Alaska Conservation Voters

Conservation Watch

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Alaska Conservation Voters
works to protect Alaska's environment through public education and advocacy, and supports pro-conservation candidates for public office.

“Whoever said that bridge would cost you $300 million was an idiot. ”
--- Rep. Jim Elkins (R-Ketchikan), speaking about the proposed Gravina Island Bridge in the Anchorage Daily News, 3/3/06

• Transportation
• Oil and Gas Tax Hearings Continue
• Making the Cut

In Every Issue

• On the Move
• Hot Bills
• Hearings this Week

Alaska’s 2006 – 2008 Statewide Transportation Improvement Program (STIP)—which still includes the Knik Arm and Gravina bridges, otherwise known as the “Bridges to Nowhere”—was approved last week by the Federal Highway Administration. As part of an enormous transportation funding bill, Congress initially earmarked $223 million for Ketchikan’s Gravina bridge and $231 for the Knik Arm project last year. The estimated costs for the two projects are $328 million and $600 million, respectively. In the face of a national outcry, the majority of the earmarks were removed by Congress last fall and the state was left with the final say over how to spend the money. One earmark of $48 million was left in place for the earthwork and roads leading up to the proposed Gravina bridge.

With the designation for the funds now removed, debates have ensued over precisely how the funds should be used. While allocations for the two bridges in the newly issued STIP have been reduced to $112 million for the Gravina project and $93 million for the Knik Arm Bridge out of the original $454 million, numerous questions remain on exactly where the funding will come from to complete the projects. As a result of the remaining $48 million Gravina earmark, the Department of Transportation (DOT) raised the final STIP funding for the Gravina project from $91 million to $112 million. Governor Murkowski has proposed spending the maximum amount of federal funding possible for the fiscal year—$91 and $93 million—on the Gravina and Knik Arm Bridges, but in the end, the future of whether or not the two bridges are built lies in the hands of the Legislature, which will officially determine how transportation dollars are divided.

Another so-called “mega-project” being debated this session is the Juneau road extension. Governor Murkowski is pushing to spend $45 million in State general fund money to jump start the Juneau road-shuttle ferry proposal, which has an estimated price tag of $250 million. The proposal would extend the current road 50 miles to a ferry hub 90 miles north of the capital. Originally the road was supposed to connect with the continental road system, but will now end 18 miles short of Skagway in order to avoid a recreation area and historic site next to Klondike Goldrush National Historic Park. Estimates from the DOT predict that the new road-shuttle ferry proposal will cost the state $88 million dollars in state funding to maintain and operate over the long run, a 45% increase over the $61 million it would cost to run the existing ferry system for the same time period.

Reductions in anticipated Federal Funding, combined with an apparent downturn in the performance of the Highway Trust Fund, have also left questions as to the future of funding for projects throughout Alaska. DOT currently estimates that there is an enormous backlog of work that needs to be done throughout Alaska, with a self-labeled “Needs List” of more than $10 billion in projects and a flexible STIP that addresses only 1.5 to 2% of the projects each year.

Across the state, numerous projects were cut or delayed as a result of funding cuts or allocations to projects such as the Knik Arm and Gravina bridges. With one third of Alaska’s major roads labeled as poor or mediocre in their condition and with 30% of the State’s existing bridges structurally deficient or functionally obsolete, the proposed allocations beg the question—why is the state allocating significant funding to large, new projects at the cost of performing desperately needed upgrades and maintenance work to existing roads? Debate has also ensued over why the State is looking at building a new, potentially dangerous road—the Juneau extension—while simultaneously delaying or cutting funding to repair an existing dangerous road—the Seward Highway near Anchorage. The decision to cut or defer maintenance of existing roads costs Alaskans directly as well, with an estimated $212 spent each year in car maintenance as a result of driving on roads in need of repair.

For more information check out:

The Alaska Transportation Priorities Project

"Feds Approve State's Road, Bridge Priorities," Anchorage Daily News

Report Card for Alaska's Infrastructure, American Society of Civil Engineers

"Bridges are First Order of Business," Anchorage Daily News

"Mayors Say Give Priority to Roads," Anchorage Daily News

DOT's presentation on the Federal Highway Program in Alaska

Notes from the Trenches: Oil & Gas Tax Hearings Dominate

The House and Senate Resource Committees continue to work through HB488 and SB305, the carriers for the Governor’s proposed overhaul of the state’s oil and gas taxation system.

Both committees are listening carefully to their own consultants and to the parade of individuals from the industry and the state—all while asking tough questions and working hard to grasp this complicated subject. So far, the bi-partisan spirit of cooperation still prevails but that may change as time marches on and preferences start to emerge.

Industry reactions have varied but most seem to indicate that they could live with the current 20% tax - 20% credit proposal. However, Chevron has raised big flags over the impact of the proposal on Cook Inlet operations. Several industry groups have also suggested that the current tax rate formula may retard investment over the long run. Some who are focusing on exploration seem to be more interested in the incentives and less concerned with the tax rate.

While other bills are moving, committee action continues in the slow mode and this issue is the dominant focus for many legislators and staff. The Resources Committees are booked at least for another week and other committee meetings have been delayed, re-scheduled, or cancelled so that legislators can spend more time on this very important issue.

Some of the key big picture questions that have emerged include:

• Tax rate – getting it right : When do we cross the line between getting our fair share and stifling future development? Can we trust industry’s views on this topic? Should we use a progressive sliding rate scale?
• Exploration and Production Incentives : Is that the right focus? Will they work or will they become windfalls? Are there other options?
• Gas tax: This question, initially an overlooked issue, is now starting to pick up steam. How does it work? How will it affect Cook Inlet exploration and production? What are the implications for the gas line? Do both need to be addressed in this bill?
• Independents and Smaller operators versus the Majors : Do we need to treat them differently or stick with a one size fits all scheme?
• Cook Inlet : Should we treat Cook Inlet and North Slope operations differently? For example, while revenues tends to be the primary North Slope driver, many are starting to realize that the gas supply is running low in Southcentral and we need to take strong steps to encourage exploration and production to fill consumer needs – with or without a new gasline.
• “Claw back” (or “look back”) provisions : What is a fair transition arrangement, if any?
• $73,000,000 deduction : Purpose? Good idea? Is there a better way?

These questions only represent the tip of the iceberg in what is already an immense debate. Hearings are set to continue throughout the next week. Check the hearing schedule for more details.

For more information check out:

Conservation Watch #5

"Oil Giants Deliver Warning," Anchorage Daily News

"Keep Listening," Fairbanks Daily News Miner

"Legislators Compile Dozens of Questions on Oil Tax," Fairbanks Daily News Miner

"Conoco Reluctantly OK's Tax Bill," Anchorage Daily News

Making the Cut

The oil tax and gasline deal have taken over and Speaker Harris acknowledged that this will force the legislators to use their time wisely. As a result, they are going to start focusing on bills that have a reasonable opportunity to make it through the process. In his words: “We’re not going to waste our time on legislation that doesn’t have much chance of passing”.

How this culling process will affect our priorities remains to be seen but be prepared for a much shorter list. We are hopeful that some of our major issues like climate change, mixing zones and renewable energy will survive and continue to prosper.

On the Move

HB418 Mining Production and License Taxes/Royalties - Rep. Seaton (R-Homer)
Speaking of taxes, the Legislature also is considering HB 418, a major overhaul of the state’s mining tax and royalty rules. Rep. Seaton’s bill has had several hearings so far with strong opposition from industry and a neutral response from the Administration. Ironically, this bill would shift us from a net profits scheme to gross value “at the point of production” (in contrast to the net profits based oil and gas tax bill currently being examined by the legislature). According to Rep. Seaton: “It seems like we’re just leaving ourselves open for tax games when we talk about “net income” and let people shift profits where they want to declare net income”.

According to the Legislative Research Agency, the mining industry last year produced over $1.5 billion worth of gold, silver, zinc, lead and other minerals. Of that, the industry paid about $20 million in production taxes, royalties, rents and other fees to the state and in property taxes, negotiated payments in lieu of property taxes, fees, rents and sales taxes to municipal governments. The Department of Revenue projects a substantial increase in revenues in the $39-45 million range starting in FY 2012 but has been asked to reconsider those figures to account for certain allowable deductions for treatment and transportation expenses.

While the bill may get out of the House Ways and Means Committee this year the prognosis for additional movement is not good. Chances are the Legislature will defer this question to another day but at least this issue is now on the table.

HB318 Limitation on Eminent Domain - Reps. McGuire (R-Anchorage), Holm (R-Fairbanks), Hawker (R-Anchorage)
HB 318, which passed the House recently by a wide margin, had its first Senate Hearing last Thursday. The Committee spent most of their time trying to understand how it works with a focus on provisions limiting eminent domain for recreational purposes. Craig Johnson, who is carrying the bill for bill sponsor Rep. McGuire, pointed out that this is a bill that nobody likes 100% but is a moderate approach that attempts to balance private property rights against recreational and similar needs. This legislation will be back this Thursday where public testimony will begin. Folks concerned about the impact of this bill on the Tony Knowles Coastal Trail extension and similar projects are expected to weigh in.

Hot Bills

Bills move at a rapid pace this time of year. You can obtain up-to-date legislative information on the BASIS website. The following chart notes the status of a few bills of importance to the conservation community.

Hearings this Week

Click on the date in the table below to get the most current schedule information for that day, or check the BASIS hearing schedule. Once a bill has been heard in a particular committee it may be brought up again without public notice or listing on the weekly committee schedule. You can click on a committee name to see a list of its members.