Legislature(2013 - 2014)

04/12/2013 01:12 AM FIN


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                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 12, 2013                                                                                            
                         1:12 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
[Note: This  meeting is a  continuation of the  4/11/13 9:45                                                                    
a.m. meeting that was recessed at 10:41 p.m.]                                                                                   
                                                                                                                                
1:12:57 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 1:12 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative David Guttenberg                                                                                                 
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator  Micciche;  Bruce   Tangeman,  Deputy  Commissioner,                                                                    
Department  of  Revenue;  Senator  Micciche;  Representative                                                                    
Peggy Wilson; Chad Hutchison,  Staff, Senator Coghill; Larry                                                                    
Hartig,    Commissioner,    Department   of    Environmental                                                                    
Conservation; Ed Fogels,  Deputy Commissioner, Department of                                                                    
Natural  Resources; Michelle  Bonnet  Hale, Director,  Water                                                                    
Quality Division, Department  of Environmental Conservation;                                                                    
Ernest Prax, Staff, Representative Keller.                                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 27     REGULATION OF DREDGE AND FILL ACTIVITIES                                                                              
                                                                                                                                
          SB 27  was REPORTED  out of  committee with  a "no                                                                    
          recommendation"   and    with   three   previously                                                                    
          published  fiscal notes,  two with  fiscal impact:                                                                    
          FN1(DEC)   and  FN2(DNR);   and  one   zero  note:                                                                    
          FN3(LAW).                                                                                                             
                                                                                                                                
CSSB 65(JUD)                                                                                                                    
          RETIREMENT PLANS; ROTH IRAS; PROBATE                                                                                  
                                                                                                                                
          CSSB 65(JUD) was REPORTED out  of committee with a                                                                    
          "no  recommendation"  and   with  four  previously                                                                    
          published zero  fiscal notes:  FN1(LAW), FN2(REV),                                                                    
          FN3(ADM) and FN5(CED).                                                                                                
                                                                                                                                
CSSB 83(FIN)                                                                                                                    
          INTEREST ON CORPORATION INCOME TAX                                                                                    
                                                                                                                                
          HCS  CSSB 83(FIN)  was REPORTED  out of  committee                                                                    
          with  a  "do  pass" recommendation  and  with  one                                                                    
          previously  published  indeterminate fiscal  note:                                                                    
          FN1(REV).                                                                                                             
                                                                                                                                
CS FOR SENATE BILL NO. 83(FIN)                                                                                                  
                                                                                                                                
     "An  Act  relating  to   the  corporation  income  tax;                                                                    
     relating  to  the  computation of  interest  under  the                                                                    
     look-back method  applicable to long-term  contracts in                                                                    
     the  Internal  Revenue  Code;   and  providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
1:14:04 AM                                                                                                                    
                                                                                                                                
Representative Holmes MOVED to adopt Amendment 1. Co-Chair                                                                      
Stoltze OBJECTED for discussion.                                                                                                
                                                                                                                                
     Page 1, line 3, following "Code;":                                                                                         
     Insert  "relating  to  the assignment  of  certain  tax                                                                    
     credits;"                                                                                                                  
                                                                                                                                
     Page 1, following line 8:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Sec.  2.   AS 43.55  is amended  by adding  a new                                                                    
     section to read:                                                                                                           
     Sec. 43.55.029.  Assignment of tax  credit certificate.                                                                    
     (a)  An explorer  or producer  that has  applied for  a                                                                    
     production tax  credit under  AS 43.55.023(a),  (b), or                                                                    
     (l) or  43.55.025(a) may make  a present  assignment of                                                                    
     the production  tax credit  certificate expected  to be                                                                    
     issued  by the  department to  a third-party  assignee.                                                                    
     The  assignment may  be  made either  at  the time  the                                                                    
     application is  filed with the department  or not later                                                                    
     than  30  days  after  the  date  of  filing  with  the                                                                    
     department. Once  a notice of assignment  in compliance                                                                    
     with  this section  is filed  with the  department, the                                                                    
     assignment  is irrevocable  and cannot  be modified  by                                                                    
     the explorer  or producer  without the  written consent                                                                    
     of  the   assignee  named  in  the   assignment.  If  a                                                                    
     production  tax credit  certificate  is  issued to  the                                                                    
     explorer or producer, the  notice of assignment remains                                                                    
     effective  and shall  be filed  with the  department by                                                                    
     the explorer or producer  together with any application                                                                    
     for the  department to  purchase the  certificate under                                                                    
     AS 43.55.028(e).                                                                                                           
     (b)  To  be effective, the assignment  does not require                                                                    
     the  approval   or  consent  of  the   department.  The                                                                    
     assignment must, at a minimum,                                                                                             
     (1)   be made in  writing and  signed by an  officer or                                                                    
     legally  qualified agent  of the  explorer or  producer                                                                    
     making the assignment and the assignee, respectively;                                                                      
     (2)    identify the  explorer  or  producer making  the                                                                    
     assignment, the assignee in  whose favor the assignment                                                                    
     is   being  made,   and  the   production  tax   credit                                                                    
    application that is the subject of the assignment;                                                                          
     (3)  define  the interest in the  production tax credit                                                                    
     being  assigned,  expressed  as  either  an  amount  in                                                                    
     dollars, which may not exceed  90 percent of the credit                                                                    
     applied  for,  or a  percentage  of  the credit  to  be                                                                    
     issued by the department;                                                                                                  
     (4)   specify  an account  with a  bank located  in the                                                                    
     state, with  sufficient information for  the electronic                                                                    
     transfer of funds, to receive  any future proceeds from                                                                    
     the  purchase of  the tax  credit certificate  under AS                                                                    
     43.55.028(e);                                                                                                              
     (5)    cite this  section  and  acknowledge that,  once                                                                    
     filed   with   the   department,  the   assignment   is                                                                    
     irrevocable and cannot be  modified without the written                                                                    
     consent of the assignee.                                                                                                   
     (c)  An assignment  complying with this section creates                                                                    
     a  property  interest  owned by  the  assignee  in  the                                                                    
     application and any  production tax credit certificates                                                                    
     issued by  the department  to the explorer  or producer                                                                    
     and   any   future    proceeds   resulting   from   the                                                                    
     application, in the amount or  to the extent set out in                                                                    
     the  assignment. An  assignee  may create  a valid  and                                                                    
     enforceable  security  interest  in  that  property  as                                                                    
     otherwise provided by law.                                                                                                 
     (d)   Notwithstanding any other  provision of  law, and                                                                    
     to the maximum extent  permitted under federal laws, an                                                                    
     assignment complying  with this section shall  give the                                                                    
     assignee a  first priority claim, not  dischargeable in                                                                    
     bankruptcy,  against  the   proceeds  received  by  the                                                                    
     explorer or producer, including  its estate, trustee or                                                                    
     other  representative,  resulting from  the  production                                                                    
     tax  credit  application that  is  the  subject of  the                                                                    
     assignment  under this  section,  if  the assignee  has                                                                    
     taken the  steps necessary under state  and federal law                                                                    
     to perfect a security interest in the assignment.                                                                          
     (e)   Nothing  in this  section affects  the terms  and                                                                    
     conditions  otherwise  required   for  an  explorer  or                                                                    
     producer to qualify for a  production tax credit or the                                                                    
     determination  by  the  department  of  the  amount  of                                                                    
     credit  the  explorer  or   producer  is  qualified  to                                                                    
     receive.                                                                                                                   
     (f)   Neither  the  state nor  the  department, or  any                                                                    
     other agency, officer, or employee  of the state, shall                                                                    
     be subject  to suit or any  claim arising out of  or in                                                                    
     connection with an assignment  made under this section,                                                                    
     whether by act or omission.                                                                                                
     (g)  The department may  adopt regulations to carry out                                                                    
     the purposes of this section."                                                                                             
                                                                                                                                
Representative  Holmes explained  that  the amendment  would                                                                    
allow gas  producers the ability  to receive  credits, which                                                                    
could  be  pledged  as collateral  on  loans  to  facilitate                                                                    
additional  drilling.   The  language  was   vetted  through                                                                    
Department  of Revenue  (DOR) and  Department of  Law (DOL).                                                                    
The  amendment  specified  hold harmless  language  for  the                                                                    
state.  Requirements  for   credit  qualification  were  not                                                                    
affected for the explorer/producer.                                                                                             
                                                                                                                                
1:16:32 AM                                                                                                                    
                                                                                                                                
BRUCE TANGEMAN, DEPUTY  COMMISSIONER, DEPARTMENT OF REVENUE,                                                                    
stated that the department  viewed the amendment as "solid."                                                                    
The  amendment  would  help  further  the  goal  of  opening                                                                    
private  equity  markets to  the  smaller  investors in  the                                                                    
state.                                                                                                                          
                                                                                                                                
Representative  Wilson asked  if the  amendment would  allow                                                                    
similar  advantages   to  producers  on  the   North  Slope.                                                                    
Representative  Holmes believed  that the  amendment applied                                                                    
only to Cook Inlet and Middle Earth.                                                                                            
                                                                                                                                
1:18:27 AM                                                                                                                    
                                                                                                                                
Representative  Gara asked  for  an estimate  of the  bill's                                                                    
potential revenue  cost for the state.  Mr. Tangeman replied                                                                    
that  the amendment  would  not cost  the  state in  revenue                                                                    
because of  the existing  estimates and projections  for tax                                                                    
credits. The  projections for tax  credits would  remain the                                                                    
same with the introduction of a third party.                                                                                    
                                                                                                                                
Representative Gara asked  if the bill would  result in less                                                                    
oil revenue from  the exchange of tax  credits. Mr. Tangeman                                                                    
replied  no  and stated  that  a  company must  continue  to                                                                    
qualify and  apply for  the tax credit.  The change  was the                                                                    
inclusion of a third party in the transaction.                                                                                  
                                                                                                                                
Senator  Micciche added  that the  tax credits  would remain                                                                    
the same. The  ability to assign credits  for collateral was                                                                    
different  with  the  amendment.   The  goal  was  to  bring                                                                    
additional gas to Cook Inlet  consumers. The fiscal note was                                                                    
zero, but the benefit to smaller producers would be great.                                                                      
                                                                                                                                
1:20:36 AM                                                                                                                    
                                                                                                                                
Representative Kawasaki asked about  the introduction of the                                                                    
third  party. He  asked  if the  certificate  could be  used                                                                    
against  a  tax liability.  Mr.  Tangeman  replied that  the                                                                    
third  party was  a lender  who  would work  with the  small                                                                    
company. The  credit would  flow to  the third  party lender                                                                    
and either remain with the  lender as collateral or transfer                                                                    
to the small company.                                                                                                           
                                                                                                                                
Senator  Micciche stated  that  the tax  credit  was a  real                                                                    
asset that  would be used  as collateral to reduce  the cost                                                                    
of the loan.                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 1 was ADOPTED.                                                                                     
                                                                                                                                
1:22:42 AM                                                                                                                    
                                                                                                                                
Representative  Munoz MOVED  Amendment  2. Co-Chair  Stoltze                                                                    
OBJECTED for discussion.                                                                                                        
                                                                                                                                
     Page 1, line 1, following "Act":                                                                                           
     Insert  "making  the  income  received  by  a  regional                                                                    
     aquaculture  association or  a  salmon hatchery  permit                                                                    
     holder from the sale of  salmon or salmon eggs under or                                                                    
     from   a  cost   recovery  fishery   exempt  from   the                                                                    
     corporation income tax;"                                                                                                   
                                                                                                                                
     Page 1, line 3, following "Code":                                                                                          
     Insert "providing  for an  effective date  by repealing                                                                    
     the effective date of sec. 8, ch. 51, SLA 2012;"                                                                           
                                                                                                                                
     Page 1, following line 4:                                                                                                  
     Insert new bill sections to read:                                                                                          
        "* Section 1. AS 43.20.012(a) is amended to read:                                                                       
     (a)  The tax imposed by this chapter does not                                                                              
     (1)  apply to an individual;                                                                                               
     (2)  apply to a fiduciary; [OR]                                                                                            
     (3)  for a tax  year beginning after December 31, 2012,                                                                    
     apply  to an  Alaska  corporation that  is a  qualified                                                                    
     small  business  and  that meets  the  active  business                                                                    
     requirement  in 26  U.S.C. 1202(e)  as that  subsection                                                                    
     read on January 1, 2012; or                                                                                                
     (4)   for  a tax  year beginning  after June  30, 2007,                                                                    
     apply to the income  received by a regional association                                                                    
     qualified under  AS 16.10.380 or  nonprofit corporation                                                                    
     holding a  hatchery permit under AS  16.10.400 from the                                                                    
     sale of  salmon or  salmon eggs  under AS  16.10.450 or                                                                    
     from a cost recovery fishery under AS 16.10.455.                                                                           
        * Sec. 2.  AS 43.20.012(a), as amended by  sec. 1 of                                                                    
     this Act, is repealed and reenacted to read:                                                                               
     (a)  The tax imposed by this chapter does not apply to                                                                     
     (1)  an individual;                                                                                                        
     (2)  a fiduciary; or                                                                                                       
     (3)   the  income  received by  a regional  association                                                                    
     qualified under  AS 16.10.380 or  nonprofit corporation                                                                    
     holding a  hatchery permit under AS  16.10.400 from the                                                                    
     sale of  salmon or  salmon eggs  under AS  16.10.450 or                                                                    
     from a cost recovery fishery under AS 16.10.455."                                                                          
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 1, line 5:                                                                                                            
     Delete "Section 1"                                                                                                         
     Insert "Sec. 3"                                                                                                            
                                                                                                                                
     Page 1, following line 8:                                                                                                  
     Insert new bill sections to read:                                                                                          
        "*  Sec. 4.  AS  43.20.012(c)  and 43.20.012(d)  are                                                                    
     repealed July 1, 2023.                                                                                                     
        * Sec. 5. Section 8, ch. 51, SLA 2012, is repealed.                                                                     
        * Sec. 6. The uncodified  law of the State of Alaska                                                                    
     is amended by adding a new section to read:                                                                                
     TRANSITION;    CLAIM    FOR     CREDIT    OR    REFUND.                                                                    
     Notwithstanding the  limitation on the period  in which                                                                    
     a person  may file a  claim for  credit or refund  of a                                                                    
     tax paid under  AS 43.20, a person that has  paid a tax                                                                    
     under  AS  43.20 on  income  that  is exempt  under  AS                                                                    
     43.20.012(a)(4), as enacted by sec.  1 of this Act, may                                                                    
     file a  claim for credit or  refund on the tax  paid on                                                                    
     the exempt income within two  years after the effective                                                                    
     date of sec. 1 of this Act."                                                                                               
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 1, line 11:                                                                                                           
     Delete "Section 1"                                                                                                         
     Insert "Section 3"                                                                                                         
                                                                                                                                
     Page 1, line 12:                                                                                                           
     Delete all material and insert:                                                                                            
        "*  Sec.  8.  Section  45,  ch.  51,  SLA  2012,  is                                                                    
     repealed.                                                                                                                  
        * Sec.  9. Section 2  of this Act takes  effect July                                                                    
     1, 2023.                                                                                                                   
        *  Sec. 10.  Except as  provided in  sec. 9  of this                                                                    
     Act,  this  Act  takes   effect  immediately  under  AS                                                                    
     01.10.070(c)."                                                                                                             
                                                                                                                                
Representative  Munoz explained  the amendment  clarified in                                                                    
statute  that regional  aquiculture  associations or  salmon                                                                    
hatcheries were exempt from state  corporate income tax. The                                                                    
provision allowed for the repayment  of corporate taxes paid                                                                    
due to a  federal audit. The audit resulted  in an automatic                                                                    
imposition of  the state  income tax  on the  federal charge                                                                    
levied  against  Southern   Southeast  Regional  Aquiculture                                                                    
Association.  The hatcheries  were always  considered exempt                                                                    
from  state income  tax and  were  initially established  as                                                                    
nonprofit associations  with the cost recovery  model, which                                                                    
allowed them  to derive  revenue from  the salmon  sold. The                                                                    
amendment  would   confirm  the  hatcheries'   exemption  in                                                                    
statute.                                                                                                                        
                                                                                                                                
1:24:24 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze asked  what had  triggered the  hatchery's                                                                    
scrutiny. Representative  Munoz replied the IRS  audited two                                                                    
nonprofit hatcheries in 2010.  Some cost recovery operations                                                                    
were   considered  taxable   by  the   IRS,  which   led  to                                                                    
arbitration and  a settlement with a  payment including back                                                                    
payments to  2008 of $2.15 million.  The state automatically                                                                    
implemented the  corporate income  tax on the  facility. Co-                                                                    
Chair  Stoltze  asked  if  the   corporate  income  tax  was                                                                    
triggered by  the federal  income tax.  Representative Munoz                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
1:25:46 AM                                                                                                                    
                                                                                                                                
Representative Wilson  asked how the federal  government was                                                                    
involved.  Representative  Munoz   replied  that  the  state                                                                    
continued  to  challenge  the levy  of  federal  taxes.  The                                                                    
impact of federal taxes could  eventually affect all Alaskan                                                                    
hatcheries,  which would  ultimately  affect  the number  of                                                                    
fish available for commercial harvest.                                                                                          
                                                                                                                                
1:27:00 AM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman  asked Representative  Munoz if a  bill in                                                                    
another committee addressed  a similar issue. Representative                                                                    
Munoz responded  that the amendment  was proposed to  her by                                                                    
Representative Peggy Wilson.                                                                                                    
                                                                                                                                
SENATOR  MICCICHE,  stated  that  he  initially  declared  a                                                                    
conflict  with  the  amendments since  the  bill  originally                                                                    
addressed  C corporation  look-back  taxes. He  had come  to                                                                    
believe that both amendments fit  well into the legislation.                                                                    
He   noted   that  the   companion   bill   was  hosted   by                                                                    
Representative Costello.                                                                                                        
                                                                                                                                
1:29:11 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   PEGGY   WILSON,   stated   that   nonprofit                                                                    
hatcheries  had   never  been   taxed  in  Alaska   and  she                                                                    
questioned the wisdom of the  process. To recover the costs,                                                                    
hatcheries  would  require  more fish,  which  would  affect                                                                    
salmon numbers in Alaska.                                                                                                       
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Amendment 2 was ADOPTED.                                                                                     
                                                                                                                                
Representative Costello discussed the  fiscal note from DOR.                                                                    
She stated that the  fiscal note showed indeterminate change                                                                    
in revenues.                                                                                                                    
                                                                                                                                
Representative  Munoz MOVED  to REPORT  HCS CSSB  83(FIN) as                                                                    
amended  out of  committee  with individual  recommendations                                                                    
and the accompanying fiscal note.  There being NO OBJECTION,                                                                    
it was so ordered.                                                                                                              
                                                                                                                                
HCS CSSB  83(FIN) was REPORTED  out of committee with  a "do                                                                    
pass"  recommendation  and  with  one  previously  published                                                                    
indeterminate fiscal note: FN1(REV).                                                                                            
                                                                                                                                
1:33:56 AM                                                                                                                    
                                                                                                                                
CS FOR SENATE BILL NO. 65(JUD)                                                                                                
                                                                                                                                
     "An Act relating to  property exemptions for retirement                                                                    
     plans, individual  retirement accounts, and  Roth IRAs;                                                                    
     relating to  transfers of individual  retirement plans;                                                                    
     relating  to  the  rights   of  judgment  creditors  of                                                                    
     members of limited liability  companies and partners of                                                                    
     limited   liability  partnerships;   relating  to   the                                                                    
     Uniform  Probate  Code,  including  pleadings,  orders,                                                                    
     liability, and  notices under the Uniform  Probate Code                                                                    
     and   the  Alaska   Principal  and   Income  Act,   the                                                                    
     appointment  of  trust  property,  the  Alaska  Uniform                                                                    
     Prudent  Investor Act,  co-trustees, trust  protectors,                                                                    
     and trust  advisors; relating  to the  Alaska Principal                                                                    
     and  Income   Act;  relating  to  the   Alaska  Uniform                                                                    
     Transfers to  Minors Act;  relating to  the disposition                                                                    
     of human  remains; relating to insurable  interests for                                                                    
     certain  insurance policies;  relating to  restrictions                                                                    
     on   transfers   of   trust  interests;   relating   to                                                                    
     discretionary   interests    in   irrevocable   trusts;                                                                    
     relating to the community  property of married persons;                                                                    
     and amending Rule 64, Alaska  Rules of Civil Procedure,                                                                    
     and Rule 301(a), Alaska Rules of Evidence."                                                                                
                                                                                                                                
1:34:19 AM                                                                                                                    
                                                                                                                                
CHAD HUTCHISON, STAFF, SENATOR COGHILL, introduced himself.                                                                     
                                                                                                                                
ERNEST  PRAX,   STAFF,  REPRESENTATIVE   KELLER,  introduced                                                                    
himself.                                                                                                                        
                                                                                                                                
Representative  Costello   MOVED  CSSB   65  (JUD)   as  the                                                                    
committee's working  document. There being NO  OBJECTION, it                                                                    
was so ordered.                                                                                                                 
                                                                                                                                
Mr.  Hutchison  stated  that  the   senate  version  of  the                                                                    
legislation mirrored  the house  version. He  explained that                                                                    
changes  occurred  in  the   Senate  Judiciary  and  Finance                                                                    
committees.   He  explained   that   some  provisions   were                                                                    
eliminated including one related  to the procurement of life                                                                    
insurance  policies.  He  noted  that the  bill  passed  the                                                                    
Senate floor 18-0.                                                                                                              
                                                                                                                                
Representative  Gara   appreciated  information   about  the                                                                    
Senate vote, although it was technically improper.                                                                              
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
1:38:01 AM                                                                                                                    
                                                                                                                                
Representative  Costello   discussed  the   four  previously                                                                    
published  zero   fiscal  notes  from  Department   of  Law,                                                                    
Department   of  Revenue,   Department  of   Administration,                                                                    
Department of Commerce, Community and Economic Development.                                                                     
                                                                                                                                
1:39:26 AM                                                                                                                    
                                                                                                                                
Representative Costello  MOVED to  REPORT CSSB 65  (JUD) out                                                                    
of  committee   with  individual  recommendations   and  the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSSB  65 (JUD)  was REPORTED  out  of committee  with a  "no                                                                    
recommendation"  and  with  four previously  published  zero                                                                    
fiscal notes: FN1(LAW), FN2(REV), FN3(ADM) and FN5(CED).                                                                        
                                                                                                                                
1:40:29 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:41:55 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SENATE BILL NO. 27                                                                                                            
                                                                                                                                
     "An  Act  establishing  authority   for  the  state  to                                                                    
     evaluate  and   seek  primacy  for   administering  the                                                                    
     regulatory  program  for  dredge  and  fill  activities                                                                    
     allowed to individual states under federal law and                                                                         
     relating to the authority; and providing for an                                                                            
     effective date."                                                                                                           
                                                                                                                                
1:42:39 AM                                                                                                                    
                                                                                                                                
LARRY  HARTIG,  COMMISSIONER,  DEPARTMENT  OF  ENVIRONMENTAL                                                                    
CONSERVATION, explained  that the bill utilized  a provision                                                                    
in the Federal  Clean Water Act that allowed  states to take                                                                    
primacy  of one  of the  key permitting  programs under  the                                                                    
Clean Water  Act, known  as the dredge  and fill  program or                                                                    
404 section.  The federal government would  retain a portion                                                                    
of  the primacy.  He opined  that  the state  ought to  seek                                                                    
primacy because  the bulk of  the nation's wetlands  were in                                                                    
Alaska and  most state projects  required a 404  permit. The                                                                    
bill  established  a  two-stage  process.  The  first  stage                                                                    
provided  close review  of the  cost and  benefits of  state                                                                    
primacy. The legislature would  review the final application                                                                    
for primacy, following the thorough review.                                                                                     
                                                                                                                                
Commissioner Hartig stated that  the process might encompass                                                                    
a period of five years. By  approving SB 27, the state would                                                                    
not commit  to 404, but instead  a close review of  the very                                                                    
important permitting program under the Clean Water Act.                                                                         
                                                                                                                                
1:45:56 AM                                                                                                                    
                                                                                                                                
Representative  Gara   clarified  that  the  bill   did  not                                                                    
authorize state  primacy, but instead  allowed the  state to                                                                    
seek it.  He mentioned  page 4,  paragraph 14,  which stated                                                                    
that  all actions  could  be taken  to  enforce the  primacy                                                                    
program.                                                                                                                        
                                                                                                                                
Commissioner  Hartig  responded that  complete  applications                                                                    
must  be  submitted with  all  statutes  and regulations  in                                                                    
place.  The regulatory  process  must be  initiated and  the                                                                    
staff  hired.   He  added  that  the   legislature  was  the                                                                    
gatekeeper.   The   bill   authorized  completion   of   the                                                                    
application  for primacy,  but the  legislature must  review                                                                    
the process prior to its submission.                                                                                            
                                                                                                                                
Representative  Gara  noted that  line  33  stated that  the                                                                    
department  had  the ability  to  implement  the program  is                                                                    
authorized.  Commissioner Hartig  replied that  the statutes                                                                    
and  staff  must  be  in   order  prior  to  presenting  the                                                                    
application. The  department was unsure of  the exact number                                                                    
of  people required  to  run the  program.  The fiscal  note                                                                    
attached  to the  legislation provided  for program  review,                                                                    
but not the money needed to run the program.                                                                                    
                                                                                                                                
Representative Gara asked  if $2.3 million per  year was not                                                                    
enough, what it would cost to run the program.                                                                                  
                                                                                                                                
1:49:53 AM                                                                                                                    
                                                                                                                                
Commissioner  Hartig stated  that the  fiscal note  was $1.4                                                                    
million. Some  of the money  was allocated to  Department of                                                                    
Natural  Resources. The  ultimate cost  of pursuing  primacy                                                                    
was  difficult  to  calculate  as  multiple  variables  were                                                                    
unknown.                                                                                                                        
                                                                                                                                
Representative Gara noted  that $1.4 million for  FY 14 with                                                                    
$1.5 million  for the next  5 years.  He asked if  the money                                                                    
would be spent seeking primacy.                                                                                                 
                                                                                                                                
Commissioner Hartig replied that  the best time-estimate was                                                                    
two  or three  years.  He anticipated  that the  departments                                                                    
would  revisit the  legislature  with information  regarding                                                                    
the benefits  of primacy.  He noted  that the  bill provided                                                                    
the  ability to  work with  the Army  Corps of  Engineers to                                                                    
identify the programmatic general permits.                                                                                      
                                                                                                                                
1:52:51 AM                                                                                                                    
                                                                                                                                
Representative Kawasaki asked if  the 402 permitting process                                                                    
was similar to the 404. Commissioner Hartig replied yes.                                                                        
                                                                                                                                
Representative  Kawasaki asked  about what  the state  would                                                                    
get  for $9  million and  what full-primacy  would cost.  He                                                                    
asked  if  the  costs  required for  the  402  process  were                                                                    
similar  to  the   anticipated  costs.  Commissioner  Hartig                                                                    
responded that the department  worked with the Environmental                                                                    
Protection  Agency   (EPA)  to   determine  the   number  of                                                                    
necessary  position. He  recalled  that  the estimates  were                                                                    
inaccurate and  the department required additional  funds to                                                                    
provide for staff needs. He  noted that the growth in Alaska                                                                    
permitting  existed in  some areas,  which required  program                                                                    
expansion.                                                                                                                      
                                                                                                                                
MICHELLE  BONNET  HALE,  DIRECTOR, WATER  QUALITY  DIVISION,                                                                    
DEPARTMENT  OF  ENVIRONMENTAL CONSERVATION,  estimated  that                                                                    
the  402  program  had  the  advantage  of  incumbent  staff                                                                    
involved in  waste water permitting working  for DEC's state                                                                    
program. The  404 program, in  contrast would be  built from                                                                    
scratch.  She noted  that the  402 legislation  required the                                                                    
addition of  $1.5 million and  13 new positions for  a total                                                                    
of $4.8 million and 43 positions.                                                                                               
                                                                                                                                
Representative  Kawasaki  reviewed  the history  of  permits                                                                    
processed  and noted  that the  processing time  for permits                                                                    
met the  national standard. He  wondered about  the benefits                                                                    
of primacy  anticipated when permits were  already processed                                                                    
in ample time.                                                                                                                  
                                                                                                                                
1:57:20 AM                                                                                                                    
                                                                                                                                
ED  FOGELS,  DEPUTY   COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES,  discussed  the  dredge   and  fill  program.  He                                                                    
pointed  out  that  the  value  of  primacy  influenced  the                                                                    
quality  of   the  permitting  decisions  rather   than  the                                                                    
timeliness  of the  process. He  believed that  having state                                                                    
agencies  make  the  decisions would  allow  flexibility  to                                                                    
adapt to Alaskan conditions.                                                                                                    
                                                                                                                                
Mr.   Fogels  opined   that  misconceptions   regarding  the                                                                    
interpretation of information.                                                                                                  
                                                                                                                                
Ms. Hale  agreed and stated  that she had reviewed  the data                                                                    
regarding the programs.  She learned that 67  percent of the                                                                    
permits  were processed  in less  than 120  days. She  noted                                                                    
that 134  individual permits  took longer  than 120  days to                                                                    
process.  She mentioned  reports  indicating  that a  United                                                                    
State  Army  Corp of  Engineers'  permit  took 150  days  to                                                                    
process.                                                                                                                        
                                                                                                                                
Representative  Kawasaki asked  how  many  permits would  be                                                                    
regulated through the state. Ms.  Hale replied that the bill                                                                    
would  allow and  provide the  analysis requested  regarding                                                                    
the number of permits regulated by state agencies.                                                                              
                                                                                                                                
Mr.  Fogels  added  that the  department  had  reviewed  the                                                                    
provisions  of the  Clean Water  Act and  the intent  was to                                                                    
gain primacy over most wetlands in Alaska.                                                                                      
                                                                                                                                
2:01:24 AM                                                                                                                    
                                                                                                                                
Co-Chair Austerman asked about a U. S. Army Corps of                                                                            
Engineers Nationwide  Permit (NWP)  29. He thought  that the                                                                  
permit  allowed up  to one  half  acre. He  wondered if  the                                                                    
permit would  be transferred  to the  state or  remains with                                                                    
the  Army Corps  of Engineers.  Commissioner Hartig  replied                                                                    
that  the  permit  would  be  subject  to  the  geographical                                                                    
limitation. The application of  the permitting process would                                                                    
be negotiated in the Memorandum  of Agreement. He noted that                                                                    
the question  had been introduced recently  in Washington DC                                                                    
and the response was that  the Memorandum of Agreement would                                                                    
provide the details.                                                                                                            
                                                                                                                                
Co-Chair Austerman asked if all  of the wetland permits fell                                                                    
under  404.  Commissioner  Hartig replied  that  a  specific                                                                    
definition was used for the 404 program.                                                                                        
                                                                                                                                
Mr. Fogels replied that many  wetlands existed in Alaska and                                                                    
some subset was  deemed jurisdictional by the  US Army Corps                                                                    
of Engineers.  The department  would work  with the  US Army                                                                    
Corps  of  Engineers to  better  understand  how the  subset                                                                    
would be delegated to the  state. Co-Chair Austerman offered                                                                    
to provide  more information to  better answer  his question                                                                    
later.                                                                                                                          
                                                                                                                                
2:04:21 AM                                                                                                                    
                                                                                                                                
Representative Wilson  appreciated the legislation.  She was                                                                    
seeking an advocate for her  miners. She understood that the                                                                    
state would continue to work  within the EPA guidelines. She                                                                    
asked to know  how the state would have a  gentler hand than                                                                    
the federal government.                                                                                                         
                                                                                                                                
Commissioner  Hartig replied  that the  benefits of  primacy                                                                    
included    work    with    Alaskan    projects    including                                                                    
accountability  for the  projects. He  added that  the state                                                                    
would be under the same federal  laws, in terms of the Clean                                                                    
Water   Act;  there   was   room   for  interpretation   and                                                                    
discretion.  He  provided  an  example  of  a  discretionary                                                                    
decision made by the department.                                                                                                
                                                                                                                                
Representative  Wilson asked  if the  state would  collect a                                                                    
permitting  fee  on top  of  the  federal government's  fee.                                                                    
Commissioner Hartig  responded that one  straight permitting                                                                    
fee would be required. The amount  of the state fee would be                                                                    
dictated by the current statutes set by the legislature.                                                                        
                                                                                                                                
Mr. Fogels added that some  placer miners were nervous about                                                                    
the fees  required for mitigation. He  believed that primacy                                                                    
would offer the  advantage of working with  the applicant to                                                                    
arrive at Alaska-specific mitigation measures.                                                                                  
                                                                                                                                
Representative  Wilson   stated  that  one  of   her  mining                                                                    
constituents spent seven years in the application process.                                                                      
                                                                                                                                
2:08:45 AM                                                                                                                    
                                                                                                                                
Representative Munoz  pointed out the benefit  of litigation                                                                    
in state court versus in the federal court.                                                                                     
                                                                                                                                
Representative  Gara   asked  if  placer  mining   could  be                                                                    
regulated  differently without  seeking primacy.  Mr. Fogels                                                                    
responded that primacy was only  one tool that could be used                                                                    
to  control  wetlands  permitting.   Other  tools,  such  as                                                                    
programmatic  general   permits  were  also   valuable.  The                                                                    
legislation allowed  for research  regarding the  many tools                                                                    
that would work to facilitate the process of permitting.                                                                        
                                                                                                                                
Representative  Gara asked  if programmatic  general permits                                                                    
would  ensure state  primacy for  placer mining.  Mr. Fogels                                                                    
replied  that he  did not  know yet.  The legislation  would                                                                    
provide  the opportunity  for the  departments to  look more                                                                    
closely at their options.                                                                                                       
                                                                                                                                
2:10:42 AM                                                                                                                    
                                                                                                                                
Representative  Edgmon MOVED  Amendment one.  Representative                                                                    
Wilson OBJECTED for discussion.                                                                                                 
                                                                                                                                
     Page 1, line 8, following "FINDINGS":                                                                                      
     Delete "."                                                                                                                 
     Insert "AND INTENT. (a)"                                                                                                   
                                                                                                                                
     Page 2, following line 10:                                                                                                 
     Insert new subsections to read:                                                                                            
     "(b)  It is the intent of the legislature that                                                                             
     (1)     government   to  government   coordination  and                                                                    
     consultations  take place  if federal  authorization is                                                                    
     received for  the administration  and enforcement  of a                                                                    
     state  dredge  and  fill permitting  program  under  33                                                                    
     U.S.C. 1344 (sec. 404, Clean Water Act);                                                                                   
     (2)   a federally  recognized tribe  be treated  by the                                                                    
     state as  a government  for the purposes  of government                                                                    
     to government coordination and consultation.                                                                               
     (c)   In  this  section,  "federally recognized  tribe"                                                                    
     means a tribe  that is recognized by  the United States                                                                    
     Secretary of the  Interior to exist as  an Indian tribe                                                                    
     under  25  U.S.C.  479a  (Federally  Recognized  Indian                                                                    
     Tribe List Act of 1994)."                                                                                                  
                                                                                                                                
Representative  Edgmon   noted  that  the  purpose   of  the                                                                    
amendment added  the requirement for state  investigation of                                                                    
the  advantages  of  a tribal  relationship.  He  posed  the                                                                    
question because  many of  Alaska's resources  were tribally                                                                    
owned or controlled.  He opined that without  a Coastal Zone                                                                    
Management  process,  larger  environmental  entities  could                                                                    
bypass   local  governments.   He  believed   that  resource                                                                    
development would  be hampered  by the lack  of relationship                                                                    
between the tribal entities and  the state. He expected that                                                                    
the   state  agency   representatives   would  dispute   the                                                                    
amendment.                                                                                                                      
                                                                                                                                
2:13:16 AM                                                                                                                    
                                                                                                                                
Commissioner  Hartig   stated  that   his  agency   and  the                                                                    
administration were sensitive to  the concerns of the tribal                                                                    
entities. He  wished to  work with  the tribal  entities and                                                                    
local governments  to implement programs. He  noted that the                                                                    
model for  the 402 program provided  valuable guidelines. He                                                                    
noted that the program  description provided rural community                                                                    
and  tribal  participation.  He  noted  that  the  agreement                                                                    
utilized  the  same  language as  the  EPA's  government-to-                                                                    
government consultation.                                                                                                        
                                                                                                                                
2:17:28 AM                                                                                                                    
                                                                                                                                
Representative Edgmon appreciated the agreeable commentary.                                                                     
                                                                                                                                
Co-Chair Stoltze  detected that  the department  was working                                                                    
with the  government entities on  a regular basis.  He asked                                                                    
if a flaw existed in the amendment.                                                                                             
                                                                                                                                
Commissioner Hartig  stated that  the amendment  goes beyond                                                                    
the  404  program.  The   amendment  discussed  the  state's                                                                    
ability to recognize tribes as  government entities and deem                                                                    
consultations "government-to-government." He  noted that the                                                                    
jurisdiction for that  ability did not reside  with DEC. The                                                                    
department  sought  optimal  communication with  the  tribal                                                                    
entities,  but another  step was  required to  establish the                                                                    
government-to-government relationship.                                                                                          
                                                                                                                                
Co-Chair  Stoltze understood  that  the amendment  expressed                                                                    
intent language.                                                                                                                
                                                                                                                                
Representative  Edgmon  agreed  and   stated  the  hope  for                                                                    
further investigation from the  department. He stressed that                                                                    
he  had  seen  the  empowerment  of  tribal  governments  in                                                                    
relation  to  their  connections  to  federal  agencies.  He                                                                    
expressed  frustration   with  the   absence  of   a  formal                                                                    
relationship.  He promised  to continue  pursuing the  issue                                                                    
with every opportunity available,  but chose to withdraw his                                                                    
amendment.  There being  NO OBJECTION,  it  was so  ordered.                                                                    
Amendment 1 was WITHDRAWN.                                                                                                      
                                                                                                                                
2:20:50 AM                                                                                                                    
                                                                                                                                
Representative  Gara   MOVED  Amendment   2.  Representative                                                                    
Wilson OBJECTED for discussion.                                                                                                 
                                                                                                                                
     Page 5, following line 9:                                                                                                  
     Insert a new subsection to read:                                                                                           
     "(d)  The Department  of Environmental Conservation and                                                                    
     the Department  of Natural  Resources shall  consider a                                                                    
     reasonable fee structure  for permit applications under                                                                    
     this  section  in  order  to   mitigate  the  costs  of                                                                    
     administering a state permitting program."                                                                                 
                                                                                                                                
Representative   Gara   recalled  conversations   with   the                                                                    
commissioners about  the amendment's content. He  expected a                                                                    
proposal from the departments, but  since none was provided,                                                                    
he  drafted   the  amendment.  The  amendment   requested  a                                                                    
reasonable fee  structure to address permit  applications to                                                                    
mitigate  the  costs  of administering  a  state  permitting                                                                    
program.                                                                                                                        
                                                                                                                                
2:22:27 AM                                                                                                                    
                                                                                                                                
Commissioner  Hartig recalled  the conversation  and he  did                                                                    
not  opine  that the  amendment  was  necessary because  the                                                                    
state  had  a  statute  guiding the  fee  structure  in  AS.                                                                    
37.10.052.  The statute  prescribed fees  based on  "average                                                                    
reasonable  direct   costs"  that   were  incurred   by  the                                                                    
departments  in permitting  and  compliance activities.  The                                                                    
structure  applied  to   agency  permitting  activities  and                                                                    
permits issued  under the state  404 program. The  fees were                                                                    
charged to  permit applicants and  were partially  funded by                                                                    
program  receipts. Staff  involved  in  issuing the  permits                                                                    
tracked their  time and the  fees were  periodically revised                                                                    
in regulation.                                                                                                                  
                                                                                                                                
Representative Gara  appreciated the  statute. With  the new                                                                    
information,  he  chose  to withdraw  the  amendment.  There                                                                    
being  NO OBJECTION,  it  was so  ordered.  Amendment 2  was                                                                    
WITHDRAWN.                                                                                                                      
                                                                                                                                
Co-Chair Stoltze appreciated Representative Gara's efforts.                                                                     
                                                                                                                                
2:23:47 AM                                                                                                                    
                                                                                                                                
Representative  Costello discussed  the three  fiscal notes.                                                                    
Two  notes had  fiscal impact;  one from  DEC and  the other                                                                    
from DNR. The  third fiscal note from Department  of Law had                                                                    
zero fiscal impact.                                                                                                             
                                                                                                                                
Co-Chair Austerman asked about DNR  fiscal note. He asked if                                                                    
the  interagency receipts  were anticipated  to come  out of                                                                    
the $1.4  million given  to DEC. Mr.  Fogels replied  in the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative  Costello  MOVED  to  REPORT  SB  27  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.  Representative Gara OBJECTED. He                                                                    
did not believe that the  departments made the case that the                                                                    
bill would  be worth the money  it cost. He opined  that the                                                                    
exploratory process  would not cost millions  of dollars. He                                                                    
stated that  the examples provided  by the  departments were                                                                    
situations  where  the  state would  not  gain  primacy.  He                                                                    
advocated  for a  narrower placer  mining program.  He added                                                                    
that  the Army  Corps of  Engineers  were a  group of  local                                                                    
people. He did not feel compelled  to spend the large sum of                                                                    
money.                                                                                                                          
                                                                                                                                
Representative Gara WITHDREW his objection.                                                                                     
                                                                                                                                
Representative Kawasaki OBJECTED.  He expressed concern with                                                                    
the legislation  and the memos  from DEC  regarding supposed                                                                    
primacy benefits.  He opined that  permit fees  would likely                                                                    
increase  under  primacy.  He expected  the  state  to  face                                                                    
budget reductions. He pointed out  the memo dated January 31                                                                    
regarding  the program  assumption  methods discussed  state                                                                    
primacy,  which  would  take  an estimated  4  to  5  years.                                                                    
Another  option  in  the  memo   discussed  the  ability  to                                                                    
cooperatively  work to  administer the  programmatic general                                                                    
permits for  the Army  Corps of  Engineers. He  preferred to                                                                    
pursue the less costly option.                                                                                                  
                                                                                                                                
Representative Kawasaki WITHDREW  his objection. There being                                                                    
NO further OBJECTION, it was so ordered.                                                                                        
                                                                                                                                
SB   27  was   REPORTED  out   of  committee   with  a   "no                                                                    
recommendation" and  with three previously  published fiscal                                                                    
notes, two  with fiscal impact:  FN1(DEC) and  FN2(DNR); and                                                                    
one zero note: FN3(LAW).                                                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
2:32:52 AM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:33 a.m.                                                                                          

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