"An Act amending the National Petroleum Reserve - Alaska special revenue fund to require allocation and deposit to the Alaska permanent fund and the public school fund of amounts in the percentages that are prescribed by law of the money obtained by the state as semiannual payments of a share of National Petroleum Reserve - Alaska sales, rentals, bonuses, and royalties received by the federal government that have not been appropriated from the state's special revenue fund for grants to municipalities, to authorize pro rata reductions in those fund allocations and deposits if amounts are insufficient to make those deposits in full, and, as to amounts received by the state in excess of amounts appropriated for grants to municipalities, to identify a priority of authorization for appropriations to offset past deficiencies in allocations and deposits of those funds before appropriations to other state funds or for other purposes for which the state may use its share of these payments; and directing that appropriations from the fund made as grants for activities, services, and facilities shall be identified as capital appropriation items and that the amounts of each item shall be specified. "

House CS for CS for Senate Bill 171 (CRA) centers on the National Petroleum Reserve - Alaska, a well-known federal reserve, rich in gas and oil. The State of Alaska is poised to receive a significant amount of money from lease sales, exploration, and production of oil and gas in this area. This money is the focus of Senate Bill 171.

The bounty of NPR-A is thought by many to match or exceed the oil and gas deposits found at Prudhoe Bay or Kuparuk. As was mentioned in the Anchorage Daily News, February 15, 2005, "(The) Bureau of Land Management estimates NPR-A northeast corner could hold more that 2 billion barrels of crude oil and 3.5 trillion cubic feet of natural gas." All Alaskans look forward to the time when they can enjoy the benefits of reasonable and responsible development of these natural resources.

When members of the United State Congress authorized competitive leases in NPR-A in 1980, they recognized that development in the petroleum reserve might severely impact communities in or near the area. The federal legislation directed that the revenue generated through NPR-A development be used first to mitigate direct impacts, if any, to municipalities, and then by the rest of the State of Alaska. This federal dictate is in direct conflict with the Alaska State Constitution.

The State of Alaska receives from the federal government 50 percent of royalties and lease payments from the oil and gas development in NPR-A. As required by federal law, these funds are available, before consideration of any other public purpose, to communities that demonstrate impact from resource development in NPR-A. Unfortunately, this directive is at odds with Article IX, Section 15 of our constitution which states:

"At least twenty-five per cent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund."

Since 1983, the State of Alaska has received $167.6 million from development within NPR-A, $122 million since 2000. But as noted in the following chart, only six percent of NPR-A receipts has been deposited into the Alaska Permanent Fund since the turn of the century.

House CS for CS for Senate Bill 171 (CRA) recognizes this unsettling conflict and puts in place a mechanism to help ensure that the Alaska Permanent Fund receives, to the extent allowed under federal law, 25 percent of all oil and gas lease rentals and royalties as directed by the Alaska State Constitution.

In addition, the House Community and Regional Affairs committee substitute requires that the appropriations made as NPR-A funded grants be identified and the amounts of each grant be specified in an appropriation bill as other capital appropriations.

While it is important to address this conflict between our State Constitution and federal law, there remains an equally troublesome issue that must be remedied - how the federal NPR-A payments are distributed to Alaska communities that may be severely impacted by oil and gas development within the National Petroleum Reserve. But in the spirit of compromise, this issue is set-aside for another day.

I respectfully request your support in the passage of this legislation.

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