(a) The National Petroleum Reserve - Alaska special revenue fund is established. The fund consists of all money disbursed to the state by the federal government under 42 U.S.C. 6506a(l) and former 42 U.S.C. 6508 (P.L. 96-514) since December 12, 1980, less the amount deposited in the general fund and expended by the state by general fund appropriations before June 9, 1984.

(b) The commissioner of revenue shall manage the National Petroleum Reserve - Alaska special revenue fund.

(c) The Department of Commerce, Community, and Economic Development shall adopt regulations under which municipalities impacted by National Petroleum Reserve - Alaska oil and gas development under 42 U.S.C. 6506a or former 42 U.S.C. 6508 may apply for and be eligible to receive grants to alleviate the impact. The department shall give priority in the allocation of grants to municipalities that are experiencing or will experience the most direct or severe impact from oil and gas development under 42 U.S.C. 6506a or former 42 U.S.C. 6508 within the National Petroleum Reserve - Alaska. The department shall fund all meritorious grant applications out of the money appropriated to it each year. Within 10 days after the convening of each regular session of the legislature, the department shall submit to the legislature a list of all municipalities that have received grants, a list of all municipalities determined by the department to be eligible for further grants, a recommendation of the amount of money to be granted for those additional applications, and written justification of each past and potential grant.

(d) It is the intent of the legislature that each year all of the money in the National Petroleum Reserve - Alaska special revenue fund be made available for appropriation by the legislature to municipalities that demonstrate under (c) of this section present impact, or the need to determine or plan for future impact, from oil and gas development under 42 U.S.C. 6506a or former 42 U.S.C. 6508. It is the intent of the legislature that an initial appropriation be made to the Department of Commerce, Community, and Economic Development to cover anticipated impact grants, and that additional funds be made available through supplemental appropriations if the impact is greater than anticipated and the legislature considers the additional grants proposed by the department to be meritorious.

(e) A municipality may use the funds received under (d) of this section only for the following activities and services to alleviate the impact of the oil and gas development under 42 U.S.C. 6506a or former 42 U.S.C. 6508 within the National Petroleum Reserve - Alaska:

(1) planning;

(2) construction, maintenance, and operation of essential public facilities by the municipality; and

(3) other necessary public services provided by the municipality.

(f) Funds appropriated under (d) of this section may not be used for the retirement of municipal debt.

(g) The provisions of this subsection apply to amounts received by the state under 42 U.S.C. 6506a(l) or former 42 U.S.C. 6508, as follows:

(1) amounts received and not appropriated for grants to municipalities under (d) of this section shall be deposited at the end of each fiscal year as follows:

(A) 25 percent of amounts received by the state during that fiscal year under 42 U.S.C. 6506a(l) or former 42 U.S.C. 6508 to the principal of the Alaska permanent fund; and

(B) .5 percent of amounts received by the state during that fiscal year under 42 U.S.C. 6506a(l) or former 42 U.S.C. 6508 to the public school trust fund (AS 37.14.110);

(2) if, after making the grants under (d) of this section, the amounts remaining are insufficient to make payment in full of the deposits required by (1)(A) and (B) of this subsection, the deposits shall be allocated pro rata between the fund deposits;

(3) the amounts remaining after the making of the payment of the deposits in full to the Alaska permanent fund and the public school trust fund under (2) of this subsection may be appropriated

(A) first, to each of the funds described in (1)(A) and (B) of this subsection to recover amounts not paid to those funds on or after September 1, 2006, because of deficiencies in making the payments required by (2) of this subsection; and

(B) after appropriations authorized by (A) of this paragraph, to the power cost equalization and rural electric capitalization fund (AS 42.45.100);

(4) the amounts remaining after any appropriation to the power cost equalization and rural electric capitalization fund shall lapse into the general fund for use by the state for the following facilities and services: planning; construction, maintenance, and operation of essential public facilities; and other necessary public services.

(h) In making appropriations from the National Petroleum Reserve - Alaska special revenue fund, the legislature shall identify the grants for activities, services, and facilities as capital appropriation items and shall specify the amounts for each item. Notwithstanding other provisions of law and unless expressly provided by the legislature in the appropriation item making the appropriation, an appropriation from the National Petroleum Reserve - Alaska special revenue fund shall, for the purposes of determining the funding sources for the appropriation be treated as though the appropriation takes effect in the fiscal year in which the appropriation passes the legislature. The authorization to expend funds appropriated from the fund shall take effect as otherwise provided by law.