Legislature(2005 - 2006)BELTZ 211


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 184 am Out of Committee
Bills Previously Heard/Scheduled
Moved HB 229 Out of Committee
Moved SB 171 Out of Committee
Heard & Held
         SB 179-MINERALS TAX/PAYMENTS TO MUNIS IN LIEU                                                                      
CHAIR GARY STEVENS announced SB 179 to be up for consideration.                                                                 
2:35:07 PM                                                                                                                    
SENATOR THERRIAULT,  Sponsor, said he  wanted to give  members an                                                               
update  on the  ongoing discussions,  which address  the concerns                                                               
voiced by various entities.                                                                                                     
He clarified  that the intent  is that only the  state assessor's                                                               
office would  do the assessment  for the  full and true  value of                                                               
the  mining  property  that  would   be  subject  to  tax  in  AS                                                               
43.67.010. He would work with  legislative legal to clear up that                                                               
There is no intent that any area  that is annexed remain at the 4                                                               
mil rate.  The intent is  that if a borough  forms or an  area is                                                               
annexed into  an existing borough,  the mill rate  would increase                                                               
by 2 mills to a cap of 6  mills. That too would be addressed with                                                               
modified language.                                                                                                              
He  said  that  language  on  page  6,  lines  16-17  also  needs                                                               
modification  to  make  it  clear   that  property  used  in  the                                                               
production of  minerals is  subject to taxation.  The idea  is to                                                               
tax  the  economic  activity  associated   with  the  mining  and                                                               
production of the  ore. He submitted language to  the drafters to                                                               
clarify that point.                                                                                                             
2:38:12 PM                                                                                                                    
The  major  question  is  whether   the  bill  leaves  sufficient                                                               
flexibility  to  allow an  area  to  incorporate while  providing                                                               
certainty for  the purpose of  securing financing for  very large                                                               
projects. He mentioned that the  Donlin Project infrastructure is                                                               
likely to amount to more than $1 billion.                                                                                       
In reviewing  the taxes  levied around the  state, he  found that                                                               
the total mill  rate levied against mines is  single digit. Often                                                               
it  is complemented  with some  other sort  of revenue  base. The                                                               
Northwest Arctic  Borough is  an exception in  that a  payment in                                                               
lieu  of taxes  is  paid  and the  Fairbanks  North Star  Borough                                                               
levies  a  double digit  property  tax  against Fort  Knox.  It's                                                               
primarily the  Railbelt areas  that tax at  the higher  rate, but                                                               
it's also there that higher-level services are provided.                                                                        
Another  issue is  the  level  of services  provided  by a  given                                                               
municipality.  Although   the  Railbelt   municipalities  provide                                                               
services such as water, sewer,  garbage, roads, and police & fire                                                               
protection, they don't necessarily  provide those services in all                                                               
parts of the borough. The City  and Borough of Juneau divided the                                                               
roaded  and  non-roaded  areas  of  the  borough  into  different                                                               
service areas  and they are  taxed differently. The  Greens Creek                                                               
Mine and  the prospective  Kensington Mine are  taxed at  a lower                                                               
rate of 6.6 mills in recognition  of the fact that fewer services                                                               
are provided.                                                                                                                   
He suggested the  bill strikes a reasonable  balance. Although he                                                               
is very willing  to work with others to  resolve differences, the                                                               
reality  is  that  if  some  certainty isn't  given  to  the  tax                                                               
consequences and  tax load going  forward, some  mineral deposits                                                               
won't be developed.                                                                                                             
2:42:42 PM                                                                                                                    
AL   CLOUGH,  Deputy   Commissioner,   Department  of   Commerce,                                                               
Community   and   Economic    Development   (DCCED),   said   the                                                               
department's   first   reaction   is  that   the   proposal   has                                                               
considerable merit and it thanks  the sponsor and industry groups                                                               
that worked on  the legislation. That being  said, several issues                                                               
merit attention.                                                                                                                
The  sponsor spoke  to  the  issue of  the  state assessor  being                                                               
involved and  the department  would concur.  The bill  deals with                                                               
three areas and DCCED is statutorily involved with all three.                                                                   
First is the role of the  state assessor. The issue of assessment                                                               
fairness  and  statewide  valuations  is important  and  will  be                                                               
discussed as the bill moves foreword.                                                                                           
Second, because DCCED  has a community role  through the Division                                                               
of  Community  Advocacy,  statutory restrictions  on  what  would                                                               
normally be  the powers  of a municipality  are of  concern. It's                                                               
not unusual for a state to  impose on a lower form of government,                                                               
but the department wouldn't want  the legislation to be viewed as                                                               
a  disincentive to  forming regional  governments. Although  they                                                               
don't necessarily see  that it is, the question  is pertinent and                                                               
requires discussion.                                                                                                            
Finally  the  economic development  aspect  is  important to  the                                                               
department.  Adding stability  into a  long-term and  significant                                                               
investment  in a  major mining  project is  a huge  incentive for                                                               
people to come to Alaska and  explore and develop mines that will                                                               
take billion dollar investments.                                                                                                
Each issue is  valid and merits discussion.  The department views                                                               
the bill in terms of an  algebraic equation which is to marry the                                                               
economic development  interest, the  community interest,  and the                                                               
interest  of  the  state  assessor  in  a  fair  tax  regime  for                                                               
everyone. The  department hopes  the equation  can be  solved and                                                               
looks  forward  to   working  with  the  sponsor   to  help  with                                                               
2:46:25 PM                                                                                                                    
CHAIR GARY STEVENS  expressed surprise at the  testimony in terms                                                               
of community  protection. Although  he could understand  the idea                                                               
of  wanting  to  make  sure  that  industry  operates  with  some                                                               
stability,   the   testimony   seems  to   have   abrogated   the                                                               
responsibility of caring for and representing communities.                                                                      
MR. CLOUGH replied he didn't intend to give that impression.                                                                    
CHAIR GARY STEVENS  said the issue as he sees  it is to encourage                                                               
industry, while  dealing with the  constitutional mandate  to try                                                               
to  get the  entire state  into organized  boroughs. You  glossed                                                               
over that, he said.                                                                                                             
MR. CLOUGH replied  he didn't intend to do  that. Furthermore, he                                                               
could  state that  the department  has had  considerable internal                                                               
discussion  on whether  or not  this  bill would  be contrary  to                                                               
borough government  formation. That  is a  major concern  of both                                                               
the commissioner  and the  department. He meant  to say  that the                                                               
local government  has a legitimate  concern and  DCCED recognizes                                                               
and acknowledges  that. From  the department's  perspective, they                                                               
hope the  local government concern, the  development concern, and                                                               
the assessor concern  can be melded and that  the agreement makes                                                               
2:48:24 PM                                                                                                                    
STEVE VAN SANT said he was  available to answer questions, but he                                                               
had no testimony.                                                                                                               
CHAIR GARY  STEVENS expressed surprise  that he had  no testimony                                                               
since  this is  a  major issue  with  enormous repercussions.  He                                                               
noted the memo in the  packets clarifying the value estimates for                                                               
the Tanana Basin Borough and asked for comment.                                                                                 
MR. VAN  SANT, State Assessor, Department  of Commerce, Community                                                               
&  Economic  Development  (DCCED),   explained  the  memo  is  an                                                               
estimate of  value for the  proposed Upper Tanana  Basin Borough.                                                               
He issued it  in response to requests to use  values the assessor                                                               
has established for  REAAs. Those estimates were  based on models                                                               
that were built in the office  and they haven't been in the field                                                               
to check how much property is there.                                                                                            
For the last  year they have been working in  the Delta/Tok area.                                                               
They built  over 200 value  models to  come up with  an estimated                                                               
value of  the proposed  borough. The  summary page  memo reflects                                                               
the total estimate. He mentioned there  is a value in the summary                                                               
for  the Pogo  Mine because  they  had little  paperwork for  the                                                               
value. They  used the  estimate from  the mine  representative of                                                               
total expected  expenditure, which is  about $250 million.  As of                                                               
2005 they  were about 50  percent complete  so 50 percent  of the                                                               
value was used.  If the borough were to form,  the assessor would                                                               
conduct  a  detailed inspection  and  analysis  of the  books  to                                                               
derive an estimated  value. That was done with the  Red Dog Mines                                                               
in the Northwest Arctic Borough.                                                                                                
2:51:19 PM                                                                                                                    
CHAIR GARY STEVENS asked Mr. Fuge  with Placer Dome if he had any                                                               
Mr.  Fuge  said  he  had  no comments  other  than  to  reiterate                                                               
industry support for the bill.                                                                                                  
2:52:13 PM                                                                                                                    
PAT SCHLICTING,  Delta Junction resident, spoke  in opposition to                                                               
SB  179  saying it  isn't  good  for Alaska,  existing  boroughs,                                                               
unorganized areas, or  communities considering borough formation.                                                               
The tax  amount offered is  paltry and  the terms locking  in the                                                               
proposed  tax   rate  for  15   years  are   reprehensible.  This                                                               
represents corporate greed by primarily foreign companies.                                                                      
The  terms set  forth would  stifle  growth in  new boroughs  and                                                               
create  disparate  tax  rates  between  existing  and  developing                                                               
boroughs.  Legislators   have  the   responsibility  to   levy  a                                                               
responsible  mining  tax  in  the   absence  of  organized  local                                                               
government. He  suggested a severance  tax would be  fair because                                                               
it would share the risk and the wealth.                                                                                         
When a borough forms, that  responsibility should transfer to the                                                               
municipality along with  the tax dollars generated  by the mining                                                               
assets. He is alarmed by the  suddenness of the bill and the lack                                                               
of public  input that has  been solicited from  constituents. The                                                               
message  is  that  rich  corporations   have  special  access  to                                                               
lawmakers and are allowed to set their own tax rates and terms.                                                                 
2:55:04 PM                                                                                                                    
SENATOR  THOMAS  WAGONER  asked  if   he  is  aware  that  mining                                                               
operations currently  have corporate  taxes, licensing  taxes and                                                               
royalties levied.                                                                                                               
MR.  SCHLICTING said  he is  aware  of the  taxes. He  recognizes                                                               
there is  a cost for  state oversight  and he recognizes  that in                                                               
some instances  playing the tax  game allows  mining corporations                                                               
to pay no state tax.                                                                                                            
SENATOR STEDMAN said  his understanding is that the  tax would be                                                               
at the  true value  of the  tangible property and  not at  a book                                                               
value carried by  the corporation. The state  assessor would make                                                               
the assessment.                                                                                                                 
He  recalled   that  when   industrialized  logging   started  in                                                               
Southeast   Alaska,   the    communities   brought   in   outside                                                               
professional assessors. This structure  appears to be similar and                                                               
the state assessor would place the value.                                                                                       
Putting a  cap on the property  tax or coming up  with some other                                                               
mechanism so industry  will know whether or not to  go forward is                                                               
a positive thing  for the state to do.  A 6 mill tax or  a 4 mill                                                               
tax could  be a  substantial revenue  stream for  the surrounding                                                               
area and he doesn't' agree with the last testimony.                                                                             
2:58:26 PM                                                                                                                    
CHAIR  GARY  STEVENS stated  that  the  bill causes  him  serious                                                               
concern. Mining companies  do require some stability  so they can                                                               
develop, but  if a maximum 6  mill property tax is  locked in, it                                                               
might  be a  disincentive for  borough development.  The question                                                               
requires further discussion  and study and he would  also like to                                                               
hear from the department and the commissioner.                                                                                  
Directing his  comments to the  sponsor, he said  the Legislature                                                               
sits  as  the   assembly  of  the  unorganized   borough  and  he                                                               
questioned  why the  Legislature shouldn't  decide what  level of                                                               
tax  would  be  reasonable  in the  areas  that  develop  mining.                                                               
Certainly  we don't  want to  overtax  the mines,  but it's  this                                                               
committee's responsibility to take care of communities.                                                                         
3:00:35 PM                                                                                                                    
SENATOR THERRIAULT said his intent is  to work with the CRA staff                                                               
on a proposed  committee substitute (CS) to clarify  the issue of                                                               
the  assessing  entity,  depreciation  and  other  questions.  In                                                               
addition, he  would meet with  the commissioner over  the weekend                                                               
to iron out any difficulties.                                                                                                   
Part  of  the  discussion  is complicated  because  the  economic                                                               
activity and level of sophistication  to support local government                                                               
isn't  uniform in  the  unorganized borough.  The  balance is  to                                                               
craft something that not only fits  an area with no services, but                                                               
also  fits  a situation  such  as  the  Pogo  Mine, which  is  on                                                               
Fairbanks North  Star Borough boundary.  It is in  potential play                                                               
for the formation of a borough in the Delta Junction area.                                                                      
With regard  to whether the  suggested millage rate  is adequate,                                                               
he  reminded  members  that  currently  the  projects  that  move                                                               
forward in  the unorganized area  pay nothing. The balance  is to                                                               
have a contribution  and ensure that jobs  and infrastructure are                                                               
SENATOR  STEDMAN  remarked  the   Legislature  could  modify  the                                                               
millage rate if it saw fit.                                                                                                     
SENATOR  THERRIAULT replied  that's  an area  they could  discuss                                                               
with the assessor to make sure the mechanism is adequate.                                                                       
CHAIR GARY STEVENS said his  understanding of the language is for                                                               
a 4 mill tax if the area is  unorganized and a maximum of 6 mills                                                               
if government  forms around the  mine. That rate would  be locked                                                               
in for 15 years.                                                                                                                
SENATOR  THERRIAULT  said  the   Legislature  certainly  has  the                                                               
authority to modify  the legislation, but if  balance is achieved                                                               
legislation that  is reasonable  now will  also be  reasonable in                                                               
the future.                                                                                                                     
SENATOR  STEDMAN pressed  the point  that  the Legislature  would                                                               
have the authority  to change the mill rate  without exposing the                                                               
state to litigation.                                                                                                            
SENATOR  THERRIAULT said  yes,  but to  remember  that state  law                                                               
applies everywhere and millage  rates impact different properties                                                               
very  differently. The  Donlin Creek  Mine  expenditures will  be                                                               
more  that   $1  billion  and   a  low  rate  would   generate  a                                                               
considerable revenue stream. On the  other hand, Pogo will have a                                                               
much smaller infrastructure.                                                                                                    
SENATOR STEDMAN compared the proposal  to the logging industry in                                                               
the  1950s and  1960s in  Southeast  Alaska and  observed that  6                                                               
mills seems  low, but the  ability to  change that exists  if the                                                               
need arises.                                                                                                                    
SENATOR THERRIAULT  remarked the  comparison between  logging and                                                               
oil development  is good. Oil  and gas resources  have tremendous                                                               
value and  although the  North Slope Borough  is remote  and it's                                                               
hard to build infrastructure, the  return on the commodity that's                                                               
produced is so high that no  other resource in the state provides                                                               
the same kind of return for the investment.                                                                                     
SENATOR STEDMAN agreed  with the Chair that  the committee should                                                               
hear from the commissioner and the assessor.                                                                                    
CHAIR  GARY STEVENS  said he  understands there  are negotiations                                                               
going on  with the  Deltana borough  charter commission  and with                                                               
Pogo   Mine   representatives   and  this   would   trump   those                                                               
SENATOR THERRIAULT  pointed out  that they  could form  a borough                                                               
and under  this proposal they  would have a  6 mill tax  cap plus                                                               
the opportunity  for a sales  tax and the Legislature  could talk                                                               
about  whether   or  not   the  15   years  that's   proposed  is                                                               
appropriate. In  the Pogo  area they hope  to find  reserves that                                                               
will extend the life of the mine  and they have done that at Fort                                                               
Knox. Keep  in mind, he said,  we do want the  initial investment                                                               
to be made; we don't want  to discourage the activity from taking                                                               
place at all.                                                                                                                   
3:11:21 PM                                                                                                                    
CHAIR  GARY  STEVENS  noted there  are  ongoing  developments  in                                                               
organized areas  of the state  and local government has  the duty                                                               
of looking  at what benefits  itself in  terms of jobs  while not                                                               
overtaxing to the point that it discourages investment.                                                                         
SENATOR  THERRIAULT  said  when  there's a  local  government  to                                                               
conduct  the debate  that's  one thing,  but  in the  unorganized                                                               
borough  there is  no local  government so  the debate  is taking                                                               
place in the Capitol.                                                                                                           
3:12:33 PM                                                                                                                    
CHAIR GARY STEVENS repeated SB  179 has enormous consequences and                                                               
he  would  hold it  in  committee  to  learn more  before  moving                                                               
forward with a CS.                                                                                                              

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