House Finance, 4/27/26, 1:30pm

Okay, I'll call this meeting of the House Finance Committee to order and let the record reflect that the time is currently, uh, 1:38 PM on Monday April 27th, 2026.

And present today, we've got Representative Kocher-Schragg, Representative Galvin, myself, Kocher-Foster. I'm sure we'll have some more folks coming in. We've got also Representative Hannan. And let's see here. Just a reminder, folks can mute their cell phones.

And we've got two bills before us today. The first one's going to be House Bill 261. That's education funding. And then the second will be HB 271. That's the kitchen lights unit royalty modification.

And we also have with us Representative Jimmy.

And we also have Representative Kucher-Josephson. And so let's see here.

We're going to set an amendment deadline for House Bill 271. That is the kitchen lights bill. So again, first up, we do have House Bill 261. That is the education funding bill. And I'd like to invite up Representative Story as well as her staff, Ms. Tammy Smith.

If we could just get a quick recap of the bill just to kind of get all of our minds moving in the same direction, and then we're going to go right into public testimony and So with that, welcome Representative Story. Thank you, Co-Chair Foster, and thank you all House Finance Committee members. For the record, I am Representative Andy Story, proudly representing District 3, which is the North Juneau, Mendenhall Valley, Fritz Cove Road, Auke Bay, Out the Road, up to Gustavus, Haines, Klukwan, and Skagway. I believe House Bill 261 is the most transformational transformational education bill before the legislature because it fixes a flawed education budget process timeline and allows districts to offer teacher contracts earlier amid a national teacher shortage. Alaska needs to be able to offer teacher and staff contracts while the rest of the nation is recruiting.

Right now, we are asking school board members, educators in our community to improve student achievement while giving districts uncertainty in their budget process. This sets us all up for failure. House Bill 261 uses multi-year averaging, a student count practice common in 26 other states. This bill would have districts knowing their student count number by July 1st. This avoids unexpected budget changes in October when the student count process happens and when teacher and staff contracts have already been set for this year.

It helps smooth volatility. It helps districts absorb any major resource shifts and helps them plan for further reductions and sudden enrollment losses or gains. I believe this bill provides stability, supports accountability, and allows communities to really focus on student achievement and again retain their teacher and staff. Thank you. Great.

Thank you very much, Representative Story. I would like to jump into public testimony, but first I would like to note that we do have also with us Representative Allard, Representative Stepp, Representative Moore, Representative Bynum, and Representative Tomaszewski. And so with that, I'm going to go ahead and open public testimony on House Bill 261. That's the education funding bill.

And if folks would like to submit written testimony, they can do so by emailing us at [email protected].

And so with that, looks like we've got maybe one person, one person in the room. And 1, 2, 3, 4, 5 people online. So we'll start here in the room first. We've got Mr. Lon Garrison. If you could come up and put yourself on the record and state your name, your affiliation, and give us your testimony.

Thanks for being here.

Thank you, Chair Foster and members of the House Finance Committee. And thank you for the opportunity to testify today. For the record, my name is Lon Garrison. I'm the executive director of the Association of Alaska School Boards. Aasb supports Committee Substitute HB 261, Version G, because it makes an important structural improvement to Alaska's education funding process by providing school districts and school boards greater predictability in the budgeting process.

That matters. School boards are required to adopt budgets and make staffing decisions months before they have certainty about their revenue. And too often districts are forced to build budgets on estimates that revise them repeatedly, delay contracts, and make difficult staffing decisions under uncertainty. And this bill helps to reduce that instability by allowing funding to be based on the greater of a prior 3-year ADM or the prior year ADM, while preserving a mechanism to recognize significant enrollment growth. The bill offers a more stable and rational framework for district planning.

It gives boards greater confidence to develop budgets earlier and support timely hiring and retention of educators and focus more attention on student achievement rather than annual budget disruption. We particularly appreciate Version G's refinements related to the intensive needs counts and transition protections and protections for districts experiencing sudden growth.

And then finally, we view this bill as a thoughtful improvement to the funding process and constructive step towards greater stability for districts and communities. ASB respectfully urges your support for HB 261, version G. Great. Thank you. Do we have any questions? Representative Bynum.

Thank you, Co-Chair Foster. Through the chair, thank you very much for being here. In your testimony, sir, you indicated— you said sudden growth. But under the scenarios of sudden growth, when we talk about that, we wouldn't know that until we are in a current school year. So how does this bill specifically address the issue of having more students than projected?

And then the second part of the question is, my understanding is one of the major issues that we are actually experiencing isn't that we have sudden growth, but is that we have declining enrollment. And so, if you could talk just a little bit about how you think this is solving the declining enrollment issue. Mr. Yurtsen? I would say it's not solving the declining enrollment issue. What it is is a structural difference in how we deal with declining enrollment and creates, I don't know how you want to phrase that, but the opportunity for enrollments that may vary, especially for small schools where just a few students can have a dramatic effect on that ADM count and result in really significant changes and variations in funding for a small school.

So in, in this regard, using a rolling average would help eliminate that variety that could happen that would not allow districts to plan as best they could to make sure that they have the ability to offer the programs and the educational services that students are going to need. In terms of the growth portion, as I understand it, if there is sudden growth, if there is growth in the current year and the succeeding years, that there is an option to utilize that growth model in the bill that would allow for the ADM to be utilized that is greater than. So that is what I understood it to say. Quick follow-up. Follow-up.

Thank you, Co-Chair Foster, through the Chair. With that being said, doesn't the current system already do that? When we look at only the growth portion. When you look at only the growth portion, yes. You know, there's a true-up at the end, and so, you know, in my own experience, what has happened is that oftentimes, as we— as from a former school— as a former school board member, we may budget, and then by the time we get into even October and November, there may still be additional growth going on.

That's a great a good thing if that actually happens for the district. But sometimes it can be a challenge if that particular growth has not been anticipated and we have to reallocate especially teaching positions and teachers from maybe a secondary to a primary system. Where oftentimes we may see that kind of sudden growth happen. So part of this would be to help alleviate, um, part of those scenarios. Thank you.

Okay, thank you very much, Mr. Garrison, for your testimony. Yes. So next up, we've got, uh, Ms. Nicole Herbert calling in from Juneau. If you can state your name, your affiliation.

Good afternoon, members of the House Finance Committee. For the record, my name is Nicole Herbert, and I'm the Chief Financial Officer for to the Juneau School District. I'm calling today in support of House Bill 261. In Juneau, our mission is to provide each student with a meaningful, relevant, and rigorous learning experience so they graduate as engaged citizens ready for a changing world. But today, too much of our time is spent somewhere else.

We spend months analyzing enrollment data and building projections, but because they are projections they invite debate rather than provide certainty, shifting the focus away from how we spend our resources to support students. That uncertainty has real consequences. Two years ago, our district went through school consolidation, and part of that was driven by projections that did not fully align with what actually occurred. When the projections are off, it impacts the staffing, the programs, and public trust. It also affects decision-making.

When enrollment is declining, there can be a tendency to wait and see because it is easy to revisit projections and ask, what if we're wrong? House Bill 261 provides a more stable and predictable approach. Right now, as we prepare for FY 2027, we won't know our actual state revenue until January of 2026. Under House Bill 261, we would have known that number a full year earlier in January of 2026. That kind of predictability matters.

It also makes— it also allows us to make earlier, more responsible decisions based off of actual enrollment rather than projections. It helps ensure our time and public resources stay focused on where they belong, on the students, not on spreadsheets. Thank you for your time. Great, thank you very much, Ms. Herbert. And next up we have Ms. Katie Parrott calling in from Anchorage.

Ms. Parrott, are you there? Uh, hello, good afternoon. Yeah, sorry, can you hear me? Yes, we can.

Okay, uh, good afternoon, uh, Chair and members of the committee. I wanted to take— I have some other comments drafted, but I think based on kind of the conversation that you've had over the last week or so, I'll make a few comments related to some of the concerns of the committee. One of the things that I've heard talked a lot about is the declining enrollment and kind of the balance of funding in response to that loss of students over time, which would theoretically lead to a decrease in cost to the system. And I guess one of the things that I would say is that in all things being equal, that would be a reasonable assessment if two specific conditions were true related to how we fund education. One is that the formula only funded direct instruction and student support services, and that was really what that metric was kind of carrying in terms of cost to the system.

And the other would be if the cost of providing for the education of one student remained the same from year to year. And both of those scenarios are just not the case. Essentially, our system is developed to provide for— the formula is meant to provide for all the needs of the system, non-instructional and instructional alike. Including facilities and IT, other operational costs, including the needs of the compliance infrastructure that we have in the state. So if the only thing the formula was supposed to cover was the direct instructional cost of educating students, having that decline of funding based on the movement of students makes a little bit more sense.

But essentially districts are being penalized in two ways. When there's declining enrollment, um, because there's an increase to the cost of doing business, which is compounded by changes in the system that are also involved in increasing mandates or regulatory requirements. And so over time, when the BSA has not been adjusted with consideration for inflation or those other requirements that are built into the system, even with declining enrollment, the needs to maintain the system and to run it are the same or greater. Um, additionally, one thing that I wanted to address was that that 14%, uh, increase in the SPED population that's been talked about in committee is just for the regular SPED population, not for the intensive needs students. So that 14% increase, um, is meant to be met with the 0.2 factor that's found in the formula that also declines over time when, regardless of whether or not the SPED population increases.

So when there's a general enrollment decrease, that amount also decreases, and even more so when the BSA is, is flat. And so there's some things in the system that need to be addressed in terms of kind of realigning our formula funding with the cost of doing business. And HB 261 really provides one way of making an incremental adjustment to the formula as a whole that better aligns with providing for the cost of running a school system. Thank you for your time. Great, thank you.

And Ms. Parrott, I know that we've had you on online before, but if you could just state your affiliation.

Oh yes, sorry, I am the president of the Alaska Association of School Business Officials. Great, thank you very much. We have a question for represent— from Representative Allard. Thank you. Thank you for being here today.

Could you tell me what you believe is the number one reason why there is a decline in the school systems, meaning that people are changing over to do homeschooling, leaving to charter schools, but mainly the decline in brick-and-mortar schools, please? Miss Parrott. Yeah, uh, thank you for the question. Through the chair to Representative Allard, I think that's a great question, and I think that there's many different reasons. Um, I think one of the reasons is that on the whole, across the nation and Alaska, As well, there's a decline in birth rate, so there's less students coming into the system.

I think additionally the system is taxed and having a hard time responding to the needs of students and families. So some families are choosing other alternatives outside of the brick-and-mortar, uh, building. And I think as well there's been large outmigration from Alaska as a whole over the last several years that is showing up in our communities as well. May I? Representative Ballard.

Do you think this has anything— thank you for being here— and through the chair, do you think this has anything to do with the lack of accountability or better education within our school districts here in Alaska?

Ms. Burns. You know, that, that is a great question. I think that we have a pretty amazing system that we offer choices to families. And that when they feel like some need is not being met in the brick-and-mortar system, that they have the ability to go to other, you know, other programs and try to figure out what best meets the needs of their families. I think that when the question of accountability comes up, I think a lot about how we achieve accountability in the system and also sometimes how the system has had to contract or kind of get smaller in some areas, in key areas that actually uphold our accountability framework in districts.

So, you know, districts have heard the calls of community and of policymakers to prioritize the classroom and to cut back on administration and leadership areas within their district, and they've done that. And some of those positions in those areas of the budget are actually the people and programs and infrastructure that supports accountability. So I think it's a really hard environment for school districts. And I know that that's been felt at the state level as well. When not so long ago, you know, DEED had to take a hit as well in budgeted personnel who work on proficiency and accountability as well.

So I think just as a state, our infrastructure to address elements of accountability, both academic and in other areas, has taken a hit. Just one last question. Representative Ballard. Thank you. So I'm going to mention a few things and then I'm just going to ask you a question at the end.

STEM immersion clubs like book club or, I don't know, Chinese book club or Chinese language Spanish, arts, athletics, woodshop, maybe even auto shop. Do you think cutting these things from children encourage them or their parents to keep them in the brick-and-mortar schools? What's your thoughts on that?

Uh, thank you for the question. Uh, through the chair to Representative Allard, absolutely not. No, I don't think so. And I feel that way personally for myself, is, you know, less opportunities for my kids. Is a really difficult pill to swallow, which is why I'm speaking in favor of this bill, because I think it addresses an element of budgetary uncertainty that will allow districts to better plan and potentially save more of those programs.

Just one last one. Thank you for your response. I appreciate your candor. The last one would be, we're looking at almost in, um, from 2027 to 2032, which is about 5 years exception, year or two. That's almost a billion dollars.

Don't you think that money could be used to better educate our children and give them those outlets where they want to attend school instead of in this particular bill?

Uh, thank you for the question. Uh, through the chair to Representative Allard, um, I think that there's lots of different ways that those resources could be put to work to better improve our system. And I think that right now, because there really— it does really feel like we're in a crisis of just trying to preserve our main programming in districts across the state, that maybe first things first in addressing kind of stabilizing the core system And then working toward building in investments to bring some of those opportunities back online. Thank you. Yeah, [FOREIGN LANGUAGE] thank you, Co-Chair Foster.

I just wanted to note for the record that some 80% of our public school students are still in brick-and-mortar public schools. And so in terms of where we can best use our monies to try and benefit students and the sort of activities and programs that will keep them in school, keep them engaged, and keep them learning, I think this is a great place for us to invest those funds so that we can make sure that the vast majority of students in Alaska who benefit from our public system of public education are able to receive those benefits. Thank you, Coach Foster. Okay. And so thank you very much, Ms. Pert, for your public testimony.

And next, we're going to go to Andy DeGraw calling in from Fairbanks. If you can state your name and affiliation.

Yeah. Can you hear me? Yes, we can. All right, thank you, Co-Chair Foster and members of the House Finance Committee. My name is Andy DeGraw.

I'm the Chief Financial Officer for the Fairbanks North Star Borough School District. I'm testifying today in strong support of HB 261. In light of the comments that have been made in the last few minutes, I'm gonna kind of change my testimony, so bear with me. Here in Fairbanks, we— over the last 8 years, we've cut $30 to $40 million that I've personally overseen. I've testified to this committee in the past about those reductions.

They've been extremely difficult and painful in our community. A lot of those challenges that have required those cuts have been reduced enrollment. Here in Fairbanks, we've studied specifically what this looks like— lower birth rates and outmigration from our borough and state are the— by far the vast majority of that declining enrollment, not dissatisfaction with the local school system. Those declining enrollments, we realize, are becoming the norm rather than exception because of these demographic reasons. So HB 261 would be huge in providing stability and revenue certainty for the school district as we've made the huge cuts that that we have in Fairbanks, HB 261 would have provided us a significant soft landing or glide path, so to speak, to where we'd be able to reduce, make reductions to vital programs and supports for students in a more meaningful, thoughtful, and organized way.

A lot of those reductions that we've had to make have been directly related to, you know, outcomes, right? So reading supports, behavior supports are— despite the reductions in Fairbanks, we've been improving our outcomes as far as test scores are concerned. We're very proud of that. We're doing that, we feel, in spite of the reductions that we've had to make. And HB 261 would provide— would have, would have been huge in providing us the ability to make the reductions in a more thoughtful, meaningful way.

Um, just, uh, yeah, other people have pointed out just the uncertainty of having to make student enrollment projections almost an entire year in advance, um, is hugely problematic. And in a sense, it's basically just an educated guess. And so that would just provide us a lot more certainty from a budgeting perspective for school districts all around the state. Thanks for the opportunity to testify. Great, thank you very much for calling in.

And so next up we have Ms. Carolyn Storm calling from Anchorage. If you can state your name and your affiliation.

Good afternoon, co-chairs and members of the Finance Committee. Thank you as always for taking public testimony. My name is Caroline Storm. I'm the executive director of Coalition for Education Equity. We support the current CS of HB 261 because of the smoothing effect it has on funding for public education.

Due to the current instability of funding, we continue to lose quality teachers and programs, effectively robbing students of their constitutional right to an adequate public education. What keeps kids in schools are the enrichment programs— arts, music, CTE, and sport— in addition to core academics. We are still radically underfunding the public education system in Alaska. This bill won't fix the underlying underfunding yet will give students— I'm sorry, will give school districts a more predictable framework for planning programs from year to year. There have been a lot of comments on declining enrollment, and yet the data shows that 80% of our kids are still in our brick-and-mortar schools.

The year-to-year decline is not as significant in total as the shift in enrollment from brick-and-mortar schools to correspondence and homeschool programs. These are still students in our system, and those programs also need more stable and predictable structure for budgeting. I'd like to note that a significant number of correspondence and homeschool students also attend classes and participate in sports in their home district brick-and-mortar facilities.

Please move to approve this bill in committee. This bill is one tiny step towards supporting our school districts and to give them agency to focus on student success and not on what we currently have, which is budgeting chaos. Thank you for your time. Great, thank you very much. Uh, next up we have Kim Hayes calling in from Anchorage.

If you can state your name and your affiliation.

Thank you, Co-chair Foster.

Good afternoon, members of the House Finance Committee, and thank you, Co-Chair Foster. My name is Kim Hayes, and I am an Anchorage resident and a parent in the Anchorage School District. I'm here calling in today to strongly support House Bill 261 because our public schools are being stretched beyond what is sustainable, and our kids are currently paying the price. In our district here in Anchorage, we're seeing larger class sizes, fewer course offerings, and reductions in critical supports like transportation, counseling, and enrichment. These are not abstract budget decisions.

We just learned this week that my child will lose access to transportation to the needs-based program he's in. I know teachers are doing everything they can, but they're being asked to do more with less every single year. And we know our per-student funding has not kept pace with inflation or the real cost of educating students in our state. And meanwhile, expectations for schools continue to grow. We all want safe schools, strong academic outcomes, and opportunities for every child to succeed, but we are not currently providing the resources necessary to make that possible.

House Bill 261 is an important step towards stabilizing school funding and giving districts the predictability they need to plan responsibly. Consistent adequate funding means retaining our quality teachers, maintaining reasonable class sizes, and ensuring that programs that families like mine rely on aren't constantly on the chopping block. As a parent, I want my kid and every child in Alaska to have access to a high-quality public education regardless of their zip code. But right now, that promise feels very, very uncertain. I urge you to pass House Bill 261 out of committee and make a meaningful investment in Alaska students, teachers, and future.

Strong schools are the foundation of strong communities, and this is the time to act. Thank you all so much for your time and hearing this bill today. Thank you, Ms. Hayes. We've got a question, Representative Ballard. Ms. Hayes, Mike, Mike, thank you for being here with us today.

I was interested in the comment you made that you have a special needs child, and the Anchorage School District is no longer providing transportation for your child. Is— was that what I heard you testify on?

Through the chair to Rep. Allard, my child is not in a protected special education program, but he's in a needs-based program, the Highly Gifted Program. It's kind of unique because it's not a lottery program. It's a program your child tests into and then is immediately given access to. And as many know, it's the only highly gifted program in the Anchorage School District It's held at Rogers Park Elementary, and we just learned this week that we will no longer be receiving transportation to that program throughout the entire district, which serves— this program is about 150 students. So it's not protected like other special education programs, unfortunately.

Okay, thank you for the clarification. Okay, thank you very much, Miss Hayes, for your testimony. Next up, we have Joshua Garrett calling in from Wrangle. If you can state your name and your affiliation.

Yeah, Chair and members of the House Finance Committee, for the record, my name is Joshua Garrett, Superintendent of Wrangell Public School District. I'm here today in support of HB 261. Both Wrangell Public School District and the City and Borough of Wrangell support this bill because it moves Alaska towards a more predictable and stable educational funding system. But at its core, HB 261 addresses a structural problem. Right now, districts are required to build budgets using uncertain enrollment projections and funding assumptions that are not finalized until we get well into the fiscal cycle.

Uh, that forces districts like ours into a defensive posture. We plan cautiously, delay decisions, and limit investment because we cannot rely on stable— HB 261 changes that by allowing districts to use prior year or average enrollment. It replaces uncertainty with known data, as many of the other commenters have made clear. It smooths year-to-year volatility and provides funding information earlier in the process. That allows us to plan with discipline rather than react to shifting conditions.

In a small district like Wrangell, this matters even more. A small change in environment can have a disproportionate impact on funding. This bill helps protect against those swings and allows us to manage our resources more responsibly. This result is straightforward. We can make earlier staffing decisions, sustain programs with greater confidence, and align our financial planning with the actual needs of our students.

Not just the school priorities, the city and borough of Wrangell also recognize that predictable Stable school funding is essential for the long-term stability of our community. HB 261 is governance and planning improvement that strengthens both accountability and outcomes. I respectfully thank you very much for your time. Great, thank you. Got Representative Bynum.

Thank you, Co-Chair Foster. Through the chair, Superintendent, thank you for calling in. Appreciate all the hard work you are doing there in Wrangell, and just know that we're paying attention here and appreciate you taking care of the kids there. Okay, thank you very much. Thank you, Mr. Garrett, for calling in.

Is there anyone else in the room who'd like to testify? Seeing none, anyone else online who'd like to testify? Seeing none, I'll go ahead and close public testimony on House Bill 261.

And if anyone would like to submit written testimony, they can do so by emailing us at [email protected]. And so with that, do we have any questions for the sponsor before we move, uh, and before I set an amendment deadline and before we move to the next bill? Any questions for Representative Story? Okay, seeing none. Oh, Representative Staff— Representative Story, if you like, come back up with your trusty staff there.

Representative Staff. Yeah, I guess I don't really have a question to the maker of the bill because she can't answer the question. Coach, I guess my question is going to be more to you. It would be nice if we could maybe try to do some modeling on this fiscal note. As we discussed last hearing, there's really kind of 3 things that dramatically change the projected numbers.

First would be how many districts are currently subject to the hold harmless? When do they come off? And when they end the hold harmless, how does that actually actually affect their foundation formula projections in the event that they switch to this modeling. Second one would be— it would be nice to see the historic change in enrollment trends per district and actually try to project that going into the future the best you can so we could get an actually accurate fiscal note rather than one that just uses a snapshot in time and projects the same number for the next decade. And finally, it would be nice to see what the effect on the foundation formula of the alternative school model is.

I mean, how many of those there are. Do you anticipate more or less if you kind of graph them into the— into the school size multiplier? And I don't know if anyone can answer those, but it would be very helpful because they do pertain quite heavily on the fiscal impact. Okay, thank you very much. And I think Representative Story would like to make a comment and we'll try to, I guess, maybe get to the question of if the modeling is done, how do we proceed from here?

So, Representative Story. Thank you, Co-Chair Foster, and thank you, Rep. Staff, for the questions. First of all, I just wanted to say about the hold harmless, 35% of our districts are in hold harmless status right now. And so what this bill does is it lets them finish out their hold harmless status and then it grandfathers them into— they just would smooth into the averaging. And so we make those commitments for those districts.

They have those numbers. It's— you start 75%, then go 50%, then to 25% of the funding. And so we— and that was something that was discussed and how to handle that. In the bill. The second one you talked about was— I'll go to the alternative schools.

We have 12 alternative schools that cost $5.8 million to do the 12 alternative schools. No, that's— yeah, $5.8 million. And we— I had in the original bill, I had the alternative schools in, and then I took them out in the— in one of the CSs because I wanted to keep the fiscal note as small as possible. And then I started hearing from the alternative schools and from the districts and how important that funding was to meet the needs of those vulnerable students. And so I decided, and the Education Committee decided, to put them back in.

And those schools If the fear is that there will be more alternative schools springing up to capture more of a school size adjustment, I currently— I think we have had those alternative schools for a long time. That maybe would be a question for if there's— I don't see that happening, I guess, is what I would say. And then as far as doing some more projections, some more averaging. We have not done that. It would be maybe looking with economists to see what they are predicting for growth in our state or non-growth in our state.

In many ways we hope that, you know, we are all about economic opportunity and trying to grow in our state. Very much have some businesses like industry on icebreakers coming through the U.S. Coast Guard, things with the gas line. We just don't know when those will happen.

Okay. So to get back to the— Rep. Sam Stanton. Yeah, if I could just clarify, Kuchera. I'd say the maker kind of made the point pretty strongly when she referenced the amount of districts that are currently in a hold harmless. So if you— when you really look at the fiscal note, there is no associated impact of when they actually come off and would be incorporated into the new projections.

And it would just be nice to kind of know, or at least have some sort of thought on what that actually does. So currently the fiscal note, as you see in the out years, it is just fixed in the current enrollment condition. It doesn't incorporate schools coming out of the hold harmless and then going into the new model because they are they're going to be in that system until they run off. And yes, I don't— I just— I like the concept of the bill. I like providing stability.

But I mean, that could— that could give us wild cost differential in the out years without having some sort of kind of guess on what that would do. Through the chair, Representative Story. Yes, thank you. Through the chair to Rep. Stapp, I can talk with the deeds Finance Department a little bit more about why they went just with that flat amount. And I think Heather Heineken did talk about that a little bit when she went over the fiscal note, but I can get some more information on that and get that back to the, back to the committee.

I think what's really important to note as, as schools are, it's very common they're having declining enrollment. And I think I might have mentioned before that This report actually refers to this averaging as a declining enrollment adjustment, and it's the way that districts across the country are still trying to provide for a system of education even when there is an enrollment reduction happening. It's a smoothing that allows people to plan for, to plan for it and to be nimble if it goes up with the averaging. One year smooths down. So it allows them to keep a core programming going while you're still having adjustments.

And I think about— we've all talked about with our school bus and they have to follow certain routes. And if you lose half the kids on the route, you can't end that school bus. You have to keep it going because we provide for public transportation for access to school. And so as you decline some students, there is still a level of public education, a system that we want to provide. And we want to provide that basic system.

Okay. Oh, and—. Representative Story. Thank you. Sorry to interrupt you there, Co-Chair Foster.

I did want to say one of the questions you asked Rep. Bynum about was if they had an increase increase in the enrollment. And this bill provides for a current count only if you had a 5% increase enrollment or above. So you would still take the prior 3 years or the previous. But if in that current year your enrollment came in 5% above, the Department Deed puts it in here, they would, would help your district. So that means like, you know, this settles the enrollment as of July 1st, you know, your student count.

But say you get those 100 extra students, DEED would see that coming in and they would allow you to have the staffing for that because they know in law if you have a 5% increase or more, they are going to help you afford those teachers. So we tried to— and that was a consideration of school districts we talked to. What if we do get a big increase in enrollment? How can this help? We don't want to wait until next next year to hire those teachers for that extra 5% bump.

So that allows for it.

So I think, Representative Stepp, your question about the modeling, it sounds like Representative Story is going to follow up on that. I think our intent was to set an amendment deadline for this Thursday, but I think we only started hearing this bill last Wednesday, and so We'll go ahead and maybe, Representative Story, have you look into the modeling. We'll let folks know if we want to change up that. I'm not going to set the amendment deadline right now. We'll discuss it with my staff, and in all likelihood, we'll push it back a little bit to give folks some time to really look at this and make sure that we're doing our due diligence.

So I do want to go back to public testimony, and we do have one person in the audience. Here and then we'll come back to questions in line. I do have Representative Bynum, Representative Allard, but I'm going to go and open up public testimony on House Bill 261. And with that, I'd like to welcome up former Representative Harriet Drummond. Served with her for a number of years and happy to see you here.

And if you'd like to provide your public testimony on House Bill 261, if you can I think put yourself on the record. You're probably familiar with the— with how it's done. I know the drill. Thank you very much, Mr. Chairman. It's delightful to be here.

I just wanted— as a former member of this body for 10 years, a member of the House Committee on Education and Early Development, and as a chair or a co-chair for 6 years of that committee, as well as a 9-year member of the Anchorage school board. I know what I'm talking about when it comes to school funding. And I have wanted— I am thinking I'm going to write this as a letter to the editor, and I've been talking about it for too long, but I'm going to put it here on the record. You can give a big fat PFD to the kindergartner in Kiana, to the sophomore in Soldotna, or the 5th grader in Fairbanks, but those students can't pay for an extra teacher for their school or to keep their favorite teacher in their school. They can't fix a school roof with that money.

As a PTA member many decades ago, we were so frustrated that we could raise all the money we wanted, but we couldn't do anything except buy playground equipment or something like that. But we couldn't pay teacher salaries with that money no matter how much we raised. And, uh, apologies. Apologies for my annoying phone. That's really all I needed to say in terms of how to divide the funding that's available to you as finance members for the many needs in this state.

But it's— to me, it's most important to properly fund education because every one of those kids deserves to have a quality education, just like my kids did all those decades ago. Um, Anchorage used to be touted in national business publications as a great place to move, to run a business, and to raise a family because we had excellent schools, as did the entire rest of the state. But we're failing that, as you know, and we need to properly fund education, um, or just continue to face the decline that this state is facing if we don't do it right. Thank you very much for letting me speak today. Great, thank you very much.

Do we have any questions? Representative Baldwin. Thank you. Uh, I just wanted to take a moment if I could to honor and thank the representative, former representative, to come here. It's, it's just an honor to see you and a joy.

I know that you've been through a lot of troubling times personally, and I'm just so grateful that you find us here as still a family willing to support and love you and I'm glad that you're still here rooting for kids. Appreciate you. Thank you, Representative Galvin. I love Juneau, and I totally enjoyed my time in this state with so many of you in this city. Thank you.

Great. Thank you very much, Harriet Truman. So if there's nothing else, nobody else in the room who would like to testify or online, I'll go ahead and close public testimony on House Bill 261.

I'm not closing public testimony yet. Do we have somebody in the room? No? Okay. So we're going to go ahead and close public testimony on House Bill 261.

Okay, and we're back to questions. And so with that, Representative Story, if you'd like to come back up. And we've got questions from Representative Bynum, then Allard. Representative Bynum. Thank you, Co-Chair Foster.

I'm going to hold my questions for now. If we're going to be bringing this back, then not setting an amendment deadline, I'm going to hold my questions and try to get them answered offline, or at least get the bill sponsor prepared for the questions so that we can be a little more useful with the time here. Thank you. Great. Okay, Representative Ballard.

Yeah, thank you, co-chair. I'm going to hold off on my questions as well. It's about holding harmless and the double billing of kids, so I'm going to wait for those questions. Okay. OK, Representative Story.

Ah, yes, thank you. And I do have some information that I can send about the modeling and about the hold harmless of kids. We can find that out for you. But I did want to say, I just want to remind everybody, no matter what the models come out with and what we learn about hold harmless, is we have a flawed budget, education budget process. Process.

And that's not going to change with whatever modeling I come up with. We still need to correct our timelines, I believe wholeheartedly, and be able to give teacher contracts— contracts early. But I will work really hard to get that information for you. But please keep that in mind that our current funding budget process is flawed and it needs to be fixed. Okay, thank you very much, Representative Story.

And we're going to jump right into the next bill, and that is House Bill 271. That is the Kitchen Lights Unit Royalty Modification. And I'd like to invite up Representative Fields as well as his staff, Mr. Michael Noddy, if you'd like to put yourselves on the record. The plan is to receive a brief recap and then go over the single fiscal note, and then we'll go into questions. And so with that, Representative Fields.

Thank you. Zach Fields, House District 17. House Bill 271 puts in statute an indefinite royalty rate of 3% for the kitchen lights unit. That 3% is the same as the department implemented administratively. Longer period, I believe, would create a more favorable environment to raise capital and invest in more natural gas development as the current administrative royalty modification could be changed by any future Commissioner or Administration.

Thank you. Great. Thank you very much. And we do have a single fiscal note. Mr. Ryan Fitzpatrick, if you are there, if you could put yourself on the record and walk us through the fiscal note and also note the control code that you have on your notes.

Hello. This is Ryan Fitzpatrick. I am the Commercial Manager. Mr. Fitzpatrick, we can barely hear you. Maybe you might be on a speakerphone.

Mr. Fitzpatrick, are you there?

Hello, can you hear me now? It's still barely audible. Are you on a speakerphone? I am not. I sincerely apologize.

If it's okay Hey, with the committee, let me try calling back on a different line. We've turned you up quite a bit on the audio on our side, so I think you're better now. Go ahead and if you could walk us through that. Okay, excellent. So for the record, my name is Ryan Fitzpatrick.

I'm the commercial manager for the Alaska Department of Natural Resources Division of Oil and Gas. I was one of the analysts that prepared our fiscal note for this particular bill. Fiscal note reflects that there are no additional incremental expenses in administering this particular legislation. We note a change in revenues beginning in fiscal year 2032. Based on our understanding of this bill, it would extend the 3% royalty rate that the department put in place under its royalty reduction decision.

Indefinitely. Based on modeling that we did in January when we pulled this fiscal note together, we anticipated at that point in time, based on the information available to us, that by the terms of the royalty modification granted by the department, that royalty modification would lapse around the end of calendar year 2031, and that the royalty rate would return to its normal 12.5% in approximately January of 2032. Uh, and so the fiscal impact that you see in fiscal year 2032 is for approximately the December to June portion of, uh, calendar year 2032. Um, that would be the, the difference in the royalties between the 12.5% that the royalty, uh, reduction, uh, would take place under this bill versus the 12.5% that would jump back up to under the department's royalty modification decision. So in fiscal years subsequent to 2032, we'd expect the impact to be roughly double of that.

And then I would note that the change in revenues reflects two separate line items. One is the general fund, which receives 50% of the The general fund receives 50% of the revenue from these royalties. A general fund receives, I believe, 49.5%. And then in the narrative, we know that another small portion goes to the school fund designated general fund, which is a separate code as well.

Thank you. Through the chair— co-chair, Mr. Anderson, great to hear your voice. I have a question. I see that you've projected from 2032. Are you projecting that it would be the same then for every year thereafter 2032, that the state would likely be giving up 2.5% $646 million in revenue, or is it possible that these numbers would ratchet up from there?

Uh, Representative Galvin, through the chair, um, no, I believe the, the numbers that we prepared for fiscal year 2032 only reflect one half of a fiscal year in which the royalties, um, would go back up to 12.5% under the current royalty modification decision versus stay at 3% under this legislation. So we'd expect that in subsequent fiscal years beginning in 2033, that that effect would approximately double—.

That that would approximately— so if 20— pardon me, through the chair, if I may follow up. Representative Galvin, thank you, Mr. Anderson. Did I hear you say that it's possible that 2033 would be more than this?

Representative Galvin, through the chair, this is Ryan Fitzpatrick from the Alaska Department of Natural Resources. Yes, that's correct. The amount would go from approximately $2.6 million in foregone revenue in fiscal year 2022 to approximately $5.2 million in foregone revenue in fiscal year 2033. Uh, and I should note that those are projections based on the projected, uh, production and price that we were using, uh, based on the, the numbers that we had available in, uh, January. Um, I should also note that, uh, I believe that representatives from Fury Test testified earlier in this committee that there were some additional updated forecasts that they had presented that could bring that, that kind of breakeven date forward, which would indicate a higher price and kind of an earlier breakeven.

So this is still just a projection. But yeah, we'd expect that just because of how our modeling worked in January, where that, that ratcheted up back to the original royalty rate, occurred right in the middle of the fiscal year, that the impact would go up in subsequent fiscal years by about double what you see in that fiscal note. Representative Kalden. Thank you, Mr. Fitzpatrick. I appreciate that.

And I'm sorry I got your name wrong initially. I would— so I appreciate what you're hearing, that there was some testimony that said it may be even higher. But did you— or have you had a chance to look out 5 or 10 years ahead? Or is it pretty much just 2032 and 2033 that you have modeled out for now? [Speaker:MR. BOLL] Representative Galvin, through the chair, the numbers that I have in front of me really only go through 2032 or 2033.

The future years impact beyond that would be in approximately the same range, but would vary based on what we'd expect to see in terms of declining production from the field over time. We could prepare those numbers for the committee and follow up with them if that's the committee's desire. I think it may be helpful for us to know if you'd be comfortable with that hearing what the projected loss of revenue might be just given that this is a new concept that we haven't fully fleshed. Okay.

Mr. Fitzpatrick, if you could provide that to the committee. And I have one more question. Representative Galvin. One last follow-up. And I— this is just something I was trying to understand.

That I— let me just get to the point. If this— or if, if HEC sells this lease or their rights to this lease, would it then transfer to another owner the same— if, if this were to pass, would you be looking at the same modeling, or is it possible that that the other owner might own other leases and it would apply to them as well.

Representative Galvin, through the chair, that's, that's perhaps a little bit of an involved question. Under the current royalty modification statutes that the department operates under, specifically under Alaska Statutes 38.05.180(j)(5). The royalty modification— a royalty modification that is granted by the department is not assignable to a new entrant automatically. It has to be approved by the commissioner in order to transfer to a new owner or operator. And typically at that point in time the department undertakes an additional evaluation to determine whether or not the royalty modification— whether it still makes sense to transfer to the new operator.

Typically, the situations that we see when we grant the royalty modification are still in place. It makes sense to transfer that royalty modification. But it is something the department looks at, and it's not an automatic process. Our understanding based on this legislation is that, uh, and I believe Section 2, there is a reference to the assignment process under 180(j)(5), uh, and so I believe that that would be the same under this legislation. Uh, that at least is how we read the legislation.

So it would still be a decision by the department whether or not to allow the transfer of that royalty modification to a new owner. Thank you. Okay, Representative Fields. Thanks. Yeah, I just want to point out for committee members, there's no foregone revenue if there's no production.

This is a field that has a 25% royalty plus ORE rate. If the royalty modification ceases, production will cease. This is a field that gets every— that gets more expensive with every passing year. So To say that there will be foregone revenue, I think, ignores the economics of the field. My purpose in the bill is to give a producer a little predictability.

How can we know that there will be no foregone revenue if there's not production and not royalty modification? Well, Hex purchased this from a company that went bankrupt under the pre-royalty modification structure, and production was declining inexorably until royalty modifications. So I think the economics of the field are pretty clear. Other producers have been extremely challenged in making this field work. Hilcorp has been pretty transparent, um, that even without the Ori burden on most of their units, they are rapidly reducing production from the field again because it's not high profit margin after their current contract with Nstar expires.

It is also important to look at when does that, uh, Hilcorp contract with start expire, we have a very serious cliff in terms of natural gas availability, actually right at 2033. So I would say it's imperative we think long-term and maintain production in the inlet. And we face a serious risk of production being cut by more than half if we don't think about natural gas production out of the inlet. Thank you. Rep. Galvin.

Thank you. And my understanding is there's a process by which a company The company goes to the department and explains. They know far more than we do here at the table with regard to the field and whether it's producing or producible or not. And then they also look at the books in ways that we can't. There's a lot of things that they know in terms of confidential information.

And they cut a deal. And my understanding is they did cut a deal and they're willing to cut another deal if they find out— of course, it's their job. They must ensure that they keep production going. And so I just want to respect that, that there is a process. We're kind of skirting it a bit here, and I'm not suggesting that we shouldn't.

I just want to make sure that we're doing it appropriately and asking all the questions and getting as much information as we we can before we do something that is going around the governor and the Department of Natural Resources, we would be setting a precedent that I think is also important to be comfortable with. If we are, we are. I'm a little less comfortable setting a precedent because then other— in other times this will come up again and we'll be trusting that that's a good idea. To make decisions without as much information as possible. So that's why I'm asking questions and I appreciate the conversation.

Thank you. Okay, in the lineup I've got Representative Hannan, Ellard, and Stepp. Representative Hannan. Thank you, Co-Chair Foster. My question is for Mr. Fitzpatrick.

Mr. Fitzpatrick, did the Department of Natural Resource include any anticipated capital investment into the field and the calculation of deductible costs that they may take and how that would reflect in the anticipated royalty. Mr. Fitzpatrick.

Representative Hannon, through the chair, there's not necessarily a question of deductible costs when it comes comes to either the royalties that are paid or under the royalty modification decision. Um, the department included, uh, what it termed a gross revenue, uh, target. Uh, essentially, um, the operator is allowed to earn up to $712 million, uh, from, uh, gas sales from the unit, and at that point, the royalties, uh, adjust back up to the original 12.5%. Um, during our evaluation of the, uh, the field and the royalty modification application, that gross revenue target, the $712 million, uh, was fixed in large part due to the underlying cost of operating the units, um, and adjusted to the point where the department felt, um, was sufficient to create an economic opportunity for the capital investment that had been planned by the operator to continue and for the field not to shut in prematurely. So yes, those capital expenditures were considered in the application, but it was incorporated into that cutoff amount.

It's not a question of necessarily deducting them against the royalties. And one follow-up for Sam Pannon. So from the fiscal notice that's laid out, Mr. Mr. Fitzpatrick, it would anticipate— DNR would anticipate meeting that gross revenue threshold that exists in the agreement currently in 2031, correct?

Uh, Representative Hannon, through the chair, um, it would be in approximately 2031, uh, obviously depending on exact production levels and pricing for gas over over the course of the next couple of years, that number could come forward or it could be pushed out just depending on those two factors. But based on the information that we were looking at when we pulled this fiscal note together, yes, our estimate at that point was approximately in December of 2031 it would reach that cutoff peak. Thank you. Thank you, Chair. Next up, I've got Representative Ballard.

Thank you. Through the chair. So Representative Fields, it was kind of a little bit alarming what Representative Galvin had stated about maybe skirting the system. But I pulled up the Alaska Constitution, State of Alaska here, and Article 8 says that the statement of policy in its State Statute 1, and it says it's the policy of the state to encourage the settlement of its lands and the development of its resources by making them available for maximum use consistent with public interest. But if you go to paragraph 2, it says general authority, and it says the legislature shall provide for utilization, development, conservation of natural resources belonging to the state, including land and waters, for the maximum benefit of its people.

So based on the Constitution, I don't see how the system's being skirted at all. I think that this bill is just utilizing the system that's given to them to do. So thank you for bringing the bill forward. Okay, I think in response to that, and then we'll come back to the queue. Representative Galvin.

Thank you. I'm just going to read, if I could, through the chair. This is actually from public testimony by a former oil and gas Director, the commissioner's findings must state that granting a royal modification meets the definition of, quote, best interests in this of the state, end quote, for oil and gas development as defined by AS 38.05.180A and including supporting analysis specified in AS 38.05.1 ADJ. And then it goes on from there to explain the process that we have in statute that helps, I think, further outline how we get to what you see in the Constitution. So it is, of course, following the more general overriding piece of making sure that we are developing our natural resources to the maximum possible opportunity.

So I will just leave it at that. But there is a very good, I think in our, I hope in our packet, public testimony from April 20th, and that is from Kevin Banks, a former oil and gas director. [FOREIGN LANGUAGE] If I just wanted to— on this issue of what is maximizing development, I just want to go back to slide 4 in the presentation. So this bill puts in place a royalty modification based on economic data from DNR. It puts in statute the royalty modification, and the department modeled total state revenue and found that royalty modification increases total state revenue because without royalty modification, the field is simply uneconomic.

So, um, it's actually putting in place, um, a decision made by the administration with that data. Now, an important caveat is current law constrains the department because they do this gross, um, figure. The royalty modification cuts off at a gross figure. That disincentivizes major capital investment. That's a simple economic fact.

And so I think the department is right. State revenue is higher with royalty modification. I would say it's also on us to change the statutory framework so we incentivize major capital investment, i.e., in a jackup rig and get more resources out of the basin. DNR doesn't have that ability with current statute. So anyway, thank you.

Rep. Sandestad.

Yeah, thank you, Co-Chair Foster. Through the Chair to Rep. Fields, what happened to our last jackup rig that we paid for From the state to the chair. Representative Fields. Through the chair, great question. There's a reason this bill is not cashable credits.

It simply is a reduction in royalty rate. And I think I would refer you to the producer to talk it. Looking frankly all around the world at trying to acquire a jack-up rig, they are expensive, $50 to $100 million. Before the Iran war, I have to assume the costs have gone up. I think it's realistic to say we don't know if we're going to be able to get an additional one in the inlet.

But we at least want to have the economic conditions where it's possible to make that pursuit for an additional jackup rig or other major capital investment. Thanks, Paul. Mr. Kuchar. Representative Sell. Yeah, thank you, Kuchar, through the chair to Rep. Fields.

Yeah, last time I checked, that Earl Jackup rig is off the coast of South Africa somewhere. The reason I bring up the question is because I look at the bill and I actually— I mean, I'm going to kind of applaud you. We kind of agree, I think, on the issue in Cook Inlet Basin. The difficulty I have with the bill is it appears as though we are granting special dispensation to one company and one unit that can't produce enough gas even under the best economic conditions to meet the demand and projected decline of the basin. So I guess my question to you is, do you look at this as a special act that's limited or— to just this Kitchens Lights unit as opposed to expanding it to a more general basin-wide?

Through the chair, Representative Fields. Sure. Through the chair, we have the most data for this unit. That's why I introduced the bill, because we have the data so we can clearly say it is in the public interest to extend this royalty modification. You can look at the public interest in multiple ways.

Number one, as DNR has documented— again, this is data on page 4 of the slide deck that we discussed at the last hearing— This bill produces more revenue. We get more natural gas production. And when you look at the last winter, Kitchen Lights unit, which was just under 10% of basin-wide production, was essential to meeting gas supply needs in South Central. And obviously, since electricity is distributed up and down the rail belt, there is a rail belt-wide impact. To the extent that we are more successful with gas production out of the inlet in the future, We can drive down energy costs in Fairbanks.

We have to get more gas. So I think, number one, this is not local or special legislation because the kitchen lights unit is essential for meeting gas supply for both heat and power in an entire region of the state. That's number one. Number two, do I extend— do I support making an effort to further modify royalties for additional units in the basin? Yes, absolutely, I support that.

I don't think we as a legislature necessarily have the information to represent— Galvin's point— to go pick a percentage figure royalty for the Cosmopolitan unit or the other units because they have variable ori rates and they may have variable cost structures. We don't know what those are because the department hadn't done the work yet. So my suggestion is if the committee wants to take it basin-wide, we could direct the department based on certain criteria to proactively pursue royalty modification and/or invite producers to come to us and, in exchange for sharing perhaps more detailed economic data, make a case for further royalty modification. So, yes, I would like to be more proactive in pursuing royalty modification. The committee could also look at the combination of overriding royalty interest and state royalty rate to look at a combined cost burden and try to have a combined cost burden that approaches the 12.5% state royalty.

So you could look at both of those in aggregate, because of course they're just costs on production, right? So it is important to look at them holistically. So it's hard, I think, to say state royalty in the entire basin should be 3%. That's a tough decision. I would say we don't quite have the data.

I think, could we say it is— and we're going to direct DNR to pursue further royalty modification to have equitable total royalty burden across inlet units. I think that would be reasonable. And we could direct the department to say, hey, let's more aggressively pursue royalty modification, seek the economic data from producers who wish to share it in order to get more gas production. And I would be very supportive of however the committee wants to look at that. Okay, I'll follow up, Mr. Fletcher.

Representative Staff. Yeah, thank you, uh, Co-Chair Foster, through the Chair to Rep. Peltz. Uh, kind of gave me a segue into legal memo we have from Emily Neumann. So obviously Article 2, Section 19 of the Constitution says the legislature shall pass no local or special act if a general act can be made applicable. So obviously in the legal memo, Megan mentions this and she talks about the legislative finding section and recommends stronger language demonstrating purpose and necessity necessity for the legislation.

Because the way I, at least I'm reading this legal memo, is she looks at your bill as a special act when a general act could be applicable. That's probably why I'm so adamant about talking about basin-wide. That would probably fix that issue through the chair. Through the chair, legislative advised us to have the findings explaining why we're doing royalty modification in Kitchen Lights. So I think this bill would be quite legally defensible as it is.

Having said that, I certainly support making it broader, just recognizing that we do have more limited information. And I think if the legislature passed this bill as is, then should someone challenge it, we would share with the court we had the most detailed economic data on this basin. This basin was essential with others in meeting demand up and down the rail belt. And I think that is a very strong defense, and we've articulated it. Glass full.

Perfetto, sir. Thank you, Commissioner Foster, through the chair to Rep. Fields. I don't know if you know, I'm curious though, is there more gas available in Cosmopolitan than there is in Kitchen Lights, or do we know through the chair? Through the chair, I think it is fair to say there is a comparable amount of gas that may be economically recoverable from Cosmopolitan. Cosmopolitan also has a higher than average royalty plus ori cost burden Cosmopolitan has been challenged in raising capital.

So I think when you look at, hey, could royalty modification work to provide investment predictability to raise capital, I think it would be helpful. I think the producer and Cosmopolitan has shared with legislators they are going to be doing directional drilling soon. And it is also true that an additional jack-up rig would enable greater gas production out of that unit. So are the same economic fundamentals there for Cosmopolitan as Kitchen Lights? I think yes.

Having said that, the department obviously has less detailed economic data from the producer. Thanks. Okay, just want to let folks know that we also have online available for questions Mr. Mark Slaughter with HECX. And next question we've got, uh, to Representative Josephson, then Galvin and Bynum. Representative Josephson?

Yes, uh, To the sponsor, how would we incent the purchase of a jackup rig? Representative Fields. Through the chair, I think the primary way is by having a longer period of guaranteed royalty modification because, as Representative Hannon noted, the gross— there's this gross value cutoff. So in a gross value cutoff, a producer is— any producer is disincentivized from making capital investments because the $1,500 million They would invest in a jack-up rig. They actually reduce their profit margin per MCF of gas produced.

A gross value cutoff for royalty modification disincentivizes major capital investments because it drives down the per-unit profit margin for the commodity. I think—. Yeah, thank you, Mr. Chair. I'm not unsympathetic to what you're doing.

But it makes me wonder whether that should have been built into the DNR royalty reduction, because this is already extending into 2033 or something. Anticipated, anticipated through the chair, anticipated through the chair, anticipated. Yes. You know, there's certainly been discussion of, hey, maybe we need a time period that is not indefinite, but a longer time period to relook at royalty modification. And if the committee wanted to do that, you could put in there you know, criteria around major capital investment, including but potentially not limited jack-up rigs, because again, looking at Cosmopolitan, jack-up rigs are one but not the only way of extracting additional gas from the inlet.

Okay. Thank you. Okay. Representative Galvin and Bynum. Representative Galvin.

Thank you, Co-Chair Foster. Through the chair, to the sponsor, I appreciate your thoughtfulness and you're having studied this particular business and its needs quite a bit and just kind of looking for ways to squeeze out more gas. Totally appreciate that. And I also appreciate that we've heard from Mr. Fitzpatrick at DNR and, and they have a job to do as well, which I think is somewhat similar. It be— awkward, I think, for us to be starting to take in every— like you had mentioned, well, we could entertain anyone who comes to the table and says, give us more.

And I just want to reiterate that that's why we have a process. And so my question is, what has— what is it that has driven us to come to the table here on this one as opposed to many others? And then I'm going to ask one more question from DNR. Representative Fields. Yeah, through the chair, first I want to start off by thanking former representative, now Senator George Rauscher, who introduced a royalty modification bill.

I was on the committee that looked at it. I didn't support it at the time because I didn't feel like I had the economic data to support it. When the department went and made a royalty modification for the kitchen lights unit based on very detailed economic data from the producer, At that point, I felt like I had more than enough information to support extending that royalty modification, again, because it is in the public interest on multiple levels. More state royalty, more gas, it's in the public interest. I think the department doing that work on Kitchen Lights Unit also gave us a window into the economics of producing in Cook Inlet.

Are there larger producers in Cook Inlet than Kitchen Lights? Sure. They have more access to capital? Yes. But fundamentally, the economics are there, that it's a declining field.

It gets more expensive, more difficult with every year. And on some fundamental level, what is true for kitchen lights will also be true for other units. Now, since kitchen lights is the most burdened in terms of ORI plus state royalty, it may not be necessary to go down to 3% for those other units. It may not be maximizing state royalty for those other units, but we know on some fundamental level that royalty modification diversification will be necessary if we are meaningfully going to extend the production life in Cook Inlet. And I think DNR's very detailed work on Kitchen Lights Unit gave us that more detailed look into project economics in the basin, and we simply did not have the benefit of that data when we were considering Representative Rauch's bill a couple years ago.

Thank you. And follow-up, if I may. Representative Goldman. Thank you. Mr. Fitzpatrick, you're there as an economist for the Department of Natural Resources, is that right?

Mr. Fitzpatrick.

Representative Galvin, through the chair, work in the commercial section. My background is in finance and law, but we do have economists within the commercial section as well. Okay, thank you. And I appreciate— I imagine you were part of the discussion around what drew us to a 3% from a 12% already that the commissioner put in place with a— it sounds like there was a gross revenue target of $712 million. In that process, did the company come to you or to the department to ask for— did company ask for help in purchasing capital equipment and did it ask you to consider that in your work as a possible use of a jack-up rig, for example?

Mr. Fitzpatrick.

Representative Galvin, through the chair, there were discussions about the ongoing cost of operating and developing the field, and so that would include both normal operating costs as well as the costs of continued development. I believe at the time that the discussions were happening regarding royalty modification, the discussions around rig at that point in time were predominantly focused on the use of the Spartan, I believe, 141 rig operated by Hilcorp. And so there were discussions on what the cost of the use of that rig was for continued drilling and development within the, within the unit. I don't believe at the time that we were actively evaluating the royalty modification decision, but the question of purchasing a second jack-up rig was part of the discussions with the department at that point in time. But I'm going by recollection there of discussions that were taking place over a year ago.

Thank you. Follow-up. Follow-up. So it seems relevant to me to understand whether HEX has already presented to you that this is an impediment for them getting to the gas, because that would be something I would imagine you would certainly consider in coming up with whatever— it sounds like you essentially came up with a target of 712 $1.5 million revenue to change that scale from 3% to 12%. So was this a consideration, their need to get to a jackup rig?

I just trying to make sure I understand that very clearly. Mr. Fitzpatrick. Representative Galvin, through the chair, my recollection is that the discussions at the time that we were evaluating the royalty modification did not include the purchase of a jack-up rig in the discussions of the ongoing cost of developing the fields. And no, that was not part of the discussion in setting the $712 million gross revenue target that was included in that royalty modification. And follow-up, if I may, with Mr.

Slaughter. Representative Galvin. Thank you. Mr. Slaughter, thank you for being here for questions.

I appreciate it. My question for you is, have you gone back to the Department of Natural Resources to relook at numbers and relook at where you are, and especially in consideration of your wish to purchase or get under contract a jackup rig? Mr. Slaughter, if you could put yourself on the record. [FOREIGN LANGUAGE] Mark Slaughter, Chief Commercial Officer for ExxonMobil.

[FOREIGN LANGUAGE] Through the chair, with respect to Representative Galvin's question, um, for purchasing a jack-up rig, I believe, as I've testified before, we were evaluating one, and that rig then went off the market after we had a crew inspecting the rig and preparing the purchase offer. We have not gone back to DNR with any— other than providing them updates as to our plans for this coming drilling season. We do have the Spartan 151 on contract for drilling at the end of the— at the second half of the drilling season in 2026. Follow-up for Mr. Slaughter.

Commissioner McElhinney. Thank you, Co-Chair Foster. So you presently do have the option, if you chose to, to go back to the Department of Natural Resources. Is that right? If, if this doesn't work out in terms of passing this bill, you could go back to the commissioner.

And I see that under AS 38.0 O5-180(j)(3) requires that the commissioner shall provide for an increase or decrease or other modifications of the state's royalty share by a sliding scale royalty, other, or other mechanism that shall be based on a change in the price of oil or gas and may be based on other relevant factors such as change in production rate, projected ultimate recovery development costs and operating costs. So I'm seeing that that is an opportunity. Is that something you're aware of as well, Mr. Slaughter? Mr.

Slaughter.

Through the chair, Representative Galvin, the way this agreed royalty modification is structured is that the relief could be changed after the fact. So if there's a new commissioner, um, after we've made our financial investment decisions, uh, the economics could change on us negatively. Um, there is no guarantee that we will ever reach the original target amount that the DNR proposed in this finding, so it is not a sure thing And I'd like to again point out that the state of Alaska created the ORIs. It's in the findings of the best interest findings that shows the dates of all the creation of the ORIs. It is not something that the company created.

It is just an unfortunate fact of the matter that the state approved this creation and now we're stuck with having to work through those issues.

Thank you, Mr. Slaughter. I appreciate your sharing what challenges you're experiencing. Okay. Representative Bynum.

Thank you, Co-Chair Foster, through the Chair. Thank you, Representative Fields, for bringing this forward and being here today. We talked a little bit about wanting to see that there was investment investment, capital investment in the field, and that this royalty relief is directly proportional to seeing that investment happen. Are you aware of, since this has been talked about and the initial royalty relief was given, what the impacts are of the changes in federal tax code with regard to immediate capital relief under the new tax code that was passed under reconciliation bill? Um, through the chair, I don't have enough expertise in the recent federal budget reconciliation bill to talk about how much difference that would make for the producer in this case or the other producers in the inlet.

Representative Bynum. Thank you, appreciate that. I think it's an important thing to understand, uh, that because that is a significant change in federal tax code which directly drives investment into capital, and it would be really nice to know how that would potentially impact what we're talking about here. Follow-up question is, one of the questions I had before was about direct impact on ratepayers and basically this pass-through from royalty reduction to ensuring that there's supply, and then what is that actual impact going to be to ratepayers? Typically, it's price, you know, it is going to be supply and demand that drives the marketability of being able to go get this gas or not, whether it's necessary.

There might be scenarios where we're saying that we're running short on gas, and that's going to be under some very extreme conditions. But I'm not sure that there's been an evaluation done that builds into price structures that need. Has—. I don't recall that there was an answer to that, but was there or has there been an evaluation done directly to demonstrate pricing to consumers direct? Rep. Fields?

Through the Chair, no. The administrative royalty modification simply looks at the public interest in terms of gas supply and royalty and then leaves pricing essentially to negotiation with, well, in this case, NSR and the electric utilities. I think if the committee wanted to go more basin-wide with the bill, you could put in place essentially a utility model where royalty modification for additional units is conditioned on a degree of transparency about economics of producing more gas. And you could say there's a capped rate of return for producers who want to go down that road. And you could pick a utility rate of return commensurate with, say, NSTAR, where we say we have an interest in energy supply, we have an interest in transparency, and the utility provides that.

And I think that would be— in the absence of data right now on the other project units, that would be, I think, a very sound way to produce broader royalty modification, because you would have that consumer protection and a guarantee that the savings would be passed along to consumers. That would be one model of extending royalty modification. Representative Bynum. Thank you. Yeah, when I think about this, I think about overall royalty relief and who benefits.

One of the things I think is not a creation of the producer here, but just of circumstances, that we do have royalty holders here that are taking They're basically getting their full royalty. And the only person taking a reduction isn't really a person, it's the State of Alaska. We're the ones taking the reduction here. And I'm not exactly sure that I fully understand who actually benefits from that reduction. Is it the user ratepayer that's going to benefit from that?

Is it Alaska as a whole? Or is it going to be the company that's producing the gas? And I don't know that that question has been answered, but I definitely know who is going to receive the benefit of this overall is going to be the existing royalty holders. And I know that there's been efforts to say let's do something about that, and the response was no. And that makes me ask the question, why?

And if we're going to be putting a bill in place here, I believe that there should be potentially a discussion, at least contingency on the other royalty holders taking reduction as well, or the answer is no. Through—. So through the chair, there were previous bills introduced on royalty modification which I didn't support at the time in the absence of what I felt was enough data. There were also legislative proposals to buy out the holders of the OREs, and I did support that. I do support that.

I think in total fairness, if we're going to be declaring eminent domain over OREs that were previously approved by the estate, you know, there may be some reasonable questions about that, and those haven't been as fully vetted in a committee process as royalty modification. But I do support that. It's worth noting, these were essentially equity— some of the OREs were essentially equity partnerships. You could argue that the OREs were part of making a company at some point successful in exploring a field. So I think just being aware of that history is relevant.

But yeah, I mean, I support driving down the ORE rates. They were granted by DNR. So it's important to recognize that these OREs are kind of a problem of our own creation. [Speaker] So good, Chair Foster. Just one final comment I think is overall, whatever we do, I'd like to be able to see production as a whole increase, whether it's in this unit or other units or other places in the state.

I mean, I think that's what our objectives are when we talk about gas line and other things is we want to see additional production that benefits Alaska as a whole. I also want to make sure that the ratepayers in Anchorage and the other areas that are impacted by this gas aren't harmed. But we also have to take into consideration all Alaskans as a whole when we're talking about this. And if a subsidy is going to be given, we just need to understand what that subsidy is and who it's going to and to who And to what benefit? So—.

Yeah. Could I just also answer that, who benefits? Representative Fields? Through the Chair, I think everyone benefits. So certainly the company has the ability to be economic, so everyone who works exploring, producing that gas benefits the company, the people who work on the platform, off the platform, and so on.

People who are NStar customers benefit because they have enough gas to keep their home from freezing. Utilities benefit. Electric utilities have bought gas from this unit. GVEA customers benefit when we have enough gas in South Central to run highly efficient turbines in South Central and send power north. This winter they were dependent on diesel to create— to generate more electrons in the interior, which had a negative cost impact.

In a global environment of much more limited diesel supply than in the recent past, everyone in Alaska benefits because we have very potentially real supply constraints with diesel. So the more we can generate power without diesel in Fairbanks and MEA, the areas that are at risk of going to diesel generation, the more we protect energy security in rural Alaska. So it is all tied together. [FOREIGN LANGUAGE] Thank you. Okay.

Okay. In the queue, I've got Representative Stepp, Galvin, Allard, and Josephson. Representative Stepp. Thank you, Co-Chair.

So I have some questions for DNR, but I'll just kind of read this to Representative Fields, the sponsor. Page 5 of the DNR's background, it says the KLU produces natural gas, which is quote used solely by Southcentral Alaska Gas and Electric utilities and the one oil refinery located in Nikiski. So that's part of DNR's finding. So I do appreciate you attempting to look out for the interior folks, but it looks very clearly like the KLU unit is solely used in Southcentral for gas production. [FOREIGN LANGUAGE] Yeah, go ahead.

[FOREIGN LANGUAGE] Through the chair, Gwen Holdeman with ACN. SEPP did a very detailed analysis on energy to the House Resources Committee on Friday and has data on the exact amount by which GVA had to run turbines with diesel due to insufficient South Central gas supply. Senator Stout. Yeah, thanks. I'm just—.

I'm reading our DNR study. Um, co-chair, I would like to go to DNR real quick with a couple of questions any questions regarding their executive summary in this? Through the chair. [FOREIGN LANGUAGE] Yeah, thank you. So I guess the first question I have is it says here that the DNR is making the assumption that royalty relief would extend the life of the field 10.5 years.

That's on page 4. It's in the executive summary. My question is how many other fields would have their life extended in the Cook Inlet Basin with royalty modification? Through the chair. Mr. Fitzpatrick.

Uh, Representative Stepp, uh, through the chair, um, that's a difficult question to answer with any sort of specificity. Um, obviously the department doesn't evaluate royalty modifications, um, absent a producer coming to the department. With an application or discussion around an application for royalty modification. So we don't necessarily have the field-level economics to say if a royalty modification would or wouldn't extend the life of any particular field, and if so, by how long. Um, that being said, I think the demonstration of, you know, what happened in Kitchen Light Unit— I want to caution, you know, was in sort of a unique circumstance given that they were undertaking ongoing development and the economics of the field threatened to interrupt that ongoing development.

But I think that it's likely that any particular field could at least at the margin have its field life extended sometimes a very short period of time, sometimes like Kitchen Lake Unit, a longer period of time. With royalty modification, but the extent of that increase in field life is going to depend very heavily on the economics of the particular unit. Yeah, I follow, Mr. Kerscher. Senator Scott. Yeah, thanks.

There's an old saying, what's good for the goose is good for the gander, you know. So I do have another question regarding your production scenarios you have in here. A little bit of concern on page 22, it's subsection 3, Figure 3, where you model production paths for royalty modification, you say DNR elected to model only Fury's provided production curve without further risking beyond the provided 50%. So you talk about how when we model this, we look at 25% risking production and 75% risk, but you said a 25% production risk would mean less production and would take longer to reach the gross revenue target. My question to you is If I don't have a jack-up rig, which they are borrowing someone else's jack-up rig— oh, on contract, paying for it.

I mean, you know, it's— they don't own it though. There's a likelihood that would seem to me relatively high that you may not always be able to use somebody else's jack-up rig because maybe they need to use their own jack-up rig. So why wouldn't you model, um, the 25% production risk which would seem to be very likely given the fact that this producer doesn't actually own their means of production. Through the Chair.

Representative Stapp, through the Chair, when we were undertaking this royalty modification, there was discussion about doing an evaluation that risked both price and production. Ultimately, the conversation around our preferred metric for this field resolving around that gross revenue target.

The risking around price was determined to be sufficiently appropriate for that particular evaluation. But that determination is going to be, again, on a field-by-field basis, kind of what we feel is necessary to meet the evaluation, not just of that particular of that particular field, but also of the royalty modification metric that the department ultimately ends up using. I would note this is the first time that we've used a gross revenue target as a royalty modification mechanism. We are statutorily required to have some sort of mechanism to return royalty back up to 12.5%, and that has to include at least the price of oil or gas and can include other factors such as production. In this case, we combined that price and production metric into the gross revenue target, but because of that and keen around the price, it was deemed appropriate in this particular instance, but in other royalty modification analyses, we have definitely modeled production on a stochastic basis as well.

Yeah, uh, follow-up, Mr. Kuchar. Representative Stell. Yeah, through the chair. Um, yeah, I mean, I— it just seems relatively curious. I guess there's, there's a certain practicality here though in the questioning, right?

Um, I— this— Mr. Slaughter had mentioned there's a probability that they, you know, they don't even get close to these production targets because, I mean, they'll have their jack-up rig And I would assume you kind of need the rig to drill the wells, but I, I'm not out there cooking and drilling wells, but it seems to me like that would need— but so I guess why would you not make a sliding scale conditional royalty relief in your scenarios based on them actually having the ability to have their own equipment for reliable gas production? Through the chair, Mr. Fitzpatrick.

Uh, Representative Stapp, through the chair, that was a large part of the reason that we ended up combining production and price into the gross revenue target. Um, there was, you know, potentially uncertainty around production, uh, in part because of the jack-up rig, in part just because of the performance of the wells, just as you'd see on any other field. Um, but by combining both price and production into that combined gross revenue target. It let the royalty modification either extend if there were problems with either price or production, or shorten up if price and production both came on faster than— or came on larger than initially predicted. And going back and looking at the production based on Furie's— the production curve that Furie gave us during royalty modification versus what they've actually managed to achieve with this particular unit, they've actually managed to exceed their prediction of performance from the field after royalty modification was granted, even based on their pre-royalty modification estimates.

And so, from that perspective, it's been a success in getting that additional production online. Uh, fault, Mr. Kricher. Uh, Representative Stepp and also Mr. Fitzpatrick, I think our audio person is having to turn up the volume when you speak and then we turn it back down when we're speaking, and then we're getting a little bit of feedback. If you could maybe get a little closer to the microphone when you speak, Representative Stepp. Um, so I said I have one— two different questions.

I'll start with the OREs, I guess. So Representative Fields and Mr. Slaughter had mentioned that the DNR itself is the guarantor of these OREs that have kind of put us in this position. And from my perspective, it's kind of a terrible message to basically tell somebody that they can come to Alaska and figure out how to get an overriding royalty interest on some sort of resource development, and the state will ultimately jump in and subsidize them and and cut their royalty rate themselves so they can collect the money, right? So how do you not look like— so if I'm a— let's say if I'm a Houston oil person, I would love this model that we're doing in Alaska, because if I bought something in our state and I had an overriding royalty interest, I would assume that the state would just jump in with a bunch of subsidies and credits, and I could— as long as I held onto them long enough, I'd be able to cash in, right?

So what is DNR's current position on— issuing overriding leases, or OREs, especially in the Cook Inlet Basin. Through the Chair. Mr. Fitzpatrick.

Representative Stapp, through the Chair. I don't want to necessarily speak on the department's decision-making around granting the— or approving the OREs with regards to Kitchen Lights Unit. I wasn't part of the department at that point in time. Been a number of years since those, those ore were initially separated from the leases by the then operator of Kitchen Lights Unit. That being said, you know, I think the discussion around the ore situation in Kitchen Lights Unit and other producing units both in Cook Inlet and on the North Slope does shed a lot of light on the potential problems that ore can create not just at the time when the unit is going into production, but on the back end when a unit's in production and potentially facing kind of end-of-life challenges.

And so the department is very, very conscious of the issues around approving the creation of WORIs by working interest owners in oil and gas units. I believe Mr. Slaughter's represented a couple of times decision out of the Alaska Supreme Court recently regarding the 20% threshold. That was not necessarily something that the— the court did not find the 20% threshold was appropriate for ories. That was something the department had instituted subsequent to approving ories in other units as kind of a notional maximum threshold for ories in other oil and gas properties.

And so this is something that over time the department has looked more and more stringently on as proposals for ore separations have come to the department. So it's something we definitely take a close look at these days. Yeah, follow up, Mr. Kuchera? Representative Staff. All right, I'm going to go simple and practical here.

So let's say I created my own personal oil and/or gas drilling company. It's called Subsidize Me. Drilling Incorporated, and I did some exploration. I bought some leases at the Cook Inlet lease sale that didn't result in anything, and I found some gas, and I came to DNR and I said, hey, I'm gonna— I want to create an overriding lease expenditure on this particular field that I'm gonna name, and I'm gonna ask DNR to approve that. What would DNR's position, knowing that we have kind of entered this phase of state royalty reduction in the event that were to happen going forward, through the Chair.

Mr. Fitzpatrick.

Representative Stapp, through the Chair, the overriding question that DNR asks when evaluating whether or not to approve an ORI, at least in the evaluations that I've been part of and the discussions that I've been part of, has been whether or not the creation of an ORI would lead to an increase in the probability of production from a unit. And so there are circumstances, especially like up in the North Slope where this is somewhat more common, where a service company may take a small overriding royalty interest in part payment for work done on a unit to bring it into production. That's common down in the lower 48. It's something that we have seen on occasion location in Alaska. And so those sorts of OREs where there's a direct link between getting a unit into production or increased production from the unit are something that DNR generally looks favorably upon.

If the ORE application is simply the owner of an oil and gas lease saying, "I've got this lease. I've got all the rights associated with this lease. I just want to carve out an ORE to myself, and it doesn't, you know, matter to the state because it's going to me one way or the other. We typically disfavor ORIs that are being granted simply for the purposes of carving up cash flow between the owners of a working interest, just because similar to, you know, Kitchen Lights Unit, we've seen it in other circumstances, that can create disincentives and kind of problems between, you know, ownership interests down the line if that field is ultimately transferred to another unit. And so that is something that the department looks less favorably upon these days.

Okay. Good to know. I have another follow-up regarding just on a macro sense. Um, good. Here.

Rep. Sandstedt. Yeah, thank you. Uh, what— so do we have any way of looking at, uh, Cook Inlet Basin's production decoupled from the North Slope? Obviously, largest producer we have in Cook Inlet is Hill Hillcorp, and it's not close. Hillcorp's all one entity.

They also operate on North Slope. But it would be interesting for me to see what their actual over-under is on their business strictly in Cook Inlet. Because again, in your own analysis, you make a very clear statement. Kitchen Lights unit is more production, more profitability because of less state take. That's basically what's happening.

We're reducing overall state take and the cost structure of the gas. So if the objective is to get gas, I would imagine now that there are currently fields that Hilcorp operates and other companies operate that are now paying a higher combined royalty rate, including Oris, that they would too benefit from this type of reduction in state take. So I'm curious if DNR has looked at decoupling the Cook Inlet Basin from the North Slope. And if you have any insight in any other fields that currently have higher royalty rates than the now Kitchen Lights royalty rate, through the chair. Mr. Fitzpatrick.

Representative Stap, through the chair, when it comes to royalty modification, the department operates under a single statutory mechanism for royalty modification. That's located at Alaska Statute 3805.180(j), and those requirements are the same statewide. So regardless of whether the royalty modification application is for the North Slope or for Cook Inlet. And so right now, within the context of royalty modification, the Department doesn't have the ability to kind of bifurcate between North Slope and Cook Inlet. That being said, we've obviously taken, you know, a very close look at Cook Inlet recently and, you know, over the years have published a number of studies about Cook Inlet, have worked with Department of Revenue to understand kind of the economics around Cook Inlet.

And so there are— there's information available Partly we run into issues on a field-by-field basis releasing any of that information because it becomes taxpayer confidential or confidential under the department's statutes. But that is something that we do take a look at. And I apologize, I believe there's a second part to that question that I may be forgetting now. Yeah, I'll—. Representative Stegner.

Yeah, sorry to monopolize the time here. I think my questions are pretty good though, Co-Chair, if I could, through the Chair. So just sticking on the bifurcation question, and then I'll go to the other one. So it seems to me that that would— that might be something that should be in the interest of DNR, right? Because the practical aspect of it, we deal with in Alaska is our number one gas producer is also a major operator on the North Slope.

And if you're not bifurcating the two industries, like all those costs are kind of just molded together in the leases, right? So obviously I know, and this is just my level of ignorance, I know that Cook Inlet is not as lucrative because nobody wanted to bid on a lease there. North Slope is very lucrative because we just sold an absolute ton of leases in the NPRA, right? So if we are going to seriously look at increasing domestic production in this aging basin, as I think the sponsor of this bill is kind of— that's the intention, is to get— squeeze more juice out of that, let's call it, relatively aging lemon. Like, why wouldn't we look at attempting to bifurcate the Cook Inlet resource from the North Slope through the chair?

Mr. Fitzpatrick? Other than you don't have the statutory authority, I guess, through the chair. [FOREIGN LANGUAGE] Representative Stab through the chair. Yeah, I think, as I said, the statute doesn't allow DNR to look at Cook Inlet separately from the North Slope for purposes of royalty modification right now. Obviously, you know, the legislature has the authority to take up questions about, you know, how that statute should operate.

Okay, I think I'll end it there, Co-Chair, for now. We'll have more opportunities for questions. I do have— so my intent was to set an amendment deadline for this Thursday. However, We do have, I believe, some maybe fiscal questions, fiscal note questions that Mr. Fitzpatrick will get back to us on. We've got more questions.

We've got questions from representatives. So when we come back in queue, in the queue, I've got Representative Galvin, Josephson, Moore, and Bynum. By chance—. Oh, well, actually, we're going to go ahead and adjourn out for the day, and I just don't want to rush the questions. When we come back, the questions will be Representative Galvin, Josephson, Moore, and Bynum.

And then like I mentioned, we've also got the fiscal note questions I think that Mr. Fitzpatrick will get back to us on. And so with that, Representative Fields, do you have anything you'd like to close, any closing comments before we adjourn for the day? Through the chair, if members are interested in broadening royalty modification beyond this one unit, I'm happy to work with them on what that structure might be. And this is Zach Fields for the record, so totally leave it up to the committee how broad you want to go. Okay, thank you.

The reason why I mentioned that I had intended to set an amendment deadline is just want to let folks know that that will be coming at some point. And so just want to let folks know. Representative Josephson, did you have a— not a question for the bill, but just some clarifying thing? [Speaker:MR. HART] Well, yes. I quickly read the Nauman memo, and I don't think that making it basin-wide is required.

She doesn't sound too alarmed about the Special and Local Act prohibition. If there was a serious consideration of making it basin-wide, I'd need to know what the foregone revenue is to the state. I have a sense of what it is under the DNR rulemaking. Making. But I would need to know what it is for Hilcorp and other developers of gas.

I just don't know how manageable that is. Okay. And if folks can think about that for our next meeting, we can take that more in depth when we come back. Representative Fields? Yeah.

Through the chair, Representative Josephson, I think the committee could direct DNR and give them the authority to do multiyear royalty modification based on certain criteria, and one of those criteria could be more royalties produced for the state across a longer time horizon. So you could actually have it be performance-based if the committee wanted to, because we don't have that data unit by unit right now.

Okay. So with that, our next meeting is scheduled for tomorrow morning at 9:00 a.m., and at that meeting we'll hear Senate Joint Resolution 29. That is the constitutional amendment on education Education Funding Bill. And so if there's nothing else come for the committee, we'll be adjourned at 3:33 PM. Thank you.