Legislature(2005 - 2006)BELTZ 211
04/22/2005 01:30 PM COMMUNITY & REGIONAL AFFAIRS
Download Mp3. <- Right click and save file as
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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 language. 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 implementation. 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 sense. 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 comments. 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 created. 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 discussions. 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.