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Senate | February 13, 2013 | Committee Room | Finance

Full MP3 Audio File

Been slow to get here a lot lately also know that you look at first I like to recognize our own pages from their own missile hello Robert are representing the welcomes the art will will will will and Roger W in so to Diggins welcomes and pages are sorted on step today is the wrong spot how she will to the refrigerator until kilim in the backroom Anderson noted and will moderate thank you all on today we're going to look between being upset until 76 the domestic to energy jobs that we have a few rules of engagement will only going to be discussing the parts of our bedroom today that the has to do with finance everything else that bill will be surly are referred to commerce when we take your time allowing comments from the public gallery are our district you please to keep your comments to those portions of the bill only your comments or the portions of the bill can be heard in commerce will certainly out of extroverted or register to reply will and that was back in those dollars will be limited to two minutes each so with that we will move ahead with the bill. Circular 23 tetraplegia outlive motion to will discuss the your PCF and flavors they are opposed okay to pick it date certainly representative will register love those the committee's proposal do you do all this is important these legislation and deliver what asked if staff window would be over this for some will start later absolutely good on another is efficiently different expression of the down salvific action side of the belt to the without repeal the existing 700 and and and and has in the list there are some exact is currently in fact is they are inactive in the for your life without any treatment are currently collecting any revenue under this advertiser this creates a new severance tax on contemplates Oil That We Ever for That Will Moderate the State If You Look at Page 3 of the Summary There's a Child Together the Tax Rate and I a L It for Years 15 1617 It Will Be One Percent Market Value Years 20 2019 with You .5% Market 90 Years 2020 or 36% Market Value for Their the Sliding Screen When an Event Is Generated Based on the Price per NCM of the Dance Is He Has No Historical Data to the or in the Act Which Is 1000 He Became a Very from a Dollar to 10 Hours Repeatedly Have in the past Five Years or so El Dorado Maturation Work Is Basically a the Is Eight 3:38 PM Country Would Be 3.3.How Networks and Stand There on Time and on Floors on the Tax Rate That for Years 2015 1617 the and to Contact Nike 1% per Year to 1992.5% after Years 2020 Narrow after the Rate Will Be At Least 2.5% but Cannot Exceed 6% in the Daily Celebrity Athlete and Will and 3100 Think the Market Rate Which Is the Me But for the Market Value Allows for Some Marking the Cost to Be Contacted and Has Him Listed in the Barrel Their Office in the That Are Excluded Remarkably Constant Cannot Be Detected Basically Production Costs Insurance Premium in Any into Which the Parties the Receipt of the Reimbursement Marketing Costs Even Cleared Costs Are Contracting the Hygiene Tasks We Needed Gas and Delivering against the Purchaser and Gagging and Self Their Country without the Administration of the Liability the Producer and Him Returns We Found Either Monthly or Quarterly Based on the Liability of the Producer

Hundred K is only required if the parties have failed to I the author provides the companies directly from the seventh 29% to 1 million do it if they continue to the administration on this program and eliminate 50% hundred to get them take interest in our case because your emergency management find out if I will be out of my way to find I been self and $90 fine now is the for emergency preparation courtesy response and 38 and I know prevention and mitigation accepted a second onshore energy LLC present in the sacrifice chief on primates for manufacturing orders on jungle because send a defendant fails to file retirement were making an appeal regardless of our innumerable process is a part of the ballot that state-level government cannot help in think and I the seventh energy and also understand believe we give clarifying amendments it is clear that they the everything still select the pretty packed in a currently flat knitting for life by making in place additional franchise Was in contact with you additional time I believe the administrative been out and you have a you want to proceed with authority what do much of anything on your part seven of the sport of you wanted Woodall as widow of Mr. from that we have limitless Janet Mr. I have amendment to love provides clarifying language and did to a page 9 know why assuming a page 9 that lines 26 to 36 and I think everyone has it before them in Itasca energy explained that you give you will start but I mentioned lately ballot prohibits local governments from imposing additional taxes is clear that the business activity and has a franchise preference I think I taxes that they are able to like you said would hope affects literature for bringing this moment forward I think it's so good clarifying language that were not met from take away Harry's ability to have the property tax and solitary sport women you said I cursors tab on the amendment could you give me the definition that really for energy materials distributed the ball express for some really looking for but this wouldn't apply to other mining industries minerals optical records go. Is among the mistake that this is that specifically looking adjust oil natural gas production site in your dressing at the staff at the Bell lines 23 is an article I is not well immolated to measure up certain will move forward the that a a questions or discussion from a subset thank you Mr. what is the current law on impact fees the legality of impact fees and staff what we currently do not have the legal authority to enhance and the my district salmon on the amendment I certainly don't have a problem with the routers amendment clarifying your property taxes are included taxes put in additional language dealing with impact fees to the extent they are are imposed otherwise we have the issue where the localities that are having all this activity with all the trucks and over influx of people from a statement in and trailers a minute many to be put in with the impact on the local communities so wanted to see if the bill sponsor member sponsor be amenable to adding on of factories certain cyclist chairman circular letter to address a suggestion of centers time on now I would be in opposition to that him and I will state clearly while on the purpose of this bill is to make very certain for industry all what they can face when they come here to invest and explore all our resources as we want

develop these resources because we want the jobs, and we want to develop our economy, because this is about the future. And what we don't want is to have a patchwork of impact fees across the state, and we certainly don't want those impact fees to be used as a backdoor way to try to block the development of these resources. So while I'm not the amendment- I'm not offering the amendment, I just want to make it clear that I would oppose any kind of additional language like that, as far as how we deal with the impact to local communities, they will of course get revenues from these efforts of the development. There'll be a lot of economic development involved in it and I think we need to address that in a different way from a different revenue stream other than having impact fees so we can have certainty for this sector. [SPEAKER CHANGES] Thank you Sen. Newton, and I'll ask staff to please expound on that a little. [SPEAKER CHANGES] Just for the committee's information, I did want to make the members aware that senate bill 820 enacted last session. Does does direct the mining and energy commission in cooperation with the league of municipalities and the county commissioners to study impact fees and impacts to infrastructure and what funding they might need so that study is ongoing, and is due to the general assembly October 1st of 2013. [SPEAKER CHANGES] Thank you. Sen. McKissick? [SPEAKER CHANGES] Yes, and this is related to the same issue that Sen. Stein has raised. It would seem that perhaps an amendment might be appropriate to allow impact fees if allowed by the general assembly. So it would give the general assembly a opportunity to take a second look at each particular situation where it might be thought necessary by local government. It may be some that felt like it wasn't necessary, and others where you might have others who sanction impacts, but Sen. Newton, would you be open to the idea of allowing impact fees if approved by the legislature general assembly? I guess that's traditionally a route you might take to get that authority in any case. [SPEAKER CHANGES] Thank you Sen. Newton. [SPEAKER CHANGES] Thank you Mr. Chairman. Well at the general assembly, it approves that it's a different situation, but I think it's premature to talk about impact fees as staff just pointed out, it's going to be studied in the commission and we'll receive the result of their studies and we'll receive that judgement then. We're really premature talking about impact fees today when the earliest that anything - that any permits would be going on would be after March of 2015. [SPEAKER CHANGES] Follow up? I mean if we're amending it to clarify local property taxes, impact fees are something local governments will use as a mechanism for funding adverse impacts from development. It would seem appropriate to do it at this time but perhaps we can talk about that before it goes to the floor to see if that is a possibility, it would seem appropriate if this body openly has a say so over it. [SPEAKER CHANGES] Thank you Sen. Rucho. [SPEAKER CHANGES] To respond to that, we're going to wait for the results of that study to return and we'll make the decision at that point as to how the general assembly should manage that. [SPEAKER CHANGES] Sen. Warren? [SPEAKER CHANGES] ?? [SPEAKER CHANGES] I guess this is a question for Sen. Newton. On the emergency management fund that's allocated $10 million, can you just explain how that number came about and was there discussion about whether that was adequate? [SPEAKER CHANGES] ?? staff [SPEAKER CHANGES] ?? [SPEAKER CHANGES] If I could ?? [SPEAKER CHANGES] This is on the bill, so if you want me to withhold the question until later [SPEAKER CHANGES] Yeah I'll be glad to cover that when we're up to the bill. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] ?? [SPEAKER CHANGES] Thank you Mr. Chairman. My question's for staff. We have the existing pipe natural gas tax, if I remember right that's a state levied tax but isn't part of it locally shared? [SPEAKER CHANGES] I believe it is. [SPEAKER CHANGES] And so my question, if that's correct, if my memory's correct on that, that's a state levied locally shared tax, I just want comfort from you that drafting of this does not nullify the existing local distribution out of the existing pipe natural gas tax. That's all I want. [SPEAKER CHANGES] I do not believe

00:00 I'll take a closer look at that I don't think it should because it's a state [??] tax. Mr chairman I'm comfortable with the amendment moving forward here but if for any reason the staff should find [??] if staff should find that there's I don't think the intent is to change that I'm sure the intent is not to change that but if the staff finds that the language needs to be tweaked on that I may suggest a tweaking if that's necessary. that'll be fine and you know as we move forward we'll have to have to do that thank you senator Tillman. mr chairman are you ready for a motion on the amendment or do you need one senator [??] amendment. I think that would be in order yes thank you. I move the amendment. thank you the motion is [??] to move the amendment is there a [??]. [??]. how about senator [??] do you have a point of order. okay thank you those in favor of moving the amendment please say aye. aye. opposed no okay so thank you any other questions or comments from the committee senator Clodfelter. Mr chairman another point I think this can get cleaned up I know [??] got other places to go so no need to hold it for this point here so I direct really the point to the staff you've got on page seven the deductions from marketing costs item number four the cost of delivering the gas to the purchaser I think you wanna see there the first purchaser if I'm correct because otherwise they'd allow the entire distribution cost down to the retail customer I don't think that's your intent so you wanna tie it back up to the A section where you talk about the first purchaser and Mr chairman I think it get done as the bill goes through a committee substitute probably later on. fine thank you senator Clodfelter anymore questions from the members of the committee. I have a second one for information purposes and again I know you probably don't have it right on the spot but it doesn't have to be right on the spot I'd be very interested in seeing a chart the fiscal note refers to what other states do I'd be interested in seeing a chart on the [??] tax structures and the other states that impose them just really I'd like to see it to get some sense of whether the what's being proposed here in on the high end or on the low end or somewhere in the middle. senator [??]. thank you Mr chairman senator Clodfelter I really appreciate your questions and your comments specially about clarifying that earlier and I appreciate this question very much this is something that I wanted to talk about in the presentation here first if I could let me just say broadly the reason why this bill is before you in my view is that we have abundant natural resources here in North Carolina our country needs the energy and North Carolina needs the jobs we need the economic development and we're talking about the future of this state we're talking about our future potential in reaching it one of the reasons why we've put the [??] tax or suggested it in this bill this way is to be an incentive to industry to send a clear signal that we want you to come in North Carolina sooner rather than later to answer your question specifically these tax rates are designed to be competitive compared to other states basically my understanding is in other states they range anywhere from one percent to almost ten percent okay so what we've done is we've tried to create on the early years a very low tax rate in order for the incentive rise to come now not wait to 2020 or 2025 come explore come check us out come see what's here we believe there's five to fifteen trillion cubic feet of natural gas at a minimum here in esprit wide range but we have a lot of exploration left to do the really key feature that I wanna share with you about [??] taxes is and when we talked to various folks in the industry that operate across the country they really liked what I'm gonna [??] in the out years 2020 and out when the tax rate goes up if you'll notice it has a floor essentially if a two and a half percent and a [??] of six percent and it's gonna float with the price of million cubic feet excuse me per thousand cubic feet I keep thinking the m is a million but it's a thousand in industry our feedback was that they were like that's novel that's not what's been done in other states in other words if the price is high or relatively high they don't really have a problem with the six percent tax rate which isn't at the high end of the spectrum it's there're higher tax rates if the price is low and they've gotta forward two and a half percent that's a. 05:00

it’ll go, but if the price is $2 or $2.5, then a 2.5% tax rate is very reasonable to them. They found that very appealing and very attractive and we hope that that’s the effect that it has is to put us on the map and for them to understand that this a good place to come and look and invest. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Senator Newton, I appreciate the explanation, I do, and I’d still like to see the chart, but I’ll take your word for it. But what your explanation prompted a question to is I like the slide scale idea, why not do it for condense sites and oil? [SPEAKER CHANGES] Well, the first question I’ll ?? to is that my understanding of all I’ve learned in this industry is it compensates for much more valuable commodity, plus it was technically going to be very difficult to set that sliding scale on the price. We couldn’t figure out how to do it and it be clear. Now, we’re open to ideas on that, but… because the concept we like. [SPEAKER CHANGES] Thank you. Senator McKissick. [SPEAKER CHANGES] Yeah, several question. I’ll start out first with this issue relating to the floating rate. Are there any other states that use a floating rate as a model, because in information that I was able to review and obtain, I didn’t see anybody else out there using this sort of floating rating methodology for taxing natural gas or for anything else, so you could share some insights with me in terms of why we went this direction when I’m not aware of any other states out there doing it this way. [SPEAKER CHANGES] Senator Newton. [SPEAKER CHANGES] Thank you, Mr. Chairman. As I was trying to explain to Senator Clodfelter, and I appreciate getting the opportunity to hopefully say it more clearly. No, there are no other states that we’re aware of that are employing this method. The purpose behind it is to make North Carolina tax rates to the industry than the other states and other places where they have other plays and other places. Industry in natural gas is basically dry gas with very low prices. It’s hard to take risks and gamble about new exploration plays. We’re unknown. We’ve not been in the business. Unlike Texas, which been in the business for a hundred, we’re unknown, we haven’t really been on the list, so to speak. The purpose of having that sliding scale is to still make North Carolina attractive, even when prices are low, because we want them to come and develop this because we want the jobs. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] I appreciate that explanation, Senator Newton, I guess the thing that I don’t know much about is why these other states that are out there that have far more experience with natural gas exploration have chosen other methodologies. Perhaps at some point if we could get some information from staff about that, it certainly doesn't’ have to be today, that would be helpful. The other issue I’d like to move on to are these variables relating to marketing costs. Of course there’s one, two, three, four, five of these variables. Are these variable the same types of variables that might be used in other jurisdictions when they do a deduct for marketing costs, before you tax what the value is of the commodity that’s being extracted. Are these the same variables, are the different variables? At what extent have we talked to our Revenue Department here in North Carolina to determine if this is something they would find easy to monitor. I suspect at some point somebody has to do some auditing of some of these cost expenses. We don’t have much experience with that in North Carolina so if our Revenue Department had a chance to take a look at these specific provisions to either give it a good housekeeping seal of approval or to express concerns about how we may do it differently. [SPEAKER CHANGES] Thank you, Senator. There’s a couple of questions in there. One, let me start with what I think what is the last one. I’m not sure if we’ve checked with the Revenue Department on their view of it, but the intent, and what we understand is is that how we drafted this is very consistent. Really, identical, hopefully to how it’s done in other states. We were trying to make that part standard so the industry was familiar with what was expected of them and we would have models to draw from about how to audit or other things. [SPEAKER CHANGES] One last follow up. [SPEAKER CHANGES] Yes, sir. You may Senator McKissick, but I want to remind you and everyone that we want to allow time for the public to comment so if we can speed it up as much as possible.

it would certainly be appreciated. A couple of other Senators do have questions, we would like to have some time. [SPEAKER CHANGES] Okay, and I guess- [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Quick follow up, and that's the offshore emergency management fund. I know you have it there at $10 million, and that's going to be used unless there's some type of hazardous condition that develops where you need to go out and do some sort of emergency remediation. It seems like that would be woefully underfunded in terms of what the costs might be in the event of some sort of potential catastrophic condition. So has thought been given- I think at one point it was up around $50 million in some earlier discussions, or maybe in a prior legislation, so could you explain why this figure seems to be at this level, the 10 million level this time, because it does not seem to be what a drop in the bucket if you really needed to use it. [SPEAKER CHANGES] Thank you Senator. I think that was- was that your question too, Sen. Daniel? Sorta? Well not necessarily in that way, but let me try to answer his and then I' was hoping to kill 2 at once, but... The answer to your question is that $10 million honestly just seemed like a good amount to start with, but what we wanted to make clear was we intend to have an emergency fund. And we wanted to make it clear that the first dollars that come out were to go to that emergency fund. As far as when we- offshore is a lot farther down the road then what our onshore gas production potential is. We obviously have to reckon with the federal government, we don't know what our revenues will be, revenue sharing with the federal government, we don't know how the compacts may be developed with- Gov. McCrory as you know is very supportive of that, I'm happy that we're hopefully working in the same direction with him on this, so we have a lot to figure out about that. We just wanted to set- there is going to be a fund, we want to put a sizable amount of money in there. I don't know that $10 million isn't enough. But that's something I think we can take up down the road when offshore seems like it's more likely to happen. [SPEAKER CHANGES] Thank you Sen. Newton. Sen. Daniel? [SPEAKER CHANGES] Thank you, Mr. Chairman. And Sen. Newton, I did notice in the bill that it's got a $10 million onshore emergency management fund, and a $50 million offshore emergency management fund, so there's 2 funds which may address some of Sen. McKissick's question. My other question relates to the transportation highway trust fund, and I notice that in the offshore formula that 10% of those revenues to to the highway trust fund, but in the onshore drilling portion of that, there's no money allocated to the highway trust fund, and it seems to me that you'd have more impact from onshore drilling in regard to our highways, but yet we're not allocating any money to the highway trust fund and highway fund from onshore drilling activities. So just wanted to I guess use that as a questio nand maybe something you would want to look at, and as a transportation co-chair, it certainly is a concern of mine. [SPEAKER CHANGES] Certainly glad to take a look at it. We want to make sure the roads are well cared for. [SPEAKER CHANGES] Thank you Sen. Newton. [SPEAKER CHANGES] One quick question: Obviously jobs and stimulating the economy through energy independence is absolutely critical, from my brief homework on the topic, there's absolutely a number of safe ways to do this. But within the bill, have we addressed the safeguards required to protect our state's water tables? [SPEAKER CHANGES] Sen. ?? Sen. Tarte, thank you for that question. Senate bill 820 addressed that significantly, and this is a follow on essentially to 820. The commission has until October of 2014 to develop those rules, and in fact part of what this bill does is to shift a little bit of money to DENR because they need some help with some contract work, putting those rules together to speed this process along. So yes, we don't know what the rules are yet until that report comes, but they are mandated by law to present that by October 2014, and that's an important part of this. [SPEAKER CHANGES] Thank you Sen. Newton. We're going to move ahead now and ask for- open up the floor for public comments. Again, I will ask you to address those comments or hold those comments to the finance portion of this bill and limit your time to 2 minutes, if everyone or anyone who wishes to come forward would please state your name, and if your represent a group, please tell us which group you represent. So

With that the public is welcome for comment. [SPEAKER CHANGES] Thank you Mr. Chairman. My name is Elizabeth Ouzts. I'm the State Director for Environment North Carolina. We're a statewide citizen funded environmental advocacy group and I appreciate the opportunity to comment on the finance portions of the bill. To echo I think some of the concerns raised by the committee in section 5 in terms of both the severance tax that is accessed as well as how then those funds are distributed to address potential water and air pollution problems. Really without the mining and energy commission's work being complete yet and without rules having been produced for this legislature to review it's really difficult for this body to have any basis for knowing whether that severance tax is sufficient and whether the funds allocated towards again mitigating the environmental harms that are inevitable with fracking if the you know if the assessment is appropriate. So just as one example we've seen in Pennsylvania that it costs $109,000 dollars. [SPEAKER CHANGES] Excuse me we want to hold to the finance portion of this bill. Not to be nasty you may discuss those or have that discussion when it goes to commerce. But please feel to discuss the finance portion of the bill. [SPEAKER CHANGES] Sure. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] I just was stating in terms of the finance and the allocation of cost we saw in Pennsylvania that it cost $109,000 to repair water systems for just 14 households. This was in Pennsylvania. So again we would encourage the committee not to make premature assessments about what is a proper tax and how to assess it without having full information. Similarly on the offshore drilling revenue as is stated in the bill summary that of course is premature. We don't know you know whether we will have revenue sharing. We don't have it now and similarly we don't know how best to allocate funds to an emergency cleanup fund or environmental mitigating fund. Thank you sir for the opportunity to comment. [SPEAKER CHANGES] Thank you ma'am. With no further comment we will entertain a motion. [SPEAKER CHANGES] Thank you Mr. Chairman I'd like to move for a favorable report to the proposed committee substitute and ?? referral to the commerce. [SPEAKER CHANGES] Thank you Senator Brock has moved forward. [SPEAKER CHANGES] As amended. [SPEAKER CHANGES] As amended. Thank you Senator Brock has moved for a favorable report the PCS had amended. Do we have a second? The motion as amended is seconded. All those is favor say aye. Opposed no. The ayes have it. I wanted to thank everyone for coming today, the Sergeant at arms, staff, our staff and the pages and with no further business this meeting is adjourned.