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First Session of 30th Alaska State Legislature

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Alaska State Legislature, House District 31

From the Desk of Representative Seaton:
July 17, 2017  Vol. 235
 
 On Saturday the House and Senate reached a compromise and passed HB 111, the oil and gas tax credit bill, and ended the second special session of the 30th legislature.  The compromise takes the immediate step of ending cash credits statewide and includes some sideboards to protect the state from an unaffordable high future liability.  Hopefully the public commitment that both bodies made to a working group will ensure that further oil and gas reforms will be addressed.  A stable oil and gas tax system that the state can afford is key to a complete fiscal plan and this is a step in the right direction.
 
Throughout the special session, the members of the conference committee worked hard to reach a compromise.  We struggled to agree on the key item of what value to give to carry forward lease expenditures that might replace the credits.  The Senate advocated for an end to cash credits by replacing them with tax deductions of equal value, but the House Majority maintains that to protect the state we need to set a more affordable value for those deductions.  As I’ve said in the past, a dollar paid out in cash or a dollar lost in future tax revenue is still a dollar the state cannot use to fund education and other essential services.  The conference committee compromise the legislature passed does not lower the value of those deductions but it does lower the cost to the state in other ways.    
 
The compromise bill ends all cash credits retroactive to July 1, 2017.  Instead companies will now carry forward their unused lease expenditures to be used to offset revenue and reduce their future taxes.  These carry-forwards have the same value to the companies as the statutory tax rate at the time they use them, which is currently 35%.  Because of our complicated system, this 35% value is much higher than the effective tax rate the companies are currently paying and leaves the state with a potential liability of over $1.45 billion in 10 years.  The bodies could not agree on the reforms necessary to change this rate, but to lower the cost to the state the conference committee version of HB 111 includes the House’s time limit on the use of those carry-forward deductions.  If a company does not use up all of their carry forwards in 7-10 years, then they begin to lose 10% of the value each year.  This will incentivize companies to bring projects into production sooner, which is good for the state, and it should also lower the potential state liability by ~$300 million over about 10 years.  The compromise bill also includes a change known as ring-fencing, which ties an expenditure to the project where it was incurred until that project starts producing.  This means that a company cannot purposely keep a field from production just to use its expenditures to reduce the taxes on one of their bigger fields.  We will also no longer be paying for ‘dry holes’.
 
Both bodies also passed a resolution stating their commitment to a legislative working group that will work with our new consultants on further reforms to simplify our tax system and reduce the impact of any deductions to the state.  The public and the industry both need to know that our work on oil taxes is not yet finished, and the public should keep pressure on the legislature to not put off these reforms.
 
So what does this all mean?  Well, under the current system the state is paying at least 35% of oil and gas expenditures through credits known as Net Operating Loss (NOL) credits.  Small producers could apply for cash for their credits, and larger companies could use those credits to reduce their next year’s taxes.  By switching from the current credit system to a carry-forward lease expenditure system of deductions, this will ensure that even though the deductions also have a 35% value the state will continue to get at least the minimum tax amount of 4% each year.  This is because a lease expenditure deduction cannot take the tax below that minimum ‘floor’ amount, but credits like we have currently, can be used to take a company’s tax all the way to zero.  The minimum tax is in effect for prices below about $73 dollars a barrel, so by ensuring companies always pay the minimum tax we ensure the state will continue to have a minimal revenue stream, about the amount we have now.  The time limit on the carry forward deductions will somewhat reduce the future cost to the state, and the ring-fencing language will make sure the state does not pay for expenses on projects that never come to production (which means we won’t be paying for expenses that will never lead to any state revenue).  No deductions without production.  All these changes are important, and provide the state with more sideboards than the current credit program, but our overall oil tax structure still needs simplification and revision if it is going to be a part of our complete fiscal solution.
 
I am now working on the Capital Budget with my House Finance co chair, Rep Foster. 
 
I expect the legislature will be back in session fairly soon to pass a capital budget.  This year’s capital budget is small, but passing it will help ensure the state gets access to all the federal funds that are available.  I also hope that a later fall special session called by the governor will address the other elements of the fiscal plan.   Due to the lack of a complete plan, S&P and now Moody’s have downgraded our state’s credit ratings.  The House passed a complete plan to put the state on a stable and sustainable track, but the Senate was stuck on ‘no new revenue’ during the regular session.  The elements of a complete fiscal plan, including new revenues and restructuring the use of permanent fund earnings, are all big decisions.  The credit rating downgrades will hopefully put pressure on the Senate to work with the House on a complete fiscal plan.  Dealing with these decisions during a special session, without the distractions of a regular session or of the operating budget, could help move us forward.
 

In other news, I was pleased to hear that the Centers for Medicare and Medicaid Services approved Alaska’s State Innovation Waiver. The waiver stabilizes Alaska’s individual health insurance market, bringing in approximately $332 million to the Alaska Reinsurance Program over the next five years.  Premiums in the individual market are expected to decrease by approximately 20 percent as a result of this program.  We anticipated this waiver and appropriated $55 million for the high risk pool, which will provide the necessary $11 million in state match for each of the next 5 years to gain the federal funding.

The Peninsula Clarion reported this week that the even though rates for opioid prescriptions have fallen recently, the Kenai Peninsula still has the highest prescription rate in the state.  More than half of the 774 opioid overdoses in the state in the past 6 years were from prescription drugs, not illicit drugs, and many drug users first get started through a prescription.  This unfortunate data is why passing HB 159 this year was so important.  HB 159 will not solve the opioid crisis we are facing, but it has an important role in reducing over-prescription in the state through provider and patient outreach and education. Local groups like Change 4 the Kenai and the Exchange in Homer are working hard to make a difference.  Visit dhss.alaska.gov for more information and to find out what steps you can take to help.
 

Rep. Paul Seaton

Thanks for signing up for my newsletter and engaging in the public process. I try every week to keep you abreast of issues and bills discussed at the committee level, where YOU have an opportunity to participate.

 

 
Bits & Pieces

State Option to Reduce Your Student Loan Interest Rate
The Alaska Commission on Postsecondary Education (ACPE) announced an opportunity for qualified borrowers to refinance their student loans.  The Alaska Refinance rate is 4.95%.  Click above link for more info.
 
DNR: Over-the-Counter Land Sales begin July 26
Over-the-Counter (OTC) sales for unsold land parcels will begin 10 a.m. on July 26.  Parcels will become available for purchase on a first come, first served basis.  Newly available OTC parcels will be priced at 30 percent above their appraised fair market value for 2 weeks, before being reduced to 15 percent above their appraised fair market for an additional 2 weeks.  Auction results for the annual land auction are available at http://landsales.alaska.gov.  Contact:  landsales@alaska.gov or call 907-269-8400.
 
Public Comment: Every Student Succeeds Act
The Alaska Department of Education and Early Development (DEED) is seeking public comment on the second draft of the state plan to implement the Every Student Succeeds Act (ESSA), the new federal education law.  Deadline to comment: July 31, 2017.  Send comments through the online feedback form at: https://education.alaska.gov/akessa/#c3gtabs-stateplan.
 
Alaska State Parks- Kachemak Bay:  Grace Ridge Guided Hike
Join guide Taz Tally on Saturday, July 29 for a hike along the Grace Ridge trail in Kachemak Bay State Park.  Limit 15, open to all, offered at a discounted water taxi rate. For more information or to save your spot, call Christina Whiting, 435-7969 or email kbayvolunteer@gmail.com.

Public Comment: changes to Money Transmission Services & Licensing
The Department of Commerce, Community, and Economic Development proposes regulations to streamline licensing through the Nationwide Multistate Licensing System and Registry (NMLS), update fees for money services licensees, and update and clarify other sections. Deadline to comment: Aug. 2, 2017.  Send comments to: dbsregs@alaska.gov
 

Contact Us

If you would like to speak to me regarding a specific issue, it is helpful to first get in touch with the member of my staff handling related issues. 

Homer: May-December
270 W. Pioneer Ave., Homer AK 99603
907-235-2921 or 1-800-665-2689; Fax: 907-235-4008

Juneau: January-April
State Capitol – 120 4th St., Juneau, AK 99801
New location: Room 505
907-465-2689 or 1-800-665-2689; fax: 907-465-3472

Kenai: 907-283-9170 (will transfer automatically to Homer or Juneau)

Rep. Paul Seaton Rep.Paul.Seaton@akleg.gov
website:  http://akhouse.org/rep_seaton/

Jenny Martin Jenny.Martin@akleg.gov
Constituent issues and questions, General Capital & Operating Budget information,CAPSIS requests, Personal Legislation

Taneeka Hansen Taneeka.Hansen@akleg.gov
Legislation & Sustainable Fiscal Plans in House Finance, Personal Legislation
  
Arnold Liebelt Arnold.Liebelt@akleg.gov
Operating Budget, Finance Subcommittees
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Rep. Seaton's Interim Contact Information:

Mailing Address:
270 W. Pioneer Ave.
Homer, AK 99603
Phone: (907) 235-2921
Toll-free: 1-800-665-2689
email: Rep.Paul.Seaton@akleg.gov

http://akhouse.org/rep_seaton/

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