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Lawmakers give Murkowski plan mixed reviews

Posted: Sunday, January 16, 2005

Gov. Frank Murkowski's State of the State address Wednesday drew generally favorable comments from the Kenai Peninsula's legislative delegation, but they also indicated they'll have to be convinced before backing at least some of the governor's proposals.

In his speech, Murkowski proposed to spend $126 million on education over the next two years.

Sen. Gary Stevens, R-Kodiak, said he was "very supportive" of the governor's proposal for early funding for education, but whether $126 million was enough was a question.

Sen. Tom Wagoner, R-Kenai, said he was in favor of funding education as much as possible, but said part of the governor's budget proposal would end up going toward covering teacher retirement obligations and part would be eaten up in inflation-proofing.

"I'm looking at the pupil-teacher ratio in the first six grades," he said. (Wagoner has said he would propose legislation to lower that ratio). "If a bill mandates (a lower ratio), then part of that money would be used to fund new teachers for that purpose."

Rep. Paul Seaton, R-Homer, said he was not sure whether the Legislature would pass a two-year funding measure at this time. Save for the oil windfall, revenues have yet to be enhanced, he noted.

Freshman Rep. Kurt Olson, R-Soldotna, said he was hesitant to commit to a two-year funding regime until he'd seen the revenue numbers. He said he was definitely in favor of early funding for education, however.

Murkowski also said he would include $37.5 million in his operating budget to help municipalities cover the increased costs of municipal and teacher retirement programs, another $6.5 million to offset higher energy costs in smaller cities and $20.7 million to fully fund Power Cost Equalization.

Seaton said it would "take a conversation to see if that will go." However, he said he was very much in favor or some kind of revenue sharing for communities.

"That's something we all need to be concerned about," he said, adding he was encouraged the governor had put it on the table.

Stevens and Wagoner also applauded those steps to ease the financial pressures at the municipal and village level.

But the peninsula's legislative contingent also indicated they'd have to look more closely at some of the governor's other proposals.

For instance, Murkowski proposed an increase in oil taxes on some North Slope satellite fields by treating the areas as one field for purposes of applying the economic limitation factor, or ELF, an adjustment to the nominal tax rate on a productive field. The ELF is different for every combination of field and well productivity, but generally results in lower taxes for less productive fields and higher taxes for highly productive fields.

Five Democrat lawmakers have filed companion bills in the Senate and House proposing a wholesale revision of the ELF, the first since 1989. They are Senate Bill 50 and House Bill 63, referred to as the Alaska Fair Share Bill.

Democrats argue that the production activities on the North Slope have changed dramatically since then and that Alaska — especially in this period of high world oil prices — is not getting its fair share under the current ELF. Some Democrats have said the governor's proposal does not go far enough and ignores some productive fields.

Stevens said some satellite fields were not paying any tax under the ELF.

"It's only fair they pay their fair share," he said, adding he sees the governor's proposal as a start in the right direction. Noting that the governor has the power to readjust taxes on those satellite fields, Stevens said the broader step is the Legislature's job.

"It is up to the Legislature to look closely at the whole ELF," he said. "It is our job to see if it should be adjusted. I've always felt it needed closer scrutiny."

Wagoner said he would probably back the governor's proposal, but added the Senate Resources Committee, which he chairs, would hold hearings on various bills, including the Alaska Fair Share bill.

Seaton said the governor's proposal goes about as far as possible short of changing contracts or passing a law. He did say the Legislature should look at the ELF law.

The governor also asked lawmakers to evaluate the benefits of the state buying a portion of the trans-Alaska pipeline, which also carries Alaska's 12.5-percent royalty oil to market.

Stevens was skeptical and urged caution.

"They would have to prove it to me that it would be good for government to be involved in ownership."

"The pipeline has paid for itself seven times over," Wagoner said. "It might still be a good investment."

In his comments, Murkowski noted that the oil pipeline currently has excess capacity. Wagoner suggested the governor might be betting on ANWR opening and filling the line, at which point such an investment might pay off.

"I'm not ready to jump in and buy a part of it, but we should study it," Wagoner said.

Seaton said debate over the ownership question should be interesting. He noted some factors to be considered, including that the Federal Energy Regulatory Commission controls income levels in the pipeline.

"That's about 12 percent," Seaton said. "If we're looking at permanent fund revenues invested at 8 percent or PERS-TRS (Public Employee Retirement System and Teacher Retirement System) at 8.25 percent, that 12 percent looks pretty nice."

Seaton acknowledged that pipeline investment carried some risk. For instance, ownership would mean having to share the expense of the pipeline's eventual demolition. On the other hand, ownership in capacity could put the state in position to ensure smaller exploration companies that any oil they found would have access to the line. What isn't clear, Seaton said, is whether the governor was desirous of equity in the pipeline or its capacity. (Pipeline owners can sell capacity shares, he said).

Olson said he agreed with the governor regarding ownership.

"It puts the state in the driver's seat and gives them a seat at the table," he said. "We would incur some risk, but I think the chance of reward outweighs that."

Olson and Wagoner said they appreciated the governor asking lawmakers to evaluate the idea of paying a portion of the mobilization and demobilization costs of bringing a jack-up drill rig back to Cook Inlet to help encourage further exploration here. Olson said he understood that proposal to be in the $6 million to $8 million range.

According to Bill Popp, liaison to the oil and gas industry for the Kenai Peninsula Borough, mobilization and demobilization of a jack-up rig can run in the neighborhood of $20 million.

Efforts to reach Rep. Mike Chenault, R-Nikiski, for comment Friday for this story were unsuccessful.



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