Legislature(2005 - 2006)

05/04/2005 04:52 PM FIN


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                  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.                                                                                         

Document Name Date/Time Subjects