people in Fairbanks are screaming right now. And part of that is because South Central couldn't generate enough electricity to share that with Fairbanks, so we have to kick on our diesel generators, and so the kilowatt hour is 34 cents a kilowatt, right?

I think what this project brings to the state, which we really haven't had a lot of, is hope, right? People are hoping. We know this isn't happening tomorrow, but you put something in play that gives people hope because people in the interior are— I just don't see how people people are going to continue staying there. The costs have risen so much there, along with high mortgage, you know, obviously costs. Um, so I think in a way we have to figure something out.

We have to give our people across this whole state— because we know we have issues all across with high energy costs— we got to give them some hope, right? I mean, windmills and solar panels are not hope. That, that's not the answer for long-term energy solutions. So I just want to leave that out there as like— it's our job to make sure that people moving forward in our state have hope, they know we're doing the right thing, and actually giving a developer the opportunity to do this. I don't think there's any guarantees this happens, but we can give them that opportunity to say, can this be successful?

Thank you, Senator Cronk. Appreciate the discussion from committee members. We were next slated to hear from Legislative Finance on local contribution, but we'll take a brief at ease as we switch presentations over and have a quick conversation amongst committee members as to whether or not we might want to go to Department of Revenue for continued discussion on this tax proposal. So with that, we're at ease at 3:53 PM.

What you got in here? Got a mouse in your pocket? Back on the record at 4:05 PM. Alright, we were slated to take up legislative finance next, but after talking to committee members, we're going to go to the Department of Revenue so we can continue our conversation on corporate income taxes and S corporation taxes. Mr. Stickel, Chief Economist for Department of Revenue, if you could please come up to the table.

When you're ready, put yourself on the record and begin with your presentation, which we have pulled up for you.

Excellent. Thank you. Again, for the record, Dan Stickle, Chief Economist with Department of Revenue, and I should have our Acting Tax Director Brandon Spanos on the line. He is going to do the majority of the first part of the presentation around the technical and implementation pieces. I will be around to help with questions and chime in on the fiscal and serve as eye candy.

Thank you very much, Mr. Stickle. Director Spanos, please take it away.

Yes, thank you, Chair and committee members. For the record, I'm Brandon Spanos, Acting Director for the Tax Division in the Department of Revenue, and I'll be going over these tax serenity slides. And thank you to Mr. Mahoney, who touched on a lot of this already, so I might be able to go a bit quicker than I had planned. I also have online Mike Williams, who is our Corporate Income Tax Supervisor and is available if we get some technical questions that I can't answer. So I'd like to begin on slide 2 and just go over kind of a quick roadmap for everyone.

The presentation is broken out in 3 sections. I'll start by giving some background about Alaska's existing corporate income tax framework and how the pass-through entities have historically been treated. This will give some context to the later slides which deal with the pass-through entities or PTEs that the Senate amended version of HB 381 added and how that fits into the broader tax structure. Next, I'll go into the core components of the proposed PTE provision. Provisions.

And this section summarizes what the PTE provisions do at a high level. Since you already heard from Mr. Mahoney, I may just, like I said, go through these a bit quicker. I'll explain which entities are subject to tax under the bill, including how ownership structure affects the liability. Then I'll walk through the mechanics of the tax itself, how the income is calculated, how taxes apply at the entity level, and how reporting and filing requirements would function in practice. I'll also outline the technical issues and administrative concerns that we've identified so far.

And then finally, I'll pass the microphone back over to Dan, and he can speak to the physical impacts as we currently understand them. And these are the same slides that he presented— four of the slides that were presented in yesterday's presentation.. So we can go through that rather quickly unless there's some additional questions. So with that roadmap in mind, we begin by going into the program or background rather and tax program history. So on slide 4, I'll give a brief high-level overview of the main types of legal entities we see for tax purposes.

So tax entities are different than legal entities. Entities. This is an important context because many of the questions surrounding pass-through entity taxation that we've heard come from a confusion about how the different entity types file and how the income flows through to each of the owners. So starting with the simplest case, an individual taxpayer, you are all individual taxpayers for federal tax purposes. An individual reports income directly on an individual income tax return.

Usually the 1040, and there is no separate legal layer between the person and the income that that person earns. As you know, Alaska does not have an individual income tax. Most states do, so the— in addition to filing a tax return with the federal government, most individuals in the U.S. also file a return with their local state government. Next is the C corporation. C corporation is a separate legal entity that files its own corporate income tax return.

These types of entities have been around for a long time. That's where we hear about the corporate veil that protects the, the individual owners from liability that the company may incur. So if the company can't pay its bills, you can very rarely pierce the corporate veil and require its owners to pay those bills. Income is taxed at the entity level. In other In other words, the corporation itself pays the tax, not the owners.

Next I'll move on to the, uh, master entities or PTEs. Most of the misunderstanding we hear is in regard to these PTEs. These are businesses where the entity itself usually does not pay the tax until more recently, as Mr. Money stated, there are a lot of states now that do allow an election for a— actually paid at the PTE level. However, that is a more recent election. I think it was 2014 when the federal government changed the rules around how much of the SALT or state and local taxes could be taken on an individual tax return.

And so states in response to that allowed the election to be paid at the entity level so that the individuals could get the full benefit of the tax paid at the state level. On their own individual pass-through returns. So we'll begin with an S corporation because that's where I hear the most misunderstanding. In fact, we've heard SB 92 and other bills that have proposed this TTT tax, we've heard it called an S corporation bill. In fact, early language way back a decade ago, the first language we saw that was proposed proposed would only have taxed an S corporation, and that language was later changed when, when we brought it to the attention of some of the sponsors that, uh, that most entities doing business in the oil and gas industry were not S corporations, so that would have taxed no one, um, uh, that was— that they were targeting.

So, uh, the S corporation is, uh, is an entity, uh, that was created by the Internal Revenue Code, uh, It is a federally recognized taxable entity. The S corporation is a pass-through corporation. You can have up to 100 shareholders, all of whom must generally be individuals. There are some exceptions to that. Next is a partnership.

This is also a federally recognized legal entity for tax purposes. It must have 2 or more owners who may be individuals, corporations, or other PTEs. Entities. And then next we have the limited liability company, or an LLC. Importantly, this is not a federally recognized entity for tax purposes.

It is a state government invention which has become quite popular. I would say actually extremely popular. Back when I was going through my undergrad for accounting, this was a rather new entity type, and there was still a lot to, of testing being done in the courts on whether it could in fact protect the owners similar to a C corporation. And that has all been found to be the case in that there is a veil similar to a corporate veil to the owners of an LLC at the state level. And so it's become super popular because it is a pretty versatile entity.

And And again, that is created at the state level. There is no recognition of an LLC by the IRS or the federal government in general. The LLC can have one or more owners and, and as I mentioned before, it doesn't have its own tax classification unless it elects to be treated as a corporation. It will generally be treated as a sole proprietorship. If it has a single member, or a partnership if it has more than one member.

So those are called either single or multi-member LLCs. If it elects to be treated as a corporation for tax purposes, it can choose to be treated either as a C or an S corporation if it meets certain rules. These nuances often cause confusion for tax purposes because LLCs, again, they have to elect has to be either a sole proprietorship, partnership, S corporation, or C corporation for federal tax purposes.

And so lastly on our slides, we have the sole proprietorship, and I include it here as a pass-through entity only because it's— because of the nuance of the fact that as an LLC, single-member LLC, it would file as a sole proprietor for federal tax purposes. However, it is a separate legal entity for state tax purposes. Otherwise, a sole proprietor is not a legal entity of itself, and all the income would pass directly to the individual. So, you know, in that sense, it is kind of a pass-through, but really it doesn't pass through anything because there is no— there is no bail or separate entity unless they're a single-member LLC. So the key takeaway from this slide is that the legal form of the business and certain federal elections determines how income flows and how tax liability is assigned.

This becomes extremely important when we look at the proposed PTE tax and how it will apply to different tax structures, or to the different ownership structures. So at the end of the day, the federal tax— for federal tax purposes, all flows through to either an individual on an individual income tax return or a C corporation on their return. All the other types of entities pass through to one or the other in general. Alaska currently only taxes the income that flows through to the C corporation. So C corporations can own other entity types and we tax all of the income that flows through of S-Corporation.

With that foundation, I'll move on to the tax history on slide 5, and I'll just try to get through this quick, but there's a lot of history with the C-Corporation tax in Alaska. So the tax itself dates— it predates statehood. In 1949, the tax rate was 10% of federal tax liability for individuals and businesses. The Uniform Division of Income for Tax Purposes Act, or what we call UDITPA, was drafted and approved by the National Conference of Commissioners on Uniform State Laws in an attempt to bring uniformity to state tax codes. And so that's where we get that apportionment that we hear so much about when we talk about these subjects, so that it could be the tax of one entity wouldn't be tax multiple times by various states, but that it would have this division of tax that would be fairly apportioned to the, to the various states.

In 1970, Alaska adopted the Multistate Tax Compact, or what we refer to as the MTC, which is a restatement of UDITPA with some minor changes. And that's in our Title 43-19 of the Alaska statutes. It established a standard 3-factor apportionment of property payroll and sales, which is still the base of the tax today. So in 1975, Alaska's tax was repealed and re-implemented with major revisions. We adopted the Internal Revenue Code by reference, so basically instead of defining the entire income tax in state law, we piggybacked off of the federal tax code, which is what most states do, and just set our own rates.

So Alaska's rate was 5.4% plus a 4% surtax based on Alaska taxable income, not federal taxable income. So this is called rolling conformity as opposed to static conformity. So anytime there's a change in the federal tax law, we automatically adopt it unless we, through legislation, choose not to. So examples include depreciation schedules, treatment of net operating losses, and others. So major changes came in 1978 and 1981.

Alaska was flush with money, and the debate over how to tax oil companies and share wealth with the individuals in Alaska was a key discussion. In 1978, the state enacted separate accounting on oil and gas corporations, still just for C corporations, pass-throughs were not an issue at the time. And in 1980, Alaska was flush with oil money and we repealed the individual income tax, which is why pass-through income is not taxed in Alaska today. And so as corporations flow through to an individual, this effective effectively created an exemption for S corps and other from that corporate piece. And then separate accounting was repealed in January of 1982, set up— Alaska then set up the current worldwide apportionment with a 9.4% top rate for oil and gas companies.

There was a legal challenge to separate accounting, which the state ultimately prevailed on, but the fear of losing that was the reason we went to the— we'll wait for separate accounting. And I will state that most states have gone away from separate accounting, and it's a higher administrative burden to have. So we're happy to have the current formulary apportionment or the DITPA. And then in 2014, the current tax brackets were updated with 9.4% remaining at the top, of the brackets, and it applies to income over $222,000 versus previously it was $90,000 at the top bracket. So now moving on to slide 6, we'll get into the current tax structure.

Generally, Alaska follows, as I mentioned, the Internal Revenue Code with determining an entity's taxable status. As has no personal income tax, therefore pass-through entities are not taxed at the individual level as in most states and by the federal government. States' corporate income tax applies only to C corporations, so for non-petroleum corporations, corporate income tax base— or I should say, we tax— Mr. Mohan mentioned this as well— we tax non-petroleum businesses different than petroleum businesses. And that's both on how we apply it or how we group their income as well as apportionment. So for non-petroleum businesses, we group their income based on a water's edge apportionment, which is basically all the businesses that earn income in the US are combined.

And for petroleum businesses, it's their worldwide income. So no matter where that income comes from, it's combined.. And then we apportion the water's edge for non-performing business income based on the three factors of property, payroll, and sales within Alaska over property, payroll, and sales everywhere. And then for oil and gas corporations, it's similar, but we replace one of the factors, so it's property production and sales/tariffs in Alaska with over property production and sales/tariffs everywhere. Everywhere.

And then there are several tax brackets, that's in a later slide, but again, that top 9.4% rate is applied for income over $222,000. And I'll pause there before I go on to the next slide if there's any questions. Not seeing any questions, please continue. All right, so on slide 7, I just put this in here so that you can see from our angle This is a page from the annual report, and I apologize, it's a little bit grainy, but this just shows the last 40 years of collections. So there could be potential assessments or appeals that haven't yet been paid, so this is the actual money that's been received into the state coffers for oil and gas.

We break that out from non-oil and gas, and then for any of our audit assessments or other assessments that go out to taxpayers that are later paid, and then it goes into the CBRF, which is why you see at the bottom there the total amount is broken out to general fund versus CBRF. So in general, most of our corporate income tax goes into the general fund, uh, and then for oil and gas companies, uh, when that— there's an assessment, the amount goes into the CBRF. Next slide is, um, slide 8, and just goes up— it just displays the current tax brackets for the corporate income tax. These brackets are the same both for non-petroleum and petroleum businesses, and those are presented in whole dollars.

So next I'll go on to the proposed legislation, the Senate version of the bill, and the pass-through entities is on slide 10. These provisions would extend the current corporate income tax to, to PTEs. So on slide 11, I'll talk a little bit about the mechanics of how the bill would extend the corporate income tax to PTEs. This bill would apply only to oil and gas companies with taxable income over $1 million. The income over $100 million would be taxed at graduated rates between 5% and 9.4%, and those are broken out there in the bullets.

The brackets, they don't align with existing corporate income tax structure. However, the top marginal rate would be the same for oil and gas companies. Pass-through entities would benefit from the higher exclusions of this tax pass. Than a non-pass-through entity, than a C-Corp, and lower rates would apply each step of the income that exceeds $5 million, or up to the income that exceeds $5 million. So smaller pass-through entities may still avoid the tax altogether if their taxable income is below $1 million, and this is, again, taxable income, not gross income.

A lot of folks folks get that confused when we're doing these types of presentations. You can have— you can be a multi-million dollar company earning hundreds of millions of dollars and have even more expenses that would take you down into that no tax area.

But also, the taxable income for pass-through entities would only apply to oil and gas related income proportionally the same way that a C corporation taxpayer persons their income. The tax would only apply to entities that don't flow through the C corporation, so if anyone— if any of these entities is owned by a C corporation, this would avoid double taxation.

I'll pause again. Any questions? Not being there, it's hard to see if there's any questions. Thank you for pausing. I'm not seeing any questions, so please continue.

All right. So on to slide 12. A pass-through entity would be subject to the tax if they conduct any of the following activities in Alaska: production of oil and gas, transportation of oil or gas by pipeline, supplying oil and gas by pipeline either directly or indirectly, gas treatment, carbon capture or carbon storage, processing of LNG, or marine transportation of Alaska-produced LNG. And then they would also— an entity that has, or that is part of any of the, of what we call a unitary business, is tied to the carrier or producer, would pay tax under this section. So unitary business is when separate entities are closely incorporated that they basically function as a single economic enterprise instead of treating the those entities as separate taxpayers, the income from the whole integrated operation is combined into, uh, and then apportioned.

So we treat it like basically one company rather than multiple companies or one entity. So moving on to slide 13, this slide shows what the entities would— what entities would not be taxed under this under this provision. So the first two bullets are basically to avoid double taxation, uh, or not being— not taxing the same income twice at the state level. And then the third bullet is, uh, the only exemption in the bill, which would exempt public corporations like AGDC. I will mention, um, uh, at this point that Mr. Mullin didn't mention, but maybe if the, uh, Alaska, um, If the Upper Fund Corporation wanted to invest in the pipeline, that they would potentially pay tax.

They are also a public corporation, so if under this provision were to pass and the permit fund invested in the entity, it would also be exempt just like AGDC is exempt under this bill.

Next slide is— But to his point, non— other, other entities that are not taxed at the federal level would still be taxed under this provision. So any other non, non-taxed entity like a 501 company would potentially be taxed.

So moving on to slide 14, I'm kind of getting into the meat of of 8STAR and how 8STAR would be taxed under these provisions. It's important to note that in early years there would be really net operating loss, and so there wouldn't be a tax. But so this structure really is for when they're profitable, although they would earn net operating losses under the, uh, under the current statutes, um, or excuse me, under these provisions that would apply to future earnings. So, um, again, I'll walk through how pass-through entities, uh, actually apply to the owners of the LNG project, uh, based on our, uh, current understanding of how ApexStar Alaska is set up. So first, under the, uh, project's current ownership structure, ApexStar Alaska LLC is, uh, would be the a taxpayer for state tax purposes.

Even though the project has multiple owners, the tax responsibility, as I mentioned previously, under this PTE tax would sit with the entity itself. So for state purposes, the tax burden wouldn't pass through to its owners, it would sit at the entity level. So that means H-Star, not each individual partner, would file a tax return with the department and would pay and remit the tax that's due. So next, as you know, HDAR, as we've heard in a lot of these hearings, HDAR is owned 75% by Glenfarm, 25% by AGDC. So that ownership split matters for the proposed tax because it determines how much of HDAR's income is treated as taxable.

Since AGDC is a public corporation and the bill language carves out public corporations, its share of the project income would be exempt from tax, and the exemption is tied directly to AGDC's statutory status as a public corporation. The state-level pass-through entity tax would be treated as an operating expense of HSTAR for federal tax purposes. So HSTAR, when it passes through that income on the K-1, would Basically, the benefit would flow through to the owners, and when they filed their tax returns with the federal government, they would be able to take the deduction, or rather, their income is just reported to them that much less when they— when it flows through and they report it for federal purposes. Now, the department would also have clear authority to require both owners of the— of any future owners of ACESTAR to file the return, and we'll address that in a— in a future slide, actually it's the next slide, and UTDC's return—. Before you continue, Director Spanos, we've got a question if you could please pause briefly.

Well, when he's done with 14. Oh, when he's done with 14. Yeah, the slide. I thought he was jumping to the next slide. Please finish slide 14, Director Spanos, and then we'll have a question from Senator Steadman.

And I was virtually done, so I just wanted to note that if we did require for IGBC to file a return under that provision of the language, then that return would not be confidential. And now I'm on slide 15. Okay, thank you. Senator Steadman. Yes, back on slide 14.

So help me with the issue dealing with 8 Star Gold in the K-1 form issuance of that that was brought up brought up by Mr. Mahoney, trying to get the K-1 directly to the individual.

Director Spanos. Hi, so through the chair, Senator Steadman, I'm not sure if you completely understood the question of what the issue was, so I can explain what I meant on this slide, but if you want to help me understand what the issue Mr. Mahoney brought up was. Did you listen to Mr. Mahoney's testimony?

I did, yeah. Okay, and I think he brought up a concern with the K-1, trying to make sure it goes to the individual and the tax isn't sitting at the, like in this case I took it, it'd be like not sitting at 8-star. Director Spanos. Right, so through the chair, Senator Steadman, He and I were basically saying the same thing. So the, the K-1 is simply a form used by the federal government in order to report earnings from the pass-through entity to the owner.

And so what he was— what I understood him saying is the same thing that I was saying, which is that under this provision, uh, the K-1 wouldn't matter for our tax purposes. We would only look at the entity. So the entity would pay the tax, and, and what would happen to the K-1 is that because the entity paid the tax, it could take the deduction as a business expense, and that would be passed through to the owner on the K-1. So for federal purposes, they wouldn't be paying tax to the federal government on the taxes they paid to the state government. So just for clarity, I'm not worried about the state as one of them, but other entities?

And maybe Mr. Mahoney is still here, maybe we can get some clarification on his concern or his issue with the statute. And the other thing, before we go there, the other question I have is the institutional investors being taxed, and that would possibly put this project at a competitive disadvantage with other investment selections they would have. Do you have any insight on that issue? Like if we were using, say, the California retirement system or some other big pension plan wanted to come in and put down a billion bucks. Director Spanos.

Through the chair, Senator Steadman, yes, if there's a entity that does not pay federal tax, they generally do not pay the corporate income tax either. So if they were to be looking at making an investment under the current provisions in the language, unless they're a public corporation under state statute, then they would pay— they wouldn't get the deduction or an exemption reduction from the tax, which could of course cause them to look at other investments.

Wouldn't you think that would be a problem for the state in trying to be competitive to attract investment? Director Spanos.

Through the Chair, Representative— or Senator Steadman, if the goal is to get investment would be a problem. I missed the first part of it. What—. Could you repeat that, Director Spanos? Yes, I was just saying if the goal is to get investment, then yes, it would hinder investment.

Okay, I think we need some assistance in rectifying that issue. Obviously we need some investors here, and we need the big boys at the table.— so I think that those were my two questions. I still need to get some clarity on the K-1 as far as my recollection of the previous testimony by Mr. Mahoney, there is an issue with the statute. Listening to his testimony, it doesn't seem to be. So I am not clear on that at all.

I think some additional follow-up will certainly be warranted and we'll either likely work some offline and possibly bring that back to the committee for further discussion.

Additional comments or questions at this time on slide 14? Not seeing any, please proceed to 15.

Sure, and then just to make a statement to that last comment that Senator Stegman made. Certainly, we do see concerns with the language, which is what we see here in slide 15. I just don't recall a specific concern with the provision language as it relates to a K-1. But some of the concerns that we do have, and these, you know, I just want to be clear up front that the tax division doesn't take a position on the merit to the policy of the provisions. We're just simply responding to requests to highlight the concerns.

So first is the bill requires certain taxpayers to compute their taxable income as if they were a C corporation. So for pass-through entities, that's not how they currently maintain their books and/or structure in tax reporting, and that might be what Mr. Maloney was referring to. Generally that's reported on the K-1 to its, its owners, and so requiring them to effectively reverse engineer the C corporation tax— taxable income could be very difficult, time-consuming, and expensive, particularly for entities that have filed at the corporate level before. Smaller businesses in particular may face increased compliance costs. So that's where Mr. Mohoney was talking about like a pro forma return.

That would be a return as if they were a C-Corp when they in fact are not. So they file their returns under K-1s rather than under an 1120. So those are the two federal forms that I just referred to. So second, the concern we have is administrative clarity. So the bill authorizes allows the department to require both AGDC and Glenfarm to file returns.

So that's a may provision. We don't have to require, but we may. But the provision does not clearly define what kind of return is intended or under what circumstances the department would require it. So as I mentioned earlier, under the current project, 8 Star is the taxpayer, which means that 8 Star, not the owners, would file and a tax return and pay the tax. So it's unclear to us what AGDC and Glenfarg would be filing and why we would require it.

So neither entity would owe tax under the bill because the tax is imposed only at the entity level, not the owner level. So this provision is a bit ambiguous and may require additional clarification to avoid confusion and inconsistent administration. And then third, the pass-through tax structure proposed here is relatively, relatively novel, especially in the context of major oil and gas production and transportation. Because it's not been widely implemented or tested, there may be unintended consequences both for taxpayers and for the state. These could include interpretive disputes, administrative complexities, or compliance challenges.

That are not foreseeable until the system is operational. Another issue is the treatment of federally exempt entities. That's been discussed quite a bit.

So, which is the only thing that— the only type of entity that the bill exempts is the public corporation. And because we are decoupling the pass-through entity tax from the Internal Revenue Code, as Mr. Mahoney mentioned, then it's— you have to specifically exempt them in state statute. And finally, the bill references 26 UXC 1361, which is where we— the federal Internal Revenue Code defines certain federal S corporation rules. And that reference appears to be used from early versions of the past surrender In fact, as I mentioned, uh, early on, uh, that language would only have exempted an S corporation, uh, and that's since expanded to all, uh, pass-through entities. Um, so because of the scope, uh, has, has changed and expanded, um, the federal reference, uh, no longer aligns with the bill's current structure, and leaving that in the bill could cause some confusion for taxpayers and potentially even raise enforcement challenges for the Department if they took a position that they're not taxable.

So in summary, the Department's concerns center around clarity and some administrative potential challenges in ensuring that taxpayers can comply without undue burden. We believe that they warrant some attention from the legislature to avoid confusion, litigation risk, and compliance difficulties down the road. And I'll pause there again for questions.

Yeah, thank you, Director Spanos. We've got Representative Ruffridge and then Senator Steadman. Yeah, thank you, Chair Schrag. I actually have a couple questions. The first one has to deal with a question that Senator Steadman asked just a minute ago about investment.

And I feel like potentially the answer Director Spanos was maybe just a little neutral.

Maybe you could add some clarity to this idea of whether or not we have provided a framework in which to drive some investment or if we are going sort of in the opposite direction here with some of the language that we are discussing in front of us.

Through the Chair, Representative Rappert, the reason I probably sound a little bit neutral is I'm the acting tax director. I really, and my purview is taxes, and so when we start talking about investments and whether that's beneficial to the state or not, I really don't feel that that's my place to say. I can say that I've heard from the administration that they certainly don't like the pass-through entity tax as it would drive away investment. Not only that, the governor doesn't want to tax smaller businesses. He doesn't want to change the tax structure that might drive out, or rather make Alaska not as a great place for tax— for businesses to come do business.

Business. So he wants Alaska to be open for business, and so certainly this is something that the governor has supported. From the tax division, from like my own— my job purview is really administering taxes, and so I just shy away from having an opinion on the investment piece. Understood. Also, Chair, if I may.

Thank you. I guess I wasn't asking you to opine on the nature of someone's choice to invest or not. I think I was asking more from the aspect of if these tax provisions are in place and some of these items are not, I guess, addressed with a much more fine-tooth comb, is there the potential— and I think you answered that in that last question— that investment would be somewhat difficult. I will move to my second question, which is I think you talk about it on the next slide, at least that is the first time I have seen the word apportionment. I was surprised that it didn't end up in the concerns slide, particularly when we are dealing with a potential project where it has been clear from the developer that there will be a large number of potential investors that come into play there.

How does that factor in with apportionment, and how would apportionment be, I guess, selected or directed by the division for some of these pass-through entities that have, you know, business in a whole whole host of other places, maybe even other countries. Acting Director Spanos.

Through the Chair, Representative Ruffridge, we didn't highlight that as a concern because the apportionment statutes are already in Title 4320 of the taxing statutes in the corporate income section where this pass-through entity language which would live. And so really the concern is more with how you structure the taxable income, but once apportioning that taxable income is already clearly— we're already experts in that area. We do that every day with our current corporate income tax, both on the water's edge and worldwide. So for the existing oil and gas companies that are doing business in Alaska that are C corporations, we would apportion the PTD tax the exact same way using the exact same statutes and regulations.

And I can go into that a little bit more depth if you want to hear about it, and you can ask Mike Williams to opine on it. But basically, if a company has property in Alaska That would show up on the numerator in the apportionment formula. And if they had property anywhere else in the world, that would show up in the denominator. And then you get a formula for that one property factor. We do the same for extraction and sales.

And then you get those three factors, divide by three, and that's your apportionment formula. And again, we're— we already have a lot of statutes and rule regulations on how we would apply that. To these taxpayers.

Okay, thank you. All right, Senator Steadman. Two things. I think the earlier comments we were talking about dealing with the K-1, as it was mentioned there in the second bullet, about it needs to go to the owner level. So I think we need to double-check that on the statute somehow.

And then do you have recommendations to clean up this language? Some of the areas that you pointed out are— by chance?

Acting Director Spanos?

So, through the chair, Senator Steadman, we have made suggestions in the past. We're in a rather difficult position in that the administration has not supported the bill, so generally we don't put a a lot of effort in drafting on bills that aren't making a lot of movement, and this S corp bill has been rather stagnant. But we have assisted with some language, which is why the bill language currently applies to all pass-through entities rather than just S corps. Do we have ideas? Certainly, we could come up with some language.

Mr. Mahoney had made a mention that maybe it would be better to have the income pass through, which, as you just mentioned, if that was the concern with the K-1s, that's a completely different approach than what's being proposed here. It's not really a novel idea because that's how it works federally, right? And that's how it works in every other state, is the income passes through. And Mr. Mahoney had question, well, we could just in statute identify— define rather the taxpayer as an owner of an entity doing business in oil and gas. That's certainly something that we wouldn't oppose.

That would be workable. We would potentially have our own new concerns there because right now we do rely pretty heavily on Internal Revenue Code being adopted for many of our definitions in building income. It would be great to be able to tie back into and reference the Internal Revenue Code to rely on that on building income for pass-through entities, whether that be at the owner level or at the entity level, so that we could— we wouldn't have to rebuild, you know, reinvent the wheel and define all that in state statute. The Internal Revenue Code is much broader and much more voluminous than our Title 43, and I don't want to have to reinvent the whole thing. So tying income definitions to the Internal Revenue Code would certainly be a step in the right direction.

Senator Seben. It would be helpful if we had, you know, some helpful hints from the department versus just a cyanide pill for it.

We can certainly request— Mr. Chair. Go ahead, Director Spanos. Yes, Mr. Chair, Senator Steadman.

We've not been invited to sit down and work on it. It's difficult to do in an open hearing because there's so much that would go into it.

We've been pretty swamped with just the gas line bill, let alone addressing the S corporation, which is its own animal and would require significant lift from the division to really put in the time, effort, and expertise. And generally on something like this, we would want to bring in outside expertise as well. We're experts in Alaska statutes. Administering the current Alaska statutes. Designing a new framework for a new tax, we would want to look at states like Tennessee and New Hampshire and some of the other states that don't have an income tax but do have a PPE tax and see what they're doing and how they're applying it.

And it would be best to hire an outside expert to come in and counsel on that. So we'd be happy to be part of that and that discussion and conversation. But this amendment was done on the floor. We weren't invited to give input on it.

Senator Stubman. Thank you. Just briefly, I recognize the complexity of this and the issue is been put on the table today to have a 3 or 4-year activation date out in the future to allow thorough review, adjustments, and/or the individuals to restructure to whatever this looks like in the end. So do you think that's a fair timeframe?

Director Spanos?

Through the Chair, Senator Steadman. If I ever could dare to ask for that much time, I would every time one of these large tax changes came up. So happy that someone else said it for me. Yes, the more time we have to develop regulations, to work on possible fixes, if we need to go back to the legislature to do some fixes, and also to build it into our existing tax system, the better. We've always said we need like a minimum of 12 months, but still, even at 12 months, given our current staffing levels, that's a— it's a big lift for the division.

So certainly 2 to 4 years or more would be ideal. But— but at least 12 months would be super helpful. I will mention just for the sake of certainty for industry, having the language in statute, knowing that you're going to get this benefit or rather have this tax later is helpful. But also the benefit might go away in that if— they can earn net operating losses in the early years. So if the tax doesn't take effect for, let's say, 5 years and most of the expense is in year 2, then they don't earn the net operating loss, which then they can't take later.

So that's also something to consider, getting it on the books earlier to be fair to the taxpayers.

Okay, thank you for that discussion. Additional questions from committee members?

All right. We are going to move into the next section of the presentation, which I believe is going to be covered by Mr. Stickel. Mr. Stickel, the floor is yours. Hi. Again, for the record, Dan Stickel, Chief Economist with the Department of Revenue.

And so the final section of slides for this presentation are the exact same slides that I presented— was it yesterday?— going through the fiscal impacts. So happy to walk through these in detail if that pleases the committee again.

We will take a brief at ease. Brief at ease.

Back on the record at 4:54 PM. I thank you for the reminder, Mr. Stickle, that this is material we covered yesterday. However, there is a desire for at least a question or two. If you could quickly move through these slides and I'm not exactly sure where the question is, but I'm sure it will come up as we go through. Thank you, Mr. Stickle.

Sure, again, Dan Stucko for the record. So slide 17, so it's an indeterminate fiscal impact for the bill. Depends— we don't have detailed information around what the tax liabilities would be for the impacted taxpayers.

Slide 18, we just walked through what what the oil and gas pass-through entity would do for— so we did the fiscal estimate two ways. We looked at it based on current companies doing business in Alaska under the spring revenue forecast, simply scaled up our corporate income tax forecast for the two-thirds of production that is coming from companies that do pay corporate income tax., and estimated a range of $0 to $100 million per year in additional revenue from a, uh, pass-through entity tax, um, based just on, uh, the existing oil and gas production in the spring revenue forecast. And then slide 19 touched on our analysis under the AK LNG project, so we looked at this Under the full AK LNG project, if that project went forward, what would we estimate for incremental revenue from the pass-through entity tax, both for the upstream development from additional oil and gas production from the producers, the gas going into the pipeline, and then associated oil production? And we estimated that that would be about $102 million of additional revenue in 2033 and an average of a little over $90 million per year of revenue beyond that over the remainder of the modeling. And that's over and above the $0 to $100 million range for the baseline revenue forecast.

For the midstream producer, we did assume that net operating losses and depreciation would offset the revenues for the first several years of production. We estimated under our baseline modeling first payments of the pass-through entity tax of $29 million in 2036, increasing to $65 million in 2041 and up to $358 million by 2051, and then remaining at that higher level for the remainder of the modeling period. Do want to note, in, in relation to some of the, the questions around who the taxpayer is, these assumptions include an assumption that 100% of of the midstream ownership would be subject to the tax. And so if you did have a situation where the state were to buy in a 75% or some other tax-exempt entity, it would be a reduction to the numbers shown here. That's for the full AKLNG project under the Phase 1 scenario.

$13 Million in 2036, increasing to over $100 million per year by 2051 for that midstream operator.

And then the remaining two slides were charts showing our modeling of the state— of the incremental corporate income taxes by year, with slide 20 being for the full project under our baseline revenue assumptions. We show the increment in blue, the incremental revenue from production forecasted under the spring 2026 forecast. In orange, the incremental revenue from expanded upstream taxability under corporate tax, and then in gray, the incremental revenue from extending the pass-through entity tax to the midstream operator. And so once we get later in, in the time frame, looking at the potential for over $600 million per year of incremental revenue to the state from the pass-through entity tax. And then slide 21 was a similar slide looking at our Phase 1 only scenario, and that for the first couple decades of the project, the, the main impact here would just be on the existing oil and gas corporate income tax, which is an important part of this proposal, as it would apply to pass-through entities regardless regardless of whether the AKLNG project goes forward or not.

But then once we get out later into the 2040s, we do have material— we model out material corporate income tax payments from the midstream operator even under the Phase 1 only scenario. That was a brief summary of the slides I presented yesterday. Thank you, Mr. Stickel. Representative Ruffridge. Yeah, thank you, Mr.

Chair. I'm wondering— maybe we went into this yesterday How long would it take to do a non-indeterminate fiscal impact analysis of this language? Mr. Stickle. Representative Rafferty to the Chair. So there's kind of two ways of looking at that.

One is for the AKLNG project, and we do have deterministic modeling under our baseline assumptions of what those potential revenues would be. From the project. The reason that we present that as indeterminate in terms of state impact is that we don't know for certain whether the project goes forward. So to say with certainty that we— that if you enact this provision, we will get X dollars of revenue for a provision that we don't know with certainty whether the project will go forward, we've built on assumptions which are uncertain, and then there's the uncertain impact of implementation implementing this policy on the project. And we have heard concern from industry that it would affect their investment decisions.

Looking at the spring revenue forecast, so the key uncertainty there is what is the taxable income of the companies that would be subject to that tax. We have identified several companies that would be subject to that tax. We don't have access to their federal tax information. So we don't know with certainty what they— what that would look like. We can do modeling assuming that their levels of worldwide taxable income and apportionment factors look similar to companies that are paying taxes, and that's where we get to something towards the higher end of that $0 to $100 million per year range.

Understood. Thank you. Follow-up, if I may. Yes, follow-up, Representative Ruffridge. If you were going to do a full fiscal impact analysis, do you have a way to determine what the impact is by— because these dollars that we're talking about are not just idle dollars not being used for any sort of purpose.

They're going to have to come from somewhere, typically either an additional investment or some other sort of maybe debt paydown, other things. Do you have an idea of what the fiscal impact might be on just the level of what we've been talking a lot about, investment or additional production? Is there a way to model that from the department's perspective? Maybe the decline in other revenues from lack of oil production or other types of things? Sure.

Representative Rafferty to the Chair. So that's something generally we've shied away from trying to do with these tax bills, whether it's an increase or a decrease in tax. Saying with certainty what the impact will be is extremely challenging. There are types of macroeconomic models that will allow you to look at statistical relationships and come up with an illustration of what those impacts might be, but broadly speaking, we've generally addressed those qualitatively and deferred to industry for detailed discussion there. It's challenging with oil and gas projects and companies in particular because you're looking at a small number of companies with a small number of very large projects.

And the question is, at what point does a tax rate change impact that— the go/no-go decision on a major project?— which obviously is kind of the issue with the AKLNG bill more broadly, but also with analyzing impact of attacks like this on production and investment decisions. All right. Thank you. Thank you. Any additional questions or comments from committee members?

Mr. Stickle, Director Spanos, thank you very much for the presentation. We appreciate it. We're now going to take a brief at ease. Ready's at 503 PM.

Back on the record at 5:04 PM. We have one presentation left on today's schedule, but given the hour and in consultation with the committee, we are going to postpone that to our next meeting, expected to be on Monday. Please stay tuned for official announcement of that meeting day and time, but I would expect it to be Monday morning. With that, and seeing no further business before the committee today, we are adjourned at 5:04 PM. Thank you.