Legislature(2005 - 2006)
05/04/2005 04:52 PM House FIN
| Audio | Topic |
|---|---|
| SB155 | |
| HB280 | |
| HB243 | |
| SB110 | |
| Adjourn | |
| Start | |
| HB280 | |
| HB283 | |
| SB158 | |
| SB155 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
May 4, 2005
4:52 p.m.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 4:52:03 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Reggie Joule
Representative Mike Kelly
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
Representative Eric Croft
ALSO PRESENT
Suzanne Cunningham, Staff, Representative Kevin Meyer; Jim
Pound, Staff, Representative Jay Ramras; Brett Fried,
Economist, Tax Division, Department of Revenue; Mike O'Hare,
Staff, Representative Pete Kott; Bryan Butcher, Legislative
Liaison, Alaska Housing Finance Corporation; Senator Charlie
Huggins; Kurt Fredriksson, Acting Deputy Commissioner,
Office of the Commissioner, Department of Environmental
Conservation; Dan Easton, Director, Division of Water,
Department of Environmental Conservation; Jon Tillinghast,
Lobbyist, Sealaska Corporation; Rollo Pool, Southeast
Conference; Kate Giard, Chair, Regulatory Commission of
Alaska; Ethan Falatko, Assistant Attorney General,
Department of Law; Thyes Shaub, Lobbyist, National
Federation of Independent Businesses; Stephanie Madsen,
Pacific Seafood Processors; Michele Metz, Sealaska
Corporation; Kevin Ritchie, Executive Director, Alaska
Municipal League
PRESENT VIA TELECONFERENCE
Steve Van Sant, State Assessor, Department of Commerce,
Community and Economic Development; Steve Borell, Alaska
Miners Association; Dan Fauske, Executive Director, Alaska
Housing Finance Corporation; David Lanz, President, Diamond
Electric, Denise Michels, Nome; Dick Coose, Former-
Assemblyman, Ketchikan; Owen Graham, Alaska Forest
Association; Ron Miller, Executive Director, Alaska
Industrial Development and Export Authority, (AIDEA); Brian
Bjorkquist, Assistant Attorney General, Department of Law;
Lois Epstein, Cook Inlet Keeper, Anchorage; Sharon Fisher,
Alaska Industrial Development and Export Authority, (AIDEA);
Ron Saxton, Four Dam Pool; Steve Boyd, National Electrical
Contractors Association, Anchorage; Mike Pollen, National
Alaska, Inc, (NAI), Fairbanks; Cameron Leonard, Assistant
Attorney General, Department of Law; James Fueg, Placer
Dome; Kathryn Kurtz, Attorney, Legislative Legal Services
SUMMARY
HB 280 "An Act relating to the taxation of mining
property; relating to contracts approved by
municipalities for payments in lieu of taxes; and
providing for an effective date."
CSBH 280 (FIN) was REPORTED out of Committee with
a "no recommendation" recommendation and with a
new fiscal impact note by the Department of
Revenue, and with a new fiscal impact note by the
Department of Commerce, Community and Economic
Development.
HB 283 "An Act relating to the compensation for board
members of the Alaska Housing Finance Corporation;
and providing for an effective date."
CSHB 283 (STA) was REPORTED out of Committee with
a "do pass" recommendation and with a new fiscal
impact note by the Department of Revenue.
SB 158 "An Act prohibiting the imposition of municipal
sales and use taxes on state construction
contracts and certain subcontracts; and providing
for an effective date."
SB 158 was REPORTED out of Committee with a "do
pass" recommendation and with a zero fiscal impact
note by the Department of Commerce, Community and
Economic Development.
CSSB 155(FIN)
"An Act making appropriations from the earnings
reserve account for construction of an integrated
science complex at the University of Alaska in
Anchorage, for replacement of the virology
laboratory in Fairbanks, for expansion of the
Anchorage Museum of History and Art, for the major
maintenance grant fund, and for other capital
projects related to education; and providing for
an effective date."
HCSSB 155 (FIN) was REPORTED out of Committee with
a "do pass" recommendation.
HB 243 "An Act relating to the maximum annual regulatory
cost charge collected from certain regulated
public utilities and pipeline carriers; and
providing for an effective date."
CSHB 243 (FIN) was REPORTED out of Committee with
a "no recommendation" recommendation and with a
new indeterminate fiscal impact note by the
Department of Commerce, Community and Economic
Development.
CSSB 110(FIN)(efd fld)
"An Act relating to regulation of the discharge of
pollutants under the National Pollutant Discharge
Elimination System."
CSSB 110 (FIN) was heard and HELD in Committee for
further consideration.
4:52:19 PM
HOUSE BILL NO. 280
"An Act relating to the taxation of mining property;
relating to contracts approved by municipalities for
payments in lieu of taxes; and providing for an
effective date."
JIM POUND, STAFF, REPRESENTATIVE JAY RAMRAS, spoke in
support of the legislation. He read from the sponsor
statement:
CSHB 280 is interestingly enough a bill requested of
this body by the industry. Under its language, mines
operating in the state would be taxed by the state on
the true and real value of real and tangible property.
Precious metal exploration has continued in the state
and several of the locations being developed are not
located in organized boroughs. Without the language of
CSHB 280 development companies are operating with an
uncertain and potentially unstable set of rules for
taxation. Using AS 14.17.410 (b) (2) as a tax base,
mines in unorganized boroughs would be assessed a four-
mill levy. Boroughs forming later would be allowed to
tax at their established property tax rate.
Language in the bill also creates a special mining
property tax account and allows the legislature to
appropriate that money into the public education fund.
Essentially this is an offer by the mining industry to
assure funding for Alaska's Education System.
HB 280 is limited to large producers only. Mines
producing less than $10,000,000 are exempt from the tax
formula. This keeps what is left of our once profitable
mom and pop mines in operation.
In a world market, stability both politically and
financially are critical to success for these companies
that invest millions of dollars just searching for
precious metals. Creating a stable tax base for an
industry that creates hundreds of jobs in Alaskan
communities makes sound fiscal sense. It also gives
unorganized areas of the state a clear understanding of
the income they will receive from a mine, once they
become a borough and can receive the tax benefit.
4:53:42 PM
Co-Chair Chenault asked if there was a current limit on what
municipalities could tax. Mr. Pound noted that there was
not. He thought that the Fairbanks North Star Borough taxed
the Fort Knox Mine at the existing mil levy on property (14
mils). The Red Dog Mine pays the Northwest Arctic Borough a
severance tax based on mineral production (3 percent). The
Usebelli Mine also pays the Denali Borough a severance tax.
4:54:43 PM
Co-Chair Chenault asked the effect on the Donlin Creek Mine
and the Kensington Mine. He asked about the tax structure.
Representative Weyhrauch explained that the City and Borough
of Juneau has a two-tier tax structure. These mines
currently pay 6.6 mils. If they connect to services the mil
rate would increase to 11.
In response to a question by Representative Chenault, Mr.
Pound noted that the legislation would not affect any
current mines operating within an organized borough. A 4-mil
levy on personal property would be imposed on mines
operating outside of a municipality. There is nothing in the
legislation, which would prevent a municipality from
annexing a mine, but they would be required to come in under
the existing property tax structure. The state tax would end
when the mine is annexed. The legislation does not affect
the municipality's tax.
4:56:40 PM
Vice-Chair Stoltze referenced AS 43.67.020 on page 3. Mr.
Pound explained that for a period of 15-years, the tax
language in place under AS 43.67.020 would be restricted to
the particular taxes listed "except where a municipality may
comes in and do personal property tax on a new one". After
the 15-year period, the door opens up and there are no
exemptions at all on what can and cannot be taxed.
Vice-Chair Stoltze mentioned gas line provisions. He
questioned the affect of the legislation on constitutional
issues. Mr. Pound discussed his understanding of the intent
of section 20. He explained that prior to [a mine] being
annexed into a municipality, for a period of 15-years taxes
are levied based on the items on the list:
(1) taxes on the sale or use of minerals;
(2) taxes on or measured by gross or net income from
the taxable property, including income from the
exploration for, production of, or of minerals or
taxable property; and
(3) any license, excise, fee, charge, severance,
throughput, or other tax on or pertaining to the
taxable property or services used in or associated with
the taxable property or in its maintenance or operation
unless the tax is also levied on property not subject
to tax under AS 43.67.010(a).
Vice-Chair Stoltze wanted to make sure that the legislation
was on solid constitutional ground.
5:00:11 PM
Representative Holm expressed concern with the ability to
exempt previous taxing authorities. He felt it would be
appropriate for the state of Alaska to have an even playing
field. He recommended that the "grandfather provision" be
reviewed. He pointed out that the residents of the state own
the resource, not the municipality adjacent to the resource.
The state of Alaska cannot constitutionally allow the
municipality to tax the resource. He suggested that the
activity could not be grandfathered in because it is illegal
in the first place, even though it has been occurring. Mr.
Pound agreed that there are constitutional questions that
must be addressed by the courts.
5:03:10 PM
Representative Holm recommended that the issue be addressed
before it is passed out of Committee.
5:05:51 PM
Vice-Chair Stoltze referenced similar provisions relating to
the gas line. He asked about the 15-year exemption.
BRETT FRIED, ECONOMIST, TAX DIVISION, DEPARTMENT OF REVENUE,
noted that he was not qualified to answer that question.
5:06:52 PM
ETHAN FALATKO, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, did not feel there would be a constitutional issue with
the statute. He noted that Article X allows the state of
Alaska very broad authority to delegate taxing authority to
municipalities.
5:08:44 PM
JAMES FUEG, PLACER DOME, JOINT VENTURE, referenced the
handout from the Donlin Creek project. He commented on the
size of the project. A mine in that area would employee over
400 people. There are benefits in addition to those listed
in HB 280. He read from prepared testimony:
• The handout presented to you is a brief description of
the ongoing work at the Donlin Creek Project. As you
can see, if a decision is made to move forward with
development of a mine at Donlin Creek this will be one
of the largest and most complex resource development
projects in Alaska. Current estimated capital costs
for the project are welt in excess of $1 billion
dollars. A mine at Donlin Creek would employ ~ pay
royalties to the shareholders of Alaskan Native
Corporation of Calista Corporation, the mineral
est~iho1der for the deposit, and pay Mining License
Taxes and Corporate Income Taxes to the State. These
benefits are in addition to the potential payments
proposed under HB 280.
• One of the biggest uncertainties facing mineral
development in the unorganized borough of Alaska., and
hence the Donlin Creek Project, amongst others, is the
lack of any defined tax structure at the local level.
This makes it extremely difficult to accurately
predict future operating margins and costs when one is
developing the complex economic models that must be
completed prior to making a billion dollar investment
decision, such as we are facing at Donlin Creek. This
in turn makes it harder to achieve a positive decision
on such large investments.
• HB 280 presents several mechanisms for companies, who
wish to invest in mine development in Alaska, to
address these uncertainties, while at the same time
providing a mechanism for the industry to contribute to
the cost of education in their communities and, should
a local government be formed at some point in the
future, contribute to the cost of funding local
government.
5:11:30 PM
KEVIN RITCHIE, ALASKA MUNICIPAL LEAGUE, JUNEAU, noted that
the League represents future municipalities that might form.
He noted that there have been improvements to the
legislation. He observed that taking away taxing authority
in any manner is of concern to the municipalities. He
addressed section 2 (c), which allows a municipality to
negotiate a payment in lieu of taxes unless the property is
subject to a state contract. He felt that the subsection
would take away the authority, which is granted in other
parts of the bill, for the municipality to define what is
needed to pay for schools, roads, public safety and other
services. He encouraged the Committee to review the language
more closely.
Mr. Ritchie discussed section 3. Section 3 would broaden the
severance tax issue to all municipalities. The provision was
recently added. Previously, the bill only impacted the
formation of new boroughs. He did not think there was a
current severance tax on minerals.
5:14:56 PM
STEVE VAN SANT, STATE ASSESSOR, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, (via teleconference)
offered to answer questions of the Committee.
5:15:34 PM
STEVE BORELL, ALASKA MINERS' ASSOCIATION, ANCHORAGE, (via
teleconference) noted that the mining industry is
volunteering to pay a new tax, through HB 280. The tax would
be on large mines operating in the unorganized borough at a
constant rate for a period of 15 years from the first
production at the mine. The industry already pays several
taxes to the state depending on the type of land where the
mining occurs. A mining license tax is paid to the state
regardless of whether the land is on state, federal or
private land. Mining also pays corporate income tax, mining
claim rentals, production royalty on state owned land, and
property tax when the mine is in the organized borough.
Mines would also pay taxes to future boroughs. He stressed
the need for tax certainty.
5:17:53 PM
Co-Chair Chenault asked about AS 43.56 properties assessed
by the state and the tax proposed on the mining industry.
Mr. Van Sant observed that AS 43.56 oil and gas properties,
which are assessed by the state and cross-jurisdictional
lines between communities, are levied a 20-mil tax by the
state. Municipalities levy their mil rate against the 20-mil
tax. Oil companies do not pay more than 20 mils on any
evaluation. The State would retain authority to assess a tax
on mining property contained within certain boundaries,
which don't cross-jurisdictional lines. The 4-mil assessment
would come directly to the state unless a municipality was
formed.
5:20:54 PM
Co-Chair Chenault inquired how the value of the 4 mils would
be determined. Mr. Van Sant responded that the bill would
require them to value property based on the cost approach,
which is based on actual costs. This approach is used on the
Red Dog Mine. The state also uses this approach on AS 43.56
property along with market and income approach to value.
5:22:07 PM
Vice-Chair Stoltze asked if there were legal concerns.
KATHRYN KURTZ, ATTORNEY, LEGISLATIVE LEGAL SERVICES, (via
teleconference) pointed out that the state has the power of
taxation and has the authority to set a tax rate.
Vice-Chair Stoltze asked if there were potential problems
with locking into the rate. Ms. Kurtz could not address the
gas line issue. She commented that the bill would give the
state of Alaska the power in lieu of taxes. It does not
cause a great deal of legal concern because of the scope of
the issue. She acknowledged that a surrender of the state's
taxing power would be unconstitutional.
5:26:42 PM
Representative Holm asked if the state has the right to give
away the taxing authority on minerals owned by the residents
of the state and allow municipalities to impose a severance
tax. Ms. Kurtz pointed out that the state of Alaska has
broad powers in determining the taxing power of
municipalities. The state currently has a taxing structure,
which allows municipalities to impose property taxes, sales
and use powers.
5:29:17 PM
Representative Joule asked if the bill would change the
arrangements of existing borough operations. Mr. Pound did
not think it would affect existing operations.
5:31:02 PM
Co-Chair Chenault asked if 4 mils was a reasonable amount
and how it is determined. Mr. Van Sant responded that the 4
mils levy is determined by the school contribution in Title
XIV, which changes each year depending on the value of the
mine. The value of the mine is determined by cost. The tax
value would increase as the investment increases. He noted
that AS 43.56 property is 20 mils times the value. The value
would go down each year if new dollars were not invested in
the mine. The 4-mil rate is not based on the ore extracted
but on the investment in the property.
5:35:08 PM
Representative Holm MOVED to ADOPT Amendment 1:
Page 4, line 2
Insert new subsection (c)
(c) Property tax imposed by a municipality under AS
29.45 is in place of the tax levied under AS 43.67.010.
In the case of a municipality incorporated after
January 1, 2005, the transition provisions of AS
29.05.140 govern the transition from assessment by the
department to assessment by the municipality.
Re letter the remaining subsection accordingly
Page 5, line 20
Following "after"
Delete "an assessment"
Insert "a determination"
Page 6, line 26
Insert new (2)
(2) "department" means the Department of Revenue or the
Department of Commerce, Community, and Economic
Development;
Re number the remaining paragraphs accordingly
Page 7, line 6
Following "The Department of Revenue"
Insert "and the Department of Commerce, Community, and
Economic Development"
Vice-Chair Stoltze OBJECTED.
5:35:33 PM
Mr. Pound noted that the amendment deals with how property
tax is imposed on a municipality under Title 29. A new
borough would have up to two years for transition. The time
line for appeals was restructured to allow 30 days after a
determination. The Department of Commerce, Community and
Economic Development was added under the definition of
department and given the power to formulate regulations.
5:37:44 PM
Co-Chair Chenault asked for the definition of determination.
Mr. Pound clarified that there are 50 days.
Vice-Chair Stoltze WITHDREW his objection. There being NO
further OBJECTION, Amendment 1 was adopted.
HB 280 was HELD over.
HOUSE BILL NO. 283
"An Act relating to the compensation for board members
of the Alaska Housing Finance Corporation; and
providing for an effective date."
MIKE O'HARE, STAFF, REPRESENTATIVE PETE KOTT, explained
spoke in support of the legislation and read from the
sponsor statement.
House Bill 283, an Act relating to the compensation for
board members of the Alaska Housing Finance
Corporation, would increase the per diem from the
current level of $100 to $400.
The current level of $100 per diem has been in place
since the inception of the Corporation in 1971. This
legislation would provide a much needed increase in the
amount of per diem commensurate with the importance of
the work being done. HB 283 would increase the per diem
compensation to $400, which is the currently the amount
received by the Alaska Permanent Fund Corporation Board
of Trustees.
The Board of Directors of AHFC is required to review
and consider topics having to do with bonding, the
mortgage industry, public housing, and many other
technical issues. In any given year, the Board is asked
to consider and approve $600 million to $1 billion in
bond programs and millions of dollars in tax credit and
other federal grants. The workload is such that board
members must spend a great deal of their personal time
studying and educating themselves about corporate
activities. These are just some of the reasons why it
is important to do what is necessary to help keep as
capable a board as possible.
The compensation is only applicable to the four public
members of the Corporation's seven member Board of
Directors. It is estimated that the increase in per
diem would cost the Corporation approximately $15,000
in corporate receipts per fiscal year.
5:42:17 PM
Representative Hawker observed that the pension rates would
st
be brought into the 21 Century.
Vice-Chair Stoltze observed that the Alaska Permanent Fund
Corporation Board receives $400 a day and expressed support
for the legislation.
5:44:13 PM
BRYAN BUTCHER, LEGISLATIVE LIAISON, ALASKA HOUSING FINANCE
CORPORATION, spoke in support of the legislation. He noted
that the Alaska Railroad Corporation (ARRC) Board also
receives $400 a day and pointed out that AHFC is self-
supporting. Alaska Housing Finance Corporation receipts
would be used, not the General Fund.
5:44:41 PM
Representative Hawker MOVED to report HB 283 out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 283 (STA) was REPORTED out of Committee with a "do
pass" recommendation and with a new fiscal impact note by
the Department of Revenue.
DAN FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE
CORPORATION, DEPARTMENT OF REVENUE, (via teleconference)
thanked the committee.
5:46:08 PM
SENATE BILL NO. 158
"An Act prohibiting the imposition of municipal sales
and use taxes on state construction contracts and
certain subcontracts; and providing for an effective
date."
SENATOR CHARLIE HUGGINS, sponsor, spoke in support of the
legislation and read from the sponsor statement.
During the course of business in the last couple of
years, subcontractors in the construction industry, who
work in some areas of the state, have experienced
negative financial impact due to the imposition of
local sales taxes on state DOT/PF funded projects.
In the case of a construction contract being awarded
and a primary contractor doing business with the state,
the state is the purchaser of those services and, as
such, the legal incidence for the tax falls on the
state. Based on the state's sovereign immunity and the
fact that the state is immune from taxation no tax is
owed.
However, when a subcontract is awarded and a primary
contractor hires another contractor to do work for him,
the subcontractor is not working directly for the
state, but for the original contractor, and in some
cases a sales tax has been levied on the value of the
subcontract.
In one instance, on an Airport Project, a construction
contract was awarded to Quality Asphalt Paving (QAP).
QAP and Dimond Electric entered into a subcontract
directly in connection with the project funded under
the construction contract. Dimond Electric was assessed
a sales tax of over $20,000 on the value of their
subcontract. This tax was unexpected and not considered
in their bid.
The state cannot afford to have an increase in the cost
of construction projects due to the levying of sales
taxes on state construction contracts or subcontracts
directly awarded in connection with the project funded
under the construction contract. While all
municipalities do not assess this sales tax the policy
needs to be consistent statewide.
SB 158 will prohibit the imposition of municipal sales
and use tax on state construction contracts and certain
subcontracts and remedy the inequity that exists.
Senator Huggins explained that there would be no tax on the
gross of a state construction contract. He observed that the
Department of Transportation and Public Facilities has
previously found that it was cheaper to pay the tax than to
go through a change order. He asked the Committee to
preserve the traditional way of transacting business.
5:52:02 PM
Vice-Chair Stoltze spoke in support of the legislation.
Senator Huggins stressed that the bill maintains the status
quo.
5:53:38 PM
STEVE BOYD, NATIONAL ELECTRICAL CONTRACTORS ASSOCIATION,
ANCHORAGE, (via teleconference) spoke in support of the
legislation and maintained that subcontractor work should be
exempt from these taxes.
5:56:10 PM
DAVID LANZ, PRESIDENT, DIAMOND ELECTRIC, (via
teleconference) offered to answer questions.
5:56: 31 PM
DENISE MICHELS, MAYOR, NOME, (via teleconference) referred
to her letter in the members' packets (copy on file.) The
City of Nome is opposed to SB 158. She asserted that the
bill is punitive and unfairly restricts local control. The
bill diminishes the existing statutory authority of local
governments to raise needed revenues through the levy of
taxes. Nome receives most of its revenue from self-tax and
property tax. She observed that 40 percent of the property
tax is exempt by state statute. Contractors use the
municipality's services. Contractors are responsible for due
diligences to see what fees or taxes are required in the
community. The legislation would reduce the municipality's
revenues.
5:59:04 PM
KEVIN RITCHIE, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL LEAGUE,
spoke in opposition to the legislation and referred to a
letter from AML to the Committee (copy on file.) He stressed
that municipalities must tax to survive. The tax base
diminishes in small communities. Municipalities have lost
state funds over the past 10 years. He maintained that the
issue is not between the contractor and city. He maintained
that the cost should come out of the overall cost of state
or federal grants. He argued that the impacts are local and
the tax benefits local citizens.
6:01:59 PM
Representative Holm ascertained that Mr. Ritchie had never
bid a contract. Representative Holm explained how a contract
is marked up, and that the percentage has to be included. He
inquired why the Alaska Municipal League would think it
appropriate for tax dollars to be taxed.
6:04:03 PM
Mr. Ritchie responded that in many cases federal money would
come into play. He referred to Mayor Michels' statement of
small communities struggling to provide basic services. He
noted that tax dollars run a municipality. Representative
Holm pointed out that this also applies to Anchorage.
6:07:23 PM
Representative Kelly referred to the letter of April 26 from
Kathie Wasserman. He asked Mr. Ritchie to explain the last
paragraph:
The bill summary states that the bill's intention is to
"prohibit the imposition of municipal sales and use tax
on a construction contract awarded by the state or ~
state agency, or on a subcontract awarded in connection
with the project funded under the construction
contract." This is misleading, as no communities impose
a sales or use tax on a construction contract awarded
by the state. This issue is ONLY about subcontract
workers that have been hired by the contractor.
Mr. Ritchie explained that no community taxes the full
contract. The letter refers to subcontracts awarded in
connection with the project.
6:08:57 PM
Representative Kelly stated the bill's intent is to prohibit
the imposition of municipal sales tax and use tax on
construction contracts awarded by the state of Alaska or on
the subcontractor awarded in connection with the project. He
summarized that AML charges that this is misleading.
Mr. Ritchie clarified that communities can't impose a sales
tax on the general contractor, but can on subcontractors not
awarded by the state. Representative Kelly continued to
express concern.
6:11:35 PM
THYES SHAUB, LOBBYIST, NATIONAL FEDERATION OF INDEPENDENT
BUSINESSES, AGC, in support of the legislation. She
emphasized that business likes to know what the rules are
and have them applied consistently.
6:12:51 PM
Representative Hawker MOVED to report SB 158 out of
Committee with individual recommendations and the
accompanying fiscal note.
Representative Joule OBJECTED for discussion purposes. He
stressed that the legislature must deal with municipalities
and their financial issues. The bigger issue is how we are
not sharing the wealth with those communities.
Representative Joule WITHDREW his objection. There being NO
further OBJECTION, it was so ordered.
SB 158 was REPORTED out of Committee with a "do pass"
recommendation and with a zero fiscal impact note by the
Department of Commerce, Community and Economic Development.
6:14:29 PM
Representative Joule spoke about future problems due to lack
of revenue sharing.
6:16:03 PM
CS FOR SENATE BILL NO. 155(FIN)
"An Act making appropriations from the earnings reserve
account for construction of an integrated science
complex at the University of Alaska in Anchorage, for
replacement of the virology laboratory in Fairbanks,
for expansion of the Anchorage Museum of History and
Art, for the major maintenance grant fund, and for
other capital projects related to education; and
providing for an effective date."
Co-Chair Meyer presented the Committee with work draft for
SB 155, labeled 24-LS0687\U, Kurtz, 5/4/05. He noted the
biggest change was a fund source change from permanent fund
earnings were changed to general funds.
SUZANNE CUNNINGHAM, STAFF, CO-CHAIR MEYER, reviewed the
changes in the proposed work draft. She clarified that all
of the funding sources were changed from permanent fund
earnings to general funds.
6:18:02 PM
She observed that projects in section 3 were reduced to
reflect a 70/30 percent split, or 2 percent for REAA's. This
change reduced the overall cost of the projects previously
contained in the legislation by $19,447,972 using the
capital matching grant formula. She noted that $57 million
in new projects were added to section 3. An additional $10
million was added in section 5 to the University of Alaska
Fairbanks' fisheries and ocean facility at Lena Point.
Section 6 was amended from $5 to $15 million for the
Anchorage Museum of History and Art expansion.
6:19:16 PM
Vice-Chair Stoltze asked if it would require a title change.
Ms. Cunningham agreed that a title change was in order.
6:19:29 PM
Representative Hawker MOVED to ADOPT the work draft for SB
155, labeled 24-LS0687\U, Kurtz, 5/4/05.
Representative Holm OBJECTED. He felt it would be
appropriate to further review the legislation.
Representative Hawker acknowledged the desire to have more
time, but pointed out the late date [in the legislative
session].
6:21:15 PM
At ease
6:25:50 PM
Ms. Cunningham observed that the two largest elements in SB
155 were in section 2, which is the major maintenance list,
and section 3, which contains new construction. The
Department of Education and Early Development establish the
major maintenance list. The intent was to equal out projects
awarded to each district.
6:27:31 PM
Representative Holm WITHDREW his objection.
Representative Hawker noted there was an earnings reserve
funding which he preferred.
6:28:18 PM
Representative Hawker MOVED to report HCSSB 155 (FIN) out of
Committee with individual recommendations. There being NO
OBJECTION, it was so ordered.
HCSSB 155 (FIN) was REPORTED out of Committee with a "do
pass" recommendation.
Co-Chair Meyer announced that the Committee would Recess
until 8:30 AM, May 5, 2005.
Representative Hawker asked the committee to move HB 280.
Representative Holm objected to that motion, saying he has
an amendment. Co-Chair Meyer said there would be time in the
morning.
The meeting was recessed at 6:31 PM until 8:30 AM on May 5,
2005.
8:48:57 AM
Co-Chair Chenault resumed the meeting.
HOUSE BILL NO. 280
"An Act relating to the taxation of mining property;
relating to contracts approved by municipalities for
payments in lieu of taxes; and providing for an
effective date."
Vice-Chair Stoltze referred to Article IX [Alaska
Constitution], and questioned if there is a problem with the
legislature surrendering the power of taxation. Mr. Pound
restated that legal counsel, as indicated by Ms. Kurtz, does
not have a problem with it.
8:52:14 AM
Representative Kelly referred to Vice-Chair Stoltze's
question and summarized that the question is if the state
has the right to transfer taxing authority to another
entity.
Representative Holm said he spoke with Jack Chenoweth from
the Alaska Legislative Legal. He referred to a memo, which
states that the legislature has the right to restrict
taxation authority and to give it away. The legislature has
prohibited municipalities from taxing oil or gas. He noted
that the legislation would change a severance tax to a mil
tax, which would allow municipalities to tax the
infrastructure but not the minerals. He maintained that the
legislature has a fiduciary obligation to set state policy
that clarifies that the resources are owned collectively and
should benefit all Alaskans. He maintained that resources
need should be brought into the community pot and it would
be bad policy to allow individual communities to benefit.
8:56:46 AM
Mr. Pound corrected earlier testimony by clarifying that the
Northwest Borough does not collect a severance tax.
8:57:20 AM
Representative Holm MOVED to ADOPT Amendment 2:
Page 2, Lines 18-19
DELETE [other than a tax imposed before January 1,
2006]
Co-Chair Chenault OBJECTED for discussion purposes.
Representative Holm explained that the amendment would
remove the retroactivity provision. This would prevent
municipalities from charging a severance tax on a mineral
resource. Mr. Pound stated a concern that some boroughs
already use a severance tax.
8:58:12 AM
STEVE VAN SANT, STATE ASSESSOR, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, (via teleconference)
commented on Amendment 2. He explained that Denali Borough
collects a severance tax on gravel and coal, which results
in approximately $56 thousand. The Kodiak Island Borough
collects a severance tax on timber. He thought that the Lake
and Peninsula Borough also has a severance tax, which has
not been collected.
9:00:42 AM
Co-Chair Chenault asked Representative Holm to clarify the
intent of the amendment. Representative Holm stated that the
amendment would prevent any re-cooping or retroactivity. He
questioned if those communities that currently have
severance taxes in place could collect a mil tax.
9:01:48 AM
Mr. Van Sant replied that they could have a sales tax or a
property tax, but it would take some work. He pointed out
that the 4-mil levy is for the unorganized boroughs.
Representative Holm thought the bill might have some
unintended consequences. He asked if the Denali Borough
currently has a property tax. Mr. Van Sant noted that the
Denali Borough does not collect property tax. The Borough
collects a bed tax and severance tax. Representative Holm
noted that the [severance tax collected in the Denali
Borogh: $56 thousand) is insignificant.
9:05:02 AM
Representative Kelly requested an opinion from the mining
industry.
9:06:20 AM
At ease.
9:14:31 AM
JAMES FUEG, PLACER DOME, MEMBER COUNCIL OF ALASKAN
PRODUCERS, testified via teleconference. He addressed the
mining perspective on granting severance taxes. He said, in
general, the mining industry does not support them, but is
in favor of grandfathering in existing severance taxes.
Representative Holm asked if this was a constitutional
position. Mr. Fueg said no.
9:16:31 AM
Representative Joule asked for clarification. Representative
Holm replied.
A roll call vote was taken on the motion to ADOPT Amendment
2.
IN FAVOR: Kelly, Holm
OPPOSED: Joule, Moses, Stoltze, Weyhrauch, Foster, Hawker,
Chenault, Meyer
The MOTION FAILED (2-8).
Representative Joule MOVED to report CSHB 280 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal impact notes.
Representative Holm OBJECTED.
A roll call vote was taken on the motion to report CSHB 280
(FIN) out of Committee.
IN FAVOR: Stoltze, Foster, Hawker, Joule, Chenault, Meyer
OPPOSED: Moses, Weyhrauch, Holm, Kelly
The MOTION PASSED (6-4).
CSBH 280 (FIN) was REPORTED out of Committee with a "no
recommendation" recommendation and with a new fiscal impact
note by the Department of Revenue, and with a new fiscal
impact note by the Department of Commerce, Community and
Economic Development.
9:22:13 AM
HOUSE BILL NO. 243
"An Act relating to the maximum annual regulatory cost
charge collected from certain regulated public
utilities and pipeline carriers; and providing for an
effective date."
Representative Stoltze MOVED to ADOPT work draft for HB 243
labeled 24-GH1138\Y, Craver, 5.3.05. There being NO
OBJECTION, it was so ordered.
Representative Kelly observed that the legislation has the
support of the Governor and Alaska Industrial Development
and Export Authority (AIDEA). The legislation would extend
for one year the opportunity for the Four Dam Pool utilities
to create a financing agreement that is satisfactory to
AIDEA.
9:23:16 AM
Representative Hawker spoke in support of the legislation
and pointed out that there would be a zero fiscal note from
Department of Commerce, Community and Economic Development.
9:24:03 AM
Vice-Chair Stoltze requested comments from Mr. Miller.
RON MILLER, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, (AIDEA), (via
teleconference) explained that the one year extension would
allow the Four Dam Pool power agencies to provide a
financing plan demonstrating committed funds for completion
of the Swan/Tyee project. According to the original
Memorandum of Understanding (MOU), the Four Dam Pool Power
Agency had until April 11, 2005 to provide such a financing
plan to AIDEA. A plan contingent on state and federal grants
was submitted, but not accepted. An alternative was
proposed, which would require the Agency to deposit $5
million with AIDEA or Alaska Energy Authority (AEA) in an
escrow account. The $5 million would be a credit that the
Four Dam Pool Power Agency would be required to pay into the
PCE endowment should they not come up with a financing plan
showing committed sums to complete the project. This was
agreed to in the MOU. He observed that AIDEA has proposed a
mechanism to allow the Agency to retain interest on the $5
million proposal. He noted that AIDEA does not support of
oppose the legislation.
9:27:20 AM
In response to a question by Vice-Chair Stoltze, Mr. Miller
clarified that the legislation pertains to the Four Dam Pool
Power Agency and is not connected to Healy coal production.
There is a potential impact to the PCE endowment. There
could be a possible loss in earnings to the endowment from a
one-year delay. He observed that it is a policy call for the
legislature.
9:29:26 AM
Representative Weyhrauch summarized that the legislation is
an innocent extension to allow the parties to establish the
terms of a MOU. The potential impact of the PCE is a by-
product of the extension. In response to a question by
Representative Weyhrauch, Mr. Miller noted that the Four Dam
Pool Power Agency is a joint action agency that was created
to acquire the Four Dam Pool assets from the Alaska Energy
Authority. Wrangell, Ketchikan, Kodiak, Copper Valley and
Petersburg make up the agency, which is not a state agency.
The MOU agreement is between the AEA and the Four Dam Pool
Power Agency.
9:31:24 AM
Representative Kelly referred to "may" on page 4, line 10,
which would benefit AEA and AIDEA. He noted that the
Governor is in support of this bill.
9:32:26 AM
Representative Hawker asked if the fiscal note was from the
Regulatory Commission of Alaska and asked AIDEA if a zero
note is appropriate.
9:32:58 AM
SHARON FISHER, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY, (AIDEA), (via teleconference) stated that the
fiscal note should be indeterminate due to the loss of a
year's worth of interest, if money is not held in escrow.
9:33:57 AM
Representative Hawker MOVED to remove of the Regulatory
Commission of Alaska fiscal note and adopt an indeterminate
note from AIDEA. There being NO OBJECTION, it was so
ordered.
Representative Kelly agreed with the indeterminate note.
Vice-Chair Stoltze said he is operating under a good-faith
effort by allowing an indeterminate fiscal note.
9:35:48 AM
Representative Kelly MOVED to report CSHB 243 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 243 (FIN) was REPORTED out of Committee with a "no
recommendation" recommendation and with a new indeterminate
fiscal impact note by the Department of Commerce, Community
and Economic Development.
9:36:28 AM
CS FOR SENATE BILL NO. 110(FIN)(efd fld)
"An Act relating to regulation of the discharge of
pollutants under the National Pollutant Discharge
Elimination System."
KURT FREDRIKSSON, ACTING DEPUTY COMMISSIONER, OFFICE OF THE
COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, new
commissioner, provided written testimony:
Mister Chairman, members of the Committee, I am pleased
to testify today in support of this Bill authorizing
the Department of Environmental Conservation (DEC) to
assume primacy for the National Pollutant Discharge
Elimination System (NPDES) permit program from the
federal Environmental Protection Agency (EPA).
Governor Murkowski and I believe passage of this
legislation will allow Alaskans to better protect the
State's water resources and build a strong economy.
With me today is Dan Easton, Director of the
Department's Division of Water to provide you with the
details of how this bill was developed.
Under federal law all discharges to surface waters must
be permitted under the NPDES permit program to protect
water quality. Community sewage treatment facilities,
construction of storm water drains on more than one
acre, seafood processors, log transfer facilities,
ballast water discharge facilities, mining operations,
oil and gas operations, and fish hatcheries all must
have NPDES permits to operate. There are currently over
2300 regulated permit holders in Alaska under the NPDES
permit program.
The federal Clean Water Act is founded on the principle
that the rights of states to manage water quality
within their borders should be protected. The Clean
Water Act includes provisions for a state to assume
primacy from the Environmental Protection Agency (EPA)
for issuing NPDES permits for discharges to surface
waters within the state's borders. In states that do
not assume primacy, EPA runs the NPDES program.
Like four other states, Alaska has never pursued the
opportunity provided by the federal Clean Water Act to
shape the NPDES water pollution control permit program
to fit our state's unique circumstances. The bill
before you would allow DEC to develop a comprehensive
water quality protection program where all program
components, from legislative budgeting and oversight to
fieldwork and enforcement, are conducted here in the
state, where Alaskans can shape solutions to fit
Alaska's challenges.
Without this legislation, EPA will continue to be
Alaska's water quality permitter. EPA makes the permit
rules and review timeframes. EPA decides what goes into
the permits and who gets inspected. EPA decides how
Alaska's water quality standards will be applied to
specific discharges. EPA sets Alaska's water quality
priorities. EPA decides what's important for Alaska and
what's not.
As you know, Governor Murkowski has an ambitious agenda
for the responsible development of Alaska's natural
resources. The Governor has pledged to improve permit
efficiency without a rollback of environmental
protection. However, as long as EPA runs the NPDES
permit program in Alaska, DEC cannot fix what we don't
control. We can't establish appropriate performance
measures with the legislature for timely permit
actions, we can't establish the state's annual permit
and environmental protection priorities, and we can't
offer a timely appeal process that allows conflicts to
be judged by Alaskans in Alaska.
A state run NPDES permit program won't be free. When
EPA issues permits in Alaska the costs are borne by the
U.S. taxpayer. A state permit program will shift
authority and responsibility to the state, but it will
also shift some of the costs to permit holders and the
state.
State primacy for the NPDES permit program is a
critical investment in the stewardship of Alaska's
environment and development of our natural resources.
It will better align regulatory requirements with real
Alaskan conditions and the real risks to Alaska's water
quality. A faster, more effective state permit program
will be based on Alaska's priorities - not national
"one-size-fits-all" priorities. DEC's permit
priorities; level of effort and performance measures
would be subject to annual review and approval by
Alaskans through their elected officials in the state
Legislature.
If Alaska is to realize the promise of resource
development, we must accept responsibility for managing
Alaska's water quality by assuming primacy for the
NPDES program.
It's time we invest in the development of Alaska's
resources by taking responsibility from the federal
government to protect Alaska's environment. I
respectfully ask that you vote to pass SB 110.
9:41:12 AM
DAN EASTON, DIRECTOR, DIVISION OF WATER, DEPARTMENT OF
ENVIRONMENTAL CONSERVATION, explained that SB 110 was the
result years of effort, starting in 2002. The legislation
began with SB 326, which asked the Department to take a look
at the consequences and benefits of state primacy for the
National Pollutant Discharge Elimination System (NPDES)
permit program. He gave a brief history of the process of
looking at primacy.
He acknowledged that there was a sizeable fiscal note. The
Department currently has a staff of 30 and budget of $3.3
million, which would become part of a NPDES program. Senate
Bill 326 indicated that there would need to be a staff of 43
and a budget of $4.8 million dollars [to implement state
primacy]. The fiscal note indicates the difference. The
Division of Water welcomes the opportunity for an all
Alaskan program.
9:43:11 AM
Co-Chair Meyer referred to the fiscal note and questioned if
the industry fees are detailed in the program receipts. Mr.
Easton clarified that it would take two years to implement
the primacy. The fiscal note reflects an incremental
increase as the state does more and more and can charger
more and more. It will start modestly and build. The
Division already collects some fees. He observed that, on
average, fees would increase by 1.8%.
9:44:21 AM
Representative Joule voiced concern that primacy might
adversely affect the fisheries resource. He questioned the
zero fiscal note from Department of Fish and Game.
Representative Joule noted that the federal government
recognizes tribal governments and noted that state primacy
would affect their standing.
Commissioner Fredriksson stressed that it is a questioned of
accountability. He felt that the state could be more
accountable than the federal EPA. He acknowledged that the
Department of Fish and Game does play a roll. He felt that
state primacy would allow them to be more responsive to
local concerns and did not envision any change. The same
entities would still be involved in review of the NPDES
permits.
9:48:24 AM
Representative Joule asked if the Department would actively
seek some of that consultation. Commissioner Fredriksson
replied yes. He maintained that the state would be able to
work with the tribes in the constructing and permitting
process.
9:49:27 AM
JON TILLINGHAST, SEALASKA CORPORATION, spoke in support of
the legislation. He noted that Sealaska is a federally
recognized tribe. He stressed that that consultation with
EPA has not always been good, while their consultation with
the Department of Environmental Conservation had been good.
9:51:19 AM
KEVIN RITCHIE, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL LEAGUE,
noted that the AML supports the bill. He observed that the
legislation would enhance local control and provide greater
access and accountability.
9:52:06 AM
DICK COOSE, FORMER ASSEMBLY MEMBER, KETCHIKAN, (via
teleconference) voiced support for the legislation. The
state needs to control its own future. He maintained that
state management would be better than that of the federal
EPA. He felt that the Department of Environmental
Conservation uses better science and works better with
people in the permitting process. He recounted problems with
EPA.
9:55:44 AM
LOIS EPSTEIN, COOK INLET KEEPER, ANCHORAGE, (via
teleconference) expressed concern with the legislation and
summarized written testimony (copy on file.)
She stated that SB 110 accurately reflects the wish list
from the industry members of the Department of Environmental
Conservation's workgroup studying NPDES. She noted that
because public interest groups were not allowed to
participate in the work group their concerns were never
addressed. She requested changes be made to the committee
substitute in sections 1(b)(2) and 4(h)(3). She urged
opposition to passage of the legislation.
She listed three reasons for their opposition:
1. The high governmental cost of the permitting
program; which only will grow as the state's
industrial growth increases,
2. Ensuring a high-quality permitting program to
protect Alaska's salmon and ether fish.
3. Ensuring governmental accountability to the public
and Tribes,
Ms. Epstein continued to explain that permittees could
suffer with passage of the legislation. She maintained that
according to SB 11's fiscal note, the legislature would need
to appropriate, at a minimum, $1.5 million each year. These
costs are for a service - wastewater discharge permit
issuance - that the state now gets for free, This is a major
change to DEC operations. She observed that the workgroup
limited permit fees at 16% of program costs (compared to 57%
of program costs paid by permittees in Oregon and 75-80%
paid in Washington). She maintained that the increased costs
would come from other state initiatives such as education or
road maintenance. She asserted that industrial growth or
growth among businesses with less than 20 employees could
further increase costs. She stressed that the DEC fiscal
note, prepared on April 25, does not show how fines will
meaningfully reduce these new costs. The Fiscal Note does
not estimate the NPDES fines likely to be received, only
total fines historically received for all DEC programs.
Ms. Epstein pointed out that the Department of Environmental
Conservation would not get any more federal funding, since
the state receives the maximum amount allowed for
administering its Clean Water Act programs. While federal
funding is projected to continue at the current level, the
federal budget process in future years may decrease this
amount, resulting in additional costs to the state.
If the legislature fails to fund the program adequately in
the futureit is likely that permit issuance would be slowed
7
and permit errors may occur, Since there is virtually no
chance that EPA will take back the permitting program once
it has been given to the state, permittees will suffer due
to insufficient general fund resources.
The workgroup's report states that permit fees "are expected
to increase by a factor of 1.8, a substantial increase,"
including increases to municipal permit fees. Thus, both
state and local costs will increase significantly should the
state obtain NPDES primacy.
Fiscal Note cost estimates are arguably low because proposed
DEC staffing levels are insufficient to implement the
program adequately. If the program is not carried out with
sufficient technical and enforcement staff, water quality
and fish habitat will decline. Currently, a total of 51
full-time equivalent (FTE) employees from EPA and DEC carry
out the permitting program. DEC estimates reduce this number
to 43 ETE, including a 38% reduction in program development
staff (e.g., water quality standards staff), a 28% reduction
in permitting staff, and a 16% reduction in compliance and
enforcement staff.
Ms. Epstein asserted that the reductions are serious and
would change the nature and timing of permit issuance. She
stressed that they are not opposed to NPDES primacy, but
expressed concern the state of Alaska is trying to "do it on
the cheap". She noted that the state of Alaska expects to
spend only 52% of the resources that Washington State spends
per permit.
Ms. Epstein requested that the legislature obtain
additional, detailed information from DEC on the adequacy of
its staffing estimates, especially for technical and
enforcement staff, and on the likelihood of EPA approving
the permitting program with serious staff reductions in a
state with numerous, large industrial operations.
"Additionally, Cook Inlet Keeper and industry- members
of the workgroup share a concern about the limited
technical expertise at DEC and the likely use of
consultants to develop permits. Problems with the use
of consultants include potential conflicts of interest
and the lack of long-term DEC staff experience with
particular industries, which can result in technical
deficiencies and costly staff inefficiencies, though
conflicts of interest were discussed in the workgroup,
Section 4(h)(4) needs to be amended to specifically
prevent conflicts of interest for DEC consultants."
Ms. Epstein summarized that NPDES primacy is a major
undertaking with serious fiscal, fish and governmental
accountability implications.
10:04:02 AM
MIKE POLLEN, NTL ALASKA, INC, (NAI), FAIRBANKS, (via
teleconference) noted that he had provided testimony to his
representatives. He related a couple instances that occurred
to him personally with testing laboratories in Fairbanks. He
stressed that the EPA has not been timely in coming forward
in providing standards or permits.
He stated that he has worked with both the EPA and the
Department. He felt that Department of Environmental
Conservation staff are more confident and have the skills
require for implementing the program. He supported the
legislation, which is an economic issue and stressed the
impact on mining and gas line project, which could be held
hostage by a badly written contract and/or permit. He urged
passage and funding of the positions.
10:08:51 AM
STEPHANIE MADSEN, VICE PRESIDENT, PACIFIC SEAFOOD
ASSOCIATION PROCESSORS, noted that she participated in the
workgroup. She stressed that they are not limited to paying
16 percent of the Department of Environmental Conservation
budget. She observed that under HB 360 in 2000, there was a
formula of direct costs identified by the department. She
acknowledged that the direct costs would go up. She felt
that the increase costs would be worth it to have Alaskans
interpreting Alaska water standards. She emphasized that the
federal Clean Water Act would guide the program and EPA
would still be available for consultations. She urged
passage of the legislation.
10:11:09 AM
CS SB 110 (FIN)(efd fld) was HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 10:12 A.M.
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