Legislature(1997 - 1998)
05/06/1997 02:31 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 238 - MINING EXPLORATION INCENTIVE CREDITS Number 0071 CO-CHAIRMAN HUDSON announced the first item of business was House Bill No. 238, "An Act amending the program of exploration incentive credits for activities involving locatable or leasable minerals or coal deposits on certain land in the state; and providing for an effective date." He asked Representative Vezey to explain changes in the new proposed committee substitute (CS), 0-LS0845\K, Chenoweth, 5/5/97. Number 0086 REPRESENTATIVE AL VEZEY, prime sponsor, explained that page 2, line 22, of the proposed CS clarifies that at the discretion of the department, a geologist may be brought in. In addition, the same paragraph clarifies that it is the party wishing to gain the tax credit who must retain and enter into a contract with the geologist; however, the department retains the right to approve both the selection of the geologist and the contract. The third change, on page 3, "around line 28," clarifies that once the credit is applied for under one statute, it cannot be applied for under this. Number 0270 JULES TILESTON, Director, Division of Mining and Water Management, Department of Natural Resources (DNR), testified via teleconference from Anchorage on the proposed CS. He commented, "I also have the department's lead for the existing exploration incentive credit bill for a new and reopened mine." MR. TILESTON stressed the DNR's intent and willingness to work with the sponsor, the legislature and the industry to craft this new program. He concurs with the sponsor that HB 238 differs radically from the existing incentive credit program. Although the work draft goes a long way towards responding to questions raised by the DNR, questions remain. MR. TILESTON explained that his fundamental concern as an administrator of the existing program is the "degrees of confusion" that create potential risk for the existing program. He explained, "So my comments are geared to keep the existing program and this new program going down similar but parallel tracks. To this extent, I strongly recommend that, as we work through this, that the final version, whenever it comes out of the next committees, either be as an independent chapter from AS 27.30 or, perhaps less desirable but probably workable, a wholly independent subpart of the existing AS 27.30." Number 0449 MR. TILESTON referred to Section 1, which adds geological mapping as an eligible cost for the new program. He stated, "Very frankly, under the existing program, if an applicant came forward as a result of a new mine or a reopened mine and presented the department geological mapping, we would consider that an eligible cost on its own merits. So the first question I've got is: Do we mean something different from the new program than the existing program? When I read the language of Section 2, which talks about additional, supplemental information, it suggests there is a difference. And I very honestly don't know what that difference is." MR. TILESTON stated, "One of the major unanswered questions in the new program is: How will eligible exploration costs for projects that predate enactment of the new program be treated? And page 3, lines 1 and 3, talks about credits for work done prior to the effective dates. Also, how will future exploration costs be treated for work at existing mines that are not eligible for the existing program because they now have all of their permits?" MR. TILESTON cited examples of questions: Does HB 238 intend to provide a credit for work last year at the Greens Creek Mine if they produce a geologic map of their work that has not previously been available to the public? Can past or future exploration costs at the Red Dog Mine be deducted? He mentioned other examples, suggesting these can be answered but that the present language leaves uncertainty. "And uncertainty leads to litigation or problems in the future, which we would like to resolve," he added. Number 0617 MR. TILESTON said in summary, the DNR has worked hard to develop the existing program. They believe this is a good idea but there are issues of clarity they would be happy to discuss as this goes through the legislative process. MR. TILESTON referred to page 2, lines 22 and 29, and said that language refers to the consulting geologist being at the cost of the applicant. He stated, "Yet when we go back to the definition, Section 7, of eligible costs of this bill, the costs for consultants are expressly excluded. Is this really intended?" He said these are the sorts of things they need to work out. MR. TILESTON emphasized that Steve Borell, Executive Director of the Alaska Miners Association, Incorporated, had telephoned him the previous week to set up a meeting that included Mr. Wiltse, Mr. Tileston, the sponsor and other stakeholders; although an initial date of May 16 had been established, Representative Vezey was not available. He stressed that the DNR stands ready and willing to work with the sponsor and stakeholders as HB 238 moves forwards. He advised that his written comments provide details of other concerns. Number 0742 REPRESENTATIVE VEZEY advised that the drafters had not wanted to create a separate statute. He stated, "All the other items that I heard, I believe we have addressed. I'm not going to say that it's perfect, but we're a long way from being completely through the legislative process also." He said he believes they have addressed the problems thoroughly enough to go on to the next step of review. REPRESENTATIVE VEZEY referred to possible credit for work done prior to the effective date of this act. He said the bill is clear that this is totally at the discretion of the department, which must determine that the information is of such value to the state of Alaska that they want to issue a credit for it. He stated, "Everything we do in here always loops back to give maximum discretion to the department." REPRESENTATIVE VEZEY said, "The concern about confusion, as far as mixing up the two: It has been put together carefully, and so far, nobody has said anything that causes me to think that we have made an error. I certainly encourage all the review and do intend to work on this this summer, but I really, unless this committee just wants to work on this more, I think it's ready to go to the next step of review." Number 0890 CO-CHAIRMAN HUDSON said he had heard enough to understand that the department and the Administration were willing to work with the sponsor. While there may be crafting to be done, he saw no reason for not moving it to the next committee. He suggested in the interim, the sponsor would have the opportunity to work with the Administration to come up with a substitute bill. Number 0955 CO-CHAIRMAN OGAN made a motion to adopt as a work draft version 0- LS0845\K, Chenoweth, 5/5/97. There being no objection, it was so ordered. CO-CHAIRMAN HUDSON asked Mr. Wiltse whether he had reviewed that version. Number 0982 MILTON WILTSE, Director, Division of Geological and Geophysical Surveys, Department of Natural Resources, testified via teleconference from Fairbanks. He said the main section he was reviewing was AS 27.30.012. Referring to page 2, beginning at line 22, section (A)(ii), he said it keeps much of the expense of implementing this away from the DNR; he concurs with that. MR. WILTSE stated, "I do have a little bit of reservation yet of whether we've completely separated that financial responsibility; it's nothing that can't be worked out. I think that we do have to recognize that in implementing this thing, that there's going to be some resources necessary to get it off the ground, but after that, I think the cost of running the program can be brought back to a very nominal amount that is not a great burden on anybody. But I think it has to be recognized that there will be some sort of a cost to keep this going, and there will be some start-up costs." He agreed those can be worked out in the process, so that people do not feel they are "trying to build a little mini-kingdom around this bill." He applauded the intent of the bill. MR. WILTSE referred to page 2, line 21, and said he thinks it is possible to read that statement as if the applicant would have a choice of "coming in and dumping his material on the department," in spite of language in (ii). He suggested it would be somewhat more comforting if (i) on line 21 said something to the effect that "the department, at the expense of the person requesting the taking of the credit, or at the discretion of the department." He said that would ensure that separation is clear, that the cost of getting this information in shape to join the public domain would be at the applicant's expense and not something the DNR would have to shoulder. He acknowledged it is possible a lawyer would look at it differently; however, he is uneasy about the current wording. He stated, "If we could get that out of the way, I think we've gone a long way to decrease that fiscal note by a lot." Number 1163 CO-CHAIRMAN HUDSON commented that when he looked at that, he felt it could be left to the regulatory process rather than added in the statute. "But that is, again, something that can be fine-tuned, I think, over the interim," he commented. MR. WILTSE agreed. Number 1195 REPRESENTATIVE BEVERLY MASEK asked whether the DNR believes this will provide an incentive to increase the state's data base on minerals, without the state giving up more than it should to mining businesses. Number 1227 MR. TILESTON replied that it is the belief of the department that the concepts that the prime sponsor has set forth and has testified on will indeed result in data that is not now available to the public being made available; he believes that is to the advantage of the state as a whole. What the long-term consequences of the trade-off of that data against the tax credit will be, he cannot say. Number 1267 CO-CHAIRMAN HUDSON asked, "And Mr. Tileston, doesn't that rest entirely with the commissioner as to whether or not it is in the state's best interest to offer, as well as the application of a potential minerals explorer? Is that the way you read it?" MR. TILESTON replied, "This is one of the areas that we need to explore very carefully, because the present language that this bill has now incorporated provides that an application is automatically approved if the commissioner takes no action. And these are the sort of things that we need to work through, taking your statement and the prime sponsor's statement that this is something that if it's not of value, it would not be accepted. And those are things that we can craft in, in making sure that it does not do something that's undesirable." CO-CHAIRMAN HUDSON said that is how he reads it as well. Number 1319 REPRESENTATIVE MASEK stated concern over whether there is quality control on data coming in and whether there are problems with conflicts over raw data and the interpretations of that data. Number 1336 MR. WILTSE said what establishes data quality in his business is peer review. He stated, "And what we would be doing by going out to the consulting community would be establishing sort of a private-sector peer review process that the applicant would bear the cost of. But there are clearly professional consultant geologists within the state that have the training and the experience to conduct a peer review of this data for the department at the expense of the applicant, and who are knowledgeable and ethical professionals, that we have no qualms about engaging in this process. And we then, of course, would have oversight on the type of report that they return to us and the format of the data that was returned to us, so it would go seamlessly into the public data base and be available to the public. That's a procedural thing that I think that we can craft. And I feel comfortable that we can get to that end in an objective and professional manner." MR. WILTSE said he did not see a conflict of interest issue because there are many consultants in the state who work for many clients, and there are ways of handling conflict of interest issues through contract language, for example. He said that is something any professional engineer deals with all the time. "I don't think that that is a major concern in this area," he stated. Number 1454 REPRESENTATIVE VEZEY advised that there is another change in the CS as a result of similar comments made earlier. He referred to page 3, beginning at line 20. He stated, "We clarify that the time schedule set out for submission and approval of data for exploration tax credits do not apply for this type of a tax credit. So basically, we've given the department an unlimited amount of time to review the data." MR. WILTSE said while in practice there would be a practical limit, he appreciated the fact that the sponsor recognized that evaluating that data may take a significant amount of time. Number 1520 REPRESENTATIVE REGGIE JOULE asked if there was another committee of referral in the House. CO-CHAIRMAN HUDSON advised that the only fiscal note is from the DNR, for $270,000. As they had heard, probably that would be reduced once the DNR sits down with the sponsor and determines some of the cost factors that are still unclear to the department. He suggested it would probably go to the House Finance Committee. REPRESENTATIVE VEZEY concurred. Number 1586 REPRESENTATIVE JOULE noted that everybody agrees with the concept but nobody has come out in support of the bill itself. He said this can have important impacts on shallow gas and other mining activities, and he asked whether perhaps the committee should do further work on it. Number 1677 REPRESENTATIVE MASEK asked what Representative Vezey plans to do during the interim to work out some of the problems, and which areas he plans to work on. REPRESENTATIVE VEZEY stated his belief that there is concern because of getting into the state's tax code. He had worked a lot on the bill and its predecessor, and he suggested it was ready to go to the next committee. Number 1752 CO-CHAIRMAN HUDSON said he believes from a policy perspective, the bill had been adequately reviewed by the committee. He said even the testimony of Mr. Tileston and Mr. Wiltse indicates they see it as a valuable tool, although an imperfect one at this stage. He suggested the House Finance Committee's review of the tax implications would address whether the credits offered are of sufficient value to encourage development of the mineral resources. Number 1788 REPRESENTATIVE BILL WILLIAMS made a motion to move the committee substitute, version 0-LS0845\K, Chenoweth, 5/5/97, from committee with individual recommendations and the attached fiscal note. CO-CHAIRMAN HUDSON asked if there was any objection. There being none, CSHB 238(RES) moved from the House Resources Standing Committee.
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