Legislature(2015 - 2016)BARNES 124

02/23/2016 01:00 PM RESOURCES

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01:03:22 PM Start
01:04:19 PM HB253
02:27:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES                                                                    
1:04:19 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."                                                                                                         
1:05:20 PM                                                                                                                    
BRONK   JORGENSEN,  Fortymile   Mining  District,   provided  his                                                               
organization's concerns  regarding the potential impacts  that HB
253 could have  on placer miners in Alaska.   He paraphrased from                                                               
the following written testimony [original punctuation provided]:                                                                
     I would  like to  thank the  Committee for  letting the                                                                    
     Mining District testify on HB 253 today.                                                                                   
     The Fortymile  Mining District  was established  on the                                                                    
     Fortymile  Bar of  the Fortymile  River on  March 25th,                                                                    
     1898 under  the 1866  Mining Act  and the  1872 General                                                                    
     Mining  Act. The  District is  the  oldest and  longest                                                                    
     standing  Mining District  in the  State of  Alaska. We                                                                    
     encompass  approximately  six  thousand  square  miles.                                                                    
     Since  1898, the  District  has  been actively  engaged                                                                    
     with  Governmental agencies  to  promote family  placer                                                                    
     mines and create a healthy  and vibrant environment for                                                                    
     all user groups of the Fortymile River watershed.                                                                          
     Currently we have just over  a 100 family placer miners                                                                    
     that  make up  the  Mining District.  This group  along                                                                    
     with  all  placer miners  in  the  state are  currently                                                                    
     facing  an  unprecedented   obstacle  in  dealing  with                                                                    
     regulatory  agencies like  the BLM  [US Bureau  of Land                                                                    
     Management, EPA  [US Environmental  Protection Agency],                                                                    
     DEC [Department of  Environmental Conservation], and US                                                                    
     Army ... [Corps] of Engineers.                                                                                             
     Family  placer operators  on  Federal  Lands are  being                                                                    
     inundated      by       Instructional      Memoranda's,                                                                    
     reinterpretation of regulations and  forcing any new or                                                                    
     revised   plans  of   operations  to   comply  with   a                                                                    
     complicated     "REM     [Reclamation     Effectiveness                                                                    
     Monitoring] Policy"  for reclamation, along with  a new                                                                    
     BLM policy  of being forced  out of using the  State of                                                                    
     Alaska Bond Pool.  The State Bond pool  is an extremely                                                                    
     important asset to our placer  miners on both state and                                                                    
     federal mining claims.                                                                                                     
     Placer mining in  the Fortymile is a  clean process, no                                                                    
     acid leaching  or other chemicals are  used, just water                                                                    
     and hard work. The overall  footprint is minimal to the                                                                    
     extent  that the  1986  Environmental impact  statement                                                                    
     [EIS]  showed that  collectively all  placer mining  in                                                                    
     the  Fortymile  District   would  have  no  significant                                                                    
     impact. The  number of  acres that  the EIS  assumed in                                                                    
     1986 would  be mined by  1996 hasn't even  been reached                                                                    
     today  and  we  are  30 years  out.  Total  all  placer                                                                    
     activity  in  the Fortymile  is  smaller  than an  Iowa                                                                    
     I  bring this  up to  show  the economic  power of  our                                                                    
     family placer mining  and the minimal area  it takes to                                                                    
     do so.                                                                                                                     
     Family Placer  Mines are  a huge  force in  driving the                                                                    
     Alaska economy  especially in rural Alaska  where there                                                                    
     is very  little other  economic activity. I  would like                                                                    
     to point  to the McDowell  report that was done  on the                                                                    
     Economic Impact  of Placer Mining  in Alaska.  A couple                                                                    
     highlights from the report.                                                                                                
        - Family Placer Mines have been steadily increasing                                                                     
          on average over the last decade.                                                                                      
        - 88% of all expenditures made by placer miners are                                                                     
          spent in the state of Alaska.                                                                                         
        - Total Impacts: 1700 jobs in Alaska, $65 million                                                                       
          of labor income in Alaska and $150 Million in                                                                         
          Total spending on goods and services.                                                                                 
     In this house bill,                                                                                                        
        - The Requirement for Electronic Filing of Mining                                                                       
          License Tax  Returns. We  believe we  will problem                                                                    
          for our members. The exemption  for this should be                                                                    
          in  statute and  allow  exemptions for  operations                                                                    
          with less than 10 employees  or a tax liability of                                                                    
          under $10,000.                                                                                                        
             ƒ Many of our members don't have internet or                                                                       
               can barely run a computer.                                                                                       
             ƒ I personally tried to use the current                                                                            
               electronic  system. I'm  probably one  of the                                                                    
               more tech  savvy operators and I  stopped and                                                                    
               used the  good old  paper system,  because it                                                                    
              is difficult and problematic to use.                                                                              
        - This bill is eliminating the Requirement to file                                                                      
          returns in Juneau. This is a positive step for                                                                        
          family placers.  Placer miners  should be  able to                                                                    
          file their tax returns and  pay their tax at State                                                                    
          DNR [Department of  Natural Resources] information                                                                    
          offices  in  Fairbanks  and  Anchorage  just  like                                                                    
          Rental   Fees,  water   license   fees  and   APMA                                                                    
          [Application for Permits to  Mine in Alaska] fees.                                                                    
          This eliminates worry and  hassle that returns are                                                                    
          timely filed.                                                                                                         
        - It is purposed that we Increase Mining License                                                                        
          Fee of from $0 to $50.                                                                                                
             ƒ This $50 annual fee may not seem like a big                                                                      
               thing  but it  actually is.  Currently it  is                                                                    
               estimated  this will  bring in  only $25,000.                                                                    
               This $25,000 is a  minor amount of money that                                                                    
               will  have  a  significant impact  on  family                                                                    
               placer miners.                                                                                                   
                  · In order for a placer operator to get                                                                       
                    permitted,   they   have  to   pay   the                                                                    
                    following regulator  fees and  all these                                                                    
                    fees add  up and make it  more difficult                                                                    
                    for us to operate:                                                                                          
                       o APMA fee of $150 for one year.                                                                         
                         Alaska Placer Miners Application.                                                                      
                       o Non refundable Bonding fees can be                                                                     
                         as much as $370 per year.                                                                              
                       o Temporary Water License is $50 per                                                                     
                       o BLM Camping fees every year for                                                                        
                        dredgers is $250                                                                                        
                       o State Mining Claim Rental Fees and                                                                     
                         Federal Maintence fees every year                                                                      
                         cost most of our miners a minimum                                                                      
                         of $300 per year.                                                                                      
     In  the end  the $50  dollars will  have a  significant                                                                    
     impact, and if  it is the straw that  breaks the camels                                                                    
     back on  just one or  two family operations, it  is not                                                                    
     worth it.                                                                                                                  
     Anything  you do  that  adds to  the  burdon of  family                                                                    
     placer mines  with have a  negative effect on  both our                                                                    
     family miner and the state  economy. CACFA the Citizens                                                                    
     Advisory Commission  on Federal  Areas has been  a huge                                                                    
     asset  to the  Mining District  in dealing  with ANILCA                                                                    
     and Federal Agencies.                                                                                                      
     The Fortymile  District would like  to be  positive and                                                                    
     what  we need  to  be doing  is  helping family  placer                                                                    
     operations so  they can be  successful and  add revenue                                                                    
     to our state.                                                                                                              
     I   encourage  all   of  you   to  remember   that  the                                                                    
     trickledown  effect in  the economy  of  losing just  a                                                                    
     couple family placer mines has  a significant impact on                                                                    
     the  general  state  economy.  Let's  try  to  work  on                                                                    
     reducing  the regulator  paperwork  and encourage  more                                                                    
     people to go out and develop small placer operations.                                                                      
     As at  State we need to  be making it easier  to comply                                                                    
     and meet  regulations. We  need to  keep the  bond pool                                                                    
     strong,  and  pursue  our State  rights  under  ANICLA.                                                                    
     Continuing  to   move  forward   on  issues   like  the                                                                    
     navigable  waters, RS2477  and we  need to  support and                                                                    
     fund CACFA.  In the  long term  these things  will help                                                                    
     our overall long term fiscal issues.                                                                                       
     Thank  you  for  giving  me the  time  to  address  the                                                                    
1:13:54 PM                                                                                                                    
REPRESENTATIVE SEATON  referred to  Mr. Jorgenson's  comment that                                                               
the state  bond pool money  had not been  used up, and  asked for                                                               
details as to where the bond pool is and what it is used for.                                                                   
MR.  JORGENSEN replied  that  the bond  pool  is something  every                                                               
federal operator has to use  and any state operator that disturbs                                                               
over five  acres of ground.   In the event a  miner defaults, the                                                               
bond pool money  can then be used to reclaim  the land and remove                                                               
REPRESENTATIVE SEATON  surmised that  the payment into  the state                                                               
bond pool ....                                                                                                                  
MR. JORGENSEN  interjected that it  is still funded by  the small                                                               
miners  in that  every year  miners pay  $37.50 and  it goes  for                                                               
managing the pool  and continuing to grow it.   He noted that the                                                               
issue  for federal  operators is  that BLM  is claiming  the bond                                                               
pool isn't strong  enough and BLM is using that  to force federal                                                               
operators  to   use  their  financial  guarantee   system,  which                                                               
essentially  means putting  up  a $500,000  to  $1 million  bond.                                                               
From his  operation he estimated  it to be approximately  five to                                                               
six times the cost.                                                                                                             
REPRESENTATIVE SEATON  asked how much  money is currently  in the                                                               
bond pool.                                                                                                                      
MR. JORGENSEN responded that it is approximately $1.1 million.                                                                  
1:15:39 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  asked how many of  the hundred families                                                               
are making a living principally on placer mining.                                                                               
MR.  JORGENSEN  estimated  that  approximately  one-half  of  the                                                               
operators are principally placer miners.                                                                                        
REPRESENTATIVE  JOSEPHSON asked  for clarification  regarding the                                                               
$37.50 per year payment.                                                                                                        
MR.  JORGENSEN explained  that  it  is $37.50  per  acre, so  the                                                               
bigger the  area left disturbed the  more the miner pays.   Until                                                               
the state  or federal agency  signs off  on the ground  the miner                                                               
must continue paying  every year, although there  is a refundable                                                               
portion so that  once it is completed the  miner receives his/her                                                               
refundable bond.                                                                                                                
1:16:36 PM                                                                                                                    
CO-CHAIR  TALERICO  asked  what  has  been  the  largest  acreage                                                               
disturbance for any one individual claim.                                                                                       
MR.  JORGENSEN   answered  that  the  largest   operator  in  the                                                               
Fortymile has approximately 15-20 acres disturbed.                                                                              
The committee took a brief at ease.                                                                                             
1:17:32 PM                                                                                                                    
KAREN MATTHIAS, Managing Consultant,  Council of Alaska Producers                                                               
(CAP),  provided   her  organization's  concerns   regarding  the                                                               
potential impacts  that HB  253 could have  on large  metal mines                                                               
and major  metal development  mines in  Alaska.   She paraphrased                                                               
from  the  following  written  testimony:  [original  punctuation                                                               
     For the record, my name is  Karen Matthias and I am the                                                                    
     managing consultant of the  Council of Alaska Producers                                                                    
     (CAP). Thank you for this  opportunity to testify on HB
     CAP is  a non-profit  trade association formed  in 1992                                                                    
     and serves as a spokesperson  for the large metal mines                                                                    
     and major metal developmental projects in the state.                                                                       
     I  watched the  testimony  of  the Administration  last                                                                    
     week so I  know you have been given an  overview of the                                                                    
     mining industry  and an explanation of  the current tax                                                                    
     system. I will focus my  comments on the impact of this                                                                    
     bill  on  Alaska's  5  large   metal  mines  and  major                                                                    
     projects  and my  colleague,  Deantha  Crockett of  the                                                                    
     Alaska  Miners  Association,  will   be  speak  to  the                                                                    
     broader  industry which  includes  coal, placer  mining                                                                    
     and exploration.                                                                                                           
     CAP has two major concerns about HB 253:                                                                                   
          1. How does the proposed 29% higher AMLT payment                                                                      
          impact Alaska's current mines and projects?                                                                           
          2. Will it attract or deter investment to Alaska?                                                                     
     First, I would  like to state CAP's  position on fiscal                                                                    
     As businesses that have had  to make tough decisions to                                                                    
     optimize  operations,  cutting  budgets  and  positions                                                                    
     over the  past four years of  declining mineral prices,                                                                    
     CAP  appreciates  the  depth   of  the  State's  fiscal                                                                    
     challenge  and concurs  with many  key elements  of the                                                                    
     Governor's fiscal plan for Alaska.                                                                                         
     CAP's position  has been consistent. To  achieve fiscal                                                                    
     sustainability  and  a  stable investment  climate,  we                                                                    
     support   strategic   reductions   in   the   cost   of                                                                    
     government,  use of  the  Permanent  Fund earnings  and                                                                    
     broad  based revenue  measures  to  fill the  remaining                                                                    
     gap. However, CAP believes that  targeting one or a few                                                                    
     resource  industries  for  tax increases  is  divisive,                                                                    
     discourages investment  and does little to  balance the                                                                    
     The  fundamental  question   is  what  should  Alaska's                                                                    
     mineral tax policy  be? Presumably we want  to find the                                                                    
     balance between a reasonable share  for the state and a                                                                    
     competitive   rate    for   industry    that   attracts                                                                    
     investment. Why?  Because a robust,  responsible mining                                                                    
     industry contributes to  Alaska's economic diversity by                                                                    
     providing   good   jobs,   procurement   and   contract                                                                    
     opportunities  for local  businesses,  state and  local                                                                    
     government  revenue  and   revenue  sharing  to  Alaska                                                                    
     Native Corporations.                                                                                                       
     I  know the  administration  already  touched on  these                                                                    
     points  and underscored  the importance  of the  mining                                                                    
     industry  to  local  communities, particularly  in  the                                                                    
     Interior,  Nome, Northwest  Alaska  and  right here  in                                                                    
     Proposed AMLT increase                                                                                                     
     In his State of the  State address in January, Governor                                                                    
     Walker said that if Alaska  were a country, we would be                                                                    
     the  8th most  mineral rich  nation in  the world.  But                                                                    
     despite  billions   of  dollars  spent  on   dozens  of                                                                    
     exploration  projects  since  the 1980s,  we  currently                                                                    
     only have five  large metal mines. Why?  Simply put, it                                                                    
     is very  expensive and takes  a long time to  develop a                                                                    
     mine   in   Alaska  due   to   our   state's  lack   of                                                                    
     transportation and  energy infrastructure. If  our rich                                                                    
     deposits  were  in Nevada  closer  to  roads, rail  and                                                                    
     power, they would probably already be operating mines.                                                                     
     The State's  annual Mineral Industry  Report recognizes                                                                    
     the  negative  impact  of declining  metal  prices  and                                                                    
     paints a  grim picture:  fewer jobs, lower  net revenue                                                                    
     and a  significant drop  in exploration  spending. This                                                                    
     prompts numerous  questions from our industry.  What is                                                                    
     the  rationale for  raising the  Alaska Mining  License                                                                    
     Tax (AMLT) at  a time of low metal prices?  We have not                                                                    
     seen a detailed analysis  from the Administration about                                                                    
     the  impact of  a tax  hike. CAP  is concerned  that it                                                                    
     will it  affect the economic feasibility  of mines that                                                                    
     are under consideration or in  permitting. Just one new                                                                    
     large metal mine would bring  more revenue to the state                                                                    
     than this proposed increase.                                                                                               
     CAP has  members that  are very  concerned that  at our                                                                    
     current low  metal prices it  doesn't take much  to tip                                                                    
     into neutral  or negative cash  flow. Yes, the  AMLT is                                                                    
     based on  net income, but  at these prices,  net income                                                                    
     is low and  a 29 [percent] higher tax  payment would be                                                                    
     a  hard blow.  The  Department of  Revenue has  clearly                                                                    
     illustrated how  difficult things are for  the industry                                                                    
     in  their  estimation  of the  revenue  impact  of  the                                                                    
     higher  tax  rate. When  the  Governor  rolled out  his                                                                    
     fiscal plan  in December,  Appendix A of  his narrative                                                                    
     stated that  the increase  in AMLT  would result  in an                                                                    
     additional $12  million to the  state. The  fiscal note                                                                    
     to this bill says $5.9  million in 2018. The difference                                                                    
     is  a recalculation  of estimated  net  income and  the                                                                    
     reality of low commodity prices.                                                                                           
     CAP is also concerned that  the tax increase will deter                                                                    
     investment. The 2014 Fraser  Institute Annual Survey of                                                                    
     Mining  Companies   ranks  Alaska   22nd  out   of  122                                                                    
     jurisdictions  around the  world  in  regard to  mining                                                                    
     taxation policy  as approximately  70 [percent]  of the                                                                    
     respondents said that our tax  policy encouraged or did                                                                    
     not  deter   investment.  At   a  time   of  increasing                                                                    
     competition  for few  global exploration  dollars, what                                                                    
     will be  the impact  of the  proposed AMLT  increase on                                                                    
     global perception of investing in Alaska?                                                                                  
     Many people  are surprised  that our  major competition                                                                    
     are  not countries  in Africa  and  South America,  but                                                                    
     Canadian  provinces and  other US  states like  Arizona                                                                    
     and  Nevada  which   have  more  attractive  investment                                                                    
     climates.  They offer  both lower  tax  rates and  more                                                                    
     infrastructure  which often  means a  better return  on                                                                    
     We   should  be   encouraging,  not   discouraging  new                                                                    
     investment in  Alaska. New mines, of  which Donlin Gold                                                                    
     is  just  one  example, could  potentially  bring  more                                                                    
     revenue to the State of  Alaska than the modest revenue                                                                    
     to be gained by this measure.                                                                                              
     3.5 year AMLT exemption for new mines                                                                                      
     It  is  equally  important  to  question  the  proposed                                                                    
     elimination of the  3.5 year exemption of  the AMLT for                                                                    
     new  mines. Is  it  fair to  remove  the exemption  for                                                                    
     mines  that are  currently  under  consideration or  in                                                                    
     permitting  and  whose  economic models  count  on  the                                                                    
     exemption?  Since  no  new large  mines  have  received                                                                    
     permits to  start construction, it  is clear  that this                                                                    
     change will not  result in any new revenue  in the near                                                                    
     term. On the  contrary, it sends a  negative message to                                                                    
     potential  investors and  possibly tips  the scale  for                                                                    
     economic feasibility of some  developing projects so it                                                                    
     could actually  have a negative impact  on future state                                                                    
     revenue. Surely  this is not  the goal of the  State of                                                                    
     Alaska.  Please consider  amending the  bill to  remove                                                                    
     this proposal.                                                                                                             
     In closing I  want to emphasize that  CAP's position on                                                                    
     fiscal sustainability has been consistent:                                                                                 
        · The State of Alaska cannot cut its way out of the                                                                     
          budget    deficit,   however    additional   cost-                                                                    
         containment and efficiencies are still needed.                                                                         
        · Use of the Permanent Fund earnings is a viable                                                                        
          option to fill the greatest portion of the                                                                            
        · No one industry should be singled out to cover                                                                        
          the remaining gap.                                                                                                    
        · As Alaskan businesses willing to do our share,                                                                        
          CAP would be supportive of broad based measures                                                                       
          to address any remaining deficit.                                                                                     
     Thank  you   for  the  opportunity  to   provide  these                                                                    
     comments. We urge you to  look closely at the impact of                                                                    
     this  bill on  Alaska's ability  to be  competitive and                                                                    
     encourage  investment   in  the  mining   sector.  Many                                                                    
     Alaskan communities and thousands  of Alaska miners and                                                                    
     their families depend on a healthy mining industry.                                                                        
1:25:47 PM                                                                                                                    
REPRESENTATIVE  JOHNSON   commented  that  he  has   often  heard                                                               
targeted taxes and explained that  the process of the legislature                                                               
is  not targeting  taxes, but  rather breaking  the taxes  out to                                                               
where  policy committees,  such as  the House  Resources Standing                                                               
Committee, the  House Labor and Commerce  Standing Committee, the                                                               
House   Special   Committee   on   Fisheries,   and   the   House                                                               
Transportation Standing Committee, can  address the policies.  He                                                               
further  explained that  when all  of these,  on their  merits or                                                               
not, get to the House Finance  Committee they will be merged into                                                               
a  package that  should be  broad-based and  not singling  anyone                                                               
out.  Representative Johnson offered the following:                                                                             
     I want to be real clear  that this is not an attempt to                                                                    
     single out  a single industry.   This is an  attempt to                                                                    
     allow the  public to  weigh in,  and for  committees to                                                                    
     get a more  in-depth look.  If we were  to take this to                                                                    
     Finance, you'd  have two minutes to  testify, every tax                                                                    
     person would be  up there, public testimony  once.  And                                                                    
     we're  probably  hearing  more  on  revenue  bills  now                                                                    
     because of the  way it's been broken up.   And it was a                                                                    
     conscious  decision made  just to  do that  so that  we                                                                    
     could pay  particular attention  to all  of these.   So                                                                    
     ... to characterize targeting, I  know it may seem that                                                                    
     way, but I  want to be very clear that  this is part of                                                                    
     a  package  that's been  broken  out  so that  all  the                                                                    
     legislators  will have  a  chance.   I  was talking  to                                                                    
     someone  today  and  I  think   there  are  only  three                                                                    
     legislators ...  or majority members that  will not sit                                                                    
     on a  committee that  hears a tax  bill, as  opposed to                                                                    
     just  11 in  Finance.   And  in the  minority, I  think                                                                    
     there's  another three  that don't  sit on  committees.                                                                    
     So of  all 60 legislators, only  six will not sit  on a                                                                    
     committee that hears some kind  of a revenue bill.  So,                                                                    
     we're much  better today handling  it this way  than we                                                                    
     would have been if we'd just  sent it up to Finance and                                                                    
     watched it  on TV.  And  so this is an  attempt to make                                                                    
     sure that  we're able  to drill  down.   So, I  want to                                                                    
     dispel any preconception that we're targeting anyone.                                                                      
REPRESENTATIVE  JOHNSON  reiterated  that it  is  important  that                                                               
people understand  the motives and  why the legislature  is doing                                                               
it  in  this manner  in  that  it  is  not singling  people  out.                                                               
Rather, the goal is to get  more in-depth and receive some of the                                                               
information that Ms. Matthias has requested, as well.                                                                           
1:27:58 PM                                                                                                                    
REPRESENTATIVE    SEATON    offered    his    appreciation    for                                                               
Representative Johnson's explanation because  there is a proposed                                                               
fisheries  tax increase  of  33  percent and  he  comes from  the                                                               
fishing  industry.   He  pointed  out  that elimination  of  $400                                                               
million  in  tax  credits  in  the oil  and  gas  industry  is  a                                                               
significant  portion that  is being  considered, as  well.   With                                                               
regard to  the 3.5 year exemption  for large mines, he  asked how                                                               
that half  year of an annual  tax is not collected;  for example,                                                               
whether it is 50 percent of the third or fourth year.                                                                           
MS. MATTHIAS deferred  to the Department of Revenue  (DOR) for an                                                               
answer in that she is unsure of the accounting.                                                                                 
REPRESENTATIVE  SEATON   surmised  that  the  testimony   of  Ms.                                                               
Matthias  isn't necessarily  on  the half  year,  but rather  the                                                               
industry would  like to  be exempt  from tax  for some  number of                                                               
years after the mine is profitable.                                                                                             
MS. MATTHIAS replied  that currently the exemption  is 3.5 years,                                                               
which the mines  would like to stay because a  proposal to remove                                                               
it entirely is  problematic.  She said she  understands the half-                                                               
year  possibly  creates  accounting  challenges for  DOR.    With                                                               
regard   to   targeting   taxes,   she   said   she   appreciates                                                               
Representative Johnson's and  Representative Seaton's explanation                                                               
and the  work this committee  is performing to review  policy and                                                               
impact.   She noted that of  all of the business  community it is                                                               
the resources industries - fishing,  tourism, mining, and oil and                                                               
gas  -  that have  been  targeted  in  terms  of the  four  bills                                                               
proposing to  raise taxes.   From a mining  industry perspective,                                                               
it  feels like  mining  has  been singled  out  with three  other                                                               
resource industries for a large proportion of this discussion.                                                                  
1:31:28 PM                                                                                                                    
REPRESENTATIVE HAWKER asked  whether Ms. Matthias or  anyone in a                                                               
managerial  position in  the industry  had any  contact with  DOR                                                               
before  the bill  was  introduced,  as far  as  what  DOR may  be                                                               
thinking of doing and the consequences on the industry.                                                                         
MS. MATTHIAS  responded yes, CAP  was contacted in  late November                                                               
by the  administration who  asked for  an opportunity  to provide                                                               
information  on its  proposals.   The  DOR and  someone from  the                                                               
governor's office  met with her  board in November and  said they                                                               
were  interested  in  the  board's  view  and  also  provided  an                                                               
overview which  at the time was  still much more general.   Prior                                                               
to  actually  seeing  the  proposed bill,  CAP  followed  up  the                                                               
meeting with a  letter to Commissioner Hoffbeck  in late November                                                               
expressing   much  of   her  testimony   today,  such   as  CAP's                                                               
understanding of the fiscal situation,  its support to be part of                                                               
the solution,  and its  concern regarding  targeting taxes.   Ms.                                                               
Matthias  advised that  after reviewing  the  proposed bill,  CAP                                                               
then followed up with another letter.                                                                                           
1:32:52 PM                                                                                                                    
MS. MATTHIAS, in response to  Representative Hawker, advised that                                                               
once CAP had more information on  the bill itself CAP followed up                                                               
with another letter.                                                                                                            
REPRESENTATIVE HAWKER concluded that  CAP did have an opportunity                                                               
to respond and express its concerns.   He asked whether there was                                                               
any further dialogue  between the agency and CAP  before the bill                                                               
was introduced.                                                                                                                 
MS. MATTHIAS answered that to the best of her knowledge, no.                                                                    
REPRESENTATIVE  HAWKER asked  whether,  to the  knowledge of  Ms.                                                               
Matthias,  the  Department  of Revenue  in  preparing  this  bill                                                               
performed any sort  of impact analysis as to how  it might affect                                                               
the industry, such as jobs, people, and revenues involved.                                                                      
MS. MATTHIAS  replied no, she  did not see any  economic analysis                                                               
or impact study.                                                                                                                
1:33:47 PM                                                                                                                    
REPRESENTATIVE  HAWKER   opined  that   one  of  the   claims  in                                                               
introducing this  bill is that it  will take more money  from the                                                               
mining  industry  and  everything  will be  fine.    He  inquired                                                               
whether he  is correct in  recalling that Ms.  Matthias testified                                                               
that the opposite might happen  and the state could actually have                                                               
a decrease in revenues.                                                                                                         
MS.  MATTHIAS responded  that that  was in  regard to  her points                                                               
about the 3.5 year exemption for  the mining license tax.  In the                                                               
event it helps to tip the  economic feasibility of a project that                                                               
then doesn't go  into production, then there is  less revenue for                                                               
the state through  the Alaska Mining License  Tax (AMLT), through                                                               
the corporate tax, less jobs, and impact for local communities.                                                                 
1:34:45 PM                                                                                                                    
REPRESENTATIVE  HAWKER  asked  Ms.   Matthias  to  clearly  state                                                               
whether  she has  had any  conversations with  the Department  of                                                               
Revenue  about  the probability  or  likelihood  of her  concerns                                                               
actually  coming to  be should  HB 253  pass, as  opposed to  the                                                               
department's presumptions  that it is  just dialing up  a revenue                                                               
spigot for the state.                                                                                                           
MS. MATTHIAS replied:                                                                                                           
     There was  a meeting,  and I'm  sorry I  didn't mention                                                                    
     this earlier.   There was  a meeting in  January before                                                                    
     the   session   started,   I  wasn't   present,   where                                                                    
     representatives of  CAP did express concerns  about the                                                                    
     ...  current 3.5  year exemption  for new  projects and                                                                    
     asked the Department of Revenue  to really consider the                                                                    
     implications   before  submitting   the  bill   to  the                                                                    
     legislature.  But we were told it was too late.                                                                            
MS.  MATTHIAS,  responding   further  to  Representative  Hawker,                                                               
reiterated that  CAP was told it  was too late, that  the process                                                               
had already begun.                                                                                                              
REPRESENTATIVE HAWKER stated the following:                                                                                     
     Mr. Chair, thank you.  And  my own editorial.  You know                                                                    
     I  really  don't care  that  the  Finance Committee  is                                                                    
     going to  assemble a  bill.  I  personally need  to see                                                                    
     rational  explanation  in  this  committee  before  I'm                                                                    
     willing to move any product forward.                                                                                       
1:36:05 PM                                                                                                                    
REPRESENTATIVE  HERRON, in  regard  to if  HB  253 goes  forward,                                                               
inquired as  to what  effect it  is having and  will have  on the                                                               
global perception of investing in Alaska.                                                                                       
MS.   MATTHIAS  responded   that  tomorrow   there  will   be  an                                                               
opportunity to  go through the  whole mining industry  update and                                                               
that she  has a number  of slides regarding the  Fraser Institute                                                               
study that shows  perception and it tracts  where the investments                                                               
go.   The  Fraser Institute  looked  closely at  the question  of                                                               
investment  attractiveness,   policy  perception,   pure  mineral                                                               
potential, and  mineral potential based on  the current policies.                                                               
She noted  that Alaska's position  over the last couple  of years                                                               
has been in decline.  Policy  perception is not just taxation but                                                               
also  regulation and  other  issues.   She  described  this as  a                                                               
concern for  the broader  investment community,  and part  of the                                                               
real issue is  that commodity prices have been  declining for the                                                               
last  four  years  so  it   is  harder  for  companies  to  raise                                                               
investment  on the  markets.   Therefore, there  is much  greater                                                               
global  competition for  fewer dollars  and Alaska  has seen  its                                                               
share of exploration spending go  down significantly, and that is                                                               
not perception,  that's the reality.   That shows  that companies                                                               
are  looking at  what's  going  on currently  in  Alaska and  are                                                               
making assessments about  what might be coming in  the future and                                                               
some are choosing to put their money elsewhere.                                                                                 
REPRESENTATIVE HERRON  asked whether  this has changed  since the                                                               
bill was introduced and whether the  bill has been noticed in the                                                               
MS. MATTHIAS answered  that it certainly has been  noticed by the                                                               
members  of  CAP.    Some  members  have  headquarters  in  other                                                               
countries and other parts of the  United States, and they want to                                                               
know what  is happening and  where things  might go so  that they                                                               
can  make  decisions  about  how it  will  affect  their  current                                                               
operations and plans for the future.                                                                                            
1:39:01 PM                                                                                                                    
REPRESENTATIVE HERRON  referred to the limited  conversation with                                                               
the administration  and the conversation before  session started,                                                               
and asked whether the administration  explained the basis for the                                                               
removal of the 3.5 year exemption.                                                                                              
MS. MATTHIAS  answered no,  that has  been CAPs  biggest question                                                               
because it doesn't seem to make  sense because no mines are about                                                               
to go into  production or have started  construction.  Therefore,                                                               
eliminating this  exemption will not result  in increased revenue                                                               
to  the state  in the  near future  simply because  there are  no                                                               
mines poised to take advantage  of that exemption.  She specified                                                               
that  CAP  has  not  received  a  clear  answer  as  to  why  the                                                               
administration would  make a decision  that doesn't bring  in new                                                               
revenue but  does have the  opportunity to  discourage investment                                                               
or to send a negative message to the investment community.                                                                      
REPRESENTATIVE HERRON  surmised that  CAP has  performed analysis                                                               
on  this issue  and asked  CAP  to provide  an answer  as to  the                                                               
potential loss  of revenue to  the state if it  deters investment                                                               
and development.                                                                                                                
MS. MATTHIAS replied  that it is a tough to  give a dollar figure                                                               
because a  number of mines  are in advanced development  such as,                                                               
the Donlin  Creek Project, Livengood  Gold Project,  Pebble Mine,                                                               
and  others,  and there  is  a  wide  range  of projects  in  the                                                               
exploration  phase.   Obviously,  she said,  anyone exploring  in                                                               
Alaska is  hoping to find  a deposit to  develop and turn  into a                                                               
producing mine.  She explained  that the change in attractiveness                                                               
or  concerns by  the investment  community about  changes to  the                                                               
Alaska fiscal regime  could impact any one of  those because each                                                               
one  is different,  they  all have  different  models, and  their                                                               
ability  to go  ahead  is  determined on  a  number of  different                                                               
factors.   She said she  can't put a dollar  figure on it  but if                                                               
the state lost one of  those advanced projects from going forward                                                               
there  is a  significant  impact.   Just  one  of those  projects                                                               
becoming a  producing mine would  raise so much more  revenue for                                                               
the State of Alaska than this particular increase.                                                                              
REPRESENTATIVE  HERRON disclosed  that he  is a  partner in  some                                                               
gold claims  and in speaking as  a miner, opined that  there is a                                                               
shortage of  explanations on why this  was put forward.   He said                                                               
he  echoes  Representative  Hawker  in that  this  must  be  done                                                               
carefully  and today  it is  premature to  advance it  until more                                                               
answers are forthcoming.                                                                                                        
1:42:34 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  recounted  that the  House  Labor  and                                                               
Commerce Standing  Committee heard  from the  cigarette, alcohol,                                                               
tourism, and oil and gas industries  that they also have the same                                                               
fear  as the  mining industry  regarding the  impact on  economic                                                               
incentives and  that a  climate of  welcoming for  the production                                                               
will be  impacted.  He  asked whether every industry  could raise                                                               
that argument,  such that retirees  could determine they  are not                                                               
retiring  in Alaska  because they  are being  threatened with  an                                                               
income tax.                                                                                                                     
MS.  MATTHIAS   responded  that  CAP's  approach   for  a  fiscal                                                               
sustainability starts  with cuts  and efficiencies, and  moves to                                                               
the  permanent  fund earnings.    She  said CAP  recognizes  that                                                               
neither of  those will necessarily  completely solve  the problem                                                               
and that  there will potentially be  a need for revenues  to fill                                                               
the remaining gap.  She explained:                                                                                              
     But we  think that  they should  be broad-based  and we                                                                    
     are  willing to  part of  that solution.   But  I think                                                                    
     about ... some  friends I have that have  been laid off                                                                    
     in oil  and gas and mining  in the past year.   And the                                                                    
     ... the first thing they  did when they got that layoff                                                                    
     notice was cut  expenses so that they  could make their                                                                    
     savings last as long as  possible while they looked for                                                                    
     a new  job that  would bring  in more  revenue.   And I                                                                    
     think ...  that's a very  individual point of  view but                                                                    
     that's from  a company perspective, that's  all exactly                                                                    
     what we have  done in these times of  low metal prices.                                                                    
     I  can  tell  you  my  companies  have  cut  positions,                                                                    
     they've frozen wages, they  have reduced benefits, they                                                                    
     have  started ...  requiring that  their employees  pay                                                                    
     more share for  their health care costs,  none of those                                                                    
     are  easy or  popular choices.   But,  that's what  the                                                                    
     companies have done because times are tough.                                                                               
1:44:51 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON asked  whether Ms.  Matthias knows  the                                                               
net income of the five major mines CAP represents.                                                                              
MS. MATTHIAS  answered she does  not have the net  income numbers                                                               
as the  tax information is proprietary.   It is all  given to DOR                                                               
which  amalgamates it  for their  publications, so  DOR would  be                                                               
able to provide a total.                                                                                                        
REPRESENTATIVE  JOSEPHSON posed  a scenario  of five  large mines                                                               
with this proposal  resulting in a $5 million tax  that was about                                                               
$1  million per  mine.   He asked  whether $1  million a  mine is                                                               
meaningful in  the view of  worldwide competition given  the size                                                               
of the mines and the  potentiality for return of higher commodity                                                               
MS. MATTHIAS  replied that  the tax  increase being  discussed is                                                               
the  Alaska Mining  License  Tax  (AMLT) which  is  based on  net                                                               
income.   Currently, the reason  the fiscal note is  $5.9 million                                                               
is because  commodity prices  are very  low, operating  costs are                                                               
high, and net income  is low.  She stressed that  a change in the                                                               
percentage could result in a  very different total when commodity                                                               
prices are  high because,  going back four  or five  years, there                                                               
was a much larger payment to  the state in AMLT because commodity                                                               
prices were high,  mines made money, and the  state received more                                                               
revenue.   Therefore, she advised,  it is not the  right question                                                               
because it  is a percentage  on net  income and it  changes every                                                               
1:46:51 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  referred to  the 3.5 year  tax holiday,                                                               
and opined that  the opposing side of the coin  that Ms. Matthias                                                               
argued is  the argument  that, rather  than interfering  with new                                                               
existing production,  this would be something  the industry could                                                               
anticipate.   He  described it  as a  "no harm,  no foul"  tax in                                                               
that, as  Ms. Matthias testified,  no revenue is coming  in right                                                               
now anyway.  He asked whether there is an argument for that.                                                                    
MS. MATTHIAS  responded that removing  the 3.5 year  exemption of                                                               
the tax  today puts it  on the books  in the future.   Therefore,                                                               
when a  new mine  comes into  production it  would not  have that                                                               
opportunity.   She  pointed  out  that it  is  very important  to                                                               
consider  some  of  the projects  currently  in  advanced  stages                                                               
because they have  invested hundreds of millions  of dollars into                                                               
exploration, and  in some cases  permitting.  Those  expenses are                                                               
not deductible,  they are an  investment.  When the  companies go                                                               
into  production they  are in  debt  by hundreds  of millions  of                                                               
dollars  that are  not deductible  from  the net  income that  is                                                               
assessed and  determines the  Alaska Mining  License Tax.   Also,                                                               
she stressed, when a mine  goes into production there are hiccups                                                               
in that the ore body is  unknown, and once mining actually starts                                                               
there are things that must  be changed, things that require fixes                                                               
which means a mine's operations,  initially, are not as efficient                                                               
as they  will be as  the mine matures and  the ore body  is known                                                               
and processes are in place.   She argued that the ability to have                                                               
a good  return on profit  in those first  few years is  tough and                                                               
unforeseen things  can happen initially.   The Pogo Gold  Mine in                                                               
its second  year had  a forest  fire that  closed down  the road,                                                               
thereby having  a huge impact  on Pogo in  the second year.   So,                                                               
knowing  there  won't be  an  exemption  from the  Alaska  Mining                                                               
License  Tax (AMLT)  during the  first  3.5 years  would have  an                                                               
impact on a mine's economic feasibility.                                                                                        
1:49:37 PM                                                                                                                    
REPRESENTATIVE  JOHNSON referred  to the  conversations that  Ms.                                                               
Matthias had  with the administration,  and asked whether  any of                                                               
her recommendations were incorporated within the legislation.                                                                   
MS.  MATTHIAS  replied  that  CAP's  November  [2015]  letter  to                                                               
Commissioner  Hoffbeck  supported  use   of  the  permanent  fund                                                               
earnings as part  of the major solution to  the fiscal challenge.                                                               
She noted that  there is a bill from the  governor on that issue.                                                               
Responding further to Representative  Johnson, she said she could                                                               
not  think of  any recommendations,  in particular,  incorporated                                                               
into the legislation.                                                                                                           
1:50:29 PM                                                                                                                    
REPRESENTATIVE JOHNSON  noted there  is tremendous  low commodity                                                               
prices worldwide and the discussion  is about companies investing                                                               
in  Alaska.   He inquired  about  which kind  of investments  are                                                               
happening today,  whether investment has slowed  down or stopped,                                                               
and whether companies are harvesting as opposed to investing.                                                                   
MS. MATTHIAS responded that mining  is a long-term investment and                                                               
many of the producers continue  to explore and continue to define                                                               
their ore  body to prolong  the life of  the mine because  if the                                                               
life  of  the  mine  is  prolonged  the  company  can  catch  the                                                               
increases in the commodity price cycle.   To make money in mining                                                               
those peaks  must be caught  because it  is a volatile  cycle and                                                               
there are many  dips.  There is ongoing  exploration to delineate                                                               
ore bodies,  she explained, but there  have been cuts in  some of                                                               
those investment decisions.   For example, Pogo  has advised that                                                               
it spent $15 million last year  on its exploration but its budget                                                               
is less this year.                                                                                                              
REPRESENTATIVE  JOHNSON  surmised  that   if  investment  is  not                                                               
happening, then  Alaska isn't going  to miss anything.   However,                                                               
if  investment is  happening,  then there  is  the potential  for                                                               
Alaska to lose development if HB 253 tips the scales.                                                                           
MS. MATTHIAS agreed  and said CAP believes that is  the case both                                                               
for  the long-term  viability  of the  producing  mines and  also                                                               
mines  in   the  exploration  phase   and  looking  to   go  into                                                               
development and production.                                                                                                     
1:52:39 PM                                                                                                                    
REPRESENTATIVE  SEATON recalled  the  statement  by Ms.  Matthias                                                               
that Alaska  is the  22nd most favored  fiscal regime  for mining                                                               
out  of 127  in the  world.   He  questioned whether  a 3.5  year                                                               
exemption  is tipping  the scale  and asked  whether CAP  has any                                                               
economic impact studies that show  that removal of that exemption                                                               
would actually  change any of  the economic decisions  that would                                                               
be made by someone starting a mine in Alaska.                                                                                   
MS. MATTHIAS  clarified that the  number 22 is a  question within                                                               
the Fraser  Institute study based  specifically on  taxation, and                                                               
noted  that a  number of  different questions  were asked  in the                                                               
study.   She said CAP  has not been  able to perform  an economic                                                               
analysis  and  suggested  that the  administration  could  do  an                                                               
economic analysis of  whether changes to the  regime would impact                                                               
the   existing  mining   industry  and   whether  would   attract                                                               
investment.   There is strong  concern amongst CAP  members about                                                               
eliminating the 3.5  year exemption of the  Alaska Mining License                                                               
Tax (AMLT), as well as concern about an increase in the AMLT.                                                                   
1:54:42 PM                                                                                                                    
REPRESENTATIVE  SEATON stated  that he  cannot understand  how an                                                               
economic  analysis could  be performed  regarding what  the exact                                                               
impact  would be  of  eliminating that  one  portion because  the                                                               
mines in  existence in the  state are  based on Alaska  being the                                                               
22nd most  favorable tax structure.   What the impact will  be is                                                               
hypothetical until that portion  is actually eliminated.  Perhaps                                                               
the Fraser Study could be  looked at to see whether jurisdictions                                                               
that don't  have an exemption  are higher  or lower on  the scale                                                               
than  Alaska.   Otherwise, doing  a  study like  that would  cost                                                               
hundreds of thousands of dollars.                                                                                               
MS.   MATTHIAS  answered   that  it   is  important   for  anyone                                                               
considering changes to a tax to  have some idea of what they want                                                               
to encourage  or discourage in  Alaska, and how that  compares to                                                               
other jurisdictions.   The  important thing is  to look  at total                                                               
take because  it's not  just about  a royalty  or a  net proceeds                                                               
mining tax or corporate income tax,  as it is all of those things                                                               
together because  from the  mining company's  point of  view they                                                               
are all  expenses.   If the  legislature as  the State  of Alaska                                                               
wants  to encourage  more investment  in the  mining industry  to                                                               
have more mines, more jobs,  and more opportunities, then it must                                                               
be looked at as  to whether a tax regime is being  set up that is                                                               
competitive with  reasonable jurisdictions  that Alaska  would be                                                               
competing with.  For example,  how does Alaska compare Nevada and                                                               
Arizona, the  top metal  mining states  in the  US, and  how does                                                               
Alaska compare with  some of the Canadian provinces?   That whole                                                               
picture  is  necessary  in  order  to have  a  sense  of  whether                                                               
increasing  taxes,   increasing  the   burden,  will   deter  the                                                               
investment into the industry and result in a smaller industry.                                                                  
1:57:22 PM                                                                                                                    
REPRESENTATIVE  HAWKER thanked  Ms. Matthias  for her  testimony,                                                               
and  requested her  suggestions for  what the  legislature should                                                               
look  at  as  a  basis   for  measuring  and  comparing  Alaska's                                                               
competitiveness   with  other   jurisdictions.     Regarding  the                                                               
comments by Ms. Matthias about  total government take, he said he                                                               
has not  seen any  emphasis on  that in this  process.   He asked                                                               
whether Ms. Matthias had suggested  that the people proposing the                                                               
legislation  should take  responsibility for  the evaluation  and                                                               
consequences  of  the  changes   being  proposed,  but  said  Ms.                                                               
Matthias did not have to answer that question.                                                                                  
1:58:30 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON said  he has practiced law  for 12 years                                                               
and knows what  it means to represent  someone wholeheartedly and                                                               
believe  in their  cause.   A  criticism levied  during the  last                                                               
couple of  weeks about  the administration is  that it  didn't do                                                               
all these economic analyses.  He continued:                                                                                     
     It strikes me  that had it done that,  unless there was                                                                    
     some  stipulation as  to the  report,  the agency,  the                                                                    
     author of the report, that it  would be your job, if it                                                                    
     was  unsatisfactory,  to  argue  that  the  report  was                                                                    
     flawed, which you  may believe it was.   But isn't that                                                                    
     one of  the problems?   I'm not saying that  more facts                                                                    
     wouldn't be  beneficial.   But if  the report  had been                                                                    
     unfavorable, that is the report  had concluded that yes                                                                    
     there  would  be some  economic  impact  but that  it's                                                                    
     critical we  do this and  the economic impact  would be                                                                    
     survivable,  you  wouldn't  have  simply  said,  "Well,                                                                    
     that's just  the report and  we just have to  live with                                                                    
     that report."                                                                                                              
MS. MATTHIAS  replied she is  hesitant to analyze  a hypothetical                                                               
report or  the outcomes  of a hypothetical  report, but  said tax                                                               
changes are  very significant.   It has  been seen  with proposed                                                               
oil and  gas tax changes  that there is intense  scrutiny through                                                               
economic  analysis  modeling  impact   -  the  legislature  hires                                                               
consultants,  and the  administration has  its consultants.   She                                                               
allowed that mining  and oil and gas are  on completely different                                                               
scales in  terms of the contributions  to the State of  Alaska in                                                               
terms of  the general  fund revenue, but  said that  whether it's                                                               
tax  on  oil and  gas,  mining,  or  any  other industry,  it  is                                                               
necessary to  have a  serious economic analysis  and look  at the                                                               
impact.    It would  be  up  to  the  administration, up  to  the                                                               
legislature, as  to what kind  of third-party consultants  to use                                                               
in  order  to  receive  the best  possible  information  to  make                                                               
2:00:48 PM                                                                                                                    
REPRESENTATIVE HERRON remarked  that it is clear  to many members                                                               
that 7-9 percent  is too steep of an increase.   He asked whether                                                               
CAP has  a position that  possibly a small increase  is justified                                                               
or whether it should be left at 7 percent.                                                                                      
MS. MATTHIAS responded  that the Council of  Alaska Producers has                                                               
not taken a position on that  number because it wants to question                                                               
the tax policy and the potential outcomes.                                                                                      
2:01:29 PM                                                                                                                    
CO-CHAIR TALERICO requested a copy of  the letter CAP sent to the                                                               
Department of Revenue so he can distribute it to the committee.                                                                 
MS. MATTHIAS  answered that it  is in  the public domain  and was                                                               
sent to the  Department of Revenue and to  Governor Bill Walker's                                                               
office.  She said she will share a copy with the committee.                                                                     
The committee took a brief at ease.                                                                                             
2:02:36 PM                                                                                                                    
DEANTHA CROCKETT,  Executive Director, Alaska  Miners Association                                                               
(AMA),  provided   her  organization's  concerns   regarding  the                                                               
potential impacts that HB 253  could have on the mining industry.                                                               
She paraphrased  from the  following written  testimony [original                                                               
punctuation provided]:                                                                                                          
     Thank you. For the record,  my name is Deantha Crockett                                                                    
     and I  am the Executive  Director of the  Alaska Miners                                                                    
     Association.     AMA  appreciates  the   invitation  to                                                                    
     provide testimony today.                                                                                                   
     The Alaska  Miners Association is a  professional trade                                                                    
     association  established  in   1939  to  represent  the                                                                    
     mining industry  in Alaska.   We  are composed  of more                                                                    
     than  1,800  members  that come  from  seven  statewide                                                                    
     branches: Anchorage, Denali,  Fairbanks, Juneau, Kenai,                                                                    
     Ketchikan/Prince  of  Wales,  and  Nome.    AMA  is  an                                                                    
     umbrella  association,  representing  the  large  metal                                                                    
     mining  operations  in  Alaska but  also  small  family                                                                    
     mines, coal operations and  projects, sand, quarry rock                                                                    
     and  gravel  mining,  and the  vendor  and  contracting                                                                    
     sector that supports the mining industry.                                                                                  
     Each year,  AMA distributes to this  Committee and your                                                                    
     colleagues  an  "Issues  of Concern"  document.    This                                                                    
     outlines  our policy  positions on  issues that  impact                                                                    
     the  success of  our industry.   This  year, given  the                                                                    
     budget situation  we find ourselves in,  our very first                                                                    
     item of critical concern is  a position on State Fiscal                                                                    
     Policy   that    reads,   "Immediately    implement   a                                                                    
     comprehensive,  long  term  fiscal plan  in  2016  that                                                                    
     ensures  responsible spending  at a  sustainable level.                                                                    
     Such a  plan should  include budget reductions,  use of                                                                    
     Permanent  Fund earnings,  reduction  in the  Permanent                                                                    
     Fund Dividend, and new  revenue from broad-based taxes.                                                                    
     Ensure   State  of   Alaska   fiscal  policy   includes                                                                    
     strategies  to grow  and diversify  the Alaska  private                                                                    
     I'd like  to focus  on the last  part of  that position                                                                    
     when offering  comments on HB253.   Strategies  to grow                                                                    
     and diversify  the private sector  in Alaska  could not                                                                    
     be  more important  as we  look for  a solution  to our                                                                    
     budget imbalance.  We ask  you.  How many industries do                                                                    
     we have  in Alaska  that we can  look at  and conclude,                                                                    
     they've got potential  to be twice as large?   How much                                                                    
     opportunity is  there to multiply the  taxpayer base of                                                                    
     a  single sector?    Alaska  is home  to  over a  dozen                                                                    
     advanced  exploration  mining   projects,  and  just  a                                                                    
     single  one of  them going  into production  will bring                                                                    
     the  State of  Alaska substantially  more revenue  than                                                                    
     what is being proposed in this Legislation.                                                                                
     The Alaska  Miners Association and its  members want to                                                                    
     be  part of  the fiscal  solution.   We aren't  against                                                                    
     paying taxes.   We  already do pay  taxes. But  we fear                                                                    
     this  proposal is  short sighted,  and wonder,  what is                                                                    
     the  goal of  this  tax  policy?   Is  it  to raise  $6                                                                    
     million dollars?  Is it, as  was said in testimony at a                                                                    
     previous hearing,  to address a perception  that mining                                                                    
     doesn't pay  its way?   (I'll  get to  that point  in a                                                                    
     moment).   Or would we,  collectively as a  state, like                                                                    
     to grow  mining's contributions  to state  revenues for                                                                    
     many years to come?                                                                                                        
     Recently,  UAA's  Institute   of  Social  and  Economic                                                                    
     Research   completed   a   report  prepared   for   the                                                                    
     Department   of  Commerce,   Community,  and   Economic                                                                    
     Development  that  researched  the  fiscal  effects  of                                                                    
     Alaska's fishing, mining, and  tourism industries.  The                                                                    
     report shows  that mining, despite some  of the world's                                                                    
     highest   environmental   standards   that      require                                                                    
     stringent oversight, and  highest capital and operating                                                                    
     costs  due  to  the  lack  of  existing  infrastructure                                                                    
     throughout  much  of the  state,  brings  in much  more                                                                    
     revenue  to the  State coffers  than what  it costs  to                                                                    
     manage  the  industry.   Mining  DOES  pay its  way  in                                                                    
     Alaska,  not only  in  state  government revenues,  but                                                                    
     also  in property  taxes, Native  Corporation revenues,                                                                    
     and jobs and procurement  spending. The mining industry                                                                    
     has  spent hundreds  of millions,  if  not billions  of                                                                    
     dollars building  infrastructure in  this State.    All                                                                    
     of  this  should be  highlighted  when  we discuss  any                                                                    
     supposed  perception  about mining's  contributions  to                                                                    
     Alaska.     Alaska's  miners   are  paying   taxes  and                                                                    
     contributing to Alaska's economy in a significant way.                                                                     
     The state must keep its eye  on the prize and bring new                                                                    
     mines  into operation  to increase  the taxpayer  base.                                                                    
     To  do this,  we  as Alaskans  must  focus on  ensuring                                                                    
     there  is  policy in  place  to  make that  a  reality.                                                                    
     Policies  based on  reasonable, predictable  regulation                                                                    
     are important,  and to the  subject on  today's agenda,                                                                    
     attractive fiscal  terms are more important  than ever.                                                                    
     The global mining industry is  in a prolonged downturn,                                                                    
     as are the vendor  and contracting sectors that support                                                                    
     and depend on  its activity.  A  multi-year decrease in                                                                    
     commodity   prices  and   increasing  development   and                                                                    
     operation  costs has  caused the  industry to  evaluate                                                                    
     projects and operations, just as  we have seen with the                                                                    
     cessation  of  the  Nixon Fork  Mine,  which  suspended                                                                    
     operations in 2013,  resulting in the loss  of 90 jobs,                                                                    
     some of which were held by rural Alaskans.                                                                                 
     The  example  of Nixon  Fork  is  demonstrative of  the                                                                    
     fragility of mining economics, and  we are hopeful this                                                                    
     reinforces the  message that Alaska should  be creating                                                                    
     and maintaining  policies that  incentivize investment,                                                                    
     not adding new pressures that would deter investment.                                                                      
     Clearly,  AMA's position  is  to  grow Alaska's  mining                                                                    
     industry.  We  need that just one new  mine I mentioned                                                                    
     earlier,  and should  strive to  develop dozens  of new                                                                    
     mines.  However, the removal  of the 3.5 year exemption                                                                    
     for  new mines  does not  achieve that  goal.   This is                                                                    
     simply bad  policy.   It offers  no immediate  or near-                                                                    
     term  revenue for  the State  of Alaska,  yet decreases                                                                    
     the  feasibility for  a future  mining project  such as                                                                    
     the  Donlin Gold  Project,  which  has projected  1,200                                                                    
     jobs at  operation and would bring  millions of dollars                                                                    
     of revenue to the State.                                                                                                   
     This  Legislation proposes  changing the  Alaska Mining                                                                    
     License   Tax  rate   from  seven   to  nine   percent.                                                                    
     Increasing the  payments Alaska's larger mines  make to                                                                    
     the State  by 29% with no  research, economic analysis,                                                                    
     or understanding  about whether  the industry  can bear                                                                    
     the  increase, is  truly disturbing.   Alaska's  mining                                                                    
     industry  is comprised  of  mines  that are  relatively                                                                    
     small in  scale and  run by one  person to  large mines                                                                    
     that  employ  over  600  people.    Also,  hundreds  of                                                                    
     Alaskan  businesses and  individuals  depend on  mining                                                                    
     industry spending  for their  livelihoods.   Any policy                                                                    
     that would impact this critical  industry must be fully                                                                    
     contemplated,  researched,  and   understood  prior  to                                                                    
     adoption, and  we do  not believe  the State  of Alaska                                                                    
     has reached that level of understanding.                                                                                   
     Another component  of HB253 that  we urge the  State to                                                                    
     research  is  the  impact   of  the  electronic  filing                                                                    
     requirements on the small  miner.  Requiring electronic                                                                    
     filing  of tax  returns could  be problematic  for some                                                                    
     operations, particularly placer  mines in remote Alaska                                                                    
     with limited  connectivity to the  Internet.   The bill                                                                    
     references the possibility  of securing exemptions from                                                                    
     electronic filing but offers  no criteria or additional                                                                    
     information  about  the exemptions.    We  urge you  to                                                                    
     ensure the  impact of  this requirement  is understood,                                                                    
     and solutions  are offered if necessary.   In addition,                                                                    
     the creation of  a $50 application and  $50 renewal fee                                                                    
     may seem  may seem insignificant, but  fees required by                                                                    
     regulatory  agencies   have  begun  to  amount   to  an                                                                    
     impactful  cumulative   increase  for   Alaska's  small                                                                    
     miner.   This requirement would  be in addition  to the                                                                    
     fee  for an  Annual Placer  Mining Application,  fee to                                                                    
     enter  into  the  bond  pool,  camp  fee  permit,  fees                                                                    
     required by  federal agencies for mine  permitting, and                                                                    
     more.   The  creation  of  a new  fee,  in addition  to                                                                    
     substantial  existing  fees,  is   yet  one  more  cost                                                                    
     mechanism  that  can  only   increase  in  the  future,                                                                    
     placing further burden on Alaska's small miners.                                                                           
     Thank  you  for the  opportunity  to  provide you  with                                                                    
     AMA's position on  HB253.  To conclude, we  urge you to                                                                    
     require a  close examination of this  proposal to fully                                                                    
     understand  the  impacts  on  every  part  of  Alaska's                                                                    
     mining  industry -  from the  large mine  to the  small                                                                    
     miner,  and the  Alaskan  businesses  that support  the                                                                    
     mining  industry, and  determine whether  this proposal                                                                    
     accomplishes a goal to further Alaska's economy.                                                                           
2:09:21 PM                                                                                                                    
REPRESENTATIVE SEATON  referred to the electronic  portion of Mr.                                                               
Jorgensen's testimony  that suggested  a reasonable  cutoff point                                                               
would be under  $10,000 net income.  He asked  whether the Alaska                                                               
Miners  Association (AMA)  has  a position  or  agrees with  that                                                               
MS. CROCKETT  asked whether Representative Seaton's  question was                                                               
that  Mr. Jorgensen  suggested under  $10,000  in the  electronic                                                               
filing requirement.                                                                                                             
REPRESENTATIVE  SEATON   said  his  understanding  is   that  Mr.                                                               
Jorgensen  thought  that  under  $10,000 not  being  required  to                                                               
electronically file would  be a partial solution  because most of                                                               
those that  would have  a problem with  that would  probably fall                                                               
under that  $10,000 net income  solution.  He requested  that Mr.                                                               
Jorgensen come forward to clarify his suggestion.                                                                               
MR.  JORGENSEN  explained  that the  position  of  the  Fortymile                                                               
Miner's  Association is  $10,000  tax liability,  so  if the  tax                                                               
liability to the  state is under $10,000 the miner  is exempt, or                                                               
an employee-based 10 or fewer employees.                                                                                        
MS. CROCKETT answered  that the association has  not prepared any                                                               
sort of assessment  on what the monetary threshold  would be, but                                                               
the problem  is that  simply some  of the  miners don't  have the                                                               
connectivity to  do it.  No  matter how much money  a miner might                                                               
make, there are some miners  who simply don't have the capability                                                               
to do it.                                                                                                                       
2:11:53 PM                                                                                                                    
REPRESENTATIVE HAWKER  presumed that  the McDowell  Group report,                                                               
[The   Economic  Impacts   of  Placer   Mining  in   Alaska]  was                                                               
commissioned by the Alaska Miners  Association, and said it had a                                                               
lot of good information.  He  asked how much of the placer mining                                                               
in  Alaska  is  conducted  on  state-owned  land  as  opposed  to                                                               
privately-owned land.                                                                                                           
MS.  CROCKETT replied  she will  get back  to the  committee with                                                               
specific numbers, but that the  vast majority of placer mines are                                                               
on state land versus federal land.                                                                                              
REPRESENTATIVE HAWKER  understood that  the placer  mining sector                                                               
is highly concentrated on state  lands, and that the large mining                                                               
sector, large metal mines and  large coal mines, is primarily not                                                               
on state lands.  He advised  that when the committee looks at the                                                               
difference  between  royalties  and  production  taxes,  whatever                                                               
decision  the committee  makes disproportionately  prejudices one                                                               
or the other of that group.   It is something the committee needs                                                               
to keep in mind as it looks for an appropriate policy solution.                                                                 
2:13:29 PM                                                                                                                    
REPRESENTATIVE SEATON  noted that Alaska  has been under  the net                                                               
income  percent tax  regime  for  about 50  years  and a  certain                                                               
number  of  mines  have  been  developed  and  others  have  been                                                               
explored  and not  developed.   He said  he is  having difficulty                                                               
understanding  how  changing from  7  percent  to 9  percent,  or                                                               
changing the 3.5 year exemption,  will suddenly make "a whole lot                                                               
of  difference when,  if the  case was  that the  existing fiscal                                                               
regime, which is the 22nd  most favorable in the world basically,                                                               
wasn't enough  to create these  mines or they  weren't profitable                                                               
enough  or  that  a  2  percent difference  in  net  income,  net                                                               
profitability, in tax to the  state would make the difference and                                                               
all of  a sudden  there's going  to be all  these mines  that are                                                               
going to  be under construction or  one that's going to  be under                                                               
construction  that  wasn't already  that  when  they didn't  take                                                               
place  already."   He  asked  Ms.  Crockett  to explain  how  the                                                               
committee can  look at this  and say that this  is going to  be a                                                               
determining factor.                                                                                                             
MS. CROCKETT responded  that it's not that  particular tax piece,                                                               
but  that  it couldn't  come  at  a  worse  time for  the  mining                                                               
industry.   Tomorrow  she will  be offering  several slides  that                                                               
show  the different  external factors  that mining  companies are                                                               
facing in terms of costs and  revenue streams that make it such a                                                               
tough time in the mining industry.   She reiterated that it's not                                                               
so much the  taxes, but rather that it's  so incredibly expensive                                                               
to do business in Alaska and  this is changing one portion of how                                                               
expensive  it is.    Millions  and billions  of  dollars are  put                                                               
forward by  companies to develop  and construct a  project before                                                               
it goes into  production, and then the revenue  streams that come                                                               
after that.   She respectfully  requested that she be  allowed to                                                               
answer this during her presentation tomorrow.                                                                                   
REPRESENTATIVE SEATON said he is  putting out the questions early                                                               
so people  can be  prepared to discuss  the different  aspects of                                                               
the bill,  royalties, taxes, and  the differences between  the US                                                               
and Canada.                                                                                                                     
2:16:42 PM                                                                                                                    
REPRESENTATIVE HERRON  noted that Steve Borell  [former executive                                                               
director of  the Alaska  Miners Association]  is trying  to raise                                                               
money for mining investments.   He inquired what Mr. Borell would                                                               
say now  while trying  to raise money  given the  introduction of                                                               
this legislation.                                                                                                               
MS.  CROCKETT answered  that  when Mr.  Borell  retired from  the                                                               
Alaska  Miners  Association  he   opened  a  consulting  business                                                               
focusing  on  marketing  Alaska's mineral  potential  around  the                                                               
world.   He spends a great  deal of time talking  to investors in                                                               
Asia and  Australia, and promoting Alaska's  mineral potential to                                                               
bring in investment.   She put forward that Mr.  Borell is having                                                               
an increasingly  difficult time  keeping Alaska  in the  focus of                                                               
investors  and  telling them  why  they  should invest  money  in                                                               
Alaska  In speaking for Mr.  Borell she said he would be dismayed                                                               
by this  proposal because  the mining industry  needs all  of the                                                               
help it can get to attract investment in Alaska.                                                                                
2:18:10 PM                                                                                                                    
REPRESENTATIVE  HERRON noted  that prior  to introducing  HB 253,                                                               
the administration  testified in  this and other  committees that                                                               
it  had  had conversations  with  the  industry.   He  asked  Ms.                                                               
Crockett to share  with the committee her  conversations with the                                                               
administration prior to introduction.                                                                                           
MS.  CROCKETT replied  that  she and  Ms.  Matthias work  closely                                                               
together.  All of CAP's members are  members of AMA, so she has a                                                               
sort of  ex officio seat on  the CAP board because  of that role.                                                               
Both  she  and the  AMA  board  president  were present  at,  and                                                               
participated in, the November [2015]  meeting with the Department                                                               
of Revenue (DOR).   She described the discussion  as very general                                                               
in nature in that DOR offered  what it was thinking and asked for                                                               
feedback.  She  advised that she will provide  the committee with                                                               
a  copy of  AMA's letter  also recommending  that permanent  fund                                                               
earnings be incorporated.  She said  it was rather evident at the                                                               
time that the  Department of Revenue didn't have a  great deal of                                                               
knowledge  on how  the  mining industry  works,  so AMA's  letter                                                               
suggested that DOR coordinate more  with the Department of Nature                                                               
Resources  (DNR) to  understand  how the  mining industry  works,                                                               
what  the impact  of taxation  changes  would be,  and so  forth.                                                               
That  was  a  recommendation  AMA   hoped  DOR  would  take  into                                                               
2:20:06 PM                                                                                                                    
REPRESENTATIVE  HERRON   stated  that  taxes  are   part  of  the                                                               
investment  decision,  and  there  is a  criteria  for  risk  and                                                               
reward.  He asked Ms. Crockett  to share a couple of points about                                                               
that criteria.                                                                                                                  
MS. CROCKETT  responded that she  will get back to  the committee                                                               
with some real examples rather than hypothetical examples.                                                                      
REPRESENTATIVE  HERRON referred  to the  3.5-year exemption  plus                                                               
the $100,000.   Noting there  has been discussion  about changing                                                               
that number, he asked whether $100,000 is a good number.                                                                        
MS. CROCKETT answered  that she hopes DOR would  do that analysis                                                               
because DOR  has the proprietary  information and it  wouldn't be                                                               
fair for  her to  ask the  placer mining  members how  much money                                                               
they make.  She said DOR  should be able to provide very specific                                                               
information  about what  different thresholds  would impact  what                                                               
kind of placer  mining operation.  As one  of the representatives                                                               
of  the   placer  mining  industry   in  Alaska,  she   said  she                                                               
appreciates the question as it  is important to know exactly what                                                               
thresholds affect what size of  operations because these are very                                                               
real   individual  examples   that   will   make  a   significant                                                               
REPRESENTATIVE  HERRON  stated that  a  colleague  had posed  the                                                               
question of  increasing it and he  was curious as to  whether the                                                               
AMA had put any thought into it.                                                                                                
2:22:38 PM                                                                                                                    
REPRESENTATIVE  HAWKER cited  the history  in the  McDowell Group                                                               
report  that  in  1940,  with federally  fixed  gold  prices  and                                                               
federal restrictions on the ownership  and physical possession of                                                               
gold,  nearly 750,000  ounces  of gold  were  produced in  Alaska                                                               
under those  circumstances.  However, by  2013, mining production                                                               
was approximately  82,000 ounces.  He  argued that this is  not a                                                               
robust industry and  there is a contribution to be  paid, a tithe                                                               
to be  extracted from everyone,  and to  keep in mind  where this                                                               
industry is even in its historic development.                                                                                   
2:23:47 PM                                                                                                                    
REPRESENTATIVE   SEATON  stated   that  in   keeping  things   in                                                               
perspective,  there has  been testimony  that a  $50 license  fee                                                               
will be  devastating to miners, yet  there is a proposal  to take                                                               
possibly  $1,000  from  the  permanent   fund  dividends  as  the                                                               
preferred course.   Presuming those miners  are Alaska residents,                                                               
the legislature  would be  taking 20  times the  amount of  a $50                                                               
license  fee.    He  requested   that  committee  members  review                                                               
everything in context because sometimes it's difficult.                                                                         
2:24:42 PM                                                                                                                    
CO-CHAIR  TALERICO  understood   what  Representative  Seaton  is                                                               
saying, but said  that he doubts the committee will  impose a $50                                                               
mining license  fee on every  Alaskan resident so it  is "oranges                                                               
and apples."  Regarding the  2 percent tax increase, he explained                                                               
that the  7 percent  fee that  is charged is  100 percent  of the                                                               
taxes.  Therefore,  moving from 7 percent to 9  percent really is                                                               
a 28.5  to 29  percent increase;  this has been  one of  the main                                                               
questions  that he  has  been  asked to  answer  by  quite a  few                                                               
2:25:44 PM                                                                                                                    
REPRESENTATIVE  OLSON recalled  that  early in  this process  the                                                               
committee was  told that  the report by  the Institute  of Social                                                               
and Economic Research (ISER) would  include the impact by each of                                                               
the tax  breakouts.   However, this report  has been  scaled back                                                               
and so far  the committee has only received  an executive summary                                                               
of the  report, not the complete  version.  He asked  whether the                                                               
committee could receive  the full report from ISER  or DOR before                                                               
making a decision  on the bill in order to  provide adequate time                                                               
to  analyze  the questions  regarding  the  miner industry.    He                                                               
further requested that any previous drafts of the report be                                                                     
provided to the committee to help members cobble together the                                                                   
impact of the other taxes.                                                                                                      
CO-CHAIR TALERICO agreed to try getting as much of that                                                                         
information as possible.                                                                                                        
[HB 253 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 253 AMA Placer Final Report 11.15.pdf HRES 2/23/2016 1:00:00 PM
HB 253
HB 253 Tax electronic filing statistics 2-20-16.pdf HRES 2/23/2016 1:00:00 PM
HB 253
HB 253 AMA DOR mining tax letter.pdf HRES 2/23/2016 1:00:00 PM
HB 253
HB 253 AMA testimony.pdf HRES 2/23/2016 1:00:00 PM
HB 253
HB 253 CAP letter to Hoffbeck re taxation.pdf HRES 2/23/2016 1:00:00 PM
HB 253
HB 253 Fortymile Mining District Testimony 2.23.16.pdf HRES 2/23/2016 1:00:00 PM
HB 253
HB 253 testimony CAP-Matthias.pdf HRES 2/23/2016 1:00:00 PM
HB 253