Legislature(2015 - 2016)BARNES 124

02/19/2016 01:00 PM RESOURCES

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Audio Topic
01:01:38 PM Start
01:02:33 PM HB253
02:56:16 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 253 ELCTRNC TAX RETURN;MINING LIC. TAX & FEES TELECONFERENCED
Heard & Held
-- Public Testimony --
       HB 253-ELCTRNC TAX RETURN;MINING LIC.  TAX & FEES                                                                    
                                                                                                                                
1:02:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO  announced  that  the only  order  of  business                                                              
would be  HOUSE BILL NO.   253, "An  Act requiring  the electronic                                                              
filing of a tax  return or report with the Department  of Revenue;                                                              
establishing a  civil penalty for  failure to electronically  file                                                              
a  return  or  report; relating  to  exemptions  from  the  mining                                                              
license tax;  relating to  the mining  license tax rate;  relating                                                              
to mining  license application,  renewal, and fees;  and providing                                                              
for an effective date."                                                                                                         
                                                                                                                                
1:03:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO opened public testimony on HB 253.                                                                            
                                                                                                                                
1:04:20 PM                                                                                                                    
                                                                                                                                
SCOTT OGAN  stated that  he was testifying  on behalf  of himself,                                                              
and  related  that  although  he  is a  member  of  Alaska  Miners                                                              
Association  (AMA),   he  does  not  have  any   direct  financial                                                              
interest in  the outcome  of the  proposed legislation  other than                                                              
being a  citizen of  Alaska.   He expressed  his concern  that the                                                              
focus of the legislature  is to raise taxes and figure  out how to                                                              
use permanent fund  earnings and reduced permanent  fund dividends                                                              
(PFDs), rather  than the topic of  his testimony.  He  referred to                                                              
a report that he  had prepared when he served in  the Alaska State                                                              
Legislature  titled,  "New  Programs  in  State  Government  1981-                                                              
1998."   He stated that Senator  McGuire had additional  work done                                                              
on  the topic,  and there  is a  new  report that  has since  been                                                              
completed titled  "Legislative Research  Report November  3, 2010,                                                              
11.018 New  Programs in State  Government 1988-2011."   He posited                                                              
that  it  is  extremely  misguided   to  have  the  focus  of  the                                                              
financial discussion  be new taxes and use of  the permanent fund.                                                              
One of the new  taxes being discussed today is  increased taxes on                                                              
the mining industry.                                                                                                            
                                                                                                                                
MR.  OGAN  surmised the  committee  may  be  aware of  new  mining                                                              
prospects in  the state.  He  recounted that while serving  on the                                                              
House Resources  Standing Committee,  he visited the  Donlin Creek                                                              
prospect,  where millions  of dollars  had  already been  invested                                                              
and a camp set  up.  He said 20 years later they  are still trying                                                              
to figure  out whether the project  is viable.  Mines  are capital                                                              
intensive, and the  risk is high.  He maintained  that it would be                                                              
misguided  to add  another layer  of  tax and  uncertainty to  the                                                              
mining industry,  which provides fantastic, high-paying  jobs that                                                              
positively impact  local economies.  He proposed  that rather than                                                              
looking for new  taxes and ways to get into people's  wallets, the                                                              
collective efforts  of the legislature  be focused  on determining                                                              
exactly what type  of basic, fundamental government  Alaska should                                                              
have.  He  said the cost of  doing business in Alaska  will always                                                              
be higher  than in  other states.   He expressed appreciation  for                                                              
government  services,  such  as  the  Alaska  State  Troopers  and                                                              
winter  road maintenance,  but contended  that  Alaskans act  like                                                              
"kids that  grew up with  a trust account"  and will have  to grow                                                              
up.   He  reemphasized that  it  is misdirected  for the  starting                                                              
place of  the financial discussion  to be new taxes  and accessing                                                              
the  permanent fund,  which he  said  is the  most regressive  tax                                                              
possible.   He  warned  that this  sends  a message  to  potential                                                              
investors that  Alaska is not  a good place  to do  business right                                                              
now.   He noted  that commodity  prices are  down concurrent  with                                                              
the price  of oil.  He  said it is  premature to discuss  a mining                                                              
tax, especially  with regards  to new  investments.  He  concluded                                                              
that it  is ill-advised to penalize  people who are  exploring now                                                              
and may provide a generation of jobs for young people in Alaska.                                                                
                                                                                                                                
1:08:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON asked if  Mr. Ogan  could provide  copies of                                                              
the referenced report.                                                                                                          
                                                                                                                                
MR. OGAN agreed to  provide the report.  He said  he would like to                                                              
see hearings on  which parts of the statutes will  be removed from                                                              
the  statute book,  and advised  that the  constitution should  be                                                              
the driver of that discussion.                                                                                                  
                                                                                                                                
REPRESENTATIVE  TARR  asked what  impact  the  tax might  have  on                                                              
investment  and  noted  that  deterred   investment  may  be  more                                                              
closely  linked to  commodity prices  than a  tax increase,  which                                                              
could be perceived as a relatively minor change.                                                                                
                                                                                                                                
MR.  OGAN replied  he  probably  isn't  qualified to  answer  that                                                              
specific question,  but suggested it would be  appropriate to have                                                              
an  objective  economist  conduct  an analysis  of  the  potential                                                              
impacts of these taxes on the mining industry.                                                                                  
                                                                                                                                
1:10:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  noted  the   State  of  Alaska  offers  an                                                              
exploration tax credit  for mining that is tied  to production but                                                              
does not  benefit investors.   He  noted that  mines receive  a 50                                                              
percent tax credit  only after going into production  and becoming                                                              
profitable  and inquired  how to incentivize  the exploration  and                                                              
developmental stages  of mines.  He asked whether,  since there is                                                              
no  credit at  the time  of exploration  or  development, the  tax                                                              
credit on production is actually an incentive.                                                                                  
                                                                                                                                
MR. OGAN  responded  that it is  certainly one  of the  components                                                              
that mining companies  consider when considering  development.  He                                                              
stated  that most  companies  operate worldwide  and  the time  it                                                              
takes for  a mine to go from  exploration to production  in Alaska                                                              
can be  decades.   He said his  opinion is not  as valuable  as an                                                              
objective study  by an economist  qualified to assess  the impact,                                                              
and  added that  he  fought  for and  believes  in  the idea  that                                                              
Alaska must  remain open for  business.   He said what  struck him                                                              
when he visited  the Donlin Mine was the discussion  regarding the                                                              
impact that  hiring for the mine  had on the social fabric  of the                                                              
area.   He  stated that  it was  a  profound economic  development                                                              
program  for the surrounding  region  and the  same held true  for                                                              
the  Red Dog  mine.   He  related  that at  first  not many  young                                                              
people passed  the drug and  alcohol screenings, but,  as benefits                                                              
[of the  mines] were visible  in the communities,  more applicants                                                              
began  passing the  screenings.   He  stated that  this impact  is                                                              
more cost-effective  than  any government  program, welfare,  or a                                                              
check  from   a  village   corporation.     He  reemphasized   the                                                              
importance of not  giving investors the impression  that Alaska is                                                              
not a good place to do business.                                                                                                
                                                                                                                                
1:14:37 PM                                                                                                                    
                                                                                                                                
GRAHAM  NEALE,  Director,  Center  for Mine  Training,  School  of                                                              
Career Education,  stated that  the mission  of the University  of                                                              
Alaska  Southeast,  Center  for  Mine Training  (UAS/CMT),  is  to                                                              
provide  world class  workforce  training  in occupational  fields                                                              
leading  to employment  in the mining  industry.   The gateway  to                                                              
mining  employment is  the  semester-long  introduction to  mining                                                              
occupation and  operations class  offered at University  of Alaska                                                              
Southeast  (UAS), which  has enrolled  approximately 200  students                                                              
since  2011.   He  said  most  of  the students  are  high  school                                                              
students who are  ready to train for and work in  what should be a                                                              
developing  workforce.   Alaska's mining  industry has  tremendous                                                              
potential for  growth, he  noted, but that  growth can  only occur                                                              
if  projects   are  explored,  permitted,   and  developed.     He                                                              
acknowledged  the state's  financial issues  and said  now is  the                                                              
time to  evaluate how  the state can  attract investment  in order                                                              
to multiply future revenues and economic benefits.                                                                              
                                                                                                                                
MR. NEALE  related his  specific concern with  the removal  of the                                                              
3.5-year  tax  exemption  for  new  mines,  describing  it  as  "a                                                              
shortcut to a problem  that doesn't exist."  He said  it would not                                                              
contribute  much to  state revenue,  as there  are not any  large-                                                              
scale projects  that are slated  to become  new mines in  the near                                                              
future.   However, there  are several  advanced-stage projects  in                                                              
the state  that are anticipated  to become future mines  and would                                                              
be forced to  re-evaluate their feasibility in the  absence of the                                                              
tax exemption.   The UAS/CMT has been working  with these projects                                                              
to  develop training  timelines and  put Alaskans  on pathways  to                                                              
mining careers.   He said, like  any business, a  mine's financial                                                              
load  occurs  at start  up  and  during  construction.   If  these                                                              
projects are  unfeasible to  develop due  to an initial  tax-heavy                                                              
burden,  the program  could  be putting  Alaskans  on pathways  to                                                              
careers that don't exist.                                                                                                       
                                                                                                                                
MR.  NEALE warned  that removal  of the  3.5-year exemption  could                                                              
also discourage  investment,  not only in  existing projects,  but                                                              
also in any exploration  activities.  Investment in  the future of                                                              
Alaska's  mining  industry, and  subsequent  government  revenues,                                                              
begins with  exploration,  and many program  students begin  their                                                              
mining  careers working  on  these types  of  projects near  their                                                              
home communities.   Alaska  competes for  limited global  capital,                                                              
with  jurisdictions   having  competitive  mineral   potential  in                                                              
fiscal  terms. He  said Alaska  has  excellent mineral  potential,                                                              
one of the top-rated  in the world, but a discouraging  tax regime                                                              
does not make for attractive fiscal terms.                                                                                      
                                                                                                                                
MR. NEALE said that  as a University of Alaska  employee, he would                                                              
be remiss  if he did not mention  a recent report  from University                                                              
of Alaska  Anchorage's Institute  of Social and Economic  Research                                                              
(ISER).   The report researched  the economic effects  of Alaska's                                                              
fishing,  tourism, and  mining industries  and  shows that  mining                                                              
revenue to the State  of Alaska is 6-8 times the  cost of managing                                                              
the industry,  and that mining pays  its way in the  state through                                                              
state  government  revenues, property  taxes,  Native  corporation                                                              
revenues,  services and  supplies  spending, and  jobs.   Alaska's                                                              
miners pay  taxes and contribute to  the economy, he added,  so it                                                              
behooves Alaska  to encourage  investment in development,  because                                                              
it  would  offer  more  opportunities  for  Alaskans  to  work  in                                                              
Alaskan mines - precisely the mission of the UAS/CMT training.                                                                  
                                                                                                                                
1:17:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked whether  Mr. Neale is  a professor                                                              
or professor equivalent.                                                                                                        
                                                                                                                                
MR. NEALE replied  he is the director.  He explained  that he does                                                              
not teach  the courses and  that there  is an instructor  on staff                                                              
who actually teaches the courses.                                                                                               
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  inquired if  Mr.  Neale's position  was                                                              
equivalent to a provost, chancellor, or vice-chancellor.                                                                        
                                                                                                                                
MR. NEALE  explained that he  is the director  of the  program; he                                                              
works under the dean, who works under the provost.                                                                              
                                                                                                                                
REPRESENTATIVE  JOSEPHSON remarked that  Mr. Neale's  testimony is                                                              
particularly  interesting in  that  it could  describe the  entire                                                              
session.  He  explained the legislature's conundrum:   it is being                                                              
proposed  that the  University  of Alaska's  undesignated  general                                                              
fund  (UGF)  budget  be  cut  by  20  percent,  but  to  keep  the                                                              
University's  budget robust, the  state needs  revenue.   He asked                                                              
how it is possible for the two competing demands to be met.                                                                     
                                                                                                                                
MR.  NEALE  answered  that this  specific  university  program  is                                                              
primarily funded  by industry donations or gifts,  especially from                                                              
Hecla  Greens Creek  Mining Company.    He said  the program  does                                                              
still receive funding  from restricted funds, but  the majority is                                                              
from industry  funding.  He  said he does  not know the  answer to                                                              
that  question  and  he  recognizes   Alaska  is  in  a  difficult                                                              
situation  and that  there  is no  easy answer.    He stated  that                                                              
looking for shortcuts is also not an option.                                                                                    
                                                                                                                                
1:19:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR asked for the name of the center.                                                                           
                                                                                                                                
MR. NEALE replied that it is the UAS/CMT.                                                                                       
                                                                                                                                
REPRESENTATIVE TARR  asked whether Mr. Neale was  representing UAS                                                              
in an official  capacity in presenting opposition  to the proposed                                                              
legislation.                                                                                                                    
                                                                                                                                
MR.  NEALE replied  that he  was  representing the  UAS/CMT in  an                                                              
official capacity and that UAS/CMT is affiliated with UAS.                                                                      
                                                                                                                                
REPRESENTATIVE  HERRON   asked  whether  Mr.  Neil   believes  the                                                              
proposed  mineral licensing  tax rates are  competitive and  would                                                              
stimulate investment in Alaska.                                                                                                 
                                                                                                                                
MR. NEALE  stated he  is not an  economist and  does not  know the                                                              
answer to the question.                                                                                                         
                                                                                                                                
1:21:24 PM                                                                                                                    
                                                                                                                                
RICHARD HUGHES stated  that although he is a member  of the Alaska                                                              
Miners  Association (AMA),  he was  representing  himself, as  his                                                              
points do not necessarily  reflect those of the AMA.   He said the                                                              
mining  industry  is currently  depressed  globally,  not just  in                                                              
Alaska.   In relative terms, commodity  prices are as low  as they                                                              
have been in a  long time, and this economic  conundrum is ongoing                                                              
and  appears to  be  long-lived.   Mining  companies like  Kinross                                                              
Gold  Corporation,  Barrick  Gold Corporation,  Rio  Tinto  Group,                                                              
Anglo  American, and  others are  undergoing major  restructuring,                                                              
which results  in selling mines,  layoffs, and other actions.   He                                                              
stated that HB 253  would increase the mining license  tax rate on                                                              
net incomes over  $100,000 by 29 percent.  Additionally,  the 3.5-                                                              
year  hiatus  that  the  mining   industry  currently  enjoys  for                                                              
capital recovery  purposes would be  eliminated.  This  would have                                                              
a  significant  effect   on  the  economy  of   Alaska,  he  said,                                                              
especially on  the placer  mining industry.   He opined  that this                                                              
is  not  the  best  way to  foster  development  of  mines  within                                                              
Alaska.   The growth potential for  the mining industry  in Alaska                                                              
is huge, but  the state competes worldwide for  revenue to explore                                                              
and  develop mines  and increasing  the tax  rate will  discourage                                                              
investment.   He noted that  Argentina recently decreased  its tax                                                              
rate by  5 percent  to attract  new mines  and said Alaska  should                                                              
consider doing  the same.   He clarified  he is not  encouraging a                                                              
tax reduction, but stability in the mining license tax.                                                                         
                                                                                                                                
1:24:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  noted that  seven major mines  are operating,                                                              
three  are in  the permitting  stage, and  seven are  in the  pre-                                                              
permitting  process.   She asked  how  HB 253  would affect  those                                                              
mines that are in the permitting or pre-permitting process.                                                                     
                                                                                                                                
MR.  HUGHES  replied  that  the bill  would  have  a  discouraging                                                              
effect  on exploration  and could  have a  discouraging effect  on                                                              
developing  mines, such  as Donlin  Creek or  the Ambler  project.                                                              
He pointed  out that  those mines  would have  to undergo  another                                                              
feasibility analysis given a tax increase if HB 253 passes.                                                                     
                                                                                                                                
1:25:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON asked  if  the industry  could withstand  a                                                              
smaller increase in the tax.                                                                                                    
                                                                                                                                
MR. HUGHES  replied  he cannot speak  for the  industry, but  that                                                              
his personal  opinion is the industry  may be able to  withstand a                                                              
small  increase.     However,  he  continued,  economies   of  the                                                              
exploration    and    development    industries    would    change                                                              
significantly, and investment in the Alaska will be discouraged.                                                                
                                                                                                                                
REPRESENTATIVE  HERRON asked  whether Mr.  Hughes would support  a                                                              
scenario where the  3.5-year exemption was retained  and there was                                                              
a significantly smaller increase in the tax.                                                                                    
                                                                                                                                
MR. HUGHES  responded that he would  have to look at  the economic                                                              
impact on each  mine individually to accurately  assess the impact                                                              
of a change like  that.  He said it could drive  marginal projects                                                              
toward a  sub-economic state, and  he stated that it  is difficult                                                              
to give a definitive answer.                                                                                                    
                                                                                                                                
1:27:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON noted that  the tax  credit is  not applied                                                              
during  exploration  and development  but  is deferred  until  the                                                              
developer  designates the  mine as profitable;  therefore,  all of                                                              
the currently developed  mines do not receive a  benefit from that                                                              
until after  they are  actually turning  a profit.   He  asked why                                                              
removing  the credit  would be  a  burden on  the exploration  and                                                              
development process  if the credit  cannot even be  applied during                                                              
those stages.                                                                                                                   
                                                                                                                                
MR.  HUGHES answered  it will  affect the  feasibility study  done                                                              
for a  producing mine,  and an  increase in  taxes will  drive the                                                              
economics  down.   He  posited that  if  Alaska  wants to  improve                                                              
exploration, then permitting obstacles should be removed.                                                                       
                                                                                                                                
REPRESENTATIVE SEATON  reiterated that the exploration  tax credit                                                              
does not  apply during exploration  or development, and  asked how                                                              
that encourages or accelerates exploration.                                                                                     
                                                                                                                                
MR. HUGHES replied  that the application of  exploration incentive                                                              
tax  credits  improves  the economic  feasibility  of  a  project,                                                              
which attracts industry to the state.                                                                                           
                                                                                                                                
1:29:56 PM                                                                                                                    
                                                                                                                                
ROGER  BURGGRAF   testified  that  he  recently   represented  the                                                              
Fairbanks Chamber of  Commerce in Juneau and has  been a long-time                                                              
member of  the AMA, but  is speaking today  on behalf  of himself.                                                              
He  held  that  the state  should  encourage  development  of  its                                                              
natural  resources  and  other industries,  which  would  generate                                                              
revenue  and  put   Alaskans  to  work.    He   expressed  concern                                                              
regarding  the proposed  increase  in mining  taxes and  explained                                                              
that the mining  industry is very fragile and  controlled by world                                                              
markets,  over  which  it has  no  control.    He said  there  are                                                              
several  mining projects  in  the proposal  stages  that could  be                                                              
adversely  affected if  the cost  of permitting  and developing  a                                                              
mine  becomes prohibitive.    [The  proposed tax  increase]  could                                                              
affect both small  and large mining operations.  He  noted that HB
253 would  require electronic  filing for  all mining  tax returns                                                              
and  that   many  small  mines   are  located  in   remote  areas;                                                              
therefore, it would  be difficult for many of them  to comply with                                                              
the requirement.   Removal  of the 3.5-year  exemption would  be a                                                              
significant  disincentive to  undertaking  the regulatory  process                                                              
and  startup  costs associated  with  development.   He  said  the                                                              
current exemption  provides  an incentive  to any mining  company,                                                              
and assures  that if  a company  does go  into production  it will                                                              
recover some  of its  expenses.   Increasing the  tax rate  from 7                                                              
percent to 9 percent  would cut deeply into the  profit margins of                                                              
mining  companies.    [The proposed  increase]  is  of  particular                                                              
concern during times  when commodity prices are low  and costs for                                                              
equipment and  fuel are high.   He warned that increasing  the tax                                                              
fees on  exploration and  mining applications  will also  increase                                                              
the  burden  on  small  mining companies.    He  said  the  mining                                                              
industry is  already over-regulated,  and urged the  committee not                                                              
to "kill  the goose  that lays  the golden  egg," noting  that the                                                              
industry provides  many high-paying jobs  to Alaskans.   He stated                                                              
that  many  of the  smaller  mines  contribute strongly  to  their                                                              
local economies.                                                                                                                
                                                                                                                                
1:34:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  noted the state's  current tax  structure has                                                              
been in  place for over  six decades, since  1955.  She  asked Mr.                                                              
Burggraf whether  the industry expected that there  would never be                                                              
a change  in applicable tax statutes  and if he believes  [the tax                                                              
statutes]   should  be   reevaluated   when   they  become   "that                                                              
historical in nature."                                                                                                          
                                                                                                                                
MR. BURGGRAF  replied  that he did  not consider  the current  tax                                                              
structure  outdated,  and  he  posited  that the  state  needs  to                                                              
attract capital  in order to develop  mines.  He stated  that when                                                              
taxes are  increased, it  is another  financial factor  that needs                                                              
to be  considered by  investors.   Many of  these projects  are on                                                              
the  drawing board  and,  if taxes  are  increased, smaller  mines                                                              
will have  to reevaluate  their  viability.   He pointed out  that                                                              
many of  the larger mines  don't have a  huge margin, but  if they                                                              
go  into  production they  will  provide  significant  employment,                                                              
income, infrastructure, and opportunities for Alaskans.                                                                         
                                                                                                                                
REPRESENTATIVE  TARR  asked which  mines  would be  most  impacted                                                              
and, specifically,  what types  of mines  could be categorized  as                                                              
"small mines."                                                                                                                  
                                                                                                                                
MR. BURGGRAF  replied  that the  placer mines  would be the  small                                                              
mines most  influenced by  these changes.   He stated  that placer                                                              
mining was once  a very large industry and the  federal government                                                              
is making  it very  difficult for small  placer mines  to operate.                                                              
The  state looks  favorably  on placer  mining  and realizes  that                                                              
placer  mines have  a positive impact  on small  communities.   He                                                              
noted that  if the  Donlin Creek  and Tower  Hill mines  move into                                                              
production, they will positively influence rural communities.                                                                   
                                                                                                                                
REPRESENTATIVE TARR  pointed out that the tax  increase would only                                                              
apply  to mines  with a  net income  of over  $100,000, and  asked                                                              
whether many placer mines would fall into that category.                                                                        
                                                                                                                                
MR. BURGGRAF  replied that  some would, depending  on the  size of                                                              
the placer mine and the number of employees.                                                                                    
                                                                                                                                
1:39:18 PM                                                                                                                    
                                                                                                                                
DONALD STEVENS,  PhD, stated that  he is a certified  professional                                                              
geologist from  the University of  Alaska Fairbanks (UAF)  and has                                                              
worked full  time in the minerals  exploration business  in Alaska                                                              
since 1970, conducting  field projects in most areas  of the state                                                              
that  have  mineral  potential.    He related  that  in  1981,  he                                                              
discovered the "Channel  A Deposit" at Valdez Creek,  which became                                                              
the largest placer  gold mine in North America  for several years.                                                              
He said  over 1,200  man years  of employment  resulted from  that                                                              
discovery.  He stated  he was testifying on behalf  of himself and                                                              
not any  of the  professional organizations  to which  he belongs,                                                              
such as  AMA.  He said  over the last  45 years he has  observed a                                                              
number of  cycles in the availability  of exploration  funding for                                                              
projects  in  Alaska.   Much  of  that  funding comes  from  other                                                              
countries,  with Canada  being  the principal  source.   Over  the                                                              
last five  years it  has become increasingly  difficult to  make a                                                              
living  as a  consulting geologist.    He stated  that the  Pebble                                                              
Deposit is  widely known in the  global mining community,  and the                                                              
industry is  aghast that development  of this world-class  deposit                                                              
was  stopped.     This  has   seriously  damaged   the  industry's                                                              
perception  of  Alaska as  a  good  place  to invest  in  minerals                                                              
exploration.     He  added  that  Shell's  Chukchi   Sea  decision                                                              
similarly hurt Alaska.                                                                                                          
                                                                                                                                
MR.  STEVENS  said that  in  Alaska  the  average length  of  time                                                              
between discovery  and actual production  is probably  the longest                                                              
in  the Western  Hemisphere, and  is  due to  the slow  regulatory                                                              
framework applied  to mining.  He  said he was devastated  by news                                                              
of the  potential 29  percent increase in  the mining  license tax                                                              
and termination of  the 3.5-year exemption, and  that the proposal                                                              
contributed  to  Alaska's  negative   reputation  in  the  world's                                                              
mining and  investment community.   He  held that  in the  last 45                                                              
years, this was the worst possible timing for this proposal.                                                                    
                                                                                                                                
MR. STEVENS  explained that  even during  difficult times  for the                                                              
mining industry, mining  pays its own way; state  tax revenue from                                                              
mining is  approximately eight  times the  cost of regulating  the                                                              
industry.   He said for years  his consulting business  provided a                                                              
decent  income,  allowing  him  to  offer  the  opportunity  of  a                                                              
college education  to his two  daughters.  However,  he continued,                                                              
business is now  terrible - his clientele dropped  from an average                                                              
of  five foreign  mining companies  a year  to less  than one  per                                                              
year over the  last five years.   He shared that his  business has                                                              
cut  every possible  cost in  an effort  to remain  viable and  he                                                              
would like to see state government do the same.                                                                                 
                                                                                                                                
MR.  STEVENS recommended  the state  decrease  the mining  license                                                              
tax to  5 percent,  increase the  3.5-year exemption  to 4  years,                                                              
and publicize  the actions among  mining companies.  He  said this                                                              
would get  the attention  of the  mining industry  and do  more to                                                              
increase  revenue   from  the  exploration  of  mining   than  tax                                                              
increases  or elimination  of exemptions.   He  said a single  new                                                              
large  mine  going  into  production would  create  far  more  tax                                                              
revenue for  the state than  the changes outlined  in HB 253.   In                                                              
order  to  increase   tax  revenues,  Alaska  must   take  actions                                                              
demonstrating  that it wants  a vibrant,  strong mining  industry.                                                              
He  said  this cannot  be  done  by increasing  mining  taxes  and                                                              
removing the 3.5-year exemption for new mines.                                                                                  
                                                                                                                                
1:43:57 PM                                                                                                                    
                                                                                                                                
BILL   JEFFRESS  stated   he  has   been   involved  in   resource                                                              
development  and mining for  over 40  years and actively  involved                                                              
in Alaska mining  for almost 25 years.  He said  he has worked for                                                              
several  of  the  major mining  companies  in  Alaska,  served  as                                                              
former Director of  the Office of Project Management  & Permitting                                                              
for the  Department of Natural Resources,  and worked as  a mining                                                              
consultant.  He related  he is a member of the  AMA and is honored                                                              
to serve  as a  member of the  Alaska Minerals  Commission.   As a                                                              
member of the  Alaska Minerals Commission, he noted,  he supported                                                              
the commission's  top 2016  priority for  Alaska to move  quickly,                                                              
on a bipartisan  basis, to establish a stable  fiscal climate that                                                              
will  protect Alaska's  future and  the opportunity  to develop  a                                                              
diverse economy.                                                                                                                
                                                                                                                                
MR. JEFFRESS  said he found  the Department of Revenue's  February                                                              
3,  2016, testimony  on  HB  253 and  its  companion  bill SB  137                                                              
disconcerting.    He  recounted  that the  testimony  discussed  a                                                              
perception by  the public that the  mining industry is  not paying                                                              
its share;  to which the Department  of Revenue responded  that if                                                              
the public  does not view the  mining industry as paying  its way,                                                              
it would help  if the mines are  paying more taxes.   He stated he                                                              
was  certain that  Department of  Revenue  employees are  thankful                                                              
their salaries  are not based  on public perception.   Referencing                                                              
the December  2015 ISER report,  he stated that the  average state                                                              
revenue  from mining  was  $96.4  million, while  state  operating                                                              
expenditures   were  $10.7  million,   with  an  average   capital                                                              
expenditure of  $4 million, which  resulted in a surplus  of $81.7                                                              
million  and $22.5  million  in average  municipal  revenues.   He                                                              
stated  that   this  indicates   that  the   mining  industry   is                                                              
definitely  contributing  more  to  the  state than  it  costs  to                                                              
administer  the program  and provide  oversight  of the  industry.                                                              
The  global  mining  industry  and  the  industries  that  provide                                                              
support  to  it are  currently  experiencing  a long  downturn  in                                                              
commodity prices.   He  said the proposed  increase in  the mining                                                              
license  tax,  from 7  percent  to  9  percent,  results in  a  29                                                              
percent higher payment for operations.                                                                                          
                                                                                                                                
MR. JEFFRESS  held that  losing the  3.5-year exemption  on paying                                                              
the tax after  production begins is  not the kind of  message that                                                              
Alaska should be  sending to potential investors.   He said Alaska                                                              
competes  with other  states and  nations  for investment  dollars                                                              
based  on  regulatory  and  fiscal  certainty.    Alaska's  mining                                                              
industry  has tremendous  potential for growth,  which is  already                                                              
demonstrated  by the operating  mines, and  has huge potential  to                                                              
generate  revenues   and  economic   benefits  for  Alaska.     He                                                              
maintained  that HB  253 sends  a message  that Alaska's  policies                                                              
are based on perception, not real-world economic reality.                                                                       
                                                                                                                                
1:47:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  stated  she   would  like  to  talk  to  the                                                              
previous two witnesses off line.                                                                                                
                                                                                                                                
1:48:02 PM                                                                                                                    
                                                                                                                                
MARLEANA HALL,  Executive Director,  Resource Development  Council                                                              
for  Alaska (RDC),  said  RDC is  a membership  funded,  statewide                                                              
business association  representing  the tourism, forest  products,                                                              
oil  and  gas, mining,  and  fishing  industries.   She  spoke  as                                                              
follows:                                                                                                                        
                                                                                                                                
     RDC strongly opposes  HB 253 as this is  clearly not the                                                                   
     time to  raise taxes on  Alaska's mining industry.   The                                                                   
     mining  industry   is  suffering  through  a   deep  and                                                                   
     prolonged   downturn    in   commodity    prices   while                                                                   
     development  and operating costs  continue to rise.   In                                                                   
     fact,  the  mining sector  has  been  in a  deep  global                                                                   
     recession for  at least the last four years.   Companies                                                                   
     are  cutting   budgets  and   making  tough   investment                                                                   
     decisions.   Future  prospects  and  projects in  Alaska                                                                   
     are at risk.  Exploration activities are sharply down.                                                                     
                                                                                                                                
     Increasing  taxes  on the  industry  at this  time  will                                                                   
     compound  a bad situation  and risks halting  investment                                                                   
     in  future  projects  that will  ultimately  create  new                                                                   
     revenue  streams  for  Alaska.    Conversely,  the  more                                                                   
     Alaska  taxes  companies  to produce  a  commodity,  the                                                                   
     less   likely   a   company  will   invest   in   future                                                                   
     production.  HB 253 moves us in the wrong direction.                                                                       
                                                                                                                                
     As  you've heard,  the bill  proposing  to increase  the                                                                   
     Alaska  Mining   License  Tax  payment  by   29  percent                                                                   
     removes the  3.5-year exemption designed to  attract new                                                                   
     mines.   Not only does  removing the exemption  offer no                                                                   
     immediate  or  near-term  revenue   for  the  state,  it                                                                   
     potentially  impacts the  feasibility  of future  mining                                                                   
     projects.   [The  state] should  not  risk projects  and                                                                   
     the  corresponding  jobs and  increased  private  sector                                                                   
     economic activity.   One large mine would  bring in more                                                                   
     revenue  to  the state  than  what  is estimated  to  be                                                                   
     generated by this flawed bill.                                                                                             
                                                                                                                                
     A  major  concern  RDC  has  with HB  253  is  that  the                                                                   
     administration  has  not conducted  a  risk analysis  on                                                                   
     the bill's  impact on the  mining industry.   The effect                                                                   
     of  this  tax  proposal  must  be  fully  reviewed,  and                                                                   
     unintended consequences,  including potential  impact on                                                                   
     future investment, must be considered.                                                                                     
                                                                                                                                
     I  would like  to  point out  that  the mining  industry                                                                   
     pays its  way in  Alaska and is  a revenue producer  for                                                                   
     the  state.   Moreover, it  is the  largest producer  of                                                                   
     revenue  for  the  Northwest   Arctic  Borough  and  the                                                                   
     largest payer  of property taxes in the  Fairbanks North                                                                   
     Star Borough  and the City  and Borough of Juneau.   For                                                                   
     more than  20 years  RDC has  advocated for a  long-term                                                                   
     fiscal  plan, including  efforts  to limit  unrestricted                                                                   
     general fund  spending to  a sustainable level,  support                                                                   
     some use  of the  permanent fund earnings  as part  of a                                                                   
     fiscal  plan,  and  a tax  policy  and  incentives  that                                                                   
     encourage   future  investment   in  Alaska's   resource                                                                   
     industries.                                                                                                                
                                                                                                                                
     In  closing, HB  253 will harm  the industry  at a  time                                                                   
     when  it is  struggling with  low  commodity prices  and                                                                   
     tight capital  ... markets.  The industry  is not asking                                                                   
     for  a decrease  in  taxes  during this  commodity  bear                                                                   
     market,  like other  countries  are  considering as  you                                                                   
     heard  earlier,   but  instead  asking,  as   the  state                                                                   
     considers changes  to tax policy,  that the state  do no                                                                   
     harm.                                                                                                                      
                                                                                                                                
1:51:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  inquired  whether  Ms.  Hall  thought  every                                                              
provision in HB 253 was problematic.                                                                                            
                                                                                                                                
MS. HALL  responded that the components  of the bill that  she did                                                              
not  mention  are  not  something  RDC  necessarily  opposes,  for                                                              
example  the electronic  filing, although  it has  not been  fully                                                              
vetted  and  RDC  would appreciate  it  if  a  risk-analysis  were                                                              
conducted.                                                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON  noted the  mining license tax  was computed                                                              
based on  net income,  which is  computed by subtracting  expenses                                                              
from  revenues.    The  same formula  was  used  for  the  royalty                                                              
payment.  The oil  and gas industry in Alaska pays  its royalty on                                                              
the  point  of production,  the  fisheries  industry pays  on  the                                                              
first wholesale  value -  the value  of the  resource to  Alaska -                                                              
and  that applies  to most  industries that  have a  royalty.   In                                                              
this  instance, the  royalty  is not  based  on the  value of  the                                                              
minerals  extracted, but  instead  based on  the profitability  of                                                              
the company.   He asked, recognizing  that most of  the industries                                                              
Ms. Hall  represents are  based on  net smelt  return or  point of                                                              
production  value,  whether  RDC   opposes  the  state  collecting                                                              
royalties based on the value at the point of production.                                                                        
                                                                                                                                
MS.  HALL replied  she would  get back  to the  committee with  an                                                              
answer, but  suggested that the  industry might be better  able to                                                              
answer that directly when it testifies before the committee.                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  explained that  part of the  purpose behind                                                              
his question  was to make  sure that the  industry is aware  of it                                                              
when they testify before the committee.                                                                                         
                                                                                                                                
1:54:24 PM                                                                                                                    
                                                                                                                                
JASON  BRUNE said  he was  testifying on  behalf of  himself.   He                                                              
stated  that  the  cost of  doing  business  in  any  jurisdiction                                                              
matters  and   Alaska  is  no   different.    Given   the  state's                                                              
remoteness,  for  mines  to  come  to  fruition  in  Alaska,  huge                                                              
capital  projects  must also  be  constructed to  bring  necessary                                                              
infrastructure  such as road,  power, ports,  pipelines,  and much                                                              
more.  He  said these costs are  not insignificant and  add to the                                                              
costs of  building a mine in  Alaska, especially in  rural Alaska.                                                              
Simply put,  taxes are just  another cost  of doing business.   He                                                              
said  HB 253  proposes to  increase the  tax rate  by 29  percent,                                                              
which will not help  attract investors to our state;  it will show                                                              
that Alaska is not open for business.                                                                                           
                                                                                                                                
MR BRUNE  stated that his authority  on the issue is  derived from                                                              
being  a casualty  of  higher  costs,  which caused  his  previous                                                              
employer, Anglo  American, to  withdraw from  Alaska.   High costs                                                              
were one of the  leading factors which lead to  its withdrawal and                                                              
the loss  of his job.   He stated  that Alaska competes  worldwide                                                              
for  capital,  and  he  saw  it  first  hand  in  Anglo-American's                                                              
boardroom in London.   He maintained that rather  than considering                                                              
this  legislation, Alaska  should grow  the mining  industry.   He                                                              
said his  former project has and  Economic Impact Analysis  on its                                                              
website, which  shows the  amount of tax  revenue the  state would                                                              
collect from  that project going  into production could  be nearly                                                              
$200 million  per year to  both state and  local governments.   He                                                              
said  adding this  single mine,  or even  a number  of new  mines,                                                              
would provide more  mining industry revenue to the  state than the                                                              
proposed  legislation  would,  with   the  additional  benefit  of                                                              
providing jobs for thousands of Alaskans.                                                                                       
                                                                                                                                
MR.  BRUNE posited  that  Alaska should  be  doing all  it can  to                                                              
encourage this  kind of development  in the state, which  would be                                                              
executed   with  high  levels   of  care   for  the   environment.                                                              
Alternatively, if  Alaska increases taxes, as proposed  in HB 253,                                                              
it  would send  a message  that Alaska  is an  expensive place  to                                                              
conduct  business  and  would  discourage   companies  from  doing                                                              
business  here.    He  held  that  even  passing  HB  253  out  of                                                              
committee would negatively impact Alaska's investment climate.                                                                  
                                                                                                                                
1:57:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  noted that British Columbia has  a 13 percent                                                              
net proceeds  tax and  a lot  of mining  activity.  She  requested                                                              
Mr. Brune  to comment on that  with regard to  other opportunities                                                              
outside the U.S.   She asked what impact low  commodity prices may                                                              
have had on Mr.  Brune's former employer's decision  to scale back                                                              
operation in Alaska.                                                                                                            
                                                                                                                                
MR.  BRUNE responded  it  is important  to  look  at the  existing                                                              
infrastructure  in   British  Columbia  and   other  jurisdictions                                                              
around  the  world.   In  those  instances infrastructure  is  not                                                              
something  that  the  industry  would have  to  cover.    [British                                                              
Columbia    and    other    jurisdictions]     have    significant                                                              
infrastructure  that  has already  been  paid  for, often  by  the                                                              
government.   Rural Alaskan projects  have to be huge  projects in                                                              
order  to  cover  costs  like  ports,   100-mile  roads,  300-mile                                                              
pipelines, and all  of the added infrastructure.   The tax adds to                                                              
the  cost of  doing  business.   Alaska  already  has  one of  the                                                              
highest  costs worldwide,  and thus  can't afford  to have  higher                                                              
tax  rates  than the  rest  of the  world.    With regard  to  the                                                              
question  of commodity  prices,  Mr. Brune  stated companies  like                                                              
Anglo American are  in it for the long haul;  they understand that                                                              
there are  ups and  downs in  the commodity  cycle and  make their                                                              
business calculations  based on a mine life of 20-40  years.  They                                                              
anticipate  the   ups  and  downs  of  the  commodity   cycle  and                                                              
understand  that it  must be factored  into their  equations.   He                                                              
agreed that [commodities]  are in a downturn that  has lasted much                                                              
longer  than  most,  and  offered his  belief  that  although  the                                                              
downturn  impacted [the  company],  ultimately it  did not  impact                                                              
their decision to leave Alaska.                                                                                                 
                                                                                                                                
1:59:48 PM                                                                                                                    
                                                                                                                                
ROBERT FITHIAN,  Miner, stated he  is representing himself  and is                                                              
opposed to  HB 253 for reasons he  feels are in the  best interest                                                              
of  Alaska.   He said  he has  been involved  in Alaska's  mineral                                                              
industry  for many  years and is  currently working  to develop  a                                                              
new, underground  hard-rock gold mine  in Southeast Alaska.   This                                                              
mine  should   complete  its  permitting  and   begin  underground                                                              
development  this year, and  that it  will provide direct,  local-                                                              
hire,  annual  employment  opportunities  at the  standard  mining                                                              
sector  compensation  of  $100,000   per  year,  with  exceptional                                                              
benefits.   He  stated that  when  reviewing the  many aspects  of                                                              
building  a new mine  in Alaska,  the 3.5-year  tax exemption  for                                                              
new  mines was  one of  the few  aspects  that weighed  in on  the                                                              
positive  side of  the many  challenges.   He said  the current  7                                                              
percent license tax  was high relative to the  risk and challenges                                                              
that miners  deal with,  but seemed  doable.   He stated  that the                                                              
increase  to  9  percent  would  increase the  tax  burden  by  28                                                              
percent,  which he  considers a  serious overreach.   Without  the                                                              
new  mine  exemption  and  proposed   tax  increase,  he  said  he                                                              
possibly,  not probably,  would  have made  the  decision to  move                                                              
forward  with the  much-needed project,  which is  located near  a                                                              
community  that needs jobs,  [an improved]  economy, and  children                                                              
for its school.   He stated that after many years  of major mining                                                              
companies  exploring  Alaska  for  large  mineral  deposits,  many                                                              
smaller  deposits,  which are  not  viable for  larger  operators,                                                              
have  been defined.   These  deposits  can become  environmentally                                                              
friendly,  smaller-scale  mines and  strong  economic drivers  for                                                              
Alaska.  He held  that if the new mine exemption  were removed and                                                              
taxes  increased, these  projects  would become  much less  viable                                                              
and probable.   He noted that  there are vast  differences between                                                              
sectors  of  the  mining industry,  and  minerals  in  particular,                                                              
throughout   the  state.     A   mineral   deposit  located   near                                                              
infrastructure  will have  different viability  than a  comparable                                                              
deposit located  in a remote  region.  One  may be able  to afford                                                              
new tax  burdens, while the  other may  not become a  mine despite                                                              
being located in a region in need of jobs and economy.                                                                          
                                                                                                                                
MR.  FITHIAN recalled  the Fort  Knox mine  as an  example of  the                                                              
fine line between  viability and non-viability, as  it was working                                                              
through  its  feasibility  stages.     He  stated  that  had  this                                                              
proposed  tax  level   been  in  place  at  the   time,  it  would                                                              
unquestionably  have  affected the  decision  to  move forward  or                                                              
not.   He noted that this  mine has been  a boon for Alaska.   The                                                              
challenges  for  miners,  and especially  new  miners  in  today's                                                              
world,  are extreme.    He encouraged  the  committee  to take  no                                                              
action on the proposed  removal of the new mine  exemption and the                                                              
mining  tax  increase,  in  order  to  allow  the  entrepreneurial                                                              
spirit that has  benefitted Alaska in many ways to  continue to do                                                              
so.   Well-paying  jobs and  reciprocal  service industry  economy                                                              
are  more important  than an  additional squeeze  on a  challenged                                                              
industry.    He  suggested  that   the  committee  focus  on  risk                                                              
investment,  the  ultimate  factor   in  developing  many  natural                                                              
resources,  and posed the  question, "Do  your actions  maintain a                                                              
prudent window  for risk  investment?" He  stated his  belief that                                                              
HB  253 works  to  close  that window  for  Alaska  projects.   He                                                              
stated  that   he  agreed   with  Mr.   Stevens'  comments   about                                                              
decreasing the tax rate and increasing the new mine exemption.                                                                  
                                                                                                                                
2:03:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  requested the location of  Mr. Fithian's                                                              
mine in Southeast.                                                                                                              
                                                                                                                                
MR. FITHIAN  answered the mine  is called  the Dawson Mine  and is                                                              
located on  the Hollis-Klawock  Highway near  Hollis on  Prince of                                                              
Wales Island.                                                                                                                   
                                                                                                                                
2:04:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR referenced  Mr.  Fithian's  statement that  a                                                              
tax increase would  have made him reconsider the  viability of his                                                              
mine,  and she  asked how  increased commodity  prices would  have                                                              
factored in to his decision making process.                                                                                     
                                                                                                                                
MR.  FITHIAN  responded  that  Alaska's  balance  and  the  global                                                              
balance for  operating and  producing mines  frequently hinges  on                                                              
market  values, which  are  nearly impossible  to  forecast.   His                                                              
project calculations  were based on a  $1,100 value for  gold.  If                                                              
gold  values  drop below  that  price,  the project  would  become                                                              
challenged.   If gold  prices remain  above that  point, the  mine                                                              
would stay  viable.  He recalled  operating a mine many  years ago                                                              
where the  same figure  was $340;  if gold  dropped below  $340 he                                                              
was losing  money.   If gold  prices held  at $400  or above,  the                                                              
mine was  profitable.   He noted  that mines  do not have  control                                                              
over  commodity prices,  especially  small mines.    He held  that                                                              
Alaska  holds promise  for small  mine operators  and he hopes  to                                                              
provide an  example of how  small to medium  size mines  can prove                                                              
viable in  Alaska.  He stated  that dealing with world  markets is                                                              
a  challenge;  each   deposit  is  different  in   terms  of  both                                                              
operating   costs    and   metallurgical   circumstances.       He                                                              
reemphasized  the vast differences  that  exist with many  aspects                                                              
of  the same  metal commodity.   He  stated that  Donlin Creek  is                                                              
dealing  with  a refractory  ore,  which  demands high  energy  to                                                              
extract gold  from the  ore.  He  stated that  he will  be dealing                                                              
with a  free-milling gold and quartz  deposit on Prince  of Wales.                                                              
He noted that  they are entirely different concepts,  but both are                                                              
still dependent on world markets.                                                                                               
                                                                                                                                
2:07:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON noted the  mining license  tax is  based on                                                              
net  income  and   assumed  that  [Mr.  Fithian]   had  taken  the                                                              
difference  into account.   He asked  if increasing the  threshold                                                              
for the 9 percent  tax from $100,000 net income  to $200,000 would                                                              
be more  acceptable and diminish  the impact on the  smaller, more                                                              
marginal  operations.   He explained  that  in this  circumstance,                                                              
the tax would be 5 percent from $50,000 to $200,000.                                                                            
                                                                                                                                
MR. FITHIAN replied  that he would like to answer,  but would like                                                              
more time  to evaluate  the considerations.   He offered  that the                                                              
industry may want  to weigh in on that question  when it testifies                                                              
during  the next  meeting.   He stated  that he would  be glad  to                                                              
answer the question via e-mail.                                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON noted  he was asking  the question  without                                                              
expectation  of an immediate  answer, and  asked that  Mr. Fithian                                                              
send the  e-mail to Co-Chair  Talerico, who could  then distribute                                                              
it to  the rest  of the  committee members.   He  stated that  the                                                              
bill was  designed  to be balanced  and provide  a structure  that                                                              
would be  functional for both the  State of Alaska and  the mining                                                              
industry,  which  is a  very  valuable  industry.   He  asked  Mr.                                                              
Fithian to  include in the e-mail  any other suggestions  he might                                                              
have on how the bill could be structured.                                                                                       
                                                                                                                                
2:09:57 PM                                                                                                                    
                                                                                                                                
JULIA  MICKLEY,  Northern  Alaska  Environmental  Center,  posited                                                              
that the  current tax  structure is outdated,  and said  she would                                                              
like to  see it addressed.   Development  does not come  without a                                                              
cost, she  stated, and  the public should  be compensated  for the                                                              
minerals  removed   from  public  lands.    Royalties   should  be                                                              
structured  to provide  real  returns to  the  public and  provide                                                              
compensation for  the inevitable  environmental degradation.   She                                                              
indicated  that  she  would  like   to  see  an  even  higher  tax                                                              
structure implemented.   Mining  pays a  very small percentage  of                                                              
state  revenues, especially  when  compared to  the oil  industry,                                                              
and  this amount  needs  to be  increased.   She  stated that  the                                                              
proposed 2  percent increase, only  on the most  profitable mines,                                                              
is not  enough.   All portions  of the  mining industry  in Alaska                                                              
should  pay increased  taxes  and the  most  profitable should  be                                                              
increased by 5 percent  so that Alaska's tax structure  is more in                                                              
line with other  states, like South Dakota.  She  pointed out that                                                              
the ISER  report does  not include  infrastructure costs,  such as                                                              
road  construction and  maintenance.   She pointed  to the  Ambler                                                              
Road as an example of these types of costs.                                                                                     
                                                                                                                                
REPRESENTATIVE   TARR  requested  that   Ms.  Mickley   share  the                                                              
information she referenced on South Dakota's mining tax.                                                                        
                                                                                                                                
MS.  MICKLEY  responded   that  South  Dakota  taxes   its  mining                                                              
companies  at 14  percent,  which  is 5  percent  higher than  the                                                              
proposed increase.                                                                                                              
                                                                                                                                
REPRESENTATIVE JOSEPHSON  noted that there is  more infrastructure                                                              
needed in  Alaska, as everything  is much closer in  South Dakota.                                                              
He asked Ms. Mickley to clarify her point about infrastructure.                                                                 
                                                                                                                                
MS. MICKLEY said  Representative Josephson's point  is reasonable;                                                              
however,  she pointed  out that  the proposed  Ambler Road  to the                                                              
Ambler  Mining  District  would  cost the  State  of  Alaska  $430                                                              
million, but the  proposed tax would only provide  an estimated $6                                                              
million, leaving a $424 million cost to the state.                                                                              
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  understood   Ms.  Mickley's  point  and                                                              
thanked her for her testimony.                                                                                                  
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked   which  organization  Ms.  Mickley                                                              
represents.                                                                                                                     
                                                                                                                                
MS.  MICKLEY  said   she  is  representing  the   Northern  Alaska                                                              
Environmental Center.                                                                                                           
                                                                                                                                
2:13:02 PM                                                                                                                    
                                                                                                                                
REBECCA LOGAN,  General Manager, Alaska Support  Industry Alliance                                                              
("the  Alliance"),  testified  that the  Alliance  represents  680                                                              
Alaska businesses  and the 30,000  employees that  provide support                                                              
services  to oil,  gas,  and mining  operations  in  Alaska.   She                                                              
noted that  HB 253 has  been identified  by Governor Walker  as an                                                              
integral component  of the new  sustainable Alaska plan,  which is                                                              
billed  as  providing  a  balanced   and  sustainable  budget  for                                                              
Alaska's  long-term   fiscal  stability.     While   the  Alliance                                                              
appreciates the  governor's efforts  to address Alaska's  spending                                                              
problem,  it is  concerned about  bills like  HB 253  that have  a                                                              
singular  focus  on  raising  new   revenues  in  the  short-term,                                                              
without  assessing  potential  long-term   impacts  on  the  state                                                              
economy.   Alaska  needs  to take  a  long-term  budget view,  she                                                              
opined,  not  a  one-year  snapshot.     As  resource  development                                                              
companies plan projects  and identify areas to invest,  they use a                                                              
long-term,  balanced  approach  that accommodates  the  highs  and                                                              
lows of  commodity cycles,  and Alaska should  do the same.   Like                                                              
the oil  and gas industry, the  mining industry is  experiencing a                                                              
downturn  in  commodity  prices  and  is  not  in  a  position  to                                                              
shoulder additional  costs through taxes.  There is  no vision for                                                              
Alaska's future  resource development economy  in a tax  bill that                                                              
does not  assess the impacts  of that tax  on the private  sector.                                                              
She posed the  question to the committee:    "Do we,  as Alaskans,                                                              
want slow  economic progress  in a  low commodity environment,  or                                                              
do we want no economic progress?"                                                                                               
                                                                                                                                
2:14:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  stated that this  is the fourth  bill in                                                              
the fiscal  plan that he  has looked at  that calls for  new money                                                              
from industry,  noting that  the alcohol bill  is a  consumer tax,                                                              
but it  does impact industry.   He said  there has been  push back                                                              
on all of  them, which he said  he understands, but he  stated his                                                              
concern that at the  end of the day, all that  would be left would                                                              
be  taxes on  individuals  or a  cut to  the  PFD.   He asked  Ms.                                                              
Logan's  opinion of  the governor's  plan that  everyone share  in                                                              
the state's economic burden.                                                                                                    
                                                                                                                                
MS. LOGAN stated  that if it was  true that everyone was  going to                                                              
share in the burden,  she would support the governor's  plan.  She                                                              
said  she  would be  very  interested  in  seeing [proof  of  such                                                              
shared  burden] and  added  that the  industry  is already  making                                                              
significant  payments to  the  State of  Alaska.   She  emphasized                                                              
that  industry is  frustrated  that  the legislature,  instead  of                                                              
reducing  the operating  costs  of  state government,  is  turning                                                              
immediately to industry to solve its problem.                                                                                   
                                                                                                                                
REPRESENTATIVE   JOSEPHSON  commented  that   the  focus   of  the                                                              
legislative session  so far has been  on budget cuts.   There have                                                              
been hearings  on revenue,  but cutting  has been  the focus.   He                                                              
asked Ms. Logan if she was aware of that.                                                                                       
                                                                                                                                
MS.  LOGAN  responded  she  was  aware  that  people  were  saying                                                              
cutting was  the focus of  the session, but  she had not  yet seen                                                              
the proposed budget to assess the state of reductions promised.                                                                 
                                                                                                                                
2:16:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON pointed  out that  the proposed  increases                                                              
are not legislatively  driven, but are instead  proposals from the                                                              
administration  and it is  the duty of  the legislature  to review                                                              
them.  He  said it does not  mean that any of the  proposals would                                                              
go anywhere,  but he  wanted to  be clear  that HB  253 was  not a                                                              
legislatively driven agenda.                                                                                                    
                                                                                                                                
2:17:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON said  several  people  had given  testimony                                                              
stating that  no action should be  taken until an  economic impact                                                              
analysis   has  been  conducted   for  a   proposed  change,   but                                                              
questioned  the   possibility  of   getting  a  definitive   study                                                              
conducted  due  to  the  variable   nature  of  commodity  prices.                                                              
Noting  the Fraser  Report provides  comparative  tax figures  for                                                              
Alaska  and  other  states,  he asked  about  the  feasibility  of                                                              
conducting  a comprehensive  economic  study  that would  indicate                                                              
how the proposed  mining tax increase from 7 percent  to 9 percent                                                              
would impact the closed-door decision making of the industry.                                                                   
                                                                                                                                
MS. LOGAN  responded that she has  seen several ISER  studies that                                                              
examine  different  financial  scenarios  and tax  structures  and                                                              
their potential influence  on the private sector.   She said it is                                                              
as  simple  as  finding an  economist  to  examine  that  specific                                                              
question.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  SEATON  inquired if,  given  a scenario  where  an                                                              
ISER study  found that changing the  tax rate from 7 percent  to 9                                                              
percent would have  little decisional influence on  whether or not                                                              
to  proceed with  a  mine, Ms.  Logan  would be  in  favor of  the                                                              
legislature proceeding with the proposed legislation.                                                                           
                                                                                                                                
MS.  LOGAN replied,  "Absolutely  not."   Following  results  like                                                              
that, she continued,  there would be enough information  to answer                                                              
the  question whether  the  best  decision would  be  to raise  $6                                                              
million in  taxes on  the mining industry  or to reduce  operating                                                              
expenses in state government by $6 million dollars.                                                                             
                                                                                                                                
REPRESENTATIVE  SEATON  offered  his hope  that  testifiers  would                                                              
refine the answer  to that question.  He noted  that formerly many                                                              
had suggested  there should  be a  document defining the  economic                                                              
impact this  tax change would have  on industry behavior.   Now he                                                              
was  hearing  that  testifiers  aren't  looking  for  that  impact                                                              
study, but rather  a study examining the comparative  value of the                                                              
options:   cutting PFDs, cutting  the University of  Alaska budget                                                              
by  $6 million,  or other  measures.   Those  are quite  different                                                              
studies, he pointed out.                                                                                                        
                                                                                                                                
MS. LOGAN  responded that her previous  statement was not  made on                                                              
behalf of the Alliance,  but rather she was saying  that the state                                                              
needs  a   long-term  plan  that   addresses  the  needs   of  the                                                              
government  and private  sector, and  that this  was a  short-term                                                              
answer  and there was  not information  to assess  whether  it was                                                              
the best answer.                                                                                                                
                                                                                                                                
2:21:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR   referenced  the  portion  of   Ms.  Logan's                                                              
testimony  that discussed  singling out the  mining industry,  and                                                              
said testimony from  the fishing industry indicated  a willingness                                                              
to  contribute to  solving  the problem,  provided  they were  not                                                              
unfairly  burdened.   She  asked  Ms.  Logan  to explain  how  the                                                              
mining  industry saw  itself differently.    She acknowledged  Ms.                                                              
Logan's long-term  service in  the industry  and the 61-year  time                                                              
period  since Alaska  had changed  the mining  tax structure,  and                                                              
asked if  people thought it would  never change.  She  stated that                                                              
she would  like to  understand when people  thought that  it might                                                              
be updated, considering it has been more than six decades.                                                                      
                                                                                                                                
MS. LOGAN clarified  she had not said anything  about singling out                                                              
the mining industry,  but instead said the singular  focus of this                                                              
bill was  to raise  revenue, without  consideration of  the impact                                                              
on the private sector.   She stated that she would  not assess the                                                              
need to  change a  tax based  on how  long it  had been in  place.                                                              
The more  appropriate assessment  would be whether  or not  it was                                                              
doing what it should.                                                                                                           
                                                                                                                                
REPRESENTATIVE  TARR  stated  that state  government  has  changed                                                              
dramatically  in 61 years  and that's  the reason for  reassessing                                                              
whether these taxes were working properly at this time.                                                                         
                                                                                                                                
2:23:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  commented that because the  legislature had                                                              
no choice, it  would reduce government services  that would impact                                                              
the  lives of  all Alaskans.   He  noted the  budget proposal  was                                                              
from the  governor and  was being  considered by the  legislature.                                                              
Although studies  from sources  such as  ISER exist, when  special                                                              
interest groups,  such as the  Alliance, testify,  they frequently                                                              
bring  their  own [studies].    He  asked  if the  industry  could                                                              
provide any  studies supporting  the stance  that raising  the tax                                                              
rate from  7 percent to  9 percent does not  make sense.   He said                                                              
the legislature  does not need  to contract an independent  study,                                                              
but rather that  industry should provide its own  justification as                                                              
to why the tax is regressive if they think it is.                                                                               
                                                                                                                                
MS.  LOGAN allowed  she may  have misunderstood  the question  and                                                              
clarified she  does not represent  the mining industry  but rather                                                              
represents  support  industries  to  the  mining  industry.    She                                                              
suggested that  the number of jobs  being lost in  a low-commodity                                                              
environment is good  evidence that comes from industry.   She also                                                              
stated  that  the  policy  and   philosophy  that  the  group  she                                                              
represents adheres  to is that  increased taxes deter  investment.                                                              
She said  the members of the  support industry are  not economists                                                              
and  would  not  have  access  to  the  type  of  mining  industry                                                              
information for which Representative Herron was asking.                                                                         
                                                                                                                                
REPRESENTATIVE  HERRON  acknowledged   Ms.  Logan's  response  and                                                              
clarified  the   industry  he  had  referenced  was   the  support                                                              
industry.     He  explained  that   the  legislature   needs  more                                                              
information,  specifically   how  individual   support  industries                                                              
would be directly  affected by the tax increase  proposed under HB
253.   He  said the  legislature  does not  have  time to  conduct                                                              
analyses of  the potential  effects of  the tax increase  specific                                                              
to the support industries.                                                                                                      
                                                                                                                                
MS. LOGAN  replied it  is likely the  Alliance could  identify the                                                              
potential impact of a tax increase on many member companies.                                                                    
                                                                                                                                
2:27:48 PM                                                                                                                    
                                                                                                                                
BEN MOHR stated  he is testifying  on his own behalf.   The mining                                                              
industry,  like many  commodities,  is in  a  prolonged slump,  he                                                              
said.  He said  Mr. Brune's company was the financial  and capital                                                              
partner in  a project in  which he was  involved.   When commodity                                                              
prices  and other  factors came  in  to play,  the company  didn't                                                              
just scale  back in Alaska, it left.   When the company  left, Mr.                                                              
Brune was  one of hundreds of  Alaskans who suffered as  a result.                                                              
He recounted  that earlier in  the day he  was at his  office, and                                                              
told  a  coworker that  he  intended  to  take  some time  off  to                                                              
testify  on a  mining  bill.   The  coworker  inquired  as to  Mr.                                                              
Mohr's premise,  to which he replied,  "How do you get  more blood                                                              
from a turnip?"  He stated that  the answer in this case  is, "You                                                              
have to  have more  turnips."  He  said the  state can't  get much                                                              
more  blood  from  the  industry;  the  margins  that  the  mining                                                              
industry operates  on are pretty  slim in  the first place.   Thin                                                              
margins combined  with upfront capital  expenses and  the numerous                                                              
regulatory  and  public  affairs  hurdles  that  exist  in  Alaska                                                              
create  a  challenging  business  environment.    He  stated  that                                                              
people do  want to  mine in  Alaska and  the state has  incredible                                                              
resources,  but the  public policy  perception  by investors  does                                                              
not  come close  to matching  the resources  present.   Increasing                                                              
the  state's mining  taxes doesn't  attract  investors, it  raises                                                              
the hurdles.  Decreasing  the period of time that  mines can enjoy                                                              
tax relief  before starting to  pay does not encourage  investment                                                              
in the state.   Alaska will  not receive new investment  by making                                                              
the changes that would be implied by HB 253, he posited.                                                                        
                                                                                                                                
2:30:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR asked  for clarification  regarding what  Mr.                                                              
Mohr meant by  his comment that the public policy  perception does                                                              
not match  the opportunity, in light  of the fact that  Alaska has                                                              
not changed its  mining tax policy for 61 years.   She asked where                                                              
the public policy perception has gone wrong.                                                                                    
                                                                                                                                
MR.  MOHR  referenced  the 2014  Fraser  Institute  Report,  which                                                              
conducted an inventory  of mining industry perceptions  toward 122                                                              
jurisdictions worldwide.   He said the report  ranked Alaska tenth                                                              
worldwide  in  terms  of  investment  attractiveness  but  twenty-                                                              
seventh in terms  of public policy perception,  which includes tax                                                              
and regulatory hurdles.                                                                                                         
                                                                                                                                
2:31:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  for  clarification regarding  the                                                              
factors contributing  to the rank of twenty-seventh  in the public                                                              
policy perception category.                                                                                                     
                                                                                                                                
MR.  MOHR  confirmed  that  tax and  regulatory  hurdles  are  two                                                              
components  within the  public policy  perception  section of  the                                                              
report.  He offered to follow up on the question.                                                                               
                                                                                                                                
REPRESENTATIVE  JOSEPHSON commented  that Alaska  has not  changed                                                              
the mining  tax since  right after the  Korean War;  therefore, it                                                              
must be regulatory  policy that has  caused the drop in  rank from                                                              
tenth to twenty-seventh.                                                                                                        
                                                                                                                                
MR.  MOHR clarified  that the  2014 Fraser  Institute Report  that                                                              
ranked Alaska  twenty-seventh under  "Public Policy  Perception by                                                              
Investors"  was  based on  2013  data.   He  said  he assumed  the                                                              
perception was  driven by the  legislature's treatment of  oil and                                                              
gas policy  at the time and  the thought that the  mining industry                                                              
might be next.                                                                                                                  
                                                                                                                                
2:33:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON   requested  that  Mr.  Mohr   forward  the                                                              
applicable pages of  the Fraser Institute Report to  the chair for                                                              
distribution to the committee.                                                                                                  
                                                                                                                                
MR. MOHR agreed to forward the documents.                                                                                       
                                                                                                                                
2:34:07 PM                                                                                                                    
                                                                                                                                
RANDY  POWELSON, Placer  Miner, stated  he is  a mining  engineer,                                                              
has  been in  the  mining  industry for  over  20  years, and  has                                                              
worked for  several different size  companies, ranging  from small                                                              
to large.   He currently  runs a small,  family owned  placer mine                                                              
and has  work experience in  a variety  of mining operations.   He                                                              
said  Alaska  has  a resource  based  economy;  the  state  cannot                                                              
survive on  tourism or manufacturing.   Given Alaska's  geographic                                                              
location  it is  only  economical  for the  state  to develop  its                                                              
resources,  and if Alaska  is going  to survive  it must  do that.                                                              
He  explained that  placer miners,  like him,  are "price  takers,                                                              
not price makers."   Placer miners are subject  to the variability                                                              
of their market.                                                                                                                
                                                                                                                                
MR.  POWELSON noted  he  has listened  to  several comments  about                                                              
mines  becoming profitable,  but  pointed out  that Kensington  is                                                              
the only major  new mine in the  state in the past ten  years.  He                                                              
posited that if  mines were profitable, there would  be more large                                                              
and small mines  in the state; therefore, mines are  marginal.  He                                                              
said  he opposes  the removal  of the  3.5-year exemption.   As  a                                                              
small  placer miner,  banks will  not  lend to  him for  equipment                                                              
purchases,  so  he must  finance  out  of  personal savings.    He                                                              
purchased  and  financed  almost  $150,000  in  equipment  over  a                                                              
period of years,  and if he had  to pay taxes during  the start-up                                                              
years it would have made his operation uneconomical.                                                                            
                                                                                                                                
MR. POWELSON  stated his  opposition to  increasing the  licensing                                                              
tax from  7 percent to  9 percent.   The problem with  referencing                                                              
the 1955 tax as  outdated, he posited, is that it  may have been a                                                              
high tax when it  was implemented.  He added that it  may not be a                                                              
tax issue  so much  as a regulatory  issue.   In 1955  the Surface                                                              
Mining Control and  Reclamation Act of 1977 (SMCRA)  and the Clean                                                              
Water Act (CWA)  did not exist, the U.S.  Army  Corps of Engineers                                                              
(USACE)  was  not  charging  thousands  of  dollars  for  wetlands                                                              
disturbances, and  conservation banks did not exist,  all of which                                                              
are  problems that  modern  miners  have to  address.   Anytime  a                                                              
small business  owner hires a new  employee, the rule of  thumb is                                                              
that  50 percent  is added  to the  employee's  wages for  payroll                                                              
taxes and  overhead.  Even if  the tax hasn't changed  since 1955,                                                              
everything else in the world has, which makes it uneconomical.                                                                  
                                                                                                                                
MR. POWELSON  said he  spent over $50,000  in Fairbanks  last year                                                              
on  supplies  and materials  and  makes  a  point of  buying  from                                                              
locally-owned  and  run  businesses,   not  conglomerates,  in  an                                                              
effort to keep money  in the community.  He gave  the example of a                                                              
sporting  event  coming  to  a town  and  every  dollar  spent  in                                                              
association with  the event  turning over three  or four  times in                                                              
the  community.   He  said  if  this  adage  holds true  then  his                                                              
single-family  mining operation  produced $150,000-$200,000  worth                                                              
of benefit  to the Fairbanks  community.   He said there  are ways                                                              
for the state  to generate revenue. For example,  sometime between                                                              
2010  and  2012,   the  Department  of  Transportation   &  Public                                                              
Facilities  (DOT&PF) put  out a gravel  crushing contract  between                                                              
Chitina  and McCarthy  near highway  mile 52.   The University  of                                                              
Alaska  Fairbanks  (UAF)  is  a   land  grant  university,  it  is                                                              
supposed to  use that money and  land to pay for  UAF's operation.                                                              
The  university chose  not  to lease  the  gravel  pit to  DOT&PF.                                                              
After six  months of  negotiation and  an offer  to pay  six times                                                              
the going rate for  the gravel, UAF turned down  $200,000 worth of                                                              
royalties.  Conversely,  the Alaska Mental Health  Trust Authority                                                              
(AMHTA) actively uses its land to create revenue.                                                                               
                                                                                                                                
2:39:31 PM                                                                                                                    
                                                                                                                                
MR. POWELSON  said mining is  a significant contributor  to AMHTA.                                                              
He  said taxes  are  a  punitive,  regressive form  of  increasing                                                              
revenue; every  time money is taken  from one [industry]  it makes                                                              
that  occupation less  attractive.   He  compared taxes  to a  big                                                              
rubber band and  recounted that a few years ago  the state thought                                                              
it  would be  wise to  tax the  "rich" cruise  ship industry,  and                                                              
cruise  ship  activity  in  Alaska   and  the  associated  revenue                                                              
plummeted  as a  result.   That  regressive tax  was repealed.  He                                                              
predicted the  same pattern  would occur  in the mining  industry.                                                              
He suggested  the state find a way  to tax everyone, not  just the                                                              
miners, perhaps in  the form of a small tax on  cell phones, which                                                              
could  be considered  either necessities  or luxuries.   If  there                                                              
are 400,000  cell phones  in the  state, a tax  rate of  $1.25 per                                                              
month  would raise  $6 million.   Such  a tax,  spread across  the                                                              
entire  state  and all  its  citizens,  would  be a  fairly  small                                                              
amount  compared to  the $45.00  to $90.00 per  month that  people                                                              
pay  for cell  phones.    He provided  the  example  of the  Yukon                                                              
Territory's aggressive  promotion of the mining  industry, because                                                              
the Yukon  Territory realizes that  mining brings in  money rather                                                              
than costs money.                                                                                                               
                                                                                                                                
2:41:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  said the most compelling  portion of Mr.                                                              
Powelson's testimony  was his explanation of the  vast increase in                                                              
regulatory  authority over  the mining  industry since  1955.   He                                                              
commented  that  the  University  of Alaska  (UA)  generated  five                                                              
times more  money than AMHTA  and UA owns  a land area  equivalent                                                              
to the island of Molokai, Hawaii.                                                                                               
                                                                                                                                
MR.  POWELSON allowed  that Representative  Josephson's  statement                                                              
could be true.   He said when  he hears about UA claiming  to have                                                              
financial problems  on the news  it bothers him, because  he knows                                                              
that UA has turned down a significant amount of cash flow.                                                                      
                                                                                                                                
2:42:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR stated  her appreciation  for Mr.  Powelson's                                                              
views on what has  changed in Alaskan mining since  1955, but said                                                              
it  is  important   to  distinguish  between  federal   and  state                                                              
regulatory  requirements,  as  well  as  the  differences  between                                                              
federal  and state  land.   She said  it would  be interesting  to                                                              
hear  from   Mr.  Powelson   on  whether   there  are   regulatory                                                              
challenges specific to state land.                                                                                              
                                                                                                                                
MR. POWELSON  replied that many  of the federal  regulations apply                                                              
on state land.   In terms of permitting, he said  a person in 1955                                                              
could simply start  mining; whereas, now it takes  anywhere from 5                                                              
to 15  permits and  the associated record  keeping.   For example,                                                              
for water quality  monitoring the state requires  a turbidity test                                                              
unit that  costs about $750.   However, the state does  not accept                                                              
as a  replacement a  turbidity tube,  which is  a $35.00  piece of                                                              
plastic  with a  slide rule  on it.   While  the tax  may be  from                                                              
1955,  all  the   other  cumulative  effects  of   regulation  are                                                              
massive.   He maintained that saying  something is bad  because it                                                              
is old  is not valid,  especially when  considering all  the costs                                                              
associated  with mining  operations.   As a  private business  man                                                              
and  a small,  family  mine operator,  he  is  fighting for  every                                                              
dollar  of bottom  line,  he continued.    It  costs a  tremendous                                                              
amount of money to run a mining business correctly.                                                                             
                                                                                                                                
REPRESENTATIVE  TARR responded  that the  purpose of her  previous                                                              
comment  was to  highlight that  state  regulations are  something                                                              
the legislature  can actually change.   She clarified she  was not                                                              
referring   to  the   overlapping  jurisdiction   issue,  but   is                                                              
interested  in  Mr.  Powelson's   thoughts  about  what  could  be                                                              
changed in  state regulation.   She related  that if  Mr. Powelson                                                              
had other  examples similar to the  turbidity test kit,  she would                                                              
be interested in hearing them.                                                                                                  
                                                                                                                                
MR. POWELSON offered to follow up outside the meeting.                                                                          
                                                                                                                                
2:45:33 PM                                                                                                                    
                                                                                                                                
DOUG TWEET,  Placer Miner, NB Tweet  & Sons, stated he  is a third                                                              
generation placer miner  and opposes HB 253.  He  stated that from                                                              
the perspective of  a small placer miner, he  understands the need                                                              
for  the state  to  increase revenue,  but  he  posited that  this                                                              
legislation  would  lead  to  an   overall  decrease  in  revenue.                                                              
Specifically, it  would harm the  economic climate for  new placer                                                              
miners,  especially in  rural  areas where  there  is very  little                                                              
economic activity.   He stated  that for  a new placer  miner, the                                                              
process of  acquiring financing is  very difficult.  Having  a new                                                              
mine exemption  for 3.5  years is  very important, because  miners                                                              
get a return on their investment right when they need it.                                                                       
                                                                                                                                
MR  TWEET stated  that  increasing the  tax  from 7  percent to  9                                                              
percent  would  have  a  negative  impact  as  well;  even  though                                                              
$100,000  sounds  like a  high  threshold  for that  increase,  it                                                              
isn't  when  there  are  several  partners  in  a  family-oriented                                                              
partnership.   For example, the  large company in Nome,  Nome Gold                                                              
- formerly Alaska  Gold - is struggling.  It was  not making money                                                              
last year and  he has heard it  would be back next year  but would                                                              
be  significantly   downsized.    He  explained   that  costs  are                                                              
incredibly  high  in Nome.    The  Nome Port  Commission  recently                                                              
decided to  raise tariffs  on the  port by  10 percent.   Although                                                              
still subject  to city council approval,  the City of  Nome needed                                                              
the revenue  increase because  activity has  slowed.   Reiterating                                                              
the high costs in  Nome, he noted that fuel at  the pump is around                                                              
$5.00 per gallon.   He asked the committee to  please consider not                                                              
lifting the  3.5-year exemption  or raising the  tax.   He offered                                                              
that it  is more  important to the  state in  general, as  it will                                                              
affect larger mines trying to become operational.                                                                               
                                                                                                                                
MR. TWEET  said there is  a large graphite  deposit on  the Seward                                                              
Peninsula,  and with low  commodity prices,  junior companies  are                                                              
having  a  hard  time  with financing.    One  company  has  spent                                                              
approximately $12  million on exploration on the  Seward Peninsula                                                              
and has found  the largest deposit  of high grade graphite  in the                                                              
U.S.  and potentially  the world.    The deposit  is large  enough                                                              
that it  could drive the  market for 100  years.  For  the deposit                                                              
to be developed  the company needs financing.   The potential loss                                                              
of the  3.5-year exemption  and tax increase  from 7 percent  to 9                                                              
percent  would   negatively  impact   the  company's   feasibility                                                              
studies  and make financing  the  project even  less likely.   The                                                              
vast majority  of claims  for graphite  deposit are state  claims,                                                              
he pointed out,  which would result in a large  production royalty                                                              
if the project ever  came to fruition.  It would  be wonderful for                                                              
the  area to  have  a large  mine.   He  concluded  by stating  he                                                              
understands and  appreciates the legislative challenges  of trying                                                              
to find revenue and balancing the state budget.                                                                                 
                                                                                                                                
2:50:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  pointed out that this tax  would apply only                                                              
to net  income.  He  inquired whether it  would make  a difference                                                              
to Mr. Tweet,  as a small placer  miner, for the tax to  stay at 5                                                              
percent  from $50,000  to $200,000.    He explained  that in  this                                                              
scenario the  tax rate would  still increase  from 7 percent  to 9                                                              
percent above $200,000.   This would give the small  miner, with a                                                              
net income of less than $200,000, a significant tax advantage.                                                                  
                                                                                                                                
MR. TWEET replied  that would be helpful in terms  of his family's                                                              
business.    His business  is  organized  as a  limited  liability                                                              
company (LLC) and  all family members own a share.   He said he is                                                              
a  third-generation  miner  and  his  sons  are  fourth-generation                                                              
miners.  This is  their only source of income and  $200,000 is not                                                              
that much  when divided  three ways,  he explained, but  extending                                                              
the  upper limit  of  the tax  increase would  be  helpful in  his                                                              
circumstance and for other small miners.                                                                                        
                                                                                                                                
2:52:58 PM                                                                                                                    
                                                                                                                                
GEORGE  PIERCE stated  that Alaska's  mineral  industry was  worth                                                              
almost $3  billion dollars in 2009  but paid less than  2 percent,                                                              
counting  all forms  of taxes, fees,  and royalties  to the  state                                                              
and  local  governments.    Taxes on  other  industries  are  much                                                              
higher.   The oil and  gas industry paid  about 20 percent  of its                                                              
market  value,  which is  still  the lowest  in  the  world.   The                                                              
fishing  industry paid  about 5  percent.   Coal  mining was  also                                                              
about 5  percent.  While  low taxes for  mining are  attractive to                                                              
corporations, some  organizations and legislators argue  that they                                                              
don't represent  a fair,  long-term value  for Alaskan  resources,                                                              
particularly  because the  vast  majority  of mining  corporations                                                              
are not  Alaskan.  He  inquired why, given  that all  Alaskans are                                                              
going  to  have  to  pay  in  the   current  budget  circumstance,                                                              
resources  should not  also be  taxed.   Everyone  should pay,  he                                                              
opined.   The state has  had the same  mining tax since  1955, but                                                              
has visited  the oil and  gas taxes six times  in ten years.   The                                                              
tax circumstance  needs  to be overhauled.    Mines leave  a mess,                                                              
destroy habitat,  and the damage  is continuing.  The  resource is                                                              
non-renewable.    He implored  the  committee  to raise  taxes  on                                                              
Alaska's resources  to get the best  deal for Alaskans,  and cited                                                              
the  example  of  numerous  abandoned  mines  in the  state.    He                                                              
posited that taxes  should apply to gross income,  not net income.                                                              
He suggested  the taxes be  raised to 20  percent as with  gas and                                                              
oil,  or  even higher.    He  said government  exists  to  provide                                                              
services, and  corporations exist to  make money.  Alaska  has the                                                              
best resources in  the world and the legislature  gives breaks and                                                              
gives the  state's resources away  for dirt cheap.   Alaska should                                                              
get the top  dollar because its  resources are the best,  he said.                                                              
He concluded,  "Do your job,  let's fix  the budget and  raise the                                                              
taxes on mining."                                                                                                               
                                                                                                                                
2:55:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO asked  if anyone  else would  like to  testify.                                                              
[No one came forward.]                                                                                                          
                                                                                                                                
[HB 253 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB253 ver A.pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB253 Sponsor Statement - Governor's Transmittal Letter.pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB253 Sectional Analysis.pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB253 Fiscal Note-0924-DOR-TAX-01-13-16.pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB 253 Tax presentation MINING 1-29-16 ka.pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB 253 DOR Response to House Resources Committee - 2.15.16 (Part 1 of 2) signed JB.pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB 253 Opposing Testimony Jeffers 02_19_2016 (1).pdf HRES 2/19/2016 1:00:00 PM
HB 253
HB 253 Frazer Institute 2014 Survey of Mining Companies 02_19_2016 (2).pdf HRES 2/19/2016 1:00:00 PM
HB 253