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Dear Friends and Neighbors,

I have several pieces of news to report.  The second special session closed July 15th after we reached a consensus on oil taxes. Here are the details:

Oil Tax Reforms

The HB111 conference committee (of which I was a member) forged a compromise that the Senate and House passed last Saturday. Highlights of that bill include:

  • Cash payments for tax credits end, effective July 1st, 2017, which is projected to save the state $95M in fiscal year 2019, $185M in FY20 and more than $1.5B over the next decade.  See the Department of Revenue’s Fiscal note

  • Companies can claim tax deductions instead of cash, but they only receive the deductions once a project starts producing oil.

  • After 7 years, if oil is produced (and 10 years if it isn’t) the value of deductions decreases 10% per year.

  • Because we hardened our tax floor, companies will pay at least 4% of their gross revenues.  

  • Interest on all delinquent taxes—including oil & gas taxes—will be 5.25% plus the Fed prime rate.   

  • A company cannot deduct expenses from one field that has not come into production from their taxes on another field that has come into production.    

  • A working group of legislators (including me) will explore ways to simplify Alaska’s oil tax system and possibly increase state oil & gas revenues. 

Capital Budget

It’s almost certain that legislators will convene in Juneau next week to approve a capital budget. Controversial items include more than $650M to fully fund 2017 PFDs, $288M to buy cashable tax credits from oil companies, $100M for the liquefied natural gas project, and $70M for the Juneau road.  Those are proposed maximums, not final figures.

Debate about PFD size continues to roil. Because we’re facing recurring $2.5B annual operating budget deficits, we can’t afford $2,200 dividends, one side says. The other side says, until we institute a broad-based tax and/or increase oil taxes, it’s not fair to make Alaska’s poor—who rely more on PFDs much more than affluent Alaskans do—shoulder the deficit reduction burden. Both arguments are valid and, at this time, I am undecided whether I will be supporting the capital budget.

The Senate proposed paying oil companies $288M for cashable credits they’ve already earned. We’re obliged to pay those credits ultimately, but I and most of my House Majority Caucus colleagues prefer to pay less—considerably less—this year.   Note that, had the Senate joined us in passing a fiscal plan (it did not, and even undermined in its own plan by agreeing to fund the government with monies from the Constitutional Budget Reserve), I would be much more amenable to retiring substantial amounts of the credits “owed”.

The Alaska Gasline Development Corporation hasn’t yet confirmed buyers for liquefied natural gas the AKLNG project would sell, and some legislators think it’s a money sink. But building and operating a gasline would pull Alaska out of recession and fuel our economy. So we should keep funding AGDC…but maybe at a lower level. 

State Credit Rating

As of mid-July, the three major global credit rating agencies—S&PMoody, and Fitch—have all downgraded Alaska’s credit to one of the lowest ratings in the country.  The main reasons cited for the recent downgrades are a lack of long-term fiscal planning and heavy reliance on savings without a plan for replenishing these savings. Again, the State House majority passed a fully balanced, sustainable, long-term plan.  We are waiting for the State Senate to catch-up and express interest in economic stability, too.

In a June 20th S&P press release, Primary Credit Analyst, Thomas Little, commented that if “Alaska uses a significant amount of its reserves again and remains structurally imbalanced, we would likely lower the rating, but should it adopt a balanced budget with fiscal reforms that does not significantly rely on reserves, we may remove the state's ratings from CreditWatch without downward rating action."

Here are our current ratings:

S&P Rating: AA+, negative implications
Moody Rating: Aa3, outlook negative
Fitch Rating: AA+, outlook stable

I reiterate: the House has already passed a fiscal plan that will work for Alaskans and will put us back on track for upgrading our credit rating. All we need to move forward is Senate support.

Denali Wolves

I had planned to attend the Denali Citizens’ Council July 14th annual meeting, but instead flew to Juneau for the oil & gas tax special session. Thankfully, DCC was able to patch me in via phone, and some spirited discussion about HB105 ensued.

HB105, my Denali Wolf Bill that would establish a protective barrier for wolves adjacent to Denali Park, passed the House in May and is awaiting action in the Senate, where I’m hopeful it will be heard during the next legislative session.
Municipal Light & Power Plant 2A Grand Opening

On July 13th, ML&P hosted their grand opening of George M. Sullivan Plant 2A. This plant is one of the most energy-efficient thermal generation plants in the world.

Most importantly, this upgrade will replace equipment that has exceeded its 35-year design life—meaning that residents will have a more reliable source of energy.

In true Alaskan fashion, this plant hosts some innovative features, such as using glacial water to cool the air. The resulting hot water will be distributed to residents, lessening the energy required to heat household water.

For constituents in the ML&P service area, here is a link to their POWERSMARTprogram, which provides tips on how to reduce home energy costs.

In Other News…

  • Over the next few months expect additional, probably brief, special sessions focused onrevenues and criminal justice.

  • Next month, I’ll attend (on scholarship) the National Conference of Environmental Legislators and National Conference of State Legislators to work with my colleagues across the country on topics important to Alaskans and other Americans, such as fiscal planning and climate change.

  • Next week, I’ll present a legislative citation honoring the YMCA as they celebrate the 50th anniversary of their Anchorage chapter.  During their time in Anchorage, the YMCA has developed many great community programs, including before and after school programs, childcare for preschool/toddlers, school-age programs, youth and adult sports, fitness and skill programs, swimming lessons, and summer youth camps.

  • Very near and dear to my heart: I’ve recently renewed my teaching certificate.

If you have a topic or event that you would like to see in my next newsletter, feel free to get in touch with me or my staff. Please make note that my office will be based in Anchorage until January.

And as always, please call or email with any thoughts, ideas, or concerns.

I Answer to You!

Andy Josephson[signed]
Please Contact Me!
State Capitol Bldg, Room 102
Juneau, AK 99801
(907) 465--4939
(800) 465-4939
Contact Other Elected Officials
Governor Bill Walker
Senator Dan Sullivan
Senator Lisa Murkowski
Congressman Don Young

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