Bill Summary – FastDemocracy

State of Alaska
                                                        Fiscal Note
                                                                                        Bill Version:                    SB 176
 2018 Legislative Session
                                                                                        Fiscal Note Number:              2
                                                                                        (S) Publish Date:                3/26/2018
 Identifier:        DOR-TAX-2-5-18                                        Department:       Department of Revenue
 Title:             TAX CREDIT CERT. BOND CORP; ROYALTIES                 Appropriation: Taxation and Treasury
 Sponsor:           RLS BY REQUEST OF THE GOVERNOR                        Allocation:       Tax Division
 Requester: House Rules Committee                                         OMB Component Number:              2476
 Expenditures/Revenues
 Note: Amounts do not include inflation unless otherwise noted below.                                                          (Thousands of Dollars)
                                                 Included in
                                    FY2019       Governor's
                                Appropriation      FY2019                                      Out-Year Cost Estimates
                                  Requested       Request
 OPERATING EXPENDITURES               FY 2019        FY 2019       FY 2020                FY 2021           FY 2022            FY 2023        FY 2024
 Personal Services
 Travel
 Services
 Commodities                                2.5                        2.5                      2.5                2.5              2.5             2.5
 Capital Outlay
 Grants & Benefits
 Miscellaneous
 Total Operating                            2.5           0.0          2.5                      2.5                2.5              2.5             2.5
 Fund Source (Operating Only)
 1004 Gen Fund (UGF)                              2.5                            2.5            2.5                2.5              2.5             2.5
 Total                                            2.5        0.0                 2.5            2.5                2.5              2.5             2.5
 Positions
 Full-time
 Part-time
 Temporary
 Change in Revenues
 None
 Total                                            0.0        0.0                 0.0            0.0                0.0              0.0             0.0
 Estimated SUPPLEMENTAL (FY2018) cost:            0.0               (separate supplemental appropriation required)
 (discuss reasons and fund source(s) in analysis section)
 Estimated CAPITAL (FY2019) cost:                 0.0               (separate capital appropriation required)
 (discuss reasons and fund source(s) in analysis section)
 ASSOCIATED REGULATIONS
 Does the bill direct, or will the bill result in, regulation changes adopted by your agency?           Yes
 If yes, by what date are the regulations to be adopted, amended or repealed?                           01/01/19
 Why this fiscal note differs from previous version/comments:
 Initial Version
 Prepared By:             Ken Alper, Director                                                                 Phone:         (907)465-8221
 Division:                Tax Division                                                                        Date:          01/02/2018 06:00 PM
 Approved By:             Mike Barnhill                                                                       Date:          01/31/18
 Agency:                  Department of Revenue
Printed 3/26/2018                                                  Page 1 of 2                                                        Control Code: PKoQL
                                                                                                                  SB 176 - Fiscal Note 2
                                                 FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                  BILL NO. 0
2018 LEGISLATIVE SESSION
Analysis
   Bill Background and Structure
   This bill is intended to provide a mechanism for oil and gas explorers and small producers to obtain payment towards the
   tax credits they are currently holding awaiting state repurchase. For several years, the legislature authorized openended
   appropriation language in the annual budget, so the state repurchased all certificates that were presented. Beginning in
   FY2016, the annual spend has been capped in the budget, with the number in FY2017 and 2018 being based on the
   statutory calculation in AS 43.55.028(b) and (c). The net result of this has been delay and uncertainty for these companies,
   as well as in some cases their inability to borrow additional funds.
   The legislation accomplishes four primary things. First, it creates a new state bond corporation empowered to sell up to $1
   billion in bonds to repurchase outstanding oil and gas tax credits. Second, it establishes rules and criteria by which to
   determine the expected cash flow of credit repurchases to a company, in order to calculate a discounted value. This will
   enable the department to make an offer to purchase them with bond proceeds at a particular discounted value. Third, it
   describes the multiple methods by which a company can obtain a lower discount rate, and by extension a higher
   repurchase offer. Finally, it establishes a process for the Department of Natural Resources to negotiate an overriding
   royalty interest, the acceptance of which is one of the methods to obtain the lower discount rate. The program is designed
   as a choice for producers, with the option retained for a company to await regular appropriations instead of participating
   in the bond repurchase program.
   Scope of Issue
   At the end of calendar year 2017, about $800 million in tax credits are outstanding that are awaiting state repurchase. Of
   these, about half requested repurchase in 2016, and the rest in 2017. Current law ensures that the older credits are paid
   first out of available funds. Most cashable tax credits were repealed by the legislature in 2017 via HB111, although it will
   take some time for the remaining credits to work their way through the process. The Department of Revenue expects
   about another $200 million in credits to be awarded over the next several years. Of this $1,000 million in possible demand,
   the Department expects about $100 million to be transferred (sold) to major producers to offset taxes, leaving $900
   million potentially available for the bond repurchase program. If all of these credits are offered into the program, the state
   will pay between $700 and $800 million depending on the discount rate. The intent is for the state to pay off the bonds
   over 10 years, with the first two years' payments being interest only, with rising payments for three years, and flat
   payments thereafter. The debt service and other bond costs will be more than offset by the savings received by the state
   through discounts to the tax credit obligations.
   Method of Determining Discounted Value
   In order to determine the discounted value the state will offer, the bill provides a process to estimate what a producer's
   expected payment amount and timing would be in future years, based on several factors. These include the amount of
   credits held by a given company, the year in which those credits were received and requested state repurchase, the
   proportion of the certificates from a given year held by each company, and the expected annual statutory appropriation.
   Based upon the most current revenue forecast, that statutory appropriation would be:
   FY2019 $206 million; FY2020 $167 million; FY2021 $119 million; FY2022 $132 million; FY2023 $135 million; FY2024
   $139 million. These numbers are likely to change with the spring revenue forecast, which would impact the final
   calculations should this bill become law.
   Implementation Cost
   The department anticipates that the tasks required to implement this bill will be absorbed within existing staff. The only
   new funds being requested are the cost of agent fees to be paid by the new Alaska Tax Credit Certificate Bond
   Corporation, which will total about $2,500 per year when bonds are outstanding. The cost of issuing the bonds will be built
   into the state's future the interest and principal payments.
(Revised 9/26/17 OMB/LFD)                                                                                           Page 2 of 2
DOR-TAX-2-5-18                                                 Page 2 of 2                                               Control Code: PKoQL
Statutes affected: 
SB0176A, AM SB 176, introduced 02/05/2018: 36.30.850, 37.18.010, 37.18.900, 44.37.230, 43.55.028, 43.55.023, 43.55.025, 43.20.046, 43.20.047, 43.20.053, 37.18.020, 37.18.030, 37.18.040, 37.10.070, 37.18.050, 37.18.060, 37.18.070, 37.18.080, 37.18.090, 37.18.100, 37.18.800, 37.18.810, 43.55.011, 43.40.092